What Does “Fee Shifting” Mean In An FDCPA Case?
What Does “Fee Shifting” Mean In An FDCPA Case?
One of the advantages of suing debt collectors under the Fair Debt Collection Practices Act (FDCPA) is that the debt collector can be required to pay your attorney fees.
This has a tremendous motivating impact on the debt collector to settle the case with you when it knows it has been caught violating the law.
In a typical lawsuit — car wreck, slip and fall, products liability, etc — each party pays for its own legal fees.
But in most Federal consumer protection laws, the defendant, if found guilty, must pay for the consumer lawyer fees.
We will get into the reason for this in another post but for right now let’s look at why this motivates guilty debt collectors to do the right thing.
The Debt Collector Must Pay Its Own Attorney
Many collectors have insurance that pays for some or all of the attorney fees for the collector.
But some don’t.
Even if there is insurance, it is noted how much money is being spent on the “defense” of the case.
While often defense attorneys cut a discounted rate to get a large amount of business, it is still hundreds of dollars per hour being spent to defend the collector. And often with a big deductible, the debt collector pays all or a portion of this.
In Addition, The Consumer Lawyer Often Is Paid By The Collection Agency
Not only does the collector (or the insurer) pay for its own lawyer, but it can be required to pay for the consumer’s lawyer if it loses the case.
I can’t speak for other consumer lawyers in Alabama but our hourly rate is $400 or more.
I [John Watts] have been practicing since 1995 and Stan Herring has been practicing since 1997.
We have numerous jury trials with six and seven figure verdicts.
In addition, we teach consumer law to lawyers in Alabama and around the country.
So the collector, if it loses, can pay its lawyer hundreds of dollars an hour and us at least $400 an hour.
The Collection Agency Must Evaluate Whether It Is Guilty Early On
Given the attorney fee costs, the collection agency has to honestly answer the question “Did we do anything wrong?”
It could be an illegal collection letter that the debt collector sent.
It might be false credit reporting that violates the law.
Over the years we have often sued the famous large debt buyer “LVNV” for illegally collecting on debts after it loses its collection lawsuit against an Alabama consumer.
There are many other examples of what is wrongful conduct.
However, the point is that the collector has to look in the mirror and honestly assess whether it broke the FDCPA.
If so, then it faces:
- Statutory damages of up to $1000;
- Compensatory (actual) damages for mental anguish, credit reporting damage, etc that might be on the lower end $5000 or $10,000, or could be on the higher end in the six figures;
- Costs of the lawsuit that it pays and that the consumer incurs — deposition expenses, travel expenses, etc. that can range on the low end in the hundreds of dollars to tens of thousands of dollars on the high end;
- Its own attorney fees — just filing an Answer to the lawsuit and setting up the file will be thousands of dollars and taking a case to trial will be tens of thousands of dollars if not over $100,00; and
- The consumer’s attorneys’ fees — in a simple case that we file we have thousands of dollars at the beginning and to take a case to trial we will normally have well over $100,000 in fees.
So, what does this mean?
The debt collector better figure out if it wants to fight or not.
If it knows it is guilty, then it is better to fairly resolve the case early rather than let the fees and costs continue to rise.
When A Collector Knows It Is Guilty, The Motivation Is To Settle As Quickly And Fairly As Possible
The price of the case will go up every hour that is worked on the case.
The collector says “We’ll make you fly to New York to take three days of depositions.”
Our response is “OK. That’s going to be about 40 hours of work. So making us do this will increase our fees by at least $16,000 and the case will most likely get better as well.”
So a case that might settle for $15,000 now goes up to over $30,000.
We have had cases that could have settled for under $10,000 end up settling for thirty times that value.
This is because the collector wanted to pound its chest and fight and “teach you Alabama lawyers a lesson not to fight us.”
OK.
We had a lawyer in Atlanta tell us one time “If you don’t start taking less on your cases, we will make you spend a lot of time fighting it. I’m serious John — we will make you do this.”
My response — “So you are threatening me with the ability to make a lot more money on the case? Odd, but that’s fine. Let’s do it.”
It is one thing for the defense lawyer to get caught up in some ego issue with threatening us.
However, most debt collectors are shrewd business people and understand if they have been caught breaking the FDCPA, better to resolve the case early on and keep the lawyer meters from running…
Final Thoughts — Fee Shifting Encourages Early And Fair Settlements By Collectors
Here’s the bottom line — when we sue collectors and they know they have been caught — they start counting the cost.
They may not like it, but they figure it is better to come in and pay $5,000 or $15,000 or even $100,000 early.
It’s better than facing the full value of our case plus six figures in attorney fees and expenses.
Our clients feel that when collectors approach us early on about settlement, that we should do what we can to work with them to get it resolved quickly and fairly.
We agree.
Now there are lawyers who want to pound their chest and gouge their collection clients for lots of fees to show off how tough they can be. That’s fine.
However, we don’t feel any obligation to cut them any slack.
Our clients are annoyed that these abusive collectors and their lawyers won’t admit their error and make it right.
This causes the collector to have to pay a price.
But most collectors are reasonable once they have been sued.
Remember we don’t normally ever negotiate before suing a collector.
They will decide to act in a reasonable way to resolve the case fairly and early.
Which is often in the best interest of both the collection agency and our client.
Contact Us.
If you live in Alabama and you have any questions, give us a call at 1-205-879-2447.
Or you can fill out a contact form and we will get in touch with you as soon as possible.
I look forward to chatting with you.
Have a great day!