Bar News - December 17, 2010
Business Law: Ethics in Collections: What You Need to Know
By: Steven Slovenski
There is no foolproof way to completely eliminate ethical issues in collection matters, but there are things one can do to minimize the likelihood of ethical tangles. Although many of these measures are common sense, there are others that one may not always recognize as unethical. For instance, calling a debtor in the evening, sending a postcard or writing a letter without disclosing your client’s name may be ethical violations. For guidance, debt collectors need to be compliant with the Federal Debt Collection Procedures Act (FDCPA), 15 USC §1692 et seq., the NH Debt Collection Act, RSA 358-C, and the NH Consumer Protection Act, RSA 358-A. In addition, lawyers need to be well-versed in the Rules of Professional Conduct.
The FDCPA provides a roadmap for acceptable and unacceptable collection practice. The FDCPA statute affords consumers the best of both worlds, by requiring the collector to abide by the most consumer- protective law, whether federal or state. (15 USC §1692 n). The federal and state debt collection laws are both limited to consumer transactions and both proscribe "unfair" debt collection practices with illustrative examples. Moreover, if violated, both statutes expressly allow consumers to sue debt collectors for violations of pertinent statutory provisions.
In order to avoid any ethical entanglements during collections efforts, it is imperative that the FDCPA and other collection statutes and related authority be followed precisely.
1. Required disclosures to debtors
Within five days after the initial communication with a debtor, the collector shall furnish the consumer with the written notice described in 15 USC §1692g ("... amount of the debt... , etc), unless the notice regarding the collection purpose of the letter was contained in the initial communication. If the consumer disputes the debt within the 30-day period described in subsection g(a), the collector must obtain verification of the debt as required by the statute. Until verification is obtained, the collector must cease all collection activities. (15 USC §1692 g(b)).
2. Prohibited actions
Without the prior consent of the consumer or the court, debt collectors may not communicate with debtors "at any unusual time or place…" inconvenient to the consumer. Collectors are prohibited from contacting debtors if the debtor is represented by legal counsel. Collectors are further prohibited from contacting debtors at their place of employment, except that RSA 358-C:3 allows a collector to send a single letter if he/she has otherwise been unsuccessful in locating the debtor. Communication with third parties is prohibited. (15 USC §1692 e).
3. Unfair practices
The FDCPA proscribes "unfair or unconscionable means to collect or attempt to collect any debt" (15 USC §1692 f). The act recites eight non-exclusive examples of actions which would constitute unfair collection practices, including the collection of an amount not authorized by the agreement creating the obligation. If there are multiple claims against the same debtor and different creditors, it is an important ethical consideration to be cognizant of potential conflicts of interest.
New Hampshire law mirrors many of the FDCPA’s caveats. NH’s Debt Collection Act provides guidance on communicating by telephone with debtors, RSA 358-C:3(V) and prohibits direct communication with the debtor when represented RSA 358-C:3(I)(e). Collectors are also cautioned under state law not to make material misrepresentations (RSA 358-C:3(VII, IX)) or contact the debtor at his/her workplace (RSA 358-C:3(I)(c )).
Zealous Representation or Vexatious Practices?
There is often a fine line between zealous representation of a client and an inappropriate vexatious practice. Since debt collectors have employed abusive and deceptive practices in the past, it is not surprising to learn that threatening criminal prosecution has been one of the tricks up the sleeve of the unscrupulous. The practice is clearly objectionable and may actually subject an attorney or collector to a malicious prosecution suit and the attorney to a filing of an ethics complaint.
1. Using criminal process to encourage resolution of a collection matter
Although clients may express the desire to seek a criminal complaint when the debtor commits arguably criminal conduct; for instance, the fraudulent use of a credit card or the intentional passing of a bad check, the attorney should resist the temptation to use the criminal process for an advantage. See Robinson v. Fimbel Door Co., 113 N.H. 348 (1973) (a contract dispute escalated to the point where the contractor refused to return Fimbel’s equipment, and on the advice of Fimbel’s counsel, a criminal complaint was filed).
2. Obtaining ex parte relief
New Hampshire Rule of Professional Conduct 3.3, Candor toward the Tribunal, contains the relatively straightforward rule that a lawyer must be truthful to the courts and administrative agencies before whom he/she practices.
This Rule has a particularly sensitive and important application in collection matters. Many times a collection matter will begin with a Petition for Ex Parte Attachment. Rule 3.3(d) provides:
In an ex parte proceeding, a lawyer shall inform the tribunal of all material facts known to the lawyer which will enable the tribunal to make an informed decision, whether or not the facts are adverse.
This is a departure from the usual rule that a lawyer is not required to come forward with facts adverse to her client’s case. The pressure of time and the desire to give a client a solid win with an ex parte attachment make it tempting to omit adverse facts from the application. However, the temptation must be resisted.
3. Dealing with people who do not have a lawyer
The ethics codes suggest caution when dealing with the unrepresented. Rule 4.3 of the NH Rules of Professional Conduct states:
In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.
4. Dealing with people who have lawyers
Other ethics code rules regulate the lawyer’s conduct toward opponents in collection matters. NH Professional Conduct Rule 4.2, entitled "Communication with Person Represented by Counsel," states that "[i]n representing a client, a lawyer shall not communicate about the subject of the representation with a party the lawyer knows to be represented by another lawyer in this matter, unless the lawyer had the consent of the other lawyer or is authorized by law to do so."
New Hampshire Professional Conduct Rule 4.4, entitled "Respect for Rights of Third Persons," states that "[i]n representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay or burden a third person, or use methods of obtaining evidence that violate the legal rights of such person." This rule is clearly of concern in attorney-debt collection practice. The type of conduct that violates the Fair Debt Collections Practices Act, as described above, may also violate this Professional conduct rule. In a recent NH case, an attorney who threatened a debtor in a courthouse lobby and later denied that threat to the court, was found to have violated Rule 4.4 Kalil’s Case, 146 N.H. 466 (2001).
1. Malicious prosecution
New Hampshire recognizes the tort of malicious prosecution in the context of prior criminal and civil proceedings. See e.g. ERG, Inc. v. Barnes, 137 N.H. 186, 190 (1993) (malicious prosecution in civil context); Hogan v. Robert H. Irwin Motors, Inc., 121 N.H. 737 (1981) (malicious prosecution in criminal context).
2. Abuse of process
Under NH law "[o]ne who uses a legal process, whether criminal or civil, against another primarily to accomplish a purpose for which it is not designed, is subject to liability to the other for harm caused by the abusive process." Clipper Affiliates, Inc. v. Checovich, 138 N.H. 271, 276 (1994).
3. RSA 358-A
New Hampshire’s Consumer Protection Act, RSA 358-A states: "It shall be unlawful for any person to use any unfair method of competition or any unfair or excepted act or practice in the conduct of any trade or commerce within this State." RSA 358-A:2. Section 2 goes on to provide a non-exclusive list of 13 specific unfair practices, mostly concerning the sale of goods. Thus, conduct which might otherwise be permitted under the FDCPA or RSA 358-C could be swept into the Consumer Protection Act’s more generalized proscription of "unfairness."
Steven Slovenski manages the Portsmouth office of Mesmer & Deleault. He focuses his practice on business, collections, real estate, mediation, litigation and administrative law matters. He is a former chair of the NHBA Business, Banking and Corporation Section.