"Zombie Debt" Collection and the Kansas Consumer Protection Act

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Despite the relatively modest rise in unemployment in Kansas (6.3% in December, 2009) in comparison to the rest of the nation, delinquent consumer credit accounts are up dramatically while the average consumer’s ability to pay has been compromised by stagnant wages, unemployment and a generally awful economy.[1]

Zombie debt refers to old debt purchased by independent debt collectors with hopes of intimidating consumers into paying the debt. Until relatively recently, few creditors attempted to collect on older delinquent accounts in fear of throwing good money after bad. Today, however, collecting on older debts and collection accounts is increasing. Aggressive companies often buy charged-off and/or delinquent credit accounts from original creditors for only pennies on the dollar. Independent collection agencies then use sophisticated technologies and algorithms to help locate debtors that are most likely to pay up, creating tremendous margins for the debt collector(s). Often times, consumers pay the debts belonging to other debtors, including family or even strangers, in a mere attempt to avoid further collection efforts and harassment.


Unfortunately, federal legislation passed to address these problems generally provides little recourse against abusive behaviors. Specifically, the Fair Debt Collection Practices Act ("FDCPA") only provides for an aggrieved plaintiff’s actual damages or $1,000, whichever is greater, irrespective of how abusive or egregious the debt collector’s conduct. 15 U.S.C. § 1692k(a)(2). Actual damages can often be difficult and expensive to prove, with the finder of fact often focusing solely on whether or not the debtor owed the underlying debt. This "risk" provides a minimal deterrent to illegal, problematic and financially rewarding collection behavior. Moreover, the $1,000 "cap" on statutory damages has not changed since the drafting of the FDCPA in 1977. In fact, a reasonable adjustment for inflation would result in a statutory damage cap of approximately $3,500.00 today.

Further, the FDCPA is especially "toothless" in confronting actionable “zombie debt” collections because of it’s one-year statute of limitations under 15 U.S.C. § 1692k(d). Specifically, consumers rarely have actual knowledge that debts or accounts previously paid off in full or settled have been bundled up and sold to a new collector until many years after new collection activities commence. This situation often leaves the most culpable of potential defendants beyond the reach of the FDCPA.

Perhaps even worse than the short limitations period, the FDCPA provides defendants the “bona fide error” affirmative defense, which often insulates debt collectors from any liability even when they concede and/or stipulate to a violation of the FDCPA. 15 U.S.C. § 1692k(d). A defendant in an FDCPA action seeking the protection of the bona fide error defense must prove that the violation was (1) unintentional, (2) a bona fide error, and (3) made despite the maintenance of procedures reasonably adapted to avoid the error. 15 U.S.C. § 1692k(c). This defense, virtually always pled by defendants in an FDCPA action, often completely absolves the alleged “strict liability” nature of the FDCPA and puts intent squarely at issue. Caputo v. Professional Recovery Services, Inc., 261 F.Supp.2d 1249, 1255 (D.Kan. 2003).


The Kansas Consumer Protection Act ("KCPA") provides a solution to the limitations and weaknesses of the FDCPA. First, the KCPA provides for actual or civil penalties of up to $10,000 for each violation of the KCPA, whichever is greater. K.S.A. § 50-636 (a). This civil penalty can be enhanced to $20,000 per violation if the aggrieved plaintiff is either disabled or elderly (60 years of age or older). K.S.A. § 50-677.

Second, the statute of limitations for the KCPA is three years rather than the one year limitation for the FDCPA. Third, most violations of the KCPA under an either deceptive or unconscionable practices theory do not require proving intent. Haag v. Dry Basement, Inc., 11 Kan.App.2d 649, 650, 732 P.2d 392, rev. denied 241 Kan. 838 (1987). The KCPA can also be violated irrespective of whether a consumer was actually misled or relied upon the deceptive act or practice. In short, under the KCPA there is no factual or legal issue regarding a defendant collection agency’s "bona fide error" affirmative defense.

The Kansas Supreme Court has previously held that "an independent debt collection agency falls within the definition of a 'supplier' and is subject to the provisions of the KCPA" if three conditions are satisfied:

(1) The debt sought to be enforced came into being as a result of the consumer transaction;

(2) The parties to the original consumer transaction were a "supplier" and a "consumer" as defined by the act; and

(3) The conduct complained of, either deceptive or unconscionable, occurred during the collection of, or an attempt to collect, a debt which arose from the consumer transaction and was owed to the original supplier.

State ex rel. Miller v. Midwest Serv. Bur. of Topeka, Inc., 229 Kan. 322, 329, 623 P.2d 1343, 1349 (1981). In Miller, the Kansas Supreme Court reviewed the legislative history of the KCPA and found that the legislature did not intend to preclude the application of the KCPA to debt collection activities. Id. at 328. The Kansas Supreme Court reasoned that that a "debt collector is obviously engaged in enforcing a consumer transaction," which clearly meets the definition of a “supplier” contained in the KCPA. Id. at 324; see Kan. Stat. Ann. § 50-624(i) (supplier included any “other person who, in the ordinary course of business, solicits, engages in or enforces consumer transactions, whether or not dealing directly with the consumer”).

The KCPA is to be liberally construed to protect Kansas consumers from suppliers who commit deceptive and unconscionable acts. K.S.A. § 50-623 (b). Further, Kansas courts have liberally construed the KCPA in favor of consumers to encompass a variety of transactions. See State ex rel. Stephan v. Brotherhood Bank & Trust Co., 8 Kan.App.2d 57, 60, 649 P.2d 419, 422 (1982) (“Although the legislative history is open to several interpretations, the guiding principle to be applied in interpreting the KCPA is that the act is to be liberally construed in favor of the consumer.”). It is important to note that this application of the KCPA to “independent debt collectors” has been extended to attorneys. Rachoza v. Gallas & Shultz, 1998 WL 171280 *6 (D.Kan. 1998).