Fair Debt Collection Practice Act Violated in Foreclosure Proceeding by Claim of Plaintiff’s Attorneys for Unearned Fees

Under the provision of the Fair Debt Collection Practices Act, 15 USC §1692 et. seq. (“FDCPA”), attorneys who represent banks and other entities and are engaged in the collection of delinquent mortgage payment and foreclosure proceedings against homeowners  are ‘debt collectors’.  The FDCPA sets forth a comprehensive regulations with govern the conduct of debt collectors and imposes strict liability on those who violate it and because it is remedial legislation, its provisions and liberally construed.

The Third Circuit Court of Appeals has affirmed that “(t)he FDCPA is a remedial statute and as such courts should construe its language broadly in order to effectuate the purpose of the Act.”  Brown v. Card Serv. Ctr., 464 F.3d 450, 453 (3d Cir. 2006).  “The FDCPA is a strict liability statute to the extent that it imposes liability without proof of an intentional violation.” Allen ex. rel, Martin v. LaSalle Bank, N.A., 629 F.3d 364, 368 (3d Cir. 2011).  One of the FDCPA numerous prohibitions is that a debt collector,  who fails to accurately state the amount due on a debt in a communication to a debtor,  is a violation of the Act.

In the matter of McLaughlin v. Phelan Hallinan & Schmieg, LLP, 756 F.3d 240, (2014), the Third Circuit Court of Appeals reversed the decision of the United States District Court which had granted Summary Judgment to the Defendants and remanded the case to the District Court for trial.  The matter arose as a result of an error by the mortgagee which believed that McLaughlin was in default on his mortgage payment and  “ ….. referred the matter to the law firm Phelan Hallinan & Shmieg, LLP, whose lawyers include Lawrence T. Phelan, Francis S. Hallinan, Daniel G. Schmieg, and Rosemarie Diamond (collectively “PHS”). PHS sent McLaughlin a letter about the debt”  McLaughlin at 243.

The Plaintiff claimed that that the letter violated the violated the FDCPA because it  “included two line items relevant here: $650 in ‘Attorney’s Fees’ and $550 for ‘Costs of Suit and Title Search'” and that “these fees and cost had not actually been incurred on the date the letter was sent.”  McLaughlin at 243.
The District Court determined that the Defendant’s records showed that it had “incurred only $440 in total costs and $625 in fees, and not the $550 and $650, respectively, set forth in the Letter”.  McLaughlin at 244.

The Third Circuit held that the attorneys’ failure to accurately set forth the amount due for legal fees and costs constituted a misrepresentation actionable under 15 U.S.C.S. §§ 1692e(2) and (10).  These provisions of the FDCPA prohibit the false representation of either the character, amount, or legal status of any debt or any services rendered or compensation which may lawfully be received by any debt collector for the collection of a debt.

It bears emphasis that the Court held that the FDCPA had been violated despite the minor difference between the actual amount of attorneys’ fees and costs incurred and the amount of the fees and costs communicated in the PHS Letter.

Attorneys who represent homeowners have become delinquent on their mortgage payments and are attempting to prevent foreclosure must exercise due diligence when examining communications from “debt collector” attorneys which contain inter alia statements about contractually due attorneys fees and costs.


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