In April, Arkansas enacted House Bill 2228, which creates the Arkansas Fair Debt Collection Practices Act (the “Arkansas FDCPA”), effective July 31, 2009. The Arkansas FDCPA substantially mirrors the federal Fair Debt Collection Practices Act (the “federal FDCPA”). Although Arkansas already licenses and regulates collection agencies under the Arkansas Collection Agency Act, the Arkansas FDCPA may pose new challenges for Arkansas licensed collection agencies because it imposes new substantive requirements.
Like the federal FDCPA and the Arkansas Collection Agency Act, the Arkansas FDCPA applies to a person who collects debts owed or due to another, a creditor that services its own debt using a fictitious name, and a creditor that collects on debt it acquired after the consumer defaulted on the debt. Although the Arkansas Collection Agency Act applies to collectors of all types of debts, including commercial debts, the Arkansas FDCPA follows the federal FDCPA and applies only to the collection of debts arising out of credit transactions made primarily for personal, family, or household purposes.
There are two noteworthy exceptions to the general rule that the substantive provisions of the Arkansas FDCPA generally reflect provisions in the federal FDCPA. First, the federal FDCPA provides two exceptions to the term “initial communication:” (1) a formal pleading in a civil action, and (2) a notice required by certain federal laws, such as the Gramm-Leach-Bliley Act, if the notice does not relate to the collection of debt. However, the Arkansas FDCPA does not provide similar exclusions from what it categorizes as an “initial communication.” Therefore, in Arkansas, the filing of a lawsuit could be deemed to be a debt collector’s “initial communication” with the consumer in connection with the collection of the debt. If so, the debt collector would have to provide the debt verification notice and other “initial communication” notices to the consumer either with the complaint or within 5 days after serving the consumer with the complaint. After service, the consumer would have 30 days to dispute the debt or request that the debt collector verify the debt. Upon receipt of the written dispute of the debt, the debt collector would have to cease collection efforts until it was able to verify the debt. This potential delay could impact the discovery schedule in a disputed case or, more likely, the discovery schedule in a disputed case could impact the Arkansas debt collector’s ability to comply with the Arkansas FDCPA. The waiting period could also apply to notices required by federal laws, if the notices are deemed to be communications in connection with the collection of a debt under the Arkansas FDCPA.
While a formal pleading may be considered an “initial communication” under the Arkansas FDCPA for purposes of the verification notice requirement and the 30-day debt verification period, it will not be considered an “initial communication” for purposes of the Mini-Miranda warning. Both the Arkansas FDCPA and the federal FDCPA require that a debt collector disclose in the initial communication with the consumer that the communication is an attempt to collect a debt and that any information obtained will be used for that purpose. The Arkansas FDCPA, similar to the federal FDCPA, expressly states that a formal pleading made in connection with a legal action is not an “initial communication” for purposes of that disclosure requirement.
The other significant difference between the Arkansas FDCPA and the federal FDCPA pertains to collection activity during the debt validation period. Under both laws, a consumer may request verification of the debt within 30 days after the initial communication. The federal FDCPA expressly states that a debt collector may continue engaging in lawful collection activities during that 30-day period, unless the debtor provides notice that he disputes the debt or the debtor requests verification. However, the Arkansas FDCPA does not expressly give a debt collector the right to continue engaging in collection efforts during the 30-day period. Because the Arkansas FDCPA does not expressly authorize collection efforts during that 30-day period, its silence could be interpreted to require the debt collector to suspend collection efforts for 30 days after the initial communication. On the other hand, while there is no express authorization to continue collection efforts during the 30-day period, the Arkansas FDCPA does not expressly prohibit collection efforts during that time. Therefore, a reasonable interpretation of the Arkansas FDCPA is that a debt collector is not required to cease lawful collection efforts after sending the initial communication, as long as the borrower does not dispute the debt or request verification.
Except for these two unique wrinkles, debt collectors that comply with the federal FDCPA will comply with all other provisions of the Arkansas FDCPA – a welcome relief for an industry that has also been impacted by the remarkable changes occurring at the federal level for the broader consumer credit industry.
Clay Swears is an associate in the Maryland office of Hudson Cook, LLP. Basis Points readers can reach Clay at 410-865-5419 or by email at cswears@hudco.com.