Finance, Banking and Bankruptcy Bulletin
Massachusetts Fair Debt Collection Practices Act Captures More Defendants, More Conduct than Federal Counterpart
By Gregory S. Bombard, Esq.
Click here for a printable copy of the bulletin.
Consumer creditors and debt collectors are generally familiar with the restrictions of the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692a et seq. (the “Federal Act”). Many, however, may be unfamiliar with the more onerous restrictions of the Massachusetts Fair Debt Collection Practices Act, M.G.L. c. 93, § 49, and its recently amended related regulations, 940 C.M.R. c. 700 (the “Massachusetts Act”). While the Massachusetts Act is modeled on the Federal Act, the Massachusetts Act imposes significant additional restrictions and penalties.
Unlike the Federal Act, the Massachusetts Act covers both creditors and debt collectors, including mortgagees and mortgage servicers. The Federal Act excludes both debt originators who continue to service the debt after an assignment and creditors who acquired debts before a default. See 15 U.S.C. § 1692a(6). That exclusion generally excludes mortgage servicers from coverage. See S. Rep. No. 95-382, 3, 1977 U.S.C.C.A.N. 1695, 1698 (indicating that the Federal Act is not intended to cover mortgage servicing companies). Mortgage servicers have therefore often successfully argued that the Federal Act does not apply to them. See, e.g., Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir. 1985).
The Massachusetts Act, however, applies to both the owner of the debt and a third party acting on behalf of the owner. See 940 C.M.R. § 7.03. Until recently, the Massachusetts Act included an exception for first-position mortgage debts in excess of $25,000. See 940 C.M.R. § 7.03 (2011). A recent revision to the Attorney General regulations eliminated that exclusion. 940 C.M.R. § 7.03. Therefore, the current Massachusetts Act arguably covers all creditors, debt collectors, and mortgage servicers, rather than just debt collectors.
Both the Massachusetts Act and the Federal Act require that a debt collector cease collection activity where a debtor disputes a debt and refrain from further collection activity until the debt collector “validates” the debt. 15 U.S.C. § 1692g(b); 940 C.M.R. § 7.08(2). To do so under the Federal Act, a debt collector must only confirm “in writing that the amount being demanded is what the creditor is claiming is owed.” Clark v. Capital Credit & Collection Services, Inc., 460 F.3d 1162, 1173-74 (9th Cir. 2006) (quoting Chaudhry v. Gallerizzo, 174 F.3d 394, 406 (4th Cir. 1999)).
Under the Massachusetts Act, however, the creditor must produce “[a]ll documents, including electronic records or images, which bear the signature of the debtor and which concern the debt being collected.” 940 C.M.R. § 7.08(2)(a). That burden is onerous in the case of consumer debts. For example, in the case of a mortgage loan, those documents usually include hundreds of pages of closing documents. It could even be read to include copies of all payment checks, since those payment checks bear the debtor’s signature. Obviously, the Massachusetts Act imposes a much greater burden on creditors in the case of disputed debts than does the Federal Act.
Limits on Communication
The Massachusetts Act specifically limits creditors to two collection phone calls in any seven-day period. 940 C.M.R. § 7.04(1)(f). A creditor could violate the Massachusetts Act, therefore, by making only three calls to a debtor. That same conduct would likely not violate the Federal Act. See Udell v. Kansas Counselors, Inc., 313 F. Supp. 2d 1135, 1144 (D. Kan. 2004) (ruling that “[t]here is nothing harassing, oppressive, or abusive” about placing four phone calls to the debtor’s telephone number during a seven-day period). The Federal Act only limits harassing communications generally. See 15 U.S.C. § 1692d.
The Massachusetts Act also requires creditors to list the “the telephone number and office hours of the creditor or his agents on all written communications to the debtor.” 940 C.M.R. § 7.07(22). The Federal Act has no such requirement. Creditors and debt collectors may already do so as a matter of customer service, but the requirement that they do so creates a potential pitfall.
The two Acts cover much of the same conduct, but the level of damages allowed under the Massachusetts Act is potentially higher because a violation of the Massachusetts Act is a per se violation of Chapter 93A, the Massachusetts Consumer Protection Act. 940 C.M.R. § 3.16(3). Both statutes provide that a debtor may recover actual damages and attorney’s fees for violations, but the Massachusetts Act allows for doubling, or even trebling, of the damage award in the case of a creditor’s willful violation, or if the creditor fails to engage in presuit settlement negotiations in good faith. Moreover, while the Federal Act allows for an award of attorney’s fees to the defendant in the case of a bad faith suit, the Massachusetts Act has no such deterrent. See 15 U.S.C. § 1692k(a)(3). The Massachusetts Act is therefore generally less favorable on damages.
The Massachusetts Act imposes broader, and more onerous, restrictions on debt collectors and creditors than the Federal Act1. The Massachusetts Act covers more conduct, imposes a greater burden to validate disputed debts, further restricts the manner and frequency of communications with debtors, and potentially imposes greater liability.
This bulletin is not intended as legal advice. Because the information presented herein is general, it may not apply to all situations. It should therefore not be relied upon in regard to any particular facts without first consulting a lawyer.
1 The Massachusetts Act is probably not preempted by federal law. The Federal Act expressly disavows preemption of state debt collection regulation. See 15 U.S.C. § 1692n. Various courts have held that generally-applicable state debt collection regulations are not preempted by the National Bank Act. Meluzio v. Capital One Bank (USA), N.A., 469 B.R. 250, 257 (N.D.W. Va. 2012); Smith v. BAC Home Loans Servicing, LP, 769 F. Supp. 2d 1033, 1047 (S.D.W. Va. 2011); In re Bate, 454 B.R. 869, 882 (Bankr. M.D. Fla. 2011).