UNITED STATES OF AMERICA

FEDERAL TRADE COMMISSION

WASHINGTON, D.C. 20580

Office of the Chairman

March 19, 1999

The Honorable Albert Gore, Jr.

President of the Senate

United States Senate

Washington, D.C. 20510

Re: Twenty-First Annual Report to Congress Pursuant

to Section 815(a) of the Fair Debt Collection

Practices Act

Dear Mr. President:

The Federal Trade Commission ("Commission") is required by Section 815(a) of the Fair

Debt Collection Practices Act ("FDCPA" or "Act"), 15 U.S.C. §§ 1692-1695o, to submit a report

to Congress each year summarizing the administrative and enforcement actions taken under the

Act over the preceding twelve months. These actions are part of the Commission's ongoing effort

to curtail abusive, deceptive, and unfair debt collection practices in the marketplace. Such

practices have been known to cause various forms of consumer injury, including emotional

distress, invasions of privacy, and the payment of amounts that are not owed, and can severely

hamper consumers' ability to function effectively at work. Although the Commission is vested

with primary enforcement responsibility under the Act, overall enforcement responsibility is

shared by other federal agencies. In addition, consumers who believe they have been victims of

statutory violations may seek relief in state or federal court.

This report presents an overview of the types of consumer complaints received by the

Commission over the past year, a summary of the Commission’s consumer and industry education

initiatives this year, and a summary of the Commission’s debt collection enforcement cases that

became public in 1998. The report also contains four recommendations for changes to the

FDCPA that the Commission believes will improve the statute’s clarity and its effectiveness as a

law enforcement tool. These recommendations have been included in previous annual reports. 

Finally, the report outlines the activities of the other federal agencies responsible for administering

and enforcing the Act with regard to entities under their respective jurisdictions.

INTRODUCTION

Although the Fair Debt Collection Practices Act prohibits abusive, deceptive, and

otherwise improper collection practices, it permits reasonable collection efforts that promote

repayment of legitimate debts. Thus, the Commission's goal is to ensure compliance with the Act

without unreasonably impeding the collection process. The Commission recognizes that the
The Honorable Albert Gore, Jr. -- Page 2

 

1

 We cannot determine the extent to which abusive debt collection practices in general are

represented by the complaints the Commission receives. Based on our enforcement experience,

we know that many consumers never complain, while others complain to the underlying creditor

or to other enforcement agencies.

timely payment of debts is important to creditors and that the debt collection industry offers useful

assistance toward that end. The Commission also appreciates the need to protect consumers from

those debt collectors who engage in abusive and unfair collection practices.

Congress enacted the FDCPA in an effort to balance the debt collector's right to recover

just obligations with the consumer's right to protection from harassment, deceit, invasions of

privacy, interference with the employment relationship, and other abusive collection tactics. 

Many members of the debt collection industry supported this legislation when it was proposed,

and most debt collectors now conform their practices to the standards the Act imposes. The

Commission staff continues to work with industry groups to clarify ambiguities in the law and to

educate the industry and the public regarding the Act's requirements.

CONSUMER COMPLAINTS RECEIVED BY THE COMMISSION

Most of the Commission's information about how debt collectors are complying with the

Act comes from consumers. Occasionally, however, debt collectors contact us to express concern

about allegedly violative practices of competitors, because they fear that such practices may cause

them to lose business to collectors who violate the law. Complaints to the Commission about

third-party debt collectors ranked second only to complaints about credit bureaus in 1998. We

continue to believe that the number of consumers who contact the Commission represents a

relatively small percentage of the total number of consumers who actually encounter problems

with debt collectors.1 Experience indicates that some consumers may not even be aware that the

Commission enforces the Act or that the conduct they have experienced violates the Act.

Not all consumers who complain to the Commission about collection problems have

experienced law violations. In some cases, for example, consumers complain that a debt collector

will not accept partial payments on the same installment terms that the original lender provided

when the account was current. Although a collector's demand for accelerated payment or larger

installments may, in these circumstances, be frustrating to the consumer, such a demand is not a

violation of the Act. Many consumers, however, complain of conduct that, if accurately

described, clearly violates the Act. Some of the allegations that we hear most frequently are the

following:

Harassing the alleged debtor or others: This was the complaint we heard most frequently in

1998. Many of these consumers complained that a debt collector was harassing them by calling

periodically. Infrequent contacts, such as once a week or once a month, certainly might induce

stress in a consumer but would not be “harassment” under the FDCPA. Other consumers,
The Honorable Albert Gore, Jr. -- Page 3

 

2

 Section 809(a), 15 U.S.C. § 1692g(a). The collector need not send such a written notice if

the collector’s initial communication with the consumer was oral and the consumer received this

information in the initial communication.

 

3

 Section 805(a)(3), 15 U.S.C. § 1692c(a)(3).

however, described collection tactics that, if described accurately, clearly do constitute

“harassment.” Such apparent violations ranged from collectors calling several times within a very

short period to collectors screaming obscenities and racial slurs, or even threatening violence to

the consumers or their family members.

Failing to send required consumer notice: The FDCPA requires that debt collectors send

consumers a written notice that includes, among other things, the amount of the debt, the name of

the creditor to whom the debt is owed, and a statement that, if within thirty days of receiving the

notice the consumer disputes the debt in writing, the collector will obtain verification of the debt

and mail it to the consumer.2 Many consumers complained that collectors who contacted them

did not provide such a notice. Without the notice, these consumers did not know how much the

debt collector was demanding or to which creditor they allegedly owed a debt. Consumers who

did not receive the notice also did not know they had to send their dispute in writing if they

wished to obtain verification of the debt. Moreover, because many of these collectors even

refused to give consumers the name of their company, the consumers could not complain to law

enforcement agencies or Better Business Bureaus.

Failing to verify disputed debt: The FDCPA also provides that, if a consumer does submit a

dispute in writing, the collector must cease collection efforts until it has provided verification of

the debt. Many consumers told us that collectors ignored their written disputes, sent no

verification, and continued their collection efforts. Other consumers told us that some collectors

who did provide them with verification continued to contact them about the debts between the

date the consumers submitted their dispute and the date the collectors provided the verification, a

practice that also violates the FDCPA.

Calling consumer’s place of employment: A debt collector may not contact a consumer at work

if the collector knows or has reason to know that the consumer’s employer prohibits the

consumer from receiving such contacts.3 Many consumers complained that debt collectors

continued to call them at work after they or their colleagues specifically told the collector that

such calls were prohibited by the consumer’s employer. By continuing to contact consumers at

work in these circumstances, debt collectors may put the consumers in jeopardy of losing their

jobs.

Revealing alleged debt to third parties: We continue to receive complaints about unauthorized

third-party contacts. Consumers' employers, relatives, children, neighbors, and friends have been

contacted and informed about consumers' debts. Such contacts typically embarrass or intimidate

the consumer and are a continuing aggravation to third parties. Contacts with consumers'
The Honorable Albert Gore, Jr. -- Page 4

 

4

 Section 805(c), 15 U.S.C. § 1692c(c).

 

5

 Section 807(5), 15 U.S.C. § 1692e(5).

 

6

 Section 807(4), 15 U.S.C. § 1692e(4).

 

7

 Section 807(2)(A), 15 U.S.C. § 1692e(2)(A).

 

8

 Section 808(1), 15 U.S.C. § 1692f(1).

employers and co-workers about their alleged debts jeopardize continued employment or

prospects for promotion. Relationships between consumers and their families, friends, or

neighbors may also suffer from improper third-party contacts. In some cases, collectors

reportedly have used misrepresentations as well as harassing and abusive tactics in their

communications with third parties. Third-party contacts for any purpose other than obtaining

information about the consumer's location violate the Act, unless authorized by the consumer or

unless they fall within one of the Act's exceptions.

Continuing to contact consumer after receiving “cease communication” notice: The FDCPA

requires debt collectors to cease all communications with a consumer about an alleged debt if the

consumer communicates in writing that he wants all such communications to stop or that he

refuses to pay the alleged debt.4 This “cease communication” notice does not prevent collectors

or creditors from filing suit against the consumer, but it does stop collectors from calling the

consumer or sending dunning notices. Many consumers complained that collectors ignored their

“cease communication” notices and continued their aggressive collection attempts.

Threatening dire consequences if consumer fails to pay: Another source of complaints involves

the use of false or misleading threats of what might happen if a debt is not paid. These include

threats to institute civil suit or criminal prosecution, garnish salaries, seize property, cause job

loss, have a consumer jailed, or damage or ruin a consumer's credit rating. Some of these

practices, such as those involving false threats of the consequences of nonpayment, are

specifically prohibited by the Act.5 Other practices, such as the threat to cause a consumer's

arrest, violate the Act only if the collector does not have the legal authority or intent to

accomplish the promised result.6

Demanding a larger payment than is permitted by law: The FDCPA prohibits debt collectors

from (1) misrepresenting the amount that a consumer owes on a debt7 and (2) collecting any

amount unless it is “expressly authorized by the agreement creating the debt or permitted by

law.”

8

 The Commission received a large number of complaints in 1998 about debt collectors that

attempted to collect amounts far higher than the amounts owed. In particular, complaints

concerning medical and hospital debts are becoming more prevalent. Some consumers allege that

they never receive a final statement from the medical service provider and their accounts are

forwarded, without further notice, to collection agencies which then attempt to charge exorbitant

interest, late fees and other collection costs in addition to the original debt. Some of these
The Honorable Albert Gore, Jr. -- Page 5

 

9

 53 Fed. Reg. 50,097 (1988).

 

10 A small number of the staff’s Commentary positions are now inaccurate because of a minor

amendment to the statute and several recent court decisions.

charges exceed the debt itself. Finally, consumers are complaining in increasing numbers that debt

collectors are debiting their bank accounts without their knowledge or permission and that banks

are permitting the practice on the erroneous assumption that consumers have authorized the

transfers. Collectors may be obtaining consumers’ account numbers from checks consumers have

written in the past, from current checks written on accounts with insufficient funds, or from

consumers themselves on false pretenses. While it is true that some transfers are supported by

proper authorization and are, in fact, more convenient for both consumer and debt collector alike,

it appears that some abuse of the practice is occurring.

Complaints about creditors’ in-house collectors: The Commission continued to receive many

complaints about creditors collecting their own debts. Because creditors are not generally

covered by the FDCPA, some in-house collectors use no-holds-barred collection tactics in their

dealings with consumers. While the Commission cannot pursue such creditor employees under

the FDCPA, it can do so under the Federal Trade Commission Act. The agency has brought such

cases in the past and will continue to do so as appropriate cases present themselves in the future.

CONSUMER AND INDUSTRY EDUCATION: The First Prong of the FDCPA Program

The Commission’s consumer education initiative and business education initiative combine

to form the first prong of the Commission’s FDCPA program. The other prong is the

Commission’s enforcement initiative, discussed below. The consumer education initiative informs

consumers throughout the nation of their rights under the FDCPA and the requirements that the

Act places on debt collectors. With this knowledge, consumers can identify when collectors are

violating the FDCPA and exercise their rights under the statute. An informed public that enforces

its rights under the FDCPA operates as a powerful, informal enforcement mechanism. The

industry education initiative informs collectors of the Commission staff’s positions on various

FDCPA issues. With this knowledge, industry members can then take all necessary steps to

comply with the Act.

Tools for both consumers and industry: Two of the Commission’s educational tools are useful

in both the consumer education initiative and the industry education initiative. The Commission

staff’s Commentary on the Fair Debt Collection Practices Act (“Commentary”),9 was issued in

1988 and provides the staff’s detailed analysis of every section of the Act. The comments serve

as valuable guidance for consumers, their attorneys, courts, and members of the collection

industry.10 The Commentary superseded staff opinions issued prior to its publication, but staff

members have issued many additional opinion letters since that date. Like the Commentary, these

letters provide consumers, attorneys, courts and the collection industry with the Commission
The Honorable Albert Gore, Jr. -- Page 6

staff’s views on knotty statutory interpretations. In October 1998, both of these educational tools

-- the Commentary and the staff opinion letters -- were added to the Commission’s new FDCPA

web page, located at “www.ftc.gov/os/statutes/fdcpajump.htm.” To date, the web page has been

viewed by 13,227 online users, which gives great confidence that this important information is

reaching its intended audiences.

Tools specifically for consumers: The Commission’s “Facts for Consumers” brochure explains

the FDCPA in the language of a layperson. In 1998, the Commission dispersed more than

100,000 of these brochures to consumers through non-profit consumer groups, state consumer

protection agencies, Better Business Bureaus, and other sources of consumer assistance. Like the

Commentary and the staff opinions, the brochure is available from the Commission’s web site. 

The brochure was viewed by online users more than 23,000 times in 1998. Another extremely

valuable component of the Commission’s consumer education initiative is the Consumer Response

Center (“CRC”), whose highly trained contact representatives respond to telephone calls and

correspondence (in both paper and electronic form) each day from consumers concerning a wide

array of issues. As noted above, a large percentage of these consumer contacts relate to debt

collection. For those consumers who contact the CRC seeking only information about the

FDCPA, the contact representatives answer any urgent questions and then mail out the Facts for

Consumers or refer the consumer to the web page to find it there. As noted above, however,

many consumers who contact the CRC complain about specific third-party debt collectors. For

these consumers, the CRC contact representatives provide essential information about the

FDCPA’s self-help remedies, such as the right to demand that the collector cease all

communications about the debt and the right to obtain written verification of the debt. The

contact representatives also record information about debt collectors who are the subjects of

complaints, enabling the Commission to track patterns of complaints for use in its enforcement

initiative described below. A third component of the consumer education initiative stems from the

public speaking that Commission staff members do to groups of consumers across the country. 

From local talk shows, to military bases, to county fairs, staff members inform consumers of their

rights under a number of consumer-finance statutes. Almost invariably, these presentations

include a discussion of the FDCPA.

Tools specifically for the collection industry: Commission staff also deliver speeches and

participate in panel discussions at industry conferences throughout the year. Several recent

presentations have focused on debt collectors’ new responsibilities under the amended Fair Credit

Reporting Act (“FCRA”), 15 U.S.C. §§ 1681-1681u. Congress amended the FCRA in response

to, among other things, complaints about the accuracy of information in credit reports. Some of

the amendments are applicable to debt collectors. Section 623 of the amended FCRA imposes

duties upon "furnishers" of credit information, including all debt collectors who report information

to consumer reporting agencies. For example, furnishers may not report information that they

know is inaccurate; in addition, they have a duty to correct information previously reported if it is

subsequently found to be wrong. If a furnisher receives notice of a dispute from a consumer

reporting agency about information reported by the furnisher, the furnisher must conduct an

investigation to determine whether the information reported was correct and report the results of

the investigation to the consumer reporting agency within thirty days, even if the dispute is
The Honorable Albert Gore, Jr. -- Page 7

 

11 Consent orders are for settlement purposes only and do not constitute an admission by the

debt collector that it violated the law.

received beyond the verification period found in the FDCPA. Various remedies are available to

consumers, states, and the Commission for failure to comply.

In addition to the presentations at industry conferences, Commission staff maintain an

informal communications network with the leading trade associations, which permits staff

members to exchange information and ideas and discuss problems as they arise. Commission staff

members also provide interviews to trade publications. These interviews provide yet another

vehicle for staff to make their positions known to the nation’s debt collectors.

ENFORCEMENT: The Second Prong of the FDCPA Program

Every consumer who learns which debt collection tactics are illegal and asserts their

FDCPA self-help rights assists the Commission in policing the collection industry. Every debt

collector who hears or reads about FDCPA compliance issues is that much more likely to comply

with the Act without the need for a Commission investigation. Thus, both consumer education

and industry education encourage voluntary compliance by debt collectors and conserve the

Commission’s enforcement resources.

There are times, however, when it appears to Commission staff, based often on complaints

from consumers, state or local agencies, or other industry members, that a debt collector is not

complying with the statute voluntarily. Accordingly, the Commission’s FDCPA program includes

investigations of certain debt collectors. If an investigation reveals evidence of continuing

FDCPA violations, staff contacts the debt collector and attempts to negotiate a settlement before

recommending that the Commission issue a complaint. If a settlement is reached and the

Commission accepts the staff's recommendation to approve a proposed consent order, the

Commission delivers the proposed order and accompanying complaint to the Department of

Justice, which files them in the appropriate federal district court.11 If the debt collector will not

agree to an appropriate settlement that remedies the alleged violations, the Commission requests

that the Department of Justice file suit in federal court on behalf of the Commission, usually

seeking a civil penalty and injunctive relief that would prohibit the collector from continuing to

violate the Act. On occasion, debt collectors agree to an appropriate settlement only after suit has

been brought. 

The Commission staff is currently conducting several non-public investigations of debt

collectors to determine whether they are or have engaged in serious violations of the Act. In

addition, there have been significant developments in several Commission enforcement actions.

In October 1998, the Commission announced a settlement in which Nationwide Credit,

Inc. ("NCI") agreed to pay a $1 million civil penalty, the largest the Commission has ever

obtained in a debt collection case, for widespread FDCPA violations. The complaint alleged that

NCI harassed consumers, made false and misleading representations, failed to send required
The Honorable Albert Gore, Jr. -- Page 8

validation notices, failed to verify debts when requested to do so by consumers, and revealed

debts to third parties impermissibly. Many of the alleged violations are the same as those

addressed in a settlement with the Commission that NCI entered into in 1992; the company paid a

civil penalty of $100,000 at that time. As part of the new settlement, NCI is developing a

comprehensive consumer complaint and resolution program and is revamping its training

program. NCI must submit a draft syllabus and the materials to be used during the training

program to Commission staff for approval.

In July 1998, the Commission reached a settlement with the principal of Lundgren &

Associates, P.C., a collection law firm that allegedly made baseless threats of suit and

misrepresented the amount that the firm was entitled to collect under state law. Under the

settlement, the principal is prohibited from violating any provisions of the FDCPA in the future

and must include, in any written communication to a consumer from whom he is collecting a debt,

two disclosures that explain the consumer’s rights under the FDCPA.

In a January 1998 complaint, the Commission alleged that Capital City Mortgage

Corporation and its owner, Thomas K. Nash, among other things, violated the FDCPA by falsely

representing that letters from the company's in-house attorney were from a third-party collector,

making false and misleading representations when collecting loan payments, and engaging in

unfair or unconscionable debt collection practices. The case is now in the discovery phase, and no

trial date has been set. The Commission is seeking injunctive relief for the FDCPA violations.

In August 1998, General Electric Capital Corporation (“GE Capital”) and its whollyowned subsidiary, Montgomery Ward Credit Corporation, reached an agreement with the

Commission over charges that GE Capital regularly sought out consumers who filed for

bankruptcy protection to persuade them to “reaffirm” credit account debts and falsely represented

that these “reaffirmation agreements” would be filed with the bankruptcy courts, as required by

law. In November 1998, the Commission reached an agreement with the May Department Stores

Company ("May") that settled similar allegations. Although the FDCPA does not apply to

creditors such as GE Capital and May collecting their own debts, the Commission alleged that

these practices violated Section 5(a) of the Federal Trade Commission Act. The Commission

charged that in many cases either (1) GE Capital and May did not file the agreements or (2) the

bankruptcy courts did not approve the agreements. Under either scenario, the Commission

alleged, the reaffirmation agreements were not legally binding on consumers, but GE Capital and

May nonetheless collected many of these debts unfairly. Under the two agreements, GE Capital

agreed to make full refunds totaling at least $60 million, and May agreed to make full refunds

totaling at least $15 million. The Commission coordinated both of the actions with actions by

state attorneys general nationwide.
The Honorable Albert Gore, Jr. -- Page 9

 

12

 Miller v. Payco-General American Credits, Inc., 943 F.2d 482 (4th Cir. 1991); Swanson v.

Southern Oregon Credit Services, Inc., 869 F.2d 1222 (9th Cir. 1989). See also United States v.

National Financial Services, Inc., 98 F.3d 131, 139 (4th Cir. 1996) (“bold commanding type of

the dunning text overshadowed the smaller, less visible, validation notice printed on the back in

small type and light grey ink”).

 

13

 Miller, 943 F.2d at 484; Swanson, 869 F.2d at 1225-26. Both the format and the substance

of the letter were held to "overshadow" the notice required by Section 809(a) in each case.

 

14

 See, e.g., Geocities, Docket No. 3849, 1999 FTC Lexis 17, *14 (Feb. 5, 1999) (consent)

(website privacy disclosure); California Suncare, Inc., 123 F.T.C. 332, 383 (1997) (consent)

(continued...)

LEGISLATIVE RECOMMENDATIONS

The Commission recommends four amendments to, or clarifications of, the FDCPA as

permitted by Section 815 of the Act. These recommendations have been reported in past annual

reports.

Section 809(a): Clarity of Notice: The Commission continues to recommend that Congress

amend Section 809 to make explicit the standard for clarity to be applied to the notice required by

that Section. Section 809(a) of the Act requires debt collectors to send a written notice to each

consumer within five days after the consumer is first contacted, stating that if the consumer

disputes the debt in writing within thirty days after receipt of the notice, the collector will obtain

and mail verification of the debt to the consumer.

As presently drafted, the FDCPA does not specify any standard for how the 809(a) notice

must be presented to consumers such as the color and size of the typeface and the location on the

collection notice. Attempting to take advantage of this lack of clarity, some debt collectors print

the notice in a type size considerably smaller than the other language in the dunning letter, or

obscure the notice by printing it on a non-contrasting background in a non-contrasting color. 

Significantly, two courts of appeal have held that collection letters that use small or otherwise

obscured print in the notice required by Section 809(a) and at the same time use much larger,

prominent or bold-faced type in the text of the letter violate the Act.12 The courts reasoned that

the payment demand in the text both contradicts and overshadows the required notice.13 Neither

of the courts attempted to specify which elements of presentation would constitute a clear

disclosure to consumers of their dispute rights under Section 809(a).

The Commission recommends that Congress eliminate this problem by amending Section

809 explicitly to require a more conspicuous format for the notice by mandating that it be "clear

and conspicuous." That standard could be defined as "readily noticeable, readable and

comprehensible to the ordinary consumer." The definition could also reference various factors

such as size, shade, contrast, prominence and location that would be considered in determining

whether the notice meets the definition. A number of Commission decisions and orders define the

"clear and conspicuous" standard in a variety of contexts.14 Proper application of such a standard
The Honorable Albert Gore, Jr. -- Page 10

 

14(...continued)

(skin-tanning product warnings).

 

15 53 Fed. Reg. at 50,109, comment 809(b)-1.

 

16

 Bartlett v. Heibl, 128 F.3d 497, 501 (7th Cir. 1997) (Posner, J.).

 

17

 Savino v. Computer Credit, Inc., 164 F.3d 81, 85 (2d Cir. 1998).

 

18

 Id. at 86.

in Section 809(a) would help ensure that the information in the required notice is effectively

conveyed and eliminate dunning letters artfully designed to confuse their readers and frustrate the

purposes of this provision of the FDCPA.

Section 809(b): Effect of Thirty-day Period: Section 809(b) of the FDCPA provides that if a

consumer, within the thirty-day period specified in Section 809(a), disputes a debt in writing, the

collector must cease all collection efforts until verification of the debt is obtained and mailed to

the consumer. In opinion letters and the staff Commentary on the FDCPA,15 Commission staff

have consistently read Section 809(b) to permit a debt collector to continue to make demands for

payment or take legal action within the thirty-day period. Nothing within the language of the

statute indicates that Congress intended an absolute bar to any appropriate collection activity or

legal action within the thirty-day period where the consumer has not disputed the debt.

Federal circuit courts that have addressed this issue recently have arrived at the same

conclusion. In a 1997 opinion, the Seventh Circuit stated that “[t]he debt collector is perfectly

free to sue within the thirty days; he just must cease his efforts at collection during the interval

between being asked for verification of the debt and mailing the verification to the debtor.”

16 In a

case decided in December 1998, the Second Circuit held that a collector’s dunning notice violated

Section 809(a) because the language on the front, “[t]he hospital insists on immediate payment,”

contradicted the Section 809 notice on the back and would make the consumer uncertain as to her

rights.17 The court added, however, that the debt collector “could have both sought immediate

payment and complied with the [FDCPA] simply by inserting into the text of its letter transitional

language that referred the addressee to the validation notice.”

18

Although these courts have been consistent with the position taken by the Commission

staff, some continue to argue that the thirty-day time frame set forth in Section 809 is a grace

period within which collection efforts are prohibited, rather than a dispute period within which the

consumer may insist that the collector verify the debt. The Commission therefore recommends

that Congress clarify the law by adding a provision expressly permitting appropriate collection

activity within the thirty-day period, if the debt collector has not received a letter from the

consumer disputing the debt. The clarification should include a caveat that the collection activity
The Honorable Albert Gore, Jr. -- Page 11

 

19 A current bill in the Senate, S. 576, proposes just such an amendment.

 

20

 Heintz, 514 U.S. at 299 (“[T]he Act applies to attorneys who “regularly” engage in

consumer-debt-collection activity, even when that activity consists of litigation.”).

 

21 Section 805(b) permits collectors to reveal a debt to third-parties under certain

circumstances, including with “the express permission of a court of competent jurisdiction.” 

Thus, an attorney could obtain “express permission” from the court before taking each third-party

deposition, but this seems an inefficient method of proceeding.

 

22 Because of a 1996 amendment to Section 807(11), attorneys do not have to state in their

pleadings that they are attempting to collect a debt and that any information obtained will be used

for that purpose -- the so-called “mini-Miranda” notice.

should not overshadow or be inconsistent with the disclosure of the consumer's right to dispute

the debt specified by Section 809(a).19

Section 803(6): Litigation Attorney as “Debt Collector”: The Supreme Court has resolved the

conflict in the federal courts concerning whether attorneys in litigation to collect a debt are

covered by the Act. In Heintz v. Jenkins, 514 U.S. 291 (1995), the Court held that they are, in

fact, covered like any other debt collector because they fall within the plain language of the

statute.20 The difficulties in applying the Act's requirements to attorneys in litigation, however,

and the anomalies that result, still remain. For example, pretrial depositions could violate Section

805(b) because they involve communicating with third parties about a debt.21 In addition, it

appears that an attorney must include the Section 809 validation notice in a complaint, if the

complaint represents the attorney’s initial contact with that consumer. Such a notice does not

make sense in a litigation context. For example, the notice would state that, if the consumer

sends a written request for verification within thirty days, the attorney will provide the

verification. If the consumer does make such a request, it appears that Section 809(b) requires

the attorney to put the lawsuit on hold until he or she provides the verification.22

 Because it still seems impractical and unnecessary to apply the FDCPA to the legal

activities of litigation attorneys, and because ample due process protections exist in that context,

the Commission continues to believe that Congress should intervene and make its intent in this

area clear. The Commission, therefore, recommends that Congress re-examine the definition of

"debt collector" and state that an attorney who pursues alleged debtors solely through litigation

(or similar "legal" practices) -- as opposed to one who collects debts through the sending of

dunning letters or making calls directly to the consumer (or similar "collection" practices) -- is not

covered by the statute.

Section 803(6)(F)(iii): “Early Out” Programs: Section 803(6) of the FDCPA sets forth a

number of specific exemptions from the law, one of which is collection activity by a party that
The Honorable Albert Gore, Jr. -- Page 12

 

23 Section 803(6)(F)(iii), 15 U.S.C. § 1692a(6)(F)(iii).

 

24 The principal Senate Report on the final version of the FDCPA states that the Senate

committee that drafted the Act did not intend the definition of “debt collector” to cover

“mortgage service companies and others who service outstanding debts for others, so long as the

debts were not in default when taken for servicing.” S. Rep. No. 382, 95th Cong., 1st Sess. 7,

reprinted in 1977 U.S. Code Cong. & Ad. News 1695, 1698.

"concerns a debt which was not in default at the time it was obtained by such person."23 The

exemption was designed to avoid application of the FDCPA to mortgage servicing companies,

whose business is accepting and recording payments on current debts.24 The theory behind the

exemption was that the Act should not apply to a business whose focus was the routine

processing of remittances (as opposed to the collection of delinquent accounts) simply because

such business continued to work an account after the account went into default.

The Commission staff has become aware, however, of a number of industry members that

acquire all of the accounts of their clients (hospitals or other service providers) at an early stage

when the accounts are current (sometimes called an "early out" program) and then claim

exemption from the FDCPA because each account constitutes a "debt that was not in default

when it was obtained" from the creditor. In fact, collection of delinquent debts is the major focus

of these businesses. Apart from the fact that they acquire accounts prior to default, these

businesses function in all respects like typical debt collectors. Nevertheless, they can argue that

they are exempt from the FDCPA.

The Commission believes that Section 803(6)(F)(iii) was designed to exempt only

businesses whose collection of delinquent debts is secondary to their function of servicing current

accounts. However, the existing formulation of the exemption, which focuses on the status of the

individual debts at the time they are obtained by the third party, allows collectors that obtain

current debts that routinely go into default to escape the coverage of the FDCPA. Therefore, the

Commission recommends that Congress amend this exemption so that its applicability will depend

upon the nature of the overall business conducted by the party to be exempted rather than the

status of individual obligations when the party obtained them. For example, the provision could

be redrafted to exempt an activity that "is incidental to a business whose principal purpose is the

servicing of current debts for others" or words to that effect. In this manner, the mortgage

servicer (who acts more like a creditor than a debt collector) would not be covered, even though

it might continue to collect the small fraction of its accounts that become delinquent. By contrast,

the debt collector that primarily collects delinquent accounts (regardless of whether they were

current when obtained) would be unmistakably within the scope of the FDCPA.

ADMINISTRATION AND ENFORCEMENT BY OTHER AGENCIES

Section 814 of the FDCPA places enforcement obligations upon seven other federal

agencies for those organizations whose activities lie within their jurisdiction. These agencies are

the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit
The Honorable Albert Gore, Jr. -- Page 13

 

25 The OCC’s compliance program includes examinations of all national banking companies

every 24 or 36 months depending on the size and complexity of the bank.

Insurance Corporation, the Office of Thrift Supervision, the National Credit Union

Administration, the Department of Transportation, and the Department of Agriculture. These

agencies have provided the Commission with a description of their activities during the past year. 

Almost all of the organizations regulated by these agencies are creditors and, as such, largely fall

outside the coverage of the Act. When these agencies receive complaints about debt collection

firms that are not under their jurisdiction, they generally forward them to the Commission.

The Office of the Comptroller of the Currency ("OCC") enforces compliance with the

FDCPA's provisions with respect to national banks. The OCC reports that its examination of all

national banks on a regular basis shows that there is a high level of compliance with the Act.25 No

violations of the Act were discovered as a result of the OCC examinations of national banks in

1998. The OCC also resolves complaints against national banks. It received 68,553 consumer

complaints, of which 2480 involved debt collection practices or tactics. No violations of the Act

by national banks were identified.

The Federal Reserve Board ("FRB") enforces compliance with the FDCPA's provisions

with respect to member banks of the Federal Reserve System other than national banks. The FRB

continues to enforce the Act, as it applies to state member banks, through regular compliance

examinations. The FRB encountered no significant problems enforcing the Act in 1998 and

considers compliance with the Act by state member banks to be satisfactory. A review of the

1998 Consumer Affairs examination reports submitted to the FRB by December 31, 1998,

revealed one violation of the FDCPA. In 1998, the FRB received 33 complaints alleging

violations of the Act. Nine of the complaints were against state member banks. None of the nine

complaints was subject to the Act because state member banks collected only their own debts.

The Federal Deposit Insurance Corporation ("FDIC") enforces compliance with the

FDCPA's provisions with respect to banks (other than members of the Federal Reserve System)

whose deposits or accounts are insured by the FDIC. The FDIC encountered no significant

problems with enforcement of the FDCPA in 1998. Examiners checked for compliance with the

Act during the course of regular compliance examinations of approximately 6100 insured

nonmember institutions that are supervised by the FDIC. Based upon a review of 1863

compliance examination reports completed in 1998, the FDIC found that only seven institutions

supervised by the FDIC engaged in activities that brought them within the FDCPA’s coverage. 

None of the seven was cited for FDCPA violations.

The Office of Thrift Supervision ("OTS") enforces compliance with the FDCPA with

respect to institutions subject to certain provisions of the Home Owners Loan Act of 1933, the

National Housing Act, and the Federal Home Loan Bank Act. The OTS’s examiners conducted

463 compliance examinations in 1998. No FDCPA violations were cited. During 1998, the

number of complaints received regarding the Act was less than one percent of all complaints

received for the year.
The Honorable Albert Gore, Jr. -- Page 14

 

26 Section 817, 15 U.S.C. § 1692o provides:

The Commission shall by regulation exempt from the requirements

of this title any class of debt collection practices within any State if

the Commission determines that under the law of that State that

class of debt collection practices is subject to requirements

substantially similar to those imposed by this title, and that there is

adequate provision for enforcement.

 

27 These regulations are codified at 16 C.F.R. Part 901 et seq.

The National Credit Union Administration ("NCUA") enforces compliance with the

FDCPA's provisions with respect to federal credit unions. The NCUA has delegated the

enforcement of the Act to six regional directors who supervise field examiners in conducting onsite examinations of credit unions under its jurisdiction. The NCUA's publication, Compliance: A

Self-Assessment Guide, provides credit union officials with information about the requirements of

the Act. The NCUA found no FDCPA violations in 1998 and received no complaints of federal

credit unions violating provisions of the Act. In general, federal credit unions do not perform

debt collection services for other credit unions or lenders.

The Department of Transportation ("DOT") enforces compliance with the FDCPA's

provisions with respect to air carriers subject to the Federal Aviation Act of 1958. DOT did not

report any FDCPA violations in 1998. DOT states that air carriers collect their own debts and are

thus largely outside the scope of the provisions of the Act.

The United States Department of Agriculture ("USDA") enforces compliance with the

FDCPA's provisions with respect to any activities subject to the Packers and Stockyards Act. The

USDA reports that it has encountered no fact situations that fall within the statutory provisions of

the Act.

STATE EXEMPTIONS FROM THE FDCPA

Section 817 of the FDCPA permits states to petition the Commission for an exemption

from the provisions of the Act.26 Pursuant to Section 817, the Commission promulgated

regulations shortly after the statute's enactment that provide criteria and establish procedures

whereby the Commission may exempt from the Act any debt collection practice within a state.27

To seek an exemption under the Act, a state must petition the Commission for a determination

that under the laws of that state, any class of debt collection practices within that state is subject

to requirements that are substantially similar to, or provide greater protection for consumers than,

the requirements of the FDCPA. To obtain an exemption under the Act, the petitioning state

must provide documentation demonstrating that the state law provides protections substantially

similar to those of the FDCPA, and that the state has sufficient resources to enforce its law. The

Commission received no petitions for exemption in 1998.
The Honorable Albert Gore, Jr. -- Page 15

CONCLUSION

As noted above, a high percentage of debt collectors covered by the FDCPA already

comply with the FDCPA. The Commission’s balanced FDCPA program of education and

enforcement will continue to encourage those collectors to comply and provide strong incentives

for those who are not complying to do so in the future. 

By direction of the Commission.

Robert Pitofsky