Creditors and Debt Collectors: Your Standard Procedures Might Need an Update

If you have not looked at your debt collection policies or read your form “dunning letter” in a while, you might need to add some routine check-ups to your 2020 calendar. While collection jurisprudence rarely undergoes a large overhaul, it should be no surprise that tightening protections for consumers are already on the horizon. Consumer protection issues are frequent headliners in national news. From nationwide data breaches to ever increasing household debt, and now with student loan borrowing and medical debt emerging as hot topics in the 2020 presidential election, I would not expect conversations aimed at tightening consumer protection laws to go away anytime soon.

It is therefore even more important for creditors and debt collectors to stay vigilant in routinely reviewing policies and standard forms to ensure compliance with federal and state laws. To get you started with your check-up, some recent changes and clarifications to Illinois and federal law are noteworthy.

First, as of January 1, 2020, Illinois effected two seemingly minor changes to post-judgment collection efforts involving consumer debts of $25,000 or less. Specifically, post-judgment interest on these debts will now only draw post-judgment interest at 5% as opposed to the customary 9% interest rate for all other judgments. 735 ILCS 5/2-1303(b)(2). “Consumer debt” is now defined as “money or property, or the equivalent, due and owing, or alleged to be due or owing, from a natural person by reason of a transaction in which property, services, or money is acquired by that natural person primarily for personal, family, or household purposes.” 735 ILCS 5/2-1303(b)(1). However, judgments to compensate for bodily injury or death are explicitly excluded.

In addition to changing interest rates, creditors may now only revive Illinois consumer debt judgments within 10 years after their entry, opposed to 20 years for all other judgments. 735 ILCS 5/2-1602(a-5). According to Illinois Governor Pritzker, these changes are designed to lessen “the cycle of debt” impacting Illinois families who continue to struggle to pay off consumer debt.

Alongside the enactment of these tightening consumer protections at the state level, the Seventh Circuit recently issued two opinions reminding debt collectors to stay vigilant – and extremely transparent – in complying with the Federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. See Steffek v. Client Services, Inc., — F.3d —, No. 19-1491 (7th Cir. Jan. 21, 2020) and Dennis v. Niagara Credit Solutions, Inc., — F.3d —, No. 19-1654, 2019 WL 7288044 at *1 (7th Cir. Dec. 30, 2019). In these cases, the Seventh Circuit again reiterates that it takes Section 1692g(a)(2) of the FDCPA very seriously. This Section requires debt collectors “to identify clearly the name of the creditor to whom the debt is owed.”

In Steffek, the Seventh Circuit reminded debt collectors that it anticipates debt collectors will clearly identify the roles it, and any creditors involved, hold in the collection process. The Seventh Circuit suggested that to comply with Section 1692g(a)(2), debt collectors should articulate both the “original creditor” and “current creditor” or holder of the debt. While the debt collector in Steffek named both itself and the original creditor in its form “dunning letter” that it sent to multiple consumers, it failed to specifically label the roles each of the identified creditors held in regards to the debt. As a result, the Seventh Circuit held, irrespective of which identified creditor actually owned the debt, that the debt collector, as a matter of law, violated Section 1692g(a)(2) of the FDCPA. The Seventh Circuit specifically reprimanded the debt collector for leaving the consumer guessing as to whether the debt collector was collecting the debt on its own behalf or on behalf of the other creditor identified in the letter.

While seemingly minor in text, the implications of these changes and clarifications are far from subtle. They will likely result in less favorable outcomes and more procedural costs to creditors for routine collection actions and serve as stark reminders that collection policies, and particularly form “dunning letters,” require frequent check-ups to confirm compliance with state and federal law.

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Kerri Forsythe

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