FTC ORDERS DEBT BUYERS TO TURN OVER INFORMATION
The Federal Trade Commission announced that it has ordered nine of the nation’s largest debt buyers to turn over information relating to their debt buying and collection practices. The FTC intends to use the information to perform a study of the debt buying industry and specifically to determine whether debt buyers are contributing to the problem of debt collectors who collect from the wrong consumers or the wrong amounts.
The FTC is following up on its February 2009 public workshop report in which it identified perceived problems with respect to the flow of information among creditors, debt buyers and collectors. In the report, the FTC proposed (i) amending the federal Fair Debt Collection Practices Act (“FDCPA”) to require debt collectors to obtain and provide to consumers the name of the original creditor and an itemization of the principal, the total of all interest and the total of all fees and other charges that make up a debt, (ii) requiring debt collectors to undertake a “reasonable” investigation that is responsive to the specific issues raised when a consumer disputes a debt and (iii) requiring debt collectors to provide better information to consumers when explaining their rights under the FDCPA and more informative debt validation notices.
Debt buyers and the flow of information in the debt buying industry have come under increased scrutiny not only from the FTC, but also from state and local legislators and regulators. For example, last year New York City amended its Debt Collection Agencies ordinance (“DCA”) to cover passive debt buyers and to establish more stringent requirements with respect to the documentation that must be provided to a consumer who has requested verification of a debt. The New York City Department of Consumer Affairs also issued a proposed rule to clarify what information must be provided when verifying a debt under the DCA. North Carolina also enacted a law expanding the scope of its Collection Agencies statute to cover passive debt buyers and to require debt buyers to take certain action with respect to the flow of information. Among other things, the North Carolina statute prohibits debt buyers from collecting a debt without valid documentation that the debt buyer is the owner and reasonable verification of the amount of the debt. See our Alert of September 23, 2009. Bills to expand the requirements and restrictions applicable to debt buyers are pending in other states. See, e.g., 2009 Mass. H.B. 1045 (to amend the Collection Agencies statute to require debt purchasers to send debtors initial and monthly notices after purchasing a debt and to require banks to send debtors notice that a debt has been sold).
The FTC has been concerned with the flow, quality and integrity of account information for some time. In 2008 the FTC entered into a $28 million settlement with Bear Stearns and EMC Mortgage and required the parties to institute a data integrity program in connection with the servicing and collection of home mortgage loans.
While private efforts are underway to provide data clearinghouses and improve data flow, quality and integrity going forward, older portfolios may be placed at risk where data is no longer available or is very difficult to trace. Detailed, account-specific data often is not kept in the credit card context, for example.
All parties involved in consumer credit will likely be affected, from originating creditors to servicers and collectors and from debt buyers to investors, and their policies, procedures and processes will need to be developed.
Please contact us if we can be of assistance.
- Michael Tomkies and Charles Gall