Ethical Issues in Collections

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Ethical Issues in Collections

Presented by: William M. Clos April 2012 1930 1940 1950 1960 1970 1980 1990 2000 Founded Gardner & Spilka Weltman, Weinberg & Reis

Co., L.P.A. Gardner, Spilka & Weltman Weltman, Weinberg & Associates

WWR History

2011

2 | WWR Replevin 201 Webinar WELTMAN, WEINBERG & REIS CO., LPA

Robert Weltman Joins Firm

Alan Weinberg & Allen Reis Join Firm Cleveland Columbus Cincinnati Maurice Weltman Joins Firm Pittsburgh Detroit Philadelphia Chicago Brooklyn Ht Grove City Ft. Lauderdale

WWR Today

• 10 offices in 5 states • More than 100 attorneys

and nearly 1,200 legal assistants, collectors and support staff ranking support staff, ranking WWR as the nation’s largest creditor’s rights law firm

• Several WWR attorneys are certified as Creditors Rights Specialistsby the American Board of Certification • Seamless integration allows us to deliver recovery solutions

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WWR Footprint and Network

• WWR Footprint – WWR

attorneys are licensed to practice in Illinois, Indiana, Kentucky, Michigan, New Jersey, Ohio,

Pennsylvania and Florida – currently real estate matters only • WWR maintains a

proprietary Network of National Attorneys with demonstrated proficiency in creditor representation to act as

local counsel WWR’s Footprint – states where WWR provides direct legal representation

WWR Full-Service Capabilities

Our range of services allows for the complete handling of files and matters through each step of the collection, legal and recovery process, utilizing one or more of our specialty practice groups or a combination of our services.

Skip Tracing Asset Searches Pre-suit Collections Collateral Recovery Demand Letters Complex Collections Loan Workouts Demand Letters B2B Collections Pre-suit Collections Collection Litigation Arbitration/Mediation Loss Mitigation Home Preservation Foreclosures Evictions Title & REO Fannie / Freddie

Consumer Commercial Reaffirmations Relief from Stay

Proof of Claim Adversary Claims Compliance Litigation Consumer Leasing Federal Court Lending Issues Loan Review Intl. Collections

Communication with Debtors and Other

Parties

Rule 4.1 Truthfulness in Statements to Others

In the course of representing a client, a lawyer shall not knowingly make a false statement of material fact or law to a third person.

Rule 4 2 Communication with Person Represented by Rule 4.2 Communication with Person Represented by

Counsel

In representing a client, a lawyer shall not communicate about the subject of the representation with a party whom the lawyer knows to be represented in the matter by

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Communication with Debtors and Other

Parties

Rule 4.3 Dealing with Unrepresented Person

In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the

lawyer's role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.

Rule 4.4 Respect for Rights of Third Persons

In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person.

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Disclosure Issues

Communicating with Unrepresented Persons

• Attorney must assume that an unrepresented person does

not understand the attorney’s role in a matter. • Attorney must carefully explain to the unrepresented

person the attorney’s role in the matter

person the attorney s role in the matter.

Disclosure Issues

Communicating with Unrepresented Persons

• When an attorney knows or reasonably should know that

the unrepresented party misunderstands the attorney’s role, the attorney “shall make reasonable efforts to correct the misunderstanding ” MRPC 4 3

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FDCPA

FDCPA does NOT apply to original creditors 15 U.S.C.1692(a) – Defines Debt collectors as a person or business:

“ who regularly collects or attempts to collect directly

…who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owned or due another.”

This statute specifically excludes original creditors collecting their own debt

Disclosure Issues

MI - Regulation of Collection Practices

MICHIGAN LAW

MCL §445.251 et seq. – applies to "Regulated person" which is defined as “a person whose collection activities are confined and are directly related to the operation of a business other than that

of a collection agency.”

• Includes credit unions

• MCL §339.915 et seq. –applies to Michigan licensed debt collectors.

• Prohibited activities under these statutes mirror FDCPA. It is possible that a debt collector who staying close to the edge with regard to federal law may well step out of bounds according to Michigan law.

Aggressive Collection Practices

• Aggressive collection practices are not prohibited; Illegalcollection

practices are prohibited.

Michigan collection practices statutes prohibit:

“using or threatening to use physical violence in connection with collection of a claim

of a claim . . .

• using a harassing, oppressive, or abusive method to collect a debt, including causing a telephone to ring or engaging a person in telephone conversation repeatedly, continuously, or at unusual times or places which are known to be inconvenient to the debtor . . .

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Aggressive Collection Practices

Social Media

• Since social media sites have grown in popularity, reports have surfaced of debt collectors not only researching Facebook and other sites to locate elusive debtors, but in some instances, creating fake user names and “friending” people in order to get information about a debtor's

p p g

whereabouts.

• Recently, a Florida judge ordered a debt collection agency to not use Facebook or any other social media site after the court found that the agency had sent messages to a debtor and her family on the Facebook networking site to have her call the agency about the debt.

Aggressive Collection Practices

Social Media

In one reported case, a man was “friended” on Facebook by a young woman in a bikini. The account turned out to belong to a debt collector, which the man realized when the "friend" posted a message on his wall: "Pay your debts, you deadbeat."

Consumer Financial Protection Bureau

• Created in 2010 for greater oversight of financial institutions • New bulletin by the bureau warns that financial institution

CAN be held liable for violations committed by 3rd_party

vendors including:

– Independent contractors – Independent contractors – Collection agencies – Attorneys

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Effect of CFPB

• Effect

• The law is still changing and it is unclear as to the amount of exposure to a financial institution

• Presumably, the Bureau will be able to “investigate” 3rd_party

vendors, including attorneys for potential violations including:

• Auditing files • On-site inspections

• Protecting the Credit union

• Know your vendor

• Have a system in place to address violations • Use only trusted vendors

• Should provide training and a compliance department

Trusted Vendors

• Vendors should have:

– Continuous Training for staff in state and federal laws – A working knowledge of the current trends and changes in the law – A Compliance department:

• Oversees training

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• Can answer questions regarding possible violations • Makes sure its staff complies with all applicable laws • Keeps informed as to all changes and interpretations of these

laws

Unauthorized Practice of Law

Debt Settlement Companies

• Whether the actions and advice of debt settlement

companies constitute the providing of advice, counsel and direction to debtors, and is a knowing engagement in the unauthorized practice of law.

• Whether debt settlement companies’ statements andWhether debt settlement companies statements and actions create or reinforce the impression that they are acting in debtors’ best interests, and know what they are talking about.

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Unauthorized Practice of Law

Debt Settlement Companies

• Whether debt settlement companies’ derive a benefit from engaging in the unauthorized practice of law.

• Whether debt settlement companies cause injury to debtors by engaging in the unauthorized practice of law.

Questions?

Contact Us

William M. Clos, Associate Litigation and Defense Complex Litigation Group Complex Litigation Group 248-989-3096 [email protected]