The elec­tion is over, and the votes are still being counted. And we’ll dis­cuss the election’s after­math over the next sev­eral days. But there’s more going on than that. We’re in the sec­ond month of Supreme Court hear­ings. Today focuses on one of them.

How much pro­tec­tion does an indi­vid­ual have from a debt col­lec­tor? Legally, a debt col­lec­tor is not sup­posed to engage in harass­ment. Is it harass­ment for a con­sumer to sue the debt collector?

The Debt Collector

The Debt Col­lec­tor (Photo credit: Wikipedia)

For­mer stu­dent Ele­nea Marx defaulted on a stu­dent loan. In Sep­tem­ber of 2008, the guar­an­tor of the loan, a divi­sion of the Cal­i­for­nia Stu­dent Aid Com­mis­sion called Edfund, hired a debt col­lec­tion agency — the Gen­eral Rev­enue Cor­po­ra­tion, or GRC, to col­lect the out­stand­ing bal­ance on the loan. In Octo­ber 2008, Marx sued GRC, alleg­ing abu­sive and threat­en­ing phone calls in vio­la­tion of the Fair Debt Col­lec­tion Prac­tices Act (FDCPA). The Fed­eral Trade Com­mis­sion (FTC) and the new Con­sumer Finan­cial Pro­tec­tion Bureau (CFPB) share author­ity to enforce the Act.

One of the things GRC did, eas­ily doc­u­mented, was to send a fax to Marx’s employer, dis­play­ing basic con­tact infor­ma­tion for GRC, with blanks left for the employer to fill in infor­ma­tion about Marx’s employ­ment sta­tus and other related infor­ma­tion. The FDCPA pro­hibits “com­mu­ni­ca­tions” with third par­ties in an efforts to col­lect a debt. Marx amended her com­plaint in March of 2009 to add a claim that GRC vio­lated the FDCPA by send­ing the fax to her work­place to request employ­ment information.

The dis­trict court dis­missed her com­plaint. She appar­ently did not pro­vide suf­fi­cient evi­dence of being harassed. On the mat­ter of the fax, which no one dis­puted had been sent, the court held a fax is not a “com­mu­ni­ca­tion” within the mean­ing of the law. The FDCPA had orig­i­nally been enacted in 1978 as Title VIII of the Con­sumer Credit Pro­tec­tion Act. It had been mod­i­fied many times since then, as recently as 1996. Even so, the court ruled that a fax does not fall within the FDCPA def­i­n­i­tion of a “com­mu­ni­ca­tion”, and there­fore, GRC did not vio­late the law.

Los­ing the case was bad enough, but civil law is designed to pro­tect peo­ple who are unjustly sued. GRC was awarded their legal costs to defend them­selves, a sum of over $4,500. In addi­tion to los­ing her suit, Marx had to pay GRC’s legal fees. Now, the FDCPA rec­og­nizes that a cor­po­ra­tion has a much bet­ter chance of defend­ing itself, and a good chance of hir­ing a crack legal team. The threat of hav­ing to pay stratos­pheric legal costs may be enough to dis­cour­age even legit­i­mate suits from con­sumers who have been abused. FDCPA there­fore says that legal costs for the cor­po­ra­tion being sued are only reim­bursable when the suit against them is brought in “bad faith” or as a form of “harassment.”

The trial court did not address this issue, did not rule on whether Marx’s suit was brought in “bad faith” or intended as “harass­ment.” The trial judge merely awarded court costs and legal fees to the defen­dant. This pro­vided Marx with the abil­ity to appeal the ruling,

The U.S. Court of Appeals for the Tenth Cir­cuit, how­ever, upheld the rul­ing of the dis­trict court, with one dis­sent. The Cir­cuit Court not only upheld the case on its mer­its (that is, Marx lost her accu­sa­tion of being harassed by GRC), and held that the fax was not a “com­mu­ni­ca­tion,” but also ruled that, although there was no evi­dence of “bad faith” on her part, the FDCPA did not pre­vent her from being required to pay GRC’s legal costs.

Marx has appealed to the U.S. Supreme Court. Oral argu­ments are today. One aspect of the case is that a joint ami­cus brief has been filed by the FTC and CFPB (who are respon­si­ble for enforc­ing the law), and the Depart­ment of Jus­tice. They argue that the Tenth Circuit’s deci­sion was incon­sis­tent with the FDCPA. The law says that while con­sumers who win law­suits against debt col­lec­tors may recover their legal costs from the defen­dants, the only sit­u­a­tion in which con­sumers who lose must pay defen­dants’ costs is if there is prov­able bad faith or harass­ment on their part. The ami­cus brief also argues that Con­gress’ intent in enact­ing the law was to deter abu­sive debt col­lec­tion prac­tices.  In con­trast, the Tenth Circuit’s rul­ing would cre­ate a dis­in­cen­tive for con­sumers to bring suit, and is there­fore in con­flict with the will of Congress.

What are your feel­ings on these issues? Should a fax be con­sid­ered a “com­mu­ni­ca­tion” and thus be dis­al­lowed under the FDCPA? Should the Supreme Court rule in favor of GRC, and require Marx to pay for the company’s legal costs, despite any appar­ent bad faith or harass­ment on her part? What does this say for the proper bal­ance of power between con­sumers and debt collectors?