That Credit Union Blog

The following is an article reprinted with permission from the upcoming Spring 2009 edition of The WWR Letter:

By: Terry R. Heffernan, Partner

In February 2009, the Federal Trade Commission (FTC) issued its annual report to Congress summarizing the administrative and enforcement actions the FTC took under the Fair Debt Collection Practices Act (FDCPA) during the past year. The FTC has primary enforcement responsibility under the FDCPA, which prohibits deceptive, unfair and abusive practices by third-party collectors of consumer debt. The term “third-party debt collectors” is defined as including contingency fee collectors and attorneys who regularly collect or attempt to collect, directly or indirectly, debts asserted to be owed or due another, as well as debt buyers collecting on debts they purchased in default. 

The FTC advised Congress that in 2008 it received 78,838 FDCPA complaints as compared to 71,004 complaints in 2007. The largest percentage of complaints (34.7%) alleged harassment by the debt collector. The second most common category (slightly more than 32% of complaints) alleged attempts to collect a debt the consumer did not owe at all or a debt amount larger than what the consumer actually owed.  The remaining categories of complaints, in descending order by volume, were:

 Failing to send consumer notices required under the FDCPA;
 Threatening litigation or other action when the collector lacks the legal authority or actual intent to do so; 
 Impermissible calls to the consumer’s place of employment;
 Revealing the alleged debt to a third party; 
 Failing to verify disputed debts; and, lastly,
 Continuing to contact the consumer after receiving a “cease communication” notification from the debtor. 

The FTC also provided Congress with the results of its 2007 public workshop, which the FTC had convened to evaluate the need for changes in the debt collection industry. The workshop led the FTC to conclude that the debt collection legal system needs to be reformed and modernized to reflect changes in consumer debt, the debt collection industry and technology. The FTC accordingly advised Congress of the principle conclusions and proposals derived from the workshop. Summarized below are each conclusion and its respective proposal.

1.     “Major problems exist in the flow of information within the debt collection system.”

To address this conclusion, the FTC proposes the FDCPA be amended to require debt collectors to have more accurate and verifiable documentation regarding the debt in order to make it more likely that collection measures seek the correct amount due and from the right consumer. Additional amendment should require collectors to provide better, more detailed information in validation notices, to allow consumers to exercise their rights under the FDCPA more effectively. Specific examples of “better information” include requiring debt verification notices to contain an itemization of the debt amount as to principal, interest and any additional fees; and requiring every communication sent to a debtor to include notice the debtor has the right to demand the collector cease all further communications.  

2.     “Debt collection laws need to be modernized to take account of changes of technology.” 

When the FDCPA was enacted in 1977, it did not limit the methods collectors could use to contact consumers other than to prohibit the use of postcards. Back then, most people also paid debts through paper checks sent by mail. In today’s world, it is common to pay through a number of different electronic payment methods. These include credit and debit card payments, remotely created paper checks, and electronic transmission through the ACH system. Modern communication options include cell phones, emails, instant messaging, and specific technological devices such as emailed collection notices, web-based collection portals and collection techniques involving interactive voice messaging. 

The FTC accordingly concluded that although collectors generally should be allowed to use all communication technologies, the FDCPA must be “carefully crafted and applied” to avoid collectors using communication technologies in ways that cause consumers to incur charges, or otherwise subject them to collection abuse. The FTC also supports using newer electronic payment methods to receive payments from debtors, but it believes the FDCPA requires amendment to require collectors to obtain “express verifiable consent” from consumers before accessing their accounts, and to deter unauthorized access to consumer accounts. 

3. “Certain debt collection litigation and arbitration practices appear to raise substantial consumer protection concerns.”

In the area of traditional state court collection lawsuits, those participating in the workshop felt collector/creditor plaintiffs have an overly-favorable burden of proof; that defendants are not properly informed of their rights, and are usually unable to afford counsel. Regarding arbitration, the workshop concerns were that arbitration clauses might be buried in larger consumer credit contracts causing consumers to not be aware they are agreeing to arbitration, and that arbitration proceedings are biased in favor of creditors. The FTC, however, felt additional information was needed to verify the extent of these concerns. It will accordingly convene regional round tables in 2009 with state court judges, debt collectors, collection attorneys, consumer advocates, arbitration firms, and other interested parties to verify any real problems and develop possible solutions. 

4. “Debt collection law must evolve to include a regulatory process that ensures that legal requirements keep pace with changes in the marketplace.” 

The main proposal of the FTC to address this concern was that the FDCPA should be amended to grant the FTC the authority to issue regulations to implement the FDCPA. 

5. “Debt collection law enforcement must be pursued aggressively to deter collectors from engaging in conduct that harms consumers.”  

In response to this concern from the workshop, the FTC concluded that private lawsuits, not FTC actions, were intended to be, and should continue to be, the main means of promoting industry compliance with FDCPA. The FTC further concluded statutory damage amounts available in private FDCPA actions should be increased to reflect inflation.

The foregoing is a synopsis of the FTC’s annual report to Congress. The full text of both the annual report and the FTC workshop can be found at www.ftc.gov/opa/2009/02/fdcpa.shtm.  
 
Terry R. Heffernan is a Partner in the Columbus office and manages the Firm’s Nationwide Collateral Recovery department. He can be reached at (614) 857-4390 or theffernan@weltman.com.