Is A Debt Collector Liable Under the FDCPA for Filing a Collection Suit Knowing that it Lacks Evidence to Prove the Debt?

The Fair Debt Collection Practices Act (FDCPA), prohibits debt collectors from engaging in unfair and/or unconscionable debt collection practices and also outlaws false, deceptive or misleading representations in connection with the collection of the debt. Risk ahead signTwo recent decisions from the United States District Court for the Southern District of Alabama have reached conflicting results as to whether a debt collector’s alleged knowing inability to prove a debt at the time a collection lawsuit is filed imposes liability under the FDCPA.

In Bandy v. Midland Funding, LLC,1 the Court dismissed an FDCPA claim that alleged a debt buyer/plaintiff who filed a state court lawsuit purchased the debt with limited information regarding the account that included only a bill of sale and a computerized summary of account information. The debtor contended that the information acquired with the account was not sufficient to establish the validity of the debt.

After the debt buyer’s collection suit was dismissed, the debtor hired counsel and filed an FDCPA lawsuit. The plaintiff alleged that the debt buyer intended to use the collection lawsuit only as a means to obtain a default judgment and that the legal action thereby operated as a false representation that the debt buyer could actually prove its case. In dismissing the suit, the Court relied on a Federal appeal ruling in Harvey v. Great Seneca Financial Corp.,2 decided by the United States Court of Appeals for the Sixth Circuit which held that filing suit without the ability to prove the debt at the time the complaint is filed is not an FDCPA violation.

Less than one month later, another Judge in the same court decided Samuels v. Midland Funding, LLC,3 and disagreed with the decision in Bandy, allowing an FDCPA claim to proceed based on an allegation that the debt buyer filed suit with knowledge that it would not and could not prove its claim. The Court distinguished the Harvey decision, explaining that the disgruntled plaintiff in Harvey merely alleged that there was a present inability to prove the claim when the suit was filed but never asserted that the debt buyer knew it could not obtain evidence to prove the debt.

These conflicting decisions focus attention on potential pitfalls where a creditor/debt buyer engages collection counsel to file suit but routinely dismisses claims that are defended, rather than appear and prove the debt at a contested trial. Creditors/debt buyers who follow this pattern and practice should consider a revaluation of their litigation strategy and implement procedures designed to ensure that evidence sufficient to prove the debt can be obtained in a contested case. Creditors and debt buyers should commit to furnishing detailed affidavits and/or providing a witness in cases where a defense has been filed to the collection action by an attorney known to represent FDCPA plaintiffs. The goal of this process is not to win every collection case but to send a message to the consumer bar that the creditor/debt buyer can prove its claim, which will serve to dissuade consumer attorneys from filing FDCPA suits similar to those brought in the Samuels and Bandy cases.

1 2013 WL 210730 (S.D.Ala. Jan. 18, 2013).
2 453 F.3d 424 (6th Cir. 2006).
3 2013 WL 466386 (S.D.Ala. Feb. 7, 2013).