By Richard Roth
A debt collector’s misrepresentations about what a consumer needed to do to protect his Social Security benefits from garnishment violated the Fair Debt Collection Practices Act, the Consumer Financial Protection Bureau says. In an amicus curiae brief, the CFPB argues that the debt collector would have made misrepresentations and engaged in unfair collection practices even if it technically complied with New York law on establishing garnishment exemptions (Arias v. Gutman, Mintz, Baker & Sonnenfeldt, PC).
The suit began with a law firm’s effort to collect a judgment for back rent on behalf of a client. The firm served the consumer’s bank with forms required by a New York law that is intended to help consumers protect Social Security benefits or other exempt funds from garnishment. Under the state law, $2,500 (adjusted for inflation) in a consumer’s bank account automatically is protected from being garnished if exempt benefits have been deposited in the previous 45 days.
The remainder of the account balance is temporarily restrained. However, the consumer can secure the release of the funds by sending an exemption claim to the bank and creditor. The creditor then must either instruct the bank to release the restraint or begin a proceeding in state court to demonstrate that the funds in the account are not exempt.
Law firm’s actions. According to the brief, after setting aside the funds in the consumer’s account that were protected, the bank restrained nearly $1,300. The consumer had the bank send the firm account statements demonstrating that the restrained amount comprised protected Social Security benefits and included comparable information in his exemption claim. However, the firm refused to release the restraint and began the statutory court proceedings.
The affidavit on which the firm relied when it objected to the exemption claimed the firm could not determine whether the funds were exempt because the consumer had not supplied account records that started with a zero balance. The affidavit also asserted that Social Security benefits lost their exempt status if they were commingled with nonexempt funds and that the consumer had not proved he had not commingled the funds.
At the hearing, the firm agreed to release the restraint after an attorney reviewed records produced by the consumer—records that duplicated what the consumer had provided twice before, the bureau noted in its brief.
The consumer then sued the firm under the FDCPA, but the federal district court judge dismissed the suit.
Misrepresentations. The judge was wrong in deciding that the firm had not made an actionable misrepresentation, the bureau’s brief says. A misrepresentation that could discourage a least sophisticated consumer from exercising his legal rights is an FDCPA violation.
In this case, the state law imposes no requirement that the consumer produce account records starting from a zero balance. Neither was the consumer obligated to prove that he had never commingled exempt and nonexempt funds. Whether funds had been commingled was irrelevant, the CFPB adds, because it would not have altered the effect of the firm’s statements on the least sophisticated consumer.
The brief also noted that, in this case, the consumer had not been protected by an attorney. That increased the risk that the consumer could be misled.
Unfair collection practices. The law firm’s objection to the exemption claim was a baseless pleading that denied the consumer access to his exempt funds and could have resulted in his loss of those funds, the brief also argues. That constituted an unfair or unconscionable collection practice.
In fact, the FDCPA says that taking nonjudicial action to dispossess a consumer of exempt property is a per se violation, the brief says. This provision was included in the act specifically because of the consumer harm that could result.
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