Court Ruling Grafts a New Concept on to the FDCPA

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Tomio Narita

If collection attorneys were looking for guidance on how to draft their collection letters without violating the FDCPA, a recent decision by the Third Circuit Court of Appeals definitely will not help them.

In Lesher v. The Law Offices Of Mitchell N. Kay, F.3d, 2011 WL 2450964 (3d Cir. 2011), the Court held that settlement letters sent on a law firm’s letterhead “raise[d] the spectre of potential legal action” and were therefore false and misleading under section 1692e of the FDCPA, because the firm was not acting in a “legal capacity” when the letters were sent.  See id. at *9.  The term “legal capacity” is not defined by the FDCPA, however, and the Court did not explain exactly when an attorney is — or is not — acting in a “legal capacity” for his client.

The Lesher decision also held that the use of the disclaimer approved by the Second Circuit in Greco v. Trauner, Cohen & Thomas, 412 F.3d 360 (2d Cir. 2005), i.e., “[a]t this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account” on the back of the letters was not sufficient to inform the debtor that the firm was “acting solely as a debt collector and not in any legal capacity in sending the letters.”  See Lesher, at *8.

In Lesher, the defendant sent two letters stating that the firm was “handl[ing]” the account and had been authorized to make a settlement proposal.  Id. at *1.  Neither letter was signed by an attorney, and neither contained any references to legal action if the settlement offer was not accepted.  Id. Both letters stated, on the reverse side, that “no attorney with this firm has personally reviewed the particular circumstances of your account.”  Id. There was nothing in the letters suggesting that the firm would initiate a lawsuit or otherwise escalate the matter if the debtor did not accept the settlement offer.

Despite this, the Third Circuit held that “the least sophisticated debtor, upon receiving these letters, may reasonably believe that an attorney has reviewed his file and has determined that he is a candidate for legal action.”  Id. at *8.  The Court held the letters falsely implied “that an attorney, acting as an attorney, is involved in collecting Lesher’s debt.”  Id. (emphasis added).  The Lesher Court concluded: “[W]e believe that it was misleading and deceptive for the Kay Law Firm to raise the specter of potential legal action by using its law firm title to collect a debt when the firm was not acting in its legal capacity when it sent the letters.”  Id. at *9 (emphasis added).

Thus, under Lesher, a collection attorney who is not “acting as an attorney” nor acting in a “legal capacity” must take extra care when sending a settlement letter to a consumer.  But when, exactly, is a collection lawyer “acting as an attorney” or acting in a “legal capacity” for his client, consistent with Lesher?  Can an attorney act in a “legal capacity” for his client before any decision has been made about whether to file a lawsuit?  Is a lawyer “acting as an attorney” even when he is offering to settle a debt without initiating litigation?  The Lesher Court does not explain the terms or provide any guidance, and there is nothing in the language of the FDCPA that defines either term.

The FDCPA prohibits collection attorneys from making materially false or misleading statements in their communications with consumers.  The Act does not regulate the practice of law, however, nor does it govern the workflow and interaction between an attorney and his creditor client.  But the Lesher Court did exactly that, holding that the defendant was not acting in a “legal capacity” for its client at the moment in time when the letters were sent.

The FDCPA should not be used as a vehicle for federal courts to regulate the practice of law.  There is nothing in the language in the FDCPA which suggests that Congress wanted courts to use it to define or otherwise intrude upon the attorney-client relationship.  See, e.g., American Bar Ass’n v. Federal Trade Comm’n, 430 F.3d 457, 467 (D.C. Cir. 2005) (rejecting argument that Congress intended the FTC to regulate attorneys using the privacy provisions of the Gramm-Leach Bliley Act: “[Congress] does not . . . hide elephants in mouseholes. (citation)”).

The Lesher decision is wrong.  It unfairly penalizes an attorney for sending two truthful, non-threatening settlement letters to a consumer.  It improperly interferes with the practice of law.  It creates further confusion for an industry that is sorely in need of clarity.   Lesher does not explain when an attorney is “acting as an attorney” and when he is not.  Nor should any federal court utilize the FDCPA to do so.

Tomio Narita is a partner of Simmonds & Narita LLP, a California law firm specializing in defending claims arising under the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Rosenthal Act.

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Posted in Collection Law Firms, FDCPA, Featured Post, Opinion .

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  • avatar Philip Freivald says:

    Although the court likely overstepped when it defined if the attorney was acting in a “legal capacity” or not, it is a common enough practice in the ARM industry to dun a debtor on legal letter-head to give the impression–regardless of the wording of the letter–that legal action will be taken if the account isn’t resolved voluntarily.

    In most cases, I believe that is the entire purpose of using the legal letterhead (or a company name that sounds like a law office and has letterhead designed to look like it’s from a law office, even if it’s never explicitly stated). Whether it should be allowed or not is a discussion I will leave to others, but the least sophisticated consumer clause can easily be interpreted that it is a threat of legal action.

    As “the collections guy” in my circle of family and friends, I commonly get asked for advice from people who have recieved such a letter and are in a panic about not getting sued. So it’s effective, arguably legal, and arguably illegal.

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