Reforms Recommended for Debt Collectors and Debt Collection Industry

The Federal Trade Commission issued a report today recommending that the debt collection legal system be reformed and modernized to reflect changes in consumer debt, the debt collection industry, and technology. The report describes the changes the FTC believes will provide better consumer protection without unduly burdening the debt collection industry. The Commission also issued its 31st annual report to Congress on the FDCPA, which summarizes its enforcement of the FDCPA during 2008.

The FDCPA was enacted in 1977 to protect consumers from abusive, unfair, and deceptive practices by third-party debt collectors. Its primary government enforcer is the FTC, which in October 2007 hosted a two-day workshop for consumer groups, industry, academia, and government agencies to explore how collection industry changes have affected consumers and businesses.

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In the workshop report issued today, the Commission cites major problems in the flow of information within the collection system. The report recommends changes in the law to require that collectors have better information, making it more likely that their efforts will be for the right amount and be directed to the right consumer. It also recommends that they be required to provide consumers with better information explaining their rights under the FDCPA. To improve the flow of information, the report recommends these changes to the FDCPA:

  • Requiring that the “validation notices” that collectors are required to send to consumers also disclose the name of the original creditor; break down the debt by principal, total interest, and total fees; and inform consumers of certain rights they already have under the FDCPA.
  • Requiring collectors to conduct “reasonable” investigations responsive to the specific dispute the consumer raised.

According to the workshop report, debt collection laws should be modernized to reflect changes in technology. Recognizing that the law generally should allow debt collectors broad use of communication technology to contact consumers, the report recommends that the law prevent consumers from incurring charges for these contacts or otherwise being subject to unfair, deceptive, or abusive acts and practices. The report recommendations include:

  • Prohibiting collectors from contacting consumers via their mobile phones, including by text messaging, without prior express consent; and
  • Requiring collectors who use new payment technologies to obtain express verifiable authorization from consumers before accessing their accounts.

The workshop report recognizes that certain debt collection litigation and arbitration practices appear to raise substantial consumer protection issues. Because the workshop record lacks sufficient information for the FTC to determine the nature and extent of these issues, the report announces that the agency will convene regional roundtables this year 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.

The workshop report also recommends that Congress give the Commission authority to issue rules under the FDCPA. This would help ensure that legal requirements keep pace with changes in the marketplace.

The report states that private actions, not FTC actions, were intended by Congress to be the primary means of promoting industry compliance with the FDCPA, and notes that the amounts of statutory damages that consumers can obtain in lawsuits under the FDCPA have not changed since 1977. To increase deterrence, the report recommends increasing the damage amounts to reflect inflation since then, and, in the future, to increase them periodically.

Emphasizing the agency’s intention to continue its aggressive enforcement of the FDCPA, the report notes that the FTC has modified its law enforcement approach in order to obtain tough permanent injunctive and equitable relief, including substantial monetary judgments and, for some defendants, bans on collecting debts. The Commission also has taken more actions against the individuals, and not just the companies, responsible for illegal collection practices.

Report: Collecting Consumer Debts: The Challenges of Change

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