[Congressional Record Volume 141, Number 172 (Thursday, November 2, 1995)]
[Senate]
[Page S16624]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SIMPSON:
  S. 1379. A bill to make technical amendments to the Fair Debt 
Collection Practices Act, and for other purposes; to the Committee on 
Banking, Housing, and Urban Affairs.


       the fair debt collection practices amendments act of 1995

 Mr. SIMPSON. Mr. President, today, I am introducing 
legislation to make technical amendments to the Fair Debt Collections 
Practices Act.
  The original act was passed in 1977 to stop the abusive debt 
collection practices of third-party debt collectors. In that regard, it 
has worked well.
  Debt collectors were told that if they ran honest, ethical operations 
they would not have problems with the act--that only the lawless 
collectors would be penalized. The law-abiding among them would thus 
not need to worry nor would they have to hire lawyers to interpret the 
act.
  In that regard, the act may well have reached too far. Certainly, 
unscrupulous collectors have been forced to play by the rules, but may 
law-abiding collectors have found themselves unjustly burdened by many 
minor provisions found in the act. There have been hundreds of lawsuits 
based on technical and totally unintentional violations of the act.
  We should remember that collection agencies are, in most cases, the 
smallest of small businesses. Also, some 38 percent are owned or 
operated by women, one of the highest of such percentages in all 
business categories.
  These companies cannot afford huge legal bills and they certainly 
cannot get free legal representation. Because of the large increase in 
the number of such lawsuits, many collection agencies have seen huge 
increases in their insurance premiums.
  The most distressing result is that small and highly dedicated group 
of attorneys is using the act to extort money from collection agencies. 
For example, the act has a $1,000 minimum statutory damage provision, 
even for the smallest, technical violation. These attorneys will comb 
collection files to find the smallest violation and then sue collection 
agencies for the $1,000 amount. The agency is usually forced to pay a 
settlement because, even if they have done nothing wrong, the legal 
fees required to defend such an action will run many thousands of 
dollars. Some agencies have even set aside money each month to pay off 
the demands of these lawyers, even though the company knows it has not 
violated the spirit of the act.
  Let me cite some examples of ridiculous lawsuits that would be 
eliminated under this legislation.
  A Nevada agency was sued for allegedly violating the prohibition 
against third-party contacts after the agency sued the debtor in court 
to obtain a judgment. The consumer attorney felt that communicating 
with the court was a third-party violation.
  An agency that collects students loans for the Department of 
Education was similarly challenged in court. At issue was the language 
used by the agency in its letters as required by the Department. The 
language stated that no legal action is required for the Department to 
enforce an administrative garnishment against a debtor. The attorney 
argued that the notice was deceptive because it did not state that the 
debtor has a right to a hearing before the garnishment is enforced.
  What about the collectors who are big enough to fight back? In many 
cases, collection agencies that can afford this costly litigation are 
not bothered by claimant attorneys. So effectively, the act has served 
to selectively penalize the small collector. To compound confusion, 
different courts have handed down totally contradictory decisions and 
opinions regarding the provisions of the act. Thus we have a Federal 
law requiring collectors to follow procedures that vary from State to 
State. The situation has become so confusing that the Federal Trade 
Commission has asked Congress to clarify the opposing court decisions 
and that, in part, is one of the purposes of this legislation.
  In addition, the bill gets rid of the $1,000 statutory damages 
``carrot'' that has, through its misuse, become a winning lottery 
ticket for some lawyers. Certainly a debt collector who wrongfully 
damages a debtor should be required to pay for those damages--and the 
legislation will preserve such compensation. A collector will be held 
responsible for actual damages, but not for an arbitrary standard that 
is not imposed by most other consumer laws.

  Additionally, when Congress passed the Truth in Lending 
Simplification Act in the 1980's, it cleared up a major problem in 
class action lawsuits by limiting the total damages and number of such 
suits that could be filed against one defendant. Because of an 
oversight, the Fair Debt Collections Practices Act was not made part of 
the legislation and today debt collectors face a legal financial burden 
that other companies covered by consumer protection enforcement laws 
are protected against. This legislation corrects that oversight.
  The legislation would allow judges to award defendants the cost of 
their actions plus legal fees if one of these suits is brought in bad 
faith. Rule 68 of the Federal Rules of Civil Procedure would now apply 
to lawsuits associated with the Fair Debt Collections Practices Act. 
Under that standard, when a defendant offers a settlement and the 
plaintiff refuses, if the ultimate court award is equal to or less than 
such an offer, the plaintiff has to pay the defendant's legal costs. 
This rule has worked well and should help end technical lawsuits.
  Collectors are also being attacked by another class of attorneys--
district or county attorneys who are setting up ``for profit,'' 
collection agencies that compete directly with private enterprise. 
Under a very narrow reading of the act, these State and local officials 
contend they are not covered by the legislation. In some areas, these 
public officials are telling merchants that they will not accept debts 
for collection if they have previously been turned over to a private 
collection agency. At present, the local government collection agencies 
are only collecting bad checks but they may well branch into other 
collection fields. Do not be fooled. These public officials are not 
collecting bad checks as part of their government function. No, only 
merchants who join the program can get this type of law enforcement. 
Individuals who have received bad checks cannot use the service. This 
amounts to law enforcement judged by the size of your wallet.
  This legislation would still allow local officials to operate such 
collection activities but they would have to comply with the Fair Debt 
Collections Practices Act. No longer would such operations be able to 
charge a consumer $120 for a $5 returned check as has happened in some 
cases.
  The legislation does not remove any of the other basic consumer 
safeguards that are in the act. Still in place are the restrictions 
against harassment by collectors, calls in the middle of the night, 
informing employers about debts and the all important safeguard that 
makes it illegal for a collector to do anything in a deceptive manner.
  Mr. President, the amount of debt owed to American businesses that 
goes unpaid is skyrocketing. In the latest figures available, 226.2 
million accounts totaling $79 billion were turned over to third-party 
collection agencies in 1993. It is estimated that bad debt cases cost 
every man, woman, and child in America $250 per year. That means that a 
family of four will pay $1,000 more for goods and services during each 
year. The figures for bad checks are even more staggering. On average, 
Americans write more than 1.5 million checks a day that are 
subsequently dishonored by U.S. banks.
  In 1992 some 533 million checks totaling $16 billion were returned to 
U.S. banks. Projections for 1995 estimate that 619 million checks will 
``bounce.'' By the year 200 the estimate is that 731 million will be 
returned. Our Nation's economy can't afford such losses and businesses 
deserve the services of an affordable collection industry that is not 
bogged down by the technical and nuisance lawsuits.
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