Fifth Circuit Finds Law Firm was not Regularly Engaged in Consumer Debt Collection

In Reyes v. Steeg Law, LLC, 2019 WL 258068, (5th Cir. Jan. 17, 2019), the Fifth Circuit considered whether a law firm was a debt collector under the FDCPA. Under the FDCPA, attorneys qualify as debt collectors when they regularly engage in consumer debt collection, including but not limited to litigation on behalf of a creditor client. The Fifth Circuit affirmed the District Court’s holding that Steeg Law, which specialized in real estate and condominium law, was not regularly engaged in consumer debt collection because the firm had sent only 36 letters (related to 34 liens) in the year before plaintiff filed suit and because the work for those letters (i.e., negotiations, research, and draft work) was not a large part of the firm’s overall practice. The Fifth Circuit distinguished its prior precedent Garrett v. Derbes, 110 F.3d 317, 318 (5th Cir. 1997) where it held that an attorney regularly engaged in consumer debt collection because, during a single nine-month period, the attorney attempted to collect debts owed to another by 639 different individuals, although the debt collection work for that client constituted 0.5% of his practice during that same period.

In deciding Reyes, the Fifth Circuit rejected a bright line rule in favor of a case-by-case analysis based on a set of five factors: (1) the number of lawsuits filed and collection letters mailed, (2) the percentage of time debt collection activities consume, (3) the share of total lawsuits filed that were dedicated to debt collection, (4) the number of creditor clients and the length of the firm’s relationship with them, the frequency and nature of the non-collection work in which the firm engages, and (5) the number of firm attorneys and other employees dedicated to debt collection activities. Other Circuits that have considered the issue have also rejected a bright line rule in favor of a case-by-case analysis of several similar factors. See, e.g., James v. Wadas, 724 F.3d 1312 (10th Cir, 2013); Goldstein v. Hutton, Ingram, Yuzek, Carroll & Bertolotti, 374F.3e 56 (2d Cir. 2004); Schroyer v. Frankel, 197 F.3d 1170 (6th Cir. 1999).