Daily Development for Monday, August 21, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

FAIR DEBT COLLECTION PRACTICES ACT; CONSUMER LOANS: Fair Credit Reporting Act (FCRA) applies to a mortgage loan if the proceeds were intended to be used for a consumer purpose, even if the mortgaged property later is put to a business purpose. Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C.,

http//caselaw.findlaw.com/scripts/getcase.pl?navby=search&case=/data 2/circs/7th/993263.html

This case also is discussed under the heading: "Fair Debt Collection Practices Act; Disclosure Requirements."

Borrower bought a personal residence with the proceeds of a consumer mortgage loan, but he later relocated and rented the home. Later, certain law firms tried to collect on defaulted amounts. The borrower became a plaintiff and sued the law firms for violation of the FDCPA alleging that they had failed to include the amount of the debt claimed in their initial letters to him.

Loans to finance rental properties are generally deemed business purpose loans, and the FDCPA disclosure requirements apply only to collection efforts regarding obligations "arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes."

The defendant law firms noted that the purpose of the Act is to control debt collection, not lending practices, and therefore the relevant time to determine whether the loan is one to which the Act applies ought to be the time that the collection occurs.

Judge Posner, writing for the court, noted that the grammatical structure of the statutory language leads to the conclusion that one should look to the time of lending, and not to the time of the debt collection. He acknowledged that grammatical construction is not controlling, but in the instant case he concluded that good policy led to the same conclusion. The first sentence of Judge Posner's language is useful quotation for others caught up in "literalist" arguments a la Justice Scalia:

"Grammar needn't trump sense; the purpose of statutory interpretation is to make sense out of statutes not written by grammarians. But we cannot say that it is senseless to base the debt collector's obligation on the character of the debt when it arose rather than when it is to be collected. The original creditor is more likely to know whether the debt was personal or commercial at its incipience than either the creditor or the debt collector is to know what current use the debtor is making of the loan (in this case, the plaintiff is using the loan, in effect, to generate income from the house that secures the loan)."

FAIR DEBT COLLECTION PRACTICES ACT; DISCLOSURE REQUIREMENTS: Fair Debt Collection Practices Act (FDCPA) requires disclosure in the initial letter of all amounts claimed, not just the principal amount. Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C.,

http//caselaw.findlaw.com/scripts/getcase.pl?navby=search&case=/dat a2/circs/7th/993263.html

This case also is discussed under the heading "Fair Debt Collection Practices Act; Consumer Loans." After Judge Posner concluded that the law firm debt collectors here were subject to the Act, he determined that the Act required more than a statement that the collector was seeking a stated principal amount "plus accrued interest, charges and fees." The law firm had included such a statement in its dunning letter, giving an 800 number for the recipient of the letter to call to determine the exact payoff amount.

Remarkable, the court commented that its focus on this issue apparently is a case of first impression.

The court created a "safe harbor" notice of the amount due that may be used in foreclosure letters

As of the date of this letter, you owe $___ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1800[phone number]."

This paragraph should be included in collection letters sent by outside debt collectors (e.g. attorneys) for debts that accrue interest or late charges.

Comment: This little tidbit may be the most valuable piece of information provided by this service this year, as many readers are indeed engaged in the collection of consumer debts through foreclosure and probably do not word their demand letters as required by this case. Say what you will about Judge Posner (the editor likes him), the judge should not be ignored.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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