Law Firms and Debt Collection
Can a letter be legally misleading just because it comes from a lawyer? Surprisingly, the answer is yes. A federal magistrate judge in the Middle District of Pennsylvania has recently ruled that lawyers who act as debt collectors cannot use their law firm’s letterhead for collection letters unless the lawyer has actually reviewed the file and the firm is truly poised to file a lawsuit.
The case involved a New York law firm that sent two letters to a Pennsylvania homeowner. The homeowner had fallen behind on his home equity loan payments. While the homeowner and the lender disputed the amount of the unpaid balance due, the account arrears mounted. The lender stopped negotiations and hired the law firm; the firm sent two collection letters on its letterhead.
The homeowner sued the law firm under the Fair Debt Collection Practices Act (FDCPA), claiming that when lawyers send demand letters they are responsible for investigating the underlying facts. The homeowner also argued that lawyers engage in illegal unfair practices if they write letters when they have not actually been hired to institute a lawsuit.
The federal magistrate judge agreed, holding that the two letters amounted to clear violations of the FDCPA because the use of the law firm’s letterhead gave the false impression that a lawyer was working on the case and planning to sue. “The least sophisticated consumer would be likely to believe upon receiving a communication from an attorney for the lender that the debt collection process has entered into a phase where the lender through its attorney will begin to use procedures established by law and known to attorneys to collect the debt,” the judge wrote.
Even though the letters contained the statement, “At this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account,” the judge found that this disclaimer language did not protect the law firm. The judge stated that, “in our view, that language does not mitigate the impression of potential legal action” because a law firm’s letter “does bear an implied threat of litigation, and does connote that it is a communication from an attorney.” Had the law firm actually reviewed the facts of the case and assumed the responsibility for filing a lawsuit, the homeowner likely would not have prevailed.
Pennsylvania federal judges have generally held that a debt collection letter is deceptive where it can be reasonably read to have two or more different meanings, one of which is inaccurate. Fair debt collection practices law focuses on “the least sophisticated consumer,” assessing debt collection practices according to what impression or understanding is held by the least sophisticated consumer. Pennsylvania’s federal judges have determined that the least sophisticated consumer would assume that a law firm is comprised of attorneys and that it does legal work. Such a consumer “would be likely to believe that the law firm is acting as an attorney for the lender in communicating with the consumer concerning the loan.”
Lawyers who engage in debt collection simply cannot avoid the fact that communications from lawyers have a strong impact. Law firms hired to write demand letters must reconsider the use of their law firm’s letterhead. When lawyers send debt collection letters, they are obliged to reasonably investigate and understand the underlying debt, and may start collection proceedings only if they intend to move forward with the case.