Confusion Surrounds the Fair Debt Collection Practices Act

The FDCPA was designed to protect consumers from abusive collection practices, and it applies to “debt collectors” – defined in the Act as someone who regularly collects consumer debts owed to others. Citing a “deluge” of “[c]onsumer debt buyers – armed with hundreds of delinquent accounts purchased from creditors” who file “proofs of claim on debts deemed unenforceable under state statutes of limitations[,]” the Eleventh Circuit found that a creditor who filed a proof of claim in a bankruptcy case on a debt that would not be collectible in state court because it was time barred, had violated the FDCPA. The Court issued this ruling despite the fact that the Bankruptcy Code permits creditors to file a proof of claim on a debt that is no longer collectible in a state court – even one that is barred by the applicable statute of limitations. If a claim is filed on a time barred debt, it is then incumbent upon the debtor (or in the case of a Chapter 13 case such as Crawford – the Chapter 13 Trustee) to object to the proof of claim.

In the nine short months after the Crawford opinion was issued, it has been cited in at least 45 cases. Keep in mind that these 45 cases are just published cases - many more unpublished cases likely exist. The Supreme Court’s decision to decline to review Crawford is disappointing to many, and leaves one in the position of finding creative ways to avoid Crawford’s application until it is meaningfully reviewed. There are a number of weapons that can be used in this endeavor. For example, in Crawford, the creditor failed to argue that the Bankruptcy Code preempted the application of the FDCPA in bankruptcy cases. Post-Crawford, creditors (and their attorneys) facing a Crawford argument should be careful not to make that same mistake. In a recent case before the District Court for the Southern District of Alabama (Johnson v. Midland Funding), a creditor successfully put the preemption argument directly before the court, which found that the Crawford holding (that the FDCPA prohibits the filing of a proof of claim on a time-barred debt), could not be squared with the Bankruptcy Code which permits a creditor to file a claim on a time-barred debt. Therefore, the court reasoned, a clear irreconcilable conflict existed and the FDCPA must give way to the Bankruptcy Code. Another possible defense to a Crawford claim might be the FDCPA’s one year statute of limitations. Again, it does not appear that this issue was raised in Crawford, (where, in fact, the violation occurred more than one year before the claim was brought).

If you are considered a “debt collector” under the FDCPA, it is important to be aware of Crawford and to take certain precautions when making collection decisions after the debtor files for bankruptcy protection. In the meantime, the courts will continue to define and, hopefully redefine, the Crawford landscape, addressing and hopefully resolving this conundrum.