Repairing A Broken System

Protecting Consumers in Debt Collection

Litigation and Arbitration

Federal Trade Commission

July 2010
Repairing A Broken System:

Protecting Consumers in Debt Collection 

Litigation and Arbitration

July 2010

Federal Trade Commission

Jon Leibowitz, Chairman

William E. Kovacic

J. Thomas Rosch

Edith Ramirez

Julie Brill
This report also is available on the Internet. The online version of this report contains hyperlinks 

to news releases, reports, articles, transcripts, brochures, policy statements, and other information 

referenced in this report. You can find the report at

ftc.gov/os/2010/07/debtcollectionreport.pdf. You can also access the Internet 

page for the roundtable discussions, with links to many related documents, at 

ftc.gov/bcp/workshops/debtcollectround/index.shtm. 
Protecting Consumers in Debt Collection Litigation and Arbitration

Contents

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

Chapter 1: Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter 2: Litigation Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

I. The Legal Framework of Debt Collection Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

II. Consumer Participation in Debt Collection Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 6

III. Evidence of Indebtedness in the Debt Collection Litigation Process. . . . . . . . . . . . . . . 14

IV. Statutes of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

V. Garnishment of Exempt Funds in Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Chapter 3: Arbitration Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

I. The Arbitration Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

II. Meaningful Consumer Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

III. Fair Arbitration Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Chapter 4: Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Appendix A: Debt Collection Roundtable Panelists. . . . . . . . . . . . . . . . . . . . . . A-1

Appendix B: FTC Contributors to Debt Collection Roundtables. . . . . . . . . . . . B-1

Appendix C: Agendas for Debt Collection Roundtables. . . . . . . . . . . . . . . . . . . C-1

Appendix D: Debt Collection Roundtables Public Comments. . . . . . . . . . . . . . D-1

Appendix E: Sample State Debt Collection Checklists. . . . . . . . . . . . . . . . . . . . E-1
Repairing A Broken System
Protecting Consumers in Debt Collection Litigation and Arbitration

i

Executive Summary

Creditors and collectors seek to recover on consumer debts through the use of litigation 

and arbitration. Based on its extensive analysis, the Federal Trade Commission (“FTC” or 

“Commission”), the nation’s consumer protection agency, concludes that neither litigation nor 

arbitration currently provides adequate protection for consumers. The system for resolving 

disputes about consumer debts is broken. To fix the system, the FTC believes that federal and 

state governments, the debt collection industry, and other stakeholders should make a variety of 

significant reforms in litigation and arbitration so that the system is both efficient and fair. 

Credit benefits consumers by allowing them to obtain goods and services without paying the 

entire cost at the time of purchase. This lets consumers make purchases they might not otherwise 

be able to afford, and allows them to benefit from goods and services immediately while paying 

for them over time. Because consumers sometimes fail to pay their creditors, debt collection 

plays a vitally important role in the consumer credit system. Debt collection benefits individual 

creditors, of course, who are repaid money they are owed. More importantly, however, by 

providing compensation to creditors when consumers do not repay their debts, the debt collection 

system helps keep credit prices low and helps ensure that consumer credit remains widely 

available. 

Sometimes consumers are unable or unwilling to pay their creditors. Such payment 

problems often worsen during times like the recent economic downturn. When consumers do not 

pay their debts, creditors and collectors may decide to commence proceedings against consumers 

to compel payment. Debt collection proceedings are an important means through which 

creditors and collectors can collect amounts they are owed. 

Collectors use two types of proceedings to compel payment on consumer debt. They may 

file an action in court alleging that a consumer has not paid and seeking a judgment from the 

court that he or she owes the debt. Alternatively, if permitted by the credit contract or other 

agreement between the creditor and the consumer, the collector may commence an arbitration 

proceeding. In the proceeding, the collector may claim that the consumer has not paid and seek 

an arbitration award stating that the consumer owes the debt. In that situation, the collector 

would then ask a court to confirm the arbitration award and enter a judgment against the 

consumer. Collectors may seek to recover on judgments against consumers through garnishing 

bank accounts and wages, or through other means.

As part of a comprehensive assessment of the debt collection system, in late 2007 the FTC 

convened a public workshop to identify consumer protection problems and possible solutions 
Repairing A Broken System

ii

to those problems. In a February 2009 workshop report, the Commission concluded that the 

debt collection system is in serious need of reform and set out concrete proposals to improve the 

system. With regard to debt collection litigation and arbitration, the Commission concluded that 

“certain debt collection litigation and arbitration practices appear to raise substantial consumer 

protection concerns.” Among the concerns relating to litigation were: (1) filing suits based on 

insufficient evidence; (2) failing to properly notify consumers of suits; (3) the high prevalence 

of default judgments; (4) improperly garnishing exempt funds from bank accounts; and (5) 

suing or threatening to sue on time-barred debts. The concerns relating to arbitration included: 

(1) binding consumers to resolve disputes through arbitration without meaningful choice or 

awareness; (2) bias or the appearance of bias in arbitration proceedings; (3) procedural unfairness 

in arbitration proceedings; and (4) requiring consumers to pay substantially more to participate in 

arbitration proceedings than in comparable court proceedings.

Although it identified these concerns, the FTC concluded that it needed more information 

before recommending specific solutions. To obtain more information, during the latter part 

of 2009 the FTC convened public roundtables in Chicago, San Francisco, and Washington, 

D.C. These events brought together representatives of the debt collection industry, consumer 

advocates, private attorneys, academics, government officials, arbitration providers, judges, and 

others. To supplement the information gleaned from the discussions at these roundtables, the 

Commission also solicited and received public comments.

During the time that the FTC was conducting its roundtables, there were major 

developments in the use of arbitration to resolve debt collection disputes. In July 2009, the 

Minnesota Attorney General (“Minnesota AG”) filed suit against the National Arbitration 

Forum (“NAF”), the leading debt collection arbitration forum, alleging that NAF had engaged 

in consumer fraud, deceptive trade practices, and false advertising. NAF purportedly held itself 

out as an impartial arbitration forum when in fact it had financial ties to key members of the 

debt collection industry. Days after the suit was filed, NAF entered into a settlement with the 

Minnesota AG, which required NAF to cease providing debt collection arbitration services. In 

the wake of the settlement with NAF, the American Arbitration Association, which had handled 

some debt collection arbitrations, imposed a moratorium on conducting such arbitrations. A 

number of large banks also announced that they would discontinue the use of mandatory predispute arbitration provisions in their credit card contracts.

At this critical juncture, the FTC believes that articulating its views would be helpful in 

reforming the system of debt collection litigation and arbitration. Based on the record from the 

roundtables (including the associated public comments) and its experience in debt collection 
Protecting Consumers in Debt Collection Litigation and Arbitration

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matters, the Commission’s principal findings, conclusions, and recommendations with respect to 

debt collection litigation are:

Y States should consider adopting measures to make it more likely that consumers 

will defend in litigation. Very few consumers defend or otherwise participate in debt 

collection litigation, resulting in courts entering default judgment against them. States 

should take steps to ensure that: (1) consumers receive adequate notice when actions 

have been commenced; and (2) the costs to consumers of participating in such actions 

are not prohibitively high.

Y States should require collectors to include more information about the debt in 

their complaints. Complaints often do not contain sufficient information to allow 

consumers in their answers to admit or deny the allegations and assert affirmative 

defenses. To assist them in doing so, states should consider requiring that debt 

collection complaints 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.

Y States should take steps to make it less likely that collectors will sue on timebarred debt and that consumers will unknowingly waive statute of limitations 

defenses available to them.

O In circumstances where it is difficult to determine the correct statute of 

limitations, it would be advantageous if states developed more clear and uniform 

statutes of limitations.

O Consumers do not understand that in many states a statute of limitations 

constitutes an affirmative defense which may preclude collectors from 

successfully suing to collect, so they rarely assert this affirmative defense. 

These states should assign to collectors the burden of proving that debts are not 

time-barred and require that they include the date of default and the statute of 

limitations in their complaints.

O Consumers are not aware that collectors cannot lawfully sue to recover on timebarred debt. To prevent deception, collectors who seek to collect debt they know 

or should know is time-barred should disclose that they cannot lawfully sue 

the consumers. Consumers likewise do not know that in many states making a 
Repairing A Broken System

iv

partial payment on a time-barred debt revives the entire debt for a new statute of 

limitations period. Collectors in these states should disclose to consumers that 

making a payment will revive such debt.

Y 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 Commission’s principal findings, conclusions, and recommendations relating to debt 

collection arbitration are: 

Y Consumers should be given meaningful choice about arbitration. Consumers 

currently have little, if any, choice regarding mandatory pre-dispute arbitration 

provisions in contracts. Creditors should draft their consumer credit contracts in a way 

that ensures consumers are aware of their choice whether to arbitrate, and provides 

consumers with a reasonable method of exercising that choice. The public and 

private sectors should increase efforts to educate consumers, so that they have a basic 

understanding of arbitration and its consequences. They should evaluate whether, 

and under what conditions, options beyond the initial choice about arbitration must be 

offered in consumer credit contracts. 

Y Arbitration forums and arbitrators should eliminate bias and the appearance 

of bias. Especially in the wake of serious concerns relating to the conduct of NAF, 

arbitration forums should take significant and concrete steps to prevent bias and the 

appearance of bias. Forums should develop, adopt, and vigorously enforce standards 

prohibiting bias and the appearance of bias for themselves and their arbitrators. 

Forums should diversify their rosters of arbitrators, rotate matters randomly among 

arbitrators, and limit the number of matters each arbitrator handles. Forums should 

make the process and procedures they use for selecting arbitrators as transparent as 

possible.
Protecting Consumers in Debt Collection Litigation and Arbitration

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Y Arbitration forums should conduct proceedings in a manner which makes it more 

likely consumers will participate.

O Consumers frequently do not appear in arbitration proceedings. While it is not 

clear to what extent notification problems cause low participation rates, arbitration 

forums should adopt measures to increase the likelihood they have valid addresses 

for consumers, track and document delivery of notices, and use envelopes which 

make it clear that their contents are important while not disclosing consumer debts 

to third parties. Arbitration forums and arbitrators also should conduct a closer 

assessment of consumers’ assertions that they did not receive adequate notice.

O Arbitration forums should establish rules that limit the total cost to consumers of 

arbitrating a dispute to the cost that they would pay to defend against a similar 

proceeding in court. 

Y Arbitration forums should require that awards contain more information about 

how the case was decided and how the award amount was calculated. Arbitrators 

rarely accompany awards with an opinion setting forth a statement of the law and an 

application of the law to the facts, which makes it difficult to understand the basis for 

the award. Arbitration forums should require that arbitrators issue reasoned opinions 

setting forth: (1) the law applied; (2) how the law was applied to the facts; and (3) 

how the amount of the award was calculated, including how the amount of principal, 

interest, and fees awarded was determined. 

Y Arbitration forums should make their process and results more transparent. For 

the public to assess the costs and benefits of arbitration, and for consumers to decide 

whether to agree to arbitration, the process used and the results reached must be more 

transparent. To promote such transparency, Congress should consider creating a 

nationwide system requiring arbitration forums to report and make public arbitration 

awards and decisions.

Y The Commission will continue to closely monitor debt collection arbitration, 

and evaluate whether creditors and arbitration forums provide consumers with 

meaningful choice and fair process. As appropriate, the Commission will report its 

views on new debt collection arbitration models to policymakers, industry, consumer 

groups, and the general public. 
Repairing A Broken System

vi

The Commission believes that reforms such as those discussed in this report should be 

undertaken to ensure that the debt collection litigation and arbitration systems adequately protect 

consumers without unduly burdening legitimate debt collection. The agency is interested in 

continuing to work with interested parties on implementing these recommendations and taking 

other steps to improve debt collection litigation and arbitration. 
Protecting Consumers in Debt Collection Litigation and Arbitration

1

Chapter 1

Introduction

In February 2009, the Federal Trade Commission issued a comprehensive report with 

findings, conclusions, and recommendations concerning consumer protection issues related to 

debt collection. Among other things, the Commission’s report, Collecting Consumer Debts: The 

Challenges of Change – A Workshop Report,

1

 concluded that “certain debt collection litigation 

and arbitration practices appear to raise substantial consumer protection concerns.”2 The report, 

however, also concluded that the FTC needed more information to formulate recommendations 

as to how these concerns should be addressed.

To obtain this information, during the latter part of 2009 the FTC convened public 

roundtables in Chicago,3 San Francisco,4 and Washington, D.C.5 These events brought together 

representatives of the debt collection industry, consumer advocates, private attorneys, academics, 

government officials, arbitration providers, judges, and others6 to discuss potential consumer 

protection problems arising in debt collection litigation and arbitration as well as possible 

solutions to those problems.7 To supplement the information gleaned from the discussions at 

these roundtables, the Commission also solicited and received public comments.8 

1. Federal Trade Commission, Collecting Consumer Debts: The Challenges of Change – A Workshop Report

(2009), available at http://www.ftc.gov/bcp/workshops/debtcollection/dcwr.pdf (hereinafter Challenges of

Change). 

2. Id. at i-ii. 

3. See Transcript I, Aug. 5, 2009, available at http://www.ftc.gov/bcp/workshops/debtcollectround/090805-

CHIL/transcript-90805.pdf; Transcript II, Aug. 6, 2009, available at http://www.ftc.gov/bcp/workshops/

debtcollectround/090805-CHIL/transcript-90806.pdf. Citations to the transcripts in this report will follow the 

format “Tr. X at a,” where “X” indicates the roman numeral of the transcript cited and “a” denotes the page 

number of the transcript on which the reference can be found. 

4. See Transcript III, Sept. 29, 2009, available at http://www.ftc.gov/bcp/workshops/debtcollectround/090929-

SANF/90929ftc.pdf; Transcript IV, Sept. 30, 2009, available at http://www.ftc.gov/bcp/workshops/

debtcollectround/090929-SANF/90930ftc.pdf. 

5. See Transcript V, Dec. 4, 2009, available at http://www.ftc.gov/bcp/workshops/debtcollectround/091204-DC/

transcript.pdf. 

6. A list of roundtable participants is set forth in Appendix A to this report. A list of FTC contributors is set forth 

in Appendix B to this report.

7. The agendas for each of the roundtables are included in Appendix C to this report.

8. A list of the individuals and entities that submitted public comments is included in Appendix D to this 

report. Comments can be found at the following three locations: http://www.ftc.gov/os/comments/

debtcollectroundtable1/index.shtm; http://www.ftc.gov/os/comments/debtcollectroundtable2/index.shtm; and 

http://www.ftc.gov/os/comments/debtcollectroundtable3/index.shtm. 
Repairing A Broken System

2

Based on the information received at and in connection with the roundtables as well as 

the Commission’s extensive experience in debt collection matters, this report makes findings 

and conclusions as to debt collection litigation and arbitration and their effect on consumers. 

The report also makes a variety of recommendations concerning how changes in law, court 

procedures, and industry practice could improve the system of debt collection litigation and 

arbitration.

Chapter 2 addresses debt collection litigation, nearly all of which occurs in state courts. The 

report finds very few consumers defend or otherwise participate in debt collection litigation. The 

Commission therefore recommends state and local governments consider making a variety of 

reforms to service of process, pleading, and court rules and practices to increase the ability of 

consumers to defend or otherwise participate in debt collection litigation. The report also finds 

complaints and attachments in debt collection cases often do not provide adequate information 

for consumers to answer complaints or for judges to rule on motions for default judgment. The 

FTC therefore recommends that courts more rigorously apply existing rules to require that 

collectors provide adequate information and that jurisdictions consider adopting rules mandating 

the information which must be included in or attached to the complaint. The report additionally 

finds that state statutes of limitations on filing actions to recover on debt are sometimes variable 

and complex, and generally not understood by consumers. The Commission suggests that 

states consider modifying their laws to make it simpler to determine the applicable statute of 

limitations, and to require that collectors provide consumers with important information about 

their legal rights when collecting debt they know or should know is time-barred. The report 

further finds that consumers suffer significant hardship when funds in consumer bank accounts 

exempt from garnishment under existing law are frozen pending a state court determination 

of whether the funds are subject to garnishment. To prevent such hardship, the Commission 

recommends that federal and state governments change the law to limit the amount that banks 

can freeze in accounts receiving exempt funds.

Chapter 3 addresses debt collection arbitration. The report finds that consumers are not 

given meaningful choice whether to enter into arbitration and that the debt collection arbitration 

process is fundamentally unfair to them. Creditors, collectors and arbitration forums should 

adopt changes to ensure that: (1) consumers are given a meaningful choice about whether to 

arbitrate and a reasonable method of exercising that choice; (2) neither arbitration forums nor 

arbitrators are biased or appear to be biased; (3) consumers are given adequate notice of the 

commencement of arbitration and their costs of participating in arbitration are limited to the costs 

the consumers would have incurred to defend against similar proceedings in court; (4) arbitrators 

issue reasoned, written decisions to support their awards; and (5) arbitration and its results are 
Protecting Consumers in Debt Collection Litigation and Arbitration

3

sufficiently transparent to instill confidence in use of arbitration as alternative to the public 

court system. The FTC will continue to closely monitor, evaluate, and report, as appropriate, on 

whether debt collection arbitration models are providing consumers with meaningful choice and 

a fair process. Chapter 4 provides a brief conclusion. 
Repairing A Broken System

4
Protecting Consumers in Debt Collection Litigation and Arbitration

5

Chapter 2

Litigation Proceedings

I. The Legal Framework of Debt Collection Litigation

Every debt collection action begins with a consumer credit obligation. If a consumer credit 

account appears not to be paid timely, the creditor will usually attempt to obtain payment from 

the consumer. This usually entails a series of letters and telephone calls from the creditor to 

convince the consumer to pay.

If the creditor is not able to collect on its own, it may contract with a contingency collection 

agency to collect the debt. The creditor also may resell the debt to a “debt buyer” for some 

fraction of the amount the creditor is owed. Selling debt of all types (e.g., credit card debt, 

telecommunications debt, medical debt, or utility debt)9 has become an increasingly common 

industry practice during the past decade. Debt buyers may then collect on the debts they 

purchase, employ contingency collectors, or resell the debt to other debt buyers. Indeed, much 

purchased debt is resold one or more times as it moves through the debt collection system,10

often making it more difficult for consumers to recognize the debt being collected because the 

owner of the debt is not the original creditor. 

If collection efforts are unsuccessful, the debt may be referred to a collection attorney to file 

a lawsuit to collect on the debt.11 The number of collection cases on court dockets has increased 

in recent years.12 Collectors may also employ litigation more quickly than in the past; industry 

sources “have noted that the growth of the debt-buying industry has resulted in increases in 

collection lawsuits because entities that purchase delinquent debt often use collection law firms 

as their primary tool for recovery.”13 A collector may obtain a court order requiring the consumer 

to pay the debt, either through a judgment in litigation or through an arbitration proceeding 

9. Challenges of Change, supra note 1, at 13 (citing DBA, Inc. comment). 

10. According to the U.S. Government Accountability Office, as many as half of all credit accounts purchased 

directly from original creditors eventually are resold. U.S. Gov’t Accountability Office, Credit Cards: Fair

Debt Collection Practices Act Could Better Reflect the Evolving Debt Collection Marketplace and

Use of Technology (Sept. 2009), available at http://www.gao.gov/new.items/d09748.pdf (hereinafter GAO

Report). 

11. Depending on the terms of the contract giving rise to the debt, collectors may commence private arbitration 

proceedings rather than lawsuits in court. These issues are discussed extensively in Chapter 3. 

12. See, e.g., Challenges of Change, supra note 1, at § VI.C.1; see also sources cited in GAO Report, supra note 

10, at 41. 

13. GAO Report, supra note 10, at 41 (citing Kaulkin Ginsberg and the National Association of Retail Collection 

Attorneys). 
Repairing A Broken System

6

followed by a court proceeding to confirm the arbitration award and reduce it to a judgment. 

Once collectors obtain a judgment, they have additional, powerful tools at their disposal – wage 

garnishment and property garnishment – to collect on the judgment. 

Debt collection lawsuits almost invariably are filed in state courts, where state law is the 

main source of the applicable substantive and procedural standards. Each state generally sets 

its own substantive standards governing the rights and obligations of creditors and debtors with 

regard to debts. Each state also applies its own rules of civil procedure and evidence and uses 

them to determine whether service of process was adequate, the pleadings contained appropriate 

and sufficient information, and judgments should be granted. These substantive and procedural 

standards may vary considerably by state and, in some instances, within a state depending on the 

local jurisdiction or whether they are used in small claims court or civil court. 

Although debt collection litigation is primarily a matter of state law, the conduct of 

collectors in these cases is also subject to federal law. The Fair Debt Collection Practices Act 

(“FDCPA”)14 prohibits debt collectors15 from engaging in unfair, deceptive, and abusive acts or 

practices and identifies specific conduct that is banned. The FDCPA sets forth some standards 

to which collectors must adhere in connection with debt collection litigation in federal or state 

court. For example, as interpreted by numerous federal courts, the FDCPA prohibits collectors 

from threatening to sue or suing on a debt on which the applicable state statute of limitations 

has run.16 Many states have enacted their own statutes similar to the FDCPA which govern the 

conduct of debt collectors.17 

II. Consumer Participation in Debt Collection Litigation

Fundamental fairness dictates that the legal process afford consumers a reasonable 

opportunity to defend themselves. To ensure that consumers have such an opportunity, they 

must receive adequate notice of the commencement of a lawsuit and have a method of defending 

14. 15 U.S.C. §§ 1692-1692p. 

15. “Debt collectors” are persons engaged in the collection of debts owed to another, with certain exceptions. 

Creditors collecting on their own debts generally are not “debt collectors” for purposes of the FDCPA. 

Debt buyers – persons who collect debt on their own behalf that they have purchased from creditors or debt 

collectors – are covered by the FDCPA if the accounts were in default at the time the debt buyers purchased 

them. FDCPA §§ 803(4), 803(6); 15 U.S.C. §§ 1692a(4), 1692a(6); see also Ruth v. Triumph P’ships, 557 F. 3d 

790, 796-97 (7th Cir. 2009); FTC v. Check Investors, 502 F. 3d 159, 171-72 (3rd Cir. 2007). Section 5 of the 

FTC Act, 15 U.S.C. § 45(a), broadly prohibits unfair or deceptive acts or practices, including those of creditors. 

16. See Kimber v. Fed. Fin. Corp., 668 F. Supp. 1480, 1489 (M.D. Ala. 1987); see also cases cited infra at note 

106. 

17. See, e.g., Cal. Civ. Code §§ 1788-1788.33; Fla. Stat. §§ 559.55-559.785; Ill. Comp. Stat. 425/1-25. 
Protecting Consumers in Debt Collection Litigation and Arbitration

7

themselves that is not unduly costly. Most alleged debtors fail to answer complaints or otherwise 

defend themselves in debt collection actions. 

There was a broad consensus among roundtable panelists that relatively few consumers who 

are sued for alleged unpaid debts actually participate in the lawsuits. Although no empirical data 

were presented or submitted, panelists from throughout the country estimated that sixty percent 

to ninety-five percent of consumer debt collection lawsuits result in defaults, with most panelists 

indicating that the rate in their jurisdictions was close to ninety percent.18 

Roundtable panelists and commenters differed widely on why there is such a high default 

rate in debt collection litigation. In general, industry representatives asserted that most debtors 

who default do so because they owe the debt and therefore recognize that disputing it would 

be futile. Consumer advocates, on the other hand, generally attributed the low participation 

rate to debtors not receiving notice of the action or to procedural hurdles that make it difficult 

and expensive for debtors to defend. The Commission is unaware of any empirical data 

bearing on this question, making it difficult to draw definite conclusions as to why consumers 

do not participate. Nevertheless, given how few consumers appear and the risk of adverse 

consequences from not appearing, the Commission believes that the public would benefit from 

efforts to increase consumer participation in debt collection litigation. 

18. See, e.g., Abrams, Tr. V at 18 (well over 60%); Buckles, Tr. I at 24 (85%); Domestic Policy Subcommittee 

Minority Staff Report of the House Oversight and Government Reform Committee (Domestic Policy 

Minority Staff) Comment, 3-4 (80% in New York City and Massachusetts, citing Urban Justice Center, 

Debt Weight: The Consumer Credit Crisis in New York City and its Impact on the Working Poor, 1 (Oct. 

2007), available at www.urbanjustice.org/cdp); Evans, Tr. V at 19 (70-80%); Fisher, Tr. V at 193 (70%); 

Groves, Tr. V at 22-3 (80-90%); Lipman, Tr. I at 21-2 (85-90%); MFY Legal Services (MFY) Comment 

at 1-2 (90% of New York City debtors fail to answer in suits filed by seven largest debt collection law 

firms, citing MFY’s 2008 report, Justice Disserved: A Preliminary Analysis of the Exceptionally Low 

Appearance Rate by Defendants in Lawsuits Filed in the Civil Court of the City of New York, available 

at http://www.mfy.org/Justice_Disserved.pdf); Moiseev, Tr. I at 21 (85-90%); Moore, Tr. IV at 18 (80% 

based on California Creditors’ Bar Association informal survey); Neighborhood Economic Development 

Advocacy Project (NEDAP) Comment at 2 (75% default rate in New York City and 90% rate of failure 

to answer collection suit); Redmond, Tr. V at 22 (percentage is “certainly very high”); Surh, Tr. IV at 55 

(95%); The Legal Aid Society, Neighborhood Economic Development Advocacy Project, MFY Legal

Services, and Urban Justice Center – Community Development Project, Debt Deception: How Debt

Buyers Abuse the Legal System to Prey on Lower-Income New Yorkers (May 2010), 8, available at 

http://www.nedap.org/pressroom/documents/DEBT_DECEPTION_FINAL_WEB.pdf (hereinafter Debt

Deception) (finding among 336 collection cases brought by the 26 most litigious debt buyers in New York City 

that 81% of cases initially resulted in default judgments for the debt buyers); but see also Moore, Tr. IV at 151 

(95% of cases that go to judgment are by default). 
Repairing A Broken System

8

A. Notice to Consumers of Debt Collection Litigation

When a collector files an action against a consumer, it must serve a copy of the summons 

and complaint on that individual. Jurisdictions vary in their requirements for who may serve 

process and how they must do so.19 In some cases, service requirements depend on the court 

in which the action is filed, such as a small claims court or a court of general jurisdiction.20 

Typically, process servers are required to complete an affidavit attesting to the fact that they 

made service on a specific individual at a particular time and place.

Service of process informs defendants that an action has been commenced and permits 

them to exercise their rights to defend the action. If a defendant does not receive process, she is 

unlikely to know of the lawsuit, typically leading to the entry of a default judgment. 

Service of process may be inadequate or improper for many reasons. For example, process 

may fail to reach the consumer if it is delivered to an old or otherwise incorrect address or it is 

delivered to the wrong person, such as someone with a similar name.21 Some process servers 

may simply not serve the consumer but falsely assert that they have done so.22 

Roundtable participants differed as to whether inadequate or improper service is prevalent. 

Many consumer advocates and judges who adjudicate debt collection cases stated that 

19. See, e.g., Buckles, Tr. I at 29-30, 74-75 (Michigan); Edelman, Tr. I at 47 (Illinois – substitute service); 

Leibsker, Tr. I at 26 (Cook County, Illinois); Lipman, Tr. I at 28-29 (Iowa). For state-specific rules, see 

generally NAPPA Membership Directory and Civil Rules Guide, Fall 2009, passim; Feerick Center for Social 

Justice at Fordham Law School (Feerick Center) Comment, passim. 

20. See, e.g., Iowa R. Civ. P. 1.302(3); V.R.C.P. 3. See also Mass. Ann. Laws Unif. Small Claims Rule 2(b). 

21. See, e.g., Edelman, Tr. I at 47-48 (wrong person is served either at old address or with name similar to intended 

defendant). 

22. This is sometimes referred to as “sewer service” – the server throws the documents “down the sewer” and then 

falsifies its affidavit of service. See, e.g., United States v. Brand Jewelers, Inc., 318 F. Supp. 1293 (S.D.N.Y. 

1970); see also, e.g., Coffey, Tr. V at 24 (“predominantly, the reason that people are not showing up [in 

court] in these kinds of cases is because of sewer service”); Faulkner, Tr. V at 25-26 (“Sewer service is a big 

problem” such as when service in a collection case purportedly took place at the consumer’s home after that 

consumer was evicted following foreclosure, and the home was obviously empty); NEDAP Comment at 2 

(sewer service is the primary reason most defendants do not appear in court).
Protecting Consumers in Debt Collection Litigation and Arbitration

9

inadequate or improper service occurs frequently.23 One local official reported that her agency’s 

comprehensive investigation of process servers in New York City revealed that “many are not 

performing service. They are filling out false affidavits of service. They are not going to the 

addresses. They are not sufficiently checking the addresses.”24 A Chicago judge explained 

similarly that one of his colleagues had conducted a “spot audit” of one process server and found 

that he “claimed to be in areas thirty miles apart in the Chicago-land area within minutes . . . . 

And we [asked,] ‘Is he Superman?’”25

In contrast, collection industry representatives at the roundtables generally asserted that 

inadequate or improper service is not prevalent in debt collection cases.26 According to some, 

service problems are rare and play a very small role in the failure of consumers to appear and 

defend.27 Similarly, representatives of professional process server organizations maintained that 

many or most process servers do serve properly, but acknowledged that not all do so.28 

Most of the information available as to problems with service of process is anecdotal or 

relates to particular local jurisdictions, specifically, large metropolitan areas. The Commission 

23. See, e.g., Appleseed, Due Process and Consumer Debt: Eliminating Barriers to Justice in Consumer Credit

Cases (Feb. 2010), 12, available at http://ny.appleseednetwork.org/LinkClick.aspx?fileticket=dFHdRj22C

XY%3d&tabid=252 (hereinafter Appleseed Report); Brown, Tr. I at 23 (many consumers who come in at 

garnishment stage after default judgments have been entered against them claim they never received service 

of summons and complaint); District Council 37 Municipal Employees Legal Services (DC 37) Comment at 

6-7 (of 238 New York City debt collection defendants represented by the DC 37 legal services from January 

2008 through June 2009, 65 defendants, or 27.3% of the total, first learned of the lawsuit when their wages 

were garnished or their bank accounts restrained); Donnelly, Tr. I at 35, 45 (fraudulent service detected upon 

“spot audit”), 79-80 (“I’m not sure how big the problem [of improper service] is. I suspect that it’s larger than 

we as judges know, and the New York lawsuit brings that to bear.”); Hillebrand, Tr. IV at 42-43 (familiar with 

numerous instances of consumers who first discovered they had been sued and a default had been taken when 

wages or bank accounts were garnished); Maurer, Tr. IV at 73-75 (when consumers with defenses to debt 

collection cases claim not to have been served and to have first learned of suits at garnishment stage, Maurer’s 

clinic seeks evidence including the original proof of service in the underlying case and has found numerous 

instances of improper service); MFY Comment at 1; Moiseev, Tr. I at 33, 37 (instances of faulty claims by 

process server of “simultaneous service”); Debt Deception, supra note 18, at 9 (finding that 71% of collection 

suit defendants who called a New York City legal hotline were either not served or served improperly, and 

more than half received no notice of the lawsuit at all); see also Gargano, Tr. IV at 35. 

24. Tepper, Tr. V at 47 and 64. 

25. Donnelly, Tr. I at 35. 

26. See, e.g., ACA International (ACA) Comment at 10-11; Needleman, Tr. V at 34-35. 

27. See, e.g., Gagnon, Tr. V at 35 (only 0.02% percent of her law firm’s consumer defendants file motions to 

vacate judgment claiming lack of service); Leibsker, Tr. I at 62 (only about 1% of people at most are not 

served; “in general, people are getting served”); Needleman, Tr. V at 34-35 (“the percentage of nonservice is 

extraordinarily small . . . I don’t think that’s the main issue of why [consumer defendants] are not coming [to 

court]”).

28. See, e.g., Certified Civil Process Servers Association of Texas (CCPSA Texas) Comment at 2; Estin, Tr. IV at 

38; National Association of Professional Process Servers (NAPPS) Comment at 2; Tamaroff, Tr. IV at 56-58; 

Yellon, Tr. V at 61-63, 69-70.
Repairing A Broken System

10

is not aware of any reliable, nationwide empirical data on the prevalence of service of process 

problems, including whether the problems found in some jurisdictions are present throughout 

the country. Nevertheless, the very high rate at which consumers do not appear and the service 

of process problems documented in some jurisdictions give the Commission a sufficient basis 

to conclude that efforts to improve service of process in debt collection litigation would benefit 

consumers in many locations. 

The FTC believes that service of process problems should be addressed at the state and 

local level. The nature and scope of service of process problems likely vary by jurisdiction 

and process servers ordinarily are regulated and overseen at these levels, through state law and 

court procedural rules. Further, the Commission recommends that state and local jurisdictions 

consider adopting four types of measures that some jurisdictions have already undertaken. 

First, randomly conducted audits would be useful in determining the nature and extent of 

the service problems, if any, that exist in debt collection cases filed in specific jurisdictions. An 

audit by a judge in Cook County, Illinois, for example, revealed more extensive and serious 

service of process problems than some of his colleagues thought existed.29 Audits also could 

reveal individual process servers or agencies engaging in unlawful practices. The New York 

Attorney General’s office conducted such an audit and, finding a variety of unlawful servicing 

practices, criminally prosecuted the process server.30 

Second, jurisdictions should also consider amending service of process rules to require 

greater verification. Some jurisdictions have modified these rules to make it more likely that 

the correct consumers are served.31 For example, in response to the efforts of a working group 

of judges, consumer advocates, and creditor representatives, Massachusetts recently changed 

its small claims court rules to require that collectors in most debt collection cases verify the 

29. Donnelly, Tr. I at 35.

30. The records of the process server, American Legal Process, revealed numerous instances in which process 

servers claimed: to be at two or more locations at the same time; to be at two locations in sequence when 

physically impossible in light of the time required to travel the distance between them; to have served 

documents at times before those documents were received; to have attempted service at times before the court 

index number had been purchased; and to have notarized signatures when physically impossible to do so. In 

re Hon. Ann Pfau v. Forster & Garbus et al., Index No. 2009-8236 (Erie County Supreme Court), Attorney 

Affirmation of James M. Morrissey (July 2009). 

31. See, e.g., Appleseed Report, supra note 23, at 13-15 (New York City Civil Court Uniform Rules § 208.6 

requires a new notice to be mailed by the court to each consumer debt defendant as a second notice 

mechanism, and default judgment may not be granted when notice is returned to court as undeliverable); 

Tepper, Tr. V at 63-65 (New York City Department of Consumer Affairs) (service of process can improve 

by: (1) ensuring process servers are paid enough to motivate them to do their jobs properly; (2) using new 

technologies to monitor the location of process servers throughout the day; and (3) promulgating laws or rules 

requiring enhanced bookkeeping and record keeping). See also Mass. Ann. Laws Unif. Small Claims Rule

2(b); State of Connecticut Judicial Branch, Report of the Bench/Bar Small Claims Committee 3-4 (2009). 
Protecting Consumers in Debt Collection Litigation and Arbitration

11

current addresses of consumers by consulting reliable sources (such as municipal or motor 

vehicle records) and attest, under penalty of perjury, that they have engaged in such verification 

efforts.32 Likewise, a bench and bar working group in Connecticut recently recommended that 

debt collectors consult two reliable sources to verify a consumer’s address and attest, under 

oath, that they consulted such sources.33 The requirements adopted in Massachusetts and under 

consideration in Connecticut may be useful models for other jurisdictions.

Third, some jurisdictions now require, in addition to regular service of process, use of the 

United States mail to provide consumers with supplemental notice of debt collection lawsuits. 

For example, North Carolina requires debt buyers to provide consumers with written notice of 

their intent to file suit thirty days prior to initiating suit; the notice must include relevant debtrelated information such as an itemized accounting of amounts sought and proof of ownership 

of the debt.34 New York City requires that collectors prepare a notice about the lawsuit, which 

the court clerk sends to the purported debtor by United States mail, and local law provides that 

the court may not enter a default judgment if the notice is returned as undeliverable.35 These 

supplemental notice mechanisms can be an important backstop if ordinary service efforts are 

problematic or unsuccessful. In New York City, following the adoption of these mechanisms, 

more consumers are appearing in court and many of the consumers who do appear explain that 

the clerk-mailed notices were their only notice of the pending legal action.36 Other jurisdictions 

may benefit from implementing similar supplemental notice requirements. 

Finally, law enforcement actions and judicial sanctions could help deter fraud by process 

servers. Some states recently have taken action against bogus process servers. The New York 

Attorney General, for example, filed civil and criminal actions against process servers who 

had engaged in widespread misrepresentations and “sewer service” in debt collection litigation 

32. Mass. Ann. Laws Unif. Small Claims Rule 2(b). 

33. State of Connecticut Judicial Branch, Report of the Bench/Bar Small Claims Committee 3-4 (2009). See also

Connecticut Rules Committee for the Superior Court, proposed practice book revision § 24-9, published in 

Connecticut Law Journal, 58C-59C (May 19, 2009) (version of Bench/Bar Committee’s recommendation that 

was proposed by the Rules Committee). 

34. N.C. Gen. Stat. §§ 58-70-115(5) and (6).

35. N.Y. City Civ. Ct. Unif. Rules § 208.6 (2009); see also N.Y. City Civ. Ct. Chief Clerk’s Memorandum CCM176 (Apr. 1, 2008). 

36. Appleseed Report, supra note 23, at 13-15. 
Repairing A Broken System

12

matters.37 These suits allege over 100,000 instances of faulty service in New York State which 

resulted in default judgments against consumers. 

B. Costs of Defending in Debt Collection Litigation

Assuming that consumers have been properly served, roundtable participants suggested 

additional reasons that they may not answer or otherwise defend against debt collection suits. 

Representatives of the collection industry generally asserted that the primary reason is that 

consumers know they owe the debts and do not have any viable defenses, although some 

industry representatives conceded that consumers’ trepidation about the legal process and 

inability to retain counsel may also play a role.38 Consumer advocates said that consumers may 

not answer or otherwise defend because they cannot take time off work without pay, are afraid of 

courtroom processes and unfamiliar with their options, have complex and multiple demands in 

their lives, have transportation difficulties, or cannot obtain effective representation.39 

37. See, e.g., People v. Zmod Process Corp. DBA Am. Legal Process & Singler, Index No. 2009-4228 (Erie County 

Supreme Court) (Apr. 2009) (civil suit); People v. Singler & Zmod Process Corp. dba Am. Legal Process, Inc. 

(Apr. 2009) (felony complaint). See also In re Pfau v. Forster & Garbus et al., Index No. 2009-8236 (Erie 

County Supreme Court) (July 2009) (civil petition to vacate default judgments obtained against consumers in 

debt collection cases, filed against numerous attorney collectors who used American Legal Process to serve 

process and obtained default judgments in New York). 

38. See, e.g., Asset Acceptance, LLC (Asset) Comment at 2; Buckles, Tr. I at 24 (“[M]ost of the people, in my 

opinion, don’t file an answer because they have no defense.”); Leibsker, Tr. I at 62 (consumer fear of court, 

lack of representation, and lack of money to repay debt are reasons for high default rate); Portfolio Recovery 

Associates (PRA) Comment at 2; Needleman, Tr. V at 33 (“some of them . . . owe the money, and . . . they’re 

not sure . . . what to do”); Zezulinski, Tr. V at 50 (consumers don’t appear because of “helplessness and 

hopelessness. . . . They owe the debt. They just don’t know what to do about it.”). See also Donnelly, Tr. I at 

62 (very few consumers at garnishment hearings raise claims they were never served); but see also Groves, Tr. 

V at 23 (transportation or getting off work may play a part); Needleman, Tr. V at 33-34 (consumer priorities, 

hardships, fear, and misinformation from debt settlement companies and the internet advising consumers not 

to respond are among the reasons for the high consumer nonappearance rate); Redmond, Tr. V at 46 (“it’s 

certainly true that the biggest reason [for consumer court nonappearance] is . . . just the human nature of not 

wanting to go through [the court] experience”). 

39. See, e.g., Abrams, Tr. V at 17-18, 57 (numerous problems may be affecting consumers, such as housing 

emergencies, medical bills, lack of transportation, and other more high-priority complexities; consumers 

commonly exercise their “natural inclination . . . to try [to] ignore [the lawsuit] and hope it will go 

away”); Appleseed Report, supra note 23, at 21; Bragg, Tr. I at 25 (lack of representation and advice is 

a cause of consumer non-appearance); Coffey, Tr. V at 24 (sometimes consumers do not appear because 

they do not recognize the entity suing them, have other things going on in their lives, or do not want the 

stress of a court appearance); Evans, Tr. V at 19 (difficulty getting off work due to finances, fear of the 

system, and hopelessness because consumers don’t have representation on their side are among the causes 

of nonappearance); Hillebrand, Tr. IV at 43 (some consumers don’t appear from misunderstanding the 

court papers they receive); Rosmarin, Tr. V at 38-41 (fear and unfamiliarity, lack of legal representation, 

misunderstanding the summons, not recognizing the entity suing them, not understanding that they need to 

appear, and believing it’s a case of mistaken identity are among the reasons that consumers who receive service 

may not appear in court). 
Protecting Consumers in Debt Collection Litigation and Arbitration

13

Although no empirical data were submitted bearing on which, if any, of the many possible 

explanations are correct, the FTC believes that it is worthwhile to encourage measures that could 

increase consumer participation in debt collection litigation. Roundtable participants suggested 

a number of measures to reduce the costs to consumers or otherwise encourage them to defend. 

If lack of understanding and fear about the litigation process is deterring some consumers from 

appearing in court, then jurisdiction-specific consumer education materials40 explaining the 

debt collection litigation process in clear and concise terms could encourage participation. In 

addition, if counsel assisted consumers in connection with debt collection litigation, it might 

demystify the process and help consumers understand their rights and assert defenses.41 In some 

jurisdictions, pro bono attorneys, legal services attorneys, or students from law school clinics 

appear in court to offer such assistance.42 State and local courts, bar associations, law schools, 

and others should consider measures to increase the availability of counsel to assist consumers in 

debt collection litigation.

Other roundtable participants stated that the costs of appearing in court to defend debt 

collection lawsuits may deter some consumers from participating. Consumers may lose income 

if they are absent from work, or they may lack reliable transportation to and from the courthouse. 

To reduce such costs, roundtable participants suggested increasing the use of technology and 

making available alternative ways to communicate and participate.43 For example, holding 

hearings by telephone or Internet might enable consumers to lose less time from work and spend 

less money on transportation.44 Likewise, online exchanges of information about the debt, such 

as evidence of indebtedness, might eliminate the need for, or reduce the length of, a hearing. 

40. The Commission engages in extensive consumer education on a wide variety of topics, including debt 

collection. Because the procedures and rules related to debt collection litigation are jurisdiction-specific, state 

and local officials would be better placed than the FTC to develop accurate and helpful consumer education for 

particular jurisdictions. See also Appleseed Report, supra note 23, at 22-23 (discussing court website, public 

access terminals, pro se resources, and forms available at New York City courts, including a check-off list and 

explanations of available defenses in consumer debt collection actions). 

41. Accord Rosmarin, Tr. V at 50-51. 

42. See, e.g., Appleseed Report, supra note 23, at 33-34; Drysdale, Tr. V at 206; Drysdale Comment at 1; Loftus, 

Tr. V at 206-07; MFY Comment at 3 (CLARO programs in courthouses in 4 of the 5 New York City boroughs). 

Some other courthouse-based programs to assist consumers in debt collection matters include CARPLS in 

Chicago (www.carpls.org) and an incipient Fair Debt Collection “Attorney for the Day” program run by the 

Boston Bar Association Volunteer Lawyers Project. See also Rosmarin, Tr. V at 50-52; but see Debski, Tr. 

V at 29 (claiming that such programs may unethically involve “poaching clients or soliciting clients at the 

courthouse steps while they’re in an emotional state”).

43. Such technological measures should be made available to consumers who are able to access and use them, but 

their use should not be required of consumers who are unfamiliar with or lack access to them. 

44. See, e.g., Debski, Tr. V at 29-30 (“I think that a lot of times . . . the consumer or debtor should be allowed to 

appear by telephone . . . . They wouldn’t be missing work. They would be able to . . . maybe take a break from 

work and appear at the court.”). 
Repairing A Broken System

14

State and local jurisdictions thus should consider whether there are lower-cost methods of 

adjudicating collection disputes. 

Participating in litigation is particularly costly for consumers if collectors are unprepared 

to proceed when consumers appear in court. Collectors often seek continuances or dismissals 

without prejudice; when courts grant such requests and set a new hearing date, the consumer is 

required once again to bear the costs of taking off work and coming to court.45 To discourage 

collectors from engaging in these practices, courts should consider awarding consumers the costs 

of preparing for and attending the canceled hearing, including their lost wages and transportation 

costs.

III. Evidence of Indebtedness in the Debt Collection Litigation 

Process

A. Debt Collection Pleadings and Related Information

1. Complaint Information

Most states have adopted notice pleading requirements for civil litigation, including 

debt collection litigation, although some states continue to use more elaborate code pleading 

requirements.46 Many state notice pleading systems are modeled on the notice pleading 

requirements included in the Federal Rules of Civil Procedure (“F.R.C.P.”). Under F.R.C.P. 

8(a), the complaint must include: (1) a “short and plain statement” of jurisdiction; (2) a “short 

and plain statement” of the claim; and (3) a demand for judgment.47 The United States Supreme 

Court recently explained that F.R.C.P. 8(a) requires that a complaint “give the defendant fair 

notice of what the . . . claim is and the grounds upon which it rests”48 by making a “claim to 

relief that is plausible on its face.”49 In such a claim, “the plaintiff pleads factual content that 

45. See also Appleseed Report, supra note 23, at 27, 30 (recommending that New York state courts should limit 

adjournments as repeated court appearances create hardship for consumers and suggesting that plaintiffs may 

sometimes “use repeated adjournments strategically” to encourage settlements or default judgments if the 

consumer cannot continually appear). 

46. Code pleadings require more detailed factual pleading than notice pleadings. Code pleadings state the 

“ultimate facts” making out each element underlying a cause of action. See John B. Oakley, A Fresh Look 

at the Federal Rules in State Courts, 3 Nev. L.J. 354 (2002); Charles Alan Wright & Arthur R. Miller, 

5 Fed. Prac. & Proc. Civ. § 1218 (3d ed. 2010). Some examples of code pleading states include Florida, 

Illinois, Louisiana, Nebraska, and Pennsylvania. Z.W. Julius Chen, Following the Leader: Twombly, Pleading 

Standards, and Procedural Uniformity, 108 Colum. L.R. 1431 (2008). 

47. Fed. R. Civ. P. 8(a).

48. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal cites omitted). See also Berman, Tr. V at 141; 

Berman Comment at 2. 

49. Twombly, 550 U.S. at 570. 
Protecting Consumers in Debt Collection Litigation and Arbitration

15

allows the court to draw the reasonable inference that the defendant is liable for the misconduct 

alleged”50 and allows the court to infer “more than the mere possibility of misconduct.”51 In 

answering the complaint, F.R.C.P. 8(b) requires only that the defendant admit or deny every 

element of the plaintiff’s claims, and F.R.C.P. 8(c) requires that the defendant state any 

affirmative defenses he or she wants to assert. If the complaint is “so vague or ambiguous that 

the [defendant] cannot reasonably prepare a response,” the defendant can move the court to order 

the plaintiff to file a more definite statement.52

Many roundtable participants expressed views as to the nature and quality of information 

collectors should be required to include in their complaints. Numerous consumer representatives 

asserted that debt collection actions too often are filed against the wrong consumer, seek the 

wrong amount, or both, or are otherwise based on erroneous information.53 To address these 

concerns, most consumer advocates favor complaints that set forth detailed debt-related 

information54 including: (1) the name of the original creditor and redacted original account 

number;55 (2) the amount owed to the original creditor;56 (3) the date of last payment;57 (4) 

the cause of action;58 (5) the governing state law;59 (6) the amount the consumer currently 

owes, broken down by principal, interest, fees, and other charges;60 (7) information about the 

50. Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949 (2009) (internal cites omitted). 

51. Iqbal, 129 S. Ct. at 1950. 

52. Fed. R. Civ. P. 12(e).

53. See, e.g., Bromberg, Tr. V at 163; DC 37 Comment at 3; Edelman, Tr. I at 123, 135-37, 151-53, 171-72; Elder 

Comment at 1; Martin, Tr. V at 155; Maurer, Tr. IV at 156; NEDAP Comment at 3; Pittman, Tr. V at 187. 

54. See, e.g., AARP Comment at 11-15 (emphasis on information possessed by the creditor prior to initiating suit); 

Appleseed Report, supra note 23, at 23-26; Consumers Union Comment at 2, 4 (emphasis on information 

possessed by collector and shared with consumer prior to initiating suit); Edelman, Tr. I at 136-37, 171-72; 

Flory, Tr. IV at 170; Greater Boston Legal Services (GBLS) Comment at 2-3; Hillebrand, Tr. IV at 163, 172-

73; Kinkley, Tr. IV at 159, 163; Lyngklip, Tr. I at 143; Maurer, Tr. IV at 156; National Consumer Law Center 

(NCLC) Comment at 5 (emphasis on information possessed by collectors prior to initiating suit). 

55. See, e.g., Appleseed Report, supra note 23, at 25; Consumers Union Comment at 2; Hillebrand, Tr. IV at 163, 

172-73; Kinkley, Tr. IV at 163. 

56. See, e.g., Consumers Union Comment at 2; Hillebrand, Tr. IV at 163; Kinkley, Tr. IV at 163. 

57. See, e.g., Appleseed Report, supra note 23, at 25; Consumers Union Comment at 2; Edelman, Tr. I at 136; 

Hillebrand, Tr. IV at 163; Kinkley, Tr. IV at 163. 

58. See, e.g., Hillebrand, Tr. IV at 163; Kinkley, Tr. IV at 163. 

59. See, e.g., Lyngklip, Tr. I at 143-44. 

60. See, e.g., Appleseed Report, supra note 23, at 25; Consumers Union Comment at 2; GBLS Comment at 2-3; 

Hillebrand, Tr. IV at 163; Kinkley, Tr. IV at 159, 163. 
Repairing A Broken System

16

applicable statute of limitations and from when it runs;61 and (8) information as to the full chain 

of assignments of the debt.62 

Several judges who participated in the roundtables expressed concern that the information 

in many debt collection complaints appears to be inadequate.63 They reported that the most 

common question of consumer defendants in debt collection cases is, “Where is this from?”64 

That is, consumers are often puzzled by the allegations that they owe a debt to an entity they do 

not recognize,65 and they are puzzled about the timing and amount of the alleged debt. Some 

judges stated that more information should be included in debt collection complaints so that 

consumers can understand who is suing them, on what basis, and for how much.66 

Some collector representatives emphasized that, although they regularly provide more 

information in their complaints, in a notice pleading system they are only required to provide 

limited information.67 Most collector representatives favored including enough information 

in the complaint itself to enable the defendant to easily recognize and understand the debt on 

which the complaint is based.68 Other collector representatives, however, favored including 

more information in their complaints, such as: (1) the name of the original creditor and a 

redacted version of the original account number for purchased accounts, perhaps accompanied 

by a statement that the account was transferred from the original creditor to the current owner;69

61. See, e.g., GBLS Comment at 2-3; Kinkley, Tr. IV at 159. 

62. See, e.g., Appleseed Report, supra note 23, at 25; GBLS Comment at 2-3; Edelman, Tr. I at 136; Lyngklip, Tr. I 

at 143. 

63. See, e.g., Donnelly, Tr. I at 146; Moiseev, Tr. I at 113. 

64. See, e.g., Donnelly, Tr. I at 89; Fisher, Tr. V at 150; Moiseev, Tr. I at 91; Nordlund, Tr. V at 146. 

65. See discussion about the growth of debt buying, supra, at Chapter 2, § I. When debt is purchased by a new 

entity, in some instances consumers may mistakenly believe that their lack of familiarity with the entity 

indicates that they never incurred the alleged debt. 

66. See, e.g., Donnelly, Tr. I at 146, 154-55; Fisher, Tr. V at 150, 164, 167; Moiseev, Tr. I at 155-57; Nordlund, Tr. 

V at 146. 

67. See, e.g., ACA Comment at 15; Asset Comment at 4; Bender, Tr. V at 159; Buckles, Tr. I at 108-09; Moore, Tr. 

IV at 186; NARCA Comment at 7-8; Newburger, Tr. IV at 191-92, 198; PRA Comment at 3; Sinsley, Tr. I at 

102-03. 

68. See, e.g., ACA Comment at 16 (complaint should contain sufficient information to evaluate the claim 

for indebtedness); Bender, Tr. V at 159-60 (“Responsible collection attorneys want there to be sufficient 

information attached to a complaint so that a consumer is fully informed regarding what his or her 

responsibilities are alleged to be.”); Moore, Tr. IV at 153 (through pleading “I’m also trying to give the 

consumer enough information so that they know why I’m suing them”); Myers, Tr. V at 198; Newburger, 

Tr. IV at 154-55 (some firms are “careful about pleading in a way that the consumer can identify what the 

account is that’s being sued”); Olshan, Tr. V at 189 (“We need to find ways for there to be transparency through 

information in the pleading.”); Ray, Tr. IV at 169-70. 

69. See, e.g., Buckles, Tr. I at 133; Moore, Tr. IV at 153; Newburger, Tr. IV at 154-55; Olshan, Tr. V at 145, 154; 

Ray, Tr. IV at 169; Sargis, Tr. IV at 175. 
Protecting Consumers in Debt Collection Litigation and Arbitration

17

(2) the date of default or charge-off and the amount of the debt at that time;70 and (3) the 

amount of interest demanded and the basis for how the interest amount was computed, perhaps 

accompanied by a statement of fees and other charges incurred since the time of charge-off.71

The function of debt collection complaints in a notice pleading system is to provide 

sufficient information so that: (1) consumers can determine whether to admit or deny the 

complaint allegations and assert affirmative defenses in their answers; and (2) judges can 

determine whether to grant a motion for a more definite statement or enter a default judgment. 

To ensure that sufficient information is provided, the Commission believes collectors generally 

should include the following information in complaints: (1) the name of the original creditor72

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 due on the debt; and (5) a breakdown of the total amount currently due by principal, 

interest, and fees.73 

Based on the evidence gathered in connection with these proceedings, the FTC believes that 

many debt collection complaints do not provide this information to consumers. The Commission 

recognizes that the rigorous application of existing rules in individual cases could mitigate 

this problem, but some jurisdictions may want to consider more systematic solutions. Several 

jurisdictions now require that all debt collection complaints include the kind of information the 

Commission believes is appropriate.74 The FTC recommends that jurisdictions consider adopting 

such requirements to the extent that application of existing rules does not result in sufficient 

information being set forth in debt collection complaints.

70. See, e.g., Berman, Tr. V at 141-42; Moore, Tr. IV at 152, 164; Newburger, Tr. IV at 154, 164-65; Olshan, Tr. V 

at 145, 154. See also Naves, Tr. IV at 87 (creditor account record information “is inherently reliable from our 

perspective, because [creditors] are using that to conduct their business. The dates that we get for a charge-off, 

the dates that we get for date of last payment, the dates that we get for original default are the dates that are 

provided by the companies that have a responsibility to keep those records and they are indeed the records by 

which they manage their businesses.”). 

71. See, e.g., Moore, Tr. IV at 152; Newburger, Tr. IV at 164-65; Olshan, Tr. V at 145. 

72. In its February 2009 workshop report, the Commission advocated requiring more information be provided 

to consumers under the FDCPA’s validation notices. This included the name of the original creditor and an 

itemized breakdown of a debt into principal, interest, and other fees and charges. Challenges of Change, 

supra note 1, at § VI.A.2.b.

73. As explained below in Part IV, the FTC recommends for other reasons that debt collection complaints include: 

(1) the date of default or last payment on the debt, and (2) the applicable statute of limitations on the debt. 

74. See, e.g., Mass. Ann. Laws Unif. Small Claims Rules 2(a), 2(b); Michigan Court Rules 3.101; N.C. Gen. 

Stat. §§ 58-70-115, 58-70-145, 58-70-150, 58-70-155 (2009); see also Fairfax County, Virginia General 

District Court Best Practices: Default Judgments/Debt Buyers and Purchased Debt-Default Judgment Checklist 

(2009); State of Connecticut Judicial Branch, Report of the Bench/Bar Small Claims Committee at 4, 10 

(2009). 
Repairing A Broken System

18

2. Complaint Attachments 

Roundtable participants expressed widely varying views as to the information that collectors 

should be required to include as attachments to complaints. Consumer advocates tended to favor 

extensive attachments to complaints, such as the underlying contract giving rise to the debt75 or 

evidence of the underlying contract (including the applicable terms and conditions and the signed 

account application), copies of account statements or other records of the debt, and the chain 

of title showing how the collector came to own the particular obligation.76 Consumer group 

representatives emphasized that some states require certain complaint attachments including a 

copy of the contract giving rise to the cause of action,77 or a summary statement with the precise 

amount of the claim and any interest and a bill showing services rendered and sold.78 Other 

states require even more extensive attachments. In cases involving credit card debt, one state 

requires that the plaintiff attach “the actual documents, including evidence that the consumer 

was the one who signed the account application, a copy of the account agreement, and a copy of 

billing statements.”79

Some judicial participants said that the inclusion of attachments with debt collection 

complaints would be useful. Other judges, however, expressed reservations about imposing such 

a requirement because the additional paper filed would add to the difficulty the courts already 

have in managing the documents they receive.80

75. Consumer advocates recently supported proposed legislation in Massachusetts that would require the contract 

be attached as part of a debt collection complaint. See Mitchell-Munevar, Tr. V at 156. Likewise, a bill 

pending in Minnesota would require debt buyer plaintiffs to attach the original contract, an affidavit setting 

forth the date and amount of the last payment, and written proof that the plaintiff does, indeed, own the debt. 

See Minnesota S.F. No. 2689 (2009-2010). Similarly, New York’s proposed “Consumer Credit Fairness Act,” 

Assem. B. 7558/S. 4398, Leg. 232 Sess. (N.Y. 2009), would require that the contract or other instrument on 

which the action is based be attached to a consumer debt collection complaint. 

76. See, e.g., Barry, Tr. I at 138; Bromberg, Tr. V at 162 (“you have to have copies of the cardholder agreements, 

amendments, chains of assignment, proof of assignment . . . [and] copies of bills”); Brown, Tr. I at 171-72; 

Edelman, Tr. I at 136-37; Kinkley, Tr. IV at 159, 194; Mitchell-Munevar, Tr. V at 190 (supporting “an up-front 

submission of more documentation” because no discovery is ordinarily permitted in Massachusetts small 

claims courts); Wu, Tr. V at 147. 

77. See, e.g., Carpenter, Tr. V at 148 (Pennsylvania); Coleman, Tr. IV at 178 (California: either attach the contract 

or state its relevant terms); Drysdale, Tr. V at 171 (Florida); Lyngklip, Tr. I at 131 (Michigan); MitchellMunevar, Tr. V at 156 (a proposal before the Massachusetts legislature would require contracts be attached to 

complaints); Myers, Tr. V at 200 (North Carolina’s new statute as to debt buyers). 

78. Md. Rule 3-306. See also Bender, Tr. V at 142. 

79. Wu, Tr. V at 147 (describing Arkansas law); see also Danner v. Discover Bank, 99 Ark. App. 71, 72 (Ark. Ct. 

App. 2007). 

80. See, e.g., Fisher, Tr. V at 167; Surh, Tr. IV at 193. 
Protecting Consumers in Debt Collection Litigation and Arbitration

19

Collectors and creditors raised concerns about including documentation with the complaint. 

One collector representative stated that collectors should be required to include information 

about contracts in complaints but not to attach the contracts to complaints, in part because “in the 

21st century, contracts are not always in writing.”81 A debt collection attorney from California (a 

state where the contract must be attached or the relevant terms of the contract must be stated in 

the complaint) objected that “to require [the contract itself be included as] an attachment would 

be to change California law.”82 Similarly, one collection attorney from Michigan (a state which 

requires attaching the underlying contract) disfavored attaching copies of the contract assigning

a debt to its present owner.83 In discussing whether the chain of title for a purchased debt should 

be attached to the complaint, another collector representative maintained that attachment should 

not be required, and that the chain of title should not be produced unless the consumer contests 

the claim that the plaintiff owns the debt.84 

As with information in the complaint itself, the information contained in attachments to 

the complaint needs to be sufficient for consumers to determine how to answer the complaint 

allegations and for judges to decide motions for a more definite statement or for a default 

judgment. Although some consumers and courts would benefit if they knew more about the 

debt, including information about the underlying contract and transaction history, mandating the 

attachment of extensive documentation about the debt (such as contracts and account statements) 

would result in increased costs to collectors and court systems. The Commission therefore 

recommends that courts rigorously apply current court rules to require that contracts or other 

documentation be provided with complaints only if they are necessary for consumers to answer 

the complaint or for courts to decide whether to grant motions for more definite statements or 

for default judgments. Jurisdictions should also consider specifying documents (or explanations 

in lieu of documents) that must accompany complaints if judicial application of existing rules in 

individual cases would not be sufficient to change the information set forth in complaints.

B. Default and Summary Judgment Checklists

If a defendant does not answer or otherwise defend a debt collection action, a default 

judgment may be entered against the defendant. First, the clerk of the court must enter a 

default if “a party against whom a judgment for affirmative relief is sought has failed to 

81. Olshan, Tr. V at 153-54. 

82. Coleman, Tr. IV at 178. 

83. Buckles, Tr. I at 132-3. Note that some Michigan consumer advocates interpret the requirement of attaching 

the contract giving rise to the suit to extend to a requirement that the assignment contracts be attached. See 

Lyngklip, Tr. I at 131. 

84. Ray, Tr. IV at 194. See also Berman Comment at 15-16. 
Repairing A Broken System

20

plead or otherwise defend” and the failure to plead or defend has been “shown by affidavit or 

otherwise.”85 Second, unless the claim is for a sum certain or a sum that can be made certain 

by computation, the plaintiff must apply to the court for a default judgment after the clerk has 

entered a default. In considering a motion for a default judgment, the court may: (1) conduct 

an accounting; (2) determine the amount of damages; (3) establish the truth of any allegation by 

evidence; or (4) investigate any other matter.86 After considering the available information, the 

court has discretion in deciding whether to grant a default judgment.87 

As discussed above, the Commission recommends steps to increase consumer participation 

in debt collection litigation to help decrease the prevalence of default judgments. In an effort to 

address this problem in another way, some court systems have adopted measures to encourage 

judges to apply appropriate and consistent standards – including legal standards and court 

rules – in deciding whether to grant such judgments.88 Massachusetts developed a checklist 

for magistrates setting out the elements that must be shown to grant a default judgment in a 

debt collection case.89 The Commission recommends that other state court systems consider 

85. Fed. R. Civ. P. 55(a). 

86. Fed. R. Civ. P. 55(b)(2). 

87. “In determining whether to enter a default judgment, the court is free to consider a number of factors that 

may appear from the record before it. Among these are the amount of money potentially involved; whether 

material issues of fact or issues of substantial public importance are at issue; whether the default is largely 

technical; whether plaintiff has been substantially prejudiced by the delay involved; and whether the grounds 

for default are clearly established or are in doubt. Furthermore, the court may consider how harsh an effect 

a default judgment might have; or whether the default was caused by a good-faith mistake or by excusable 

or inexcusable neglect on the part of the defendant. Plaintiff’s actions also may be relevant; if plaintiff has 

engaged in a course of delay or has sought numerous continuances, the court may determine that a default 

judgment would not be appropriate. Finally, the court may consider whether it later would be obliged to set 

aside the default on defendant’s motion, since it would be meaningless to enter the judgment as a matter of 

course if that decision meant that the court immediately would be required to take up the question of whether it 

should be set aside.” Charles Alan Wright & Arthur R. Miller, 10A Fed. Prac. & Proc. Civ. § 2685 (3d ed. 

2010). See, e.g., Wright v. Liguori, 2009 U.S. Dist. LEXIS 93840, *6-*7 (D. Del. 2009); Fanning v. Permanent 

Solution Indus., Inc., 257 F.R.D. 4, 7 (D.D.C. 2009). 

88. See, e.g., Mass. Ann. Laws Unif. Small Claims Rules 7(d) (see also Small Claims Default Judgment Checklist 

provided in Trial Court of the Commonwealth of Massachusetts District Court Department Memorandum 

from Hon. Lynda M. Connolly, Chief Justice (Sept. 11, 2009)); Fairfax County, Virginia General District Court 

Purchased Debt-Default Judgment Checklist (2009); State of Connecticut Judicial Branch, Report of the

Bench/Bar Small Claims Committee at 10-11 (2009) (see also proposed Connecticut Small Claims Judgment 

Checklist for Magistrates at Appendix E, Judicial Branch, Report of the Bench/Bar Small Claims Committee

(2009)); see generally also N.C. Gen. Stat. §§ 58-70-145, 58-70-150, 58-70-155 (2009). See Appendix E for 

examples of such checklists. 

89. Mass. Ann. Laws Unif. Small Claims Rules 7(d); Small Claims Default Judgment Checklist provided in Trial 

Court of the Commonwealth of Massachusetts District Court Department Memorandum from Hon. Lynda M. 

Connolly, Chief Justice (Sept. 11, 2009). 
Protecting Consumers in Debt Collection Litigation and Arbitration

21

adopting similar checklists, to promote the application of proper and uniform requirements for 

determining whether to grant a default judgment.90

Some jurisdictions also have adopted specific checklists for granting judgments in actions 

brought by debt buyers. North Carolina recently enacted a statute requiring courts to use a 

special checklist of elements a debt buyer must meet to be awarded default or summary judgment 

in a debt collection action.91 Fairfax County, Virginia, also provides a checklist for judges to use 

in determining whether to grant a default judgment to a debt buyer.

92 New York City requires 

debt buyers to present special affidavits showing the chain of title to obtain a judgment.93 The 

rationale for mandating that courts follow a checklist or review special affidavits is that, if debt 

buyers sue to collect, the debts at issue have changed hands more often and are older than other 

debts. The FTC has not reached any conclusions as to whether different standards should apply 

to debt buyers than to other owners of debts,94 but jurisdictions concerned about the validity of 

the debts on which debt buyers are suing may want to adopt one of these models.95 

C. Unnecessary Litigation Costs 

A number of roundtable participants stated that the litigation practices of collectors have 

imposed unnecessary costs on consumers. At times, according to these participants, collectors, 

particularly debt buyers, are not ready to proceed to trial when consumers appear to defend.96 

Given how infrequently consumers appear and defend, some collectors may decide not to 

expend the costs necessary to be ready to proceed to trial on the off chance that the consumer 

might appear. Because they are not prepared to go to trial, such collectors reportedly often seek 

continuances or dismissals without prejudice so that the cases can be pursued or re-filed at a later 

90. See Appendix E for examples. 

91. N.C. Gen. Stat. § 58-70-155 (2009). 

92. Fairfax County, Virginia General District Court Purchased Debt-Default Judgment Checklist (2009). 

93. N.Y. City Civ. Ct. Directives and Procedures DRP-182 (May 13, 2009). 

94. In December 2009, the Commission commenced a comprehensive study of the debt buying industry by 

ordering the production of information from nine of the largest debt buyers in the United States. Once the FTC 

has reviewed and analyzed this information, the agency will be able to offer better-informed views as to the 

conduct of debt buyers and the standards that should apply to them.

95. Legislation aimed at scrutinizing debt buyer evidence was recently introduced in the Minnesota legislature. It 

would require such plaintiffs to provide contract copies, affidavits of last consumer payment date and amount, 

and written proof of ownership, among other features. See Minnesota S.F. No. 2689. 

96. See, e.g., Barry, Tr. I at 105, 112; Donnelly, Tr. I at 108; Flory, Tr. IV at 170; Lipman, Tr. I at 107, 149; Nepveu, 

Tr. I at 106; Pittman, Tr. V at 187; but see also Donnelly, Tr. I at 112 (collectors may decide “it’s not worth it” 

to fight the consumer); Sinsley, Tr. I at 112 (same). 
Repairing A Broken System

22

date.97 In addition to the burdens this practice imposes on the court system, it is inconvenient 

and costly to consumers who have appeared in court, and then must re-appear in court when the 

case is rescheduled.98 Some courts have acted to deter this practice. For example, according to 

a judge of the Blair County, Pennsylvania “Credit Card Court,” if the plaintiff does not appear at 

an initial mandatory conciliation conference, the case is dismissed with prejudice.99 Courts also 

may impose sanctions on parties or their counsel to deter this practice, or order that they pay the 

costs of the consumers who have appeared for trial. To the extent that judges conclude that a 

collector has engaged in this practice, they may want to consider taking similar measures. 

IV. Statutes of Limitations 

States usually establish a particular period of time, known as the statute of limitations, to 

set the duration during which an action to compel payment of a debt may be brought. Statutes 

of limitations help ensure that consumers can defend themselves in collection actions and that 

courts will have the evidence they need to resolve these disputes.100 Statutes of limitations also 

provide a bright line for collectors and consumers as to the date after which the collector should 

no longer file an action to collect on a debt. 

In most states, the running of the statute of limitations does not extinguish the consumer’s 

underlying debt.101 But if the collector files a legal action to recover on the debt, the consumer 

can raise the running of the statute of limitations as an affirmative defense.102 The running of the 

97. See sources in supra note 96; Appleseed Report, supra note 23, at 27, 30; Pittman, Tr. V at 187 (describing his 

experience with a debt buyer with no access to documentary media: “If [any consumer] comes to court, [the 

debt buyer is] going to dismiss, because they can’t get the proof.”). 

98. See Donnelly, Tr. I at 146; Weinberg, Tr. I at 158. 

99. Carpenter, Tr. V at 183. See also Mass. Ann. Laws Unif. Small Claims Rules 7(c) (requiring that a judgment 

for the defendant, rather than a dismissal, must be entered if the defendant is present for the scheduled trial, the 

plaintiff does not appear or is not prepared to proceed to trial, and there is no good cause for a continuance). 

100. See United States v. Kubrick, 444 U.S. 111, 117 (1979) (statutes of limitations “protect defendants and the 

courts from having to deal with cases in which the search for truth may be seriously impaired by the loss of 

evidence, whether by death or disappearance of witnesses, fading memories, disappearance of documents, or 

otherwise”). 

101. In Mississippi and Wisconsin the expiration of the statute of limitations legally extinguishes the debt. Miss. 

Code Ann. § 15-1-3 (2009); Wis. Stat. Ann. § 893.05 (2009). 

102. See, e.g., Evans, Tr. V at 89 (Florida); Gargano, Tr. IV at 119 (California); Lipman, Tr. I at 90 (Iowa); Surh, 

Tr. IV at 113 (California). In Mississippi and Wisconsin, however, the expiration of the statute of limitations 

legally extinguishes the debt, thus making a suit on a time-barred debt subject to dismissal for failure to state 

a cause of action. Miss. Code Ann. § 15-1-3 (2009) (see, e.g., Lowery v. Statewide Healthcare Serv., Inc., 585 

So. 2d 778, 780 (Miss. 1991)); Wis. Stat. Ann. § 893.05 (2009) (see, e.g., Klewer v. Cavalry Invs., LLC, 2002 

U.S. Dist. LEXIS 1778, *6, *8 (W.D. Wis. 2002)). 
Protecting Consumers in Debt Collection Litigation and Arbitration

23

statute of limitations, however, does not prohibit the collector from using non-litigation means 

(such as collection telephone calls) to try to collect on the debt.103

Nearly all courts that have examined the propriety of suing or threatening to sue to collect 

on a debt that is older than the applicable statute of limitations (also known as “time-barred 

debt”) have concluded that such practices violate the FDCPA. In Kimber v. Federal Financial 

Corp., the court held it was unfair and unconscionable in violation of Section 808 to sue on timebarred debt in light of the strong public policy favoring statutes of limitations and the likelihood 

that the “least sophisticated consumer” would “unwittingly acquiesce” to suit due to lack of 

awareness that the passage of time could be raised as a defense.104 It further held that to threaten 

suit on a time-barred debt was deceptive in violation of Section 807 because it “implicitly 

represented that [the collector] could recover in a lawsuit, when it [could] not properly do 

so.”105 Most other courts addressing this issue have reached the same result.106 Industry groups 

have also adopted policies requiring members to refrain from suing or threatening suit on timebarred debts.107 The Commission agrees with the interpretation that the FDCPA bars actual or 

threatened suit to collect on time-barred debts.108 

103. Even in the absence of a legal obligation to repay a debt, people may choose to pay for moral or other reasons. 

See, e.g., John H. Langbein, The Nonprobate Revolution and the Future of the Law of Succession, 97 Harv. 

L. Rev. 1108, 1121 (1983-1984) (“I found the belief widespread among credit industry professionals that 

voluntary payment is motivated largely by moral as opposed to legal considerations”). 

104. Kimber v. Fed. Fin. Corp., 668 F. Supp. 1480, 1487 (M.D. Ala. 1987). 

105. Kimber, 668 F. Supp. at 1489. 

106. Freyermuth v. Credit Bureau Servs., Inc., 248 F.3d 767 (8th Cir. 2001); McCullough v. Johnson, Rodenberg 

& Lauinger, 2009 U.S. Dist. LEXIS 69881 (D. Mont. 2009); Ramirez v. Palisades Collection, L.L.C., 2008 

U.S. Dist. LEXIS 48722 (N.D. Ill. 2008); Larsen v. JBC Legal Group, P.C., 553 F. Supp. 2d 290 (E.D.N.Y. 

2008); Martsolf v. JBC Legal Group, P.C., 2008 U.S. Dist. LEXIS 6876 (M.D. Pa. 2008); Rawson v. Credigy 

Receivables, Inc., 2006 U.S. Dist. LEXIS 6450 (N.D. Ill. 2006); Thinesen v. JBC Legal Group, P.C., 2005 

U.S. Dist. LEXIS 21637 (D. Minn. 2005); Dunaway v. JBC & Assocs., Inc., 2005 U.S. Dist. LEXIS 37885 

(E.D. Mich. 2005); Spencer v. Hendersen-Webb, 81 F. Supp. 2d 582 (D. Md. 1999); Stepney v. Outsourcing 

Solutions, Inc., 1997 U.S. Dist. LEXIS 18264 (N.D. Ill. 1997); Martinez v. Albuquerque Collection Servs., 

867 F. Supp. 1495 (D. N.M. 1994); Beattie v. D.M. Collections, Inc., 754 F. Supp. 383 (D. Del. 1991); but see

Simmons v. Miller, 970 F. Supp. 661 (S.D. Ind. 1997) (no FDCPA violation where suit had not been knowingly 

filed beyond statute of limitations); Lindbergh v. Transworld Sys., Inc., 846 F. Supp. 175 (D. Conn. 1994) (no 

FDCPA violation where suit was not knowingly filed beyond statute of limitations). 

107. See, e.g., ACA Comment at 12 (collectors that “threaten or pursue litigation of an out of statute account do so 

in violation of the law and ACA’s Code of Ethics”). 

108. Likewise, the Commission believes that threatening or commencement of arbitration proceedings to collect on 

time-barred debts may violate Sections 807 and 808 of the FDCPA, 15 U.S.C. §§ 1692e, 1692f. See Kimber, 

668 F. Supp. at 1489. 
Repairing A Broken System

24

A. Statute of Limitations Period

Most statutes of limitations on consumer debt begin to run from the date that the 

consumer defaulted on the debt.109 The period of time for the statute of limitations varies by 

state. In addition, for each state, the period of time may vary with the particular kind of debt 

and circumstances under which it arose (e.g., whether the debt arose under a written or oral 

contract).110

Roundtable participants said that it is sometimes difficult to determine which among several 

potential statutes of limitations is applicable to a particular debt.111 In Illinois, for example, 

recent case law clarified that the appropriate statute of limitations for an action to collect on 

credit card debt depends on whether the suit is based on a written contract.112 If the collector 

produces a written contract, a ten-year statute of limitations applies. If the collector cannot do 

so, a five-year statute of limitations applies. 

Uncertainty as to the applicable statute of limitations could harm both consumers and 

collectors. For instance, if consumers are not certain as to how long collectors have to sue them, 

they may make partial payments on time-barred debt, thereby unintentionally reviving the statute 

of limitations. In addition, if collectors are uncertain as to the applicable statute of limitations, 

they may inadvertently file actions to recover on time-barred debt.113 

109. See, e.g., Nat’l Consumer Law Ctr., Collection Actions §§ 3.7.6, 3.7.7 (1st ed. 2008) (hereinafter NCLC 

Collection Actions). 

110. See, e.g., Portfolio Acquisitions, LLC v. Feltman, 391 Ill. App. 3d 642, 652 (Ill. App. Ct. 1st Dist. 2009) 

(holding that, under Illinois law, a credit card contract was oral rather than written and subject to the 5-year 

statute of limitations for oral contracts rather than the 10-year statute of limitations for written contracts 

where parol evidence would be required to show all essential terms and conditions of the contract). See also

Donnelly, Tr. I at 125 (ambiguity of complaint as to whether it refers to an account-stated or an oral contract, 

which have different applicable statutes of limitations); Markoff, Tr. I at 98; Lipman, Tr. I at 106-107, 123. 

111. See, e.g., NARCA Comment at 7 (“several different statute of limitations may apply to a debt claim”) 

(emphasis added); Coleman, Tr. IV at 95; Debski, Tr. V at 121; Donnelly, Tr. I at 125; Edelman, Tr. I at 82; 

Evans, Tr. V at 101, 121; Flitter, Tr. V at 98; Kinkley, Tr. IV at 85; Lipman, Tr. I at 106; Naves, Tr. IV at 

127, 145-46; Newburger, Tr. IV at 92; Sinsley, Tr. I at 84. See also Florida Consumer Turns Tables on Debt 

Collector – Sued for $800.00 Dollars, Consumer Collects $120,000.00 Dollars From Debt Collector, Yahoo! 

News, Mar. 1, 2010, available at http://www.prweb.com/releases/2010/03/prweb3657014.htm (describing 

consumer’s defense of state collection action and subsequent pursuit of federal FDCPA action against collector 

for suit on time-barred debt, where collector filed based on the wrong state’s statute of limitations and where 

contract was held to be oral rather than written). 

112. See Portfolio Acquisitions, 391 Ill. App. 3d at 652.

113. See, e.g., Asset Comment at 3 (some cases involving allegations of suit on time-barred debt involve “intricate 

legal issues” such as choice of law provisions and distinguishing between written and oral contracts); NARCA

Comment at 6-7 (actions should be governed by the statute of limitations of the forum state, not the state where 

the credit agreement originated). 
Protecting Consumers in Debt Collection Litigation and Arbitration

25

Roundtable participants discussed whether a single, uniform statute of limitations for 

consumer debt cases would reduce such uncertainty where it exists. Many participants favored 

this concept in theory, although consumer advocates and collector representatives recognized 

that they likely would differ widely as to how long such a statutory period should be,114 and 

they expressed serious reservations about Congress establishing a national standard.115 Most 

participants preferred that states continue to perform their traditional role in setting statutes of 

limitations for debt collection actions,116 though many expressed that making state statutes more 

uniform would be beneficial for both collectors and consumers.117 

To the extent that states conclude there is uncertainty as to the applicable statute of 

limitations for a debt or how to apply it, the Commission recommends that they consider 

modifying their laws to reduce the uncertainty. If state statutes of limitations for consumer debts 

are clear, simple, and uniform, consumers and collectors stand to benefit. 

B. Collecting on Time-Barred Debt

Roundtable participants discussed the collection of time-barred debt. As noted above, state 

law generally does not prohibit collectors from using methods other than threatening to file or 

filing an action in court118 to collect on time-barred debt. The two major issues participants 

discussed were whether the FDCPA should be amended to prohibit the collection of such debt 

and whether the law should permit payments on such debt to “revive” the unpaid amount of the 

debt. 

114. See, e.g., Kinkley, Tr. IV at 141-42; Moore, Tr. IV at 146-47; Naves, Tr. IV at 127, 145-46; Newburger, Tr. 

IV at 148. See also ACA Comment at 15 (promoting a uniform statute of limitations of 10 years across all 

jurisdictions); Cada Comment at 1 (11/22/09) (suggesting all states should adopt a statute of limitations of 4 

years); Staulcup Comment at 1 (favoring a uniform statute of limitations of 7 years). 

115. Proposed Levin Amendment SA 1097 to the Credit Card Act of 2009 would have amended the Truth in 

Lending Act to provide for rulemaking to establish a uniform statute of limitations for collecting debt on credit 

card accounts after the accounts had been closed by the creditor or the cardholder, but this amendment was not 

included in the Credit CARD Act of 2009. CQ Congressional Record Service, Congressional Record, Senate, 

Page S5445, May 13, 2009. 

116. See Abrams, Tr. V at 121; Coffey, Tr. V at 121; Debski, Tr. V at 121; Faulkner, Tr. V at 121-22; Flitter, Tr. V at 

122; Gagnon, Tr. V at 122; Groves, Tr. V at 122; McNulty, Tr. V at 123; Needleman, Tr. V at 123; Redmond, 

Tr. V at 123; Rosmarin, Tr. V at 123. See also Evans, Tr. V at 121; Lebedeff, Tr. V at 123; Zezulinski, Tr. V at 

123. 

117. See, e.g., Kinkley, Tr. IV at 141-43; Naves, Tr. IV at 127, 145-46; Newburger, Tr. IV at 148. 

118. Recent statutory reform in North Carolina provides that it is an unfair practice for a debt buyer collector to 

“[bring] suit or [initiate] an arbitration proceeding against the debtor or otherwise [attempt] to collect on a debt 

when the [collector] knows, or reasonably should know, that such collection is barred by the applicable statute 

of limitations.” N.C. Gen. Stat. § 58-70-115(4) (emphasis added). 
Repairing A Broken System

26

Participants differed in their views about whether the FDCPA should be amended to bar 

the collection of time-barred debt. Most collector participants favored continuing to allow 

the collection of time-barred debt, provided that collectors neither sue nor threaten to sue 

the consumers from whom they are trying to collect.119 Many consumer advocates asserted 

that the FDCPA should prohibit such collection attempts, or, in the alternative, that collectors 

should explicitly be required to disclose to consumers that they cannot be sued to collect on the 

debt.120 Collector representatives countered that making such a disclosure would require that the 

collector interpret state law as to the applicable statute of limitations, which state officials could 

construe as the unauthorized practice of law.121

The Commission takes no position on whether the FDCPA should be amended to preclude 

collectors from collecting debt that they know or should know is time-barred. Nevertheless, 

because most consumers do not know or understand their legal rights with respect to the 

collection of time-barred debt, the Commission believes that in many circumstances such a 

collection attempt may create a misleading impression that the collector can sue the consumer 

in court to collect the debt, in violation of Section 5 of the FTC Act and Section 807 of the 

FDCPA.122 To avoid creating this misleading impression, collectors would need to disclose 

clearly and prominently to consumers before seeking payment on such time-barred debt that, 

119. See, e.g., Debski, Tr. V at 88; Sinsley, Tr. I at 86; but see also Groves, Tr. V at 85 (“it’s clear that collecting on 

out-of-stat[ute] consumer debt is a bad idea”). 

120. See, e.g., AARP Comment at 2 (favors requiring an affirmative disclosure about the statute of limitations when 

collecting time-barred debts); Barry, Tr. I at 120 (FDCPA should be amended to require disclosure to consumer 

that the statute has expired); Edelman, Tr. I at 83 (stated he has seen debt buyers “badger somebody into 

making a small payment” the only purpose of which is to re-trigger the statute of limitations), 94 (stated debt 

buyers frequently send collection letters on time-barred debts implying that there is still “a binding, legally 

enforceable obligation”); Edelman Comment at 20 (collecting time-barred debts should be declared an unfair 

or deceptive practice unless there is a reasonable basis to believe the debts are not time-barred); Flory, Tr. IV 

at 139 (consumers are told to send a little bit of money to “show good faith” even where they do not owe the 

medical bill or their insurance company should be paying it); Kinkley, Tr. IV at 138-39 (“And there are a lot 

of debt collectors who sort of trick somebody and say: Just send me five bucks” without disclosing that such 

payment would make “a debt that’s uncollectible judicially now collectable”); NCLC Comment at 5 (collectors 

should be required to clarify that consumers cannot be sued for non-payment of a time-barred debt); NEDAP

comment at 5 (FDCPA language should be amended to explicitly prohibit debt collectors from filing suits 

on time-barred debts); Nepveu, Tr. I at 91 (consumers do not know that it matters how long ago something 

happened); Weinberg, Tr. I at 96 (has seen debt buyers scare senior citizens into authorizing small payments 

on aged debts that they really don’t recognize in order to re-trigger the statute of limitations); but see also 

Donnelly, Tr. I at 121 (consumers wouldn’t understand such disclosures). 

121. See, e.g., Andersen, Tr. I at 116; Sargis, Tr. IV at 135; Sinsley, Tr. I at 117-18. See also ACA Comment at 14 

(consumer disclosure might lead consumers mistakenly to believe that the debt is no longer valid). 

122. FTC Act § 5(a), 15 U.S.C. § 45(a); FDCPA § 807, 15 U.S.C. § 1692e. In addition, the failure to disclose this 

information may violate state laws prohibiting unfair and deceptive acts and practices. 
Protecting Consumers in Debt Collection Litigation and Arbitration

27

because of the passage of time, they can no longer sue in court to collect the debt or otherwise 

compel payment.123

The second issue related to collecting on time-barred debt roundtable participants addressed 

was the “reviving” of such debt. In many states, making a payment on a debt after it has gone 

into default triggers the start of a new statute of limitations period for the entire debt, even if the 

original statute of limitations period has already expired.124 For example, if such a state has a 

three-year statute of limitations for credit card debt and it has been five years since a consumer 

paid on his $3,000 credit card debt, the collector could not lawfully sue him to collect on the 

debt. But if he decides to pay the collector $10, the payment would start a three-year period 

during which the collector could sue for the remaining $2,990.125 Debt collectors generally do 

not disclose to consumers that making any payment on a time-barred debt revives the collector’s 

ability to sue to collect on the entire debt.126

Roundtable participants differed in their views about whether a payment should revive 

the statute of limitations on a time-barred debt. Some opined that state law should continue to 

allow the revival upon payment of time-barred debts.127 Other participants contended that state 

law should be amended so that a payment on a time-barred debt does not revive the statute of 

limitations.128 Still others asserted that state law should be changed to require that the collectors 

123. In some circumstances, collecting on time-barred debt could be an unfair act or practice under Section 5 of 

the FTC Act or state laws prohibiting unfair acts or practices. For collecting on time-barred debt to be unfair 

under Section 5 of the FTC Act, the Commission would have to demonstrate that “the act or practice causes or 

is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves 

and not outweighed by countervailing benefits to consumers or to competition.” FTC Act § 5(n); 15 U.S.C. § 

45(n). Determining whether an act or practice is unfair is a fact-specific inquiry. 

124. See, e.g., NCLC Collection Actions, supra note 109, at § 3.7.7.3.1. 

125. For sake of simplicity, we have not included in this amount additional interest or fees that the credit contract 

may impose.

126. Most consumers do not understand that a payment will revive the statute of limitations. Some roundtable 

participants suggested that many consumers do not even understand the basic concept that a statute of 

limitations prevents collectors from suing to collect on debts after the passage of a period of time. See, 

e.g., Nepveu, Tr. I at 91; but see also Lerch, Tr. I at 100 (consumers do know about the concept that when 

something happened too long ago, suit is barred). 

127. See, e.g., Debski, Tr. V at 118-19 (no need for disclosure or affirmation when consumer continues to pay on an 

out-of-statute debt).

128. See, e.g., Rosmarin, Tr. V at 96. 
Repairing A Broken System

28

disclose to consumers the effect of paying on a time-barred debt, or to require consumers to 

make a knowing affirmation that they waive their rights to be immune from suit.129 

The Commission recommends that states in which a partial payment revives the statute of 

limitations consider modifying their laws so that a payment on a time-barred debt does not revive 

the debt unless the consumer is aware of and acknowledges its revival. Otherwise, consumers 

do not expect that a partial payment toward a time-barred debt will have the serious, adverse 

consequence of starting a new statute of limitations during which the collector can sue to collect 

the entire debt. Limiting consumers’ responsibility to the amount of the partial payment on a 

time-barred debt would conform the law to reasonable consumer expectations. 

In states where laws continue to provide that a partial payment on a time-barred debt 

revives it, the Commission believes that in many circumstances a collector’s attempt to collect 

a debt that it knows or should know is time-barred may create a misleading impression as to the 

consequences of making such a payment, in violation of Section 5 of the FTC Act and Section 

807 of the FDCPA.130 To avoid creating a misleading impression, collectors would need to 

disclose clearly and prominently to consumers prior to requesting or accepting such payments 

that (1) the collector cannot sue to collect the debt and (2) providing a partial payment would 

revive the collector’s ability to sue to collect the balance. 

129. See, e.g., AARP Comment at 2 (creditors should be required to disclose affirmatively that debt is time-barred 

and that making partial payment will revive the obligation); Evans, Tr. V at 119-20 (favors a disclosure 

requirement for consumers paying on time-barred debts because “we have to make sure [consumers] 

understand what they’re doing and they’re doing it with knowledge”); Faulkner, Tr. V at 81-82 (“it should 

be an unfair practice to buy or sell out-of-statute debts” and, without a disclosure, consumers are misled to 

believe they are under threat of suit on time-barred debts); Lebedeff, Tr. V at 84-85 (familiar with collection 

practice of asking for a token payment to prolong statute or revive an out-of-statute debt obligation); Rosmarin, 

Tr. V at 118 (disfavors reviving a time-barred debt through subsequent payment except when consumers 

write affirmative statements evincing understanding of their lack of legal obligation to pay and affirming 

that they still want to pay); but see also ACA Comment at 14 (notification that a debt is time-barred might 

confuse consumers); Midland Credit Management (Midland) Comment at 3 (providing consumers with more 

information regarding an account’s legal status would only confuse consumers and should not be attempted). 

130. FTC Act § 5(a), 15 U.S.C. § 45(a); FDCPA § 807, 15 U.S.C. § 1692e. 
Protecting Consumers in Debt Collection Litigation and Arbitration

29

C. Suits on Time-Barred Debts

Many consumer advocates and some judges expressed the view that some collectors 

regularly sue consumers on time-barred debts.131 Some consumer advocates suggested that debt 

buyers are more likely than original creditors to threaten or bring suits on time-barred debts.132 

One New York legal services provider analyzed a sample of all the debt collection cases in its 

office over an eighteen-month period and found that over fifty percent of the cases for which 

sufficient information was available were filed after the statute of limitations period had expired. 

In addition, in thirteen percent of all cases, the debt’s time-barred status was apparent from the 

face of the complaint.133 On the other hand, many collector representatives maintained that it 

would be against a collector’s interest to sue on a time-barred debt, and that such suits are rarely 

if ever filed.134 

A significant consumer protection problem related to suits on time-barred debt appears to 

arise from the combination of collectors filing them and consumers not defending them. Because 

an expired statute of limitations is an affirmative defense in most states, collectors have no 

obligation to allege in the complaint that the debt is not time-barred, and many collectors do not 

131. See, e.g., Abrams, Tr. V at 96-97; Coffey, Tr. V at 95; DC 37 Comment at 4; Edelman, Tr. I at 82-84; Edelman 

Comment at 18; Evans, Tr. V at 89; Faulkner, Tr. V at 108; Lipman, Tr. I at 89; McNulty, Tr. V at 95; NEDAP 

Comment at 4; Rosmarin, Tr. V at 83; but see also Phillips, Tr. I at 86-87 (“we don’t know what the instance 

is of filing suits beyond the statute of limitations because we don’t have the data” and the majority of debt 

collection complaints are silent as to the relevant information); Weinberg, Tr. I at 100 (“so many of the debt 

buyers have no . . . reliable information as to the date of last payment or date of default . . . . I think a lot 

of lawsuits are filed where the lawyer has made no effort to determine whether it’s beyond the statute of 

limitations because [the lawyer has] no information.”). Note that case law has established that it is generally 

a violation of the FDCPA for a collector to sue or threaten to sue on a time-barred debt. See, e.g., Kimber v. 

Fed. Fin. Corp., 668 F. Supp. 1480, 1487 (M.D. Ala. 1987); Ramirez v. Palisades Collection LLC, 2008 U.S. 

Dist. LEXIS 48722, *13 (N.D. Ill. June 23, 2008); McCorriston v. L.W.T., Inc., 536 F. Supp. 2d 1268, 1271 n.2 

(M.D. Fla. 2008). 

132. See, e.g., Edelman, Tr. I at 82 (“I think it’s very common among the debt buyers”); Faulkner, Tr. V at 81-82 

(“There are people in the debt-buying industry [who] make it a practice to buy primarily . . . out-of-statute 

debt.”); Kinkley, Tr. IV at 84 (speaking about collection rather than litigation). 

133. Letter to FTC from Robert A. Martin of DC 37 Municipal Employees Legal Services, Feb. 11, 2010 (on file 

with FTC), at 1-2, supplementing the information described in DC 37 Comment. 

134. See, e.g., ACA Comment at 12; Andersen, Tr. I at 115; Asset Comment at 3-4; Coleman, Tr. IV at 96; Debski, 

Tr. V at 88-89; Midland Comment at 2; Gagnon, Tr. V at 94; Lerch, Tr. I at 100; Markoff, Tr. I at 98-9; NARCA 

Comment at 7; Needleman, Tr. V at 82-83; Newburger, Tr. IV at 111; Redmond, Tr. V at 124-25; Sinsley, Tr. I 

at 84; see also Groves, Tr. V at 85-87 (collecting as well as filing suit on time-barred debt is a “bad idea”). 
Repairing A Broken System

30

include this information.135 If consumers do not defend, there is no one to raise the defense that 

the debt is time-barred. Indeed, some judges who participated in the roundtables stated that, 

even if a debt collection action appears to be time-barred, it would be improper for courts to 

consider affirmative defenses that no party had raised.136 As a result, some courts appear to be 

granting default judgments on time-barred debt.

The Commission recommends that states change their laws to require collectors to prove 

that the debts they are collecting are not time-barred, rather than imposing on consumers the 

burden of raising the running of the statute of limitations as an affirmative defense. As discussed 

above, states also should revise their laws to require that collectors set forth in their complaints 

the date of default and the applicable statute of limitations.137 These changes would highlight the 

statute of limitations issue in debt collection litigation for consumers and make it appropriate for 

courts to consider the issue before granting default judgments to collectors.

Federal action also could assist in decreasing the extent to which default judgments are 

entered in actions based on time-barred debts. The Commission recommends that Congress 

amend Section 809(a) of the FDCPA to require that collectors include the date of default in 

the validation notices they provide to consumers at the outset of the collection process.138 If 

collectors are required to have this information when collection begins, then it should be readily 

available at the time an action is filed. Further, because increased enforcement actions against 

135. Few complaints currently state the date of default or the length of the applicable statute of limitations. See, 

e.g., Abrams, Tr. V at 97; Donnelly, Tr. I at 89, 107; Evans, Tr. V at 90-91; Hillebrand, Tr. IV at 112-13; 

Kinkley, Tr. IV at 85; Lipman, Tr. I at 89-90; Moiseev, Tr. I at 113-14; Phillips, Tr. I at 87; Rosmarin, Tr. V at 

96; Surh, Tr. IV at 113-14. In some states, however, collectors are required to include this information in their 

complaints. See, e.g., N.Y. City Civ. Ct. Chief Clerk’s Memorandum 186 (May 13, 2009); Fisher, Tr. V at 

195; Lebedeff, Tr. V at 93. In addition, some creditor attorneys have adopted as a best practice the inclusion of 

such information in their complaints. See, e.g., Buckles, Tr. I at 133 (routinely provides date of last payment in 

complaint); but see Debski, Tr. V at 115. 

136. See, e.g., Abrams, Tr. V at 97 (often saw cases suing on out-of-statute debt but “I felt my hands were tied”); 

Evans, Tr. V at 90; Lipman, Tr. I at 90. 

137. Similarly, the Commission believes that arbitration forums should require that collectors initiating arbitration 

proceedings state the date of default and applicable statute of limitations, and that arbitrators should determine 

whether the claim is time-barred. 

138. Pursuant to Section 809(a) of the FDCPA, 15 U.S.C. § 1692g(a), a collector must send, within five days after 

the initial communication with the consumer in connection with the collection of a debt, a written “validation 

notice” containing: (1) the amount of the debt; (2) the name of the creditor to whom the debt is owed; (3) a 

statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the 

debt, or any portion thereof, the debt will be assumed to be valid by the debt collector; (4) a statement that if 

the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion 

thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the 

consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and 

(5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will 

provide the consumer with the name and address of the original creditor, if different from the current creditor. 
Protecting Consumers in Debt Collection Litigation and Arbitration

31

collectors who violate the FDCPA by threatening to file or filing time-barred lawsuits would 

deter such practices, the Commission intends to focus more of its enforcement efforts on those 

who engage in such conduct.139

V. Garnishment of Exempt Funds in Bank Accounts

Many roundtable participants identified the freezing and garnishment of exempt funds 

in bank accounts as a critical issue for consumers. If a collector obtains a judgment against a 

consumer, then the collector may seek to recover on that judgment by attempting to garnish the 

consumer’s bank account. Although each state has its own garnishment rules, a collector usually 

must apply to a state court for a garnishment order. A collector typically must give notice of its 

application to the consumer,140 and the collector generally provides a copy of the application to 

the bank. Upon receiving this notice, the bank typically “freezes” the funds in the consumer’s 

account pending resolution of the application. If the state court issues a garnishment order, then 

the collector serves a copy of the order on the bank and the bank pays the collector from the 

funds in the account.

Federal and state law declare that certain funds in the bank accounts of consumers are 

exempt from garnishment.141 Federal law generally exempts Social Security, Supplemental 

Security Income (SSI), veterans’ benefits, and numerous other federal benefits from 

garnishment.142 Many state laws exempt similar state benefits from garnishment. The 

fundamental objective of these laws is to ensure that the garnishment of these funds by judgment 

creditors does not create undue hardship for benefit recipients, many of whom are indigent.143

Notwithstanding such laws, banks frequently freeze accounts that contain exempt funds 

pending resolution of the collector’s application for a garnishment order.144 Such freezes create 

139. For threatening to file time-barred suits, see United States v. Whitewing Fin. Group, No. H-06-2102 (S.D. Tex. 

June 22, 2006); FTC v. Capital Acquisitions & Mgmt. Corp., No. 04C7781 (N.D. Ill. Dec. 2, 2004). 

140. Consumers typically do not receive such notices until after their accounts have been frozen by the bank. 

This ensures that consumers do not withdraw all funds from their accounts in anticipation of a freeze or 

garnishment. 

141. There are limited exceptions pursuant to which exempt funds may be garnished. For example, exempt 

funds are sometimes reachable to pay federal income taxes, child support or alimony. See generally NCLC 

Collection Actions, supra note 109, at § 12.5.10. 

142. See, e.g., 42 U.S.C. §§ 407, 1383 (Social Security and SSI benefits); 38 U.S.C. § 5301 (veterans’ benefits). See 

generally NCLC Collection Actions, supra note 109, at Appendix C. 

143. Hillebrand, Tr. IV at 238 (“you know, you don’t want to leave a person penniless when there’s food to be 

bought and kids to be sent to school and rent to be paid”); Kinkley, Tr. IV at 226 (exempt funds are intended to 

be spent on rent, food, and subsistence).

144. See, e.g., Hillebrand, Tr. IV at 210-11; Markoff, Tr. I at 175; Moore, Tr. IV at 217-18; Nepveu, Tr. I at 176-77; 

Newburger, Tr. IV at 227; Tyler, Tr. V at 213-14; Weinberg, Tr. I at 178-79; Wilner, Tr. V at 213. 
Repairing A Broken System

32

considerable hardship for consumers.145 Once the consumer’s bank account is frozen, he or she 

cannot get access to the funds in the account, often causing rent checks to bounce, debit card 

withdrawal requests to be rejected, and so forth. Further, banks typically charge consumers fees 

for freezing the account and for checks that bounce because of the freeze, charges which many 

indigent consumers find difficult to pay. The duration of freezes on bank accounts varies, but 

roundtable participants estimated that consumers often are without access to funds for about a 

month.146 

There was a consensus among roundtable participants that banks should not freeze funds 

that are exempt from garnishment under federal or state law. There was significant disagreement, 

however, as to who is responsible when these funds are frozen. Most debt collectors expressed 

a desire to comply with the law and avoid garnishing exempt funds.147 Collectors explained 

that they usually do not have information from the consumer or the bank identifying the exempt 

benefits consumers receive, which accounts contain exempt funds, and whether such funds have 

been commingled with other funds.148 Without such information, collectors contend that as a 

practical matter they cannot avoid asking that exempt funds be frozen when they seek to garnish 

bank accounts. Collector participants and others suggested that, because banks have more 

145. See, e.g., Brown, Tr. I at 180 (“by the time we get into court [objecting to the garnishment of exempt funds,] 

the client is facing tons of other financial problems, as well as the bank fees that have accumulated, because 

their money has actually been frozen); Maurer, Tr. IV at 215 (a freeze can “result in all kinds of bank charges” 

and consumers might “[miss] their rent payment, and so it’s a real hardship”); Moiseev, Tr. I at 200 (consumers 

are “finding out about [the garnishment] when their checks are bouncing”); Nepveu, Tr. I at 176 (freezing the 

account causes consumers to face freeze fees and multiple insufficient funds fees for checks that bounce), 

202-03 (“When those accounts are frozen, [consumers] don’t have money for food; they don’t have rent; they 

don’t have medicine”); Newburger, Tr. IV at 227; Tenhundfeld, Tr. V at 221; Weinberg, Tr. I at 179 (by the 

time the bank account is unfrozen, “so much damage [has been] done” such as the rent check having bounced 

and forcing the family into eviction proceedings); Wilner, Tr. V at 218 (“[m]aybe [consumers whose bank 

accounts have been garnished are] trying to buy groceries at the store because they have no food, and now their 

card doesn’t work, they have no access to money. So, we have people who need to go to food pantries, who 

need to borrow money from relatives to survive, but maybe they don’t have any relatives or friends. . . . We 

have had clients getting eviction notices because they weren’t able to pay their rent because of the frozen bank 

accounts.”). 

146. See, e.g., Nepveu, Tr. I at 202-03 (“When those accounts are frozen, [consumers] . . . usually don’t have [access 

to the account] for [approximately] a month.”); Maurer, Tr. IV at 215 (consumers may be without their funds 

for approximately a month). 

147. See, e.g., Andersen, Tr. I at 210; Asset Comment at 6; Buckles, Tr. I at 183; Midland Comment at 4; Leibsker, 

Tr. I at 186-7; Markoff, Tr. I at 175-6; Moore, Tr. IV at 217-18; NARCA Comment at 8; Olshan, Tr. V at 215; 

PRA Comment at 3; Ray, Tr. IV at 215-16. 

148. See, e.g., Asset Comment at 6 (creditors almost never know the source of funds in an account); NARCA 

Comment at 8 (banks should be required to notify collectors that an account contains exempt funds before the 

collector freezes or garnishes the account); PRA Comment at 3 (consumers must communicate with collectors 

to let them know about exempt funds in accounts). 
Protecting Consumers in Debt Collection Litigation and Arbitration

33

information than collectors about the origin of deposited funds, banks should bear the primary 

responsibility for not freezing exempt funds.149 

Bank representatives maintain that they are “between a rock and a hard place.”150 They 

acknowledged that at times they freeze exempt funds in bank accounts, explaining that it can 

be difficult to determine which funds are exempt, and especially difficult if consumers have 

commingled exempt and non-exempt funds. Banks contend that they “call a time out” and freeze 

all of the funds in accounts pending a court resolution because they fear being held liable to 

judgment creditors if they make a mistake and fail to freeze non-exempt funds.151 

Several states have attempted to reduce or eliminate problems associated with freezing 

exempt funds by setting a pre-determined amount that banks may not freeze in an account with 

any exempt funds.152 Under this “pre-determined amount” approach, Connecticut provides that, 

for bank accounts that have received funds from certain exempt sources within the previous 

thirty days, $1,000 in the account is preserved for the consumer, and banks may freeze any 

excess amount.153 California follows a similar approach, permitting consumers continued access 

to a pre-determined amount of money in accounts with exempt funds.154 New York also has 

enacted such a statute, preserving $2,500 in bank accounts into which exempt funds have been 

deposited in the previous forty-five days.155 

The federal government has also been considering how to protect against banks freezing 

federally exempt funds. At the FTC’s roundtable in December, a U.S. Treasury official described 

149. See, e.g., Andersen, Tr. I at 189; Hillebrand, Tr. IV at 218, 230; Leibsker, Tr. I at 186; Markoff, Tr. I at 175; 

Moore, Tr. IV at 218; NARCA Comment at 8; Newburger, Tr. IV at 201; Ray, Tr. IV at 230. 

150. See Tenhundfeld, Tr. V at 221-22.

151. Tenhundfeld, Tr. V at 222.

152. See, e.g., Cal. Civ. Proc. Code § 704.080 (2009); Conn. Gen. Stat. Ann. § 52-367b (2009); N.Y. C.P.L.R. 

5222 (2009). See also Wash. Rev. Code § 6.27.060 (2009) (requiring plaintiff seeking a writ of garnishment to 

submit an affidavit affirming that plaintiff has reason to believe and does believe that the garnishee has funds or 

property of the defendant’s which are not exempted from garnishment by state or federal law). 

153. Conn. Gen. Stat. Ann. § 52-367b(c) (2009). 

154. Cal. Civ. Proc. Code § 704.080(b) (2009). For a single account holder, the automatic exemption from freeze 

is $1,225 for a public benefits recipient and $2,425 for a social security recipient. For joint account holders, 

the automatic exemption from freeze is $1,825 for public benefits recipients and $3,650 for social security 

recipients. 

155. N.Y. C.P.L.R. 5222(h) (2009). Some workshop participants stated that there have been problems in the 

implementation of this statute because it requires a continuing freeze on future funds that come into the 

account, rather than merely looking at the account at the time the bank receives notice that a collector is 

seeking a garnishment order. See, e.g., Kerrigan, Tr. V at 229-30; Tyler, Tr. V at 232-33; see also Grippo, Tr. 

V at 233-34. Note also that the New York statute provides that a fixed amount ($1,740) in a bank account is 

protected from freeze even if the funds in the account are not derived from exempt sources. N.Y. C.P.L.R. 

5222(i) (2009). 
Repairing A Broken System

34

a pre-determined amount proposal under discussion by his agency and numerous federal 

agencies that distribute funds exempt from garnishment under federal law (e.g., the Social 

Security Administration).156 On April 19, 2010, the Department of the Treasury, the Office of 

Personnel Management, the Railroad Retirement Board, the Social Security Administration, and 

the Department of Veterans Affairs (“Agencies”) issued a joint notice of proposed rulemaking 

(“JNPR”) on the garnishment of accounts containing federal benefit payments.157 Instead of a 

pre-determined amount approach, the JNPR adopted a “lookback” approach preventing banks 

from freezing exempt funds. The amount banks would not be permitted to freeze is “the lesser of 

the sum of all [federally exempt] benefit payments deposited to an account during the lookback 

period or the balance in an account on the date of account review.”158 The proposed rule defines 

the “lookback period” as “the 60-calendar-day period preceding the date on which a financial 

institution is served a garnishment order.”159 

The Agencies proposed a lookback approach rather than a pre-determined amount approach 

because of their concern that a pre-determined amount might “go beyond the underlying 

statutory authorities to protect ‘moneys paid’ and . . . result in the unauthorized over-protection 

of funds when benefit payments were less than the flat amount . . . .”160 For example, assume 

a consumer’s bank account contains $2,500, of which $1,500 was deposited by the Social 

Security Administration during the past sixty days and $1,000 came from non-exempt sources. 

If a pre-determined $2,000 freeze amount is applied, $500 in the account that comes from 

non-exempt sources would be protected from the freeze even though it was not exempt from 

garnishment. Under the lookback approach, by contrast, the amount protected from a freeze can 

never exceed the amount of exempt funds deposited, so the amount protected would be $1,500. 

The Agencies sought public comment through June 18, 2010 on their proposed rule incorporating 

the lookback approach. No final rule has been issued.

Both the lookback approach and the pre-determined amount approach appear to benefit 

consumers through protecting the indigent from undue hardship. The Commission generally 

supports the rulemaking efforts the Agencies proposed in the JNPR and encourages them, 

after considering the scope of their legal authority and the costs and benefits of alternative 

156. See Grippo, Tr. V at 225-26. 

157. Garnishment of Accounts Containing Federal Benefit Payments, joint notice of proposed rulemaking (proposed 

Apr. 19, 2010), 75 Fed. Reg. 20299 (hereinafter Garnishment JNPR). 

158. Garnishment JNPR, supra note 157, at proposed § 212.3. 

159. Garnishment JNPR, supra note 157, at proposed § 212.3. 

160. Garnishment JNPR, supra note 157, at 20301. 
Protecting Consumers in Debt Collection Litigation and Arbitration

35

approaches,161 to issue a final rule limiting the freezing of exempt funds as expeditiously as 

possible. The FTC also continues to encourage states to prevent banks from freezing amounts 

in bank accounts containing exempt funds.162 The Commission recommends that states which 

have not limited the amounts in accounts subject to a freeze consider adopting either the predetermined amount approach or the lookback approach.163

Another suggestion made during the roundtables was to educate consumers as to their 

rights with regard to exempt funds in bank accounts and encourage them to take steps to exercise 

those rights. Consumers often do not know whether the funds they receive are exempt from 

garnishment. The Commission has engaged in efforts to educate consumers about their right 

not to have exempt funds garnished.164 In addition, through their JNPR, the Agencies propose to 

require that financial institutions provide consumers more information about their garnishment 

rights.165 The FTC believes it would be worthwhile for others to consider providing this sort of 

information to consumers. 

Several roundtable participants also suggested that consumers would benefit from a 

plain language explanation identifying the funds in their accounts which may be exempt from 

garnishment.166 In particular, panelists suggested that the notice consumers receive from the state 

court informing them that a collector is seeking to garnish their bank accounts should come with 

a form with boxes consumers can check to indicate sources of exempt funds.167 The Commission 

recommends that state courts consider using such forms, which could help educate consumers 

about their rights and enable unrepresented consumers to exercise those rights more easily. 

161. Financial institutions may incur different costs under these approaches because a lookback approach requires a 

more extensive account review and calculation than a pre-determined amount approach. 

162. The proposed federal rule does not preempt state law unless federal and state law are inconsistent. 

Garnishment JNPR, supra note 157, at proposed § 212.9. 

163. In considering which approach to employ, the Commission recommends that states evaluate the likely costs 

and benefits of each approach, especially as a lookback requirement may involve extensive transaction-level 

account review.

164. The Commission issued a consumer education piece on this topic in May 2009. It is available at 

http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt135.shtm. 

165. Section 212.7 of the JNPR, supra note 157, would require that financial institutions provide consumers with 

notices about receipt of a garnishment order, eligibility for continued access to a protected amount, freezing of 

any other amounts, an exemplary list of federal, state, and other benefits generally exempt from garnishment, 

and their right and procedures to assert a further garnishment exemption for amounts above the protected 

amount. A sample notice is provided at proposed Appendix A to Part 212. 

166. See, e.g., Grippo, Tr. V at 257-58; Kerrigan, Tr. V at 260; Lerch, Tr. I at 202; Markoff, Tr. I at 200; but see 

also Tyler, Tr. V at 258-59 (rather than consumer education, he would prefer making honoring of exemptions 

automatic, “so people actually don’t need to know this right, and their account[s] [remain] safe”). 

167. See, e.g., Lerch, Tr. I at 202 (Indiana form); Moiseev, Tr. I at 200 (Michigan form). 
Repairing A Broken System

36
Protecting Consumers in Debt Collection Litigation and Arbitration

37

Chapter 3

Arbitration Proceedings

I. The Arbitration Framework

Debt collection disputes may be resolved in private arbitration as well as in the public 

court system. Arbitration is a form of alternative dispute resolution in which the parties submit 

their disputes to an arbitrator, a private third party, rather than a judge.168 The arbitrator is often 

affiliated with an arbitration company, known as an “arbitration forum,” and is tasked, like a 

judge, with considering the parties’ evidence and submissions, and then rendering a decision. 

Arbitration generally is less formal and has simpler rules than court litigation.169 The arbitrator’s 

decision is final170 and is enforceable in court, subject to limited grounds for appeal.171 

To use arbitration, the parties must agree to resolve their dispute by this process, rather than 

by the court system. The parties can agree to arbitration after a dispute has arisen. They can 

also agree beforehand, typically through the use of an arbitration clause in the parties’ contract 

stating that, should a dispute arise, they will arbitrate to resolve that dispute. Such “mandatory 

pre-dispute arbitration” clauses have become increasingly common in consumer contracts for 

goods and services,172 such as credit cards, cellular phones, and medical services. If a consumer 

168. Drahozal, Tr. II at 18 (“The basic idea of arbitration is private judging.”).

169. American Arbitration Association, Alternative Dispute Resolution Basics FAQ, available at

http://www.aaauonline.org/upload/439166290_adr_basics_faqs.pdf (“Arbitration is less formal than litigation 

and the evidentiary process is limited.”). 

170. Drahozal, Tr. II at 18 (stating that “an arbitrator is someone who decides the issue, and it’s a binding decision 

on the parties”). Although decisions issued in debt collection arbitration are binding on the parties, note that 

arbitration in connection with other consumer transactions may be non-binding. 

171. Federal Arbitration Act (FAA), 9 U.S.C. §§ 10-11 (2006).

172. Majority Staff of H. Subcomm. on Domestic Policy, Comm. on Oversight and Gov’t Reform, 111th

Cong., Arbitration Abuse: an Examination of Claims Files of the National Arbitration Forum (July 

21, 2009), at 3 (“Virtually all consumer transactions with large businesses are now subject to pre-dispute, 

mandatory arbitration clauses.”); Theodore Eisenberg, Geoffrey P. Miller & Emily Sherwin, Arbitration’s 

Summer Soldiers: An Empirical Study of Arbitration Clauses in Consumer and Nonconsumer Contracts, 

41 U. Mich. J.L. Reform 871, 871 (2007-2008) (“Arbitration clauses are common features of American 

consumer agreements.”); Mandatory Binding Arbitration – Is It Fair and Voluntary?, Before the Subcomm. 

on Commercial and Administrative Law of the H. Comm. on the Judiciary, 111th Congress 1st Sess. (2009) 

(statement of Stuart T. Rossman, Director of Litigation, National Consumer Law Center, Recent Developments 

in the Forced Arbitration Market and the Continued Need for Protective Legislation, at 1, available at 

http://judiciary.house.gov/hearings/pdf/Rossman090915.pdf (“Practically every credit card agreement, 

cell phone contract . . . now contains a pre-dispute mandatory arbitration clause.”)) (hereinafter Rossman 

Testimony); Public Citizen, Forced Arbitration: Unfair and Everywhere 1 (Sept. 14, 2009), available at

http://www.citizen.org/documents/UnfairAndEverywhere.pdf (stating that, “forced arbitration remains almost 

ubiquitous in many industries”). 
Repairing A Broken System

38

does not pay on these contracts, the creditor or other collector of the debt may use arbitration to 

collect the amount owed.

Arbitration proceedings and decisions are governed by federal and state law. The primary 

law governing arbitration is the Federal Arbitration Act (“FAA”),173 which was enacted to 

overcome court reluctance to enforce arbitration agreements between corporations.174 The FAA 

makes arbitration clauses (including mandatory pre-dispute arbitration clauses in consumer 

contracts) enforceable,175 and it generally overrides any state laws to the extent they are contrary 

to the FAA.176 Disputes within the scope of the arbitration agreement can be arbitrated. A party 

wishing to challenge the enforceability of an arbitration agreement can do so in court using 

state law defenses applicable to contracts generally,177 so long as such defenses apply to contract 

provisions in general and do not single out arbitration clauses. Courts have limited power and 

opportunity to review awards and decisions resulting from arbitration.178 

As collectors increasingly have turned to arbitration to collect on consumer debt, a debate 

has arisen about the advantages and disadvantages of using arbitration forums to resolve such 

disputes. Some contend that debt collection arbitration has significant benefits, such as more 

expeditious and less expensive proceedings, as well as diverting a large number of cases that 

would otherwise clog the court system.179 Others, however, have expressed reservations about 

173. 9 U.S.C. §§ 1, et seq. (2006).

174. S. Rep. No. 536, 68th Cong., 1st Sess., at 2 (1924) (stating that the federal courts “have denied relief to the 

parties seeking to compel the performance of executory agreements to settle and determine disputes by 

arbitration”); Southland Corp. v. Keating, 465 U.S. 1, 10 (1984) (stating that in enacting the FAA, “Congress 

declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum 

for the resolution of claims which the contracting parties agreed to resolve by arbitration.”). 

175. FAA, 9 U.S.C. § 2 (2006) (making written arbitration agreements “valid, irrevocable, and enforceable, save 

upon such grounds as exist at law or in equity for the revocation of any contract”). 

176. Drahozal, Tr. II at 22. 

177. FAA, 9 U.S.C. § 2 (2006).

178. Id. at §§ 9-13 (2006); Drahozal, Tr. II at 29 (stating that the FAA sets out standards relating to the enforcement 

of arbitration awards, but noting that it is “less clear” whether the FAA governs or whether state standards may 

be used to some degree).

179. ACA Comment at 4 (noting arbitration’s “important role in reducing already overcrowded court dockets”); 

AAA Comment, testimony of Richard Naimark to House Oversight and Government Reform Committee, 

Domestic Policy Subcommittee (July 22, 2009) at 5 (noting that if arbitration is no longer available for 

consumer debt claims, “a very large number of small dollar claims will be filed in our already overburdened 

courts”) (public comment # 542930-00016, hereinafter AAA Comment); U.S. Chamber of Commerce 

Comment at 3 (citing benefits of arbitration such as the consumer usually having “the choice to conduct his or 

her arbitration over the phone or ‘on the papers,’ which saves the consumer from having to take any days off 

work to resolve the dispute.”).
Protecting Consumers in Debt Collection Litigation and Arbitration

39

the impact of debt collection arbitration on consumers.180 Some arbitration critics contend that 

consumers do not have a real choice as to whether they will be subject to an arbitration clause.181 

Other critics assert that the debt collection arbitration system does not have adequate procedures 

to ensure fairness towards consumers182 and is biased in favor of creditors and collectors.183 

To evaluate the impact of arbitration on the debt collection system, the Commission 

considered the topic during its 2007 Debt Collection Workshop. In its 2009 workshop report, the 

FTC reported that it had heard varying opinions and concerns regarding consumer debt collection 

arbitration.184 The information presented and submitted in connection with the Workshop, 

however, was not sufficient for the Commission to make extensive findings, conclusions, and 

recommendations related to this topic.185 To gather more data and views, in 2009 the FTC held 

roundtable discussions in Chicago and San Francisco on this topic. 

During the summer and fall of 2009, while the Commission was conducting its roundtables, 

there were major developments in the use of arbitration to resolve debt collection disputes. In 

July 2009, the Minnesota Attorney General’s Office (“Minnesota AG”) filed suit against the 

National Arbitration Forum (“NAF”), then the leading debt collection arbitration forum. The 

Minnesota AG alleged that NAF had engaged in consumer fraud, deceptive trade practices, and 

false advertising. NAF purportedly held itself out as an impartial provider of dispute resolution 

while actually having financial ties to key members of the debt collection industry through 

a series of complex and purposefully hidden affiliations. Days after the suit was filed, NAF 

entered into a settlement with the Minnesota AG which required it to cease providing arbitration 

180. Alderman Comment, attaching Richard M. Alderman, Why We Really Need the Arbitration Fairness Act – It’s 

All About Separation of Powers, 12 J. Consumer & Com. L., 151, 154 (Summer 2009) (“Consumer arbitration 

is often simply a way for a business to reduce the number of disputes, avoid the courts and juries, and achieve 

more favorable results.”) (hereinafter Alderman Comment).

181. Jackson, Tr. II at 91 (“Right now they [consumers] have no choice.”); Johnson Tr. II at 95 (“Pre-dispute 

consumer arbitration simply doesn’t work.”).

182. See Bland Comment, Testimony to House Subcommittee on Domestic Policy, “Arbitration or ‘Arbitrary’: The 

Misuse of Arbitration to Collect Consumer Debts,” at 11 (referring to NAF, expressing doubts about “the 

ability of consumers to get a fair hearing in arbitration, as compared to the experiences they would have in 

court.”)

183. See, e.g., Sturdevant, Tr. III at 93 (“I think there is substantial bias in the process”); Public Citizen, 

The Arbitration Trap – How Credit Card Companies Ensnare Consumers 1 (Sept. 2007), available at 

http://www.citizen.org/documents/ArbitrationTrap.pdf (stating that, “binding mandatory arbitration is a rigged 

game in which justice is dealt from a deck stacked against consumers.”) (hereinafter Arbitration Trap).

184. Challenges of Change, supra note 1, at 55. 

185. Id. 
Repairing A Broken System

40

services for consumer debt collection claims.186 A number of private class actions suits against 

NAF have been filed.187

In the wake of this settlement with NAF, the American Arbitration Association (“AAA”), 

an arbitration forum which had handled some debt collection arbitrations, decided to impose 

a moratorium on providing such services until concerns regarding the system are addressed.188 

Subsequently, a number of large banks announced that they would discontinue their use of 

binding mandatory arbitration clauses in credit card agreements.189 In light of these events, it is 

an opportune time to assess the validity and viability of arbitration as an alternative to the court 

system as a method of resolving debt collection disputes. Indeed, many commentators have 

expressed the belief that some entity will eventually emerge to fill the void left by NAF.190 

The Commission believes that, to ensure that consumers are adequately protected if 

arbitration once again becomes a common method of resolving debt collection disputes, 

mandatory pre-dispute arbitration should be permitted only if: (a) creditors provide consumers 

with meaningful choice as to whether their debt collection disputes will be arbitrated; and (b) 

186. See Consent J., State of Minn. v. Nat’l Arbitration Forum, Inc., State of Minn., Hennepin County 

Dist. Ct., 27-CV-09-18550 (signed by parties July 17, 2009; entered Aug. 7, 2009), available at

http://www.publicjustice.net/Repository/Files/NAFMinn_Letter_071909.pdf.

187. See In re Nat’l Arbitration Forum Trade Practices Litigation, Docket No. 10-md-02122 (D. Minn., Transfer 

Order creating multidistrict litigation filed Feb. 3, 2010).

188. See Letter from William K. Slate II, American Arbitration Association, to Lori Swanson, Attorney General, 

State of Minnesota (July 20, 2009), available at http://www.nclc.org/images/pdf/arbitration/testimonysept09-

exhibit4.pdf, at 2 (implementing moratorium until “there is some consensus on how concerns about the 

administration of debt collection arbitrations might be successfully addressed”). 

189. See Dow Jones Newswires, Banks Agree to Settle Suit Over Arbitration Clause – Lawyers, (Apr. 6, 2010), 

available at http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201004061448dowjonesdjonl

ine000297&title=banks-agree-to-settle-suit-over-arbitration-clause-lawyers (according to lawyers representing 

class action plaintiffs in a suit over credit card arbitration clauses, Bank of America, Capital One Financial, 

J.P. Morgan Chase, and HSBC Holdings agree to a settlement, pending court approval, that would, inter alia, 

“require the companies to stop enforcing arbitration clauses . . . and to remove those items from their terms 

for 3 1⁄2 years”); see also National Consumer Law Center, Forced Arbitration – Consumers need Permanent

relief, 13 (Apr. 2010), available at http://www.nclc.org/images/pdf/arbitration/report-forced-arbitration.pdf

(hereinafter NCLC Arbitration Report) (stating that JPMorgan Chase, Bank of America, Capital One and 

HSBC reached tentative settlements to stop enforcing existing mandatory arbitration clauses and to refrain 

from including such clauses in their contracts until at least 2013); CardRatings.com, HSBC Drops Mandatory 

Credit Card Arbitration, (Jan. 5, 2010), available at http://www.cardratings.com/hsbc-mandatory-credit-cardarbitration.html (indicating that Regions Bank, TD Bank, and PNC Bank had represented that they would leave 

mandatory arbitration clauses out of new agreements).

190. Johnson, Tr. II at 97 (“[A]nother NAF is going to emerge.”); Bland, Tr. II at 106 (speaking against the position 

that, “no one else is going to show up with a wink and a nod and some pretty protocols and so forth to devise 

a system which again delivers the goods of basically a set system . . . .”), 209 (discussing the possibility that a 

successor of NAF, “appears down the road”); Barron, Tr. III at 107 (“It would be a terrible mistake to think that 

because NAF isn’t here now, there’s no opportunity for a similar provider to arise . . . .”); Sternlight, Tr. III at 

169. 
Protecting Consumers in Debt Collection Litigation and Arbitration

41

the arbitration process is fair to creditors, collectors, and consumers. For the reasons discussed 

below, the Commission is not confident that debt collection arbitration currently satisfies either of 

these two conditions. The Commission therefore will continue to closely monitor, evaluate and 

report, as appropriate, on whether debt collection arbitration models are providing consumers 

with meaningful choice and a fair process.191 

II. Meaningful Consumer Choice 

The decision to submit disputes to arbitration rather than the public court system must be 

based on an agreement between the creditor and the consumer. This agreement usually takes the 

form of a mandatory pre-dispute arbitration provision in the contract between the creditor and the 

consumer, a provision that creditors draft. To give consumers a meaningful choice192 to submit 

their disputes to arbitration, they must have: (1) a basic understanding of arbitration and its 

consequences; (2) the option whether to agree to arbitration, and under what conditions; and (3) a 

reasonable method of exercising that option.

A. Consumer Understanding of Arbitration

Many roundtable participants suggested that consumers do not understand arbitration or 

its consequences.193 Without such an understanding, consumers may not be aware of the choice 

related to arbitration they are being asked to make. Public and private sector efforts would be 

useful in conveying information about arbitration to consumers and would help them make 

better-informed decisions. 

191. In late 2009, AAA convened a task force of arbitration and debt collection experts to evaluate whether the 

organization should recommence debt collection arbitration, and, if so, how such arbitration should be 

reformed. FTC staff has been a member of the task force, and has participated in its meetings and discussions. 

The AAA task force’s work is ongoing. 

192. The ‘meaningful choice’ whether to arbitrate does not necessitate that creditors in their consumer contracts 

offer an alternative to arbitration, such as litigation. Consumers may exercise meaningful choice to arbitrate 

by refraining from contracting with a creditor, so long as all other conditions for meaningful choice and fair 

process discussed in this report are met. 

193. See, e.g., Johnson, Tr. II, at 43 (“Consumers are not familiar with arbitration.”); Sturdevant, Tr. III at 18 (“So I 

don’t think that there is any general level of awareness by consumers about arbitration.”); Sternlight, Tr. III at 

23 (“Even if people get served with a document that says arbitration, they have no concept; even law students, 

even law professors have no concept of what arbitration is.”). 
Repairing A Broken System

42

B. Consumer Arbitration Choices194

Assuming that consumers have a basic understanding of arbitration, they can make 

meaningful choices only if they are aware of the arbitration provisions in contracts and have 

the ability to make choices regarding those provisions. Many consumer advocates at the 

roundtables stated that consumers generally do not know that their contracts contain arbitration 

provisions.195 Indeed, one consumer advocate opined that the credit card companies purposefully 

draft contracts in a manner such that consumers do not notice these clauses.196 Other roundtable 

participants questioned whether consumers who are aware of the arbitration provisions in 

their contracts actually understand them,197 explaining that it may be challenging to disclose 

information about arbitration in a contract in a clear and prominent manner.198 One consumer 

advocate indicated that consumers may have particular difficulty understanding provisions that 

are contingent on a future event, such as the possibility that consumers will not be able to make 

their payments under the contract.199

Some roundtable participants expressed concern that consumers currently have no 

meaningful ability or opportunity to make choices or weigh their options at the point of 

194. Some debate has arisen in the academic literature and elsewhere over arbitration clauses that prohibit class 

actions and whether such bans should be permitted. Some roundtable participants expressed opposition to 

class action bans, including one consumer advocate who opined that one of the main reasons that companies 

prefer arbitration is to avoid class actions. (See Sternlight, Tr. III at 88). The roundtables focused on the 

issue of debt collection arbitrations against individual consumers – which comprise the vast majority of such 

arbitrations – and thus the FTC takes no position regarding clauses that bar or restrict class actions in debt 

collection proceedings.

195. See, e.g., Frank, Tr. II at 86 (“[D]o people who get consumer loans know they have an arbitration clause, and 

the evidence is that the vast majority of them do not.”).

196. Frank, Tr. II at 86-87 (“[T]here’s [sic] things they [credit card companies] don’t want you to notice necessarily; 

and clearly the way the arbitration is disclosed, it’s disclosed in a manner that definitely the case is it’s not 

something that the company wishes you to be focused on.”).

197. See, e.g., Jackson, Tr. II at 91 (“Credit card contracts are extremely difficult to understand. I have difficulty 

reading them, and I’ve been trained as a lawyer.”).

198. See Sorkin, Tr. II at 106-07 (“I don’t think it’s easy to provide meaningful disclosure and meaningful choice. I 

think there’s a real contest to it . . . . It’s very hard to disclose even a limited amount of information in a way 

that’s meaningful . . .”). 

199. Frank, Tr. II at 89 (Consumers may underestimate the likelihood of an event, especially one which is 

contingent on another future event.); see also Sorkin, Tr. II at 107 (noting that, “when some of the information 

is contingent on an unlikely future event, it’s even harder to disclose it in a way that enables a meaningful 

choice”).
Protecting Consumers in Debt Collection Litigation and Arbitration

43

contract.200 Consumers generally do not negotiate or try to negotiate the arbitration provisions 

in their credit card contracts. A number of participants stated that consumers may not attempt to 

negotiate because they may not believe they have any alternative given that all of the companies 

in the relevant industry (e.g., banks that issue credit cards) have arbitration provisions in their 

contracts.201 Another participant noted that some consumers may not negotiate concerning 

arbitration provisions because they are purchasing goods or services (e.g., urgent medical care) 

in circumstances in which time is of the essence.202 Some consumer advocates have suggested 

that consumers want the opportunity to negotiate about arbitration provisions in their contracts.203 

Representatives of collectors,204 on the other hand, expressed doubt about whether consumers, 

assuming they had the ability and opportunity to do so, would even want to try to negotiate such 

contractual provisions.205 

Roundtable participants also discussed allowing consumers to “opt out” of mandatory 

arbitration even after having entered into a contract with an arbitration provision. Some 

consumer credit contracts do contain provisions allowing consumers a certain period of time 

from the date of the contract to opt out of mandatory arbitration. One attorney who represents 

creditors reported that an increasing number of credit card issuers are providing consumers 

with such an option, with the time period to opt out ranging from fifteen days to sixty days.206 

However, some roundtable participants stated that, for a variety of reasons, consumers rarely 

exercise such opt-out rights.207 Many consumer advocates asserted that, if consumers were aware 

200. See Joshua M. Frank, Center for Responsible Lending, Stacked Deck: A Statistical Analysis of Forced

Arbitration, 6 (May 2009), available at http://www.responsiblelending.org/credit-cards/research-analysis/

stacked_deck.pdf (stating that “[e]ven when a consumer can shop for loans, they typically cannot renegotiate 

the key terms of the standard contract. They have no choice or control over which arbitration forums can be 

used in a forced arbitration clause.”) (hereinafter Stacked Deck).

201. Frank, Tr. II at 88-89; Jackson, Tr. II at 90 (“You want a phone, you’re going to get arbitration. You want a 

credit card, you’re going to get an arbitration clause.”); see Sternlight, Tr. III at 56-57 (stating that, “if you 

define the word choice in any kind of remotely meaningful way, consumers do not have a choice because all or 

certainly virtually all credit card companies currently require consumers’ debt to be sent to arbitration.”). 

202. Hillebrand, Tr. III at 66.

203. See Jackson, Tr. II at 91. 

204. The use of the term “collector(s)” includes original creditors and subsequent debt collectors.

205. See Kaplinsky, Tr. II at 85. 

206. Kaplinsky, Tr. II at 85 (stating that, “a lot of them have been doing that for years, I have been counseling them 

to do that . . . .”). 

207. See, e.g., Bland, Tr. II at 101 (“only a very, very tiny percentage of people opted out”). 
Repairing A Broken System

44

of that option, they would choose to do so.208 In contrast, an attorney for creditors opined that 

few consumers would choose to opt out of arbitration because they prefer it to court litigation.209

Some roundtable participants suggested that arbitration provisions state that, at the time the 

dispute with the creditor arises, the consumer has the right to demand that the matter be moved 

from arbitration to a small claims court if the court would have jurisdiction over the claims.210 

AAA mandates in its consumer dispute process protocol that companies include such a “small 

claims carve-out” in their arbitration agreements. AAA acknowledged, however, that few 

consumers exercise their right to have their matters heard in small claims court rather than in 

AAA consumer arbitration.211

Beyond the initial choice whether to arbitrate and any subsequent opt-out options, some 

roundtable participants suggested additional arbitration options consumers could select. One 

collector attorney suggested that creditors could give consumers the ability to choose or reject 

arbitration terms in exchange for receiving more or less favorable interest rates.212 For example, 

a consumer might be offered a ten percent interest rate without a mandatory pre-dispute 

arbitration clause, or a nine and three-quarters percent rate with such a clause. Roundtable 

participants also suggested giving consumers choices as to the arbitration forum that would 

resolve their disputes. Some consumer advocates suggested that, if the creditor drafts the 

208. See Lake Research Partners, “National Study of Public Attitudes on Forced Arbitration,” Apr. 2009, available 

at http://www.fairarbitrationnow.org/uploads/Forced%20Arbitration%20Study%20Slides%200409.pdf at 3, 4 

(in a study commissioned by the Employee Rights Advocacy Institute for Law and Policy and Public Citizen, 

and funded by the Public Welfare Foundation, researchers polling 800 adults found that 59% oppose fine print 

forced arbitration clauses in employment and consumer contracts); see also Arbitration Trap, supra note 183, 

at 56 (advising consumers obtaining a credit card with a mandatory pre-dispute arbitration clause to “sign an 

arbitration opt-out if one is available or strike the clause from the contract and initial the change”). 

209. Kaplinsky, Tr. II at 110.

210. Kaplinsky Comment, attaching “The Use of Pre-Dispute Arbitration Agreements by Consumer Financial 

Services Providers,” at 13 (stating the attorney’s message to his clients to draft a fair arbitration clause, 

including a small claims court carve-out). 

211. Naimark, Tr. III at 54 (noting that in the consumer debt collection cases AAA previously administered, 

although the initial letter to consumers informed them of the option to go to small claims court, “very, very few 

took that option”). One suggestion offered was that, if such a small claims court option is permitted (as with 

AAA’s protocol), then consumers should be informed of this right in the notices provided to them about the 

initiation of arbitration proceedings. Kaplinsky, Tr. II at 84 (stating of the demand for arbitration, “[t]hat notice 

probably ought to contain a clear disclosure that if you don’t want to arbitrate this debt, you’ve got the right to 

have it heard in small claims court, and you’ve got to do the following in order to take advantage of that”). 

212. Kaplinsky Comment, “The Use of Pre-Dispute Arbitration Agreements by Consumer Financial Services 

Providers,” at 16 (stating, “[c]onsider bifurcated pricing under which the consumer will pay a lower interest 

rate or lower fee is he or she does not opt out of the arbitration provision”). 
Protecting Consumers in Debt Collection Litigation and Arbitration

45

arbitration provision in the contract, the consumer should be allowed to choose213 the arbitration 

forum214 from among a number of alternatives.215 An academic offered the caveat, however, that 

even with this approach consumers might not have an acceptable number or quality of arbitration 

forums from which to choose,216 perhaps because there may be a limited number of arbitration 

providers.217

C. Reasonable Methods of Exercising Choice 

Consumers must have a reasonable method, at a reasonable cost, of exercising their choice 

whether to arbitrate, as well as their choice regarding any other arbitration options or terms. 

Where a contract offers only one arbitration option, consumer assent to the contract may suffice. 

However, where selection from among a range of choices is required, how such choices should 

be made available to consumers depends on the context in which they are offered. For example, 

if consumers have the option in credit contracts to select the arbitration forum, at a minimum 

the names of the potential arbitration forums should be disclosed clearly and prominently in the 

contracts. If consumers have the option to select between litigation and arbitration, allowing 

them a selection method such as checking a box on the contract generally could be a relatively 

low-cost means of exercising their option.

D. FTC Views on Consumer Choice in Arbitration

The Commission concludes that consumers should, but generally do not, have a meaningful 

choice regarding mandatory pre-dispute arbitration provisions in consumer credit contracts. To 

give consumers such choice, they must have: (1) a basic understanding of arbitration and its 

consequences; (2) the option whether to agree to arbitration, and under what conditions; and 

(3) a reasonable method of exercising that option. The FTC thinks that substantial changes in 

mandatory pre-dispute arbitration provisions are needed to meet these criteria. Creditors should 

draft their consumer credit contracts in a way that ensures consumers are aware of their choice 

213. One panelist aptly described this method as “one cuts, one chooses,” Drahozal, Tr. II at 122-23, explaining 

that such a decision rule gives the one making the cut (i.e., drafting the contract) an incentive to make the 

arbitration provision fair. 

214. The reporting and transparency requirements discussed below to make the arbitration process more fair would 

also provide critical information in helping consumers make better-informed choices among arbitration forum 

options. 

215. See Bland, Tr. II at 102; see also Edelman Comment at 22 (“Consumer should be given choice of 3 or more 

forums.”).

216. See Sternlight, Tr. III at 81-82.

217. Consumer ability to choose from among any alternative providers or processes would be enhanced by, inter

alia, consumer education efforts and transparent reporting of arbitration results. (See Sections II.A, “Consumer 

Understanding of Arbitration,” and III.D, “Transparency of Arbitration Results.”)
Repairing A Broken System

46

whether to arbitrate, and provides consumers with a reasonable method of exercising that choice. 

The FTC recommends that the public and private sector study the efficacy of alternatives to give 

consumers meaningful choice, including evaluating the various options discussed above and 

considering whether, and under what conditions, options beyond the initial choice whether to 

arbitrate must be offered in consumer credit contracts. The Commission also recommends that 

the public and private sector educate consumers so that they can make better-informed choices 

related to arbitration.218 

III. Fair Arbitration Process 

For arbitration to be a viable alternative for debt collection disputes, the arbitration process 

must meet fundamental standards for fairness. First, the arbitration forum and the arbitrator 

cannot be biased or appear to be biased. Second, consumers must receive adequate notice of the 

arbitration proceeding and be able to participate in it at a reasonable cost. Third, the arbitrator 

must issue a reasoned decision so that the parties understand the basis for the arbitration award, 

and parties must have an adequate opportunity to enforce or challenge the award. Finally, the 

arbitration process and the arbitration itself must be transparent, so that the parties and public can 

assess the fundamental fairness of arbitration forums and arbitrators. 

A. Bias and Appearance of Bias

A major issue in the current debate over consumer debt collection arbitration is bias and the 

appearance of bias.219 Consumer advocates often assert that arbitration is biased or appears to be 

biased in favor of creditors and collectors.220 Others have questioned this assertion.221

218. Roundtable participants expressed the need for consumer education regarding arbitration. Johnson, Tr. II at 96-

97 (“We need to educate these consumers.”); Naimark, Tr. III at 45. 

219. See Capitel, Tr. III at 110 (noting the importance of the perception of bias, not just actual bias, to how public 

perceives the process and decides whether to participate in that process).

220. See, e.g., GAO Report, supra note 10, at 34 (“Some consumer advocates expressed concern that requiring 

arbitration is unfair because they believe the arbitration system can be biased against consumers.”); Rossman 

Testimony, supra note 172, at 3 (“The essential problem with forced arbitration is that it creates a system 

strongly biased in favor of the corporation and against the individual.”); NCLC Arbitration Report, supra note 

189, at 1 (“Consumers are forced into a private system of justice that is inherently biased in favor of creditors 

and collectors.”). 

221. See, e.g., Canter, Tr. II at 144-45 (stating, “I have handled consumer arbitrations for creditors, both document 

hearings and participatory hearings and in-person hearings; and [setting aside any connection between the 

arbitration provider and creditor] . . . I never perceived any bias”); see also Maine Bureau of Consumer 

Credit Protection, Memorandum to Joint Standing Committee on Insurance and Financial Services, Report to 

Committee: Compilation of Information Reported by Consumer Arbitration Providers (Apr. 1, 2009), available 

at http://www.maine.gov/pfr/consumercredit/documents/ArbitrationProvidersReport.rtf, at 2 (studying data 

from 2,500 consumer arbitration cases – nearly all of which involved credit card debts – reported under Maine 

state law for 2008. “In the small number of cases in which consumers advanced defenses, arbitrators showed a 

willingness to rule in the consumers’ favor.”) (hereinafter Maine Arbitration Report). 
Protecting Consumers in Debt Collection Litigation and Arbitration

47

Some roundtable participants expressed the view that, to evaluate bias, one should look only 

at the conduct of the individual arbitrator making the decision, not at the actions of the arbitration 

forum.222 Others responded that the possible bias of individual arbitrators cannot be divorced 

from any bias of the forum as a whole, especially given that employees of the forum make 

major decisions with regard to the arbitration.223 At a minimum, even if individual arbitration 

decisions are not biased, they may be perceived as being biased if the arbitration forum is biased. 

Therefore, it is appropriate to examine the potential for bias by both the arbitrator and the forum.

1. Arbitrator Bias and Appearance of Bias 

Many consumers are not aware of various affiliations or financial arrangements of 

arbitration forums and individual arbitrators.224 To the extent that these affiliations do not rise to 

a level that would preclude the forum or arbitrator from participating in a particular arbitration, 

disclosing such information would promote transparency and more informed consumer choice. 

One roundtable participant advocated that arbitrators be required to disclose any conflicts of 

interest that would disqualify them if they were judges.225 

Roundtable participants also discussed how arbitrators are paid and whether the payment 

structure affects how they handle their cases. One issue is whether arbitrators should be 

paid a fixed salary or, as has been more common, paid by the number of matters handled.226 

According to participants, both systems have risks: payment per matter provides arbitrators 

with an incentive to spend too little time on each matter; payment of a fixed salary provides an 

incentive for arbitrators not to be efficient.227 Another issue is the relationship between arbitrator 

compensation and the complexity of the matter being arbitrated. One large arbitration forum 

suggested that, when consumers raise certain defenses – such as those involving allegations of 

identity theft – it may increase the complexity and time required to arbitrate a matter.

228 The 

222. See, e.g., Kaplinsky, Tr. II at 166-67; Narita, Tr. III at 99.

223. See Van Aken, Tr. III at 98-99 (stating that, “case managers have control over the schedule. They have control 

over deeming a response sufficient or deficient such that it goes into different piles and to different arbitrators . 

. . . [A] customer requesting a participatory hearing is something where a case manager decides that in the first 

instance . . . .”). 

224. See Stacked Deck, supra note 200, at 2 (“Arbitration case records are typically not publicly available, leaving 

consumers with little ability to determine the fairness of an arbitration forum or the record of a specific 

arbitrator.”).

225. See Hillebrand, Tr. III at 97 (referring to California Code of Civil Procedure §1281.96). 

226. See Drahozal, Tr. II at 149; see also Arbitration Trap, supra note 183, at 8 (“Unlike judges, arbitrators are paid 

only when they are assigned cases by arbitration companies. Rich rewards accrue to arbitrators who receive a 

steady diet of cases . . . .”). 

227. See Drahozal, Tr. II at 149-50.

228. AAA Comment at 7.
Repairing A Broken System

48

individual arbitrator should receive additional compensation, with all or much of it being charged 

to the corporate claimant.229

Another key issue related to bias is whether arbitrators are biased in favor of creditors, 

sometimes referred to as “repeat-player” bias.230 The basic theory is that arbitrators are more 

likely to decide in favor of collectors because they bring or can bring numerous matters before 

the same arbitrator and through the same arbitration forum. Some claim that arbitration forums 

assign fewer matters to arbitrators who rule in favor of consumers.231 Arbitrators generally are 

paid per matter, so arbitrators have a financial incentive not to engage in conduct that would 

result in them receiving fewer cases.

Roundtable participants had a vigorous debate concerning whether there is repeat player 

bias in debt collection arbitration. A study of arbitrations – most of which were debt collection 

matters – by the consumer group Public Citizen found that collectors and creditors succeeded 

in at least ninety-four percent of these arbitrations.232 The Center for Responsible Lending 

(“CRL”) subsequently conducted a statistical analysis of the Public Citizen dataset and found 

that arbitrators who decided in favor of firms, as opposed to consumers, subsequently received 

229. Id. 

230. See, e.g., Sturdevant, Tr. III at 94; Alderman Comment, supra note 180, at 154 (“Consumer arbitration is often 

simply a way for a business to reduce the number of disputes, avoid the courts and juries, and achieve more 

favorable results.”); Arbitration Trap, supra note 183, at 32 (referring to the “repeat player effect,” calling it 

“[o]ne of the major problems with arbitration,” and defining it as “a situation in which a built-in bias develops 

in favor of the claimant that frequently sends business to the arbitration firm in the form of claims against its 

customers, who are usually participating for the first-time.”).

231. See, e.g., Johnson, Tr. II at 151 (stating that there have been, “experiences around the country where an 

arbitrator, an NAF arbitrator, ruled in favor of a consumer and never worked again. It happened in one of my 

cases where an arbitrator ruled in my favor. I never saw that arbitrator again.”); Alderman Comment, supra

note 180, at 155 (referring to an article from the Christian Science Monitor based on data from NAF, “The 

Monitor also found support for the notion that arbitrators who rule against businesses are ‘blackballed’ and not 

selected again.”); Bland Comment, Testimony to House Subcommittee on Domestic Policy, “Arbitration or 

‘Arbitrary’: The Misuse of Arbitration to Collect Consumer Debts,” at 10 (“Harvard law professor Elizabeth 

Bartholet went public with her concerns that, after she awarded a consumer $48,000 in damages, NAF removed 

her from 11 other cases, all of which involved the same credit card company, on the credit card company’s 

objection.”). 

232. See Arbitration Trap, supra note 183, at 4 (focusing on a subset of the data where there were indications 

that an arbitrator had been assigned to the cases, “Public Citizen found that in a sample of nearly 19,300 

California cases decided by one arbitration firm, consumers prevailed in 4 percent of the cases, while 

companies prevailed in 94 percent. (The prevailing party was not listed in the remaining cases.)”); but 

see U.S. Chamber Institute of Legal Reform, Navigant Consulting Analysis, July 11, 2008, available at 

http://www.instituteforlegalreform.com/issues/docload.cfm?docId=1212, at 1 (using the same data set as 

Public Citizen and the Center of Responsible Lending, but looking at a subset of the data that only excluded 

settlements, found that consumers prevailed or had cases against them dismissed 32.1% of the time). 
Protecting Consumers in Debt Collection Litigation and Arbitration

49

more matters from the arbitration forum.233 The CRL study also found that firms that arbitrated 

frequently before the forum received more frequent and larger awards than firms that arbitrated 

in the forum less frequently.234 

Other studies have concluded that, although “repeat players” generally receive better results 

than non-repeat players, the reason is not necessarily bias.235 Rather, these studies report that 

repeat players are often sophisticated businesses and, due to greater arbitration experience, may 

tend to settle weaker matters so that only their stronger matters actually make it to the arbitration 

decision.236 Some individuals and entities have also emphasized that any repeat player advantage 

in arbitration is no different than in the court system.237

Roundtable participants suggested a number of alternatives to address repeat player bias 

or the perception of bias arising from repeat players’ rates of success in arbitration. In the 

appointment of arbitrators, some argued that arbitrations forums should: (1) use a strict rotation 

of arbitrators; and (2) impose a limit on the total number of matters any one arbitrator can have 

233. See, e.g., Frank, Tr. II at 147; Stacked Deck, supra note 200, at 8 (adding that, “[t]his gives arbitrators a very 

strong incentive to side with the firms.”). 

234. See, e.g., Frank, Tr. II at 147-48; Stacked Deck, supra note 200, at 7 (determining that for award amount as 

percent of amount requested in a collection arbitration case, a consumer plaintiff on average would receive 

55%, a firm that appears once 91%, and a frequently appearing firm 95%). In addition, one panelist also 

reported an incident in which a creditor allegedly threatened to withhold its arbitration business to get a forum 

to change its ruling, Sturdevant, Tr. III at 101-102, although it was pointed out that the mere presence of a 

threat does not necessarily mean the forum is biased. Naimark, Tr. III at 102-03. 

235. See, e.g., Drahozal, Tr. II at 148; ACA Comment at 22 (“Merely because a creditor is successful in court or 

before an arbitrator in recovering a debt that is validly owed offers no independent evidence whether bias 

affected the outcome.”); see also Drahozal Comment (July 28, 2009) at 1-2,4 (describing Searle Center 

study of AAA debt collection cases indicating that if there is a “repeat-player” effect, it is not due to bias in 

arbitration, but may be due to better screening of cases); see also Searle Center on Law, Regulation and

Economic Growth, Consumer Arbitration Before the American Arbitration Association – Preliminary

Report 110 (Mar. 2009), available at http://www.searlearbitration.org/p/full_report.pdf, at 110 (concluding that 

“the evidence suggests that any repeat-player effect is not due to arbitrator (or other) bias in favor of repeat 

businesses. Instead, it appears to result from case screening by repeat businesses . . . .”) (hereinafter Searle 

Center Preliminary Report); see also Searle Center on Law, Regulation and Economic Growth, Creditor

Claims in Arbitration and in Court Interim Report No. 1, 27 (Nov. 2009), available at http://www.law.

northwestern.edu/searlecenter/uploads/Creditor%20Claims%20Interim%20Report%2011%2019%2009%20

FINAL2.pdf (studying AAA arbitration data and comparing it with certain court data, and concluding that 

generally “consumers fared at least as well in arbitration as in court.” The study noted that, “we do not claim 

that arbitration outcomes are better for consumers than outcomes for comparable cases in court. Nonetheless, 

at a minimum, these findings should dispel the notion that high creditor win rates and recovery rates in debt 

collection arbitrations show that arbitration is unfair to consumers.”); see also Maine Arbitration Report, supra

note 221, at 7 (noting that “although credit card banks or assignees prevail in most arbitrations, this fact alone 

does not necessarily indicate unfairness to consumers”). 

236. Drahozal, Tr. II at 148-49; see also Narita, Tr. III at 100-101.

237. See Yalon, Tr. III at 105-106; Maine Arbitration Report, supra note 221, at 7 (“The fact is that the primary 

alternative to arbitration (a civil action in court) also most commonly results in judgment for the plaintiff.”).
Repairing A Broken System

50

on his or her docket,238 or on the number of matters that any arbitrator may hear involving a 

particular party.239 These requirements would help address the concern that, while a forum may 

claim to have a large number of arbitrators on its roster, only a few of them may actually preside 

over the vast majority of matters.240 

Roundtable participants also suggested that arbitration forums should make sure that 

the overall composition of their rosters of arbitrators reflects a balance241 between arbitrators 

of different backgrounds,242 such as those with experience representing consumers as well as 

experience representing collectors. A more diverse roster of arbitrators would be responsive to 

the concern that most arbitrators in debt collection matters have represented or been associated 

with collectors.243 One practical difficulty, however, in applying a strict rotation among a 

diverse roster of arbitrators or in limiting the number of matters assigned to an arbitrator is that 

arbitration forums that oversee a large number of matters may have trouble finding enough 

qualified arbitrators. 244 One panelist emphasized that, whatever arbitrator selection process and 

standards are used, they should be more transparent,245 thus helping to identify bias and decrease 

the appearance of bias. 

Although there seemed to be little disagreement that requirements such as arbitrator 

rotations or limits on the number of cases assigned to each arbitrator were useful in preventing 

bias among arbitrators, panelists expressed concern as to how to ensure that such standards 

are enforced. One idea offered was that the arbitration forum would enforce these standards. 

238. Naimark, Tr. II at 146-147 (“Trying to keep a strict rotation, what we would like to do is put a limit ultimately 

on the number of cases that any arbitrator can receive in his caseload.”) 

239. AAA Comment at 6 (also noting that such a requirement should be communicated to the parties, to assist in 

reducing perceptions of bias). 

240. Barron, Tr. III at 108 (“A rotational system, whether it’s computer generated or human generated, is not terribly 

effective if there are three arbitrators that are rotated. If there’s 150, maybe we’re talking about a different 

thing.”); Bland Comment, attaching Testimony of Paul Bland, Committee on Oversight and Government 

Reform, Subcommittee on Domestic Policy, July 22, 2009 at 8 (stating that NAF had advertised “that it has a 

total of more than 1,500 arbitrators in all 50 states, but that statistic has little significance if the vast majority of 

cases are steered to a small number of persons” and that “[i]ndeed, a large body of information establishes that 

NAF intentionally funnels the vast majority of cases to a very small group of selected arbitrators”).

241. The balanced roster concept is significant because, even if participants are offered a certain number of “vetoes” 

or allowed to select their arbitrator from among a certain number of potential candidates, the choice is not 

helpful if all the options suffer from the same risk or degree of bias. See Johnson, Tr. II at 154 (stating that, “in 

my experience with AAA[,] and you have to ask for it, they’ll give you five names or at least three names, and 

if you each strike one . . . then you end up with another one. The problem with that is the pool. The pool is 

defense attorneys.”). 

242. See Naimark, Tr. II at 147.

243. See discussion supra note 241.

244. See Naimark, Tr. II at 147. 

245. Johnson, Tr. II at 163. 
Protecting Consumers in Debt Collection Litigation and Arbitration

51

AAA, for example, currently has a system in place under which it will remove arbitrators from 

matters if they engage in an ethical violation.246 Other panelists, however, expressed doubts as to 

whether arbitration forums would effectively enforce such standards.247

2. Forum Bias or Appearance of Bias

There was substantial discussion at the roundtables regarding the bias or appearance of 

bias of arbitration forums. As discussed above, in July 2009, the Minnesota AG brought an 

action against NAF alleging that it had engaged in deception by offering a forum to arbitrate 

debt collection without disclosing that it was owned by collection law firms with matters in NAF 

arbitration. Roundtable participants agreed that there is bias or an appearance of bias if a party 

with matters before an arbitration forum has financial ties to the forum,248 and, therefore, no such 

ownership interest should be permitted.

Another issue raised was whether an arbitration forum’s for-profit or not-for-profit status 

is relevant to bias or appearance of bias. AAA, for example, is a not-for-profit organization,249

while NAF and JAMS are for-profit organizations. Some suggested that incentives would be 

different for a non-profit than for a for-profit forum.250 Consumer advocates argued that forprofit arbitration forums have an incentive to favor those who pay their salaries and expenses 

and decide whether to continue sending business to the forum. Collectors, not consumers, 

make these decisions and therefore the forums have an incentive to make policies benefitting 

collectors. However, other participants expressed that non-profit status could potentially 

ameliorate bias or the appearance of bias but would not completely eliminate them, because 

one side, the collector, continues to determine the arbitration agreement and pay the arbitration 

forum.251 

With respect to ethical standards, roundtable participants stated that there are existing 

protocols addressing dispute resolution providers such as arbitration forums. In 2002, the 

246. Naimark, Tr. II at 159.

247. See Bland, Tr. II at 160.

248. See, e.g., Hillebrand, Tr. III at 98; Van Aken, Tr. III at 98; Sternlight, Tr. III at 111 (stating that, “I would think 

that everybody in the room would agree or perhaps has agreed that. . . the minimum has to be that the provider 

cannot have financial ties to parties that appear in front of it.”); Frank Tr. II at 164 (“direct financial ties are 

always a problem”).

249. See AAA website, Questions and Answers as Administered by the American Arbitration Association, available 

at http://www.adr.org/si.asp?id=5029. 

250. See Naimark, Tr. II at 168. 

251. See Frank, Tr. II at 164; see also Hillebrand, Tr. III at 96 (stating that a non-profit status would be “helpful” but 

is “not a panacea”). 
Repairing A Broken System

52

CPR-Georgetown Commission on Ethics and Standards of Practice in ADR issued standards,252

stating that arbitration forums should: (1) ensure that their arbitrators are familiar with 

“prevailing norms of ethical conduct in ADR”; and (2) take steps to educate their arbitrators 

regarding ethical issues.253 In 2004, the American Bar Association House of Delegates approved 

a revised code of ethics (drafted in conjunction with a special committee of AAA), providing 

ethical standards for arbitrators and addressing issues such as impartiality and conflicts of 

interest.254 However, it is not clear to what extent debt collection arbitration forums adhere 

to ethical protocols or enforce them.255 One roundtable participant further suggested that 

there should be not only ethical standards for arbitration forums, but also a code of ethics for 

arbitration administrators, that is, the employees of the arbitration forum who implement its 

rules.256

Numerous participants suggested that the FTC should issue recommendations or guidelines 

addressing ethical standards for consumer debt collection arbitration, including standards for 

how arbitrators are selected and assigned,257 arbitrator neutrality,258 arbitration forum neutrality,259

and transparency.260 Others participants expressed the view that it is not enough just to have the 

standards; they also must be vigorously enforced.261

252. Sternlight, Tr. III at 111; see also “Principles for ADR Provider Organizations,” CPRGeorgetown Commission on Ethics and Standards of Practice in ADR, May 1, 2002, available at

http://www.cpradr.org/Portals/0/finalProvider.pdf (hereinafter CPR-Georgetown Principles). 

253. See CPR-Georgetown Principles, supra note 252, at 12.

254. “The Code of Ethics for Arbitrators in Commercial Disputes,” American Bar Association (ABA) 

and American Arbitration Association, approved by the ABA February 2004, available at 

http://www.abanet.org/dispute/commercial_disputes.pdf. 

255. A number of arbitration forums have, at least in writing, general provisions addressing enforcement 

of their ethics regulations. See JAMS, Arbitrators Ethics Guidelines, VII. An Arbitrator Should 

Withdraw Under Certain Circumstances, available at http://www.jamsadr.com/arbitrators-ethics/

(stating certain circumstances under which an arbitrator should withdraw, including non-waivable 

conflict of interest and lack of impartiality) (hereinafter JAMS Ethics Guidelines); National Arbitration 

Forum, Code of Procedure, Rule 23, Disqualification of Arbitrator, at 31, Aug. 1, 2008, available at

http://www.adrforum.com/users/naf/resources/CodeofProcedure2008-print2.pdf (providing that an arbitrator 

shall be disqualified where there are conflicts of interest or bias) (hereinafter NAF Code); American Arbitration 

Association, Consumer Due Process Protocol, Apr. 17, 1998, available at http://www.adr.org/sp.asp?id=22019, 

at Statement of Principles, Principle 3 (providing, under section entitled “Disclosure and Disqualification,” 

that, upon objection of a party, the forum will determine whether the arbitrator should be disqualified) 

(hereinafter AAA Consumer Protocol). 

256. Kaplinsky, Tr. II at 159. 

257. See Van Aken, Tr. III at 167.

258. See Sternlight, Tr. III at 170; see also Barron, Tr. III at 178.

259. Sternlight, Tr. III at 170.

260. See, e.g., Van Aken, Tr. III at 167; Sternlight, Tr. III at 170 (“more transparency”); Barron, Tr. III at 178-79 

(“consider . . . transparency of system”). 

261. Sturdevant, Tr. III at 168.
Protecting Consumers in Debt Collection Litigation and Arbitration

53

3. Commission Views

The Commission concludes that, especially in the wake of serious concerns relating to 

NAF, it is imperative that arbitrators and arbitration forums take significant and concrete steps 

to prevent bias and the appearance of bias. No one who has matters before an arbitration forum 

should be permitted to have any ownership or other financial interest in the forum, and no one 

who has a direct financial interest in a matter or a creditor should be allowed to arbitrate the 

matter or disputes involving that creditor.262 Fundamental notions of fairness require no less.

More generally, the Commission concludes that rigorous standards of ethical conduct 

for arbitration forums, arbitration administrators, and arbitrators are sorely needed. It is not 

necessary that an arbitration forum be a non-profit, although having such a status could eliminate 

some bias and appearance of bias. The Commission also concludes that the private sector should 

try to develop debt collection arbitration standards, promote compliance with these standards,263

and vigorously enforce them. If the private sector cannot or will not take the action needed, then 

either the government should develop and enforce such standards or Congress should prohibit 

debt collection arbitration entirely and have these matters resolved in the public court system. 

262. As for other potential financial conflicts, at a minimum arbitrators should disclose them to the parties. See, 

e.g., AAA Consumer Protocol, supra note 255, at Statement of Principles, Principle 3 (“Neutrals [arbitrators] 

should be required to disclose to the Independent ADR Institution [forum] any circumstance likely to 

affect impartiality, including any bias or financial or personal interest which might affect the result of the 

ADR proceeding, or any past or present relationship or experience with the parties or their representatives, 

including past ADR experiences. The Independent ADR Institution [forum] should communicate any such 

information to the parties . . . . Upon objection of a party to continued service of the Neutral [arbitrator], 

the Independent ADR Institution [forum] should determine whether the Neutral [arbitrator] should be 

disqualified and should inform the parties of its decision.”); National Arbitration Forum, Statement of 

Principles, available at http://www.adrforum.com/main.aspx?itemID=401&hideBar=False&navID=29

6&news=3 (stating that the arbitrator is “required to disclose the existence of interests or relationships 

that are likely to affect their impartiality or that might reasonably create a material appearance that they 

are biased against one party or favorable to another”); Council of Better Business Bureaus, Inc., Rules of 

Binding Arbitration for Disputes Subject to Pre-Dispute Binding Arbitration Clauses, 2004, available at 

http://www.bbb.org/us/Dispute-Resolution-Services/Pre-Dispute-Arbitration (“If a financial, competitive, 

professional, family or social relationship exists between the arbitrator and one of the parties (even if the 

arbitrator believes the relationship is so minor as to have no effect on the decision), it shall be revealed to all 

parties, and you may decide that this arbitrator should not serve in your case.”) (hereinafter BBB Rules); JAMS 

Ethics Guidelines, supra note 255 (stating that an arbitrator should promptly disclose anything that could 

reasonably lead a party to question the arbitrator’s impartiality).

263. See, e.g., AAA Consumer Protocol, supra note 255, at Statement of Principles, Principle 3 (the forum “should 

make reasonable efforts to ensure that Neutrals [arbitrators] understand and conform to pertinent ADR 

rules, procedures and ethical standards.”); see National Arbitration Forum, Code of Conduct for Arbitrators, 

Sept. 2006, available at http://www.adrforum.com/users/naf/resources/CodeOfConductForArbitrators1.pdf

(providing ethical standards for arbitrators); see JAMS Ethics Guidelines, supra note 255 (providing guidance 

to arbitrators regarding ethical issues).
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54

On the critical issue of bias and perception of bias arising from the selection of arbitrators, 

the FTC recommends that forums promote arbitrator neutrality264 by diversifying their rosters 

of arbitrators, rotating matters randomly among arbitrators265 (perhaps with some consumer 

selection),266 and limiting the number of matters assigned to an arbitrator. The Commission 

also recommends that the process and procedures arbitration forums use to select arbitrators be 

made as transparent as possible to restore public confidence in the integrity of debt collection 

arbitration proceedings.267

B. Notice and Cost of Participation

As with debt collection litigation, numerous participants at the roundtables stated that few 

consumers participate in debt collection arbitration proceedings. Some participants claimed that 

the rate of non-participation in debt collection arbitration is comparable to the rate of failure to 

defend in debt collection litigation, that is, over ninety percent of consumers do not participate 

in arbitration.268 Participants discussed a wide variety of possible reasons why consumers 

264. See, e.g., AAA Consumer Protocol, supra note 255, at Statement of Principles, Principle 3 (“All 

parties are entitled to a Neutral [arbitrator] who is independent and impartial.”); see National 

Arbitration Forum, Consumer and Employee Arbitration Rights, Apr. 2009, available at

http://www.adrforum.com/resource.aspx?id=1490 (providing that arbitrators be “neutral” and that “arbitration 

should be administered by someone other than the arbitrator or the parties themselves”); see BBB Rules, supra

note 262 (“The arbitrator shall sign an oath pledging to make an impartial decision.”); see JAMS, Consumer 

Arbitration Minimum Standards, July 15, 2009, available at http://www.jamsadr.com/consumer-arbitration

(“The arbitrator(s) must be neutral.”) (hereinafter JAMS Consumer Standards). 

265. See AAA Consumer Protocol, supra note 255, Reporter’s Comments to Principle 3 “Independent and Impartial 

Neutral; Independent Administration,” (suggestion of, among other things, a larger panel of neutrals and 

rotating assignments to address repeat player concerns); see also Searle Center on Law, Regulation and 

Economic Growth, Creditor Claims in Arbitration and in Court Interim Report No. 1, Appendix A. Procedures 

in AAA Debt Collection Program Arbitration, Nov. 2009, available at http://www.law.northwestern.edu/

searlecenter/uploads/Creditor%20Claims%20Interim%20Report%2011%2019%2009%20FINAL2.pdf at 29-30 

(describing AAA arbitrators, in its debt collection program arbitrations, as being selected randomly from a prescreened group, and using software to rotate the arbitrators in each state). 

266. See, e.g.,AAA Consumer Protocol, supra note 255, at Statement of Principles, Principle 3 (“The Consumer 

and the Provider should have an equal voice in the selection of Neutrals [arbitrators] in connection with a 

specific dispute.”); see BBB Rules, supra note 262 (the section “Selecting Your Arbitrator” provides, while 

allowing for some variation, that “[t]he BBB maintains a pool of individuals who have volunteered to serve 

as arbitrators . . . . A party may reject the name of an arbitrator only if a financial, competitive, professional, 

family or social relationship exists . . . .”); see JAMS Consumer Standards, supra note 264 (“the consumer 

must have a reasonable opportunity to participate in the process of choosing the arbitrator(s)”). 

267. See CPR-Georgetown Principles, supra note 252, II – Information Regarding Services and Operations, at 9 

(stating that forums should take reasonable steps to provide information about the method by which neutrals 

are selected for service).

268. See, e.g., Naimark, Tr. II at 33 (estimating consumer non-participation in debt collection arbitration at 

potentially over 90%), Tr. III at 28 (“one of the most striking differences between these [debt collection] 

arbitrations and even other consumer arbitrations is the extremely high rate of no-show by the consumer”); 

Capitel, Tr. III at 30 (the 95% rate of default in debt collection arbitration is “unconscionable”). 
Protecting Consumers in Debt Collection Litigation and Arbitration

55

participate in arbitration so infrequently, including problems in the arbitration notices consumers 

receive and the costs to consumers of participation. 

1. Notice of Arbitration 

Debt collection arbitration proceedings commence when one of the parties to the dispute, 

usually the collector, invokes its contractual right to compel arbitration. Once a collector informs 

the arbitration forum that it wants to have a dispute arbitrated, the collector or the forum sends a 

notice to the consumer notifying him or her that the dispute will be arbitrated. Some roundtable 

participants asserted that these notices are inadequate because: (a) they are sent to the wrong 

address; (b) they are delivered through flawed methods; and (c) the notice does not adequately 

advise consumers of the arbitration proceeding and the importance of participating in it. 

Consumer advocates expressed concern that arbitration notices are too often sent to 

the wrong addresses, including old and out-of-date addresses.269 The problem, according to 

consumer advocates, is especially likely to affect low-income consumers, who may change 

residences more frequently than the general population.270 Neither consumer advocates, 

arbitration forums, nor other participants, however, provided a detailed description or any 

empirical analysis of the measures arbitration forums, creditors, or collectors use to determine 

the addresses to which arbitration notices are sent. Consumer advocates suggested that senders 

take greater steps to ensure the accuracy of the addresses used, such as engaging in several 

rounds of notice if the notice is returned to the sender and checking government databases or 

using third-party locator services to verify that the addresses are accurate and current. 

Generally, how the consumer is to be notified about arbitration is specified in the terms of 

the contract between the creditor and the consumer271 and is also addressed in arbitration forum 

rules and protocols.272 Some roundtable participants expressed concern that the methods of 

notification allowed in the arbitration context were lax and would not be accepted as adequate 

269. Van Aken, Tr. III at 21 (“I’m aware of companies that don’t go back and seek information about the consumers 

current whereabouts but simply use whatever address they’ve been provided in the file that they purchased 

from the original issuer of the debt.”).

270. Bland, Tr. II at 36-37 (“[A] demographer will tell you that there’s something like 16 percent of the population 

[that] moves every year. People who are victims of predatory lending with low income tend to move a lot 

more often than that.”).

271. See, e.g., Narita, Tr. III at 22; Sternlight, Tr. III at 22. 

272. See description of forum rules, infra note 274.
Repairing A Broken System

56

service of process in court proceedings.273 For example, arbitration forums may not require 

personal service of the notice by a process server or court official.

274 Others responded that 

arbitration is intended to be less formal and expensive than the court system and that the costs of 

arbitration would increase if arbitration notices had to meet the standards for service of process 

for actions filed in court.275 A related issue is that, even if the notice reaches a consumer’s 

household, it may not reach the correct person in the household.276 

At the roundtables, participants offered suggestions for enhancing notification processes 

to be similar to service of process in litigation but also to allow for other options providing 

expeditious service and delivery verification, such as overnight or priority mail, if the sender 

can show that previous attempts to deliver actual notice to a valid address failed. A similar 

suggestion offered was that the sender could use a “tiered” method of notification, whereby if the 

sender transmits the notice by certified mail and the notice is returned or the consumer does not 

sign it, then the sender would confirm the address or serve the notice as it would serve process in 

court.277

273. See, e.g., Sternlight, Tr. III at 22-23 (the issue of whether “services are allowed in the arbitration context 

that wouldn’t pass muster in the court context. I think that’s a concern that we’re here to talk about today.”); 

Hillebrand, Tr. III at 26 (“if arbitration is taking the place of the court, the service ought to be as good as 

the court process [after certain improvements are made to the court process]”); Barron, Tr. III at 29 (higher 

standard of service in court is reason why certain consumers learn of claim at point of confirmation of award, 

as opposed to notification of arbitration proceeding), 30 (noting superiority of personal service method). 

274. AAA Comment at 5 (noting generally more informal methods of service in arbitration than litigation). 

However, at the roundtables, a collector attorney noted that, based on his experience [with NAF rules], the 

notification processes that parallel service of process rules were allowed, along with other methods such as 

overnight delivery (Canter, Tr. II at 40); see also Edelman Comment at 22 (stating a need for legislation or 

regulation to, among other things, “[r]equire notice of proceedings to be given in same manner as service 

of summons”). Available written forum rules appear to be more permissive than prescriptive: See JAMS, 

Comprehensive Arbitration Rules & Procedures, Rule 8. Service, effective July 15, 2009, available at http://

www.jamsadr.com/rules-comprehensive-arbitration (“service may be made by hand-delivery, overnight 

delivery service or U.S. mail” and parties may also make provisions for electronic service); see also NAF 

Code, supra note 255, Rule 6 “Service of Claims, Responses, Requests, and Documents,” (service of initial 

claims may be done by U.S. certified mail with a signed return receipt, private service with receiver signature, 

other written acknowledgment of delivery, or otherwise in accordance with rules of civil procedure). 

275. See, e.g., Capitel, Tr. III at 30-31 (recognizing that more rigorous notice would impose costs but nevertheless 

stating that, if personal service is most effective means of notification, then it should be used); Narita, Tr. 

III at 33 (personal service requirement would increase costs of arbitration, which would be passed on to the 

consumer); Sternlight, Tr. III at 39 (acknowledging costs of good service, but noting that it is worth it because 

“[w]e can’t have a system, a private system, where people can be found to owe money that maybe they never 

owed and they never heard about the claims being brought against them”). 

276. See Jarzombek, Tr. III at 24 (relating anecdote of a minor child signing for certified mail address to the parent 

of the child). 

277. AAA Comment at 6. 
Protecting Consumers in Debt Collection Litigation and Arbitration

57

When AAA administered consumer debt collection arbitrations, it used a notice process 

that exceeded its typical arbitration notice requirements.278 Collectors were required to send 

arbitration notices via a method that allowed the notice to be tracked and the consumer’s 

signature obtained. AAA originally transmitted its arbitration notices to consumers via certified 

mail, return receipt requested. AAA eventually switched to a method whereby the United States 

Postal Service confirmed the date and time of delivery to the consumer’s address. 

Even if consumers receive notifications of arbitration proceedings, they may not read them. 

Some roundtable panelists claimed that many consumers do not open these notices, because 

there is not sufficient information on the envelope to indicate the identity of the sender or that 

the enclosed document may be important.279 For example, a consumer would likely recognize 

the name of its credit card brand (e.g., Visa, MasterCard, or American Express) or perhaps the 

name of the bank which issued its card (e.g., Citibank, Chase, or Bank of America), but is less 

likely to recognize the name of an arbitration forum (e.g., AAA or NAF), or the name of a debt 

collector sending the arbitration notice. Further, arbitration notices do not state on the envelope 

that an arbitration proceeding is being commenced against the consumer. In contrast, a consumer 

receiving a document with a court listed on the envelope is more likely to conclude that the 

contents are important to read. Some consumers therefore may simply throw away arbitration 

notices without opening or reading them.280 

Participants discussed potential ways for the envelope design to convey that the contents 

are important and that consumers should read them. One suggestion was that the face of the 

envelope could include a concise statement in bold indicating its importance.281 Others noted 

that the envelope would need to comply with FDCPA requirements, which generally prohibit 

debt collectors from revealing a consumer’s debts to others.282 One participant stated his belief 

that something could be devised for the front of the envelope that would be FDCPA-compliant 

yet still provide enough information to persuade consumers to open it and read the contents.283 

278. AAA Comment at 5.

279. See Hillebrand, Tr. III at 27 (noting that it is more likely a consumer will ignore a mailing from an entity of 

whom they have never heard).

280. Bland, Tr. II at 34 (“most people don’t open mail from anonymous groups that they’ve never heard of . . . .”) 

281. Bland, Tr. II at 35-36.

282. See Narita, Tr. III at 45-46; see also Section 805(b) of the FDCPA, 15 U.S.C. §1692c(b).

283. Melcer, Tr. III at 49 (giving examples of statements like “there is a claim against you . . . you may lose rights.”) 
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Arbitration forum rules generally require that collectors must satisfy the arbitrator that 

consumers were properly notified of the arbitration proceeding.284 One government official 

indicated that a mere statement by an attorney that notice was given, without any further details, 

has been considered acceptable in some arbitrations.285 Consumer advocates and government 

officials also claimed that the individuals who sign or stamp the paper to certify that consumers 

have received the arbitration notice may not actually have personal knowledge of such receipt.286

Participants suggested a number of ideas for improving consumer notification and for 

standardizing notice certification practices. Some called for greater verification procedures to 

demonstrate that notification has been delivered correctly.287 Others suggested that the process 

would be improved if notices were delivered by a mail service that requires a signature, and if an 

electronic copy of that signature were permitted to serve as proof of delivery.288 One government 

official suggested that arbitrators should be more demanding in determining whether senders 

have followed proper notification procedures.289 

Participants also noted that the content of the arbitration notices may have an important 

impact on whether consumers participate in the proceedings. Consumer advocates maintained 

that notices should contain enough relevant information to allow the consumer to recognize the 

debt, including the name of the original creditor and the amount of the original debt, so that he or 

284. See NAF Code, supra note 255, Rule 7. Filing, Rule 12. Initial Claim, at 12, 19 (providing in Rule 7 that a 

party shall timely file a proof of service, and in Rule 12 that a claim shall not proceed to arbitration until the 

proof of service (or a response) has been filed). 

285. Van Aken, Tr. III at 35. 

286. One example raised involved an individual in one city certifying that he had sent out an extraordinarily large 

number of notices, when in fact the postmarks on those notices were from other cities around the country. 

Both the number and location of the mailings would indicate that the individual did not send out all the notices 

or have personal knowledge that they were sent. See Bland, Tr. II at 38-39. See also Jarzombek, Tr. III at 24 

(relating anecdote of a minor child signing for an arbitration notification for a parent, where the fact that it was 

not the correct person’s signature was not noticed at the arbitration).

287. See, e.g., Jarzombek, Tr. III at 25; Hillebrand, Tr. III at 26 (noting ideas regarding adequate service in the court 

context from a 2007 Massachusetts Working Group on Small Claims). 

288. See Narita, Tr. III at 33 (suggesting sending “a notice of an arbitration claim out by registered mail, or FedEx, 

or something, and you ask the consumer to sign that they’ve received it and that becomes your service”); 

Canter, Tr. II at 40-41 (suggesting that rules for notification “parallel the process server’s rules and state rules, 

but with the addition that you allow service by these overnight mails which can now – couriers which can now 

capture the signature and make an electronic copy, and that electronic copy can be evidence of the service of 

process, just like a certified mail service of process”); AAA Comment at 5 (stating that “the AAA implemented 

a notice process for our debt collection arbitrations that greatly exceeded the requirements typically contained 

in our rules. Specifically, we required the claimant business party to serve the demand for arbitration in a 

manner that could be tracked, with the expectation that a signature would be obtained indicating the each 

demand had been received”). 

289. See Van Aken, Tr. III at 20-21. 
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59

she can make an informed decision whether to participate.290 Some participants suggested it was 

important to stress for consumers the potentially serious consequences of arbitration, as well as 

to describe the arbitration process as accessible to the consumer.291 A creditor attorney suggested 

standardized arbitration notices be sent to consumers, possibly referring them to the FTC’s 

website for further information about arbitration generally.292 

The Commission concludes that consumers need to be made better aware of debt collection 

arbitration proceedings. While it is not certain to what extent notification problems are the cause 

of consumers not participating in arbitration, it would be worthwhile for senders of arbitration 

notices to adopt measures to: (1) increase the likelihood that they have valid addresses for 

consumers; (2) track and document their delivery of notices to consumers; and (3) use envelopes 

for the notices which make it clear that their contents are important while not inadvertently 

disclosing the debts of consumers to third parties. The Commission also concludes that 

arbitration forums and arbitrators should take steps to conduct a closer assessment of claims that 

consumers have received adequate notification.

The FTC lacks the information and experience needed to recommend specific measures to 

achieve these objectives. The Commission recommends that private and public sector entities 

with an interest in debt collection arbitration conduct tests to determine which measures would 

be most cost-effective. Particularly with respect to ensuring valid addresses and tracking and 

documenting delivery of notices, interested entities should explore how the use of technology 

could increase accuracy and efficiency. 

290. See, e.g., Hillebrand, Tr. III at 46-47 (analogizing to the 2007 National Consumer Law Center 

recommendations for specific things that ought to be in a litigation complaint for debt collection); Barron, Tr. 

III at 51 (supporting the NCLC factors as an important potential aspect of notification).

291. AAA Comment at 6.

292. Narita, Tr. III at 91.
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2. Costs of Arbitration 

A primary rationale for using arbitration rather than litigation is that it is purportedly less 

expensive than litigation. Some proponents of arbitration asserted that at least in some instances 

arbitration is less expensive than court proceedings,293 although the Commission also received 

comments to the contrary.294 No empirical evidence was presented or submitted showing 

definitively whether the total cost of debt collection arbitration is in fact lower than the total cost 

of debt collection litigation.295

In evaluating debt collection arbitration from a consumer protection perspective, it is 

important to focus not only on the relative costs of arbitration and litigation but also on the costs 

of arbitration to consumers. For debt collection arbitration to be a viable alternative to the court 

system, the costs to consumers must not be prohibitive.296 In assessing the costs to consumers, it 

is necessary to examine the allocation of costs between the collector and the consumer, as well as 

when these costs are allocated and the method used to allocate them.297

Arbitration forums generally establish rules regarding the amount of arbitration costs 

for which consumers are responsible. Some forums require consumers to pay little, if any, of 

293. See Melcer, Tr. III at 68.

294. At least some debt buyers filed comments explaining that they only use arbitration proceedings because it 

is required by the contracts between the original creditors and the consumers. See, e.g., Asset Comment 

at 6 (stating that they arbitrate “when contractually required to do so. We prefer not to arbitrate, however. 

Although arbitration does often allow for more interaction with the consumers . . . it increases the cost of 

litigation, in part, because the award must still be confirmed in court.”); PRA Comment at 4 (“PRA has been 

involved in arbitration cases, but not by choice. We have arbitrated because the terms of some contracts 

required arbitration. If cooperation with a customer is not likely, we would prefer to litigate rather than 

arbitrate because litigation is better defined and more certain.”). 

295. See Searle Center Preliminary Report, supra note 235 (study showed a low cost of arbitration for consumer 

claimants, but did not specifically focus on debt collection arbitration). 

296. See Alderman Comment, supra note 180, at 154 (“Courts and commentators alike have also noted the oftenexcessive costs of arbitration, which may deny access for those unable to pay.”) (internal citation omitted). 

297. See id. 
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the costs, while others require them to pay some of the costs.298 When AAA conducted debt 

collection arbitrations, it required that consumers pay some of the costs of arbitration, but it 

limited these costs to the amount that the consumer would have paid had the matter gone to 

litigation.299 A Maine study of data from consumer arbitration cases – nearly all which involved 

credit card debts – found that the applicable arbitration clauses required the collector to pay all 

fees up to a certain dollar amount, and that in most of the cases reported, the collector paid all of 

the arbitration fees because that specified dollar amount had not been reached.300 

One approach which has been used to limit the costs to consumers is using “fee waivers,” 

i.e., an arbitration forum may decide that a consumer does not have to pay a fee because of 

economic hardship. Some roundtable participants emphasized, however, that such waivers are 

difficult to obtain.301 In addition, according to one consumer advocate, the waiver requests are 

not ruled on until the end of the proceeding, such that consumers remain uncertain throughout 

the proceeding as to the costs for which they will be responsible.302 

298. The total cost borne by a consumer in arbitration may depend on the particular forum, terms of the arbitration 

clause in the consumer contract, how the forum enforces provisions of the arbitration clause, which party 

initiates arbitration, whether any fees are waived, and the extent to which costs are assessed beyond the 

cost of the arbitrator. Compare Sturdevant, Tr. III at 71 (stating that largest cost in arbitration is the cost 

of the arbitrator, and that most agreements provide that the parties will share the cost) with Welsh, Tr. III 

at 71, 72 (disagreeing with Mr. Sturdevant, noting that JAMS has never done debt collection arbitration, 

but that in its consumer arbitrations consumers do not pay more than they would have paid in court). See, 

e.g., JAMS Consumer Standards, supra note 264 (“When the company is the claiming party initiating an 

arbitration against the consumer, the company will be required to pay all costs associated with the arbitration. 

In California, the arbitration provision may not require the consumer to pay the fees and costs incurred 

by the opposing party if the consumer does not prevail.”); American Arbitration Association, ConsumerRelated Disputes Supplementary Procedures, at Section C-8 “Administrator Fees and Arbitrator Fees,” 

available at http://www.adr.org/sp.asp?id=22014 (the consumer is responsible for one-half the arbitrator 

fee, up to a maximum amount determined by the amount of the claim) (hereinafter AAA Supplementary 

Procedures); AAA Consumer Protocol, supra note 255, at Statement of Principles, Principle 6 (providing 

for “reasonable cost to Consumers based on the circumstances of the dispute”); National Arbitration Forum, 

Fee Schedule to Code of Procedure (Aug. 1, 2008), at 3, 4-12, available at http://www.adrforum.com/users/

naf/resources/2008FeeSchedule-FinalPrint1.pdf (“[a] Consumer Respondent pays one-half of the fee for 

a Participatory Hearing if selected by the Consumer Respondent up to a maximum of $250” and listing 

numerous additional fees for other activities, filings and requests). See also Sturdevant, Tr. III at 71-72 (stating 

that there are “all sorts of providers in this country that don’t have [provisions that consumers don’t have to pay 

for arbitrators]” but also noting the existence of reported cases where forum protocols have been disregarded). 

299. Welsh, Tr. III at 72; see also Kaplinsky Comment, attaching “The Use of Pre-Dispute Arbitration Agreements 

by Consumer Financial Services Providers,” at 13 (noting that his message to his clients, to draft a fair 

arbitration clause, would include agreeing “to pay all arbitration fees other than what the consumer would pay 

as a filing fee and other than what is waived by the arbitration administrator”). However, it is AAA’s position 

that contracts where there is negotiation (such as homes and automobiles) may not fall under its consumer 

protocols, but rather under its commercial protocols, which can be more expensive for the parties. See 

Johnson, Naimark, Tr. II at 237-40. 

300. Maine Arbitration Report, supra note 221, at 8.

301. See Edelman Comment at 21 (“difficulty of obtaining fee waivers”). 

302. Hillebrand, Tr. III at 74.
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One controversial method of allocating costs between the collector and the consumer is 

using fee-shifting provisions either in credit contracts or pursuant to forum rules. Pursuant 

to these types of provisions, at the end of arbitration proceeding, the arbitrator may order the 

losing party to pay for certain costs, such as filing or arbitrator fees.303 Consumers who lose in 

arbitration – and the vast majority of consumers do – can thus be required to pay costs exceeding 

those they would have paid in court.304 Participants also noted instances in which consumers 

have been required to pay costs for “extras” such as motions, closing arguments, a statement of 

reasons for the arbitrator’s decision, and the like.305

Consumers cannot participate in arbitration if they cannot afford it. The Commission 

therefore encourages efforts to decrease consumer costs, such as providing simple forms or 

checklists to assist consumers in responding to notifications of arbitration,306 and allowing 

consumers to use technology to submit information and participate in hearings.307 Arbitration 

forums generally should limit the total cost to consumers of arbitration to the amount that they 

would have paid to defend against a similar proceeding in court, regardless of whether the 

contract between the parties contains provisions that shift fees and other costs onto the losing 

party. In addition, arbitration forums should allow consumers to request fee waivers from 

arbitrators as soon as practicable, rather than requiring that consumers wait until the end of the 

proceeding.

C. Arbitration Awards 

1. Awards and Arbitrator Opinions

Arbitrators issue awards at the conclusion of the proceeding, but they are not required to 

accompany their awards with an opinion setting forth a statement of the law and an application 

of the law to the facts. Such reasoned opinions are rare in arbitration; roundtable participants 

303. Johnson, Tr. II at 152-153 (discussing JAMS arbitration rules, and stating that, if a consumer loses, the 

arbitrator has the right to assess the hourly arbitrator’s fee against the consumer).

304. See, e.g., Johnson, Tr. II at 153.

305. See, e.g., Johnson, Tr. II at 236; Van Aken, Tr. III at 73.

306. See Appleseed Report, supra note 23, at 22-23 (in the context of litigation, discussing forms available at New 

York City Civil Court, which include check-off lists of defenses available to the consumer). 

307. See AAA Consumer Protocol, supra note 255, Reporter’s Comments to Principle 6 “Reasonable Cost,” 

(suggestion that in certain cases “it may be possible to fulfill the principle of reasonable cost by the use of the 

Internet, the telephone, other electronic media, or through written submissions”), see also U.S. Chamber of 

Commerce Comment (Sept. 1, 2009) at 3 (stating that the “consumer usually has the choice to conduct his or 

her arbitration over the phone or ‘on the papers,’ which saves the consumer from having to take any days off 

work to resolve the dispute”). However, use of technology, such as the Internet, in arbitration proceedings 

should not be required of consumers who are unfamiliar with or lack access to it.
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explained that this is because a party must request the opinion308 and often must pay a fee for 

it.309 Participants differed as to whether a party should be required to make such a request.310 

Some roundtable participants stated that issuing reasoned opinions would have benefits, 

such as increasing the transparency of the arbitration process.311 It would also provide a record 

for judicial review of the award to the extent that such review is permitted under the FAA.312 

On the other hand, some participants said that reasoned opinions usually are not necessary 

because most debt collection arbitrations are relatively simple and straightforward factual 

inquiries.313 Other participants expressed concern that issuing more reasoned opinions might 

subject awards to more court challenges.314

 Assuming that arbitrators issue reasoned opinions along with awards, the question arises 

as to how much weight arbitrators should give these opinions in subsequent proceedings. Some 

participants associated with collectors argued against opinions having a precedential effect,315 

308. See Sorkin, Tr. II at 180. Available written forum rules vary as to whether a reasoned opinion must be 

requested: see, e.g., NAF Code, supra note 255, Rule 26 – Selection of a Participatory Hearing, Rule 37 – 

Awards, (stating in Rule 26 that parties to a participatory hearing provide “[a]ny Request or requirement for 

a Written Award accompanied by the appropriate fee,” and that, in Rule 37, awards are “summary” unless a 

request or prior agreement is filed, within a certain time and with fee payment); BBB Rules, supra note 262, 

Rule 28 – The Decision (“all parties shall be mailed a written decision accompanied by the arbitrator’s reasons 

for the decision”); AAA Supplementary Procedures, supra note 298, at Section C-7 “The Award” (“In the 

award, the arbitrator should apply any identified pertinent contract terms, statutes, and legal precedents.”); 

AAA Consumer Protocol, supra note 255, at Statement of Principles, Principle 15 “Arbitration Awards” (“At 

the timely request of either party, the arbitrator should provide a brief written explanation of the basis for 

the award. To facilitate such requests, the arbitrator should discuss the matter with the parties prior to the 

arbitration hearing.”). 

309. See Van Aken, Tr. III at 120. 

310. Compare Hillebrand, Tr. III at 119-120, with Kaplinsky, Tr. II at 176. However, if reasoned opinions are to be 

permitted only upon request, one panelist raised the concern that parties have a sufficient amount of time to 

make a request. Van Aken, Tr. III at 120 (in the past, there has been only a short period of time during which 

the request for a reasoned opinion could be made).

311. See Bland, Tr. II at 180-81 (speaking of written opinions that are public and searchable).

312. See Barron, Tr. III at 118 (“If the standard for review of an arbitration award upon confirmation is very, very 

high threshold of a manifest disregard for the law, then there absolutely must be a statement of decision coming 

out of the arbitration proceedings that can build a record for that delicate review process.”). 

313. See Narita, III at 120 (“I’m not sure in this specific context, the consumer debt collection context whether the 

opinions would be particularly robust.”)

314. Sorkin, Tr. II at 180.

315. See, e.g., Kaplinsky, Tr. II at 177-78; Canter, Tr. II at 195 (“I think the role of precedent should remain as it is, 

and that is the state law or the federal law that governs the dispute.”); Narita, Tr. III at 123 (noting supposed 

arbitration benefits of simplicity and finality); ACA Comment at 22 (“Arbitration decisions are informal, 

non-precedential, fact-resolution events. If this was changed, arbitration would lose the characteristics 

that differentiate it from civil litigation. Blurring the lines . . . would defeat the purpose of engaging in 

arbitration.”). 
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asserting that it would undermine the simplicity and finality of arbitration and would not be 

useful precedent anyway given that the opinions are fact-specific.316 A forum representative 

similarly argued that courts should issue decisions stating what the law is and therefore serving 

as precedent, while arbitrators should issue opinions applying the law to the particular facts in 

the proceeding.317

The Commission concludes that arbitrators should issue reasoned opinions to accompany 

awards in all debt collection arbitration proceedings. These opinions should state the law 

applied,318 explain the application of the law to the facts, and set forth a calculation of the amount 

awarded, including breaking the amount into principal, interest, and fees. Such opinions would 

help the parties understand the rationale for the amounts arbitrators awarded, and would assist 

with judicial review of arbitration awards and public assessment of debt collection arbitration 

proceedings. Because most of these opinions would involve relatively limited and case-specific 

factual disputes, the FTC believes that their preparation should not impose undue burdens or 

costs on the forums or the collectors, and that such opinions would not ordinarily be well-suited 

for use as precedent in future proceedings.

2. Challenging and Confirming Awards

If a consumer does not receive the initial notification of the arbitration proceeding, an 

arbitrator’s notification that an award has been issued usually will be the first time the consumer 

learns of the arbitration.319 Roundtable participants said that award notifications frequently 

are sent to consumers by regular mail, even if consumers did not appear in the arbitration 

proceeding.320 Some participants argued for better notification,321 using certified mail or other 

methods more rigorous than regular mail.322

316. See Narita, Tr. III at 123. 

317. See Naimark, Tr. III at 125.

318. Roundtable participants generally agreed that arbitrators should be required to follow the law in resolving the 

parties’ disputes. Barron, Tr. III at 159 (“I have sensed a consensus that this panel, people on both sides of 

the question and in the middle, would like to have the system where the arbitrators had to follow the law.”) 

Compare NAF Code, supra note 255, Rule 20. Authority of Arbitrators (stating that an arbitrator shall, among 

other things, “follow the applicable substantive law”); with BBB Rules, supra note 262, Rule 28. The Decision, 

2004 (“Unless otherwise provided by agreement of the parties, the arbitrator is not bound to apply legal 

principles in reaching what the arbitrator considers to be a fair resolution of the dispute.”).

319. In fact, some consumers may not learn about an arbitration award until their bank account is garnished. See, 

e.g., Hillebrand, Tr. III at 157. 

320. See Johnson, Tr. II at 218.

321. See Sternlight, Tr. III at 163-64 (“If we’re going to require better notice . . . similarly we’re going to need better 

notice as to the decision itself”); Hillebrand, Tr. III at 157. 

322. Johnson, Tr. II at 218.
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As with initial notifications of arbitration, it would be worthwhile for senders of arbitration 

award notices to adopt measures that: (1) increase the likelihood that they have valid addresses; 

(2) track and document their delivery of these notices; and (3) use envelopes for the notices 

which make it clear that the contents are important while not disclosing the debts of consumers 

to third parties. The Commission lacks the information and experience needed to recommend 

more specific measures and thus recommends that private and public sector entities with an 

interest in debt collection arbitration conduct tests to determine how best to achieve these 

objectives at the lowest cost. 

Receipt of the notice of award is particularly important because consumers only have ninety 

days after delivery of notification323 to contest the award in court, whereas collectors have up to a 

year after such delivery to confirm the award in court.324 Some consumer advocates believe that 

this asymmetry is problematic325 because collectors wait until after the ninety day period before 

moving to confirm the award, so that consumers can no longer raise certain defenses.326 Some 

roundtable participants thus suggested that consumers be allowed the same period of time to 

contest the award as the collectors have to confirm it.327

A collector attorney said that it is important for the creditor to have more time to confirm 

than the consumer has to contest, although he did indicate that whether the collector should have 

a year to do so is debatable.328 His reasoning was that the collector cannot move to confirm 

the award until it knows it is a final judgment – a fact that cannot be known until ninety days 

have passed and the consumer has not challenged the award.329 Consumer advocates, however, 

responded that cross-petitions to confirm and vacate can be filed and resolved at the same time.330 

Collector representatives also asserted that the asymmetry of time frames in the FAA generally 

323. FAA, 9 U.S.C. § 12 (2006). However, some roundtable participants argued that the ninety day period does 

not start to run until consumers receive notice of the award, so if this notice has not been provided, consumers 

retain the ability to challenge the award. See, e.g., Canter, Tr. II at 223. 

324. FAA, 9 U.S.C. § 9 (2006).

325. See, e.g., Hillebrand, Tr. III at 157 (“If the time period to confirm is still running after the time to raise 

objections about the arbitration has passed, that mismatch is going to create difficulties.”); Barron, Tr. III at 

158-59. 

326. See, e.g., Johnson, Tr. II at 219; Van Aken, Tr. III at 161-62.

327. See, e.g., Canter, Tr. II at 223 (“It may make sense to make it the same time period as the period for enforcing 

the award.”); Bland, Tr. II at 224-5 (“Having two different time periods really prejudices consumers in a 

significant way.”) 

328. See Melcer, Tr. III at 160-61.

329. See Melcer, Tr. III at 160.

330. Van Aken, Tr. III at 161.
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is not biased against consumers in general, because the party that has only ninety days to contest 

the award may not be the consumer,331 especially in arbitrations involving issues other than debt. 

The FAA is the source of the difference between the time periods to challenge and confirm 

an award.332 A change to the FAA333 likely would apply to all types of consumer arbitration, 

not just debt collection arbitration. In other types of arbitration, consumers likely win more 

often than in debt collection arbitration. The Commission believes that further study is needed 

to determine whether amending the FAA to equalize the time periods for challenging and 

confirming an arbitration award is on balance beneficial.

Roundtable participants discussed what a collector should be required to prove to confirm 

an arbitration award in court. Consumer advocates opined that collectors should have sufficient 

evidence to sustain the award in court,334 and one advocate suggested that such evidence would 

consist of: (1) proof that consumers received notification of the arbitration proceeding; (2) 

the evidence that was provided to the arbitrator; (3) the contract providing for arbitration; (4) 

evidence of any assignments of the debt at issue; and (5) a breakdown of the amount awarded 

(detailing what portion constitutes principal, interest, penalties, fees, expenses, etc.).335 Another 

consumer group representative suggested that collectors be required to submit admissible 

evidence that the consumer agreed to arbitrate.336 Others argued, however, that imposing such 

extensive requirements to confirm an award amounts to an automatic and comprehensive judicial 

review, which would undermine the arbitration process.337 

The Commission does not take a position on whether the standards for confirming 

arbitration awards need to be changed. As discussed elsewhere in this report, the FTC advocates 

changes to the arbitration process to provide consumers with meaningful choice whether to 

submit disputes to arbitration, improve notice of the commencement of the arbitration process, 

require reasoned opinions (including a breakdown of the amount awarded) to accompany 

arbitration awards, and improve notice of the arbitration award. If these measures do not 

331. See Drahozal, Tr. II at 231. 

332. Drahozal, Tr. II at 231 (stating that it is “unsettled” whether the FAA applies in state courts, but there are states 

that apply it in this context).

333. See, e.g., Johnson, Tr. II at 218; Bland, Tr. II at 220 (“the Commission could advocate legislation”). 

334. See Sturdevant, Tr. III at 155; Hillebrand, Tr. III at 144. 

335. See Jarzombek, Tr. III at 137-140.

336. See Edelman Comment at 22.

337. See, e.g., Melcer, Tr. III at 141; Yalon, Tr. III at 145 (“If you want the arbitration presentation to the court to be 

a relitigation of the case, then you have violated the purpose of the arbitration.”); ACA Comment at 23 (“The 

purpose of arbitration is to quickly and efficiently deal with cases without the costs and difficulties of litigation. 

Allowing either party to contest the ruling of the neutral arbitrator would defeat the purpose of arbitration.”). 
Protecting Consumers in Debt Collection Litigation and Arbitration

67

prove effective in addressing the problems in the debt collection arbitration process, then the 

Commission may revisit the need for enhanced and expanded judicial review of arbitration 

awards. 

D. Transparency of Arbitration Results

A major issue related to debt collection arbitration is the amount and type of information 

about awards which is made available to the public. If consumers are to choose whether to 

consent to arbitration of their disputes, including whether to permit their disputes to be handled 

by a particular arbitration forum, then they must have sufficient information to make these 

choices meaningful. Moreover, if the public is to assess the costs and benefits of debt collection 

arbitration as an alternative to the court system, then it must have sufficient data to make an 

informed assessment. Roundtable participants generally agreed that better information about 

debt collection arbitration should be disclosed to make the process used and the decisions made 

more transparent to the public.338

Some participants argued for a nationwide arbitration reporting and disclosure system.339 

California requires that arbitration forums report information such as type of dispute, amount 

claimed, and amount awarded, and that this information be disclosed to the public.340 Some 

participants advocated that a nationwide system should make available more detail than 

California requires. They asserted, for example, that the report of an arbitration award should 

include not simply the amount awarded, but also a breakdown of how much of the amount is 

338. See, e.g., Drahozal, Tr. II at 192; Bush, Tr. II at 198-99 (expressing consensus of participants). AAA also 

maintains its own database about arbitration on its website, and it allows the public to access this database. 

Naimark, Tr. II at 186-87; Naimark Comment, attaching testimony to the Domestic Policy Subcommittee, 

Oversight and Government Reform Committee, U.S. House of Representatives, July 22, 2009 at 8; see

http://www.adr.org/sp.asp?id=29470.

339. See, e.g., Bland, Tr. II at 208; Hillebrand, Tr. III at 113-114; Van Aken, Tr. III at 114.

340. See Hillebrand, Tr. III at 97. See also Cal. Civ. Code §1281.96 (in relevant part requiring, subject to certain 

exceptions, that arbitration providers collect and post at least quarterly on their website in searchable form, 

for the preceding five years, information on consumer arbitrations including: (a) the name of the nonconsumer 

party (if it is a corporation or other business entity); (b) the type of dispute; (c) whether the consumer or 

nonconsumer prevailed; (d) number of times the nonconsumer has previously been a party in an arbitration or 

mediation administered by the arbitration provider; (e) whether the consumer was represented by an attorney; 

(f) dates for when the provider received the demand for arbitration, when the arbitrator was appointed, and the 

date of disposition; (g) the type of disposition; (h) amounts of the claim, award, and any other relief granted; 

and (i) the arbitrator’s name, arbitrator’s fee for case, and percentage of the fee allocated to each party). The 

State of Maine recently enacted similar requirements. Maine also mandated public disclosure in a searchable 

format of information concerning whether the arbitration provider within the preceding year has had a financial 

interest in a party or a party’s attorney, and whether a party or party’s attorney within the preceding year has 

had a financial interest in the arbitration provider. LD 1256, An Act to Provide Protections for Consumers 

Subject to Mandatory Arbitration Clauses, 2010 Maine Pub. Law (enacted Mar. 31, 2010). 
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for fees, interest, principal,341 and attorneys’ fees.342 They also noted that when insufficient 

information is reported, it may not provide much insight into the arbitration process.343 For 

instance, if a consumer is reported as having received an arbitration award, it may look like a 

“win” for the consumer, but this may be misleading if the amount awarded is substantially less 

than the consumer likely would have obtained in litigation.344

Other participants opposed requiring that arbitration forums report such information for debt 

collection proceedings. Some argued that such reporting would reduce or eliminate one of the 

benefits of arbitration over litigation – the private resolution of disputes.345 To address this issue, 

other participants advocated that the results of arbitration should only be reported and made 

public with the consent of both parties.346 One participant responded that redacting the names of 

the parties from the awards would obviate their privacy concerns.347 Other participants pointed 

out that reporting requirements would impose substantial costs on arbitration forums.348 Some 

disputed, however, that the cost to arbitration forums of reporting accurate and usable data would 

be unduly burdensome.349 

Assuming that arbitration awards are reported and made available to the public, some 

participants emphasized that it is important for the public to have consumer-friendly methods of 

341. See, e.g., Canter, Tr. II at 185; Naimark, Tr. III at 117-18; see Barron, Tr. III at 118 (stating that, “this is one of 

the most problematic aspects of the arbitration system”). 

342. Bland, Tr. II at 201-2.

343. See, e.g., Johnson, Tr. II at 193; Frank, Tr. II at 189-91; Stacked Deck, supra note 200, at 3 (noting that even 

though California legislation requiring reporting of arbitration results is a “good model,” there are nevertheless 

problems due to the fact that “the data reported by some firms is virtually meaningless due to missing 

information. Even when data is present, results are provided in a way that renders collection labor intensive.”); 

Arbitration Trap, supra note 183, at 5 (noting that for the California reporting requirement, California Code 

of Civil Procedure §1281.96, “[t]he data are maintained by arbitration providers on their own Web sites, where 

they are stored in thousands of unwieldy individual records. For example, NAF posts quarterly reports about 

its California work in a hard-to-find place on its Web site, using a very cumbersome format that makes analysis 

difficult.”). 

344. See Johnson, Tr. II at 119-20 (“[T]his is a very difficult area to study because you can’t just categorize wins and 

losses . . . [award of $750 for consumer] certainly didn’t feel like it [a win] to me considering that any court in 

Iowa would have given me four or five times that and to my client.”).

345. Kaplinsky, Tr. II at 176-77.

346. Capitel, Tr. III at 121.

347. Kaplinsky, Tr. II at 179.

348. Naimark, Tr. II at 205 (“In terms of building a system to report such data, it is quite expensive, and it can 

be considered a real burden.”); ACA Comment at 22 (“ACA does not believe that the value of requiring the 

systematic reporting of consumer arbitration data is sufficient to justify the costs of such a system.”). 

349. Frank, Tr. II at 207 (discussing use of a form for data collection and concluding that “[i]t’s really not an 

excessive burden for a large arbitration forum”). 
Protecting Consumers in Debt Collection Litigation and Arbitration

69

accessing and analyzing these awards.350 It appears to be difficult for consumers or the public 

currently to locate awards on the websites of jurisdictions that disclose such information.351 

Some participants stated that results should be presented to the public in a searchable format.352 

If awards are made available but not in a manner easily accessible to consumers, it might convey 

an advantage to repeat players who are familiar with the reporting system and know how to use it 

to track developments and obtain other key information.353

Another issue raised at the roundtables was how to ensure that arbitration forums report 

and disclose as required by law.354 Some argued that a strong enforcement mechanism is 

needed to ensure data are accurately and completely reported.355 One participant noted that the 

enforcement mechanism for the California arbitration reporting and disclosure system is a private 

right of action, but consumers could only bring such an action by showing that they suffered 

economic injury from the forum’s failure to report and disclose properly.356

The Commission recommends that Congress consider the creation of a nationwide reporting 

and disclosure system for debt collection arbitration awards to make such arbitrations more 

transparent. This system could report and disclose arbitration awards and the reasoned decisions 

concerning those awards, with appropriate redactions to protect the privacy of consumers who 

participate in these proceedings. This information could be made available to the public in 

a user-friendly, searchable format. To foster compliance with these reporting and disclosure 

requirements, the Commission recommends that the federal government enforce them. Although 

such a reporting and disclosure system would have benefits to consumers, it should be structured 

so that its costs are not prohibitive or unduly expensive. 

E. Arbitration Monitoring, Evaluation and Reporting 

As discussed above, consumer advocates and consumer rights groups have raised significant 

concerns about the fundamental fairness of debt collection arbitration.357 The Minnesota AG’s 

suit against NAF, then the leading debt collection arbitration forum, for allegedly holding itself 

350. See Frank, Tr. II at 191.

351. Bland, Tr. II at 121 (“to find out decisions is next to impossible because it’s not a very transparent system”). 

352. See Bland, Tr. II at 199; Sternlight, Tr. III at 117. 

353. See Bland, Tr. II at 181-82.

354. See Frank, Tr. II at 209-10.

355. See, e.g., Hillebrand, Tr. III at 115; Van Aken, Tr. III at 114. 

356. Bland, Tr. II at 210-11 (noting that there were compliance issues with the California reporting requirements, 

which can be enforced by private right of action but with a requirement to show that lack of disclosure caused 

the claimant to suffer economic damage). 

357. See, e.g., supra notes 183, 220, and 230. 
Repairing A Broken System

70

out as impartial while actual having financial ties to key members of the debt collection industry, 

resulted in a settlement requiring NAF to cease arbitrating consumer debt collection claims.358 

In the wake of the NAF settlement, a number of large banks announced that they would 

discontinue the use of debt collection arbitration provisions in their credit card contracts.359 AAA 

announced that it was imposing a moratorium on its consumer debt collection arbitration until 

concerns about consumer debt collection arbitration were addressed.360 AAA in the meantime 

has convened a task force of arbitration and debt collection experts to evaluate whether the 

organization should recommence consumer debt collection arbitration, and if so, how such 

arbitration should be reformed. 

The FTC commends the prudence of creditors in refraining from enforcing their consumer 

debt collection arbitration provisions, and supports the efforts of AAA in not only imposing a 

moratorium on its debt collection arbitration program, but in actively seeking ways to reform 

the current arbitration process.361 While such initiatives show promise, in light of the past 

alleged conduct of NAF and the extensive concerns discussed at length above, the Commission 

concludes that close monitoring and evaluation of debt collection arbitration models is needed 

to ensure that they provide consumers with meaningful choice and a fair process.362 The FTC 

therefore is committed to engaging in such monitoring and evaluation, and as appropriate, will 

report the results of its monitoring and evaluation to policymakers, industry, consumer groups, 

and the general public. 

358. See supra note 186. 

359. See supra note 189.

360. See supra note 188.

361. See description of AAA task force, supra note 191. 

362. Some roundtable participants opined that arbitration of debt collection disputes should be permitted only 

if consumers chose arbitration after the dispute has arisen. Alderman Comment, supra note 180, at 151, 

157 (“pre-dispute mandatory arbitration must not be allowed to preclude consumer access to the courts and 

circumvent the civil justice system . . . . The simplest change is to preclude pre-dispute arbitration clauses 

in consumer contracts, while permitting parties to agree to arbitration after a dispute has arisen and other 

alternatives have been considered” and arguing for Congress to enact legislation that prohibits the use of 

binding pre-dispute arbitration clauses in consumer contracts); Johnson, Tr. II at 95 (“pre-dispute consumer 

arbitration simply doesn’t work”); Hillebrand, Tr. III at 79 (“each party should have the ability to choose it 

and to agree upon it after the dispute has arisen and you know what’s at stake”); Rossman Testimony, supra

note 172, at 2 (“Prompt legislative action is needed to make pre-dispute binding mandatory arbitration clauses 

unenforceable in civil rights, employment, consumer, and franchise disputes.”). The Commission believes that 

it is worthwhile to explore further whether consumers can be given a meaningful choice as to mandatory predispute arbitration before concluding that only a post-dispute arbitration option should be permitted. 
Protecting Consumers in Debt Collection Litigation and Arbitration

71

Chapter 4

Conclusion

The Commission concludes that the current system for resolving consumer debts is broken, 

because consumers are not adequately protected in either debt collection litigation or arbitration. 

To repair the system, the FTC in this report has set forth a variety of significant reforms that 

federal and state governments, the debt collection industry, and others need to make for the 

system to be both efficient and fair. The agency is interested in continuing to work with all 

interested parties on implementing these reforms as soon as practicable. The Commission hopes 

that the roundtable discussions and this report will be catalysts for change, resulting in a debt 

collection system which provides better protection for consumers without unduly burdening 

legitimate debt collection. 
Repairing A Broken System

72
Protecting Consumers in Debt Collection Litigation and Arbitration

A-1

Appendix A

Debt Collection Roundtable Panelists

Abrams, James W. (Hon.)

Andersen, Rozanne

Arons, Paul

Barron, Nancy 

Barry, Peter F.

Bender, Leslie C.

Berman, Eric M.

Bland, Jr., F. Paul

Bowne, Lauren Z.

Bragg, O. Randolph

Bromberg, Brian L.

Brown, Lorray S. C.

Buckles, Michael H. R.

Canter, Ronald S.

Capitel, Irving S.

Carpenter III, Hiram A. (Hon.)

Coffey, Carolyn E.

Coleman, June D.

Debski, Michael T.

Donnelly, Thomas M. (Hon.)

Drahozal, Christopher R.

Drysdale, Lynn

Edelman, Daniel A.

Estin, Andrew R.

Evans, Peter M. (Hon.)

Faulkner, Joanne S.

Fisher, Fern (Hon.)

Flanagan, James P. (Hon.)

Flitter, Cary L.

Flory, Jen

Frank, Joshua

Gagnon, Michele R.

Gargano, William R. (Hon.)

Grippo, Gary

Groves, Mark K.

Hillebrand, Gail

Jackson, Christine M.

Jarzombek, Jerry J.

Johnson, Ray

Kaplinsky, Alan

Kerrigan, Kathleen

Kinkley, Michael D.

Lebedeff, Diane A. (Hon.)

Leibsker, Ira F.

Lerch, Steven J.

Lipman, Jeffrey M. (Hon.)

Loftus, Connell A.

Lyngklip, Ian

Markoff, Robert

Martin, Angela

Maurer, Scott

McNulty, Carlene

Melcer, David

Mitchell-Munevar, Alexander

Moiseev, Susan (Hon.)

Moore, Harvey

Myers, Jerry

Naimark, Richard W.

Narita, Tomio B.

Naves, Ron

Needleman, Joann

Nepveu, Julie

Newburger, Manny

Nordlund, Lorraine (Hon.)

Olshan, Adam J.

Panarese, Joseph D. (Hon.)

Philipps, David J.

Pittman, Dale

Ray, Thomas M.

Redmond, Donald W.

Rosmarin, Yvonne W.

Sargis, Ronald H.

Sinsley, Barbara

Sorkin, David E.

Sternlight, Jean R.

Sturdevant, James C.

Surh, Tom (Hon.)

Tamaroff, Paul K.

Tenhundfeld, Mark

Tepper, Marla

Tyler, Johnson M.

Van Aken, Christine

Weinberg, Michelle

Jay Welsh

Wilcox, Ronald

Wilner, Claudia

Wu, Chi Chi

Yalon, Jr., Jerome M.

Yellon, Larry

Zezulinski, Albert
Repairing A Broken System

A-2
Protecting Consumers in Debt Collection Litigation and Arbitration

B-1

Appendix B

FTC Contributors to

Debt Collection Roundtables

Bansal, Megha

Bergquist, S. Parrish

Brown, Dama

Bush, Julie

Carter, Tom

Graybill, Dean

Harwood, Charles

Klurfeld, Jeffrey

Mayer, Julie

Murphy, Bevin

O’Toole, David

Pahl, Thomas

Redding, Katherine

Thorleifson, Tracy

Vladeck, David

Winston, Joel
Repairing A Broken System

B-2
Protecting Consumers in Debt Collection Litigation and Arbitration

C-1

Appendix C

Agendas for Debt Collection Roundtables

Debt 

Collection:

Protecting 

Consumers

Chicago, Illinois

August 5, 2009 – Litigation

August 6, 2009 – Arbitration

San Francisco, California

September 29, 2009 – Arbitration

September 30, 2009 – Litigation

Washington, DC

December 4, 2009 – Litigation
Repairing A Broken System

C-2
C-3

Debt 

Collection:

Protecting 

Consumers

AgendaDay 1 — Litigation

9:00 Opening Remarks

Joel Winston, Associate Director, Federal Trade Commission, 

Division of Financial Practices

9:15 Introduction of Participants

9:45 Initiating Suits: Default Judgments and Service of Process

• How frequently are default judgment entered in debt collection 

litigation? Are debt collectors more likely to obtain a default 

judgment with some types of debt, such as credit card debt, or on 

behalf of some types of owners of debts, such as debt buyers? 

• What costs and benefi ts result from the entry of default 

judgments?

• Should there be changes in the law or industry practice with 

respect to service of process or default judgments? 

10:45 Break

11:00 Timing: Statute of Limitations Issues 

• How frequently do debt collectors collect or seek to collect on 

debt that is beyond the statute of limitations? Are debt collectors 

more likely to collect or seek to collect on debt that is beyond the 

A Roundtable

 August 5-6, 2009

Chicago, IL
C-4 Chicago, Illinois Agenda

statute of limitations with some types of debt, or on behalf of 

some types of owners of debts? 

• What are the costs and benefi ts of collectors attempting to collect 

on debt that is beyond the statute of limitations? 

• Should collectors be required to disclose affi rmatively to 

consumers that they have no legal obligation to pay a debt that is 

beyond the statute of limitations? Should there be other changes 

in the law or industry practice with respect to collecting on debt 

that is beyond the statute of limitations? 

12:15 Lunch

1:30 Prima Facie Collection Case and Evidentiary Burdens 

• What evidence of indebtedness do debt collectors typically provide 

to courts in connection with the debt collection complaints they 

fi le? Does the evidence that is provided vary based on the type of 

debt being collected or the type of debt owner?

• Is suffi cient evidence typically provided along with the complaints 

that are fi led in debt collection litigation? 

• Should there be changes in the law or industry practice to require 

debt collectors to submit greater evidence of indebtedness?

2:30 Garnishment 

• How frequently do debt collectors freeze or garnish bank accounts 

containing exempt federal benefi ts to collect on judgments? Are 

debt collectors more likely to do so with some types of debt, or on 

behalf of some types of owners of debts?

• What are the costs and benefi ts of collectors seeking to freeze or 

garnish bank accounts containing exempt federal benefi ts? 

• Should there be changes in the law or industry practice with 

respect to debt collectors freezing and garnishing bank accounts 

containing exempt federal benefi ts? 

3:30 Break

3:45 Productive Change and Best Practices 

• How have industry members, consumer advocates, and court 

personnel worked, together or separately, on possible changes in 

the law or industry practice to address problems related to debt 

collection litigation? Do any of these possible solutions appear to 

be working or likely to work? 

5:00 Adjourn

C-4
C-5

August 5-6, 2009

Day 2 — Arbitration

9:00 Opening Remarks 

David Vladeck, Director, Federal Trade Commission, Bureau 

of Consumer Protection

9:15 Introduction of Participants

9:30 Consumer Arbitration and the FAA: A Primer 

Christopher Drahozal, Professor of Law, University of Kansas School 

of Law; Chair, Arbitration Task Force of the Searle Civil Justice 

Institute at Northwestern University School of Law

10:00 Initiating Proceedings and Consumer Participation Rates 

• How should arbitration proceedings be initiated so that consumers 

are made aware of them and their potential consequences?

• Should there be changes in the law or industry practices with 

respect to notifying consumers about arbitration? 

10:45 Break

11:00 Choice of Provider, Choice of Location, and Role of 

Consumer Choice 

• To what extent should consumers have a choice as to whether 

disputes regarding their debts are subject to arbitration? 

• Should there be changes in the law or industry practice regarding 

the degree of consumer choice about arbitration disputes, such 

as whether, when, or where to arbitrate, which organization is the 

arbitration provider, or which individual arbitrator will adjudicate 

the proceeding?

12:00 Lunch

1:30 Arbitration Provider Procedures 

• What procedures should apply in debt collection arbitration 

proceedings? 

• Should there be changes in the law or industry practice with 

respect to these procedures? 

C-5
C-6 Debt Collection: Protecting Consumers

August 5-6, 2009

2:00 Bias and Perceptions of Bias 

• To what extent are there ownership, contractual, or other ties between collectors 

and arbitration providers? Which, if any, of these ties should be prohibited or 

disclosed to consumers?

• Should there be changes in the law or industry practice with respect to arbitration 

conduct to address real or perceived bias? 

2:45 Break

3:00 Transparency of Results; Role of Precedent 

• Should the results and reasoning behind arbitration decisions be stated clearly 

and publically? Should arbitration decisions have precedential effects on future 

arbitrations? 

• Should there be changes in the law or industry practice to make arbitration 

decisions more transparent or to increase their precedential value?

• Should there be changes in the law or industry practice to require the systematic 

reporting of data about consumer arbitration, as is done in California? 

4:00 Enforcing Awards; Contesting Awards 

• How should a debt collector who wins an arbitration award be able to convert that 

decision into an enforceable judgment? 

• How and when should a consumer be able to contest an arbitration decision? 

• Should there be changes in the law or industry practice with respect to collectors’ 

ability to convert arbitration decisions into judgments or consumers’ ability to 

contest such decisions?

 

5:00 Adjourn
Agenda

C-7

A Roundtable

 September 29-30, 2009

San Francisco, CA

September 29 — Arbitration

9:00 Opening Remarks 

Charles Harwood, Deputy Director, 

Bureau of Consumer Protection,

Federal Trade Commission

9:15 Introduction of Participants

9:30 Initiating Proceedings and Consumer Participation 

Rates

• How should arbitration proceedings be initiated so that 

consumers are made aware of them and their potential 

consequences? What evidence is there as to consumers’ 

understanding and knowledge about the arbitration 

process?

• Who should have the burden of establishing that adequate 

notifi cation regarding arbitration was given? What 

evidence of appropriate consumer notifi cation should be 

required in an arbitration proceeding?

• Should there be changes in the law or industry practices 

with respect to notifying consumers about arbitration? 

Should there be any other changes with respect to initiating 

proceedings or consumer participation?

10:15 Break

Debt 

Collection:

Protecting 

Consumers
C-8 Agenda

10:30 Choice of Provider, Choice of Location, 

and Role of Consumer Choice

• To what extent do consumers have a choice as to whether disputes 

regarding their debts are subject to arbitration? 

• Are arbitration proceedings faster or cheaper than court 

proceedings for debt collection disputes? What other benefi ts 

and costs fl ow from the use of arbitration proceedings for debt 

collection disputes?

• Should there be changes in the law or industry practice regarding 

consumer choice about whether, when, or where to arbitrate, 

which organization is the arbitration provider, or how individual 

arbitrators are selected?

11:30 Lunch

1:00 Bias and Transparency

• Should there be changes in the law or industry practice with 

respect to ties between collectors and arbitration providers? Which, 

if any, of these ties create bias or perceived bias? Should such ties 

be prohibited or disclosed to consumers?

• Should there be changes in the law or industry practice to 

make the results and reasoning behind arbitration decisions 

more transparent and public? Should arbitration decisions have 

precedential effects on future arbitrations? 

• Should there be changes in the law or industry practice to require 

the systematic reporting of data about consumer arbitration, as is 

done in California? 

2:15 Enforcing Awards; Contesting Awards

• How should a debt collector who wins an arbitration award be 

able to convert that decision into an enforceable judgment? 

• How and when should a consumer be able to contest an 

arbitration decision?

• Should there be changes in the law or industry practice with 

respect to collectors’ ability to convert arbitration decisions into 

judgments or consumers’ ability to contest such decisions?

3:00 Conclusion 

• What debt collection arbitration issues do you think the FTC needs 

to further study or discuss?

• What should the FTC do to improve debt collection arbitration 

proceedings?

3:15 Adjourn
C-9

September 30, — Litigation

9:00 Opening Remarks 

Jeffrey Klurfeld, Director, 

Western Regional Offi ce, 

Federal Trade Commission

9:15 Introduction of Participants

9:30 Initiating Suits: Default Judgments and Service of Process 

• How frequently are default judgments entered in debt collection 

litigation? What evidence is there of a possible relationship between 

default judgments and service of process?

• In what ways is process served in debt collection litigation against 

consumers? What role do the courts have regarding service of process? 

What is required of debt collectors regarding service of process?

• Should there be changes in the law or industry practice with respect to 

service of process or default judgments? 

10:45 Break

11:00 Timing: Statute of Limitations Issues

• How frequently do debt collectors seek to collect on debt that is beyond 

the statute of limitations? Are debt collectors more likely to collect on 

debt that is beyond the statute of limitations with certain types of debt, 

or on behalf of certain types of owners of debts?

• What role do the courts have in addressing statute of limitations issues 

in debt collection? What substantiation, if any, regarding the statute of 

limitations should be required of collectors?

• Should collectors be required to affi rmatively disclose to consumers that 

they have no legal obligation to pay a debt that is beyond the statute 

of limitations? Should there be other changes in the law or industry 

practice with respect to statute of limitations issues? 

12:15 Lunch
C-10

1:30 Prima Facie Collection Case and Evidentiary Burdens

• What evidence of indebtedness do debt collectors typically provide to courts in 

connection with the debt collection complaints they fi le? Does the evidence that 

is provided vary based on the type of debt being collected or the type of debt 

owner?

• What substantiation of indebtedness is typically provided along with the 

complaints fi led in debt collection litigation? Is suffi cient substantiating evidence 

typically provided over the course of debt collection litigation? 

• Should there be changes in the law or industry practice to require debt collectors 

to fi le greater evidence of indebtedness? Should there be any other changes?

2:45 Garnishment

• How frequently do debt collectors freeze or garnish bank accounts containing 

exempt federal benefi ts to collect on judgments? When and how are consumers 

notifi ed regarding the freezing or garnishing of funds? 

• What are the respective roles of the courts, the banks, the collectors, and 

the judgment debtors in protecting exempt federal funds from freezing or 

garnishment? 

• Should there be changes in the law or industry practice with respect to debt 

collectors freezing and garnishing bank accounts containing exempt federal 

benefi ts? 

3:45 Break

4:00 Closing Issues and Future Directions

• What debt collection litigation issues do you think the FTC needs to further study 

or discuss?

• What role should the FTC play with respect to debt collection litigation 

proceedings?

5:00 Adjourn
Agenda

C-11

A Roundtable

 December 4, 2009

Washington, DC

9:00 Introductory Remarks 

David Vladeck, Director

Bureau of Consumer Protection, Federal Trade Commission

9:15 Initiating Suits: Service of Process and Consumer 

Participation 

• Why aren’t more consumers defending against collection 

suits?

• To what extent are consumers failing to participate in 

collection suits because they were not served with process?

• What are the other reasons for failure to participate?

• What can courts and others do to increase consumer 

participation in debt collection suits?

• What actions should lawmakers, the courts, the FTC, the 

industry, or others take to address service of process and 

consumer participation issues?

Panelists

James Abrams, Judge, Connecticut Superior Court 

Carolyn Coffey, MFY Legal Services, Inc.

Michael Debski, Rubin & Debski, P.A.

Peter Evans, Judge, Fifteenth Judicial Court of Florida, 

Palm Beach County 

Joanne Faulkner, Law Offi ce of Joanne S. Faulkner

Cary Flitter, Lundy, Flitter, Beldecos & Berger, P.C.

Michele Gagnon, Peroutka & Peroutka, P.A.

Mark Groves, Glasser and Glasser, P.L.C. 

Debt 

Collection:

Protecting 

Consumers
C-12 Agenda

Diane Lebedeff, Judge, New York City Civil Court 

Carlene McNulty, North Carolina Justice Center

Joann Needleman, National Association of Retail Collection 

Attorneys 

Donald Redmond, Portfolio Recovery Associates, Inc. 

Yvonne Rosmarin, Law Offi ce of Yvonne W. Rosmarin

Marla Tepper, New York City Department of Consumer Affairs 

Larry Yellon, National Association of Professional Process Servers 

Albert Zezulinski, NCO Group, Inc.

10:45 BREAK

11:00 Statutes of Limitations 

• How frequently do debt collectors seek to collect on debt that is 

beyond the statute of limitations?

• Should there be a federal statute of limitations for consumer debts? 

If so, how long should it be?

• What restrictions or rules should be imposed with respect to 

collecting time-barred debt?

 Prohibition or limitations on collection? 

 Disclosure that the consumer is not obligated to pay? 

 Prohibition on a payment reviving the entire debt?

 Disclosure that a payment revives the entire debt? 

 Disclosure in complaints in collection actions of the date of last 

payment on a debt and the applicable statute of limitations? 

• What actions should lawmakers, the courts, the FTC, the industry, 

or others take to address statute of limitations issues?

 Panelists

James Abrams, Judge, Connecticut Superior Court 

Carolyn Coffey, MFY Legal Services, Inc.

Michael Debski, Rubin & Debski, P.A.

Peter Evans, Judge, Fifteenth Judicial Court of Florida, 

Palm Beach County 

Joanne Faulkner, Law Offi ce of Joanne S. Faulkner

Cary Flitter, Lundy, Flitter, Beldecos & Berger, P.C.

Michele Gagnon, Peroutka & Peroutka, P.A.

Mark Groves, Glasser and Glasser, P.L.C. 

Diane Lebedeff, Judge, New York City Civil Court 

Carlene McNulty, North Carolina Justice Center

Joann Needleman, National Association of Retail Collection 

Attorneys 

Donald Redmond, Portfolio Recovery Associates, Inc. 
C-13

Yvonne Rosmarin, Law Offi ce of Yvonne W. Rosmarin

Albert Zezulinski, NCO Group, Inc.

12:15 LUNCH

 1:45 Evidence of Indebtedness

• To what extent are complaints fi led or judgments entered without 

adequate evidence of the consumer’s indebtedness? What is the 

type and quantum of evidence of indebtedness that courts do or 

should require to be submitted with the complaint, to enter a default 

judgment, or to enter a contested judgment?

• What mechanisms should be implemented to ensure that collectors’ 

claims of indebtedness are substantiated? 

• Should the courts require a different type or quantum of evidence of 

indebtedness for different types of collectors, such as creditors, thirdparty collectors, and debt buyers?

• How would recent or proposed changes in state laws and court 

procedures concerning evidence of indebtedness affect consumers and 

the debt collection industry?

• What actions should lawmakers, the courts, the FTC, the industry, or 

others take to address evidence of indebtedness issues?

Panelists

Leslie Bender, Law Offi ces of Leslie C. Bender

Eric Berman, Eric M. Berman, P.C. 

Brian Bromberg, Bromberg Law Offi ce, P.C.

Hiram Carpenter, Judge, Twenty-Fourth Judicial District 

of Pennsylvania, Blair County 

Lynn Drysdale, Jacksonville Area Legal Aid

Fern Fisher, Judge, New York City Civil Court 

James Flanagan, Judge, Suffolk County First District Court, New York

Connell Loftus, Mann Bracken, LLP 

Angela Martin, Martin, Attorney at Law, PLLC

Alexander Mitchell-Munevar, Greater Boston Legal Services

Jerry Myers, Smith Debnam Narron Drake Saintsing & Myers, LLP

Lorraine Nordlund, Judge, General District Court of Fairfax County, 

Virginia 

Adam Olshan, Law Offi ces of Howard Lee Schiff, P.C. 

Dale Pittman, The Law Offi ce of Dale W. Pittman, P.C.

Chi Chi Wu, National Consumer Law Center

3:30 BREAK
C-14

3:45 Garnishment of Bank Accounts

• To what extent do collectors attempt to garnish federally-exempt 

funds in consumers’ bank accounts? 

• What should the federal government, including the federal bank regulatory 

agencies, do to address problems regarding the freezing, levy, or attempted 

garnishment of exempt funds in bank accounts?

• What approaches have states or localities taken to address the garnishment of 

exempt funds and the charging of fees to consumers? Have these approaches 

been successful?

• What actions should lawmakers, the courts, the FTC, the industry, or others take 

to address garnishment of bank accounts? 

Panelists

Hiram Carpenter, Judge, Twenty-Fourth Judicial District of Pennsylvania, 

Blair County

Fern Fisher, Judge, New York City Civil Court 

James Flanagan, Judge, Suffolk County First District Court

Gary Grippo, U.S. Department of the Treasury

Kathleen Kerrigan, Bank of America

Lorraine Nordlund, Judge, General District Court of Fairfax County, Virginia 

Adam Olshan, Law Offi ces of Howard Lee Schiff, P.C.

Mark Tenhundfeld, American Bankers Association 

Johnson Tyler, South Brooklyn Legal Services

Claudia Wilner, Neighborhood Economic Development Advocacy Project

5:00 Closing Remarks

Joel Winston, Associate Director

Division of Financial Practices, Federal Trade Commission
Protecting Consumers in Debt Collection Litigation and Arbitration

D-1

Appendix D

Debt Collection Roundtables Public Comments

1. AARP (Certner, David) (1/19/2010) # 545921-00029 

2. ACA International (Beato, Andrew) (9/1/2009) # 542930-00047 

3. Accounts Receivable Management, Inc. (Cosenza, Michael) (1/12/2010) # 545921-00027

4. Alderman, Richard (7/5/2009) # 542930-00008 

5. American Arbitration Association (Naimark, Richard) (7/31/2009) # 542930-00016 

6. American Arbitration Association (Naimark, Richard) (7/31/2009) # 542930-00017 

7. American Arbitration Association (Naimark, Richard) (7/31/2009) # 542930-00018 

8. American Arbitration Association (Naimark, Richard) (7/31/2009) # 542930-00019 

9. Appleseed (Cavendish, Betsy) (3/1/2010) # 545921-00031 

10. Asset Acceptance, LLC (Herbert, Edwin ) (7/31/2009) # 542930-00020 

11. Astrahan, Cheri (11/5/2009) # 544507-00013 

12. Attorney Reynolds, Attorney Wu (7/31/2009) # 542930-00026 

13. Ballard Spahr Andrews & Ingersoll, LLP (Kaplinsky, Alan S.) (8/10/2009) # 542930-

00032 

14. Bland, Paul (7/22/2009) # 542930-00024 

15. Breeden, Lisa (8/27/2009) # 542930-00036

16. Breeden, Lisa (11/18/2009) # 544507-00014 

17. Brown, J (11/22/2009) # 544507-00017 

18. Cada (11/22/2009) # 544507-00016 

19. Cada (11/22/2009) # 545921-00002 

20. Capitel, Irving (12/2/2009) # 545921-00005 

21. Certified Civil Process Servers Association of Texas (Pendergrass, Tod) (9/28/2009) 

# 544507-00002 

22. Chamber of Commerce of the United States of America (Josten, R. Bruce) (9/1/2009) 

# 542930-00046 

23. Chan, Henry (10/29/2009) # 544507-00009 

24. Compliance Security Partners, LLC (Mertz, David) (10/19/2009) # 544507-00006 

25. Consumers Union (Bowne, Lauren) (7/31/2009) # 542930-00027 

26. DC 37 Municipal Employees Legal Services (Martin, Robert) (12/1/2009) # 544507-

00018

27. DC 37 Municipal Employees Legal Services (Martin, Robert) (12/3/2009) # 545921-

00011

28. Drahozal, Christopher (7/28/2009) # 542930-00014 
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29. Drahozal, Christopher (7/27/2009) # 542930-00023 

30. Drahozal, Christopher (11/30/2009) # 545921-00004 

31. Edelman, Combs, Latturner & Goodwin, LLC (Edelman, Daniel) (7/28/2009) # 542930-

00029 

32. Elder, Dane (6/30/2009) # 542930-00006 

33. Eric M. Berman, P.C. (Berman, Eric) (1/7/2010) # 545921-00017 

34. Feerick Center for Social Justice (Galacatos, Dora) (1/8/2010) # 545921-00023

35. Feerick Center for Social Justice (Galacatos, Dora) (1/9/2010) # 545921-00025

36. Fogal, Jordan (8/11/2009) # 542930-00033 

37. Fogal, Jordan (8/28/2009) # 542930-00041 

38. Forsythe, Brian (8/31/2009) # 542930-00044 

39. Fox, Emma (8/17/2009) # 542930-00035 

40. Gargano, William (12/10/2009) # 545921-00012 

41. Greater Boston Legal Services (Mitchell-Munevar, Alexander) (1/11/2010) # 545921-

00026 

42. Jacksonville Area Legal Aid, Inc. (Drysdale, Lynn) (1/8/2010) # 545921-00020 

43. JayinGR (11/30/2009) # 545921-00003 

44. Kaplan, Jonathan (10/30/2009) # 544507-00010 

45. Kaplan, Jonathan (10/30/2009) # 544507-00011 

46. Law Offices Howard Lee Schiff, PC (Olshan, Adam) (1/8/2010) # 545921-00018 

47. Lear, Chris (1/5/2010) # 545921-00016 

48. Leykis, Tom (10/19/2009) # 544507-00005 

49. Lindenau, (8/1/2009) # 542930-00028 

50. Long, Gena (12/19/2009) # 545921-00014 

51. Luck (8/27/2009) # 542930-00037 

52. Malik (11/19/2009) # 544507-00015 

53. Matson, Victor (8/28/2009) # 542930-00039 

54. Mettier, Laurie (7/27/2009) # 542930-00013 

55. MFY Legal Services (Coffey, Carolyn) (1/8/2010) # 545921-00021 

56. Midland Credit Management, Inc. (Martin, Lance) (7/31/2009) # 542930-00025 

57. Miranda, Alma (10/29/2009) # 544507-00007 

58. National Association of Professional Process Servers (Tamaroff, Paul) (8/31/2009) 

# 542930-00042 

59. National Association of Retail Collection Attorneys (Canter, Ronald ) (8/31/2009) 

# 542930-00043 

60. National Consumer Law Center (Hobbs, Robert) (7/31/2009) # 542930-00021 

61. NEDAP (Wilner, Claudia) (1/8/2010) # 545921-00022 
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62. Nordlund, Lorraine – General District Court of Fairfax County, Virginia (11/19/2009) 

63. Oversight and Government Reform (Issa, Darrell) (7/25/2009) # 542930-00011 

64. Pendergrass, Tod (12/3/2009) # 545921-00008 

65. Piaser, Lisa (12/15/2009) # 545921-00013 

66. Pittman, Dale (12/7/2009) # 545921-00009 

67. Portfolio Recovery Associates, LLC (Redmond, Donald) (7/31/2009) # 542930-00022 

68. Rajput, Abida (1/14/2010) # 545921-00028 

69. Reynolds, Maryellen (7/26/2009) # 542930-00012 

70. Sanders, Veronica (10/5/2009) # 544507-00004 

71. Schnackel (8/28/2009) # 542930-00040 

72. Shea, Josh (7/30/2009) # 542930-00015 

73. South Brooklyn Legal Services (Tyler, Johnson) (1/8/2010) # 545921-00019

74. Staulcup (6/29/2009) # 542930-00004 

75. Sturdevant Law Firm (Sturdevant, James C.) (1/22/2010) # 543670-00030

76. Taylor, Cynthia (6/28/2009) # 542930-00002 

77. Tomerlin, Leslie (9/30/2009) # 544507-00003 

78. Tuttle (7/19/2009) # 542930-00010 

79. Vandermeulen (11/1/2009) # 544507-00012 

80. Vassar, Nolan (6/29/2009) # 542930-00003 

81. Vassar, Nolan (6/30/2009) # 542930-00005 

82. Vassar, Nolan (7/2/2009) # 542930-00007 

83. Vassar, Nolan (7/16/2009) # 542930-00009 

84. Wahl, K (9/1/2009) # 542930-00045 

85. Watson (1/9/2010) # 545921-00024 

86. Whealen, Michael (6/27/2009) # 542930-00001

87. Williams, Janine (12/3/2009) # 545921-00007 

88. Woodall, Will (1/5/2010) # 545921-00015 
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Appendix E

Sample State Debt Collection Checklists

1. Massachusetts – Small Claims Default Judgment Checklist

2. Massachusetts – Small Claims Rule 7(d) 

3. Fairfax County, Virginia – Purchased Debt Default Judgment 

Checklist

4. North Carolina Gen. Stat. §§ 58-70-145 – 58-70-155 

5. Connecticut – Small Claims Bench/Bar Committee Proposed Small 

Claims Judgment Checklist

 
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Massachusetts Small Claims Default Judgment Checklist

1. Was the Statement of Small Claim properly served on the defendant?

• First-class mail service is sufficient if not returned undelivered (Rule 3[a]).

• Service on an out-of-state defendant requires a return receipt or other long-arm 

service (G.L. c. 233A, § 6).

• Improper venue is waived if not objected-to; if objected-to, may transfer to proper 

court (G.L. c. 218, § 21).

2. Is the plaintiff in trade or commerce or collecting an assigned debt? If so:

• You must confirm that the plaintiff filed the Verification of Defendant’s Address

form verifying the defendant’s address (Rule 2[b]). If the defendant failed to do so:

— you must dismiss the claim without prejudice, or

— in your discretion, you may permit late filing of the form if it properly verifies 

the address to which the Statement of Small Claim was mailed.

• The Statement must also include the original creditor’s name (if different), the last 

four digits of the original account number, and the amount and date of last payment 

(Rule 2[a]), or you must dismiss the claim without prejudice.

3. Is the military affidavit completed and signed?

• If the defendant is on active military duty, you must follow the requirements of the 

Servicemembers Relief Act.

• If you cannot determine whether the defendant is on active military duty, you may 

either deny a default judgement or consider conditions to protect the defendant’s 

rights if on active military duty (Rule 7[d][7]).

4. Does the court have subject matter jurisdiction to hear the claim? E.g.,

No:

• Mass. Tort Claims Act negligence claims against a state or local agency or employee 

(G.L. c. 258)

• Slander or libel claims (G.L. c. 218, § 21)

• Equitable relief without a money claim (G.L. c. 218, § 21)

• Invasion of privacy (G.L. c. 214, § 1B)

Yes:

• Road defects (G.L. c. 84, §§ 15-21 or c. 81, § 18)

• Medical malpractice (but must refer for a tribunal)

• Equitable replevin of personal property along with a money claim (c. 214, § 3[1])

5. Do the facts alleged, if true, constitute a recognized claim on which relief may be 

granted? (e.g., a recognized contract, tort or warranty claim, statutory action, etc.)

6. Do the facts alleged, if true, establish each element of a recognized claim? E.g.,

— consumer protection claims (G.L. c. 93A, § 9) require a prior demand letter.
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— road defects claims (G.L. c. 84, §§ 15-21 or c. 81, § 18) require a timely 

demand letter.

— deficiency judgments for secured consumer goods after repossession require an 

affidavit filed with the claim (G.L. c. 255, § 131[d]).

• If not, you must require the plaintiff to establish the missing elements.

• The plaintiff need not prove any element that is established by the facts alleged, taken 

as true.

7. Is an assessment of damages required?

• If the claim is not for a sum certain, you must make an assessment of damages.

• The claim must state separately the amounts sought for damages, multiple damages, 

statutory penalties, attorney fees, costs, and total amount (Rule 2[a]). If the defendant 

does not appear, the plaintiff’s failure to do so may influence your discretionary 

decision whether to enter a default judgment.

8. Does the claim include any amounts that are discretionary?

• e.g., multiple damages, a statutory penalty, discretionarily-set attorney’s fees, or court 

costs other than the filing fee

• If so, you must exercise your discretion to set the amount.

9. Does the claim include any amounts that must be reasonable by law?

• e.g., contractual attorney’s fees, collection costs, etc.

• If so, you must review that they are reasonable and not excessive.

— e.g., deficiency judgments for secured consumer goods may not include finance 

charges for installments due after repossession (G.L. c. 255 § 131[d]).
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Massachusetts Small Claims Rule 7(d)

(d) Defendant’s Failure to Appear for Trial. If the plaintiff appears for trial and the 

defendant fails to appear, the court may render judgment for the plaintiff and make an order for 

payment to the plaintiff. Prior to entering such judgment the court shall review the Statement 

of Small Claim to determine whether further inquiry or an assessment of damages is required. 

Normally these should be done on the scheduled trial date. The court shall examine any of the 

following circumstances:

1. Uncertain Jurisdiction. If the court’s subject matter jurisdiction or proper service of the 

Statement of Small Claim is uncertain, the court shall inquire into the matter.

2. Uncertain Claim. If the facts alleged, taken as true, do not appear to constitute a claim on 

which relief may be granted, the court shall inquire into the matter.

3. Uncertain Liability. If the facts alleged, taken as true, do not establish each essential 

element of a claim, the court shall inquire into the matter and may elicit additional facts 

to determine if such element or elements are established.

4. Uncertain Damages. If the Statement of Small Claim requests damages that are not a 

sum certain or a sum which can by computation be made certain, the court shall conduct 

an assessment of damages. The court shall inquire into any amounts sought which do not 

appear to be supported by the facts as alleged.

5. Discretionary Awards. If the law requires an exercise of discretion in awarding multiple 

damages, a statutory penalty, or discretionary attorney’s fees or court costs, the court shall 

inquire into the matter and exercise such discretion.

6. When Review for Reasonableness Required. The court shall review any amounts that 

the law requires be examined for reasonableness, such as contractual attorney’s fees 

or collection costs. In such matters, the court’s function is not to substitute its own 

discretion for the parties’ agreement, but to avoid court enforcement of a clearly unjust 

result.

7. Inconclusive Military Affidavit. If the plaintiff is unable to file the affidavit required 

by the Servicemembers Civil Relief Act, 50 U.S.C. App. § 501 et seq., stating that the 

defaulting defendant is not in military service and showing necessary facts to support 

the affidavit, the court shall inquire into the matter. If it appears that the defendant is in 

military service, the court shall not enter any default judgment without first appointing 

an attorney for the defendant, and under certain circumstances staying the entry of any 

default judgment, as required by the Act. If the court cannot determine from the affidavit 
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whether the defendant is in military service, the court may exercise the discretion granted 

by the Act to require an indemnity bond, to stay execution, or to make such other orders 

as the court deems necessary to protect the rights of the defendant, or the court may 

dismiss the claim without prejudice.

8. Plaintiff in trade or commerce or pursuing assigned debt. Where the claim involves 

a plaintiff in trade or commerce or pursuing assigned debt and the plaintiff has not 

complied with Rule 2(b), the court shall not enter a default judgment for the plaintiff, and 

shall dismiss the claim without prejudice.
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Fairfax County, Virginia

Purchased-Debt Default Judgment Checklist

R The original creditor has been named, or otherwise identified, in the court filings.

R The means by which, or the fact that, the debt was acquired by the current creditor has 

been established.

R A copy of the Terms and Conditions, or other agreement between the parties, has been 

attached, along with one of the following:

R A copy of the signed application, or other form of acceptance, signed by the 

debtor; OR

R A copy of a bill reflecting purchases or payments, or other indicia of actual use of 

the card or account; OR

R A copy of an electronic printout sufficiently establishing the existence of the 

account, as well as payments, purchases, or other indicia of actual use of the card 

or account.

R Each of the relevant portions of the documents provided has been highlighted for the 

Court.

R There is either no nexus to the terms and conditions (i.e. no indicia of actual use), or no 

terms and conditions have been provided. Lacking prima facie evidence of a ratified 

contract between the original creditor and the debtor, Plaintiff does not seek to collect 

attorney’s fees, or interest other than interest at the legal rate, from the date of judgment, 

or the date on which demand was made after the claim was purchased.

R Lacking prima facie evidence of a ratified contract, Plaintiff has demonstrated through 

objective evidence that the amount sought in this claim consists of principal only, 

exclusive of any compounded interest. 
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North Carolina Gen. Stat. §§ 58-70-145 – 58-70-155

Part 5. Special Requirements in Actions Filed by Collection Agency Plaintiffs.

§ 58-70-145. Complaint of a collection agency plaintiff must contain certain allegations.

In any cause of action that arises out of the conduct of a business for which a plaintiff must 

secure a permit pursuant to this Article, the complaint shall allege as part of the cause of action 

that the plaintiff is duly licensed under this Article and shall contain the name and number, if any, 

of the license and the governmental agency that issued it.

§ 58-70-150. Complaint of a debt buyer plaintiff must be accompanied by certain 

materials.

In addition to the requirements of G.S. 58-70-145, in any cause of action initiated by a debt 

buyer, as that term is defined in G.S. 58-70-15, all of the following materials shall be attached to 

the complaint or claim:

(1) A copy of the contract or other writing evidencing the original debt, 

which must contain a signature of the defendant. If a claim is based on 

credit card debt and no such signed writing evidencing the original debt 

ever existed, then copies of documents generated when the credit card was 

actually used must be attached.

(2) A copy of the assignment or other writing establishing that the plaintiff 

is the owner of the debt. If the debt has been assigned more than once, then 

each assignment or other writing evidencing transfer of ownership must be 

attached to establish an unbroken chain of ownership. Each assignment or 

other writing evidencing transfer of ownership must contain the original 

account number of the debt purchased and must clearly show the debtor’s 

name associated with that account number.

§ 58-70-155. Prerequisites to entering a default or summary judgment against a debtor 

under this Part.

(a) Prior to entry of a default judgment or summary judgment against a debtor in a complaint 

initiated by a debt buyer, the plaintiff shall file evidence with the court to establish the amount 

and nature of the debt.

(b) The only evidence sufficient to establish the amount and nature of the debt shall be properly 

authenticated business records that satisfy the requirements of Rule 803(b) of the North Carolina 

Rules of Evidence. The authenticated business records shall include at least all of the following 

items:
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(1) The original account number.

(2) The original creditor.

(3) The amount of the original debt.

(4) An itemization of charges and fees claimed to be owed.

(5) The original charge-off balance, or, if the balance has not been charged off, an 

explanation of how the balance was calculated.

(6) An itemization of post charge-off additions, where applicable.

(7) The date of last payment.

(8) The amount of interest claimed and the basis for the interest charged.
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Connecticut – Small Claims Bench/Bar Committee

Proposed Small Claims Judgment Checklist

Small Claims Judgment Checklist for Magistrates

This small claims checklist is to establish uniform minimum evidentiary norms, improve 

fairness, and enhance the public perception of the small claims court. (C.G.S. § 51-15) 

Magistrate does not have to award judgment if violates law or if the stipulation is against the 

interests of justice. PB 24-24, 24-26

Is there reason to believe that the plaintiff, and particularly a plaintiff that is a frequent user 

of the small claims court, is repeatedly failing to comply with small claims rules and procedures 

designed to protect defendants from improper judgments or is coming to court unprepared? If 

so, you should seriously consider dismissing the action and imposing sanctions under Practice 

Book §24-33, which allows you to impose costs of up to $100 on the offending party payable to 

the defendant who appears or to the judicial system in the event of nonappearance.

The goal is to get the party to discontinue the practice in all of its cases. Conduct which 

might justify sanctions in appropriate cases includes the bringing of suits beyond the statute 

of limitations, the failure to verify addresses as required by the Practice Book or the use of 

addresses at which the defendant is known not to reside, the failure to report to the court that a 

mailing was returned by the Postal Service as undeliverable, the filing of improper attorney’s 

fee or interest claims, the failure to file proper military affidavits, the failure to provide required 

information on an affidavit of debt or the inclusion of claims known not to be awardable, and 

other similar matters that interfere with the fair administration of justice by the court. PB § 24-

26, PB § 24-33

______________________________________________________________________________

• Was proper service made?

— The basis for knowledge of defendant’s current address; address discrepancies. 

At least two methods of verification must be documented. Proposed PB § 24-9

The methods shall be drawn from the following list: (1) Municipal record 

verification (e.g., from a street list or tax records); (2) Verification from 

the Department of Motor Vehicles; (3) Receipt of correspondence from the 

defendant with that return address; (4) Other verification from the defendant that 

the address is current; (5) The mailing by first class mail, at least four weeks 

prior to the filing of the small claims action, of a letter to the defendant at such 

address, which letter has not been returned by the United States Postal Service; 
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(6) Verification of the defendant’s address from an online database, other than 

white pages or other unpaid general telephone directories; or (7) Verification of 

the defendant’s address by obtaining independent verification from an additional 

source specifically described by the plaintiff.

— Is there reason to believe that the defendant did not reside at the address at 

which the process was served (e.g., in a housing case, that the defendant had 

vacated the premises before the action was brought)? Proposed PB § 24-9

— Is there a proper military affidavit PB § 24-24(b)(2)

• Do papers include all material facts and documents? PB § 24-24

— Does the complaint set forth a valid cause of action showing the nature of 

any cause of action such as utility, credit card, personal loan, and list original 

creditor? PB § 24-9

— If a check or other negotiable instrument was copy attached? PB § 24-24

» Does it show the date of last payment or date of the last charge-off? 

Proposed PB § 24-9, Cf. 17-25(b)

» Does to have the balance at original chargeoff and an itemization of post 

chargeoff additions? Proposed PB § 24-9, PB § 24-24, Cf. 17 -25(b)

» Is the date of chargeoff listed? (note, this will be at least 6 months from 

date of last payment) Proposed PB § 24-9, PB § 24-24, Cf. 17-25(b)

 

— The basis for statute of limitations (federal prohibition to bring time-barred suit) 

Proposed PB §24-9

• Is the affidavit of debt in the proper form?

— An admissible affidavit showing unbroken assignment of the particular account 

(standing) CGS § 52-118 

— A non-generic affidavit of debt by original creditor or if original creditor not 

available the affiant must identify self, basis of knowledge, original account 

number, original creditor, amount of debt, original charge off balance or if 

balance not charged off, how it was calculated. If affiant not an employee of the 

plaintiff, state the relationship with the plaintiff and the address of the affiant. 

PB § 24-24, Cf. 17-25

— Itemization of amounts requested after chargeoff PB § 24-24
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— In consumer cases and only where there is a signed contract, attorney’s fees are 

limited to 15%, CGS 42-150aa

• Is the proper amount of interest claimed, if any?

— Interest if claimed before beginning of action PB § 24-24

The interest award is discretionary. There is a ten percent limit with some 

exceptions CGS §37-3a

There is an eight percent limit if there is no agreement for interest. CGS § 

37-1

Loans are limited to 12% CGS § 37-4

There is a 12% limit for use or forbearance* of money or credit** CGS § 

36a-573

* Forbearance is “a refraining from the enforcement of something (as a 

debt, right, or obligation) that is due”

** described as all-encompassing language in Rhodes v. Hartford, 201 

Conn. 89, 99 (1986).

NB. There are exceptions for federal bank exemption and other statutory 

rates

— Was there an agreement signed by defendant, or citation to statute, that supports 

any claimed recovery of interest in excess of 10%, fees, stating period covered 

and rate claimed. PB § 24-24

• Items to consider when entering judgment

— Is there reason to believe that the defendant’s financial circumstances renders 

the “nominal order” excessive in the circumstances? If so, what weekly order 

should enter?

— If the defendant’s financial circumstances are such that a stay of a particular 

type of wage or property execution should issue, what stay do you order?

— If a claim for medical bills, no judgment should enter for a medical service 

provider if on Medicaid 42 U.S.C. § 1396a(a)(25)(C). 
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Federal Trade Commission

ftc.gov