Providing welcoming remarks along with FTC Commissioner Julie Brill, Acting Deputy Director of the CFPB Steve Antonakes noted that the discussion could be broken down into three “areas of focus.” First, one must consider the initial accuracy of information that debt collectors use to pursue consumers. Second, one should consider the accuracy of the information over time, meaning whether the information “deteriorates as it ages or gets passed down the line to secondary or tertiary buyers.” Third, even accepting the accuracy of the information relied upon, safeguards should be taken to ensure that the consumer can dispute debts believed to be incorrect.

The daylong roundtable generally echoed these themes as various presenters and panels provided their thoughts on the present system and prospective channels for improvement. Most notably, participants from industry and consumer protection groups agreed that moving towards a more uniform system for data standards would facilitate a more efficient market, thus benefitting industry and consumers. While some details concerning potential data standards remained unclear, widespread agreement emerged that certain basic information should be included as part of any debt file, including the identity of the original creditor and the amount owed.

Other participants pointed to recently enacted state regulations, such as the Maryland court rule adopted in September 2011, that require debt collectors to provide certain documentation before suing debtors in state court as a possible model to be used in the non-litigation context.

Roundtable participants also discussed the approximate 90 percent non-appearance rate of debtors in court proceedings. While some participants, such as Maryland assistant attorney general Thomas Lawrie, suggested that industry benefitted from a high non-appearance rate, industry representatives countered that they would much prefer a higher appearance rate to facilitate increased discussion and resolve debts outside of court.

The roundtable took place amid recent calls by Senator Sherrod Brown (D-OH) for the CFPB to issue new regulations restricting certain debt collection practices. Senator Brown, as chair of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, released a letter the day before the roundtable asking the CFPB to consider, among other regulations, new requirements for uniform documentation prior to issuing debt collection notices and restrictions on sale and collection of unverifiable and time-barred debts.

Senator Brown also indicated in his letter that the Subcommittee will hold a hearing in the near future to examine possible reforms. We will continue to monitor developments in the debt collection industry and post updates here.

Summer Law Clerk Harrison Proctor contributed to this post.

• the amount of documentation and other information currently available to different types of collectors and at different points in the debt collection process;
• the information needed to verify and substantiate debts;
• the costs and benefits of providing consumers with additional disclosures about their debts and debt-related rights; and
• information issues relating to pleading and judgment in debt collection litigation.

Under the Dodd-Frank Act, the CFPB has primary responsibility for administering the Fair Debt Collection Practices Act (FDCPA), with the FTC exercising concurrent jurisdiction. The CFPB, in conjunction with the FTC, recently released the FDCPA Annual Report 2013, which catalogs the agencies’ actions over the past year with regard to the FDCPA, including information concerning the collection of consumer complaints, the supervision of debt collection activities, and enforcement. The FTC and CFPB also share authority in administering federal privacy and data security laws such as the Gramm-Leach-Bliley Act.

The roundtable will feature panels and presentations by FTC and CFPB leaders, including Commissioner Julie Brill and Associate Director of Financial Practices Jessica Rich from the FTC, and Acting Deputy Director Steve Antonakes and Program Manager John Tonetti from the CFPB. The program will also include an array of industry representatives, consumer advocates, and academics. Panel topics include “Information Available to Debt Collectors at Time of Assignment or Sale,” “Debt Collection Litigation,” and “Time-Barred Debts.”

The roundtable is open to the public and will also be streamed live online. We will monitor the event and post a summary.

The Dodd-Frank Wall Street Reform Act requires the CFPB to “facilitate the centralized collection of, monitoring of, and response to consumer complaints regarding consumer financial products and services.” The CFPB complaint system is distinguishable from other agency complaint systems in that CFPB will follow-up with the consumers to describe the steps taken by the CFPB or another agency in response to the complaint and whether the entity complained of has responded. Certain non-confidential complaint information is subsequently published in the CFPB’s complaint database, including the product and issue involved, the company complained of, and the company’s response.

The expansion of CFPB’s consumer complaint collection to the debt collection industry follows the release of the “Larger Participant” rule in October 2012, which defined “larger participant” for the purposes of entities engaging in the consumer debt collection market, and the beginning of the Bureau’s supervision program over debt collectors on January 2, 2013. Debt collection industry participants should take note as the CFPB continues to ramp up its oversight in this field.

The FTC’s letter reported on seven debt collection cases that it brought or resolved, including settlements obtained in its two recent civil penalty cases. The FTC’s letter also discussed its recent efforts against companies collecting debts related to payday loans and collectors engaging in egregious debt collection practices. In addition to enforcement activities, the letter discussed the FTC’s policy statement regarding decedent’s debts, its amicus briefs arguing against a class action settlement in the Vassale v. Midland Funding, LLC case and urging the Supreme Court to deny certiorari in Fein, Such, Kahn & Shephard, PC v. Allen after the Third Circuit rejected the law firm’s argument that communications to a consumer’s attorney are categorically excluded from the FDCPA.

Notably, the FTC also addressed “gag clauses” in private FDCPA settlements. Stating that Commission staff “recently have become aware that many collectors appear to be routinely including provisions in settlement agreements with consumers that prohibit the consumers from cooperating with or sharing information with the FTC and other law enforcement agencies,” the FTC’s letter stated regardless of enforceability in the courts, the “mere presence” of gag clauses may deter consumers from “providing critical information to the FTC…about possible unlawful debt collector conduct.” As a result, the FTC “believes that gag clauses should not be included in private FDCPA settlements.”

The CFPB’s report outlined the launch of its consumer complaint collection system and described the trend of complaints received by the FTC, noting that complaints about debt collection remains higher than any other specific industry and that complaints about third-party debt collectors rose both in absolute terms and as an overall percentage of complaints. The CFPB’s report discussed its supervision program, which will include many creditors who collect their own debts or hire third party debt collectors, their service providers for collection services, and, once the CFPB’s “larger participant” rule is finalized, larger nonbank debt collectors. The report states that the examination process “will be on ongoing process of pre-examination scoping and review of information, data analysis, onsite examinations, and regular communications with supervised entities, as well as follow-up monitoring.” The “scoping” process is described as a way to focus on risks to consumers and to direct resources to areas of higher risk.

The CFPB’s report described FTC enforcement actions and stated that the Bureau “currently is conducting non-public investigations of debt collection practices to determine whether they violate the FDCPA or the Dodd-Frank Act” but that the Bureau has not yet taken enforcements actions under the FDCPA.

The FTC’s letter and the CFPB’s report are available online.

Under Sections 805(b) and (d) of the FDCPA, debt collectors are prohibited from contacting individuals other than the debtor to collect a debt, with exceptions for the debtor’s spouse, parent (in the case of a minor), guardian, executor, or administrator. Because of the evolution of probate law, however, most estates no longer go through formal probate and thus no executor or administrator is appointed. As a result, the FTC sought comment on its proposed Statement to provide clarification on the parties that may be contacted in collecting decedents’ debts and processes that may be used to identify the person with the authority to pay such debts.

The final Statement states that persons with the requisite authority to pay decedents’ debts may include personal representatives under informal probate or summary administration procedures, persons appointed as universal successors, persons who sign declarations or affidavits to effectuate the transfer of estate assets, and persons who dispose of the decedent’s assets extrajudicially. The Statement further describes the means by which collectors may locate such individuals, stating that collectors should make a good faith effort to conduct record searches before contacting individuals other than executors and administrators. If a collector makes a location call, governed by FDCPA Section 804, to locate the person with the authority to pay the decedent’s debt, the Commission will not take an enforcement action under Section 804(2) for general references to payment of “outstanding bills” of the decedent. Collectors using such language should, however, be cautious of implying that the decedent was delinquent on those bills in a way that would violation Section 804.

Additionally, the statement addresses compliance in communicating with a person who has the authority to pay the decedent’s debts on three specific issues, time of communication, authority to pay, and personal obligation to pay the debt.

Time of Communication:

• The final Statement does not include a “cooling off” period after the debtor’s death during which collectors are prohibited from commencing communications. The Commission, however, “emphasizes that such restraint is a key business practice in allaying concerns arising from collection of deceased accounts.”
• The Statement emphasizes that Section 805(a)(1) prohibits collectors from contacting family members or others at unusual or inconvenient times or places.

Questions About Authority to Pay:

• The Commission declined to prescribe precise language that may be used by a collector seeking to determine whether a person has authority to pay the decedent’s debts but stated that a collector should not use “inappropriate leading questions or engage in any other conduct that may cause the person contacted to asset mistakenly that he or she has the requisite authority.”
• As an example, questions about whether the person is “handling the decedent’s final affairs” paid for the decedent’s funeral “are not likely to elicit sufficient evidence of authority on their own and may lead the person contacted to asset authority mistakenly.”

Misleading Consumers About Their Personal Obligation to Pay the Decedent’s Debt

• The Commission concluded that the information that must be disclosed to avoid misleading consumers about their personal obligation to pay the decedent’s debt will depend upon the circumstances. The final Statement does not require a particular disclosure but instead references two disclosures in the proposed Statement and states that “[t]hese disclosures generally will be sufficient to prevent deception” while also noting that “there may be circumstances in which these disclosures are not applicable or sufficient to prevent deception.”
• As part of the evaluation as to whether a consumer had the misimpression that they are personally liable for the decedent’s debts, the Commission will consider whether the collector obtained an acknowledgment at the time of the first payment that the person understands that he or she is obligated to pay debts only out of the decedent’s assets and is not legally obligated to use his or her own assets or joint assets, to pay the debt.

In general, the FDCPA permits collectors to contact the decedent’s spouse or the executor or administrator of the decedent’s estate. State probate laws have expanded the list of persons authorized to pay a decedent’s debts beyond the FDCPA categories. The proposed enforcement policy statement seeks to reconcile the FDCPA’s requirements with state probate law developments by stating that the FTC will not take enforcement action for violations of Section 805(b) of the FDCPA against collectors communicating with a person authorized to pay the debts from assets in the decedent’s estate.

The proposed statement also clarifies how a debt collector may locate the appropriate person with whom to discuss the decedent’s debt and emphasizes that misleading consumers about their personal obligation to pay a decedent’s debt is a violation of the FDCPA and Section 5 of the FTC Act. The statement notes that in order to avoid giving the misleading impression that the person is personally liable or could be required to pay the decedent’s debt with his own assets or jointly held assets, debt collectors may need to affirmatively disclose that this is not the case.

The FTC is accepting public comments on the proposed policy statement until November 8, 2010.

The FDCPA’s “bona fide error” defense allows a debt collector defendant to avoid liability for FDCPA violations if it “shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” 15 U.S.C. §1692k(c). While the majority view has been that this defense is available for clerical and factual errors only, a number of circuits, including the Sixth Circuit, have held that it also applies to mistakes of law so long as the debt collector had reasonable procedures in place to avoid such mistakes, such as ongoing FDCPA training, procuring the most recent case law, and/or having lawyers dedicated to ensuring FDCPA compliance.

In 2006, Jerman brought a class action complaint against the defendant debt collector, a law firm, alleging that the firm’s debt validation notice violated the FDCPA by misinforming debtors that any dispute of a debt must be made in writing. The firm moved to dismiss, arguing that debt disputes do need to be in writing and that the notice was therefore accurate. The district court, while acknowledging some divergence of authority on the issue, held that the FDCPA does not require disputes to be in writing and that the notice was deceptive in violation of the Act. The firm then moved for summary judgment, arguing that its violation was the result of an honest mistake of law and thus a bona fide error. The firm provided evidence of procedures reasonably adapted to avoid such mistakes, including a firm lawyer dedicated to ensuring FDCPA compliance, regular attendance of debt collection CLE’s, and subscriptions to relevant legal periodicals. The district court entered summary judgment in the firm’s favor, and the Sixth Circuit affirmed, holding that a mistake of law can qualify as a bona fide error under the FDCPA.

The Supreme Court’s decision in Jerman reverses the Sixth Circuit, holding that a mistake of law, no matter how genuine, can never qualify as a bona fide error. The Court cited the long recognized legal maxim that that “ignorance of the law will not excuse any person, either civilly or criminally.”

The decision should be a warning to all debt collectors and law firms regularly engaged in debt collection. As Justice Kennedy noted in his dissenting opinion, “[a]fter [yesterday’s] ruling, attorneys can be punished for advocacy reasonably deemed to be in compliance with the law or even required by it.” No matter what procedures such firms have in place to ensure accurate FDCPA compliance, mistakes of law will not be excused. Debt collectors and lawyers for debt collectors should take special care to keep abreast of FDCPA case law and legal developments, and where there are splits of authority, err on the side of caution.