The Federal Trade Commission Monday released a report on debt collection litigation and arbitration. The report was presented to industry professionals by one of FTC’s commissioners, Julie Brill, who was speaking at ACA International’s Annual Convention.
The FTC said that the report, titled “Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration,” reflects information gathered at roundtable discussions the FTC held throughout the country in 2009 (“Lots of Ideas at Final FTC Panel on FDCPA Reform,” Dec. 7, 2009), as well as public comments and the FTC’s experience in debt collection matters.
Brill, whose term as FTC Commissioner began in April of this year, said in opening remarks presenting the report that “the debt collection system in this country is broken” from a consumer’s point of view. She noted that a vast majority of debt collection lawsuits filed by accounts receivable management industry players result in default judgments against consumers, a primary focus of the FTC in their information gathering efforts.
The FTC’s report makes a number of specific recommendations to protect consumers from debt collection litigation:
States should consider adopting measures to make it more likely that consumers will defend in litigation. Brill said that the intent of this recommendation was to address “sewer service” on behalf of debt collection attorneys and to limit ARM lawyers’ use of continuance to extend trials. She also noted that states should consider options for consumers to participate in trials by allowing them to attend hearings over the phone or Internet.
States should require collectors to include more information about the debt in their complaints. The report said that in order for an ARM company to file a debt collection lawsuit, the complaint should include: (1) the name of the original creditor and the last four digits of the original account number; (2) the date of default or charge-off and the amount due at that time; (3) the name of the current owner of the debt; (4) the total amount currently owed on the debt; (5) the total amount owed broken down by principal, interest, and fees; and (6) the relevant terms of the underlying credit contract, if the contract itself is not attached to the complaint.
“In my view, if a collector or debt buyer can’t produce this basic information, the case should be dismissed,” said Brill.
States should take steps to make it less likely that collectors will sue on time-barred debt and that consumers will unknowingly waive statute of limitations defenses available to them. The report calls for states to adopt a more clear and uniform statute of limitations for debt to avoid confusion on both sides of the case. The FTC also recommends rules that would require ARM companies collecting on out-of-statute debt to clearly inform consumers that they cannot file suit on the debt and that making a payment on the debt may restart the statute of limitations in some jurisdictions.
Brill told her audience Monday that while she agreed wholeheartedly with the reports recommendations, she would like to see it go further on the issue of collecting time-barred debt. She would like Congress to amend the Fair Debt Collection Practices Act (FDCPA) to ban all collection activity on debt that is beyond the statute of limitations.
Federal and state laws should be changed to prevent the freezing of a specified amount in a bank account into which a consumer has deposited funds that are exempt from garnishment. When banks freeze the accounts of consumers who receive government payments such as Social Security (which are exempt from garnishment), it may result in significant hardship for consumers, including many who are indigent. To alleviate such hardship, federal and state laws should be changed to limit the amount that banks can freeze in accounts receiving exempt funds.
The report’s recommendations surrounding debt collection arbitration include giving consumers a meaningful choice about arbitration, eliminating the bias and appearance of bias in the credit arbitration system, and that arbitration proceedings should be conducted in a manner in which the consumer will be more likely to participate.
Again, Brill said that her personal feelings went beyond the recommendations laid out in the report.
Referencing the recent case of the National Arbitration Forum and fallout after a legal challenge exposed ties to a debt collection agency (“Legal Collector Axiant Files Bankruptcy; NCO Group to Acquire,” Nov. 23, 2009), Brill said that the industry’s self-imposed moratorium on debt collection arbitration cases should be formally extended until such a time that the FTC is confident consumers are being protected.
“Such a ban should remain in place until the arbitration process can be shown to be fair, transparent, and as affordable as traditional litigation, and until consumers have a meaningful opportunity to opt out of pre-dispute arbitration without losing access to the credit services they seek,” she said.
The full text of the FTC’s report can be downloaded at http://ftc.gov/os/2010/07/debtcollectionreport.pdf.