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Third-Party Claims under the Fair Debt Collection Practices Act

A recent decision from the Seventh Circuit reminds creditors, including banks, that the provisions of the Fair Debt Collection Practices Act (the “FDCPA”) may apply to parties other than the debtor.  In the case of Todd v. Collecto, Inc., a man brought claims under the FDCPA against a debt collection company that contacted him with respect to a debt owed by the man’s mother. 

Generally, Section 1692(f) of the FDCPA prohibits a creditor from using unfair or unconscionable methods in connection with debt collection.  However, under Section 1692(b) a creditor may contact a non-debtor third party for help in locating a debtor, provided that the creditor does not discuss the debt.  The plaintiff brought claims for violations of both sections.

The District Court dismissed the case holding that the plaintiff did not have standing under either section because he was not the debtor.  On appeal, the Seventh Circuit agreed that only the debtor has standing to pursue claims under Section 1692(b).  The Seventh Circuit held, however, that Section 1692(f) applies to anyone impacted by a debtor collector’s unfair and unconscionable debt collection practices.  Thus, theoretically, a bank that has violated Section 1692(f) by using unfair practices could be liable to third parties and to the debtor.

The Seventh Circuit ultimately held that the plaintiff in this case did not show that the debt collector had acted in an unfair manner, but the underlying interpretation is important for all parties acting as debtor collectors, including banks.  When collecting a debt, it is essential that banks act in a reasonable manner, not only with respect to the debtor, but also with any third parties the bank may contact in connection with the debt.