Collectors that choose to settle Fair Debt Collection Practices Act lawsuits for amounts that exceed the cap established by the statute are making their own bed and should not be restricted from doing so, a Magistrate Court judge in New Jersey has ruled, granting preliminary approval of a settlement in an FDCPA class action.
Under the FDCPA, damages against a collector are capped. Section 1692k(a)(2)(B) states that
any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of . . . in the case of a class action, . . . such amount as the court may allow for all [unnamed] class members, without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector ….
In this case, the defendant’s net worth is $3.2 million but it has agreed to settle the case in question for $36,000, which is more than the 1% net worth cap. The question before Judge Cathy L. Waldor of the District Court for the District of New Jersey is whether that should be allowed or not. On the one hand, the judge notes, the defendant is freely choosing to settle the case for more than the 1% cap. On the other hand, exceeding the cap puts all other FDCPA defendants in jeopardy because other plaintiffs will use this figure as a negotiating tool to leverage recovery beyond the cap. Does that mean a brightline rule banning all payments above the cap is necessary, Judge Waldor asks, in order to preserve the congressional goal of limiting the amount of damages a debt collector must pay?
No, the judge ultimately determined. Such a rule is not needed.
What wins the day is “the strong federal policy favoring settlement of disputes,” Judge Waldor wrote. “Interpreting the statute in a manner that permits debt collector defendants the latitude to resolve lawsuits for sums exceeding the statutory cap serves this goal and will result in more FDCPA matters being resolved amicably.”
