The Supreme Court on Monday ruled that private attorneys hired by states are not in violation of the Fair Debt Collection Practices Act when using official letterhead to collect a debt.
The case, Sheriff v. Gillie, has been watched closely by financial institutions for its interpretation of the FDCPA, which prohibits debt collectors from employing "false, deceptive or misleading" practices.
The act excludes officers or employees of any state from the definition of "debt collector," but did not address whether special counsel hired as independent contractors also are excluded.
In a unanimous opinion, Justice Ruth Bader Ginsburg wrote that the FDCPA bars debt collectors that are unaffiliated with a state from using a state's name to scare debtors into paying.
"When the state itself is doing the demanding, however, nothing about the resulting fear misleads," Ginsburg wrote. "It does not protect consumers from fearing the actual consequences of their debts."
The 2013 dispute stemmed from letters sent by lawyers representing the Ohio attorney general who identified themselves on official letterhead as "special" or "outside" counsel collecting a debt. Pamela Gillie owed a medical debt to a state-run hospital and filed a putative class action in federal district court alleging that by using the attorney general's letterhead, lawyers had employed deceptive and misleading tactics.
The plaintiffs had appealed a district court ruling that concluded special counsel acted as "officers" of the state. But the Sixth Circuit, in a 2-1 decision, found that special counsel appointed to collect debts are independent contractors, not employees of the state.
Ginsburg wrote that given special counsel's alliance with attorneys within the attorney general's office, "a debtor's impression that a letter from special counsel is a letter from the attorney general's office is scarcely inaccurate."
Joe Lynyak, a partner at the law firm Dorsey & Whitney, said courts have been forced to interpret the debt collection act, with differing results.
"This case is about the underlying inherent problem and lack of clarity in the FDCPA so the courts are forced to legislate meaning," Lynyak said.
He urged the Consumer Financial Protection Bureau, which has rulemaking authority for the collection preactices act, to establish clear-cut rules on debt collection. The bureau is conducting research for rulemaking on debt collection activities, which are the single biggest source of complaints.