With the economic downturn, the number of consumer credit-related suits filed in U.S. District Courts in Texas has steadily increased over the past five years. In 2005, 81 such cases were filed in Texas, according to PACER, the federal courts’ online filing system. But in 2010, that number rose to 390.
The trend is on track to continue this year. From Jan. 1 to June 30, 2011, the number of consumer credit-related cases filed in Texas’ U.S. District Courts totaled 263, compared to 190 for the same period in 2010, PACER shows. The numbers include consumer borrowers’ suits filed against credit reporting companies under the Fair Credit Reporting Act (FCRA) and against credit collection agencies under the Fair Debt Collection Practices Act (FDCPA).
Plaintiffs lawyers and defense counsel in Texas say the rise in FDCPA cases, in particular, has created opportunities for lawyers. But they disagree on whether such opportunities help or hurt debtors.
“It’s a feel good-type of law because you are helping out people that are at the bottom,” says Dennis McCarty of Hurst’s The McCarty Law Firm.
Sunnyvale solo David Goodhart, who defends collection agencies against FDCPA suits, says the FDCPA is “one-sided too heavily in favor of the debtor and . . . it’s been kind of mutated into a device into which lawyers are making the money and not really the debtors.”
The FDCPA — 15 U.S.C. §§1692-1692p — governs the tactics debt collection agencies can use to get debtors to pay and bars practices such as calling borrowers at work or talking to third parties about borrowers’ debts.
FDCPA cases appeal to plaintiffs lawyers because they can get paid for their work, even if their clients don’t have the resources. The statute says that if it is proven in court that a defendant-collection agency has violated the law, the agency is liable for the costs of the action as well as the plaintiff’s attorney’s reasonable fees as determined by the court.
The FDCPA does limit the amount a prevailing plaintiff may recover to $1,000, unless the plaintiff proves additional actual damages, such as that a collection agency’s calls to his workplace led to his termination or demotion.
Diana Larson, a partner in the Larson Law Office in Houston, has one of the largest practices in the state representing plaintiff-debtors in consumer-credit cases. About 50 percent of her practice is FDCPA suits, she says.
PACER shows that Larson’s firm filed 227 consumer credit-related cases in Texas’ U.S. District Courts from Jan. 1, 2010, until June 30, 2011.
Since launching her own firm in 2009, Larson has focused on representing plaintiffs in FDCPA suits, in part because she wanted to have a broad client base and because the cost of developing such suits is fairly low. By broadening her client base, she says she faces less economic risk because she is “insulated from working for one client or a couple big clients.”
Larson notes that her firm takes only the strongest FDCPA cases, which typically have evidence of how the collection agency violated the statute. Good evidence is crucial because “these are heavily contested cases.”
Larson also is of counsel with the Connecticut-based Lemberg & Associates Law Firm, which is a national firm for consumers with claims against debt collection agencies, according to its website. She says she receives referrals for Texas FDCPA cases from Lemberg as well as from former clients and her own firm’s website.
Through referrals, McCarty also has built a federal practice handling FDCPA cases, which he says “are substantially on the rise” due to the poor economy. “The consumers just don’t have the money [so] debt collectors are going to the extreme” using aggressive tactics that violate the FDCPA, he says.
McCarty says he has filed 19 consumer credit-related cases in U.S. District Courts in Texas since January 2010 and that he typically has a court date within 16 to 18 months of filing. Debt collectors often settle as soon as they learn his clients have representation, he says.
McCarty says as part of a settlement, a defendant usually agrees to forgive his client’s debt.
Goodhart, who defends collection agencies against FDCPA suits, is troubled by the rise in FDCPA suits. Goodhart, who represents clients in about 30 FDCPA cases, contends that Congress needs to reform the FDCPA because the law provides easy access for lawyers to make money even though they don’t necessarily represent clients in cases that would succeed in court. Collection agencies, given the small size of plaintiffs’ claims — between $5,000 and $7,000 — don’t want to spend the money to go to trial, even when they have a good defense, so they settle, he says.
Goodhart says often most of a settlement goes to pay plaintiffs lawyers’ fees; clients get little more than the relief they could have gotten, without the assistance of counsel, by submitting written requests that ask debt collectors to stop making phone calls.
Goodhart says FDCPA litigation “has become a cottage industry because it’s easy money for more and more lawyers who have caught on to the game.”