FTC Hands Down Advisory Opinion for Mortgage Collectors

The Federal Trade Commission made public Tuesday a rare advisory opinion on the Fair Debt Collection Practices Act in response to a specific question regarding the collection of mortgage debt in foreclosure. The opinion is positive for the industry and consumers, according to the attorneys who requested the opinion.

The FTC advised that when debt collection agencies make their initial contact with consumers regarding a mortgage debt, it is not a violation of the FDCPA to inform the consumer of settlement options that could prevent foreclosure. The FTC stressed that discussing foreclosure settlement options is not an FDCPA violation per se, meaning that violations could occur if the language of the communication does not adhere to the other requirements of the FDCPA.

The opinion was in response to a request from Barbara Sinsley and Manny Newburger, of Barron, Newburger, Sinsley & Weir, on behalf of USFN, formerly known as the U.S. Foreclosure Network. Sinsley and Newburger told insideARM that they wanted to make sure that collectors did not run afoul of the FDCPA when they included language in initial communication letters that spelled out a consumer’s options to avoid bankruptcy.

“It’s refreshing to see the FTC validate that some things debt collectors do can benefit consumers,” said Newburger.

He said that foreclosure law firms, who must adhere to the FDCPA, had gotten requests from clients to include the language to better inform consumers of their options. The fear was that consumers could claim the settlement language would run afoul of the FDCPA’s overshadowing provision. “Consumer lawyers would probably find a way to sue, even on helpful information,” said Newburger.

“Anytime we can achieve clarity on a debt collector’s contact with consumers, it’s a win for the collection industry,” said Rozanne Andersen, senior vice president and general counsel of ARM industry trade group ACA International.

And benefiting consumers was exactly the intention of including the foreclosure language in the contact letters. “The goal here was to help consumers keep their homes,” said Sinsley.

The FTC agreed, saying in the opinion, “the Commission believes that it is in the public interest for consumers who may be subject to foreclosure to receive truthful, non-misleading information about settlement options, especially in light of the recent prevalence of mortgage borrowers who are delinquent or in foreclosure.”

Sinsley noted that the language in question spelled out different loss mitigations options a consumer has, such as repayment plans, refinancing, loan modification or sale of the home.

The FTC rarely hands down advisory opinions on the FDCPA. According to Andersen, the commission has made only four advisory opinions in response to requests, the most recent in October of last year prompted by a request from ACA (“FTC Rules Agencies Can Put It in Writing,” Oct. 10, 2007). In that ruling, the FTC said it was permissible for collection agencies to inform consumers that collection activity had ceased on their account after a validation request was made by the debtor.