THE CHANGING RULES OF THE GAME:FTC URGES REFORM OF DEBT COLLECTION
The financial services industry has come under scrutiny of all levels in response to great changes in products, technology and markets, the growth of outsourcing and the emergence of debt buyers as an industry segment. One area ripe for change is debt collection.
On February 26, 2009, the Federal Trade Commission (“FTC”) issued a report based on its findings from a public workshop held to evaluate the need for changes in the debt collection system, including the federal Fair Debt Collection Practices Act (“FDCPA”) (which was first adopted in 1977 and has seen little change over the years), to better protect consumers. The FTC recommended that the debt collection legal system be reformed and updated to reflect changes in debt collection practices and technology.
The FTC identified several categories of issues and proposed potential solutions:
- Flow of Information in the Debt Collection System
The FTC observed that debt collectors often have inadequate information when seeking to collect from consumers, which increases the likelihood of contacting the wrong consumer or trying to collect the wrong amount. The FTC proposed that the FDCPA be amended to require debt collectors to obtain and provide to consumers: (i) the name of the original creditor and (ii) an itemization of the principal, the total of all interest and the total of all fees and other charges that made up the debt. The FTC also proposed to require a debt collector to undertake a “reasonable” investigation that is responsive to the specific issues raised when a consumer disputes a debt. The report also recommended that debt collectors provide better information to consumers when explaining their rights under the FDCPA, and proposed that the FDCPA be amended to require debt collectors to provide more informative debt validation notices.
- New Technologies
The FTC stated that debt collection laws need to be updated to take account of changes in technology, but that the laws must be carefully crafted to avoid collectors’ use of technology in a manner that causes consumers to incur charges or otherwise subjects consumers to unfair, deceptive or abusive acts or practices. The FTC proposed that the FDCPA be amended to allow a debt collector to contact consumers on their cell phones only when the debt collector has obtained prior express consent to such contacts. The report also suggested that debt collectors should only be permitted to contact a consumer on his or her cell phone between 8:00 a.m. and 9:00 p.m. in the time zone of the consumer’s home address.
With regard to new payment technologies, the FTC recommended that the FDCPA be changed to require that debt collectors obtain express verifiable authorization from consumers before accessing their accounts.>
- Debt Collection Litigation and Arbitration
The FTC pointed out that certain debt collection litigation and arbitration practices appear to raise consumer protection issues, especially with regard to lacking a sufficient evidentiary basis to file the case. The report stated that the FTC intended to convene roundtables with state court judges and officials, debt collectors, collection attorneys, consumer advocates, arbitration firms and other interested stakeholders to learn more and develop possible solutions to address these concerns.
- FDCPA Rulemaking
In order to address debt collection concerns more quickly in the future, the FTC requested that Congress give the FTC the authority to issue rules under the FDCPA.
- FDCPA Enforcement
While the FTC recognized that the FDCPA was intended to be enforced by private actions, rather than by government law enforcement, the FTC pointed out that the amount of statutory damages available to private litigants under the FDCPA had not been changed in more than 30 years. The FTC recommended that Congress update the FDCPA’s statutory damage amounts to reflect inflation and, in the future, increase these amounts periodically. While not recommending a specific amount for statutory liability, the FTC noted that $1,000 in 1977 would be worth approximately $3,600 today. ,