Michigan's Debt Protection Statutes
By Josh Ard, Cooley Law School/Sixty Plus Elder Law Clinic
As the name indicates, poverty law attorneys are likely to deal with clients with debt problems. Along with poverty, one often finds a difficulty in paying bills. When a person is having difficulty paying bills, a debt collector often comes calling. Sometimes debt collectors are only annoying, but the problems often become more severe as the tactics become more outrageous. Legislators have recognized the issues and drafted statutes designed to protect people from unfair, deceptive, and outrageous practices. The best known example is the federal Fair Debt Collection Practices Act, codified at 15 USC � 1692 et seq. What appears to be less well known is that Michigan has two statutes that also address abuses in debt collection: Article 9 of the Occupation Code on debt collection, codified at MCL � 339.901 et seq., deals with the business of debt collection. The Collection Practices Act, codified at MCL � 445.251 et seq., deals with debt collection practices by "regulated persons" who are not debt collectors according to the first act.
The Michigan statutes appear to be less commonly known and less commonly litigated than their federal counterpart. There are various reasons for this. First, the remedies in a private right of action are not as generous under state law. Both state and federal laws provide for actual damages and attorney fees, but the statutory damages under the federal act may be up to $1000. Under the state acts, the statutory damages are $50 in general and $150 for willful violations. Second, even though few judges like claims for violations of debt collection laws, many practitioners believe that federal judges are more sympathetic than state judges. Third, the federal venue is often attractive for other reasons. Most debt collection actions are in state court. Consumers may bring Fair Debt Collection Practices Act cases in federal court and case law generally recognizes that the debt collection suit itself may not be added as a counterclaim. The threat of litigation in another forum often increases the likelihood of a favorable settlement on the underlying debt.
Nevertheless, the Michigan statutes add weapons for debtors that are missing in the federal arsenal. The rest of this article discusses some of them.
The federal statute affords no relief for most actions by creditors, no matter how unfair, deceptive, or outrageous. There are a few exceptions such as if the creditor attempted to collect using a different name, or if the creditor was assigned or transferred the debt after it was already in default. Thus, for example, a bank attempting to collect debt on a credit card it issued would not be included under the federal act.
The Michigan Collection Practices Act applies to such a bank, and a range of other creditors. Persons regulated under the act are defined as follows:
(g) "Regulated person" means a person whose collection activities are confined and are directly related to the operation of a business other than that of a collection agency including the following:
- A regular employee when collecting accounts for 1 employer if the collection efforts are carried on in the name of the employer.
- A state or federally chartered bank when collecting its own claim.
- A trust company when collecting its own claim.
- A state or federally chartered savings and loan association when collecting its own claim.
- A state or federally chartered credit union when collecting its own claim.
- A licensee under Act No. 21 of the Public Acts of 1939, as amended, being sections 493.1 to 493.26 of the Michigan Compiled Laws.
- A business licensed by the state under a regulatory act by which collection activity is regulated.
- An abstract company doing an escrow business.
- A licensed real estate broker or salesperson if the claim being handled by the broker or salesperson is related to or in connection with the broker or salesperson's real estate business.
- A public officer or a person acting under court order.
- An attorney handling claims and collections on behalf of a client and in the attorney's own name.
A regulated person shall not commit 1 or more of the following acts:
(a) Communicating with a debtor in a misleading or deceptive manner, such as using the stationery of an attorney or credit bureau unless the regulated person is an attorney or is a credit bureau and it is disclosed that it is the collection department of the credit bureau.
(b) Using forms or instruments which simulate the appearance of judicial process.
(c) Using seals or printed forms of a government agency or instrumentality.
(d) Using forms that may otherwise induce the belief that they have judicial or official sanction.
(e) Making an inaccurate, misleading, untrue, or deceptive statement or claim in a communication to collect a debt or concealing or not revealing the purpose of a communication when it is made in connection with collecting a debt.
(f) Misrepresenting in a communication with a debtor 1 or more of the following:
- The legal status of a legal action being taken or threatened.
- The legal rights of the creditor or debtor.
- That the nonpayment of a debt will result in the debtor's arrest or imprisonment, or the seizure, garnishment, attachment, or sale of the debtor's property.
- That accounts have been turned over to innocent purchasers for value.
(g) Communicating with a debtor without accurately disclosing the caller's identity or cause expenses to the debtor for a long distance telephone call, telegram, or other charge.
(h) Communicating with a debtor, except through billing procedure when the debtor is actively represented by an attorney, the attorney's name and address are known, and the attorney has been contacted in writing by the credit grantor or the credit grantor's representative or agent, unless the attorney representing the debtor fails to answer written communication or fails to discuss the claim on its merits within 30 days after receipt of the written communication.
(i) Communicating information relating to a debtor's indebtedness to an employer or an employer's agent unless the communication is specifically authorized in writing by the debtor subsequent to the forwarding of the claim for collection, the communication is in response to an inquiry initiated by the debtor's employer or the employer's agent, or the communication is for the purpose of acquiring location information about the debtor.
(j) Using or employing, in connection with collection of a claim, a person acting as a peace or law enforcement officer or any other officer authorized to serve legal papers.
(k) Using or threatening to use physical violence in connection with collection of a claim.
(l) Publishing, causing to be published, or threatening to publish lists of debtors, except for credit reporting purposes, when in response to a specific inquiry from a prospective credit grantor about a debtor.
(m) Using a shame card, shame automobile, or otherwise bring to public notice that the consumer is a debtor, except with respect to a legal proceeding which is instituted.
(n) 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. All communications shall be made from 8 a.m. to 9 p.m. unless the debtor expressly agrees in writing to communications at another time. All telephone communications made from 9 p.m. to 8 a.m. shall be presumed to be made at an inconvenient time in the absence of facts to the contrary.
(o) Using profane or obscene language.
(p) Using a method contrary to a postal law or regulation to collect an account.
(q) Failing to implement a procedure designed to prevent a violation by an employee.
(r) Communicating with a consumer regarding a debt by post card.
(s) Employing a person required to be licensed under article 9 of Act No. 299 of the Public Acts of 1980, being sections 339.901 to 339.916 of the Michigan Compiled Laws, to collect a claim unless that person is licensed under article 9 of Act No. 299 of the Public Acts of 1980.
The act allows a client to tell a regulated person: "Don�t contact me. Talk with my lawyer." This alone is quite valuable for many clients. The list does include many of the common abusive methods associated with unscrupulous debt collectors. Very few of these have been addressed in published cases. There are some interesting possibilities for claims. Posting of bounced checks by a regulated person, for example, would seem to be in violation of (l). It is unlikely that the postings in groceries are by regulated persons, however.
MCL � 339.901 et seq. generally applies to the same class of persons as the federal Fair Debt Collection Practices Act. However, it does expressly require certain good practices and forbid certain bad practices that are not addressed in the federal act. Federal preemption, at least under the Fair Debt Collection Practices Act, is not a concern. 15 USC � 1692n states: "For purposes of this section, a State law is not inconsistent with this subchapter if the protection such law affords any consumer is greater than the protection provided by this subchapter."
Debt collectors have to obtain a license unless "the person�s collection activities in this state are limited to interstate communications. This subsection does not exempt a person from other requirements of law that regulate collection practices." MCL � 339.904. In other words, they still have to follow the positive and negative requirements, although they presumably can�t have their license removed or suspended as a penalty.
I recommend that attorneys carefully read through the act to find specifics, but I want to point out a few. Both the state and federal acts require debt collectors to validate debts. Michigan places an additional requirement: "Verification of the debt or any disputed portion of the debt shall include the number and amount of previously made payments . . ." MCL � 339.918(e)(2).
Compare the two acts� treatment of how debt collectors may interact with attorneys. First, under the federal act, among the prohibited acts are: "The false representation or implication that any individual is an attorney or that any communication is from an attorney." 15 USC � 1692e(3). "The threat to take any action that cannot legally be taken or that is not intended to be taken." Ibid at (5).
Sec. 1692i. - Legal actions by debt collectors
(1) in the case of an action to enforce an interest in real property securing the consumer's obligation, bring such action only in a judicial district or similar legal entity in which such real property is located; or
(2) in the case of an action not described in paragraph (1), bring such action only in the judicial district or similar legal entity -
(A) in which such consumer signed the contract sued upon; or
(B) in which such consumer resides at the commencement of the action.
(b) Authorization of actions
Nothing in this subchapter shall be construed to authorize the bringing of legal actions by debt collectors.
The Michigan act doesn�t have such a strict venue requirement. For example, it is a violation of the federal act to bring a collection action in East Lansing district court if the debtor has an East Lansing zip code but lives outside of the city limits. Nevertheless, the Michigan act is much stricter on legal actions by debt collectors and associations with attorneys:
A licensee shall not commit any of the following acts:
(a) Listing the name of an attorney in a written or oral communication, collection letter, or publication.
(b) Furnishing legal advice, or otherwise engaging in the practice of law, or representing that the person is competent to do so, or to institute a judicial proceeding on behalf of another.
(c) Sharing quarters or office space, or having a common waiting room with a practicing attorney or a lender.
(d) Employing or retaining an attorney to collect a claim. A licensee may exercise authority on behalf of a creditor to employ the service of an attorney if the creditor has specifically authorized the collection agency in writing to do so and the licensee's course of conduct is at all times consistent with a true relationship of attorney and client between the attorney and the creditor. After referral to an attorney, the creditor shall be the client of the attorney, and the licensee shall not represent the client in court. The licensee may act as an agent of the creditor in dealing with the attorney only if the creditor has specifically authorized the licensee to do so in writing.
(e) Demanding or obtaining a share of the compensation for service performed by an attorney in collecting a claim or demand or collecting or receiving a fee or other compensation from a consumer for collecting a claim, other than a claim owing the creditor pursuant to the provisions of the original agreement between the creditor and debtor.
(f) Soliciting, purchasing, or receiving an assignment of a claim for the sole purpose of instituting an action on the claim in a court.
MCL � 339.915a. I have not conducted a survey, but I imagine that violations of the above are rife. Simply having an attorney�s name in a communication is a violation. Creditors appear to concentrate on not violating the federal act and may not even be aware of the Michigan statutes. The printed materials for this summer�s ICLE seminar on creditor�s rights contain a discussion of the Fair Debt Collection Practices Act and the Fair Credit Reporting Act, but there is no discussion of any Michigan laws on debt collection. Attorneys who raise debt collection claims ought to seriously read the Michigan statutes to see if any state claims can be added. Obviously, a Michigan claim can be included with any federal debt collection claim. It is also possible that a debt collector who stayed as close to the edge as possible with regard to federal law may well have stepped out of bounds according to Michigan law. Even if a claim is not filed, a purported violation of the law by a debt collection might aid in securing a better settlement of the underlying debt issues for the client.
As mentioned above, private remedies are relatively puny under the Michigan act. Penalties under occupational act licensing claims might be more of a deterrent, at least for those debt collectors who have to be licensed. These penalties involve one or more of the following:
- Placement of a limitation on a license or certificate of registration for an occupation regulated under articles 8 to 25.
- Suspension of a license or certificate of registration.
- Denial of a license, certificate of registration, or renewal of a license or certificate of registration.
- Revocation of a license or certificate of registration.
- A civil fine to be paid to the department, not to exceed $10,000.00.
(h) A requirement that restitution be made.