What are you carrying in your wallet?..an FDCPA Claim?

Just last month (November 2006), the 600 pound gorilla of debt collection, Muller Muller Richard Harms Myers and Sgroi, P.C., lost an important round in an FDCPA action entitled Stolicker v Muller Muller. Get this….Ms. Stolicker had a Capital One credit card. The agreement she signed with Capital One says that if they have to collect against her, Capital One can also collect attorneys’ fees and costs of collection. Thats reasonable, right? Not really.
After the Muller firm sued her and she failed to answer, the Muller firm took a default against Stolicker. The Muller firm filed an affidavit stating that Stolicker owed a sum certain. The Muller firm, in its affidavit, stated that Stolicker owed $776.68 as attorneys fee (25% of the principal debt). The United States District Court held that this affidavit was false. By adding attorneys fees in a sum certain when the contract between Stolicker and Capital One did not specify that amount or any particular amount of attorneys fees, amounted to a fundamental change of the underlying contract. The Muller firm is now battling a very large class action suite under the FDCPA . Under the FDCPA, damages in a class action can go as high as $500,000 or 1% of the debt collectors’ net worth.
Moral of the Story for Debt Collectors – If you are collecting on any consumer contract that contains a provision for attorneys fees you must make an election to either 1. Prepare a default without the calculation of damages. Have a hearing on damages if your client/witness is local or if it is cost justified to have the client/witness attend such a hearing; or 2. Simply walk away from the amount of attorneys fees.
In this case, the Muller firm was seeking damages against Stolicker for $3,985.25. This is in addition to attorneys’ fees of $776.68. This $776.68 will probably be the most expensive money that the firm ever attempted to collect and in the end, it is most unlikely that Muller or its client will see any portion of this $776.68.
On a personal note, I can’t say that what the Muller firm did was foreseeably incorrect. I have a great deal of respect for that firm and for Steve Harms. Mr. Harms is a guru in our industry and the author of a book that many of us debt collectors affectionately refer to as “the Bible.” While it would seem to me that if a debtor signs a contract agreeing to pay costs and attorneys fees and those fees are charged on a contingency basis of 25%, they should be added to the debtor’s account. However, the defense to this position would state that the 25% fee is a contingency fee that only gets paid if money is collected and if no money is collected, then the Capital One suffered no additional costs by way of attorneys fees.
This case illuminates an interesting conundrum. In order to safely steer through the murkey if not altogether dangerous depths of the FDCPA, the better course would be to avoid the attorneys’ fees entirely and simply go for the statutorily based damages.

This entry was posted on Saturday, December 9th, 2006 and is filed under Debt Collection Tricks and Traps . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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