FTC Proposes New Policy Statement on Collecting Deceased Debt

Concerned that some debt collectors may be violating federal consumer protection laws when attempting to collect debt owed by the deceased, the Federal Trade Commission is proposing a new policy statement governing their actions and seeking public comment.

The FTC said its proposal clarifies that it will not take enforcement action against debt collectors who communicate with a decedent’s spouse or executor, administer and persons authorized to handle a deceased person’s estate.  But the agency, which is responsible for enforcing the Fair Debt Collection Practices Act along with the new Consumer Financial Protection Bureau, said the proposed policy guidelines make clear that misleading consumers about their personal obligation in paying a deceased person’s debt is a violation of FDCPA.

The FDCPA does not bar debt collectors from contacting the decedent’s spouse, executor or administrator of the decedent’s estate. But most state probate courts have expanded the list of people who can be authorized to pay a decedent’s debts from assets in the estate beyond what is allowed by the FDCPA, the FTC said.  The Commission wants to reconcile the FDCPA mandates with new state probate laws.

Barbara Sinsley, a partner with the Florida-based law firm of Barron, Newburger & Sinsley, PLLC, told insideARM.com that changes in individual state probate laws now means that more than 85 percent of estates are not formally probated, making it harder for debt collectors to identify the person authorized to pay the decedent’s debt.

“Collecting debt from those assets left by the deceased decreases the cost of credit to everyone,” Sinsley said. “It’s an important part of the credit cycle.”

The market for debt collection in probate and from debt attached to deceased people is estimated to be in the billions annually.

Adam S. Cohen, Co-Chairman and CEO of Phillips & Cohen Associates – an ARM company that focuses on deceased account care — said the FTC has been reviewing the practices of the deceased recovery industry for the past year, and the proposed policy statement clarifies its interpretation of the FDCPA so the industry can operate under a clear set of ground rules.

“As market leaders in this specialty arena, we believe these guidelines, if implemented following the review period, will allow for only compliant, sensitive, professional organizations to serve in this industry,” Cohen said.

Gary Becker, Chairman of DCM Services, the industry’s largest collector of deceased debt, said the Minneapolis-based company’s collection practices are consistent with the FTC’s guidelines and they affirm his belief that DCM’s processes should set the standard for the entire deceased collection industry.

The FTC’s proposed statement pays special attention to the location of the appropriate party authorized to make payments from an estate’s assets. The agency recommends treating a case where the party is unknown as a location communication typical in the debt collection industry. “The communication should state that the collector is seeking to identify and locate the person who has the authority to pay any outstanding bills of the decedent out of the decedent’s estate, but cannot make any other references to the debts of the decedent, including providing any information about the specific debts at issue,” the FTC’s policy proposal reads.

Becker noted that DCM already uses proprietary technology to locate probated estates and identify right party contacts, which will help the company comply with the new guidance.

The FTC’s proposal also provides specific guidance on how collectors must communicate with authorized estate payers. For example, the proposed statement emphasizes that when communicating with someone authorized to pay the debts from assets of the decedent’s estate, collectors must not create an impression that the person is personally liable or could be required to pay the debt using his own assets or assets held jointly with the decedent.  To ensure consumers understand this, the proposed statement notes that collectors may have to disclose this information.

J.C. Gunnell, CEO of Estate Information Services, LLC said proper deceased debt collections requires thorough research, appropriate resources and sensitivity.

“People who are not experienced in this type of work can cause a lot of problems without proper processes and research,” Gunnell said. “We are diligent in our efforts to identify the proper parties without improperly revealing the debt to others who are not authorized to pay … We welcome any clarification that may be provided by the FTC to address abuses in the industry with respect to working deceased accounts.”

The proposed policy statement will be published in the Federal Register. The public has until November 8, 2010 to comment under the reference “Deceased Debt Collections Policy Statement.” Electronic comments can be filed with the FTC at https://ftcpublic.commentworks.com/ftc/deceaseddebtcollection/.