Recent Class Action Settlement Shows that FDCPA Litigation is Kind of a Game

Remember that story from a couple of days ago where a judge famously noted that the FDCPA “is not a game, and its purpose is not to provide a business opportunity” to plaintiff attorneys? It was a great story, and the judge really took issue with the cabal that has arisen that almost openly takes advantage of the strict liability nature of the FDCPA.

But as much as the ARM industry would love to believe the sentiments expressed by that judge were common, anyone who has been through an FDCPA case knows that it’s still a big game. And it’s a game that is nearly impossible for collectors to win.

Two weeks ago, a judge in Pennsylvania granted final approval to an FDCPA class action settlement that, like any other game, had winners and losers. It would be easy to assume that the collection agency was the loser (they were) and that the consumers were the winners. But that would be forgetting a very important player: the plaintiffs’ attorneys.

In this case, a collection agency sent a demand letter that contained everything the FDCPA says it should contain. Unfortunately for the agency, the validation notice was not in the correct place. Here’s what the judge had to say on the matter:

“While the Subject Letter did include language outlining the recipients’ validations rights, this language was printed on the reverse side of the Subject Letter and was inconspicuous and therefore in violation of the FDCPA.”

The collection agency continued to fight the claim while the plaintiffs’ attorneys built a class action. They found 229 similarly situated consumers and moved to certify a class, which the judge granted. After citing a desire to end litigation, the collection agency decided to settle.

Because of the technical nature of the violation, no damages could be alleged. In fact, the judge wrote, “imagining actual damages from the alleged statutory violation in this case takes a creative mind.” So the settlement would be strictly statutory in nature: $1,000 to the lead plaintiff. That plaintiff also received an additional $1,000 for their role leading the class.

The rest of the class will receive $100 each, for a total of $22,900. It’s not much money, but then, the class members didn’t have to do much to receive it. The lead plaintiff in the case also received $100, bringing her total to $2,100. So now the agency owed around $24,000 to consumers exposed to the technical violation.

But there was one more item: plaintiffs’ attorneys’ costs and fees. That is going to cost the agency north of $44,000. Around 230 people, “aggrieved” by the placement of compliant language on the collection letter, will receive $24,000, and two attorneys will receive $44,000.

And that’s the game Judge Cogan discussed in the story earlier this week. Ferreting out technical violations for a big payday. Of course, it’s not consumers doing this. It’s a “handful of the same lawyers,” as Cogan put it that are driving the litigation, because they know they will get paid. Even Cogan concedes, “a technical violation of the statute is a violation” and that “this technical use of the statute for economic gain violates no law or ethical precept.”

It’s not all doom and gloom, though. There is a new referee in the game: the CFPB. While many in the industry view the Bureau as an adversarial force, there is great benefit in embracing the CFPB’s role in active supervision. This way, technical violations can be identified before an attorney has a chance to build a class action. So don’t fight the change; embrace it.