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Enforcement of Debtor Protection Laws Chilled By Threat of Court Costs

The U.S. Supreme Court ruled that debtors invoking federal law protecting debtors from unfair practices may end up having to pay creditor’s costs to defend the action even when the debtors filed in good faith.


Olivea Marx invoked her rights under the federal Fair Debt Collection Practices Act (FDCPA) after General Revenue Corporation (GRC) used unfair practices to collect a student loan. A trial court agreed with GRC that the tactics did not violate the law, and the court then ordered Marx to pay over $4,500 of the $7,700 in court costs GRC claimed it paid to defend the lawsuit. The U.S. Court of Appeals for the Tenth Circuit agreed that Marx could be ordered to pay the costs even though she filed her claim in good faith. Marx appealed to the U.S. Supreme Court.

Attorneys with AARP Foundation Litigation filed AARP’s friend-of-the-court brief with four other consumer rights organizations, arguing that costs should not be awarded against unsuccessful plaintiffs who bring their claims in good faith. Awarding costs against alleged debtors will chill enforcement of the FDCPA, which was enacted explicitly to be enforced by vulnerable consumers in recognition of the fact that government agencies would have resources and reach to prosecute only the most egregious of violations. The brief pointed out that FDCPA limitation on the award of costs to those cases brought in bad faith makes sense especially in light of other provisions of the FDCPA, which protects companies that actually violate the law if they have procedures designed to prevent such violations.

The Supreme Court disagreed, ruling that the FDCPA does not limit cost shifting to only those cases brought in bad faith. While acknowledging that Marx’s lawsuit was brought in good faith, the Court ruled that Federal Rules of Civil Procedure (specifically, Rule 54(d)) allows courts the discretion to award costs, the FDCPA did not change that, and that the trial court had not exceeded its authority in so ordering.

Justices Sotomayor and Kagan wrote a dissenting opinion that parsed the language of both the Rule and the FDCPA statute. They argued that specificity of FDCPA language limiting cost shifting to those cases filed in bad faith trumps the more general principal in Rule 54(d).

What’s at Stake

One in ten Americans is currently subject to debt collection efforts. Americans carry more debt today than ever before, technological advances make it possible to collect on debt once thought to be uncollectible because of cost, the economic downturn has increased vulnerability, and the rise of identity theft has increased the risk of erroneous debt. At the same time, complaints about aggressive efforts to collect old, erroneous, or time-barred debts have skyrocketed. The federal enforcement agencies brought only seven actions to protect consumers from unfair debt collection practices in 2011, the most they have ever brought in one year. This is not enough to protect those at risk of harassing debt collection actions.

Case Status

Marx v. Gen. Revenue Corp. was decided by the U.S. Supreme Court.