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 FEDERAL TRADE COMMISSION 

 AND 

 CONSUMER FINANCIAL PROTECTION BUREAU 

 + + + + + 

 ROUNDTABLE ON DATA INTEGRITY IN DEBT 

 COLLECTION: LIFE OF A DEBT 

 + + + + + 

 THURSDAY 

 JUNE 6, 2013 

 + + + + + 

 The roundtable met at the FTC 

Satellite Building Conference Center, 601 New 

Jersey Ave, NW, Washington, D.C., at 9:00 a.m. 

PRESENT 

JULIE BRILL, Commissioner, FTC 

STEVEN ANTONAKES, Acting Deputy Director, 

 CFPB 

HEATHER ALLEN, Senior Attorney, Division of 

 Financial Practices, FTC 

CHAD BENSON, President and Chief Operating 

 Officer, CBE Group 

BRANDON BLACK, Consultant/Former Chief 

 Executive Officer, Encore Capital 

 Group, Inc. 

LAWRENCE COSTA, Executive Vice President of 

 Business Development, Capital 

 Management Services, LP 

DANIEL DWYER, Attorney, Division of 

 Financial Practices, FTC 

MANOJ HASTAK, Professor of Marketing Kogod 

 School of Business, American 
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 University 

COLIN HECTOR, Attorney, Division of 

 Financial Practices, FTC 

PETER HOLLAND, Clinical Instructor, Consumer 

 Protection Clinic, University of 

 Maryland Carey School of Law 

BOB HUNT, Vice President & Director, Payment 

 Cards Center, Federal Reserve Bank of 

 Philadelphia 

ALICE HRDY, Deputy Assistant Director, 

 Office of Supervision Policy, CFPB 

THOMAS KANE, Senior Attorney, Division of 

 Financial Practices, FTC 

CHRISTOPHER KOEGEL, Assistant Director, 

 Division of Financial Practices, FTC 

W. THOMAS LAWRIE, Assistant Attorney 

 General, Office of the Maryland 

 Attorney General 

IAN LYNGKLIP, Partner, Lyngklip & 

 Associates, Consumer Law Center, PLC 

LORAINE LYONS, Senior Vice President and 

 General Counsel, FMA Alliance, Ltd. 

KAREN MEYERS, Director, Consumer Protection 

 Division, Office of the New Mexico 

 Attorney General 

RICHARD MUNROE, President, Capital Financial 

 Group, Inc. 

BEVIN MURPHY, Senior Attorney, Northeast 

 Region, FTC 

JOANN NEEDLEMAN, Vice President, Maurice & 

 Needleman, P.C., and President-Elect, 

 National Association of Retail 

 Collection Attorneys (NARCA) 

MANUEL NEWBURGER, Partner, Barron & 

 Newburger, P.C. 

DENISE NORGLE, Vice President and Division 

 General Counsel, TransUnion 

DAVID PAUKEN, Chief Executive Officer, 

 Convoke Systems 

DAVID PHILIPPS, Senior Partner, Philipps & 

 Philipps, Ltd. 

IRA RHEINGOLD, Executive Director, National 

 Association of Advocates 

JESSICA RICH, Associate Director, Division 
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 of Financial Practices, FTC 

HON. ANNETTE RIZZO, First Judicial District 

 of PA, Philadelphia, Court of Common 

 Pleas 

COREY STONE, Assistant Director, Office of 

 Deposits, Cash, Collections, and 

 Reporting Markets, CFPB 

LARRY TEWELL, Senior Vice President, 

 Consumer Credit Solutions Division, 

 Wells Fargo 

TOM THURMOND, Division President, Resurgent 

 Capital Services 

JOHN TONETTI, Program Manager, Office of 

 Deposits, Cash, Collections, and 

 Reporting Markets, CFPB 
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 A-G-E-N-D-A 

Welcoming Remarks 

 Julie Brill, Commissioner, FTC ........ 6 

 Steven Antonakes, Acting Deputy 

Director, CFPB ....................... 18 

Presentation: "Understanding the Model: The 

Life Cycle of a Debt" ...................... 32 

Bob Hunt, Federal Reserve Bank of Philadelphia 

Presentation: "How Information Flows Throughout 

the Collection Process" .................... 65 

 John Tonetti, CFPB 

Presentation: Overview of the FTC's Debt 

Buyer Study ................................ 86 

 Heather Allen, FTC 

Panel 1: Information Available to Debt 

Collectors at Time of Assignment or Sale.. 104 

 Moderator: Thomas Kane, FTC 

 Panelists: 

 Manoj Hastak, American University 

 Loraine Lyons, FMA Alliance, Ltd. 

 David Pauken, Convoke Systems 

 Ira Rheingold, National Association of 

Consumer Advocates 

 Larry Tewell, Wells Fargo 

Panel 2: Verifying Disputed Debts Under the 

FDCPA and Investigating Disputed Debts Under 

the FCRA .................................. 185 

 Moderator: Corey Stone, CFPB 

 Panelists: 

 Chad Benson, CBE Group 

 Ian Lyngklip, Consumer Law Center 

 Richard Munroe, Capital Financial Group 

 Manuel Newburger, Barron & Newburger 

 Denise Norgle, TransUnion 
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Presentation: Overview of the FTC's Collection 

Litigation and Arbitration Report, "Repairing a 

Broken System," and Changes in the Law Since the 

Report's Issuance in 2010 ................. 271 

 Bevin Murphy, FTC 

 Colin Hector, FTC 

Panel 3: Debt Collection Litigation ....... 288 

 Moderator: Christopher Koegel, FTC 

 Panelists: 

 Brandon Black, Encore Capital Group 

 Peter Holland, University of Maryland 

Carey School of Law 

 W. Thomas Lawrie, Office of the Maryland 

Attorney General 

 Joann Needleman, National Association of 

Retail Collection Attorneys 

 Hon. Annette Rizzo, First Judicial 

District of Pennsylvania 

Panel 4: Time-Barred Debts ................ 376 

 Moderator: Alice Hrdy, CFPB 

 Panelists: 

 Lawrence Costa, Capital Management 

Services 

 Karen Meyers, Office of the New Mexico 

Attorney General 

 David Philipps, Philipps & Philipps 

 Tom Thurmond, Resurgent Capital Services 

Wrap-up ................................... 432 

 Jessica Rich, FTC 
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1 P-R-O-C-E-E-D-I-N-G-S 

2 9:01 a.m. 

3 MS. RICH: I'd like to just briefly 

4 introduce our opening speakers. First, we have 

5 Julie Brill who's one of the Commissioners here 

6 at the Federal Trade Commission. Since Julie's 

7 early days as an assistant AG in Vermont, she's 

8 been highly interested and focused on financial 

9 consumer protection issues including debt 

10 collection and that continues now, which is why 

11 she's here to introduce this roundtable on 

12 behalf of the FTC. So we're delighted to 

13 welcome Julie. Julie Brill. 

14 (Applause) 

15 COMMISSIONER BRILL: Thank you, 

16 Jessica. Good morning, everybody. It's great 

17 to see such a big crowd and I assume that we've 

18 got people on the web, so good morning to all of 

19 you as well. 

20 I really appreciate the opportunity 

21 to open up this really important discussion 

22 today. And I'm also delighted to be here with 
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1 Steve Antonakes and other members of the CFPB to 

2 kick off again this very important event. 

3 Today's roundtable is intended to 

4 bring together all of the stakeholders in debt 

5 collection, industry members, consumer 

6 advocates, technology providers and regulators 

7 at both the state and federal level to discuss 

8 the debt collection process and how that process 

9 can and should be improved. Everyone here has 

10 a deep interest in ensuring that the system is 

11 fair and transparent. 

12 I want to start by acknowledging the 

13 hard work of the folks that organized this event. 

14 The roundtable is a joint effort of the FTC and 

15 the CFPB and I think it demonstrates our strong 

16 partnership and ability to leverage our 

17 collective assets and expertise. 

18 Tom Kane and Dan Dwyer of the 

19 Division of Financial Practices spearheaded 

20 this effort for the Federal Trade Commission. 

21 And John Tonetti and Corey Stone of the Office 

22 of Deposits, Cash Collections and Reporting 
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1 Markets served as leads for the CFPB. Thanks to 

2 the four of you and for everyone else at our two 

3 agencies who worked so hard to bring together so 

4 many key players for this important event. 

5 This morning I'd like to talk about 

6 the impetus for holding this workshop and 

7 describe some of the important work that the FTC 

8 has done in debt collection that I think will 

9 inform our discussions today as well as our 

10 discussions in the months to come. 

11 It will probably come as no surprise 

12 to anyone in this room that debt collection is 

13 a booming business. One of the lingering 

14 results of the financial crisis in the U.S. is 

15 that U.S. consumers are in debt to the tune of 

16 $11.23 trillion. Eight percent of that debt, or 

17 about $900 billion is delinquent with $678 

18 billion being seriously delinquent, that is, 90 

19 or more days late. 

20 This may provide opportunity for the 

21 debt collection industry, but it signals 

22 something quite the opposite for consumers. 
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1 Consider some of the things that financially 

2 distressed consumers face. Unemployment or 

3 underemployment, lack of health insurance and 

4 proper healthcare, and difficulties in paying 

5 for critical needs like food, housing and 

6 childcare. 

7 Add in the efforts by legitimate 

8 debt collectors to lawfully collect debts that 

9 consumers owe, telephone calls, late notices, 

10 repossessions, garnishment orders, and you have 

11 consumers who become even more financially 

12 distressed than before. 

13 Now, add to the mix the bad actors, 

14 the debt collectors who engage in unscrupulous 

15 if not illegal practices. The ones who call at 

16 all hours of the night, the ones who lie and make 

17 threats they cannot follow through on, the ones 

18 who engage in robo-signing or otherwise sue 

19 without any basis for doing so, the ones who use 

20 subterfuge to obtain monetary judgments and 

21 garnishment orders. These are below-the-belt 

22 punches aimed at consumers who are already being 
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1 pummeled. 

2 Please don't get me wrong. I don't 

3 mean to imply that all debt collectors and debt 

4 buyers engage in these unscrupulous practices 

5 because they don't. Indeed, debt collection 

6 plays an important role in our economic system 

7 both reminding consumers of their obligations to 

8 pay debt and helping to ensure that credit 

9 continues to flow to consumers. But the sloppy 

10 and bad practices of some industry players harm 

11 both consumers and competitors who play by the 

12 rules. 

13 We at the FTC have engaged in 

14 appropriate aggressive enforcement to weed out 

15 these bad practices. And our extensive and 

16 scholarly research has identified 

17 vulnerabilities in the debt collection system 

18 that give rise to these practices. I believe 

19 our enforcement efforts and policy work should 

20 play an important role as we consider 

21 appropriate reforms in the coming months. 

22 Shortly after I became a 
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1 Commissioner 3 years ago we released a report, 

2 "Repairing a Broken System," which painted a 

3 troubling picture with respect to how debt 

4 collection claims are litigated and arbitrated. 

5 Our report showed that debt 

6 collectors have filed hundreds of thousands of 

7 lawsuit against alleged debtors with the vast 

8 majority of these actions resulting in default 

9 judgments, in some jurisdictions upwards of 90 

10 percent of the time. 

11 Our report also addressed some 

12 systematic problems with the data debt 

13 collectors possess, problems that are at the 

14 heart of some of the issues we will discuss at 

15 today's workshop. We concluded that debt 

16 collectors often lacked documentation about 

17 debts to properly support litigation. We also 

18 found that debt collectors often have no ability 

19 to obtain relevant data about the debt, and any 

20 data the debt collectors have may be inaccurate 

21 due to contractual or other limitations. 

22 As a result of poor or no information 
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1 about the underlying debts debt collectors often 

2 do not have the information necessary to respond 

3 to consumers' disputes or requests for debt 

4 validation. 

5 The harm to consumers is magnified 

6 when debt collectors report erroneous 

7 information to credit bureaus. Consumers may 

8 be denied employment, insurance, or credit as a 

9 result. 

10 Our 2010 report recommended 

11 significant reforms to improve efficiency and 

12 fairness to consumers. Since debt collectors 

13 file their lawsuits in state courts, our 

14 recommendations urged states to adopt measures 

15 to make it more likely that consumers will know 

16 about the litigation and have the means to defend 

17 themselves, including by requiring collectors 

18 to provide more information about the purported 

19 debts when they initiate litigation. This 

20 would enable consumers to understand why they're 

21 being sued and to prevent judgments on empty 

22 assertions. 
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1 You'll be hearing much more about 

2 the findings and recommendations in our 2010 

3 report later this afternoon from Bevin Murphy 

4 and Colin Hector, two of our FTC attorneys. 

5 You'll also hear from some states that have 

6 adopted some of our recommended reforms. 

7 While this is good news, and there 

8 is good news about efforts being made to make 

9 some of these appropriate reforms, 

10 unfortunately since we issued our 2010 report it 

11 appears that in most respects very little has 

12 changed. As was true in 2010 the FTC continues 

13 to receive more complaints about debt collection 

14 than any other industry. In 2012 we received 

15 more than 125,000 separate consumer complaints 

16 representing 25 percent of all the complaints 

17 that we received. 

18 Because of the continued importance 

19 of this issue we have continued to study the 

20 industry. In January of this year we announced 

21 the results of a first of its kind study of debt 

22 buyers, companies that are in the business of 
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1 buying consumer debt and attempting to collect 

2 on it. 

3 The debt buyers in our study who were 

4 nine of the nation's largest debt buyers 

5 collectively purchased for pennies on the dollar 

6 nearly 90 million consumer accounts with a face 

7 value of $143 billion. 

8 There's no doubt that debt buying 

9 plays an important role in consumer credit. 

10 Proceeds from sales of delinquent accounts have 

11 helped reduce creditors' losses from lending 

12 money, allowing them to provide more credit at 

13 lower prices. 

14 We found, however, that debt buying 

15 raises many of the same significant consumer 

16 protection concerns that we described in our 

17 2010 report. Most notably, that debt buyers may 

18 have insufficient or inaccurate information 

19 when they collect on debts which may result in 

20 collectors seeking to recover from the wrong 

21 consumer or recover the wrong amount. You'll 

22 hear more about our debt buyer study later this 
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1 morning from Heather Allen, who will describe 

2 the findings as well as some of the 

3 recommendations in that report. 

4 Our enforcement work has likewise 

5 identified aspects of the industry that are ripe 

6 for reform. Over the past 3 years, the FTC has 

7 brought more than a dozen actions against 

8 unscrupulous third party debt collectors. Some 

9 of our cases have addressed groundbreaking 

10 issues like attempts to collect on time-barred 

11 debt, debt that is so old that courts won't allow 

12 the debt collector to sue to collect on it. 

13 We've also brought enforcement 

14 actions against debt collectors that involve the 

15 same types of data integrity issues identified 

16 in our reports, including collecting on 

17 portfolios that were missing basic identifying 

18 information for consumers or missing key 

19 documents from the original creditors that would 

20 substantiate the alleged debts. 

21 Finally, I'd just like to mention an 

22 issue that I am particularly concerned about and 
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1 one that I hope you'll have an opportunity to 

2 discuss at some point today. Debt collectors 

3 now use all manners of technology, cell phones, 

4 social media, and email to reach consumers. But 

5 the Fair Debt Collection Practices Act that 

6 governs their activities was passed in 1977, a 

7 year that I happened to graduate from high school 

8 and a time when these technologies, social media 

9 and the like, were not even contemplated. 

10 We need to ensure through 

11 enforcement, rulemaking, or amendments to the 

12 FDCPA that our policies adequately address how 

13 debt collectors use new technologies. 

14 I'm sure today's discussions will be 

15 fruitful and will serve to establish some common 

16 ground among all of us, consumer advocates, 

17 collection industry members, technology 

18 providers, and state and federal regulators as 

19 we seek solutions to problems caused by the flow 

20 and integrity of information used in 

21 collections. So thank you very much. 

22 (Applause) 
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1 MS. RICH: Thanks, Commissioner 

2 Brill. Next we have Steve Antonakes. He's the 

3 Acting Director of the CFPB, the Consumer 

4 Financial Protection Bureau, in case anyone in 

5 here doesn't know what that is. 

6 Steve has a vast wealth of 

7 experience on financial consumer protection 

8 issues, like Commissioner Brill, much of it as 

9 a state official. So we're delighted he could 

10 help us open this event today. Steve Antonakes. 

11 (Applause) 

12 MR. ANTONAKES: Good morning. So 

13 I'd like to thank everyone for joining us today. 

14 I certainly want to thank Commissioner Brill and 

15 her colleagues at the FTC for hosting today's 

16 event. 

17 Really since the Bureau launched in 

18 July 2011 we have come to realize that we could 

19 not have asked for a better group of partners to 

20 work with to protect consumers across the 

21 country. 

22 Today's event follows similar 
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1 industry roundtables on debt collection 

2 practices that the FTC has organized. These 

3 have proven valuable in surfacing important 

4 issues and allowing a wide range of stakeholders 

5 to air their views and discuss policy solutions. 

6 So again, we're delighted to be here today. 

7 As we continue to emerge from the 

8 devastating crisis of 2007 and 2008 we now find 

9 that collection is a central issue of our times. 

10 Currently there are 30 million consumers, nearly 

11 1 out of every 10 Americans, with at least 1 debt 

12 in collections for amounts that average about 

13 $1,500 apiece. 

14 At the Bureau we recognize that debt 

15 collection is an essential part of the credit 

16 system. Debt collectors remind borrowers that 

17 repaying debt is a serious obligation and that 

18 not repaying has consequences. 

19 But we also recognize that this is 

20 a market where consumers can't vote with their 

21 feet. While many debt collectors play by the 

22 rules and are simply doing their jobs trying to 
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1 collect what is legally owed there are also those 

2 who cut corners on compliance and others who are 

3 simply bad actors. 

4 From the complaints we get at the 

5 Bureau on credit cards and mortgages we know many 

6 consumers find dealing with debt collectors to 

7 be frustrating and often stressful. 

8 These complaints raise a number of 

9 concerns. We worry whether the consumer is 

10 being told the straight story about the 

11 consequences of not making payments. We worry 

12 whether the debt being claimed is for the right 

13 amount. And we worry whether it's the right 

14 person being called. We hear too often about 

15 such problems. 

16 My hope is that today's roundtable 

17 allows us to gather information and work towards 

18 making this industry better for consumers and 

19 the honest businesses that are doing good work. 

20 Our job and that of our partners at the FTC is 

21 to take appropriate action against collectors 

22 that violate the law. 
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1 Not only do bad actors hurt 

2 consumers but they also are a detriment to every 

3 debt collector who is faithfully following the 

4 law. In fact, a stated purpose of the Fair Debt 

5 Collection Practice Act is that Congress wanted 

6 to ensure that those debt collectors who refrain 

7 from using abusive debt collection practices are 

8 not competitively disadvantaged. 

9 The Bureau began its supervision of 

10 debt collection practices at large bank lenders 

11 and payday lenders to make sure they're 

12 complying with federal consumer financial law. 

13 Then in January of this year we 

14 started something that had never been done at the 

15 federal level. We began examining the larger 

16 non-bank debt collection firms. We monitored 

17 these debt collectors just as we monitored the 

18 large bank lenders. We make sure that the 

19 company's business practices are in accordance 

20 with the law. 

21 This supervisory authority extends 

22 to about 175 debt collectors and debt buyers 
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1 which account for over 60 percent of the 

2 industry's annual receipts in the consumer debt 

3 collection market. More broadly, the shared 

4 objective of both the FTC and the Bureau is to 

5 seek broader solutions to overall challenges in 

6 this market. 

7 The focuses of today's roundtable, 

8 the integrity of the record-keeping processes 

9 and data that are used to collect on a debt is 

10 also one of the important focuses of our early 

11 supervision and enforcement efforts in this 

12 industry. 

13 Data accuracy and availability and 

14 the maintenance of the accuracy across different 

15 market participants are critical for having 

16 collection processes that are fair and for 

17 having communications that consumers can trust. 

18 Questions of data integrity in the collections 

19 process are the subject of many of today's 

20 panels. 

21 Allow me to illustrate three areas 

22 of focus. First, is the accuracy of the data 
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1 that debt collectors are using to pursue 

2 consumers and that is communicated to consumers 

3 who may owe a debt. When third party collectors 

4 or debt buyers are involved, this issue becomes 

5 important. Original creditors should ensure 

6 that a sufficient amount of information about 

7 the debt is being made available. So we paid 

8 close attention to whether debt collectors have 

9 accurate information when they're collecting 

10 debts. 

11 Second is the extent to which the 

12 accuracy of the information, including such 

13 fundamental facts as the consumer's identity and 

14 the amount of the debt, deteriorates as it ages 

15 or gets passed down the line to secondary or 

16 tertiary buyers. If any piece of the 

17 information is incorrect, or if the owner of the 

18 debt has changed, debt may become 

19 unrecognizable. 

20 Third, consumers need to be able to 

21 dispute debts they believe to be incorrect. If 

22 the debt collector has furnished information 
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1 about the debt to a credit reporting company the 

2 collector has additional obligations under the 

3 Fair Credit Reporting Act to investigate 

4 disputes and inform the company of any 

5 inaccuracies it finds. Given the impact that a 

6 credit report can have on a consumer's life, it 

7 is critical that the credit reporting companies 

8 have accurate and up-to-date information. 

9 Another topic is the information 

10 that is required as evidence in debt court cases. 

11 This issue, as Commissioner Brill discussed, has 

12 been highlighted by the FTC in its 2009 

13 roundtable and report on debt litigation, 

14 "Repairing a Broken System." 

15 This has proven to be an influential 

16 report and has helped spur reforms in court rules 

17 and rules of evidence in a number of states to 

18 assure that consumers receive proper notice that 

19 they are being sued and that plaintiffs 

20 adequately document their claims before they 

21 obtain judgments. 

22 As litigation has become an 
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1 increasingly used collections activity we have 

2 been following the court reforms and their 

3 impact on evidentiary requirements. We're also 

4 aware that states are looking into these issues 

5 and what records should be maintained and 

6 provided to consumers when creditors pursue debt 

7 collections through the courts. 

8 Today's roundtable brings together 

9 many stakeholders in the debt collection 

10 process. These include creditors, collection 

11 agencies, debt buyers, consumer advocates, 

12 plaintiffs' lawyers, attorneys general, 

13 academics, court officials, technology vendors, 

14 and regulators. All of us have a stake in 

15 ensuring the integrity of information that's 

16 used in the debt collection process. It's 

17 fundamental to fairness and transparency that 

18 consumers are able to trust the information they 

19 receive from collectors and to make decisions 

20 that are in their best interest. 

21 But the nature of information is 

22 that it's a systemic responsibility. Multiple 
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1 market participants create, communicate, update 

2 and use common sets of information or even shared 

3 information systems in their roles in the debt 

4 collection process. So each of us has a role to 

5 play in formulating solutions, whether they are 

6 technologies, record-keeping practices, data 

7 standards, or designing new systems, 

8 disclosures, or rules. 

9 We ask for your help today in 

10 identifying solutions. We want to create a 

11 system where accurate information is maintained 

12 in this market so that collectors are calling on 

13 the right consumer to collect the right amount. 

14 And we want consumers to feel confident when 

15 answering the phone that they will get a straight 

16 story, hear accurate information, and be able to 

17 make their best choices given their 

18 circumstances. 

19 This in turn will be another step 

20 towards our collective goal of moving towards a 

21 debt collection market in which consumers are 

22 treated fairly, they retain their dignity and 
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1 are prompted appropriately to pay their 

2 legitimate debts. 

3 We're looking forward to our 

4 collaboration on these significant issues. 

5 Again, I greatly appreciate and thank everyone 

6 for coming today. 

7 (Applause) 

8 MR. DWYER: Good morning, everyone, 

9 and welcome to the Debt Collection Data 

10 Integrity Roundtable co-hosted by the FTC and 

11 the CFPB. My name is Dan Dwyer and I'm an 

12 attorney in the Division of Financial Practices 

13 here at the FTC. 

14 We're delighted that you've all 

15 joined us today for what promises to be an 

16 interesting and thought-provoking discussion 

17 about the information debt collectors have 

18 throughout the stages of the debt collection 

19 process. 

20 Those of you joining us in person 

21 will see several note cards in your event folder. 

22 Please write down any questions you have for our 
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1 panelists on these cards. If you hold them up 

2 a member of the workshop team will come and pick 

3 them up from you. 

4 Also, if you're tweeting about the 

5 workshop on Twitter today please use the hash tag 

6 #debtdata. 

7 After three presentations to set the 

8 stage for the day, most of the rest of the day 

9 will involve four discussion panels that focus 

10 on the role of information and the importance of 

11 its availability and accuracy in four different 

12 phases of the debt collection life cycle. 

13 The first will be about the notices 

14 provided to consumers under Section 1692(g) of 

15 the FDCPA. What's specified under the statute 

16 and what under the spirit of the law is helpful 

17 to the consumer in recognizing the debt and his 

18 or her rights. 

19 The second panel will be about what 

20 happens when a consumer disputes a debt, what 

21 information is required to substantiate it and 

22 what sort of investigation must be undertaken to 
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1 obtain this information. 

2 The third will be about debt 

3 collection litigation. What happens at the end 

4 of the line when other collection methods have 

5 been exhausted. This panel will discuss 

6 proposed court rules and rules of evidence to 

7 assure the right consumer is being sued for the 

8 right amount. 

9 Our final panel of the day will be 

10 about debt that has reached the statute of 

11 limitations and which implications of this fact 

12 can or must be disclosed to the consumer. 

13 Our panels today will include 

14 consumer advocates, creditors, collection 

15 agencies, debt buyers, collection attorneys, 

16 academics and regulators. At each point in the 

17 cycle of debt we'll be asking questions about 

18 what problems exist with respect to the handling 

19 and use of evidentiary information, current 

20 harms that result when it is handled sloppily or 

21 dishonestly, and what solutions can be put in 

22 place to make the market function better. 
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1 Solutions can include anything from 

2 better state court rules to enforcement of 

3 existing statutes, introductions of new 

4 technologies, and rule-writing by the CFPB. 

5 Depending on the panel each panelist 

6 will begin with either a brief introduction or 

7 brief remarks. The moderator will then lead a 

8 conversations for most of the length of the 

9 panel. The moderator will then take some time 

10 to ask panelists as many questions as possible 

11 from the ones we've received from those here in 

12 the conference room and from our webcast 

13 viewers. 

14 Before we continue I have a few 

15 housekeeping items that I need to go over. The 

16 bathrooms if you aren't already aware are across 

17 from the entrance to the conference center past 

18 the security desk to the left. Anyone that goes 

19 outside the building without an FTC badge will 

20 be required to go through the magnetometer and 

21 X-ray machine prior to reentry into the 

22 conference center. 
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1 In the event of a fire or evacuation 

2 of the building please leave the building in an 

3 orderly fashion. Once outside the building you 

4 will need to orient yourself to New Jersey 

5 Avenue. Across from the FTC is the Georgetown 

6 University Law Center. Look to the right front 

7 sidewalk. That is our rallying point. 

8 Everyone will rally by floors. You'll need to 

9 check in with the person accounting for everyone 

10 at the conference center. 

11 In the event that it is safer to 

12 remain inside you will be told where to go inside 

13 the building. If you spot suspicious activity 

14 please alert security in the front. 

15 And this event may be photographed, 

16 videotaped, webcast, or otherwise recorded. By 

17 participating in the event you are agreeing that 

18 your image and anything you say or submit may be 

19 posted indefinitely at ftc.gov or on one of the 

20 Commission's publicly available social media 

21 sites. 

22 And finally, please turn off your 
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1 cell phones if you haven't already or put them 

2 on vibrate. Again, we really look forward to 

3 having a productive day and open discussion, and 

4 once again thank you all for coming. 

5 At this time I'd like to introduce 

6 Bob Hunt, the vice president and director of the 

7 Payment Card Center at the Federal Reserve Bank 

8 of Philadelphia. Bob. 

9 (Applause) 

10 MR. HUNT: All right. Well I want 

11 to thank the organizers for including me in this 

12 very interesting roundtable. It's an honor. 

13 I always have to begin with a 

14 disclaimer. Everything I'm going to say today 

15 are my views and not those of the Federal Reserve 

16 Bank of Philadelphia or the Federal Reserve 

17 System. 

18 My job today is to present an 

19 overview. Many of the points that I'm going to 

20 sketch are going to be discussed in much greater 

21 detail in the panels later on today. 

22 Now we can't have a conversation 
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1 about debt or the consequences of default 

2 without first recognizing that we are living in 

3 the aftermath of the worst recession that the 

4 United States has experienced since World War 

5 II. 

6 So let's just think about the labor 

7 market for a moment. What I've done here is I've 

8 plotted the jobs in the U.S. economy relative to 

9 the peak of the business cycle. The blue line 

10 is the recession that we've just experienced and 

11 we're living through. 

12 And as you can see we lost 6 percent 

13 of our jobs over a 3-year period. And we've 

14 managed to replace about half of those jobs over 

15 a 4 and a half year period of time. So both in 

16 terms of magnitude and duration the U.S. economy 

17 has not experienced anything like this since the 

18 very short recession after World War II or the 

19 Great Depression. And anybody who studies 

20 credit cards knows that this is automatically 

21 going to feed into defaults. 

22 But the other thing that happened is 
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1 that a great deal of consumers' household worth 

2 was also destroyed. In this case it was about 

3 $15 trillion in the net worth of consumers in the 

4 United States that was wiped out over a 2-year 

5 period of time. 

6 And very fortunately we've regained 

7 about half of that mostly through the gains in 

8 the stock market that have occurred 

9 subsequently. But very little of this 

10 improvement has come from the housing market. 

11 Because of course home prices continued to fall 

12 for quite a while and it is only just recently 

13 that we've begun to see an appreciation in home 

14 prices. 

15 And so one of the major safety valves 

16 that consumers had in the two thousands, the 

17 equity in their homes that they could use to 

18 refinance the liabilities in their balance sheet 

19 continues to be unavailable for most Americans. 

20 And this of course translates 

21 directly into what is happening in the consumer 

22 credit market. So there are two lines on this 
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1 figure. The black line at the bottom is the one 

2 you usually see. So that is non-business 

3 bankruptcy filings over time. 

4 And with the exception of that spike 

5 that you see right before the Bankruptcy Reform 

6 Act of 2005 came into force you see that 

7 typically there are 1 to 2 million bankruptcy 

8 filings ever year. 

9 The red line is probably one you 

10 haven't seen very often, and this is the number 

11 of consumers that are seriously late on at least 

12 one debt as reported in credit bureau data. In 

13 this case this is TransUnion data. 

14 These are debts that are 120 days 

15 late but they haven't been charged off yet. And 

16 so these are consumers that will soon face 

17 collections activity if they're not already 

18 exposed to collections activity. And you can 

19 see that in good times that's roughly 4 million 

20 consumers and in bad times it's as many as 8 

21 million consumers. 

22 So one thing to think about here then 
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1 is for every consumer that seeks bankruptcy 

2 protection in part because they want protection 

3 from collections activity there are four 

4 consumers that either are exposed or are going 

5 to be exposed and who are not going to file for 

6 bankruptcy right away. In fact, a significant 

7 share of consumers that are exposed to 

8 collections never file for bankruptcy. And 

9 then of course in bad times it's even worse. 

10 One of the interesting things at the 

11 far end of this graph is the fact that the number 

12 of consumers who are exposed really hasn't 

13 fallen very much even though the economy is in 

14 recovery. It's only fallen a little less than 

15 a million. 

16 And to see why that's the case in 

17 this figure you can see the different types of 

18 liabilities that consumers are falling behind 

19 on. So the blue line at the bottom is credit 

20 cards, the yellow line is mortgages, and the 

21 brown line are installment loans. 

22 And as you can see actually the 
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1 seriously late credit card loans have been 

2 falling for quite a while, and that's simply a 

3 consequence of the speed with which bad credit 

4 card loans got charged off and went into the 

5 collection process beginning in the latter half 

6 of 2008. 

7 And even in the case of mortgages 

8 what you see is that there are about a million 

9 fewer consumers that are seriously late on their 

10 mortgage that have not already gone into 

11 foreclosure. Those mortgages that have gone 

12 into foreclosure or come out of foreclosure are 

13 not in this figure. But that has also fallen. 

14 So the one line that's rising of 

15 course is the installment loans. And about a 

16 million more consumers are seriously late on 

17 those installment loans than a few years ago. 

18 And I have a pretty strong suspicion 

19 that what we're seeing there are the student 

20 loans. And that's a story that's going to play 

21 out. So another lesson from this figure is that 

22 the composition of loans that are going to go 
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1 into collections is going to change fairly 

2 rapidly over time. 

3 Now the next thing that I want to do 

4 -- well, first of all, let's just talk about 

5 credit cards for a second. So, in this figure 

6 what you see is the absolute amount of credit 

7 card lending that was written off in a very short 

8 period of time beginning in 2008. 

9 And in both absolute and relative 

10 terms this is the biggest credit shock to the 

11 credit card product in its entire history. As 

12 the chart shows about $161 billion has been 

13 charged off. All of that is working through the 

14 collections process over the next several years. 

15 Now, what I want to do now is turn 

16 to the collections process itself. And I'm 

17 going to make an observation that we've already 

18 heard a little bit from our previous speakers 

19 which is that collections involve very many 

20 participants. 

21 Obviously it starts with a consumer 

22 that has some form of financial or non-financial 
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1 debt. And the flip side of that of course is 

2 that there's an organization out there that is 

3 owed those funds. So for example, it will be a 

4 lender or it could be a non-financial firm that 

5 is providing goods and services to consumers. 

6 For example, hospitals and doctors 

7 and utilities. Or it could be the government 

8 that is owed taxes or fines or parking ticket, 

9 for example. And it is not uncommon for any of 

10 these organizations to try and collect on these 

11 late debts themselves. We call that first party 

12 collections. 

13 And the economics of first party 

14 collections as well as some of the legal 

15 treatment of first party collections is somewhat 

16 different from the next item here, third party 

17 collections which of course these are the firms 

18 that specialize in collecting on the defaulted 

19 debts that are owed to other organizations, 

20 mostly on a contingency basis. And that simply 

21 means that for every dollar that is recovered the 

22 collection organization retains a certain 
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1 portion of that as their own revenues. 

2 But as was just mentioned a few 

3 moments ago there's also this active debt-buying 

4 market that exists. And I'll turn to that later 

5 on in my remarks. 

6 Another very important observation, 

7 and this was alluded to a few moments ago, are 

8 the abundant service providers to all of these 

9 other organizations. And they're in the 

10 business of providing either information or 

11 communications, technology, or risk management 

12 technology to first- and third party collectors. 

13 So for example, credit bureaus, 

14 providers of location services, so when 

15 consumers move or change their phone numbers 

16 this is the way to find where those consumers 

17 are. In the industry that's called skip tracing 

18 although that's not always a popular term. 

19 We all know about credit scoring 

20 when we apply for credit but of course there's 

21 also collection scoring, that technology which 

22 tells collectors what are the most fruitful 
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1 accounts to allocate resources to. And then of 

2 course there are the call centers and the 

3 increasingly complex auto-dialers and 

4 predictive dialers that collection 

5 organizations use, voice over internet, and all 

6 of the abundant computing resources that are 

7 required in order to do modern collections. 

8 Now not every debt that goes into 

9 default is going to wind up being litigated in 

10 court. But to the extent that they are of course 

11 that brings in a whole new set of participants. 

12 Obviously you have to have attorneys 

13 that are filing those cases in order to get 

14 judgments, liens, or garnishments. And then 

15 you have to have the courts themselves. And so 

16 for most consumer debts that's a state or a local 

17 court. And there's a great deal of variation in 

18 the organization and the process that is used to 

19 handle all of those collection cases. 

20 So very often it's going to be a 

21 county court and in some states it may be a small 

22 claims court. In some other states it may be a 
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1 superior court. There's a very significant 

2 variation in the procedures but also in the level 

3 of automation that is used in these courts as 

4 opposed to the higher-level state courts or the 

5 federal district courts, for example. And as a 

6 researcher I can tell you that that creates a 

7 whole lot of difficulties in terms of 

8 understanding how that litigation works. 

9 And of course there's legislation 

10 and regulation, abundant legislation and 

11 regulation of the collection process at the 

12 state and federal level. So for example, at the 

13 federal level depending on the role that you play 

14 there's at least four pieces of legislation that 

15 may apply to you. 

16 And there's at least four potential 

17 regulators out there although the two principal 

18 ones, our hosts today, the Federal Trade 

19 Commission and the Consumer Financial 

20 Protection Bureau. But if you're a bank and 

21 it's a first party collection activity then you 

22 may also have a Prudential supervisor that will 
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1 be involved. 

2 And then of course there are state 

3 attorney generals and there are state agencies 

4 that are also in the business of licensing and 

5 supervising collection firms at the state level. 

6 So now what I'm going to do is I'm 

7 going to talk a little bit about who engages in 

8 collections. And the best way to do that is 

9 simply to decide what industries hire bill and 

10 account collectors. And that's what you see in 

11 the next figure here. 

12 There's a qualification. This is 

13 domestic employment. To the extent that 

14 collection activity is outsourced abroad you're 

15 not going to see it in the numbers that are here. 

16 But what you do see is that third party 

17 collection agencies hire the largest proportion 

18 of collectors in the country, about 100,000 

19 people in recent years, a little more than a 

20 quarter of all bill collectors in the entire 

21 economy. 

22 And then if you add together the 
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1 collectors that work in finance or insurance or 

2 in healthcare then you nearly have two-thirds of 

3 all of the bill and account collectors in the 

4 U.S. economy. And then the next three 

5 categories, wholesalers and retailers, the 

6 legal and accounting sector, and government. 

7 Well, that's about another 15 percent. And then 

8 the remainder are distributed pretty evenly 

9 across the rest of the economy. 

10 Now the next several slides that I'm 

11 going to show you are focused on the third party 

12 collections industry. So by that I mean the 

13 firms that do contingency collections and the 

14 debt buyers. But it does not include the law 

15 firms who may perform some role in the 

16 collections process. 

17 So here's a quick snapshot. We're 

18 talking about 4,000 or so firms that are active 

19 on a 12-month basis. About 150,000 employees 

20 across the country. Roughly speaking about $55 

21 billion in gross collections that are returned 

22 to either commercial creditors or consumer 
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1 creditors in the United States. 

2 And the industry itself retains 

3 about $12 billion of those collections in its own 

4 revenues, mostly through the contingency 

5 collection but also collecting on purchase 

6 defaulted debt. A little bit older data tells 

7 us that about 70 percent of that $12 billion 

8 represents collections on consumer debts. 

9 I don't think I have to tell you that 

10 collections is a volume business so at least by 

11 one measure there are four consumer contacts for 

12 collection purposes of every adult in the United 

13 States every year. 

14 And then the next set of numbers give 

15 you a sense of the growth of this industry over 

16 time. So over the last 40 years this has been 

17 a period of fairly rapid growth in consumer 

18 credit in the U.S. economy. Even adjusting for 

19 inflation it's gone up by about three and a half 

20 times. And if I was to calculate the growth of 

21 the defaulted debt it would actually be a little 

22 more rapid than that. 
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1 And yet the collections industry has 

2 grown even more rapidly both in terms of 

3 employment but especially in terms of revenue 

4 over that 40-year period of time. And in fact 

5 these measures alone show you that the 

6 collections industry has experienced fairly 

7 impressive productivity growth for the services 

8 part of the U.S. economy. 

9 Now in the next slide what I'm going 

10 to do is I'm going to show you some typical 

11 measures of the performance of a collections 

12 firm. And I'm going to use median values. So 

13 what you should think of here is these are 

14 measures that would be typical of a smaller 

15 collection firm out there. As I'll show you in 

16 a little bit there's tremendous variation in the 

17 size of collections firms and so the measures 

18 that you would see for a larger collection firm 

19 would look somewhat different than what I'm 

20 about to show you. 

21 So this is data from one of the 

22 leading trade associations for the industry, ACA 
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1 International. And again these are the median 

2 values reported in their recent benchmarking 

3 survey. 

4 Recoveries are about 13 cents on the 

5 dollar. That is the face value of the debt is 

6 $1, the recovery is about 13 cents. On a 

7 per-account basis that means the median recovery 

8 is $69 on a median balance of about $540. 

9 The commission rate, that is the 

10 portion of the gross collections that the firm 

11 is going to retain is about 26 percent of that. 

12 And so the median then would be $22 an account. 

13 That's the revenue that the collection firm will 

14 retain. 

15 The median operating expense on a 

16 per-account basis is about $16. And that leaves 

17 a median gross profit of about $2 an account. 

18 And because I'm using medians here they don't add 

19 up in the way that you ordinarily would see with 

20 averages. But if I was giving you the average 

21 profit per account it would only be about $10 or 

22 $12 for firms of this size. So obviously this 
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1 is a business that is built on volume. 

2 And as the last bullet shows even for 

3 these relatively smaller firms every year 

4 they're bringing in about 70,000 new accounts to 

5 collect upon on behalf of several hundred 

6 clients that they have. And they're mailing out 

7 about 120,000 or more letters a year for -- to 

8 consumers. 

9 Now what I want to do is jump back 

10 to the agreement measures for a few moments 

11 because I want to give you some long-run trends 

12 in the collections industry. So I mentioned a 

13 few moments ago that for a very long period of 

14 time collections has been a growth industry. 

15 And so here's a measure of employment in the 

16 industry over that 40-year period of time. 

17 But if you just focus on the years 

18 between 1987 and 2007 what you see is that 

19 employment tripled in that period of time which 

20 is really a very impressive period of growth. 

21 And this is also reflected in the revenues of the 

22 industry. 
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1 So again, adjusting for inflation if 

2 you focused on the 10-year period 1987 to 1997 

3 revenues just about doubled. And then if you 

4 focus on the subsequent decade, 1997 to 2007 you 

5 see that revenues again just about doubled. 

6 So a way of thinking about that is 

7 this is an industry where inflation-adjusted 

8 revenue is growing at about 7 percent a year for 

9 more than 20 years. And so there are a lot of 

10 industries and a lot of firms that would like to 

11 be able to claim that kind of history in terms 

12 of its development. 

13 That said, the market changed 

14 significantly as the housing market peaked and 

15 then the United States went into recession. And 

16 so in this slide what you see is that revenues 

17 peaked around 2005 and 2006 and really have not 

18 come back. That's in part I believe because of 

19 the home equity refinancing channel being shut 

20 down and the fact that the credit supply to 

21 consumers also tightened significantly 

22 thereafter. And so the ability to refinance 
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1 short-term debts especially became much more 

2 difficult for consumers. 

3 Now I don't have numbers here for 

4 2011 or 2012. I do expect the industry resumed 

5 growing in those years. But a very important 

6 but unanswerable question at the moment is 

7 whether the collections industry remains a 

8 growth industry or in fact whether we have 

9 reached an inflection point for this industry. 

10 It's just something that we're going to find out 

11 over the next several years. 

12 Now what I want to do next is review 

13 some changes in the market structure of the 

14 collections industry. And this is going to take 

15 me a few minutes to explain. 

16 This is a very busy figure but what 

17 I've done is I've broken up the collections firms 

18 into different sizes based on the number of 

19 employees, so fewer than 20 or as many as more 

20 than 500 employees. And then I've plotted the 

21 share of the entire industry's payroll by these 

22 size categories of firms. 
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1 Now I'd like to use revenues but I 

2 don't get that revenue data as frequently. But 

3 we do know that the payroll and the revenue data 

4 move together so it's pretty much going to be the 

5 same story. 

6 And so the big picture here is that 

7 over a 20- to 30-year period of time there 

8 clearly has been a change in the size 

9 distribution of collection firms. What's been 

10 happening is that there are more large 

11 collection firms and the large collection firms 

12 have gotten larger over time. 

13 So back in 1990 those collection 

14 firms that had fewer than 20 employees accounted 

15 for half of the entire payroll of the collections 

16 industry. And today it's about 27 percent. 

17 It's fallen quite a bit. 

18 On the other side those firms that 

19 have 500 or more employees, they used to account 

20 for 22, 25 percent of the entire payroll of the 

21 industry. Well now it's about 45 percent. 

22 And what you can see, the most rapid 
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1 period of this transition in the industry 

2 occurred in that middle period, 1998 to 2004. 

3 And the movement sort of before and after is it's 

4 still there but it's just not as rapid as what 

5 we saw in that middle period which actually 

6 corresponds to a period of very ample credit 

7 supply for most consumers. 

8 Now, what I am not saying here is 

9 that the era of small collection firms is over. 

10 In fact, even today three-quarters of all 

11 collection firms have less than 20 employees. 

12 And as you can see they still account for 27 

13 percent of all payroll. 

14 And usually when you look at data 

15 like this, say, for the banking sector what you 

16 would see is that the number of firms would have 

17 shrunk a great deal. That's certainly true for 

18 banks, for example. 

19 But in fact there's only been a very 

20 small decline in the number of firms in the 

21 collection industry. So it appears that 

22 there's still a lot of entry that's going on and 
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1 that barriers to entry in collections haven't 

2 changed a lot. 

3 But once you've entered it's also 

4 the case that the market is sort of separating 

5 into two segments, a very large segment of 

6 smaller collection firms that are out there, and 

7 then a smaller segment of firms that have become 

8 much larger and represent now a much larger 

9 proportion of the revenues and payroll than used 

10 to be the case. 

11 Now next I want to discuss the mix 

12 of customers that are served by these third party 

13 collection firms. And so again I'm going to use 

14 some data from ACA International. 

15 This is the book of accounts being 

16 collected on weighted by the value of those 

17 accounts in 2010. And as you can see here 

18 healthcare represents about one-third of the 

19 total book. 

20 Now, a number of collection firms 

21 working on behalf of the healthcare sector are 

22 collecting not just on old debts or defaulted 
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1 debts, but they're also collecting on current 

2 bills. And so if I took out the current bills 

3 that part of the pie would be smaller. But 

4 nevertheless it would still be very substantial. 

5 Healthcare is a very important part of the 

6 collections book. 

7 Obviously credit cards is another 

8 important part. That's 20 percent of the pie as 

9 you see in the figure. 

10 And then you see that the remainder 

11 is kind of equally divided between the other 

12 loans by finance companies and banks, and 

13 student loans which are 12 percent of the book, 

14 and utility and telecom, about 13 percent of the 

15 book, and then about 7 percent of the book is 

16 debts that are owed to governments. 

17 Now, obviously these types of loans 

18 are very different and so the collection 

19 strategies for these types of loans are going to 

20 be different. And in fact in a number of 

21 instances the law is going to be different as 

22 well. 
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1 And so here is some additional ACA 

2 data that tells you something about those kinds 

3 of debts. So the largest balances are student 

4 loans, about $4,000, and then credit cards and 

5 loans to banks and finance companies are well 

6 more than $1,000. And then the smaller balance 

7 accounts in collection are doctor's bills and 

8 bills that are owed to the government or 

9 utilities, for example. 

10 And then -- and these are all median 

11 values again. And then you see the recovery 

12 rate on that debt as reported by ACA. 

13 Recoveries on the government debt are generally 

14 higher, and the credit card recovery number 

15 looks pretty good too. Student loans are lower. 

16 Now, in the data what you would see 

17 is that the recovery rates for this kind of debt 

18 will vary by the size of the collection firm. So 

19 this is again more representative of the median 

20 collection firm as opposed to the largest 

21 collection firms. 

22 Now I want to return to this question 
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1 about debt buying for a few moments and talk 

2 about that. So, what we know is that this has 

3 become pretty substantial. There's one 

4 consulting firm that suggested that about $6 

5 billion of the gross collections that occurred 

6 in 2007 were on defaulted debt that was 

7 purchased, which would be a pretty significant 

8 share of total receipts in the industry. And 

9 there's roughly 500 active participants in this 

10 marketplace. 

11 But at the same time debt buying is 

12 a much more concerned market than collections as 

13 a whole. So as you see on the chart about 10 

14 firms could account for nearly all of the charged 

15 off credit card debt that is purchased in recent 

16 years. 

17 Compare that to the overall 

18 concentration of revenues in collection. So in 

19 2007 if you added up all the revenues of the top 

20 20 collection firms in the United States it would 

21 only account for 35 percent of industry 

22 revenues. That's a fairly modest level of 
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1 concentration by most standards. So debt 

2 buying is definitely a much more concerned 

3 business than is collections as a whole. 

4 And as you can see if you're going 

5 to buy that debt you have to have a balance sheet 

6 that supports it. And so publicly held 

7 collection firms certainly buy a significant 

8 share of this paper. And prior to the crisis 

9 Wall Street was also providing a fair bit of 

10 capital in order to facilitate the purchases of 

11 this defaulted debt. Probably a lot less so 

12 today. 

13 And there's some reasonable 

14 evidence that the price of the debt that is 

15 bought follows the business cycle. At least the 

16 numbers that you see in the Nilson Report, they 

17 were higher at the peak of the U.S. economy and 

18 they fell quite a bit thereafter. There has 

19 been some recovery since then. 

20 But the numbers here are actually 

21 high when you compare them to what you see in the 

22 annual reports of some of the largest collection 
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1 firms that engage in debt buying. 

2 Now this next figure you have to take 

3 a little bit with a grain of salt because it will 

4 include debt that is purchased and sold more than 

5 once. So there's some double counting in the 

6 data. 

7 But the underlying point here is 

8 that this is a market that is large and it was 

9 growing very rapidly in the first half of the two 

10 thousands. And then of course there was a 

11 contraction with the economy after the housing 

12 market peaked. And there may be some evidence 

13 of a recent recovery in the last couple of years. 

14 Now I want to conclude with some 

15 final observations that I suspect are going to 

16 be reflected in a number of the other panels 

17 later on today. So I think we've already made 

18 the observation that effective collections is 

19 important for credit markets. There's 

20 absolutely no doubt about that. 

21 At the same time there are these 

22 important consumer protection issues. And as a 
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1 researcher I can tell you that both of these 

2 aspects require much more rigorous research to 

3 understand these issues well. And I'll be 

4 honest with you, the industry is going to have 

5 to help us in order to do that research. 

6 The other important observation is 

7 that consumer and commercial collections are 

8 really very different animals. As was alluded 

9 to earlier millions and millions of consumers 

10 are exposed to collections. Many, many 

11 millions of accounts are placed for collections 

12 each year. 

13 But compared to a commercial or 

14 industrial loan, or even a mortgage, we're 

15 talking about balances that are relatively 

16 modest, two orders of magnitude smaller. And 

17 then of course the recoveries are another order 

18 of magnitude smaller. And so that immediately 

19 means that the strategy and the technology that 

20 you use to engage in collections or to litigate 

21 in court is going to be different. 

22 This next point is extremely 
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1 important, and that is that the U.S. collection 

2 marketplace is disintegrated. You could think 

3 of a collection model in which everything is done 

4 in-house. Everything would be first party 

5 collection. All of the data would be there and 

6 all of the underlying technology and systems 

7 would be built in-house. That is not the U.S. 

8 marketplace. It does not exist. 

9 Instead we have first party 

10 collections. We have this very large third 

11 party collection industry. We have the debt 

12 buying industry. We have collection attorneys. 

13 We have the court system. We have all of those 

14 service providers that I alluded to earlier. 

15 And of course all of this involves a very 

16 significant transmission of information back 

17 and forth that we've been talking about. 

18 It doesn't have to be this way but 

19 it is. And it's very important to understand 

20 why it is that way and the implications for the 

21 marketplace and also for consumers. And that 

22 really is at the core of what we're going to be 
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1 talking about the rest of today. 

2 As I alluded to this is an activity 

3 and an industry that is large and changing 

4 rapidly. The market is segmenting between 

5 those smaller and the larger firms. We have 

6 very wide spread of the sophisticated adoption 

7 of information technology. And you can see in 

8 the industry surveys it's very rapid, this 

9 technology adoption. 

10 And I didn't allude to this but the 

11 industry is also responding to the consolidation 

12 of consumer lending more generally which has 

13 occurred over the last 10-year period. 

14 We've already mentioned the 

15 significance of the legal collection process 

16 being a local phenomenon which means it has a lot 

17 of diversity, it has a lot of idiosyncrasies and 

18 to some extent it is still a very paper-based 

19 system. And that means that at least some of the 

20 reforms that we would expect to see are going to 

21 happen at that local level. And it also means 

22 that it's a challenge for researchers to really 
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1 understand that part of the process. 

2 And as I already alluded to the 

3 regulatory environment is highly complex. Fair 

4 Debt Collection Act was passed in 1977. If you 

5 remember that was the year the first Clash album 

6 came out. So that was a while ago. 

7 And anybody who understands this law 

8 also understands that the requirements of this 

9 law vary so much depending on the specific role 

10 you're playing, the specific activity, and the 

11 specific point in your interaction with the 

12 consumer. And that requires very sophisticated 

13 compliance and training to be able to do well. 

14 And there are much better qualified people in the 

15 room to speak to that point than I do. But that 

16 complexity of the regulatory environment 

17 certainly influences what we see today. And 

18 with that I will close my remarks. 

19 (Applause) 

20 MR. DWYER: Thank you, Bob. And 

21 now for a presentation about how information 

22 flows through the collection process from John 
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1 Tonetti, Program Manager in the Office of 

2 Deposits, Cash, Collections and Reporting 

3 Markets at the CFPB. 

4 (Applause) 

5 MR. TONETTI: Good morning. And 

6 thank you all for coming or for watching on the 

7 webstream. As Dan said my name is John Tonetti 

8 and I'm the Program Manager for Debt Collections 

9 at the Consumer Financial Protection Bureau in 

10 the Research Markets and Regulations Division. 

11 I came to the Bureau with over 30 

12 years of experience in the debt collection 

13 industry. In my career I've been a senior 

14 executive for collections and recovery at three 

15 creditors, I've been the president of a large 

16 collection agency, and I have brokered sales of 

17 distressed consumer debt. Now I'm a regulator. 

18 My presentation describes the flow 

19 of information in what we refer to at the Bureau 

20 as the debt collections ecosystem, and it's 

21 based upon my experience. It is representative 

22 of how information flows through the system but 
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1 it will not describe every transaction as there 

2 are many variations and permutations depending 

3 upon the individual players in the space. 

4 However, it is illustrative of the 

5 many flows and dependencies within the industry 

6 and of areas in which there is potential for 

7 error, omission, and discrepancy. As Bob has 

8 described, there are billions of dollars and 

9 millions of accounts flowing through the 

10 ecosystem and it is important to understand that 

11 even errors that occur in a small percentage of 

12 cases can result in large absolute numbers of 

13 consumers experiencing or potentially 

14 experiencing consumer harm. 

15 In the beginning there was just the 

16 lender and the borrower. All of the borrower's 

17 financial and demographic information is 

18 maintained on the creditor's system of record. 

19 Information maintained would be payments, 

20 charge activity, and interest rates as well as 

21 the consumer's name, address, credit history and 

22 any other contact information the lender might 
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1 have. 

2 And as long as the consumer makes his 

3 payments and has no issues that's pretty much the 

4 extent of the information flow. Although the 

5 creditor may report his consumer credit 

6 performance to the credit reporting agencies. 

7 The creditor may also receive 

8 updates from the credit reporting agencies about 

9 the borrower's experience with other creditors. 

10 From time to time the creditor may 

11 have a question or problem with this account. 

12 Most of the time these issues are documented or 

13 memorialized in the creditor's relationship 

14 management or CRM system. This would contain 

15 information on customer questions, notes from 

16 conversations, disputes, and complaints. Most 

17 often there may be some limited feeds between the 

18 system of record and the CRM. But if you want 

19 the full story you'll likely need to review the 

20 CRM information. 

21 For the vast majority of American 

22 consumers this is likely the flow of the 
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1 information for the entire life cycle of the 

2 lender-consumer relationship. 

3 Now suppose our borrower had some 

4 financial difficulties causing him to miss or be 

5 late on some payments? At that point there is 

6 an information flow from the lender's system of 

7 record to the lender's internal collections 

8 system. Most of the time demographic and 

9 financial information from the system of record 

10 is passed to the internal collections system so 

11 that the lender's representatives can contact 

12 the consumer and knows what the consumer's 

13 payment history has been like. 

14 In most collections systems this 

15 information flows one way. Conversations and 

16 correspondence are recorded on the collections 

17 system but very little information flows back to 

18 the system of record other than perhaps some 

19 notations that the account is being collected 

20 upon. 

21 If the borrower pays, it is likely 

22 that the information flow to the collections 
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1 system stops once there is a payment that brings 

2 the account current again. After some period of 

3 time it is likely that the borrower's record will 

4 be purged from the internal collections system 

5 so that prior history will be lost, or at least 

6 not easily available. 

7 If the borrower doesn't pay at some 

8 point the account will be charged off. Usually 

9 this is when a portion of the balance has been 

10 unpaid for 6 months with credit cards or 4 months 

11 with other types of loans. 

12 At that point many lenders move the 

13 borrower to a new system, a recovery system. In 

14 some cases information from the collections 

15 system is passed to the recovery system, in some 

16 cases it isn't. In some cases the internal 

17 recovery system now becomes the system of 

18 record. In some cases the system of record 

19 remains as the original system of record. 

20 The internal recovery system, like 

21 the collections system, is an inventory control 

22 system and a receptacle for note-taking and 
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1 documenting as well as helping to manage third 

2 party vendors such as collection agencies. 

3 In most cases, some but not all of 

4 the lender's information is transmitted to the 

5 agency so the collector can recover on their 

6 behalf. Often missing is information gathered 

7 by the lender previously such as the history of 

8 disputes, what the lender's representative 

9 heard from the consumer, what they may have told 

10 the consumer, and similar information. 

11 What is conveyed is most often 

12 demographic and financial information so the 

13 consumer can be contacted, the balance on the 

14 account, and perhaps some information on 

15 recovery prospects such as a collections score. 

16 This information is used to prepare the 

17 FDCPA-required g-notice which is a notice sent 

18 by collectors advising the consumer that they 

19 have been assigned the debt, who the creditor is, 

20 their balance, and a notice of their consumer 

21 rights under the FDCPA as well as any applicable 

22 state disclosure requirements. 
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1 So with a minimum of information 

2 available, the external collection agency 

3 begins to collect from the consumer. 

4 Information that the consumer may have conveyed 

5 to the lender is unavailable to the collection 

6 agency so the consumer must go through this 

7 information once again with the agency. 

8 It is important to recognize that 

9 the assignment to a collection agency is a point 

10 of stress to the consumer. For the first time 

11 they're being contacted by a company of which 

12 it's likely they've never heard. 

13 Further complicating this is the 

14 debt may also be referred to by the name of a 

15 lender the consumer may not recognize. For 

16 example, the consumer may have a retail card and 

17 they're familiar with the retailer. They may 

18 not be familiar with the bank that underwrote and 

19 managed the debt. The collector will often 

20 refer to this bank when describing the debt to 

21 the consumer in a call or letter making it 

22 possible that the consumer does not recognize 
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1 the debt. 

2 In some cases the collection agency 

3 may report the debt to credit reporting 

4 agencies. The lender may stop reporting but 

5 it's also possible that they will continue to 

6 report. Collectors may also receive 

7 information from the CRAs such as scores or 

8 triggers that indicate the consumer may now be 

9 more able to pay. 

10 If the consumer makes payments to 

11 the collection agency the agency will inform the 

12 lender so that it can update the system of record 

13 and hopefully any credit reporting they do. It 

14 is possible that this doesn't happen or it 

15 doesn't happen on a timely basis. 

16 It is important to note that in most 

17 cases the system of record is now that of the 

18 collection agency as well as the creditor. 

19 Synchronization and updating of these two 

20 systems of record is important and may be subject 

21 to time lags. 

22 Recently we have heard that some 
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1 lenders are requiring their collection agencies 

2 to work from the lender's collection system and 

3 therefore the lender's system of record, meaning 

4 that all financial and demographic information 

5 is maintained at the lender which minimizes the 

6 risk of systems being out of sync. 

7 When there are two systems of record 

8 the timeliness of financial and demographic 

9 updates is often dependent upon how 

10 sophisticated the players are. The more 

11 sophisticated the lenders and agencies the more 

12 likely these updates are timely and accurate. 

13 Most companies have elaborate 

14 balancing and reconciliation routines to ensure 

15 that errors are found and fixed quickly. But 

16 still, timeliness can be an issue as well as the 

17 intersection between when the information flows 

18 from the lender to the agency to the credit 

19 reporting agency and through the ecosystem. 

20 If the consumer doesn't pay an 

21 agency it is likely that the lender will recall 

22 the account and place it with another agency. 
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1 Again, this is fed from the lender to the second 

2 or third or subsequent agencies so that any 

3 information that the first agency gathered such 

4 as disputes or the reason the consumer may not 

5 be paying is not available to subsequent 

6 collectors and must again be conveyed by the 

7 consumer to the new collection agency. 

8 Furthermore, it is possible that 

9 agency 1 receives an account for a payment that 

10 is now with agency 2. This needs to get 

11 reconciled so the lender gets paid and agency 2 

12 gets paid, and the information reported to the 

13 reporting agencies and the balance agency 2 is 

14 trying to collect is accurate. Again, 

15 timeliness and accuracy of this information 

16 transfer can become an issue. 

17 As these agencies may also report to 

18 the credit reporting agencies, at least 

19 theoretically the other agency ceases 

20 reporting. Otherwise the same credit line may 

21 be reported multiple times. 

22 But this takes discipline within the 
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1 collection agency as credit reporting may often 

2 not be part of their primary business. Many 

3 lenders do not allow their agencies to report to 

4 CRAs as long as they still own the account as they 

5 wish to control reporting of their accounts. 

6 At some point a lender may decide 

7 that the best recovery strategy is to sell the 

8 account. Usually this occurs when the lender 

9 feels the sales price exceeds the net present 

10 value of the expected stream of collections. 

11 But a sale can also occur for other 

12 reasons. For example, capacity amongst its 

13 collection agencies or a feeling that collection 

14 efforts have been exhausted. 

15 There has been a lot written about 

16 the discount to face value buyers may pay to 

17 obtain these accounts. Frequently the 

18 expression "pennies on the dollar" is used. In 

19 my experience virtually all sales of distressed 

20 consumer debt are the result of a competitive 

21 bidding process. 

22 The discount reflects the market 
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1 valuation of the debt and is a function of the 

2 expectation of collectability by the buyer, the 

3 seller and other bidders. 

4 Once a debt sale occurs information 

5 generally flows from the selling creditor to the 

6 debt buyers but little to no information flows 

7 from the buyer to the bank. An exception to this 

8 may be the buyers may request information from 

9 the bank. For example, copies of statements or 

10 other documents. As you will hear later the FTC 

11 found that there were quite often limits or 

12 restrictions on how much, how often and what 

13 types of documents buyers may receive, and how 

14 much it would cost the buyer to obtain them. 

15 It is also important to note the 

16 information given by the lender to the debt buyer 

17 for collection purposes is minimal. Usually it 

18 is an electronic spreadsheet that contains basic 

19 demographic information and some financial 

20 information. Usually the same type and amount 

21 of information that the lender originally 

22 conveyed to its collection agencies. 
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1 As part of the purchase usually the 

2 buyer obtains the right to obtain some 

3 documentary evidence such as statements, 

4 applications, affidavits, and things of that 

5 sort. Again, there may be limits to how many 

6 documents the buyer can obtain, how often, and 

7 for how long they can obtain them, and there may 

8 be an additional charge for these documents. 

9 As time elapses and the volume of 

10 documents requested increases it is not unusual 

11 for the price of documentation to increase as 

12 well. 

13 Debt buyers too may report to credit 

14 reporting agencies at which point the original 

15 lender and their collection agencies should stop 

16 reporting or at least report that the account has 

17 been sold. 

18 In some cases debt buyers will also 

19 use collection agencies or attorneys to collect 

20 their purchased debts. This can be even more 

21 confusing to the consumer as now they're getting 

22 calls from a collector they've never heard about 
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1 a creditor, the purchaser, that they've likely 

2 never heard of either. 

3 Although some buyers and collectors 

4 may disclose who the originator was there is no 

5 federal requirement that this information be in 

6 the initial g-notice to the consumer. To make 

7 the debt even harder to identify purchasers have 

8 a legal right to assess interest on their 

9 purchased accounts. This can make the balance 

10 unidentifiable to the consumer as well. 

11 So now you have a collector that the 

12 consumer has never heard of collecting for a 

13 creditor/buyer the consumer has never heard of 

14 about a balance that the consumer doesn't 

15 recognize. Also, the consumer may report to 

16 credit reporting agencies as well, further 

17 confusing the consumer should they look at their 

18 consumer credit report. 

19 If an account remains uncollectible 

20 with the first agency it is possible that the 

21 buyer will recall the account and place it with 

22 a secondary or tertiary collector, or retain an 
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1 attorney to file a lawsuit. If a lawsuit is 

2 filed a new process kicks in in which the 

3 consumer is served a notice to appear in court. 

4 Again, should the consumer receive the service, 

5 and there is some evidence that service is not 

6 always reflected accurately, there is a 

7 probability that the consumer will not recognize 

8 the creditor or the debt and fail to appear in 

9 court. 

10 Should this happen it is likely the 

11 attorney will file a motion for default judgment 

12 and if granted the consumer may be subject to 

13 wage garnishment or asset attachment to satisfy 

14 the debt. If the consumer does appear it seems 

15 that quite often the plaintiff is unprepared 

16 with documentary evidence as quite a few of these 

17 cases are dismissed. 

18 If the buyer determines for some 

19 reason that there is no point in filing a lawsuit 

20 and they've exhausted their collection avenues 

21 they may decide to sell the account to a 

22 secondary buyer. Industry practice is to sell 
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1 accounts with the balance as it was when the 

2 account was charged off by the original lender. 

3 This means that any interest in fees the buyer 

4 had assessed previously have to be rolled back 

5 or at least the original charge-off balance 

6 reinstated. 

7 The secondary buyer may now also 

8 decide to assess interest. And if he calculates 

9 on a different basis now the balance does not 

10 only resemble the original charge-off balance, 

11 it also doesn't resemble the balance the 

12 previous owner was attempting to collect. 

13 Additionally, it is important to 

14 note that the secondary buyer has no 

15 relationship with the original lender. Should 

16 the secondary buyer wish to obtain additional 

17 information or documents they must go through 

18 the first buyer to go to the lender for it, which 

19 can be time-consuming, error-prone and subject 

20 to lack of fulfillment of the request. 

21 Secondary buyers may decide to sell 

22 as well, and again they convey information to 
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1 their buyer. But if that buyer wishes more 

2 information they must go back through the chain 

3 potentially exacerbating the time, the errors 

4 and confusion on the part of the consumer. 

5 It is easy to see the potential for 

6 errors and certainly the difficulty collectors, 

7 attorneys, and debt buyers can have in obtaining 

8 information and documentation to ensure that the 

9 consumer could identify the debt as being 

10 theirs. In this type of ecosystem it is no 

11 wonder that consumers complain that they are 

12 being called about debts they don't owe or debts 

13 they don't recognize. 

14 Recently we have heard that the 

15 industry is taking steps to correct some of these 

16 problems. Lenders are subjecting their 

17 potential buyers to more scrutiny, wanting to 

18 make sure they are dealing with more reputable 

19 companies such as making sure they have audited 

20 financials. 

21 Lenders are also examining their 

22 buyer processes for document handling and 
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1 requiring contractually that their buyers only 

2 litigate accounts for which they've obtained 

3 evidentiary documents. 

4 The DBA International, the 

5 association of which many debt buyers are 

6 members, recently instituted a certification 

7 program to help regulate and police the 

8 industry. Some lenders are requiring that 

9 their buyers not outsource to third party 

10 collection agencies and have in-house 

11 collectors to collect on purchased debt. 

12 And some lenders are restricting the 

13 debt buyer from reselling their accounts, either 

14 prohibiting it or requiring that the lender 

15 approve the sale beforehand. 

16 Agencies are feeling the pressure 

17 too. Many lenders are consolidating the number 

18 of agencies they use so many agencies are seeing 

19 reduced market share and increased scrutiny of 

20 their operations. 

21 In some instances, banks are 

22 changing the way they compensate their agencies, 
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1 putting less emphasis on commission in the hopes 

2 this would reduce the incentive for collectors 

3 to push the envelope and perhaps violate the law. 

4 This can lead to narrower margins for the 

5 agencies. 

6 Requiring the agency to use the 

7 lender's collection system as I talked about 

8 earlier reduces the agency's autonomy and their 

9 ability to revise collection strategies. 

10 Within both the debt-buying and collection 

11 industry there is a move to consolidations as 

12 players sell their portfolios or get acquired by 

13 some of the larger, more sophisticated 

14 participants. 

15 The flow of information in the 

16 collections ecosystem is complex and there are 

17 many opportunities for missteps and errors. As 

18 I said earlier the number of consumers involved 

19 is large, estimated to be at least $30 million 

20 annually. 

21 Even a relatively small error rate 

22 can lead to a large number of consumers harmed. 
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1 Again, I welcome you to this conference and I 

2 look forward to your input today as to how we can 

3 work together to solve these issues and make it 

4 easier for consumers to resolve their debts. 

5 Thank you. 

6 (Applause) 

7 MR. DWYER: Okay. Thank you, John. 

8 Well, we are going to break now. I'd like it if 

9 we could start again at 10:40. 

10 And just a quick note on seating. 

11 We have a lot of reserved seating up front. I 

12 think during the break we're going to take some 

13 of those reserved seats away. So please feel 

14 free to file in forward. Okay, thank you. 

15 (Whereupon, the foregoing matter 

16 went off the record at 10:19 a.m. and went back 

17 on the record at 10:43 a.m.) 

18 MR. DWYER: Okay, so I am not in fact 

19 Heather Allen despite the name tent up here but 

20 I'd like to call Heather Allen forward. Heather 

21 is a senior attorney here in the Division of 

22 Financial Practices at the Federal Trade 
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1 Commission. 

2 (Applause) 

3 MS. ALLEN: Good morning, everyone. 

4 I'm delighted to be here today to share with you 

5 some of the highlights of a report that the 

6 Agency released earlier this year called "The 

7 Structure and Practices of the Debt-Buying 

8 Industry." 

9 We believe this report is the first 

10 of its kind. And it represents the culmination 

11 of an extensive, multi-year study of the 

12 industry. 

13 Before I begin let me make the usual 

14 disclaimer that the views I express here are my 

15 own, not those of the FTC or any individual 

16 Commissioner. However, I will be referring 

17 primarily to the Debt-Buyer Report which is a 

18 Commission publication and does reflect the 

19 Commission's positions. 

20 The FTC commenced this study back in 

21 late 2009 to gain a better understanding of the 

22 industry. As the Commission has said 
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1 previously the advent and growth of debt buying 

2 has been the most significant change in the debt 

3 collection business in recent years and thus 

4 it's important to us for policy and law 

5 enforcement purposes that we have a very good 

6 understanding of it. 

7 As part of the study we wanted to 

8 explore any possible links between debt buying 

9 and some of the consumer protection concerns 

10 that we've seen in the debt collection industry, 

11 and in particular information flow issues that 

12 may lead to collection attempts against the 

13 wrong consumer or for the wrong amount. 

14 The primary source of data for this 

15 study came directly from nine of the largest debt 

16 buyers in the U.S. In 2008 they collectively 

17 purchased over three-quarters of all debt sold. 

18 The Commission issued to these nine 

19 debt buyers what are known as 6(b) orders that 

20 required them to produce extensive data about 

21 their business practices and how they receive, 

22 acquire, and transfer information about 
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1 consumer debts. 

2 In response we received from the 

3 debt buyers data from more than 5,000 portfolios 

4 that they purchased during a 3-year period 

5 between 2006 and 2009. Within those 5,000 

6 portfolios there were nearly 90 million consumer 

7 debt accounts with a total face value of almost 

8 $143 billion. 

9 Now, the vast majority of the 

10 portfolios that the study debt buyers purchased 

11 were bought from original creditors as opposed 

12 to resellers of debt. And most of them were 

13 portfolios of credit card debt although we did 

14 see portfolios of all other types such as 

15 medical, telecommunications, utility and the 

16 like. 

17 Now, there are some important 

18 limitations to the study that are mentioned 

19 throughout the report. I just want to mention 

20 two of them. 

21 First, we did not obtain data from 

22 smaller debt buyers or from debt buyers who 
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1 purchased most of their debt from other debt 

2 buyers, the resellers. And as it stated in the 

3 report the Commission's experience suggests 

4 that those types of debt buyers that are likely 

5 to be a source of significant consumer 

6 protection problems and may be an area of further 

7 study. 

8 In addition to the data we received 

9 from the nine debt buyers we also considered 

10 research and professional literature related to 

11 debt buying as well as publications from 

12 industry, consumer groups. And we met with some 

13 interested shareholders such as consumer 

14 advocates, industry representatives and the 

15 CFPB. 

16 And of course we relied on our own 

17 extensive experience in debt collection. The 

18 FTC in the past three decades has brought more 

19 than 80 law enforcement actions against debt 

20 collectors. 

21 Now the report does provide a good 

22 background on the legal framework for debt 
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1 buying as well as the history of the debt buying 

2 market and an explanation of the debt buying 

3 process. Many of those topics were touched on 

4 by the previous presentation so I'm going to skip 

5 over them now but please if you haven't had a 

6 chance you can view the report in its entirety 

7 on the FTC's website at ftc.gov. 

8 Now moving straight to some of the 

9 findings in the report. In terms of the prices 

10 paid we found that on average the buyers in our 

11 study paid 4 cents for each dollar of debt. And 

12 our economist did a statistical analysis to help 

13 determine what factors tended to influence the 

14 price of the debt. 

15 We found that buyers paid less for 

16 older debt not surprisingly. And we saw that 

17 the type of debt also mattered. Relative to 

18 credit card debt we saw that buyers paid 

19 substantially more for mortgage debt and 

20 significantly less for medical and utility debt. 

21 The buyers also paid less for debt 

22 where sellers had previously hired third party 
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1 collectors. Now we did not find a significant 

2 difference in price for debt that was sold by 

3 resellers as opposed to the original creditors 

4 after we controlled for other factors like the 

5 age and the type of debt. 

6 As part of the study we also took a 

7 look at a sampling of some of the purchase and 

8 sale agreements that the buyers and sellers of 

9 debt entered into during these debt sale 

10 transactions. 

11 And it does appear that the sellers 

12 draft these documents. We noticed that when 

13 different buyers entered into agreements with 

14 the same seller the structure, organization, and 

15 phrasing of these agreements tended to be the 

16 same. 

17 Now, of course there were some 

18 differences across the different sellers in the 

19 terms and conditions, but there were a few 

20 features that were fairly common that I would 

21 like to highlight. 

22 First, the debt were generally sold 
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1 as is. That is, sellers typically disclaimed 

2 all representations and warranties regarding 

3 the accuracy of the information they provided 

4 about individual debts. 

5 Most of the contracts also provided 

6 very limited put-back rights. In other words, 

7 if a buyer discovered there was missing or 

8 inaccurate information about any of the 

9 individual debts there was usually no right to 

10 put back that debt or get a refund from the 

11 seller. 

12 There were also typically 

13 limitations on the rights of buyers to acquire 

14 documents about the debt. Usually the sellers 

15 would provide a certain number of documents at 

16 no charge up to a certain period of time, 

17 generally 6 months to 3 years after the sale of 

18 debt. 

19 And once that maximum number of 

20 documents was reached or after that period of 

21 time the buyers would typically charge between 

22 $5 and $10 per document. And there would 
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1 usually be a point of time after which the 

2 sellers would no longer be obligated to provide 

3 any documents at all. 

4 Also in the contracts usually the 

5 original sellers had no obligation to provide 

6 documents to secondary and later buyers. So as 

7 was mentioned in one of the previous 

8 presentations those requests had to be forwarded 

9 up the chain through their original purchaser. 

10 And sometimes these resellers charged fees of 

11 their own to request these documents. 

12 One final note about the purchase 

13 and sale agreements. We also often saw 

14 restrictions in how buyers could use the names 

15 of the original creditors in communications with 

16 consumers. 

17 For example, some contracts 

18 expressly forbid buyers from using the name of 

19 the original creditor in the subject line of 

20 letters sent to consumers. And as the 

21 Commission said in the report it's these types 

22 of restrictions that can make it more difficult 
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1 for consumers to identify the debts. 

2 We also took a very close look at the 

3 information and documentation that the debt 

4 buyers received about the debts. There are a 

5 lot of numbers and tables in the report that I 

6 can refer you to. You can go in and look how 

7 often, for example, a consumer's home phone 

8 number was included in the data file that was 

9 given to the buyer upon the sale. 

10 So I'm just going to highlight a few 

11 things here. First, we found that buyers 

12 typically did have all the information that the 

13 Fair Debt Collection Practices Act currently 

14 requires buyers to provide consumers in the 

15 validation notices that are sent to consumers at 

16 the beginning of the collection process. And 

17 that's namely the amount of the debt and of 

18 course they know the name of the current owner 

19 of the debt who is the debt buyer itself. 

20 But we found that the buyers also 

21 typically received from sellers additional 

22 information that could help consumers identify 
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1 that debt if that information were included in 

2 those notices. That includes the name of the 

3 original creditor, the original creditor's 

4 account number, the date of last payment and the 

5 date of charge-off. 

6 Again, those are all pieces of 

7 information that we found in our study the buyers 

8 usually did get. And that, as we mentioned in 

9 the report, may be helpful to include in notices 

10 sent to consumers to help consumers identify the 

11 debt. 

12 There were some pieces of 

13 information that buyers typically did not get in 

14 our study. They did not get dispute and 

15 verification history. And as stated in the 

16 report this type of information, knowing whether 

17 a consumer had previously disputed a debt could 

18 be very relevant to debt buyers in assessing 

19 whether the consumers in fact owed the debt or 

20 if the amount of the debt is correct. 

21 The buyers also typically did not 

22 receive information that would allow the buyers 
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1 to break down the amounts owed into principal, 

2 interest and fees. And again, the Commission 

3 has previously found that that type of 

4 information also would help consumers in 

5 determining whether the amount owed is 

6 incorrect. 

7 In terms of account documentation we 

8 found that buyers obtained very few documents 

9 about debts at the time of sale or afterwards. 

10 For example, at the time of sale buyers received 

11 documents for just 12 percent of debt accounts. 

12 And those were highly concerned within 

13 particular portfolios the vast majority of which 

14 were credit card portfolios. 

15 Now, if the buyers did receive 

16 documentation it was usually one of three types: 

17 account statements, terms and conditions, or 

18 account applications. 

19 We also looked at the information 

20 that debt buyers conveyed when they resold debts 

21 to later debt buyers. And we found it was very 

22 similar to what they were originally provided. 
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1 So in other words these debt buyers 

2 were not discarding information they received 

3 from original creditors but they were also not 

4 supplementing it with information to reflect 

5 their own experience in collecting on the debts. 

6 In terms of the dispute rate we found 

7 that consumers disputed 3.2 percent of all the 

8 accounts on which debt buyers attempted to 

9 collect themselves as opposed to sending out to 

10 third party collectors. And if this 3.2 percent 

11 rate were applied across the entire debt buying 

12 industry it would result in consumers disputing 

13 a million debts a year. And as the Commission 

14 stated in the report this is a significant 

15 consumer protection concern. 

16 However, even this 3.2 percent rate 

17 likely understates the prevalence of 

18 information problems. For example, consumers 

19 may not receive the validation notices. Those 

20 that do may not open them, may think they're junk 

21 mail, or may not even bother sending in a 

22 dispute. 
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1 The rate may not be reflective of the 

2 industry overall. As I mentioned earlier we did 

3 not survey the smaller debt buyers, the debt 

4 buyers who purchase largely from resellers. 

5 And the dispute rate does not include disputes 

6 raised in third party collection efforts. 

7 One final note on the dispute rate. 

8 I will say our analysis did not reveal any 

9 statistically significant relationship between 

10 the likelihood of a debt being disputed and a 

11 debt's age or face value. 

12 We also took a look at how often debt 

13 buyers verify debts that consumers disputed. 

14 As you know under the FDCPA if a consumer 

15 disputes the debt in writing within 30 days of 

16 receiving a validation notice the collector must 

17 cease collection efforts on the debt until the 

18 collector obtains verification of the debt. 

19 In our study the debt buyers 

20 reported that they verified about half of all 

21 disputed debts. They were more likely to verify 

22 debts obtained from the original creditor as 
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1 opposed to other debt buyers. They were less 

2 likely to verify debt that was more than 6 years 

3 old compared to debt that was less than 3 years 

4 old. And they were less likely to report 

5 verification of medical, telecommunications, 

6 and utility debt as compared to credit card debt. 

7 Some caveats about this 

8 verification rate data. The Commission itself 

9 did not determine that the debts were verified. 

10 These were all self-reported rates of 

11 verification by the buyers and the Commission 

12 does not know what the buyers did to verify the 

13 debts. 

14 In terms of resale of disputed debt 

15 our survey found 2.9 percent of disputed debts 

16 were resold. And that breaks down to 4.9 

17 percent of verified -- or self-reported as 

18 verified disputed debts and 0.8 percent of 

19 unverified disputed debts. 

20 Now, only two of the debt buyers in 

21 our survey had the data on this topic, the resale 

22 of disputed debt. So this is another area where 
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1 further study may be needed. 

2 The final major topic that the 

3 report covers is debt age. We found in our study 

4 that most of the debt was not particularly old 

5 or beyond the statute of limitations. In most 

6 states the statute of limitations for credit 

7 card debt is between 3 and 6 years old. And in 

8 our study almost 70 percent of the debt was less 

9 than 3 years old, and just a little over 12 

10 percent was older than 6 years. 

11 Now, again I note that our study, we 

12 were looking at buyers who generally bought from 

13 the original creditors so we would expect them 

14 to have newer debt. And indeed when we isolated 

15 portfolios that were bought from resellers we 

16 saw that the age of the debt did increase. 

17 We did not obtain data on how often 

18 the debt buyers filed suit on out-of-statute 

19 debts, but we did find that debt buyers generally 

20 know the age of the debt they are collecting 

21 because they do typically receive the date of 

22 last payment or the charge-off date. 
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1 Now of course there are a number of 

2 questions the study did not address including 

3 why buyers did not seek more information or 

4 documentation post sale, or why nearly one-half 

5 of disputed debts were not verified. 

6 It also did not address the 

7 litigation practices of debt buyers which is a 

8 frequent source of consumer protection problems 

9 as noted in one of the FTC's prior reports and 

10 as will be discussed this afternoon. And the 

11 study also did not directly examine the accuracy 

12 of the information that buyers receive and use. 

13 And as the Commission notes in the report it's 

14 these and other areas of debt buying that may 

15 benefit from further study. 

16 Thank you again for your attention 

17 and again if you want to read the whole report 

18 it is available on the FTC's website. Thank 

19 you. 

20 (Applause) 

21 MR. DWYER: Okay. Thank you, 

22 Heather. Just a few announcements before we 
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1 enter into the first panel discussion. 

2 Just so that people know, we've been 

3 getting questions, this morning's presentations 

4 will eventually be posted online at our event 

5 website. That website is -- the URL is a little 

6 long, but ftc.gov/bcp/workshops/lifeofadebt 

7 which is this workshop's title. 

8 And the FTC policy reports that 

9 we've been referring to over the course of the 

10 morning are posted there now. But in a matter 

11 of a few days I think the PowerPoint 

12 presentations we've had will be online. 

13 I'd also like to let people know that 

14 as we enter into the panel discussions now is the 

15 time to be asking questions. So please fill out 

16 question cards if you do have questions for the 

17 panels. We're in a little bit of a time crunch 

18 to answer them but we'll take as many of them as 

19 we can. When you have filled out a question card 

20 please just wave it up and we'll have volunteers 

21 coming around to pick them up. 

22 Okay. Well, then at this time I'd 
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1 like to call up Tom Kane from the Federal Trade 

2 Commission and the members of the first panel. 

3 MR. KANE: Thank you, folks. 

4 Welcome to the first of our four panels. We're 

5 hearing that the mics are -- people can't hear 

6 sometimes on the webcast unless we're talking 

7 close to the mic, so let's -- I guess if you can 

8 hear it like this, you can hear the reverb, then 

9 you know people on the webcast can hear you. 

10 So our panel today, the first panel, 

11 is called "Information Available to Debt 

12 Collectors at the Time of Assignment or Sale." 

13 But in fact we're going to go -- we're going to 

14 talk about that and we're also going to talk 

15 about the information that debt collectors 

16 convey to consumers in their Section 1692(g) 

17 validation notices and the information in their 

18 preliminary collection calls. 

19 So we're going to do our best to 

20 narrow it to just that early part of the 

21 collection process. We're going to try not to 

22 talk about the dispute process or the litigation 
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1 process which will be talked about in the next 

2 two panels. It'll be hard, but we'll do our 

3 best. 

4 So I'll also ask you folks that, if 

5 you're submitting questions, please have them 

6 focus on this first part, the information that 

7 debt collectors obtain early on and also the 

8 information that they share with consumers. 

9 So now I'll ask the five panelists 

10 to introduce themselves and give a couple of 

11 sentences about their organization. And so 

12 we'll start -- we'll go in alphabetical order 

13 because that seemed to work out so well with the 

14 tents. 

15 MR. HASTAK: Okay, so I guess that's 

16 mine. I'm saying that without any fumbling so 

17 I managed the alphabetical order well. 

18 I'm Manoj Hastak. I'm professor of 

19 marketing at the Kogod School of Business at 

20 American University. And I'm also a longtime 

21 consultant at the Federal Trade Commission on a 

22 variety of issues related to consumer 
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1 perception, consumer information processing and 

2 interpretation of information, including 

3 disclosures. 

4 And so I'm assuming I've been 

5 invited to be on the panel because of my work on 

6 disclosures. I've worked on a number of 

7 different projects at the FTC and at other 

8 agencies on disclosures, both very short 

9 disclosures and disclaimers in advertising and 

10 much longer disclosures and communication 

11 efforts, such as the ones we'll be talking about 

12 today. 

13 MS. LYONS: Thank you. I'm Loraine 

14 Lyons. I'm the senior vice president and 

15 general counsel for FMA Alliance, a third party 

16 collection agency. 

17 I've been in the collection industry 

18 for 20 years, and my involvement includes that 

19 I am active with the American Collectors 

20 Association of Texas and I'm a board member for 

21 ACA International, the credit and collection 

22 industry trade association. 
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1 In our industry, we do service a 

2 diverse set of clients and that's been mentioned 

3 earlier. We do service government clients, 

4 financial institutions, retailers, healthcare 

5 providers, and asset buyers. And the data we 

6 receive is going to be dependent on the type of 

7 debt we're collecting. 

8 In our collection efforts, we will 

9 have telephone calls to consumers. We will send 

10 letters to consumers. We will identify the 

11 creditor, the amount of the debt, include the 

12 validation notice that's been referred to as the 

13 G notice. 

14 And we've evolved, too. Nineteen 

15 seventy-seven was a long time ago. Our industry 

16 recognizes that consumers need more information 

17 to identify debts that have been sold or to 

18 identify debts where the creditor is not the name 

19 they're familiar with, like a retailer, even a 

20 hospital. So we do provide additional 

21 information to help consumers. 

22 In our pre-litigation process that 
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1 we're going to keep the focus here, our industry 

2 wants to do what's best for the consumer, whether 

3 it's pre-litigation or litigation. We do want 

4 to do what's best for the consumer. 

5 But in the pre-litigation process, 

6 we feel that what would be important to help the 

7 consumers establish a higher level of confidence 

8 is to have uniform national standards based on 

9 best practices. And with these standards we can 

10 achieve the goal to help the consumer understand 

11 the debt being collected. 

12 On behalf of ACA International and 

13 FMA Alliance, I want to thank the FTC and the CFPB 

14 for providing this opportunity to be on this 

15 panel. Thank you. 

16 MR. PAUKEN: My name is David 

17 Pauken. I am the chief executive officer of 

18 Convoke Systems. Convoke is a software company 

19 located here in the Washington DC area, 

20 Arlington, Virginia. 

21 Convoke has developed a software 

22 solution that enables two-way information 
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1 mobility between credit issuers and their 

2 collection channel partners. These collection 

3 channel partners include collection agencies, 

4 legal networks, collection attorneys, and debt 

5 buyers. 

6 The vision of the company is to bring 

7 what we call information integration to the 

8 collections industry by automating processes. 

9 And we do that by reducing friction in the supply 

10 chain of information. 

11 Convoke provides access to all forms 

12 of data, documents and audio files through a 

13 cloud-based information exchange platform. 

14 And it contains tools for issuers and other users 

15 to bring security, vendor oversight, the ability 

16 to audit, edit, track and analyze the 

17 information. We've also developed tools to 

18 track chain of title for sold debt. 

19 Our customers and our users include 

20 credit issuers and their collection channel 

21 partners, and simultaneously serves consumers, 

22 industry and the regulatory environment. 
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1 Convoke is one of several technology companies 

2 that operate in this space that try to bring 

3 information mobility to the industry. Thank 

4 you. 

5 MR. RHEINGOLD: I'm Ira Rheingold. 

6 I'm the executive director of the National 

7 Association of Consumer Advocates. We're the 

8 association of private attorneys, legal 

9 services attorneys, public interest attorneys 

10 who represent consumers in courts across this 

11 country every single day. 

12 The perspective I hope to bring this 

13 morning is probably a little bit different than 

14 a lot of people here. I believe that the debt 

15 collection system is broken. 

16 I think that it's fantastic -- I'm 

17 really excited to be in a room packed like this 

18 today because I think people are on notice that 

19 there are substantial problems in this industry; 

20 that there are things that need to be fixed; that 

21 we cannot go on like this anymore. 

22 We cannot -- the damage that's being 
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1 done both to our economy and our judicial system 

2 by the bad debt collection practices that we see 

3 every day. I have conversations every single 

4 day with consumer attorneys across this country 

5 and the abuses that we see, the poor information 

6 that we see throughout the process is causing 

7 great harm, particularly to the communities that 

8 we care most about, low- and moderate-income 

9 communities. 

10 And we think that our economic 

11 recovery in many ways is dependent upon getting 

12 some of this debt overhang taken care of and 

13 making sure that consumers aren't forced to pay 

14 debt they don't owe but in fact can contribute 

15 to our economy in a more productive way. And I'm 

16 very pleased to be here today. 

17 MR. TEWELL: Thank you. Hi, 

18 everyone. Larry Tewell. I'm in the Consumer 

19 Credit Solutions Division of Wells Fargo, where 

20 my primary responsibilities are for card 

21 collections and specialty accounts. Specialty 

22 accounts include outstanding unpaid consumer 
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1 debts. 

2 I'm also an active member at 

3 Consumer Bankers Association where I'm vice 

4 chair on the Default Management Committee. 

5 It's a privilege to be here today representing 

6 the industry. 

7 And I think the only thing I'll offer 

8 and we can get underway, Tom, is there's been 

9 much said this morning already about the 

10 importance in resolving unpaid consumer 

11 obligations as it's contributory toward credit 

12 availability and credit affordability. 

13 The one thing that hasn't been said 

14 yet from the creditor-seller perspective is that 

15 creditors only sell unpaid consumer financial 

16 obligations after every effort has been made to 

17 work directly with their customers that we care 

18 so much about. Thank you. And we appreciate 

19 the opportunity to be here. 

20 MR. KANE: Great. Thank you, 

21 Larry. As we can hear we're getting this 

22 feedback and I'm told by people who know more 
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1 about this than I do that it's cell phones that 

2 are somehow near -- 

3 (Laughter) 

4 MR. KANE: I don't know, it could be 

5 mine. I have six. One of mine could be doing 

6 it. How are we doing? I think that's it. I 

7 think back pocket is probably good. 

8 So as I said, we're going to talk 

9 about information received by debt collectors 

10 and then information conveyed to consumers. 

11 And so first we're going to talk about 

12 information received by debt collectors. 

13 And I'm going to break that down even 

14 further and start out, let's talk about 

15 contingency collectors, that is, often called 

16 collection agencies. And then we'll talk about 

17 debt buyers. 

18 So, what information do contingency 

19 collectors currently receive -- or receive 

20 access to -- at the time a creditor assigns a debt 

21 to them. Do they get Excel spreadsheets? Do 

22 they get media? What other stuff? 
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1 Some of it has been talked about this 

2 morning already, but to the extent you guys can 

3 tell us about that. Loraine, as a collection 

4 agency representative, what do you all receive 

5 when an account is assigned to you? 

6 MS. LYONS: All right. Thank you, 

7 Tom. Again, it's going to depend on the type of 

8 a debt and the sophistication of the collection 

9 agency and the creditor. 

10 There are typically electronic 

11 interfaces that -- where information is 

12 exchanged through various software. Then 

13 you're going to have some minimums. That's 

14 common with all types of debt, which would be 

15 like the name of the consumer, their address, 

16 phone number, the amount that's due. Those are 

17 very minimal requirements that are going to be 

18 contained. 

19 We're going to have access to data 

20 depending on the type of debt, depending on the 

21 creditor. In some cases, we have access to the 

22 creditor's system to obtain this data, again 
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1 depending on the sophistication of the parties. 

2 So it will vary and it varies widely. 

3 But as an industry we want to have 

4 the good data so that we collect legitimate 

5 debts. That is our objective. We want to 

6 contact the right consumer and collect the 

7 legitimate debts. 

8 MR. KANE: Great. Loraine, John 

9 Tonetti mentioned a couple of different systems 

10 that creditors seem to have. The customer 

11 relationship management system, when everything 

12 is going smoothly. Then the internal 

13 collections system, and then internal recovery 

14 system after charge-off. Do contingency 

15 collectors tend to get information from the 

16 internal recovery system? 

17 MS. LYONS: Well, I can't comment 

18 exactly which system we're getting the 

19 information from, but I can tell you there is a 

20 constant flow and exchange of information 

21 between us and the creditors, between us 

22 receiving data, us uploading new information 
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1 back to the creditor. And it's a daily process. 

2 It's daily interface exchange of data. 

3 MR. KANE: So you buy a portfolio of 

4 30,000 accounts. There's some information that 

5 is conveyed right from the beginning and then 

6 there's some back and forth? 

7 MS. LYONS: I'm talking from the 

8 perspective of a third party debt collector, not 

9 as an owner of a portfolio. 

10 So there is exchange of data daily. 

11 We may learn of a request for verification of 

12 debt. We're going to notify our creditor client 

13 of that and obtain the information that's needed 

14 to satisfy the request. 

15 We may also reflect a payment has 

16 been made, or reflect a settlement has been 

17 entered into. And so we have this constant flow 

18 of information so that we are reconciling with 

19 each other's systems. 

20 MR. KANE: So, do you as a 

21 contingency collector, do you receive any media 

22 when you first buy -- now I referred to 
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1 portfolio. I know that's what they call it when 

2 you sell a bunch of debts to a debt buyer. Is 

3 there a different term for a whole bunch of 

4 accounts that are conveyed to a collection 

5 agency? 

6 MS. LYONS: Generally we might just 

7 refer to accounts as being placed, placements. 

8 Because we don't own the debt. And I think 

9 that's some of the educational pieces that's 

10 missing in the whole process, the process where 

11 consumers aren't entirely clear of what is the 

12 role of each party. Our role is to collect the 

13 debt as a contingency collection agency. We are 

14 not the owners of that debt. There are some 

15 folks who are the owners of that debt and that's 

16 a different role. 

17 And then of course what I mentioned 

18 earlier, there is some debt that's just 

19 confusing to the consumer because they're used 

20 to seeing on, say, a charge card my retailer. 

21 This is where I went to buy my goods. This is 

22 where I went to get my hammer and nails. But 
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1 that's not the creditor. It's a different name. 

2 And so that's when we would 

3 communicate to the consumer that, yes, the 

4 creditor, because required by law I have to 

5 disclose who's the creditor that's owed the 

6 debt. But then to let them know that they're the 

7 creditor that issued that card for you. The 

8 store that you're familiar with, and we will give 

9 them the name of that store. 

10 Because again we believe to have any 

11 type of effective exchange you've got to have 

12 good communication on both parties. 

13 MR. KANE: Thanks. And so, Larry, 

14 it's my understanding that Wells Fargo sells 

15 debt but also places debt with collection 

16 agencies. Is that right? 

17 MR. TEWELL: I think what I'll do is 

18 say instead of focusing on Wells Fargo let's 

19 focus on what does the industry do. 

20 And the way I would couch that is 

21 creditors in general have four primary options 

22 when debt has gone unpaid for a duration that 
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1 causes us to comply with charge-off 

2 requirements. 

3 And those four primary options are 

4 to work the unpaid debt internally, inside the 

5 bank somewhere. We could indeed as an industry 

6 place it with an agency. Third, we might sell 

7 it into the debt-buying ecosystem. Or we may 

8 choose to work with attorneys and litigate 

9 through the judiciary across the country. So 

10 those would be the four primary things that 

11 creditors have at their disposal to work through 

12 the need for all consumers' benefit to resolve 

13 unpaid debt. 

14 MR. KANE: And so when you -- when 

15 creditors are conveying information to their 

16 collection agencies do you have anything else 

17 you think that the collection agencies are 

18 receiving that we haven't mentioned yet? 

19 MR. TEWELL: No. I mean I think the 

20 industry in general provides the information 

21 necessary for the consumer to recognize the 

22 debt, to understand the debt, their financial 
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1 situation, and what their options are. I 

2 wouldn't have anything to add to what Loraine 

3 said. 

4 MR. KANE: Okay, thanks. So Ira, 

5 do you think the information that contingency 

6 collection agencies are receiving at the time a 

7 group of debts are assigned to them, is that 

8 sufficient for them to collect do you think? 

9 MR. RHEINGOLD: Well, I don't have 

10 -- I mean, I'm hearing what's being said here 

11 today. I don't have actual information about 

12 what is being transferred. 

13 I mean I have real concerns. I 

14 think our biggest concern currently is the debt 

15 buyer industry but I think there's also debt 

16 collection practices that are off as well. 

17 I think when we think about the 

18 information that a debt collector has I think 

19 it's important as Larry said that they have 

20 information that the consumer can understand 

21 what that debt is. 

22 The original contract needs to be 
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1 part of it. I think the original contract has 

2 to be part -- one of the concerns that we always 

3 have is that when consumers see the amount of the 

4 debt that's owed it's not broken down. 

5 Is that actually -- is that 

6 information actually being provided? Do we get 

7 information about what's the principal, what's 

8 the interest, what's the fees. We have real 

9 concerns that when the debt collection process 

10 happens it's because you don't have that broken 

11 down; you have interest on interest. 

12 So I don't have the data, I can't 

13 speak for the industry in terms of what 

14 information they convey to each other, but I can 

15 tell you that the concerns we have in terms of 

16 the-- I think the key concerns are that the 

17 original contract needs to be in place, the 

18 credit history needs to be in place. 

19 There needs to be an understanding 

20 about what the amount is composed of so that the 

21 consumer has a better opportunity to dispute if 

22 necessary. 
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1 MR. KANE: And you think this is 

2 important at the very beginning of the process 

3 before they collect. 

4 MR. RHEINGOLD: I don't think 

5 there's any doubt about it because I think that 

6 information to start with is essential. 

7 Because as the -- I mean I think it was sort of 

8 as John Tonetti walked through sort of the life 

9 of a debt. You know, the further you move away 

10 from that original creditor it's sort of like a 

11 game of telephone, right? The information gets 

12 worse every time it moves along. 

13 And I think when you begin that 

14 process the -- if you're starting with 

15 not-perfect information as you move along the 

16 process, the information just is going to get 

17 worse and worse and worse. So I think it's 

18 essential that that first step of the process, 

19 I think it's essential that the banks, the 

20 credit, I mean all people who are sending debt 

21 out to be collected have real information. 

22 Track this stuff in ways that are meaningful and 
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1 have the documents to back all of that up. 

2 MR. KANE: Let's talk some about 

3 debt buyers and what they currently obtain at the 

4 time they buy a particular debt. To the extent 

5 we can talk about particular debts rather than 

6 portfolios, what information does a debt buyer 

7 generally obtain about a consumer's account at 

8 the time they purchase the debt? Do they get 

9 Excel spreadsheets, media, collector's notes, 

10 prior disputes? Larry, what's your 

11 understanding of what debt buyers receive from 

12 -- at least from primary creditors. 

13 MR. TEWELL: Thank you, Tom. I'm 

14 going to cheat and I'm going to reference the FTC 

15 study that was done because it represents the 

16 industry as a whole. And I think what they said, 

17 and I'm just going to read this, was common was 

18 the consumer name or names, account number or the 

19 last four digits, Social Security numbers, phone 

20 numbers as was mentioned this morning, last 

21 known address, date account opened, date account 

22 charged off, and balance at the time of charge 
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1 off. So those would be the more common things 

2 that are currently provided. 

3 But I think what this topic really 

4 moves us to is a point that I think a couple of 

5 people have made. If we could have uniform 

6 national standards relative to data and media, 

7 that would go a long way to help all the 

8 participants in the debt collection ecosystem 

9 function well and most importantly would have 

10 the tendency to improve the customer experience. 

11 MR. KANE: Okay, thank you. I 

12 think that's something we're going to talk about 

13 before we close this session, some sort of 

14 national standards. 

15 So, Dave, you're with Convoke 

16 Systems and you work I think quite a bit with debt 

17 buyers. Can you tell us briefly again how does 

18 it work? How does the system work? Who hires 

19 you and where does the data come from and what 

20 do you do with the data? 

21 MR. PAUKEN: So a credit issuer 

22 sells a portfolio to a debt buyer. They reach 
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1 their own financial arrangement, and they sign 

2 a contract. Like any asset that's sold, there's 

3 a contract behind it. 

4 Following that sale, they would load 

5 onto Convoke a listing of the accounts that 

6 they've sold with generally all of the 

7 information Larry just mentioned, plus some. 

8 Often you will find in many cases principal 

9 balances, interest balances, other information 

10 breakdowns, Social Security numbers, what is 

11 commonly called in the industry “row-level 

12 data.” And that information is provided to the 

13 debt buyer. They confirm that that is what they 

14 in fact bought. 

15 And then different issuers have 

16 different approaches to delivering documents. 

17 Some deliver documents at the time of sale. 

18 They'll provide the last 6 or 12 months of 

19 statements. Others make them available upon 

20 request, either through our system or, if 

21 they're not using Convoke, another system and 

22 get the documents as they need them. And that's 
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1 how it works. 

2 MR. KANE: Great. Okay. So what 

3 sorts of documents -- are there any sorts of 

4 documents -- I think you might have mentioned in 

5 a previous conversation some kinds of documents 

6 that your database could hold that you aren't 

7 being asked to hold at this point? 

8 MR. PAUKEN: We can capture just 

9 about any type of document. I will say that the 

10 predominant requirements from the debt buyers 

11 are the charge-off statement and the last 

12 statement that reflects either a payment or a 

13 charge. We're generally able to deliver nearly 

14 100 percent of those. Not 100 percent, but 

15 nearly 100 percent, of those in a relatively 

16 short period of time. And that seems to satisfy 

17 many of the requirements of the debt buyer. 

18 If that doesn't satisfy it and they 

19 need applications, terms and conditions, we can 

20 provide all of that information. And many 

21 credit issuers are doing that with or without 

22 Convoke. Our goal is to do that in a more 
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1 efficient way. But we have observed that the 

2 industry does make an attempt to provide that. 

3 MR. KANE: Okay. So the 

4 information that debt buyers are obtaining at 

5 the time of sale. Ira, does that seem 

6 sufficient to you? 

7 MR. RHEINGOLD: Guess what my 

8 answer's going to be. But I want to pull back 

9 for a second here because I think there's 

10 actually a predicate here. And I am going to 

11 talk about debt buyer information. 

12 But I come out of representing 

13 homeowners in the mortgage world and the fights 

14 that we've had with the servicers. And we talk 

15 about information that's being sold to the debt 

16 buyers as if that information to start with is 

17 reliable. 

18 And I think that one of the 

19 experiences that we've had over the last 4 or 5 

20 years is I have real doubts, and I think anybody 

21 who's been paying attention should have real 

22 doubts about credit issuer's ability to maintain 
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1 good information. 

2 I mean we've seen it time and again 

3 where the amounts that they say are owed are 

4 wrong. We've seen a consolidation in the 

5 banking industry where systems from one bank to 

6 another did not match. And you saw all sorts -- 

7 I mean how many bankruptcy claims are there where 

8 proof of -- I mean there's a judge in New Orleans 

9 who pretty much on a daily basis provides a 

10 spreadsheet to the banks so that they can do an 

11 audited account of the amounts that are owed 

12 because banks have shown an inability to keep 

13 records accurately. So I think that's a 

14 predicate to our discussion here. 

15 Because I think some of the 

16 information -- so we talk about what the banks 

17 provide to debt buyers. I think there are some 

18 real internal questions about creditors and 

19 about the information that they are keeping and 

20 their ability to keep it accurately. And I 

21 think we saw that in the mortgage market and I 

22 think we see it even more in the debt market. So 
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1 I think that's one point. 

2 Now, in terms of the information 

3 that's being sold I think we all believe in 

4 having the marketplace sort of dictate some of 

5 these things that are happening. And I would 

6 just -- the question that keeps wrapping around 

7 my -- I was talking to Dave beforehand. The 

8 thing that keeps rapping me in my head and the 

9 thing that I can't get my brain around is, if this 

10 information is so accurate and it's so good, why 

11 is it being sold for 3 and 4 cents on the dollar, 

12 and 2 cents on the dollar, right? I mean I don't 

13 understand that. 

14 So I think if in fact you were 

15 providing valuable information that would be 

16 useful in terms of collecting debt, that 

17 actually was reliable, that provides sufficient 

18 proof that this was the right person and this is 

19 the right amount of money that they owe, and 

20 here's the original contract, and here's an 

21 accounting all along, that would be worth a lot 

22 more than 2 and 3 and 4 cents. But it's not. 
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1 And I think the market's valuation of that makes 

2 my point, that the information being transferred 

3 to the debt buyer is insufficient. 

4 And then the question is, well, are 

5 the debt buyers happy with that? Well, maybe 

6 they're happy with it because they can sell -- 

7 I mean that goes into the discussions we're going 

8 to have later today about how the use of 

9 litigation maximizes the 2 and 3 and 4 cents 

10 they're paying for this sort of information that 

11 is at best tenuous. 

12 MR. KANE: So I guess you have a 

13 basic -- you question the data that banks have, 

14 the original creditors have. 

15 MR. RHEINGOLD: Right. 

16 MR. KANE: I guess -- 

17 MR. RHEINGOLD: Just to an 

18 additional layer. 

19 MR. KANE: So let's -- for our 

20 purposes today what kinds of documents or 

21 information, whether it's media or whatever, 

22 that debt buyers are not getting now should they 
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1 get at the time of sale? As opposed to having 

2 available to them at the time of dispute or for 

3 litigation. 

4 MR. RHEINGOLD: Right. I mean 

5 again I don't know why that information isn't 

6 simply provided initially, and why that 

7 information has to wait till the moment of 

8 dispute. I think the system would work so much 

9 better if in fact all of the information that 

10 would be necessary to collect that debt, 

11 including proceeding with litigation. And 

12 there's a number of debt buyers we know that's 

13 what their business model is. Their model is to 

14 take this debt and litigate it. 

15 I don't see any reason why the amount 

16 -- what the information the debt buyer will need 

17 to prove that in fact whether it's a court of law, 

18 whether it's sufficient so that if a consumer 

19 disputes a debt either from the G notice or on 

20 a credit report I believe the information they 

21 receive initially should be all of that 

22 information. And they shouldn't have to go 
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1 back. 

2 One, we've seen the contracts and a 

3 lot of times they can't go back or they're 

4 limited in how much information they should get. 

5 I believe they should have all that information 

6 at their fingertips at the moment of sale. 

7 I think a lot of the issues that we 

8 see today in terms of the disputes that are 

9 happening, in terms of the problems in 

10 litigation, would be mitigated if in fact that 

11 information was provided at that initial moment. 

12 MR. KANE: Okay, thanks. Larry, 

13 what do you think? Should everything be 

14 conveyed at the time of sale when you sell a 

15 portfolio? Is it possible? Is it possible to 

16 do something in between everything and what is 

17 being conveyed now? 

18 MR. TEWELL: Words like 

19 "everything" are really hard to work with, but 

20 a little bit of humor aside. This goes back to 

21 the basic premise that it's not a matter of 

22 information availability, it's a matter of 
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1 information variability. 

2 And so the idea that there are 

3 different positions represented in this panel 

4 and in this room introduces two basic things that 

5 we can do as leaders of our industry to better 

6 serve our consumers. And that's, one, create 

7 the standards together rationally. 

8 And, two, I'd like to really see some 

9 good old-fashioned discipline around test and 

10 control where, instead of folks representing 

11 that they know what's best for the consumer, 

12 instead learn by when we add a disclosure, we add 

13 vernacular to a letter, that we then test and see 

14 if that information indeed improved the consumer 

15 understanding, consumer awareness. 

16 So "everything" and "all 

17 information" it's hard to work with, but the 

18 basic premise of getting it right for the 

19 consumer is a goal that we share in common. 

20 MR. KANE: Okay, thanks. What 

21 would be the benefits to having consumers -- I 

22 mean having debt buyers receive more information 
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1 at the time, Ira? At the time of purchase. 

2 MR. RHEINGOLD: I think it makes the 

3 process work. I mean I think if in fact the debt 

4 buyer gets all the information that the original 

5 creditor has I think it just makes everything 

6 that -- one, I think it could cost more money, 

7 which I think would be good for the creditors. 

8 And I think theoretically it should be better for 

9 the debt buyers because I think it would be 

10 easier for them to actually go ahead and collect 

11 the debt. 

12 I think when you provide -- I mean 

13 I think we'll get into this. I mean this is sort 

14 of a question down the line, but I think when you 

15 provide that original notice I think you can 

16 solve some of the problems about disputes when 

17 all of that information is on that original 

18 notice, right. So when was the date accrued, 

19 who was the original creditor. We have your 

20 original contract. Here is a breakdown of the 

21 debt we owe. 

22 I think some of the issues that I 
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1 always hear from the industry are well, you know, 

2 everybody just disputes it and it's just a 

3 general dispute. And we verify it because we 

4 don't really have a breakdown of information. 

5 Well, in fact I think some of that 

6 gets short-circuited. And I think some of the 

7 issues that -- and some of the fighting that 

8 takes place both in the letter process and in the 

9 dispute process and later on in litigation would 

10 get solved if in fact it was a common practice 

11 that the debt buyer really was standing in the 

12 shoes of the creditor and in fact had the full 

13 information so that that collection would work 

14 much better. 

15 MR. KANE: Ira and Larry, what do 

16 you guys think of some sort of technical 

17 solution, some sort of repository similar to 

18 Convoke Systems or something like that? Could 

19 that solve some of these issues? 

20 MR. RHEINGOLD: Well, I'll go 

21 first. But the only reason I laughed when you 

22 said repository is I think of MERS and I think 
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1 of the nightmare that that created in the 

2 mortgage industry. No offense to anybody here 

3 who might be connected to MERS. 

4 (Laughter) 

5 MR. KANE: But you created a 

6 nightmare if you were connected. 

7 MR. RHEINGOLD: Nonetheless -- I 

8 mean but I've always believed in the mortgage 

9 place. I mean I think -- there's no reason why 

10 technology can't do that. I don't think there's 

11 any reason why this information can't be 

12 created, why you cannot have that information in 

13 a usable, reliable, legally reliable form and be 

14 able to transfer it. 

15 I don't think we have that system. 

16 MERS certainly didn't do it. But is it 

17 something that can be accomplished through 

18 technology? I don't think there's any reason 

19 why it can't be. I think the question really has 

20 to be is what is this industry going to look like 

21 in 5 years from now. 

22 I mean we see it -- again, the 
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1 parallels to me are so obvious in terms of the 

2 unwillingness of banks to spend the money 

3 necessary to make mortgage servicing work 

4 properly. And I think it's a question of 

5 expending capital for future gain. Building a 

6 system where the information flows in a reliable 

7 manner so that people can depend on it. I don't 

8 think that's impossible. 

9 I think there's a general 

10 unwillingness to do it because it's going to 

11 require initial capital outlays to make it work. 

12 But I think fundamentally if we are -- we have 

13 all of this technology at our hand. We've got 

14 somebody here who works on the technologies. I 

15 don't think any of this stuff is impossible. 

16 I think there has to be a will. And 

17 I think maybe it actually is going to require 

18 regulatory pushes and/or litigation pushes or, 

19 you know, to make that happen. But I think those 

20 opportunities are there and I think it can work. 

21 I don't see a willingness from the creditor side 

22 for making that work. 
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1 And I think if I was a debt buyer 

2 trying to collect debts I think ultimately if 

3 they don't see -- I think the writing is on the 

4 wall that this is the way this industry is going 

5 to have to operate. 

6 MR. KANE: Dave, do you have any -- 

7 I'm sorry, I cut Larry off. I guess you've 

8 mentioned national standards. Do you have any 

9 suggestions about things that could be in 

10 national standards for what is conveyed at the 

11 time of sale? And then I'll ask Dave. Larry, 

12 I'll ask you and then Dave if you'd follow up on 

13 what Ira and Larry have said. 

14 MR. TEWELL: Well, first a couple of 

15 things. The industry is very interested in 

16 providing the information necessary for 

17 consumers to understand their obligations, 

18 their financial situation, and work through it. 

19 So there's clearly a willingness on the 

20 industry's part to make the information 

21 available that benefits the consumer. 

22 Second, we are huge proponents of 
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1 technology. Technology equals efficiency, and 

2 so obviously the credit-granting institutions 

3 across the country are interested in being 

4 efficient in all aspects of the ecosystem, and 

5 we invest millions and millions of dollars every 

6 year to make sure that's the case. 

7 With respect to the specific 

8 question about data, are there good ideas out 

9 there. I think what you've heard today is that 

10 some credit originators and sellers provide a 

11 great deal of information and some provide less. 

12 And so at the risk of repeating myself that's why 

13 we need a standard. 

14 The ideas that I see that are good 

15 and would be beneficial include things like the 

16 original creditor name. In that notice, 

17 however, it's important not to confuse where the 

18 obligation resides in terms of ownership. And 

19 so we want to avoid that type of consumer 

20 confusion. 

21 Loraine mentioned that; while it's 

22 not required, providing last payment date and 
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1 amount are also potentially helpful. So yes, 

2 the industry believes there are some additional 

3 things that would be helpful to the consumer. 

4 And I don't see any impediments to why we 

5 couldn't make those things available. 

6 MR. KANE: Okay. Great, thank you. 

7 Dave, what do you think about how some of the 

8 repositories, yours or some others, how they 

9 might help with this information at the time of 

10 sale? 

11 MR. PAUKEN: I think a repository or 

12 an exchange platform can bring great value to the 

13 industry. There's no reason why you couldn't 

14 have a defined set of data standards and document 

15 standards that could be provided to any one of 

16 the collection channels on placement or sale. 

17 Everybody would agree on those standards, and if 

18 as the debt moves from one collection channel to 

19 another, from one agency to a lawyer to a debt 

20 buyer, all of that information would be readily 

21 available to whoever has a permissible purpose 

22 to the account, if it's been placed to them or 
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1 if it's been sold to them. 

2 So I'm very interested in this area. 

3 Obviously I have a business that focuses on it. 

4 And I think it can be a big part of the solution. 

5 Whether it's Convoke or any other technology 

6 company out there. 

7 MR. KANE: Thank you. I want to 

8 move now to the information that debt collectors 

9 convey to consumers in their validation notices 

10 and when they first contact consumers by phone. 

11 First, I want to talk about the 

12 validation notices. And it's written 

13 communications to consumers for which the FTC 

14 has benefitted from Manoj's help for 20 years or 

15 something like that, a long time. 

16 So, Manoj, I think the validation 

17 notice, the 1692(g) notice -- debt collectors 

18 are required to notify consumers that if they 

19 dispute within 30 days, the collection process 

20 will be suspended until they provide 

21 documentation. But debt collectors also must 

22 provide the amount of the debt, the name of the 
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1 creditor to whom the debt is currently owed. 

2 Some would say that some of these 

3 disclosures, because they just track the 

4 language of the statute, that they’re hard for 

5 a consumer to follow. How do you think these 

6 disclosures to consumers might be improved? 

7 What are your thoughts in general about sharing 

8 information to consumers when debt collectors 

9 contact them? 

10 MR. HASTAK: Well, as you 

11 mentioned, Tom, I've been working in this area 

12 for some time. And it's an area fraught with 

13 challenge and frustration, let me say that. 

14 And I really want to make two broad 

15 points. And then we can talk a little more 

16 specifically about the disclosure at hand here. 

17 But I think there's sort of a point 

18 to be made stepping back from these specific 

19 disclosures to the idea of how to develop 

20 disclosures and how one tests them. 

21 Larry mentioned the concept of 

22 consumer testing, which is really half my pitch 
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1 today. And so let me start with that first. 

2 It seems to me that the most 

3 important point I can make is that disclosures 

4 ought to be tested with consumer research. This 

5 is not done as often as one might believe. In 

6 a lot of situations when I am called in to comment 

7 on disclosures, there is a reluctance to test 

8 disclosures. 

9 And part of the challenge is that 

10 many disclosures simply look pretty clear on the 

11 face of it. You know, people -- this is not just 

12 lawyers, for example, developing disclosures. 

13 There's a joke at least within the FTC that 

14 lawyers with disclosures can be dangerous. 

15 But even people who claim to be 

16 experts in consumer research such as myself 

17 often find that the disclosures that they've 

18 created don't work. So I want to start off with 

19 that. Disclosures often don't work. It's 

20 quite a challenge to develop good disclosures. 

21 Consumer testing can also be 

22 expensive. That's part of the issue. People 
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1 are sometimes appalled when I tell them that a 

2 qualitative study with 50 respondents is going 

3 to cost -- I'm making this number up so don't 

4 panic -- $100,000. And people say that's $2,000 

5 a respondent. What is it that this person is 

6 telling you that's so valuable? 

7 (Laughter) 

8 MR. HASTAK: You know, they are 

9 charging more than most of the top lawyers 

10 sitting in this room I think. So, but the value 

11 of testing disclosures is not only that you learn 

12 which disclosures aren't working. And I'll 

13 give you some examples as we go forward here. 

14 But also that you can look for unintended 

15 effects. 

16 And this is particularly important 

17 in a setting where different audiences are 

18 looking for different things from the 

19 disclosure. And that's certainly true here. 

20 So there are people who might be 

21 looking at disclosures from the consumer's 

22 perspective. What is it that the consumer 
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1 should learn? What is it that will maximize 

2 consumer welfare, that will influence consumer 

3 decision-making? Not bias them, but let them 

4 make better decisions. 

5 But then there are unintended 

6 consequences. And one of the points that I 

7 think folks talked about in an earlier call we 

8 made was that if consumers understand, for 

9 example, that they have the right to stop 

10 communication from the collector, that this will 

11 lead to more lawsuits. 

12 I don't know if this is the case, 

13 this is not my specific area of expertise, but 

14 these kinds of tradeoff issues come up all the 

15 time. 

16 One quick example I'll give is work 

17 I did on privacy disclosures under the GLBA, 

18 which are complex privacy statements that 

19 consumers get from banks or financial 

20 institutions. 

21 And initially it seemed very simple 

22 to simply cleanly tell people whether a bank 
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1 provides opt-outs or not for their information 

2 collection. I mean, this is pretty 

3 straightforward. Consumers would like to know 

4 if you give them choices and we should tell 

5 consumers. 

6 The testing revealed that when you 

7 test a bank that doesn't give any opt-outs 

8 because it collects no information or, sorry, it 

9 shares no information, that that's probably an 

10 ideal situation. I don't share, so I don't need 

11 to give you a choice. 

12 Consumers misunderstood that. The 

13 lack of -- so consumers sort of have this opt-out 

14 mentality that says that if a bank doesn't offer 

15 opt-outs there's something shady going on here. 

16 That's a very thorny problem. So designing 

17 disclosures that are neutral that meet multiple 

18 objectives is very challenging in the absence of 

19 consumer research. 

20 And finally, on testing the point I 

21 would make, and this again ties into the comment 

22 I think that Ira made. This notion that the 
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1 better information will actually improve 

2 consumer choice. They'll better understand 

3 what is going on, they'll make better choices. 

4 A long-term study after introducing 

5 a disclosure is very important and again rarely 

6 done. So we look at the FTC debt study, for 

7 example, which among other things was looking at 

8 what factors influence the price of a debt. It 

9 was very interesting. 

10 But it's just one idea. You could 

11 do something similar after good disclosures have 

12 been introduced to look at what are the factors 

13 that influence consumers. Because, again, even 

14 though good disclosures are desirable, it isn't 

15 clear on the face of it that the disclosure will 

16 necessarily impact consumer decision-making, 

17 reduce the number of lawsuits, perhaps have 

18 people more paying back their debt. 

19 I mean I don't fully understand why 

20 people aren't paying their debts, but it's got 

21 to be a complex factor. And the role that 

22 information plays in that process isn't clearly 
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1 understood. So, my main kind of plea would be 

2 for looking at research as a way of improving 

3 disclosures and testing their value, whether 

4 it's very limited or it's substantial in 

5 influencing consumer decision-making. 

6 MR. KANE: Good. I'll ask you some 

7 more about the disclosures that debt collectors 

8 are providing now. 

9 So, Loraine, what sorts of 

10 information are debt collectors currently 

11 providing to consumers in their validation 

12 notices, their 1692(g) notices? 

13 MS. LYONS: Well, commonly we will 

14 track the statute as it's written. We will 

15 provide the information that's required, you 

16 know, the name of the creditor to whom the debt 

17 is owed and the amount that's due. And then, of 

18 course, tracking the language we'll inform the 

19 consumer of how they can obtain verification of 

20 the debt. 

21 But then some industry members have 

22 gone beyond that. Like I've mentioned, if it's 
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1 a retailer that's not the creditor they will 

2 identify the retailer. Or even if it's an asset 

3 buyer they're collecting for, not as the owner 

4 of the debt but as an agency, some -- 

5 MR. KANE: An asset buyer is often 

6 called a debt buyer? 

7 MS. LYONS: Debt buyer, yes. Some 

8 industry members will list the original creditor 

9 and the current creditor, and the original 

10 account number and the current account number. 

11 That's not uncommon. 

12 Because again we want to make sure 

13 consumers understand why we're contacting them 

14 and the debt that is owed. Those are important 

15 elements. 

16 And that's where we go back to if we 

17 can have some uniform national standards based 

18 on best practices with validation of research 

19 that this does, this new information we're going 

20 to give helps them, we're in favor of that. We 

21 want to have a good experience with that customer 

22 or with that consumer. That's important to us. 
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1 And I have to do this because my 

2 experience in this industry has been diverse. 

3 It has been with primarily collection agencies 

4 but to think that the value of debt being sold 

5 is based on the information is I think an area 

6 we need to be careful with. 

7 Because I can tell you 20 years ago 

8 I worked for an asset buyer, a debt buyer who did 

9 buy assets as you might commonly hear for pennies 

10 on the dollar. We had everything. We had the 

11 entire paper portfolio. 

12 But the value is not necessarily of 

13 the data received, it's the value of that 

14 portfolio. And I can tell you the seller was the 

15 government. Resolution Trust Corporation. 

16 MR. KANE: So didn't the fact that 

17 you had all this other stuff sometimes come in 

18 handy? And sometimes make it easier to say to 

19 the consumer, “I'm sorry, Mrs. Johnson, here's 

20 the documentation that shows that you owe it.” 

21 Or, “We're sorry, Mrs. Johnson, as it turns out, 

22 you're the wrong Mrs. Johnson.” 
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1 MS. LYONS: Not necessarily. It 

2 gave us -- that information was available 

3 quicker because we -- I was working for a debt 

4 buyer. It was available to us to give to the 

5 consumer who requested verification of the debt. 

6 But it didn't make the debt more collectable. 

7 It didn't make the debt more valuable. But it 

8 was available. 

9 And I think as we've moved in 

10 technology, and I want to embrace technology 

11 because having paper like that in today's 

12 environment would just almost kill a national 

13 forest. We want to be green in our ecosystem. 

14 I think we can embrace like some new technology 

15 or interfaces where we can house this 

16 information that's critical, that will improve 

17 the collection process. 

18 But to know whether it will improve 

19 or not, we're going to need some research and 

20 some best practices. 

21 MR. RHEINGOLD: I want to respond to 

22 that a little bit. Because I think the 
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1 information -- we talk about the lack. I think 

2 there's minimal information being provided to 

3 the debt buyers. And I think that's 

4 intentional. And I think right now there's no 

5 need to provide them with any more information 

6 because of the way debts are collected today. 

7 I think what we -- and again, this 

8 is a later session and I know you want to keep 

9 it here, but I don't think you can sort of ignore 

10 the fact that the reason why minimal information 

11 is necessary is because of the way debts are 

12 collected today. 

13 And that's the litigation model 

14 where you overwhelm the courts and you don't need 

15 a lot of information because 99 out of 100 times 

16 people don't show up in court and that minimal 

17 information will provide you with the ability to 

18 get a judgment against that debtor. 

19 And I think as we move to a new system 

20 where courts will no longer rubber stamp 

21 hundreds of cases, when we actually have a 

22 judicial system that is fair and neutral, that 
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1 doesn't simply take the word of an attorney 

2 because they're overwhelmed in that courtroom, 

3 then that information that we're talking about, 

4 that I'm saying is necessary, will become 

5 necessary. 

6 Because that's going to be the model 

7 for collecting the debts if in fact litigation 

8 is the model that needs to be used. So I think 

9 it all sort of flows together. And that 

10 information is essential because I think that 

11 litigation model is dangerous and is causing 

12 enormous problems in this country and it will be 

13 fixed. 

14 MR. KANE: Larry, when you talk 

15 about a national standard, is that something 

16 that the Consumer Bankers Association is pushing 

17 or is that something that you personally think 

18 is a good idea? 

19 MR. TEWELL: I'd say from my 

20 conversations around the industry inside and 

21 outside of associations and with other creditors 

22 I think the industry recognizes that, if there 
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1 are standards that could be made common that make 

2 the ecosystem work together more effectively, 

3 that benefits everyone. So I think there's a 

4 consensus generally speaking that if we can find 

5 common ground it'll benefit everyone. 

6 MR. KANE: Okay. Do you have any 

7 ideas just personally of some additional 

8 information that would be useful for debt 

9 collectors to convey to consumers in their 

10 validation notices? And then what should they 

11 convey in a collection call? 

12 MR. TEWELL: Well, first they 

13 should be consistent between the collection call 

14 and the letter certainly. And I don't want to 

15 speak for the debt collection industry. 

16 But just consumer, we're all 

17 consumers. I'm a consumer. I think a couple of 

18 good ideas are the original creditor name in the 

19 proper context. I think the last payment date, 

20 these are good things. 

21 I worry about overwhelming the 

22 consumer, and it's not because we don't want to 
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1 provide the information. We as an industry 

2 collectively and consumers do better when we're 

3 mutually engaged. So it's important and in our 

4 best interest to provide information so 

5 customers can recognize a debt, can engage with 

6 us, and then have it resolved. 

7 The thing that Manoj is mentioning 

8 and that I introduced was the concept of good old 

9 basic test and control is that our experience 

10 collectively as an industry is that if you 

11 provide suddenly too much information and the 

12 consumer begins to feel overwhelmed we shouldn't 

13 be posturing up here about what's right to 

14 include or not to include. We should be testing 

15 and learning through that and making sure that 

16 what those final standards work out to be truly 

17 benefit the customer. That's what we're most 

18 interested in. 

19 MR. KANE: Okay, thanks. Before I 

20 move onto talking about collection calls, I do 

21 want to get Manoj's thoughts about what people 

22 have said about validation notices. What are 
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1 your thoughts? 

2 MR. HASTAK: Sure. Going further 

3 than Larry sort of mentioned. One of the 

4 difficulties I think in this case is that you are 

5 dealing with long, complex disclosures. It's 

6 hard enough to design one-line disclosures, as 

7 easy as that sounds. Testing often shows 

8 problems with them. 

9 But one of the issues with longer 

10 disclosures is that it's tempting to use the 

11 disclosure as a vehicle for consumer education. 

12 And I mean, it's only natural. You're dealing 

13 often with an area where the consumer really 

14 doesn't know what the disclosure is trying to 

15 accomplish. 

16 We had that problem when we did the 

17 privacy notices work, for example. We found 

18 that people simply didn't understand a lot of the 

19 terminology. They didn't know what 

20 "affiliates" meant. In fact, people 

21 misunderstood the concept of a privacy notice to 

22 begin with. 
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1 When you call something a privacy 

2 notice, we found that people thought that meant 

3 that that bank or that institution protects 

4 their privacy. They didn't see it as something 

5 saying here is where we tell you what we do and 

6 what we do may be pretty bad from your 

7 perspective or may not be. I'm not taking a 

8 position here. So we recommended a change in 

9 the name itself. 

10 But you need to sort of try to 

11 separate those two things out. And so my two 

12 comments here are longer disclosures pose 

13 particular problems where I think testing is 

14 important. And disclosures provided verbally 

15 are also very challenging because in a situation 

16 where somebody calls you and in that process 

17 makes you a disclosure. I'm sure you've all 

18 gotten as just one example from somebody raising 

19 money for your local fire department. And there 

20 is a disclosure in there that says they are paid 

21 to make that call. I've never been able to pick 

22 up that disclosure. It's there if I listen very 
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1 carefully. But because it's presented in 

2 context, the impact of the disclosure is 

3 different. 

4 And the context in an oral 

5 presentation changes. It's malleable. It can 

6 be changed maliciously or it could simply happen 

7 accidentally. But even so it poses challenges 

8 there. But it brings me back to the notion again 

9 that testing is the only way here. 

10 MR. KANE: Thank you. Loraine, is 

11 the information that collection agencies or just 

12 any debt collectors convey to consumers in a 

13 validation notice, is that different from the 

14 information that they convey to consumers in the 

15 early debt collection calls where they're first 

16 communicating with the consumer? 

17 MS. LYONS: No, not necessarily. 

18 We're going to in addition to the validation 

19 notice what's required in their 1692(g). I mean 

20 we're going to state we're a debt collector and 

21 we're attempting to collect a debt and any 

22 information obtained will be used for that 
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1 purpose. 

2 And then when we go into the 

3 collection calls we're going to say the same 

4 things, that why we're -- well, let me add that. 

5 Yes, we will. Because when we're on the phone 

6 with someone, we're going to identify ourselves. 

7 And say if I'm the person, as an example, that's 

8 making the call I identify myself. I'm Loraine 

9 Lyons with FMA Alliance. 

10 But I don't want to use FMA in 

11 particular because I'm here for the industry. 

12 So let's say I'm Loraine Lyons for Collector ABC 

13 and I'm trying to reach a certain consumer. And 

14 then I have to verify I've got the right party. 

15 Because it's important that I convey information 

16 I have with the correct party. So we go through 

17 that process. 

18 MR. KANE: In part because there's 

19 a provision in the FDCPA, the Fair Debt 

20 Collection Practices Act, that prohibits 

21 disclosing information to third parties, is that 

22 right? Is that your concern? 
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1 MS. LYONS: Yes. Yes. And also to 

2 protect privacy. And secondly, it does me no 

3 good to talk to the wrong person. So I want to 

4 make sure I'm talking to the right person. 

5 And then we will have the disclosure 

6 of “I'm a debt collector.” We will have other 

7 disclosures. Some industry members are 

8 recording calls, so they'll give a disclosure 

9 that the call is being recorded. Because this 

10 is a live conversation, it's different than a 

11 written document. 

12 And then they will discuss the 

13 creditor, the amount that's due. If there's an 

14 original creditor, there may be a conversation 

15 with that. 

16 The consumer may inquire about the 

17 last payment, if we have that information, which 

18 some placement files or debt collection files 

19 will have that. So we can provide that 

20 information, the last payment amount, if that's 

21 helpful to the consumer. 

22 But sometimes it's because the 
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1 information we're disclosing is a live 

2 conversation it can vary. And it can vary to 

3 meet that consumer's situation. 

4 They may be contacting us to find out 

5 if they can settle the account. And then if we 

6 get into conversations of settlement we may have 

7 to disclose what we call a 1099 disclosure to let 

8 them know that if they do settle the account 

9 there may be tax consequences. 

10 And so it can vary greatly between 

11 what happens on a phone call versus a written 

12 communication. But there's going to be some 

13 minimums that's consistent in both oral 

14 communications and written communications. 

15 MR. KANE: Great. Thank you, 

16 Loraine. If anybody has a very brief response 

17 or follow-up, that would be great. Otherwise 

18 I'm going to move into some of the questions that 

19 folks have submitted to us. Great, I'll take 

20 that as a -- I'll move into it. 

21 So, let me see. Somebody asked the 

22 question “Can we get concrete information about 
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1 the incremental cost of uploading more 

2 information, statements, et cetera.” The 

3 person asks, “Doesn't Convoke know this? 

4 Wouldn't a bank know this?” So, Larry or Dave, 

5 do you want to address this? 

6 MR. PAUKEN: Certainly all 

7 technology has costs, right. It's not free. 

8 To provide the information that's being 

9 discussed here today, whether it's data, a 

10 standard, documents of any sort, it's not free 

11 to provide that. 

12 The issuers incur costs to deliver 

13 it and pull it out of their systems. The debt 

14 buyers incur costs to pull it in. The 

15 collection agencies have costs to request and 

16 obtain it. So it's important that as we think 

17 about providing information in a more efficient 

18 way that it also has to be cost effective. 

19 Because if the price gets too outrageous then 

20 there's no business here for anybody. And the 

21 collection environment suffers. 

22 We think that it can be done at a 
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1 price that is very efficient for everybody 

2 involved. And it depends on the unique 

3 circumstances of the issuers primarily in our 

4 business and their users. And so rather than 

5 quoting specific dollars and cents, which I 

6 think wouldn't make any sense in this venue, I 

7 can say that it can be done at an efficient cost. 

8 MR. TEWELL: And I would only add, 

9 and this is my personal opinion so maybe the 

10 industry friends won't beat me up too bad after 

11 this, but I'm actually not concerned about the 

12 cost. If it adds value, we'll find a way to do 

13 it. 

14 What I'm more concerned about on the 

15 consumer's behalf is that throughout the 

16 ecosystem when we move data, when we move media, 

17 when we house it, are we safeguarding the 

18 customer's information? Are we protecting 

19 consumer privacy? And so those would be my more 

20 specific concerns, if in fact there were 

21 concerns to be had. 

22 MR. KANE: Thanks. This question I 
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1 think is best directed to Loraine. “Can you 

2 comment further on advantages/disadvantages of 

3 agencies utilizing the creditor system versus 

4 using their own standalone systems?” 

5 MS. LYONS: Well, again it's going 

6 to vary by the sophistication of both parties. 

7 So, if -- there is a benefit to using 

8 a creditor system because it is a better system, 

9 then I think that's a conversation that has to 

10 be had between the creditor and the collection 

11 agency. 

12 Now, as far as benefits, I think 

13 because I say the word "better," is it better. 

14 Does it have more information that's meaningful 

15 based on perhaps if we can get to some uniform 

16 national standards that would be great. 

17 But if that information can be 

18 passed to the collection agency, then we're 

19 really in the same position. So I think you have 

20 to look at the parties involved and the type of 

21 debt being collected. Those would be some 

22 critical factors. 
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1 MR. KANE: And here's one that I'll 

2 throw out first to Ira and then anybody else. 

3 “Do you think consumers would identify debts 

4 more readily if a copy of the charge-off 

5 statement was attached to the validation? 

6 Would this be beneficial to consumers? Would it 

7 be beneficial to collectors?” 

8 MR. RHEINGOLD: I think a breakdown 

9 of the cost, maybe the last billing statement 

10 would be the most useful thing for consumers to 

11 have. I'm not exactly sure what's in a 

12 charge-off statement that internally the 

13 creditor uses. If in fact it's the last 

14 statement that has their account, and has the 

15 cost, and shows sort of the life of that debt they 

16 owed, I think that would be extremely useful. 

17 I think one of the problems that we 

18 see all along here is that people don't know what 

19 the debt is. There's no connection to this 

20 debt. You know, they get something from Midland 

21 and it says Midland, you owe $458.32 to Midland. 

22 They're like, “Who's Midland? I have no idea 
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1 who that is.” So I think the more information 

2 you provide that sort of gives them some context 

3 that this is in fact a debt related to them. 

4 And I think some of the problems are 

5 that -- I mean one is oftentimes we've seen far 

6 too often the debt is not related to them. But 

7 two, I think if a consumer actually sees that 

8 this is a debt that they owe, then that makes the 

9 process work that much better. 

10 And I think, you know, I think that's 

11 a necessary part of this process, that consumers 

12 have enough information to make a decision. 

13 Whether or not they're going to dispute this 

14 debt, whether they're going to fight it, or 

15 whether or not there's going to resign 

16 themselves to figure out a way to pay for as much 

17 -- pay what they can afford based on their 

18 current economic situation. 

19 MR. KANE: Thanks. Does anybody 

20 else have anything else they want to add about 

21 that question? Okay. 

22 This is to Manoj. “How many 
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1 unsophisticated consumers could understand the 

2 validation notice as written in the FDCPA?” 

3 (Laughter) 

4 MR. KANE: Can you suggest better 

5 language? 

6 MR. HASTAK: Thank you for putting 

7 me on the spot there. Let me just make a side 

8 comment before I get into the question. And 

9 believe me, I'm not trying to duck it. 

10 When I found out I was going to be 

11 on this panel and I believe I've mentioned this 

12 already, this is -- this particular debt 

13 collection area is certainly not my area of 

14 expertise. But I Googled -- "validation 

15 notice" wasn't a term I had heard before and got 

16 a whole bunch of hits on Google. Almost all of 

17 them had to do with advising consumers on how to 

18 ask the debt collector to validate the debt, if 

19 I'm using that language correctly. It was quite 

20 interesting. 

21 But almost nothing on what a 

22 validation notice looks like. I was trying to 
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1 see an example or two of how the disclosure is 

2 included in the notice whose main purpose is to 

3 inform consumers that they owe a debt. 

4 And so with that sort of background 

5 let me just say having said that consumer testing 

6 is the key it doesn't behoove me to now speculate 

7 about how good or bad this disclosure is or how 

8 it could be improved. 

9 But let me just say one thing. One 

10 of the things you find with complex disclosures 

11 is that even the best disclosures achieve 

12 moderate levels of comprehension and success. 

13 And so, if you simply test even a good disclosure 

14 in isolation, you may get numbers like 50 percent 

15 of people get it, or 60 percent of people get it, 

16 which allows everybody to declare victory. 

17 The people who like disclosures say, 

18 “Well, you know we are communicating well with 

19 so many people.” And the ones who don't like 

20 disclosures say, “Well, people aren't getting 

21 it. How good is this research? What have we 

22 really accomplished here?” 
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1 So, the one thing that I think is 

2 worth doing here, and in situations like this, 

3 is creating more than one alternative. And you 

4 could actually have alternatives coming from 

5 different interest groups where people trying to 

6 create disclosures that achieve different 

7 objectives could try and create them. 

8 And the testing would then sort of 

9 look at the ability of these disclosures to 

10 improve comprehension. I think that's the best 

11 goal we can achieve. 

12 Again, with the privacy notices 

13 project that I keep going back to, these are 

14 complex notices. And the original notices were 

15 10 pages long and started with "We love you and 

16 we would never hurt you in any way." 

17 (Laughter) 

18 MR. HASTAK: And then end on page 5 

19 with, “We are sharing information with whoever 

20 we please.” 

21 (Laughter) 

22 MR. HASTAK: I'm going a little 
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1 beyond. 

2 MR. KANE: I think we'll probably be 

3 able to keep it under five pages I think. But 

4 this is a good question. In fact, it's one that 

5 I meant to pin down and really didn't. So I'm 

6 glad somebody posed it. It might be one of my 

7 people over here. But good question. 

8 “Do the contingency collection 

9 agencies or debt buyers get information about 

10 consumer disputes with the creditor or even 

11 previous collection agencies?” What do you 

12 guys say about that? 

13 MR. PAUKEN: I think currently I 

14 don't see a lot of that happening. I will say 

15 that the customers that we're working with, that 

16 is on the table for them to begin to provide. So 

17 I think there's a high level of interest to be 

18 able to provide this information and it's just 

19 finding a tool to be able to do that in an 

20 efficient and effective way. 

21 MR. KANE: So the consumer 

22 information that we're talking about, are we 
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1 talking about recorded phone calls? Is that a 

2 possibility? 

3 MR. PAUKEN: Well, everything is on 

4 the table right now. I think back to some of the 

5 points that have been made here before. It 

6 might be helpful to identify what is the standard 

7 type of information to provide for a dispute. 

8 But I think anything is possible. Written 

9 communication, audio recordings, anything like 

10 that could be provided. 

11 MR. KANE: Okay. Ira? 

12 MR. RHEINGOLD: And I think you've 

13 hit on a really important point. And part of the 

14 consumer experience that is so sort of 

15 disillusioning, both in the debt collection 

16 dispute process and the credit reporting dispute 

17 process, is we talked about earlier the life of 

18 the debt and how it keeps getting resold. 

19 And so what happens is a consumer may 

20 dispute a debt and they may be right, or the 

21 debtor certainly can't validate because they 

22 don't have the original information, so they 
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1 take it off of the credit report, or they stop 

2 collecting it because it was a valid dispute. 

3 So what happens to that debt? Does 

4 it go away? Does it disappear off the credit 

5 report? No, it gets sold to a next -- somebody 

6 next down the line who does the exact same thing 

7 and doesn't have that information. And I think 

8 that's a really essential part of making the 

9 system work better is that history, when a 

10 consumer disputes a debt, that that has to be 

11 part of the information that gets transmitted 

12 along that train. 

13 MR. KANE: Loraine, what happens if 

14 a consumer disputes to, say, the first 

15 contingency collector that a creditor hires? 

16 What does collection agency number one do with 

17 that information? 

18 MS. LYONS: Well, my experience in 

19 the industry is that what would happen is there's 

20 the exchange of information. So the initial 

21 agency would then submit that information to the 

22 creditor and the disputes would investigated. 
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1 My experience is the creditors do 

2 not want to give us disputed accounts. Now, and 

3 keep in mind disputes are either justified or 

4 unjustified. I have seen in various settings 

5 where creditors have contemplated or have 

6 actually seen some situations where creditors 

7 will give us -- or not necessarily us in the 

8 industry, give accounts with dispute 

9 information not because they were justified. 

10 They were not justified so that the agency is 

11 aware of the situation. 

12 And I can tell you one of the biggest 

13 areas that consumers -- it has to do with 

14 education. They may not be educated on the type 

15 of debt they obtained, whether that debt is 

16 something that would, say, be dischargeable in 

17 the bankruptcy process. And so there may be 

18 confusion in that and it's already been 

19 investigated. And that information may flow to 

20 various collection agencies so they're aware 

21 that there was a previous unjustified dispute. 

22 So that when it comes up again 
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1 instead of having the consumer go through the 

2 process of disputing the debt in writing, obtain 

3 verification of debt. I mean of course they can 

4 request that and it will be fulfilled, but you 

5 can have a good conversation about the debt. 

6 MR. KANE: Great, thank you. So we 

7 have 4 minutes until lunchtime. And it's a 

8 brief lunchtime, so we'll end in 4 minutes. So 

9 to do that, I want to ask each of you starting 

10 in alphabetical order to give three to four 

11 sentences on the subject of what we've been 

12 talking about. 

13 And because our goal today is to try 

14 to move the ball forward, to try to reach 

15 agreement, give suggestions for where there 

16 might be common ground and what suggestions we 

17 can have for making things better for consumers. 

18 Manoj? 

19 MR. HASTAK: I'm going to repeat a 

20 couple of the comments I've made and throw in one 

21 new idea related to designing disclosures. 

22 Number one, I'd like to emphasize 
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1 that developing good disclosures is challenging 

2 activity. But number two, that testing is the 

3 only route to having any chance of success, 

4 especially with complicated disclosures. 

5 Number three, that looking for 

6 absolute levels of success with disclosures is 

7 problematic. And that was, by the way, my point 

8 with the FDCPA disclosure, Tom. I want to 

9 emphasize I wasn't suggesting it was as bad as 

10 the 10-page privacy disclosure. I don't want to 

11 leave that impression. But rather that you want 

12 to compare it to another disclosure, perhaps an 

13 improved one, to see how much improvement you 

14 get. 

15 And one last thought I want to throw 

16 in there is that standardizing disclosures 

17 generally is a good idea but poses significant 

18 challenges as well. And I've worked on several 

19 projects where we've been able to get different 

20 parties, again with different points of view, to 

21 a standardized disclosure. Standardization 

22 helps consumers. In my mind, there's no doubt 
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1 about it. Whether it achieves all the 

2 objectives of the parties interested in the 

3 disclosures is a somewhat different issue. 

4 So rather than consumers seeing 10 

5 different disclosures from different providers, 

6 if there is a way to standardize so consumers see 

7 the same language, the same format, again and 

8 again. It reduces impediments to 

9 comprehension. Thank you for the opportunity 

10 to be on the panel. 

11 MR. KANE: Great, thank you. 

12 Loraine? 

13 MS. LYONS: Thank you, Tom. I want 

14 to pick up on one of Manoj's suggestions is the 

15 standardized notice. Our industry would 

16 welcome model language. And it would be uniform 

17 to all consumers. 

18 Our industry would welcome unified 

19 standards in the pre-litigation context so that 

20 consumers can have an expectation of information 

21 that will be received. And I believe that will 

22 help improve the level of confidence in the 
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1 collection process. Thank you. 

2 MR. PAUKEN: Tom, I have a quick 

3 observation and a recommendation. I'm new to 

4 the industry, 3 years in the industry. I come 

5 with no biases. And in my experience with my 

6 customers and the customers that I'm talking to, 

7 and that includes credit issuers, debt buyers, 

8 agencies and attorneys, it's my belief that by 

9 and large they're very interested in improving 

10 their processes and benefitting the consumer to 

11 the greatest extent possible and reasonable. I 

12 honestly believe they're trying hard. 

13 And I think from the consumer and 

14 regulatory side, I think they're doing a very 

15 good job of trying to understand the issuer and 

16 collection side of things. So I believe the 

17 environment is probably right for everybody 

18 coming together to agree on the right approach. 

19 And Convoke, or whether it's us or 

20 anybody else, any other technology company out 

21 there I think as part of that solution, we're not 

22 the total solution, but part of it. And I would 
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1 just encourage the community to work towards 

2 finding the common ground. 

3 MR. KANE: Ira? 

4 MR. RHEINGOLD: Well, I think I've 

5 made my points a few times but I'll make them a 

6 last time. I think it's in everybody's common 

7 interest to make sure that when debt is sold the 

8 information that it's sold with is complete in 

9 every manner possible, including the disputes. 

10 I think the only way this system 

11 works properly is if the people who buy that debt 

12 or collect that debt have complete access to 

13 trustworthy information that is reliable and 

14 everybody can rely on. And I think that's the 

15 only way this thing can work. 

16 And I really believe it's in 

17 everybody's best interests. I'm just not sure 

18 why we can't get there. 

19 MR. KANE: And, Larry, wrap it up 

20 for us? 

21 MR. TEWELL: Thank you. I'll do it 

22 and I'll even bring the microphone close. So 
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1 five quick things. 

2 First, it's absolutely in the common 

3 interest of all of us here to do what's best for 

4 the customer and help them succeed financially. 

5 Second, we want to provide all the 

6 information necessary such that a customer can 

7 identify the debt, understand their financial 

8 situation, know what their options are, and work 

9 through those. We want to be conscientious of 

10 not overwhelming the consumer. 

11 Which leads to my third point that 

12 Manoj and I have been making today around the 

13 importance of test and control to remove 

14 posturing and to make sure the consumer is best 

15 served. 

16 Fourth, I'm going to say it in a 

17 complete way. Uniform national standards 

18 relative to data, media and then common 

19 definitions relative to disputes and complaints 

20 when interjected into the ecosystem will benefit 

21 all the participants but most importantly the 

22 consumer. 
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1 And then finally consumer 

2 education. Financial literacy. And that's a 

3 big topic but the piece that's most on my mind 

4 relative to this panel is encouraging all 

5 consumers to stay engaged with their creditors 

6 because when they do the best possible outcomes 

7 will occur. 

8 And so that's how I see it at a high 

9 level. And I know that the industry is 

10 interested in working with government and others 

11 to get it right. Thank you for having me. 

12 MR. KANE: Thank you. And thank 

13 you all, all the panelists, for your time and all 

14 your thoughts. 

15 (Applause) 

16 MR. DWYER: Thank you everyone. 

17 It's lunchtime now. We'll reconvene at 1 

18 o'clock. 

19 (Whereupon, the foregoing matter 

20 went off the record at 12:18 p.m. and went back 

21 on the record at 1:00 p.m.) 

22 MR. DWYER: Hello, everyone. 
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1 Please take your seats. Thank you for sticking 

2 around for our afternoon session and our 

3 afternoon panels. At this time I'd like to 

4 introduce Corey Stone, Assistant Director of the 

5 Office of Deposits, Cash Collections, and 

6 Reporting Markets at the CFPB. 

7 MR. STONE: Thank you, Dan. And 

8 welcome to this afternoon. This is the panel 

9 that actually started in the last panel where we 

10 started to talk about consumer's dispute of a 

11 debt. And that's going to be the focus of this 

12 next section. 

13 I'm going to quickly introduce my 

14 panelists then talk about our subject a little 

15 bit to frame it. Then they'll each have 

16 comments. Then we'll open for questions. 

17 To my immediate left is Chad Benson 

18 who is COO of CBE Group which is a collections 

19 agency. Ian Lyngklip is a consumer advocate and 

20 attorney. Rich Munroe is president of Capital 

21 Financial Corporation, a debt buyer. Manny 

22 Newburger of Barron & Newburger, PC, is an 
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1 attorney, a collections attorney and scholar in 

2 this field, teaches on this subject. And Denise 

3 Norgle is VP and division general counsel for 

4 TransUnion. 

5 And if you want to learn more about 

6 each of these colleagues their bios are in your 

7 packet along with their Social Security numbers 

8 and credit card accounts. 

9 (Laughter) 

10 MR. STONE: So I won't go into those 

11 details or announce those on the webcast. 

12 So if you think about this 

13 information ecosystem the first moment in which 

14 information comes to play is in the initial 

15 notice, the G notice to the consumer, and the 

16 transfer of data from original creditors to 

17 either agencies to which debts are assigned or 

18 to debt buyers. 

19 The next moment of truth in testing 

20 information is when after contact the consumer 

21 disputes a debt. So we want to address some 

22 questions today. What are the steps the debt 
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1 collectors currently take to investigate and 

2 verify debts that consumers have disputed either 

3 orally or in writing. Are these adequate? If 

4 not, are there additional steps that debt 

5 collectors should take. 

6 And what additional information 

7 should they have to give to consumers in response 

8 to a dispute. What would be the cost and 

9 benefits of requiring debt collectors to take 

10 these steps and provide this information. 

11 When debt collectors receive 

12 disputes about debts currently do they notify 

13 the owners of the debt collectors. This is an 

14 issue that Ira brought up in the previous panel. 

15 Should they be required to notify the owners of 

16 a debt that a dispute has occurred. Again, what 

17 would be the costs and benefits of requiring that 

18 kind of disclosure. 

19 Are the requirements for verifying 

20 disputes under the FDCPA different from those 

21 for investigating disputed debts under the FCRA. 

22 The information that is -- when a debt's being 
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1 disputed arguably the information about the debt 

2 is being disputed and that is the information 

3 that a collector or first party creditor or a 

4 debt buyer may be reporting to a credit bureau. 

5 Are these the same? Are these different? 

6 Should they be treated as the same? 

7 What does the available data show 

8 about the experience of consumers in disputing 

9 debts? We have some useful statistics from the 

10 FTC debt buyers study with a 3 percent dispute 

11 rate more or less of debt that's been purchased 

12 by debt buyers. Presumably it was higher at 

13 earlier stages but we don't really know what 

14 those numbers are. What can we learn about the 

15 rates of disputes? 

16 And is the consumer's experience 

17 ones that we can also quantify? How are these 

18 disputes investigated and resolved? 

19 Does the information the debt 

20 collectors use to verify the debts degrade over 

21 time? Is it more difficult to verify disputes 

22 as additional parties are involved in the 
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1 process? If so, how much does such degradation 

2 affect consumers and how can this information 

3 degradation be prevented? 

4 So that's the framing for this 

5 panel. I've asked each of the panelists rather 

6 than to address these questions serially to kind 

7 of sum up about 5 minutes each from their 

8 personal and their industry points of view how 

9 they address and think about disputes. 

10 So I think just because Tom set such 

11 a good precedent going from left to right, or 

12 right to left I will start with Chad. 

13 MR. BENSON: Great. First of all, 

14 I'd like to thank the Federal Trade Commission 

15 and the CFPB for bringing us all together and 

16 giving us an opportunity to talk about these 

17 important issues. 

18 CBE Group is a third party debt 

19 collection company located in Cedar Falls, Iowa. 

20 We have the fortune of being able to work lots 

21 of different markets. So we get to see FDCPA 

22 from a dispute process work where an issuer and 
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1 a granter is actually managing the process. We 

2 also have the opportunity to see it from an FCRA 

3 perspective where we are doing that exact thing 

4 for our clients. 

5 I think one of the things that before 

6 I jump in I would like to say is I think the -- 

7 if you look at over the last year I think the 

8 Federal Trade Commission released the stats for 

9 complaints. 

10 And I think one of the things we have 

11 to recognize is that year over year `11 to `12 

12 complaints were actually down in our industry by 

13 close to 14 and a half percent. And so I think 

14 what that at least hopefully as a collective 

15 group gives us excitement and energy around is 

16 that we can find a way to continue to improve the 

17 consumer experience. 

18 And I think the first panel set a 

19 great stage for the fact that there are multiple 

20 stakeholders in making this whole process 

21 function and work. And to the degree that 

22 something is right or wrong I think 
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1 fundamentally it's about how do we make it 

2 better. And that would be my perspective on 

3 this day is that we have a great context for how 

4 to go away and make it better and actually take 

5 action. 

6 I think one of the things that you 

7 find in data is that we are talking about lots 

8 of different systems under the construct of one 

9 process. So one of the things that I took the 

10 time to do over the last couple of weeks is do 

11 an analysis. 

12 We've been using voice analytics for 

13 the better part of 2 years. And it's a very 

14 powerful application. We looked at 75,000 

15 random first party -- or I'm sorry, random 

16 right-party contacts a month, 2.3 million 

17 contacts over the last year. 

18 And what we found through that 

19 analysis is when you look at the words "dispute" 

20 and "credit report" approximately 0.21 percent 

21 or 4,900 contacts surface as it relates to 

22 dispute and credit report. 
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1 And so one of the things I think is 

2 also important for us to understand is the system 

3 as a whole is fundamentally working for part of 

4 the population. What we get into is where it's 

5 not, for smaller parts. Just as important is 

6 where it's not working. We have to solve those 

7 opportunities. 

8 Under FDCPA a collection agency is 

9 required to send a validation G notice. And it 

10 gives the consumer 30 days to dispute the 

11 account. Most industry practices would allow 

12 that dispute to take place over the full 

13 placement of the account. We get an account for 

14 6 months and as a contingency agency typically. 

15 So the idea that we could 3 months 

16 into it have somebody that disputed account, we 

17 would and most of us in the industry would stop 

18 collections, put that account depending on how 

19 it is being disputed, acknowledge that back to 

20 the issuer and granter. And so that information 

21 today I think over the last 2 or 3 years has made 

22 -- the information exchange has gone up 
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1 significantly in the case where a collection 

2 agency is not the reporting agency that is the 

3 granter. 

4 Under FCRA if we as a collection 

5 agency are actually reporting and we have a 

6 dispute we have to investigate that. And so we 

7 go about the communication with a client. I 

8 think one of the things that is very simple and 

9 straightforward is we get the documentation 

10 relative to validation that this is truly, truly 

11 a disputed account and we communicate with the 

12 consumer and let them know that it is being 

13 returned to the customer as a disputed account. 

14 If we receive nothing I think a good 

15 practice is basically allowing a letter to out 

16 to the consumer and say hey listen, we're not 

17 going to continue to contact you because we 

18 haven't gotten any information. And at the end 

19 of that placement it gets returned with a 

20 disputed code. 

21 I think one of the things when we 

22 look at the process holistically I think John, 
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1 like it or not, did a really nice job of being 

2 able to lay out the context of the process. And 

3 when you think about simplification I think the 

4 data as I indicated in the 2.3 million 

5 right-party contacts we looked at is where 

6 issuers and granters are the reporting agency. 

7 Clearly, clearly the process is more cleaner for 

8 the consumer. We have less disputes. And I 

9 think there's a lot of reasons that you could get 

10 into as to why that's done. 

11 CBE Group shows up on the trade line. 

12 They're not quite sure what that -- whether it's 

13 a hospital, a wireless company, a utility, 

14 they're not sure what that is. And so where that 

15 process is managed end to end through the life 

16 of the debt I think that becomes a big point of 

17 focus. 

18 I think the other thing is when you 

19 step back and look at 4,000 collection agencies, 

20 800 attorney firms, a few hundred plus debt 

21 buyers, the idea that the variations of the 

22 process going back to the earlier panel and 
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1 Larry's lead. A standard I think is extremely, 

2 extremely important. 

3 How can we expect thousands of -- 

4 hundreds of millions of consumers and thousands 

5 of different constituents and stakeholders to 

6 get the process right without some kind of 

7 standard. And I can't stress that enough. 

8 I think in closing there's no 

9 question that our industry is looking to 

10 improve. There should be no question about 

11 that. There are a lot of good people that are 

12 working very hard hopefully hand in hand with you 

13 to make it better. And I look forward to being 

14 able to answer questions along the way. Thank 

15 you. 

16 MR. LYNGKLIP: Good afternoon. My 

17 name's Ian Lyngklip. I'm a private attorney. 

18 I represent consumers who are the people that 

19 these statutes are intended to protect. 

20 I have a pretty broad experience 

21 with the Consumer Credit Protection Act from 

22 beginning to end, from the moment that a TILA 
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1 disclosure is given to the moment that it's 

2 reported initially by a creditor. Throughout 

3 that entire ecosystem that was described this 

4 morning I've got a hand in helping people with 

5 that. 

6 I think that one of the first things 

7 we've got to recognize is that when we talk about 

8 protecting people we're talking about an 

9 ecosystem where we are injecting potentially bad 

10 debt into that ecosystem. That bad debt, debt 

11 which does not relate to a consumer, which isn't 

12 owed, which is time-barred, which is in some way 

13 or another impaired as to the consumer we're 

14 talking about. 

15 That debt, and having that debt in 

16 that environment, in that ecosystem is toxic to 

17 the system. It hurts everybody in the system. 

18 It hurts the consumer who is the victim of the 

19 credit calls, who may be a victim of credit 

20 reporting. It hurts the creditors who do not 

21 get the opportunity to lend that person money. 

22 It hurts the debt collector who may be out there 
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1 trying to collect that debt and may wind up being 

2 a target of a lawsuit. 

3 Having bad debt in the system is 

4 toxic to the system. It's dangerous and it's 

5 unsafe in the same way that we saw an entire 

6 agency come to be just because we had toxic debts 

7 in the system. 

8 We have a landscape that is out there 

9 that ostensibly is designed to protect 

10 consumers. And one of the things that I think 

11 has got to be the keystone of our efforts here 

12 is that we have got to be dealing with accurate 

13 information and verifiable information. And 

14 these are terms that are defined in the Fair 

15 Credit Reporting Act or arise in the Fair Credit 

16 Reporting Act and arise in the Fair Debt 

17 Collection Practices Act. We see debt 

18 collectors having to verify debts throughout 

19 this process. 

20 In this context we have a legal 

21 landscape that does help us. We know what 

22 accurate debt is or what accurate data is. It's 
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1 information that's objectively true. It is 

2 complete. It is not materially misleading 

3 about the consumer. 

4 And we have as lawyers a definition 

5 of "verifiable." It may not comport with what 

6 we see right now in the landscape from the FDCPA 

7 case law but we know what it means to verify 

8 something as lawyers. We sign verification all 

9 the time. It's testimony. It's truthful 

10 information given to a court under oath. 

11 Now, that may not be necessarily 

12 what we've got but it is part of our legal 

13 landscape and our experience collectively as an 

14 industry dealing with legal obligations. 

15 Creditors and debt collectors alike 

16 under the Fair Credit Reporting Act and the Fair 

17 Debt Collections Reporting Act both have the 

18 obligation to furnish only accurate and true 

19 data. 

20 They likewise have the obligation at 

21 every turn when they learn that a debt has been 

22 disputed by the consumer to note that debt as 
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1 disputed and as an industry the credit-reporting 

2 industry has already identified those dispute 

3 codes as significant enough that they can use 

4 them to disregard the effect of a trade line when 

5 a consumer is in a serious dispute. 

6 Credit reporting agencies that 

7 receive these notices of dispute, they have to 

8 report those disputes as well. 

9 Within the ecosystem that we have 

10 seen defined today what we're talking about is 

11 in the context of a debt buyer providing data to 

12 a credit reporting agency their reporting of 

13 debts for which they have no evidence in hand 

14 which facially based on what we've seen here 

15 cannot be verifiable. It is not verifiable. 

16 Because there is no evidence. There is no 

17 testimony. There are not even warranties to 

18 suggest that the debts and the data is in fact 

19 correct and accurate. 

20 Notwithstanding the fact that in 

21 that environment we have no reason that would be 

22 legally sufficient to say that's verifiable 
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1 debt, and even though the statute has required 

2 that we be reporting verifiable and accurate 

3 debt we continue to allow those debts to be 

4 reported to credit reporting agencies and to 

5 impact adversely on the consumers. 

6 They have no possible way of 

7 verifying this debt through a dispute process, 

8 whether that is an FDCPA dispute process, at 

9 least not at hand, and certainly no through a 

10 Fair Credit Reporting Act dispute process. 

11 More importantly, throughout the 

12 life of the debt we see that debt collectors and 

13 creditors alike change account numbers 

14 regularly. And to the consumer this is a 

15 nightmare in the making. 

16 Credit reporting agencies identify 

17 debts by a unique combination of a subscriber 

18 code together with an account. And when those 

19 subscriber codes change and when those account 

20 numbers change we effectively cast those 

21 consumers who have disputed perhaps even 

22 successfully, who have disputed those debts, we 
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1 relegate those people to having to do it all over 

2 again. That is the standard within the industry 

3 right now. 

4 From that perspective we see the 

5 dispute process does not in the Fair Credit 

6 Reporting context provide for accuracy, 

7 accuracy meaning objectively truthful, 

8 complete, and not materially misleading. If 

9 that's what we're striving for the process is 

10 intended and is right now driven exclusively by 

11 a process which we refer to as data conformity. 

12 Your computer data matches our computer data. 

13 Also known by some courts as parroting. 

14 That is not an accuracy process. 

15 It's not a process that helps the consumer to 

16 just match the data between two computer systems 

17 if what you're going to do is test the objective 

18 truthfulness of the underlying data. 

19 From that background we see 

20 consumers experiencing a common set of problems. 

21 I see these walk in my office every day. We see 

22 consumer disputes to the bureaus being resolved 
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1 without any meaningful human review of anything 

2 on any end. That has led to such processes as 

3 the computer batch processing where data is 

4 being transferred wholesale without ever having 

5 anybody review a consumer's dispute. 

6 Being reviewed on the furnisher end 

7 from when it's being turned around by the bureaus 

8 to somebody who has nothing more than a blip on 

9 a screen that reflects an entry in an Excel 

10 spreadsheet. That is not ensuring underlying 

11 truthfulness, it's only again ensuring data 

12 conformity. 

13 We see bureaus resolving disputes 

14 with hidden standards which consumers could 

15 easily comply with if they knew what to do. But 

16 those standards are being protected tightly by 

17 the bureaus. They won't disclose what kinds of 

18 documents can actually be used to support but 

19 nonetheless they use them. Again, an opaque 

20 process that hides this from consumers. 

21 Consumer data can reappear on credit 

22 reports without prior notice. People lose 
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1 jobs, people lose houses, people lose credit 

2 cards. People are at risk. And these again are 

3 people who are at risk from inaccurate data. 

4 We see consumers engaged in 

5 absolutely fruitless disputes precisely because 

6 we see only an effort to match data and ensure 

7 data conformity. It doesn't go anywhere for the 

8 consumer. 

9 We see consumers being thrown back 

10 again into this same process as these debts are 

11 being transferred. We see again a lack of 

12 tracking between debts and even if those account 

13 numbers were to follow the debts without being 

14 able to track the subscriber codes that they were 

15 initially assigned to, even that process would 

16 not help the consumer. 

17 We see consumers having to 

18 re-explain in what is effectively consumer 

19 service nightmare explain to every single person 

20 that they ever talk to the complete history of 

21 their disputes when this data is sitting in 

22 repositories and systems that are available and 
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1 can be made available but by contract are being 

2 shielded from downstream purchasers. 

3 These are things that are easily 

4 corrected and we should correct. We need fixes 

5 immediately and I think the first and most 

6 important fix that we have to have is we have to 

7 put in the hands of consumers the ability to 

8 actually correct a credit report. 

9 There is no statutory procedure to 

10 allow a consumer to correct a credit report. 

11 There's a statutory to write another letter 

12 again and again and again. And when Director 

13 Cordray came to Detroit I sat in back of a woman 

14 who has been reported dead for the last 5 years 

15 by the bureaus and was, you know, it was an item 

16 of humor for the audience. It's not an item of 

17 humor. That woman cannot walk into a court and 

18 get an injunction requiring somebody to correct 

19 that credit report. We need that immediately. 

20 We need everybody to implement the 

21 standards of accuracy that have already been 

22 deployed by the courts which is that the 
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1 information has to be objectively truthful, 

2 complete and not misleading. And everybody has 

3 to be on board with that and use that across the 

4 board, furnishers and credit reporting agencies 

5 and debt collectors alike. And it cannot be the 

6 standard of simple data conformity. That is not 

7 a surrogate for accuracy. 

8 We need to adopt a uniform standard 

9 of verifiability which goes hand in hand with the 

10 G obligations as well as the standards in the 

11 Fair Credit Reporting Act under (i) and 

12 (s)(2)(B) that say that only verifiable data can 

13 be verified. 

14 We need the industry to transfer all 

15 account disputes so that consumers don't have to 

16 tell their story every single time to every 

17 single person they see. We need to impute 

18 notice of those disputes to downstream 

19 purchasers so that there is an industry 

20 incentive to get it right. 

21 We need to require that credit 

22 reporting agencies actually implement policies, 
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1 procedures and practices to track debts. Make 

2 your furnisher supply you the provenance of that 

3 debt. Make them provide the prior account 

4 numbers and subscriber numbers and dispute 

5 history. Make them do that. They have that 

6 ability right now as a matter of contract and 

7 they can dictate that and not provide access to 

8 their database unless that information is there. 

9 Yet they don't do that. 

10 And then finally we need to see that 

11 -- we need to see that there is an audit and bar 

12 procedure put in place by the bureaus where they 

13 audit debt collectors to find out whether or not 

14 they've got the information that would lead 

15 somebody to believe that they're holding 

16 verifiable information. If a downstream debt 

17 buyer never receives documentation that would 

18 allow them to verify a debt or participate in a 

19 dispute process for Fair Credit Reporting 

20 purposes they should not be allowed to 

21 participate. 

22 So in the end I simply say that we 
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1 need right at this point to make sure that the 

2 information is accurate and verifiable. Debt 

3 that is not accurate and verifiable is unsafe in 

4 the hands of any debt buyer and in any amount in 

5 this economy. 

6 MR. MUNROE: Thanks, Ian. I'd like 

7 to thank Corey for inviting me here today. 

8 Richard Munroe with Capital Financial Group. I 

9 am also the current president of DBA 

10 International which is the debt buyers trade 

11 association that was formed in 1997 with over 600 

12 member companies. 

13 We've worked very closely with the 

14 CFPB and the FTC along with state legislators and 

15 attorney generals across the country to attack 

16 all of these issues that we're talking about 

17 today. 

18 And one of the things that we've 

19 spent a lot of time and resources on is 

20 developing a certification program for all of 

21 the DBA members that is something that's 

22 mandatory for you to be a member to be certified. 
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1 And we've heard a lot today about 

2 standards and things that we can all agree on 

3 that makes everything in synch for the consumer. 

4 And we've formed a task force that comprised of 

5 large debt buyers, medium debt buyers, small 

6 debt buyers, original creditor, collection 

7 agency representation along with law firms 

8 representation to basically talk about what are 

9 these standards, let's define them. 

10 There's 19 different standards that 

11 we've put in place that include the dispute 

12 process. That is very clear as an industry that 

13 our best practices are, first of all, if you get 

14 a dispute it's something that is a very high 

15 priority for that collector to identify what the 

16 situation is. And in the event that information 

17 is needed to be verified that we request that 

18 information from the original creditor to 

19 provide to that consumer. 

20 Ian talked about bad debt, toxic. 

21 It does none of us any good to spend time and 

22 resources on accounts that are valid disputes 
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1 that we're not going to be able to collect. So 

2 from a logical standpoint once a dispute is 

3 identified we're making it very clear that's not 

4 something that we're going to send to another 

5 collection agency. That's not something that 

6 I'm going to sell to another debt buyer. 

7 From the originator creditor 

8 standpoint when they have a dispute that's 

9 identified this is not common practice for them 

10 to sell us a dispute to begin with. They exclude 

11 those from the sale. So obviously disputes 

12 exist and they need to be handled in that manner 

13 but this is something that we feel very strongly 

14 through these best practices and these standards 

15 which we've also gotten commentary from the CFPB 

16 and the FTC on specific things that they'd like 

17 to see in what we're putting in place. 

18 This is something that is going to 

19 evolve over time and we're going to continually 

20 make changes to it. And so now that task force 

21 has formed into a council with a process in place 

22 to identify things that we can improve on. 
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1 And I'm really looking forward to 

2 this workshop to hopefully take back some of 

3 those things that we can all put in place from 

4 the debt buying perspective. 

5 We've talked a little bit about 

6 accurate data. We heard earlier today on the 

7 summary of the FTC debt buyer study. And it was 

8 very clear from that study that it was consistent 

9 when one debt buyer sells an account to another 

10 debt buyer that the information that they obtain 

11 from the original creditor is in fact consistent 

12 through the process. So when we talk about 

13 accurate data that we get from the original 

14 creditor I'm in no disagreement we can get more 

15 information than we're currently getting and 

16 we're working towards that. 

17 But from an industry best practices 

18 that information flow from the originating 

19 creditor to the debt buyer is being passed along 

20 through the process. And that's the last point 

21 I'd like to make. 

22 MR. NEWBURGER: Hello, I'm Manny 
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1 Newburger with Barron & Newburger in Austin, 

2 Texas. I first would like to thank the CFPB and 

3 the FTC for inviting me. I very much appreciate 

4 that. 

5 My background is a little bit 

6 different. I did my first debt case in 1982 

7 clerking for a consumer protection firm during 

8 my third year of law school. In the early years 

9 of my practice I represented consumers. Today 

10 I mainly do defense and compliance solutions for 

11 collection industry members across the U.S. and 

12 India and the Philippines. 

13 I've taught consumer protection law 

14 since 1999. My views are probably a little bit 

15 different in that I'd like to think that I've got 

16 less of an agenda and a somewhat broad view on 

17 some of the issues. And what I would say to my 

18 law students because I'm in my 30th year of doing 

19 statutory litigation is that we have to start 

20 with definitions. 

21 We use the word "dispute" but I'm not 

22 convinced we all agree on what that means. Is 
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1 a general denial a dispute? What about “the 

2 U.S. never went off the gold system”? You laugh 

3 but every industry member in this room has had 

4 that dispute. 

5 What about “I don't care that the 

6 judge ruled in your favor and the court of 

7 appeals says she's right, I still don't think I 

8 owe this and I dispute it”? "Come back here I'll 

9 bite your leg off" is amusing when Monty Python 

10 says it. It's a serious problem when we're 

11 defining the word "dispute." Is that a dispute? 

12 I've urged for years “don't talk to 

13 me about the quality of a dispute. I don't care 

14 if you think it's crazy. If someone says they 

15 dispute it, mark it in dispute. What's the 

16 harm?” 

17 And I've advocated that for a very 

18 long time because I think that letting 

19 collectors start making qualitative decisions 

20 about people's disputes is a very dangerous 

21 thing. And so at least the industry members 

22 with whom I work don't care if you say the U.S. 
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1 didn't go off the gold system, or your identity 

2 was stolen. Either way it's a dispute. A 

3 dispute is a dispute is a dispute. 

4 Until we start getting into 

5 questions of what is the significance of that and 

6 how was it dealt with. And then all of a sudden 

7 we really do have to return to that question and 

8 say that -- and it's the difference I think 

9 between 1692(e)(8), the FDCPA duties, and the 

10 FCRA obligations. If you say it's disputed the 

11 debt collector is supposed to note it as 

12 disputed. 

13 But once we start talking about the 

14 degree of investigation, the levels of 

15 verification, the number of times you're going 

16 to respond, the number of times someone can 

17 demand various types of information this 

18 definitional issue becomes very, very 

19 important. 

20 Because if we don't get the 

21 definition there's not going to be compliance. 

22 You cannot achieve compliance without clearly 
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1 defined definitions, standards and guidelines, 

2 and I think that's why you're hearing a call for 

3 a national standard from the industry people. 

4 Because for the most part what the 

5 industry people are saying to Washington is: 

6 ”Tell us how you want us to do it and we'll do 

7 our damnedest to do it that way.” So I think 

8 that's got to be the starting point. 

9 Now, beyond that it seems to me when 

10 we're talking about disputes and the dispute 

11 processes we really hit four basic concepts, 

12 reliability, accuracy, retention and 

13 availability. And these four things are very 

14 important. 

15 Reliability is just the critical 

16 starting point. If you're a trial lawyer you 

17 know this because the United States Supreme 

18 Court says when we talk about business records 

19 and the business records exception to the 

20 hearsay rule that the most critical hallmark of 

21 a business record is the reliability of its 

22 source. If bank records aren't reliable 
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1 they're not going to be admissible as business 

2 records. 

3 Just as importantly if the banks 

4 aren't reliable sources of data the credit 

5 reporting agencies aren't going to be able to 

6 accept their data. Now, the government can say 

7 banks aren't reliable sources of data. It is an 

8 option. But the danger then comes that you will 

9 crash the system. 

10 First of all, if creditors can't 

11 prove their debts in court then it's going to be 

12 harder for people to get credit. Not a good 

13 thing. 

14 If banks can't make informed credit 

15 risk decisions by having access to credit 

16 history they've got lending problems. So we 

17 have to start with at least some recognition that 

18 inherently the system does treat bank records as 

19 reliable. 

20 What I find ironic is as a guy who 

21 spent a lot of time fighting for consumers 

22 against the FDIC and its gone but not lamented 
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1 sister the RTC it's amazing to me that when a bank 

2 fails the courts and the U.S. Code deem the 

3 bank's records to be pretty much inviolate. You 

4 can't dispute it. We've got doctrines like 

5 D'Oench Duhme and 12 U.S.C. Section 1823(e) that 

6 take away virtually all defenses. If the bank's 

7 records said you owed that debt on the day it 

8 failed it doesn't matter what you think, you owe 

9 it. And so there needs to be a level playing 

10 field. 

11 What is good for a failed bank whose 

12 principals went to jail at least ought to be good 

13 enough for a thriving bank that's serving its 

14 customers. And so reliability really seems to 

15 me not to be the issue. 

16 Now we can talk about accuracy. The 

17 FTC recently did a report on credit reporting and 

18 I think the report shows for the most part the 

19 system is pretty accurate. There's no system I 

20 know that doesn't have room for improvement but 

21 for the most part the report indicates that 

22 there's a reasonable degree of success. 
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1 And so what I would suggest to you 

2 is that what I hear a lot of not just today but 

3 in my practice in general is issues about 

4 retention and availability. And let's face it, 

5 Reg Z has a 2-year document retention period. 

6 That makes no sense, at least it doesn't to me. 

7 We have a credit reporting period 

8 that is substantially longer and it seems to me 

9 that the records sensibly should be available 

10 coexistent with the credit reporting period. 

11 And that means that what we really ought to have 

12 is a document retention period that looks more 

13 like 7 years. And that would do a tremendous 

14 amount. 

15 But someone has to write this rule 

16 because from a business perspective you can't 

17 expect banks to sit here and say “Well, we're 

18 going to incur a tremendous expense to do 

19 something the law doesn't require.” This has to 

20 come with some sort of regulatory push. 

21 Along with that is obviously 

22 availability. When an account is sold the 
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1 records either have to be transferred or 

2 warehoused in a way that's available. You've 

3 got companies here today that do that. You've 

4 got Convoke, and “You've Got Claims”, both 

5 companies in the business of transmitting data 

6 between credit grantors and agencies and law 

7 firms. The technology is there. It's possible 

8 to do this. But the starting point has to be a 

9 mandate of retention and the second has to be a 

10 mandate of transfer or availability if yousell. 

11 And I think if those things are done a lot of what 

12 Ian's complaining of will go away. It'll be 

13 there. It'll be accessible. People can get 

14 it. It'll be available quickly and disputes 

15 will be much easier to address assuming we can 

16 define "dispute." 

17 MS. NORGLE: There's a lot of 

18 benefit to being last on this panel one of which 

19 is that these gentlemen have laid out a lot of 

20 what I planned to say so I can keep my remarks 

21 short. 

22 I do want to point out that as 
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1 TransUnion is one of the nationwide credit 

2 reporting companies we do appreciate the chance 

3 to sit at the table here because we do play a role 

4 in the process and the life cycle, and we rely 

5 very heavily on the other parties who are here 

6 or who are represented through the consumer 

7 counsel that's here. 

8 We rely on the data from the original 

9 creditor, the third party collection agencies, 

10 the debt buyers, the consumers. I mean we 

11 depend on all of them to make sure our data is 

12 accurate. And as others have said today it 

13 really is our overarching goal to make sure that 

14 the data is accurate. 

15 Inaccurate data does not serve 

16 anyone. I think Ian said it perfectly earlier. 

17 It doesn't serve the creditor in the first 

18 instance. It certainly doesn't serve the 

19 consumer. It doesn't serve us. It doesn't 

20 serve the other creditors who rely on our credit 

21 reports. So our overarching goal is the 

22 accuracy of the data. 
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1 As the earlier panel today discussed 

2 and I was talking to Corey earlier. I said I'm 

3 a data hog. The more information we can get 

4 about something the better the chance we have to 

5 get it right. So the more consumer identifying 

6 information that's associated with an account 

7 the better chance we have of getting it 

8 associated with the right consumer. The more 

9 data about the history of the account, who the 

10 original creditor is, the better chance we have 

11 of getting it right and making sure the consumer 

12 understands it. 

13 I think the number one -- we looked 

14 at a little bit of data in anticipation of this 

15 panel today and the number one dispute consumers 

16 have with us about collection accounts is that 

17 they don't recognize the debt. 

18 And I think it goes to the point that 

19 Loraine and others made this morning where if you 

20 just identified the creditor and the consumer is 

21 saying I don't do business with that creditor 

22 it's because he's thinking about it in terms of 
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1 the retailer whose name is on that card. So the 

2 more we can do to communicate clearly to the 

3 consumer what this debt is and who it was owed 

4 to and when it was incurred again I think the 

5 fewer problems we have. 

6 We don't pretend that the system is 

7 perfect. We don't pretend that we don't make 

8 mistakes. And when we do we have a dispute 

9 process that Congress set down for us. 

10 Congress recognized that a credit 

11 reporting company is not in a position to be able 

12 to determine whether the consumer is liable for 

13 that collection account because his cell phone 

14 didn't work or the service was no good. We can't 

15 make that determination. That's between the 

16 consumer and his creditor, you know, the cell 

17 service company and what that contract said and 

18 what the service levels were. So Congress in 

19 the FCRA directed us to contact the furnisher of 

20 the information to verify the accuracy of the 

21 data. 

22 Now that said I will take issue with 
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1 something Ian said about parroting. We don't 

2 just parrot the dispute or parrot what the 

3 creditor tells us in response to a dispute. We 

4 do exercise discretion. Many times we're able 

5 to take an action based on information the 

6 consumer provides us at the front end. We don't 

7 even have to ask the creditor. 

8 Or on the back end if the consumer 

9 says he doesn't recognize an account, it's not 

10 his, and the information comes back from the 

11 creditor and the items of identification don't 

12 match up we're not going to leave that account 

13 on his credit file. We're going to take it off. 

14 So we really do try to get it right. 

15 We're not perfect. We don't get it 

16 right every time. We're happy to be here at the 

17 table to talk about the process and ways to 

18 improve the process. And I think with that I'm 

19 going to rely on what my peers have said for the 

20 other remarks and let Corey get on with the 

21 panel. 

22 MR. STONE: Great. Thank you, 
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1 Denise, and thank you all of you for these 

2 remarks to kick this off. 

3 I think Manny probably raised a kind 

4 of basic table stakes issue here which is when 

5 is an FDCPA dispute a dispute. What constitutes 

6 a dispute? And I'll go to Chad and Ian just for 

7 starters. 

8 MR. BENSON: Okay. So, I think 

9 when you think about FDCPA and what constitutes 

10 a dispute if a consumer contacts a third party 

11 agency, contacts a debt buyer and says hey, I'm 

12 disputing this account the process for stopping 

13 collections at that time is of most importance. 

14 And the process to now go through the steps to 

15 get investigation and closure on that process in 

16 the case of FDCPA and the third party collection 

17 agency. We would return that account back to 

18 the creditor. 

19 MR. STONE: But if it's a simple 

20 denial, not mine, don't recognize it, is that a 

21 dispute? Is that sufficient? Or what makes 

22 you in your mind initiate that process to cease 
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1 collection? 

2 MR. BENSON: Well, I think 

3 obviously walking through the -- first of all, 

4 you have to have the conversation. So I think 

5 it goes back to the idea that you have to be 

6 communicating with the consumer. And assuming 

7 you're communicating with the consumer you're 

8 walking through the validation of the issuer, 

9 the balance. 

10 In some cases we're getting more -- 

11 the one thing I will say is we're getting more 

12 and more information to be able to have a 

13 conversation with the consumer on. And we find 

14 that in many cases that, you know, I will say 

15 about 30 percent of the time you get to the point 

16 where based on our data the consumer says yes, 

17 I got this, now I understand. 

18 It could be as pointed out earlier 

19 the fact that you had -- it might have been a 

20 private label card, it might have been factors 

21 that were influencing, you know, seeing things 

22 differently than maybe originally when the 
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1 credit was issued. So I think that 

2 conversation, the amount of information and the 

3 flow that you go through getting to that point 

4 if you can then eventually you've got to send it 

5 back to the creditor. 

6 MR. STONE: Yes, I don't mean to put 

7 you on the spot but you're sort of describing the 

8 conversation that results in a resolution. I'm 

9 just talking about is there an obvious moment 

10 early in the conversation where the light goes 

11 on and you say this is a dispute that I need to 

12 resolve and either cease collections or -- and 

13 institute an investigation. Obviously if the 

14 consumer realizes you're right that's a 

15 different outcome. But I'm talking about sort 

16 of earlier in the process. Is there a clear 

17 definition of -- 

18 MR. BENSON: No. I mean I think the 

19 challenge when it comes to the information 

20 provided is being able to walk through the 

21 conversation with that consumer and being able 

22 to acknowledge hey, this is, you know. 
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1 And they could dispute and say hey, 

2 listen, this was fraud. It could be an early 

3 placement and this is fraud and that process may 

4 be a little bit different than if somebody said 

5 hey listen, there's something else related to my 

6 account, that balance is incorrect. And so each 

7 one of those cases throughout the whole process 

8 may be a little bit different. So I don't think 

9 you can point to one thing. There's multiple 

10 aspects to that conversation that could elevate. 

11 MR. STONE: Thanks. Ian, is it 

12 clear when a dispute happens in your experience? 

13 Collectors have a common standard? 

14 MR. LYNGKLIP: I think it's a false 

15 issue. I mean you're talking about mandating or 

16 defining a term for the purpose of limiting 

17 people who are contesting the validity of the 

18 monetary system. I mean, I didn't come ready 

19 for that conversation. 

20 The majority of the disputes that 

21 we're talking about and I think Ms. Norgle 

22 identified. She did a survey. She's got 
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1 people are sending in legitimate disputes. The 

2 quality of the consumer dispute is not the issue 

3 that we're here to discuss. We're talking about 

4 a meaningful process to the consumer where the 

5 consumer is -- whether the people who are 

6 handling these disputes are handling in a way 

7 that they would want their own disputes handled. 

8 I mean if your house was on the line, 

9 if you were not going to get a mortgage, or you 

10 were going to be denied a job would you want 

11 somebody sitting in front of a screen matching 

12 account numbers. And the answer is no. 

13 And if that person had already -- if 

14 you had already disputed the debt and with as 

15 much information as you had available, namely I 

16 got a credit report that says GEMB. Well, GEMB 

17 issues cards for dozens, hundreds of people. 

18 WFNNB, hundreds of people. It tells the 

19 consumer nothing and what's the consumer 

20 supposed to do? I mean we're talking about a 

21 dispute process. 

22 We have to make a process that works 
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1 for the majority of the consumers. We're not 

2 going to pick up everybody. And the processes 

3 that consumer reporting agencies and debt buyers 

4 and debt collectors go through to manage those 

5 disputes, they're not going to be perfect every 

6 time. But nobody says that the credit bureaus 

7 have to be perfect every time. They have a 

8 negligence standard which means you've got to 

9 have a level of culpability there for what 

10 they've done. 

11 And debt collectors have for their 

12 purposes, they have that same negligence 

13 standard although they have a little different 

14 burden of proof. It's the bona fide error. 

15 Everybody lets -- the law allows for 

16 those kinds of honest mistakes about fringes, 

17 about the fringe of what's a dispute. What I 

18 want to know is what are you doing at the outset. 

19 Because debt collection doesn't start with a 

20 dispute. I see clients walk in my office all the 

21 time particularly with small debts where they 

22 have been the subject of debt collection efforts 
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1 using the consumer reporting agencies, the 

2 credit reporting process potentially for years 

3 before a dispute is ever launched. Because they 

4 don't know that they've been the subject of 

5 credit reporting. 

6 They don't know that they've been 

7 paying more for their car insurance and their 

8 credit cards and their mortgages and everything 

9 else that they buy. They don't know that they 

10 have been the subject of that process. 

11 The question is the data that's 

12 going into the system at the outset when the 

13 collection starts. So what has the debt 

14 collector got in their hands in order to be able 

15 to pump out that data to a consumer reporting 

16 agency and say he owes it. 

17 And if you're not holding in your 

18 hands at the time that you're making that report 

19 something that makes it verifiable and accurate 

20 that data should never come into the system and 

21 we shouldn't have to put a consumer in the 

22 position where they affirmatively have to 
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1 disprove something that isn't supported by 

2 evidence anyway. 

3 MR. STONE: So I think that 

4 certainly the consumer reporting fallout from 

5 bad data which you've talked about is extremely 

6 important here. But early in the collection 

7 process before there might have been anything 

8 reported I think there's basically Manny's 

9 question of what's a dispute. 

10 MR. LYNGKLIP: I think he answered 

11 the question and I agree with him. If somebody 

12 says I dispute the debt then you mark it as 

13 disputed. 

14 The problem with that from Manny's 

15 end is he thinks -- 

16 MR. STONE: So and my question was 

17 simply is that -- in the market today is that 

18 happening. If a consumer says I dispute it is 

19 it being recognized as such? 

20 MR. MUNROE: I'm sorry. I think 

21 it's pretty clear that through the process as the 

22 collector is identifying the question of whether 
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1 or not it is a dispute obviously if they're 

2 unable to verify or confirm with that consumer 

3 that it is in fact their debt with the 

4 information they have available to them at that 

5 point you then as a part of the verification 

6 process go back and whether you have internal 

7 resources to obtain documents or you go back to 

8 the creditor it's at that point that you go 

9 through that research. 

10 And depending on the type of debt, 

11 obviously with credit cards it would be a credit 

12 card statement that shows the charges that the 

13 consumer made. With auto it might be, you know, 

14 obviously the documents that originated the 

15 debt. 

16 And once it's in that dispute status 

17 if you are unable to through that process obtain 

18 those documents or verify or confirm with the 

19 consumer that that is in fact their debt then you 

20 don't pursue the consumer. It's flagged as a 

21 dispute and you close it out. 

22 MR. STONE: Let me push on that for 
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1 a second because I think this is probably maybe 

2 where you want to go, Ian, too. But you're 

3 pretty clear when a dispute has happened. 

4 If you are a debt buyer and just kind 

5 of following on the debt buyer study that we 

6 heard about earlier this morning if you've 

7 received a portfolio with an as-is, no reps and 

8 warranties on the accuracy of the data, and 

9 that's the data that you rely on to investigate 

10 a dispute, have you satisfied the requirement to 

11 investigate it and verify the debt? 

12 MR. MUNROE: Well, you can only work 

13 with the information that you have available to 

14 you. So most of the contracts that I've seen 

15 don't typically do an as-is sale. So you should 

16 always have direct access back to the originator 

17 for that information. The originator is not -- 

18 it's not in their best interest to sell their 

19 consumers and not to have them served 

20 appropriately. It's not in my best interest to 

21 continue doing business with that originating 

22 creditor if I'm not able to serve the consumer's 
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1 needs. 

2 So as an industry broad strokes I'm 

3 really not familiar with kind of these as-is 

4 sales that just say this is it, you're done. 

5 That's not something that I'm familiar with. 

6 MR. NEWBURGER: And I may be able to 

7 address a bit of that, Corey. Because certain 

8 things have been in a state of flux over the last 

9 few years. 

10 Generally you will find a certain 

11 lack of certain types of warranties. That's 

12 going to be true because the data changes by the 

13 millisecond. From the moment you sign a 

14 contract till the moment you deliver the 

15 accounts the portfolio has changed 

16 dramatically. So no one wants to warrant that 

17 but there are representations. 

18 The banks are typically not selling 

19 disputed accounts. My industry clients aren't 

20 reselling disputed accounts. DBA has come out 

21 strongly against reselling disputed accounts. 

22 The thing I think you have to 
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1 recognize though is there's almost a false 

2 assumption in this dialogue which is that it's 

3 the debt buyer's trade line that's the only thing 

4 out there. The truth is when these accounts are 

5 sold the issuer's trade line remains. It most 

6 typically says “account sold” but the original 

7 trade line is still there. 

8 And what I typically see is a dispute 

9 saying, and Ian, sometimes it truly is identity 

10 stolen, not me. God knows, Juniors, Seniors, et 

11 cetera, mistakes happen. I tend to see the 

12 discussion about the debt buyer's trade line but 

13 the fact remains there's an underlying trade 

14 line. It's still there and no one's saying that 

15 one's inaccurate except in the circumstances 

16 that you and I would both agree on, Ian, which 

17 are the ones where there really is a dispute. 

18 But to assume that getting rid of a 

19 debt buyer's trade line or turning it into one 

20 reflected as disputed solves the problem makes 

21 an assumption that is incorrect. The 

22 underlying line is still there. It's been there 
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1 all along and it didn't go away when it was sold. 

2 MR. LYNGKLIP: Well, it does have an 

3 effect. But I want to directly answer -- you 

4 asked a very direct question which was what am 

5 I seeing and what's my experience. 

6 And my experience is that over the 

7 last I'd say 5 years I've seen a marked 

8 improvement by the debt buying industry in 

9 coding the disputes. So if a consumer has 

10 disputed a debt when we see the credit reports 

11 we will see that that dispute code has been 

12 triggered. And the industry is doing a much 

13 better job of doing that. 

14 By the same token we see that the 

15 banks are doing a terrible job. The banks 

16 almost uniformly use a compliance condition code 

17 which effectively at the end of resolving a Fair 

18 Credit Billing Act dispute process, in other 

19 words a consumer writes directly to a creditor 

20 and says hey, this is not mine, or I dispute this. 

21 There was a billing error. It's an identity 

22 theft, whatever it is. The bank will do its 
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1 dispute process and at the end of that they 

2 trigger a code saying no longer disputed. It's 

3 not disputed anymore. And it winds up staying 

4 on the credit report. And again, the consumer 

5 has no remedy to get that off. 

6 And while I disagree slightly with 

7 Ms. Norgle on her view of what the role of the 

8 reporting agency is in relation to determining 

9 who owes the debt, here's one thing I do know. 

10 It doesn't matter whether the bureaus have that 

11 responsibility. What really matters right now 

12 is whether or not the consumer can go to court 

13 and get it fixed. Because if the consumer could 

14 go to the court and get it fixed with a 

15 declaration or an injunction that would be a 

16 non-issue for us here today. We could have a 

17 venue for that resolution for that credit 

18 reporting dispute. 

19 But we don't have that and the 

20 bureaus have uniformly taken the position that 

21 they don't have to listen to anybody who is 

22 reporting data up to them about debts, that they 
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1 have the right to continue reporting even if you 

2 tell them to stop. And so consumers have to go 

3 to court and have to have a remedy in order to 

4 be able to stop credit reporting. And there is 

5 no such remedy. 

6 MR. STONE: Denise, I'm going to 

7 give you a chance to respond. 

8 MS. NORGLE: Well, thanks, Corey. 

9 I think consumers have more remedies and I think 

10 there is -- the functionality does exist to have 

11 information removed from the report. Certainly 

12 they can dispute it directly with the consumer 

13 reporting agency. 

14 If we can't verify it with the data 

15 furnisher it comes off. If the data furnisher 

16 can't provide us sufficient identifying 

17 information that matches the consumer's 

18 identification it comes off. 

19 There's also the direct dispute rule 

20 under the FCRA. I mean I think -- I don't know 

21 to what extent consumers are availing themselves 

22 of that because by definition it doesn't run 
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1 through our systems. But anecdotally I hear 

2 consumers are availing themselves of the direct 

3 dispute rule. 

4 And we certainly do get collectors, 

5 debt buyers and first party creditors having us 

6 change, correct, delete information. So it 

7 does happen. 

8 Certainly there are mistakes where 

9 it doesn't happen, I agree. In terms of the 

10 remedies under law I have the privilege of 

11 managing our litigation as well so I happen to 

12 know that there are a lot of times where we are 

13 in a lawsuit with the original creditor and the 

14 debt collector and the CRA is present. 

15 And sometimes we're actually able to 

16 step back and say we don't know what the right 

17 answer is here. We don't know whether the 

18 consumer is really liable for this debt. So you 

19 know what we're going to do? We're going to 

20 suppress the account on the credit report until 

21 you guys figure it out in this litigation. 

22 And at the end of the day of course 
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1 we're going to report it or not report it in the 

2 way that the outcome of the litigation 

3 determines, whether it's by settlement or by 

4 court order. So I think it's a little bit of an 

5 overstatement to say that you can't get the thing 

6 taken off the credit report. 

7 MR. STONE: Can we address the issue 

8 that Ira raised in the last panel which is just 

9 the persistence of the fact of a dispute when it 

10 hasn't been verified. 

11 So we heard from the debt buyer study 

12 presentation that about -- I'm going to get this 

13 not quite right -- but about half of the debts 

14 that are disputed are not verified. So that 

15 means there's an outstanding dispute, 

16 collection ceases. If that isn't sold that's 

17 fine. If it is sold or if it's assigned to an 

18 agency the fact of that dispute is an important 

19 element. 

20 What we don't know from the study is 

21 if the dispute arose at an agency but wasn't 

22 forwarded back to the owner of the debt, the debt 
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1 buyer, was that part of the account of disputes. 

2 What do we know about that forwarding of 

3 information about disputes that are not verified 

4 or do we just not know enough? Anybody want to? 

5 MR. NEWBURGER: I can tell you my 

6 debt buyers do require their agencies and law 

7 firms to inform them of disputes. Those that 

8 are connected directly into the systems. 

9 Certainly we find that with the offshore debt 

10 collectors and even domestically I've got debt 

11 buyer clients whose lawyers report directly into 

12 their system. 

13 We expect the dispute to be 

14 communicated. It goes right into their system 

15 and it stays there. They've got it. 

16 MR. STONE: Is there a timing issue 

17 around that? I think, Chad, you were sort of 

18 suggesting or I might have this wrong, that the 

19 reporting of a dispute has to happen by the end 

20 of the assignment period. But that could be a 

21 long chunk of time if the dispute happened right 

22 at the beginning. Does the dispute happen -- 
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1 does it come -- is it reported up promptly or do 

2 you hang onto it until the end? 

3 MR. BENSON: So I can't -- we don't 

4 -- our third party firm does not work for debt 

5 buyers so I can't speak specifically for that. 

6 But I can say where -- on a contingency basis 

7 where we may have a dispute and we've used or 

8 exhausted the information that's available to us 

9 to help the consumer validate that or not we 

10 would then close that account. 

11 On the other side of it where we are 

12 working for a client that has -- we are 

13 reporting, we are held to obviously a different 

14 standard. We have to investigate it. 

15 So to the degree that we have 

16 exhausted all efforts to investigate it which 

17 means we have to interact with our client to get 

18 information to validate that debt we would go 

19 through that process until it was time for us to 

20 return it. We would also be communicating with 

21 the consumer, letting them know until we get that 

22 information and can validate it we would not be 
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1 collecting on it. 

2 MR. MUNROE: And Corey, I could 

3 respond as far as from a debt buyer's 

4 perspective. In the industry it's kind of 

5 called a close and return. So if my agency is 

6 working the account depending on the statement 

7 of procedures that you set up with that agency 

8 typically either on a weekly basis or a monthly 

9 basis or a daily basis. 

10 We're not going to wait till the end 

11 of the 6 months to capture that information 

12 because we're also looking at other types of 

13 statuses, for bankruptcies, and we want to make 

14 sure that those accounts are pulled out of the 

15 collections process appropriately. 

16 So for the most part that 

17 information is fed back to the debt buyer and 

18 making sure that if it is a case where like we 

19 talked about earlier you cannot verify the 

20 dispute then that's coded as such and not 

21 pursued. 

22 MR. STONE: Okay. One more 
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1 question just before we go to questions from the 

2 audience. I'll direct it at you, Denise. But 

3 just if you take Ian's description of this 

4 ecosystem which is a sort of nice term to use in 

5 describing the fact that there are multiple 

6 participants and handoffs. 

7 If there is an environment where 

8 again going back to the existence of contracts 

9 in which there are no reps and warranties, and 

10 where it's an as-is condition, and that is the 

11 basis on which an agency or a debt buyer is 

12 reporting to you the status of the debt, does 

13 that give you pause? Would that fail an audit 

14 if you were to do such a thing of a debt buyer 

15 or a collector? 

16 MS. NORGLE: Well, I think there's 

17 a couple of assumptions in your question, Corey, 

18 that I frankly haven't seen. I mean we haven't 

19 seen, you know, this notion that these debts are 

20 sold as is. I think historically, I've been 

21 around this business a long time kind of like 

22 Manny but historically I think that may have been 
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1 the case. But there's almost always some reps 

2 and warranties as to the accuracy of the data. 

3 And in terms of the data furnishers 

4 who furnish data to a consumer reporting agency 

5 I think to a large degree we should be able to 

6 rely on the Fair Credit Reporting Act 

7 obligations for them to report accurately. You 

8 can't knowingly report inaccurate information. 

9 If a consumer disputes the 

10 information to the furnisher the furnisher can't 

11 continue to report it unless they indicate that 

12 it is disputed. So those two protections right 

13 there and the interplay between those 

14 protections I think give consumers that safety 

15 valve if you will that there's absolutely -- it's 

16 a violation of law to knowingly report incorrect 

17 information. 

18 And even if the consumer disputes it 

19 and as a data furnisher you believe it's still 

20 correct fine, continue to report it, but you have 

21 to so indicate that it's disputed. So I think 

22 the notion that these debts are kind of as is and 
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1 the furnishers take no responsibility for the 

2 accuracy is not something that -- that's not a 

3 practice that we see or accept on the credit 

4 reporting side of the business. 

5 MR. STONE: If a collector is 

6 reporting and a consumer disputes the debt under 

7 the FDCPA should that be considered an FCRA 

8 dispute? 

9 MS. NORGLE: If they dispute it 

10 directly to the collector? Luckily I'm not the 

11 collection agency so I'm not sure I'm qualified 

12 to answer that question maybe. 

13 MR. LYNGKLIP: I've got an easy 

14 answer for that. No. What we're talking about 

15 is completely unenforceable provisions of the 

16 FCRA. They're not enforced by anybody. So 

17 since it's not enforced it's not really complied 

18 with. 

19 We talked about a safety valve of 

20 requiring accurate information in. The 

21 consumer has no prima facie remedy against a 

22 furnisher for that and the consumer has no remedy 
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1 against a furnisher for writing and direct 

2 dispute. They're completely unenforceable and 

3 that's one of the reasons we see the lack of 

4 compliance with those. 

5 The reason that we see better 

6 compliance at least in terms of reporting 

7 dispute codes out of debt collectors is because 

8 there is an obligation that is actionable under 

9 the FDCPA. So when that dispute comes in they 

10 mark it as disputed and they -- I'm happy to say 

11 I see a lot of those dispute codes being properly 

12 thrown. I'm glad to see that there's compliance 

13 by and large on that. I don't see wholesale 

14 violations like I did 10 years ago. 

15 MR. NEWBURGER: That's because the 

16 consumer bar aggressively enforced 1692(e)(8) 

17 and actually worked a change. I mean in all 

18 fairness to you and Ira and the consumer lawyers 

19 we know that that's part of what happened. 

20 You've got two different processes, 

21 Corey, and they work differently. You've got 

22 this duration during which you can request 
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1 validation and dispute for 1692(g) and you've 

2 got a lifetime opportunity to dispute it for the 

3 credit reporting purposes under (e)(8). And 

4 the consumer bar really I think caused that 

5 change. 

6 MR. LYNGKLIP: And that is the value 

7 of private attorney general and private 

8 enforcement which is the way that that statute 

9 was set up. And I can say with regard to 

10 something like the G notice with those kinds of 

11 disputes I don't see debt collectors refusing to 

12 comply with that and respond. That's not what 

13 walks into my door is a debt collector refusing 

14 to do that, where you've got a violation for 

15 which that violation can be established on paper 

16 and there's a trail of that. And there's 

17 private enforcement on the other end we see more 

18 compliance. 

19 Where there is not a paper trail we 

20 see lack of compliance. And where there's no 

21 enforceability we see far less compliance which 

22 is precisely the things we're talking about 
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1 which is obligations under the Fair Credit 

2 Reporting Act (s)(2)(B)(1). Completely 

3 unenforceable so why take something off a 

4 consumer's report if you're a creditor and 

5 you're not subject to the FDCPA? There's no 

6 right of action there. 

7 MS. NORGLE: I think characterizing 

8 some of those requirements as unenforceable does 

9 a disservice to the state and federal agencies 

10 that do enforce the act. 

11 MR. LYNGKLIP: Well, I mean 

12 unenforceable by the consumer. And I said it 

13 within the context of your comment which was 

14 simply that there's a safety valve for the 

15 consumer. I don't think that is for the 

16 consumer. It is for the agencies to do their 

17 work. 

18 MS. NORGLE: Well, I think there are 

19 plenty of consumers who can take their complaint 

20 to their state AG's consumer protection division 

21 or the Federal Trade Commission or now the CFPB. 

22 I think the consumer response complaint portal 
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1 is opening up. So there is that remedy through 

2 these agencies. It just may not be a litigation 

3 remedy in private litigation. 

4 MR. LYNGKLIP: It just simply has to 

5 be enforceable. It's not reliable. And to ask 

6 -- and I don't really have access to the volume 

7 of data that you do about how many consumers are 

8 disputing. 

9 But I don't think that you're going 

10 to see any state or any of the agencies we're 

11 dealing with litigate on behalf of the volumes 

12 of consumers who are making those disputes. I 

13 certainly know my state AG which literally has 

14 one, one attorney in the entire consumer 

15 protection division, they're not litigating any 

16 ever. The last time I think they litigated any 

17 consumer or Fair Credit Reporting Act case was 

18 when they joined the AG settlement back in 1997 

19 -- `92, I'm sorry. 

20 MS. NORGLE: That's okay. I was 

21 there. 

22 (Laughter) 
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1 MR. LYNGKLIP: But you know, that's 

2 not an active remedy for them. It's not a 

3 meaningful remedy within what I would advise my 

4 consumers as my clients. I would never advise 

5 my consumer by the way, you really need as the 

6 next step to take your dispute letter to the AG 

7 because that's where you're going to find your 

8 remedy. I don't think that that's good advice 

9 for them. 

10 MR. STONE: So let's start with some 

11 questions from the audience. This one for Ian. 

12 What form of review do you propose from or by 

13 creditors or debt buyers to ensure the accuracy 

14 or truthfulness in accounts rather than just 

15 data consistency or conformity? What's the 

16 sufficient evidence of a debt? It's an 

17 important question of substantiation. 

18 MR. LYNGKLIP: I think that that is 

19 -- it depends on the context. And by the way, 

20 we're talking about that data conformity process 

21 in two separate contexts. So I want to be clear 

22 about what that means. 
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1 So in the Fair Credit context that 

2 data conformity process is where the consumer 

3 writes a dispute to the credit bureau and the 

4 credit bureau sends a notice to the furnisher and 

5 says the consumer has disputed. That process 

6 offers data conformity on two ends. The bureau 

7 is looking to have their data match what the 

8 furnishers are and the furnishers are looking -- 

9 at that point really they should be checking the 

10 underlying substance of that account. 

11 I would also suggest that the case 

12 law says that the bureaus have to engage in a 

13 meaningful substantive investigation and I know 

14 we differ on that. But that data conformity is 

15 the thing that I think is not sufficient between 

16 the bureau and the creditor, the furnisher. 

17 If the consumer is supplying an 

18 affidavit which wouldn't necessarily just be an 

19 affidavit of fraud which triggers special 

20 rights, but if they've got an affidavit of their 

21 own, if they've got account statements that 

22 validate that or if they can show -- maybe it's 
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1 a roofer who's financed something through a bank 

2 card. And the job is terrible. You know, 

3 there's a dispute there that's legitimate. 

4 They've got an -- I think that the bureaus have 

5 an obligation to do more than simply look at, 

6 okay, do the numbers match, verified. That's 

7 the data conformity we do not want. That's not 

8 a process that's meaningful for the consumer to 

9 get their credit report corrected. 

10 MR. STONE: Thank you. Let me go 

11 onto another question. And this one is really 

12 for Manny. What are the best practices for 

13 recognizing when a dispute falls under the FDCPA 

14 or when a dispute falls under the FCRA or both? 

15 MR. NEWBURGER: To me FDCPA is 

16 fairly easy. I dispute. I'm comfortable with 

17 that. I expect any collector who hears a 

18 consumer say "I dispute" to note the account in 

19 dispute. 

20 Now, it may be that in the course of 

21 the call the collector can say "Have I resolved 

22 your dispute?" I encourage them to ask that 
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1 question. If a consumer says "I'm satisfied" 

2 well then it may not still be in dispute. But 

3 it's a dialogue that ought to be had. 

4 And unfortunately you can't 

5 introduce undue suspicion here. If someone 

6 says “I dispute” there may be good reason. 

7 Everything from, as Ian says, private label 

8 cards to what I frequently see which is “I've 

9 never heard of your company.” But if you can 

10 satisfy someone. 

11 I've heard brilliant things done by 

12 collectors who were trying to create very 

13 customer-centric conversations. One of my 

14 favorites I heard last year doing some training, 

15 we were actually working with a call and the 

16 consumer got very concerned and suspicious. 

17 And the collector didn't want to 

18 give out Social Security numbers and account 

19 numbers over the phone. He said: ”This might 

20 make you feel better. I see that you made your 

21 last payment on this date in this amount.” And 

22 the consumer said ”Yes, that's exactly right. 
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1 Wow, you really are who you say you are.” And 

2 so if there's a dialogue there's the ability to 

3 resolve disputes and perhaps satisfy people. 

4 But the word "dispute" is sufficient to do it. 

5 Now, when we get into FCRA and the 

6 data furnisher rule, I know CFPB has been 

7 actively looking at that. And in all fairness 

8 your people have been asking very sophisticated 

9 questions. There are procedures in place to 

10 deal with it when it's more formalized. We get 

11 something in writing. There is an initiation of 

12 an e-OSCAR dispute or a direct written dispute 

13 to a creditor. 

14 The difference is at least FDCPA is 

15 clearly intended to capture nothing more than a 

16 conventional “I dispute.” And if someone says 

17 it orally that's enough for FDCPA as far as I'm 

18 concerned. And I think that the companies I 

19 work with have all recognized that and really, 

20 I've seen a tremendous buy-in to that for any 

21 number of reasons. 

22 But I think particularly as more and 
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1 more have said “we value our business 

2 reputations, we value our customer 

3 relationships, and those are important things to 

4 invest in,” you find a lot more recognition of 

5 that in companies that are doing that. I think 

6 you heard a little bit of that from Larry 

7 earlier. That's I think what a lot of the 

8 institutions are trying to achieve. 

9 MR. STONE: Thank you. Here's a 

10 question that might -- and pretty much anybody 

11 could answer. And it really comes down to the 

12 obligation of a collection agency in the event 

13 of a dispute. 

14 Should the collection agency, the 

15 employees of the collection agency have the duty 

16 to figure out whether charges creditors have 

17 added to the principal are legal? This is going 

18 back to the contract, going back to the original 

19 relationship. Did the creditor get it right? 

20 MR. LYNGKLIP: If they're there 

21 trying to collect the debt and they've got their 

22 hand out looking for money they should be in a 
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1 position to explain it to the consumer. 

2 MR. STONE: Chad or Rich or? 

3 MR. MUNROE: Well, so I understand 

4 the question. So the principal balance and 

5 explain any additional charges on top of the 

6 principal balance? 

7 MR. STONE: That came from the 

8 creditor and them presumably also charges that 

9 have been added since the date of purchase or the 

10 date of assignment. 

11 MR. MUNROE: Yes, right. Well, I 

12 would say in both cases and obviously speaking 

13 more from the debt buyer's perspective at the 

14 point we acquire the account the vast majority 

15 of the time the account has already been charged 

16 off and we have a fixed principal balance that 

17 really it's up to the originator to kind of 

18 validate that number, right. 

19 So from that point forward if 

20 there's any other additional interest that gets 

21 charged based on the terms and conditions of the 

22 original contract that also can be itemized from 
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1 the debt buyer's perspective. 

2 MR. STONE: Chad? 

3 MR. BENSON: Yes, so from a 

4 contingency standpoint the ability to reconcile 

5 the charge-off balance and be able to have the 

6 conversation with the consumer related to the 

7 charge-off balance, absolutely. If the 

8 consumer decides they want to dispute the 

9 differences between what those buckets look like 

10 then that would be I think as Manny pointed an 

11 opportunity for us to get more information or 

12 return that back to the creditor. 

13 MR. STONE: Just going back to sort 

14 of the moment of assignment or the moment of 

15 charge-off where typically a creditor would have 

16 accumulated interest and fees that moment then 

17 becomes, correct me if I'm wrong, the principal 

18 balance that's then sold to a debt buyer or then 

19 goes into collection. What happens now in 

20 response to a consumer who says I don't recognize 

21 this number? We've talked about data standards 

22 and I think one of the early and most obvious 
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1 elements of standards goes back to 

2 differentiating principal from interest and 

3 fees. 

4 And we've got two clocks starting 

5 here. We've got the one that started at the 

6 moment of charge-off and the one that started 

7 before that. We may have another clock that 

8 started at the moment of purchase. How do we 

9 keep track of all these different clocks, 

10 potentially all these different methods of 

11 calculating interest? What's the best solution 

12 here for the consumer? 

13 MR. LYNGKLIP: I can tell you what 

14 the consumer's experience is on that end. And 

15 it goes back to just your immediately preceding 

16 question. The consumer's experience of that 

17 process of not recognizing a balance, not 

18 knowing where that number comes from is 

19 irrespective of whether they're having that 

20 discussion with a collection agency, an ARM, or 

21 whether they are having it with a debt buyer. 

22 That conversation proceeds along the lines of I 
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1 don't recognize this charge and the answer is 

2 well, you'll need to take that up with the 

3 creditor. 

4 And when they call the creditor they 

5 get the answer that well, we've sold your debt 

6 and we can't talk to you about this anymore. So 

7 really the customer experience at that point is 

8 you're not a customer anymore and we don't have 

9 to service you and nobody does. 

10 And nobody's got to give you an 

11 explanation now because the debt buyers don't 

12 have the data to actually do that. Whether the 

13 ARMs have that data or are accessible some of 

14 them may or may not, and some of them may provide 

15 that service. I don't know how that actually 

16 happens because I know that some of them have 

17 access, direct access, and are linked in very 

18 tightly and maybe can. 

19 But the answers are very clearly 

20 that the collection agencies are not there to 

21 provide the level of consumer service that the 

22 creditor is and so they don't get it. They don't 
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1 get that level of service. 

2 MR. MUNROE: I think it goes back to 

3 the verification process we talked about 

4 earlier. So as a debt buyer if I get word back 

5 from a collection agency that it is in fact a 

6 dispute and whether the consumer has contacted 

7 the creditor themselves or not as a debt buyer 

8 I need to go back myself to the creditor and find 

9 out if we can verify that information. 

10 And like I said earlier, if you can't 

11 then there's no reason you should continue to try 

12 to collect that account. 

13 MR. BENSON: I guess I would agree. 

14 I mean the process for disputing is 

15 fundamentally about do you agree with the 

16 balance or not. And if you don't then as a third 

17 party collection agency you're going to allow 

18 them to dispute and go back to the creditor and 

19 hopefully that issue gets resolved through that 

20 process. I can't necessarily speak to that but 

21 I would assume that that would get handled in the 

22 appropriate way. 
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1 MR. STONE: Let me, since we're 

2 right at the end of our time here just ask just 

3 following Larry's comment at the end of the last 

4 panel about the notion of data standards. 

5 Does that help in this dispute 

6 process? And if you can say anything about what 

7 those standards might look like. Any comments 

8 on that would be helpful. 

9 MR. BENSON: So obviously relevant, 

10 not necessarily more data, but relevant data. I 

11 think we've talked a lot about it in this panel 

12 and in the first panel. 

13 But the more information that we can 

14 have relative to charge-off dates, balances, 

15 last payments, that context of conversation with 

16 consumers to some of the discussion going on, 

17 helping the dialogue to bring forward in some 

18 cases what may be 12, 15, 24 months of time lapse 

19 between when an account charged off or last 

20 payment was made and the discussion that's 

21 happening with the consumer today would be 

22 extremely relevant. 
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1 I think the idea that information 

2 can be passed if it's from agency to agency that 

3 hey, this account was disputed, it was 

4 validated, it was agreed upon and here we are 

5 from agency 1 to agency 2, that would be helpful. 

6 Because I think what ends up 

7 happening is at some point you have somebody 

8 who's doing this potentially through the process 

9 most of the time that's going to get caught. I 

10 truly believe when it comes to disputes this 

11 industry has come a long way over the last 3 to 

12 5 years. And a dispute's a dispute. And at the 

13 end of the day we've got to verify it and if we 

14 can't that should be it. 

15 MR. STONE: Thanks. Ian? 

16 MR. LYNGKLIP: Fundamentally the 

17 dispute process has to be a process that results 

18 in accurate verifiable data. These are 

19 standards that are already out there, that are 

20 already prevalent in the industry and prevalent 

21 within the law. 

22 And we have to make sure that the 
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1 data that's coming in to both the debt buyers and 

2 to the agencies and to the credit bureaus all 

3 meets that currently applicable standard which 

4 is the data has got to be objectively true, it's 

5 got to be complete and it cannot be misleading. 

6 And if the process that we put the 

7 consumer into does not result in that then the 

8 person who's trying to collect it should not be 

9 allowed to collect it and the person who is 

10 reporting it should not be allowed to report it. 

11 And the credit bureau that has got the data 

12 should not be able to put that data on the report. 

13 That should be the objective of the dispute 

14 process and that data that we have. 

15 MR. MUNROE: I talked earlier about 

16 the 19 certification standards that DBA has put 

17 in place. And number one is laws and 

18 regulations. As a debt buyer you have to follow 

19 the Fair Debt Collection Practices Act, the FCRA 

20 and all these other state and regulatory bodies. 

21 But number two is account 

22 documentation. And you know, like I've said we 
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1 view this process as an evolving process. So 

2 the industry feels that we've got a starting 

3 point on it. What we would want to call a 

4 standard data flow, standard information that 

5 can be consistent across the board. And again, 

6 look at it as a starting point so that we continue 

7 to when we can add additional information to it. 

8 MR. STONE: Manny, I just want to 

9 say that I've been reading your reliability, 

10 accuracy, retention and availability bullets. 

11 And if I add those all up they stand for RARA. 

12 (Laughter) 

13 MR. STONE: So if this would be the 

14 RARA standard. I don't know if you want to say 

15 anything more than that. 

16 MR. NEWBURGER: Well, now I feel 

17 like I've got to jump up and down and cheer. 

18 Look, I remember when data was expensive, Corey. 

19 Cake box hard drives and it cost a lot of money 

20 to store. It doesn't. 

21 Data storage is relatively cheap. 

22 Yes, there's a cost to implement it. There's a 
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1 cost to keep it. But the reality is mandating 

2 that should not be a problem. 

3 You've got at least three companies 

4 here in this room I know that do that. I saw some 

5 folks from Global Debt Registry. You've got 

6 Convoke. You've got YGC. You've got companies 

7 that do that. The capability is there. If it 

8 costs some money to have to acquire that, well 

9 you know what, some industry members may have to 

10 eat it. 

11 But to your question I think you were 

12 asking, the idea of saying there's certain 

13 fields, certain quanta of data that we believe 

14 should always go with the sale of an account I'm 

15 not sure I think that's at all a bad idea. I 

16 think it would help everybody. 

17 If there's a mandate, a national 

18 standard, you sell an account, these are the 

19 things you will transmit I think that helps 

20 everybody. That's a quality improvement 

21 standard and it would be a very good thing. 

22 MR. STONE: Great, thanks. 
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1 MS. NORGLE: Well, Corey, I said at 

2 the beginning I'm a data hog and I'm still a data 

3 hog. I think that more standardized data 

4 reporting on the front end will reduce the errors 

5 and reduce the questions consumers get. We 

6 won't be putting accounts on the wrong file or 

7 matching information incorrectly. So standard 

8 identifying elements for the consumers that stay 

9 with that reporting from the original creditor 

10 through the collection agencies to us will 

11 definitely help the accuracy. 

12 I think that the point that we teased 

13 out a little earlier in terms of the principal 

14 versus the interest versus the late fees, you 

15 know, I think about where credit card statements 

16 have come since Dodd-Frank. And I think about 

17 those types of disclosures. And if that sort of 

18 thing became a standard and consumers were able 

19 to see the amounts that would probably be helpful 

20 as well. 

21 Because we get it on first party debt 

22 and we get it on collection debt where they say 
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1 this balance isn't right. Because the consumer 

2 is not thinking about the late fee or the 

3 overdraft fee or the interest charges. So I do 

4 think that that greater level of detail 

5 following the life of the debt so that the 

6 collection agency or the debt buyer, the first 

7 party can explain it to the consumer is very 

8 important and would help the process. 

9 MR. STONE: Great. Thank you all. 

10 We go to our next presentation in 2 minutes and 

11 rah rah. 

12 (Applause) 

13 MR. DWYER: We will have a break 

14 after this presentation but right now I'd like 

15 to move as quickly as possible. 

16 So I'd like to call to the stage 

17 Bevin Murphy and Colin Hector from the FTC to 

18 give an overview of the FTC's report "Repairing 

19 a Broken System" and changes in the law since the 

20 report was issued. 

21 MS. MURPHY: Hi folks. Sorry to 

22 stand between everyone and their break but we 
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1 have another 20 minutes and then you have a 

2 well-earned chance to break. 

3 I'm Bevin Murphy with the FTC and I'm 

4 going to be giving an overview of the FTC's debt 

5 collection litigation and arbitration report 

6 from 2010. This was called "Repairing a Broken 

7 System." 

8 Like my colleagues I do have to give 

9 a brief notation that any views expressed up here 

10 are my own and do not necessarily reflect those 

11 of the Commission or of any Commissioners. 

12 Our 2010 report "Repairing a Broken 

13 System" looked at litigation and arbitration in 

14 the debt collection context. To give you a bit 

15 of background on this we held roundtables in 

16 2009, 5 days of them. 

17 These roundtables actually followed 

18 the Commission's 2009 report on debt collection. 

19 In that report we identified some concerns with 

20 debt collection litigation and arbitration but 

21 concluded that more information was needed, 

22 hence the 5 days of roundtables. 
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1 These were nationwide, two in 

2 Chicago, two in San Francisco, one here in D.C. 

3 We had nearly 100 expert panelists, solicited 

4 public comments. I believe we received close to 

5 90 of those. And issued the report in 2010. 

6 This report had recommendations to 

7 improve efficiency and fairness to consumers. 

8 And I'm going to briefly with the time we have 

9 allotted highlight some of the more salient ones 

10 for the flow of data in debt collection. 

11 So, on the litigation side we issued 

12 findings and recommendations in four main areas: 

13 consumer participation, evidence of 

14 indebtedness, time-barred debt, and garnishment 

15 of bank accounts. 

16 In terms of time-barred debt I know 

17 that we have an excellent panel coming up later 

18 this afternoon on that very topic so I will say 

19 that in terms of the FTC's findings in this area 

20 we noted that the rules surrounding statutes of 

21 limitations and especially for the revival of 

22 time-barred debt are often unrecognized and 
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1 misunderstood by consumers. 

2 Consumers may believe that 

3 collectors can sue on time-barred debt and they 

4 may pay debt collectors not knowing that perhaps 

5 even a small payment can revive the debt and 

6 start the statute of limitations anew. 

7 In this area the FTC in the report 

8 recommended greater clarity surrounding state 

9 statutes of limitations. When collecting on 

10 time-barred debts the report recommended that 

11 collectors disclose in fact that a debt is 

12 time-barred, they cannot sue on it, and that even 

13 a partial payment could revive the statute of 

14 limitations. 

15 Another subject I want to talk about 

16 is consumer participation. We had findings in 

17 this area as well. And pretty much across the 

18 board we found that consumers do not show up. 

19 They don't appear, they don't defend. 

20 There was very little empirical data 

21 on why consumers don't show up. Unfortunately 

22 they are -- by the very fact that they're not 
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1 there we can't ask them and that certainly limits 

2 data collection there. 

3 There were a number of possibilities 

4 posited by our panelists and our commentators. 

5 Possibly lack of familiarity with litigation. 

6 Costs of participating may have been 

7 prohibitive. Consumers may have felt that 

8 appearing or defending would be futile. And 

9 another possibility was that there were problems 

10 with service of process and notice. And on this 

11 regard the Commission recommended in this report 

12 improving notice and service of process. 

13 And in this area in particular it's 

14 pretty clear how this would implicate the flow 

15 of data. So in terms of service of process you 

16 need the consumer's correct name, so you need the 

17 correct consumer, and a current address. And 

18 this can be problematic depending on the type of 

19 debt. 

20 Another area in which we had 

21 findings and recommendations was evidence of 

22 indebtedness. And this is what I started 
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1 referring to in terms of consumer participation 

2 but this is sometimes called the wrong consumer, 

3 wrong amount problem. 

4 So throughout the roundtables and in 

5 the comments we heard concerns that complaints 

6 are being filed against the wrong person and/or 

7 for the wrong amount. We also heard concerns 

8 with the content of complaints filed in court, 

9 that there was inadequate information about the 

10 alleged debts and that there was inadequate 

11 information about the underlying credit 

12 contracts. 

13 In this area we did issue 

14 recommendations in our report for what the 

15 complaints filed in court should include. And 

16 that information was the following: the original 

17 creditor, so the name of the original creditor, 

18 and the original account number redacted; the 

19 default and charge-off dates, and the amount 

20 that was due at that time; the current owner of 

21 the debt; the total amount currently due; and for 

22 that amount a breakdown of principal, interest, 
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1 and fees. 

2 And now if the complaints do not set 

3 forth that information above in the report we 

4 recommended that courts should ensure they 

5 obtain that information in some way. And now, 

6 mindful of other concerns we heard expressed at 

7 the roundtables that this could perhaps increase 

8 the costs of litigation we did recommend that 

9 jurisdictions consider applying any existing 

10 court rules to ensure that courts do have that 

11 information or consider specifying documents or 

12 explanations in lieu of documents that must 

13 accompany these complaints. 

14 And this would contribute to solving 

15 a twofold problem. The consumers recognize the 

16 debt and are able to respond to it and that courts 

17 have enough information to rule on it. 

18 And now I know that we are discussing 

19 litigation here today but I did just want to put 

20 a brief notation on the other half of our report 

21 that dealt with arbitration. 

22 And by arbitration we looked at 
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1 arbitration that was pursuant to mandatory, 

2 pre-dispute arbitration clauses in credit 

3 contracts. And of course as many of you know 

4 this sort of large-scale mandatory pre-dispute 

5 arbitration is certainly not occurring to the 

6 extent that we saw in those previous years. But 

7 it could again. 

8 And the Commission did in this 

9 report identify two pieces of fundamental 

10 criteria that would need to be present for a fair 

11 arbitration system. And that was meaningful 

12 choice, the consumers are able to in fact choose 

13 whether and how to arbitrate, and a fair process. 

14 In terms of this fair process this 

15 would also implicate a number of the data flow 

16 and data collection issues we're discussing 

17 today. So similar to in the litigation context 

18 improving notice, making sure that consumers 

19 know if a claim for arbitration has been filed. 

20 And again, similar to litigation we 

21 would need to know the name of the consumer, that 

22 it's the correct consumer, and current address. 
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1 Another recommendation we had as 

2 part of fair process were reasoned awards. And 

3 that too would implicate the flow of data because 

4 in order for a forum to issue a reasoned award 

5 with a written opinion they would need to know 

6 what I specified before in terms of complaints. 

7 So need to know the current amount due as well 

8 as a breakdown of principal, interest and fees. 

9 With that I'm going to turn it over 

10 to my colleague Colin Hector who's going to give 

11 us an update on some of the recent developments 

12 in laws since this report was issued. 

13 MR. HECTOR: Hi, my name is Colin 

14 Hector and like Bevin any views expressed are my 

15 own and should not be attributed to the FTC or 

16 any of its individual Commissioners. I'm an 

17 attorney in the Division of Financial Practices 

18 where I frequently work on matters related to 

19 debt collection. 

20 I'm going to give a very brief 

21 presentation on some recent debt collection 

22 reforms on the state level following on from 
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1 Bevin's presentation on "Repairing a Broken 

2 System." 

3 Before I begin I want to make two 

4 quick notes. First, as I said this presentation 

5 is going to be very brief, between 5 and 8 

6 minutes. As such it will be neither 

7 comprehensive nor exhaustive. And a lot of 

8 these debt collection reforms involve 

9 considerable nuance. And that's just not 

10 something that's going to be able to come across 

11 in such a short presentation. 

12 The second note I wanted to make is 

13 although I'm following on from Bevin's 

14 presentation I don't want to suggest that any of 

15 the state actors involved in these reforms were 

16 necessarily influenced by the "Repairing a 

17 Broken System" report although as you'll see 

18 some of the reforms are certainly consistent 

19 with the recommendations in that report. 

20 So to begin I'm going to go through 

21 three areas of state reforms. The first and 

22 main one regards the evidence of a debt that 
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1 collectors need to set forth either during the 

2 debt collection litigation process or before the 

3 collection process begins or the before the 

4 litigation process begins. And then I'm going 

5 to touch on some proposals that deal with 

6 time-barred debts and the levy of bank accounts. 

7 I'll begin with Delaware. Delaware 

8 recently initiated a directive 2012-2 which 

9 superseded a similar directive that was passed 

10 in 2011. It set standards for debt collection 

11 evidence at both the pleading stage and the 

12 default judgment stage. 

13 With regards to the pleading stage 

14 it requires the debt collectors set forth a 

15 sufficient description of the original 

16 creditor, the last four digits of the account 

17 being collected on, as well as a breakdown of the 

18 principal owed as well as any interest, fees, or 

19 other charges. 

20 With respect to default judgments 

21 the directive requires debt collectors to set 

22 forth some evidence establishing the chain of 
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1 assignment and the underlying legal obligation. 

2 Although the directive does not specify what 

3 exact forms of evidence are required it does say 

4 that copies of documents evidencing the legal 

5 obligation need to be attached. 

6 Maryland also recently changed its 

7 court rules to address some issues related to the 

8 evidence in debt collection litigation. These 

9 rules are fairly detailed but at a broad level 

10 one of the things that these rules does is for 

11 judgment by affidavit it requires certain 

12 documentation establishing proof of the 

13 existence of an account and proof that the 

14 plaintiff owns the account in question. 

15 And the Maryland rules actually do 

16 specify certain forms of evidence or 

17 documentation that needs to be set forth. And 

18 like the Delaware directive it also requires an 

19 itemization of post-charge off fees and charges. 

20 Texas very recently changed its 

21 court rules with respect to its justice courts. 

22 Like the Delaware directive it requires debt 
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1 collectors to set forth certain information at 

2 the pleading stage including the account number, 

3 the amount owed and whether the plaintiff seeks 

4 interest. And it also require the date of 

5 issue, origination, and the dates of charge-off 

6 if that information is known. 

7 In addition, it requires debt 

8 collectors to set forth some additional 

9 information if the account has been transferred 

10 or assigned. 

11 But in contrast to the Delaware and 

12 Maryland changes the Texas rules -- I think the 

13 import of the Texas rules is that an affidavit 

14 that is signed by one of the plaintiff debt 

15 collector or debt buyer employees which attests 

16 to the validity of the debt is one form of 

17 evidence that can be set forth to support a 

18 motion for a default judgment. 

19 And in fact the rules go on to say 

20 that a judge cannot reject such an affidavit only 

21 because it is not made by the original creditor 

22 or because the documents attested to were 
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1 created by a third party. 

2 Something a little bit different. 

3 Massachusetts recently changed some of its rules 

4 regarding the evidence that needs to be provided 

5 to a consumer in response to a timely request for 

6 validation. These rules actually affect 

7 creditors under the Massachusetts rules and 

8 "creditor" includes a passive debt buyer but may 

9 not include a third party debt collector. 

10 And under the Massachusetts rules 

11 creditors need to provide certain information or 

12 documentation that may be in their possession 

13 when a consumer makes a timely written 

14 validation request. It also imposes a related 

15 automatic stay while that information or 

16 documentation is being produced. 

17 I also wanted to mention one 

18 proposed law in California which was Senate Bill 

19 890. It's been renumbered Senate Bill 233 as 

20 it's been reintroduced this session. 

21 It addresses a few things. Before 

22 collection takes place a debt collector would 
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1 need to have specified information about the 

2 account and access to a contract or other 

3 document evidencing the underlying agreement. 

4 Like the Massachusetts rule it would 

5 require debt buyers to produce certain 

6 information in response to a validation request. 

7 And like some of the other reforms I've talked 

8 about it would require debt buyers to submit a 

9 contract or other documentation to evidence the 

10 debt during the debt collection litigation 

11 process. 

12 Very quickly I wanted to mention 

13 that certain jurisdictions have been passing 

14 reforms to address issues with the collection of 

15 time-barred debts. In New Mexico the attorney 

16 general promulgated a rule that requires debt 

17 collectors to determine whether accounts are 

18 time-barred and requires a disclosure to be 

19 given to consumers where the account is 

20 determined to be beyond the statute of 

21 limitations. 

22 California's proposed rule would 
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1 impose a similar disclosure on debt buyers. And 

2 the Massachusetts rule that I mentioned actually 

3 imposes a similar disclosure on creditors. 

4 And finally, the proposed 

5 California rule that I mentioned has one 

6 provision that affects the procedures related to 

7 the levy of a bank account. It would require a 

8 notice of state exemptions to be provided to a 

9 consumer prior to that levy taking place. 

10 As I said, this presentation was 

11 going to be very brief and it has been. But I 

12 hope that it highlights some changes in debt 

13 collection reform that provide discussion 

14 points during the rest of the panels. Thank 

15 you. 

16 (Applause) 

17 MR. DWYER: Excellent. Thank you, 

18 Bevin and Colin. Okay, now it is break time 

19 again. Please come back ready to reconvene at 

20 3 o'clock. 

21 (Whereupon, the foregoing matter 

22 went off the record at 2:41 p.m. and went back 
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1 on the record at 3:00 p.m.) 

2 MR. DWYER: All right, everyone. 

3 If you could please take your seats. All right, 

4 well I'm going to turn over the microphone to 

5 Chris Koegel, the Assistant Director in the 

6 Division of Financial Practices to talk about 

7 our third panel. 

8 MR. KOEGEL: Good afternoon, 

9 everyone. Again, thank you all for coming. 

10 This panel's going to be dealing with the 

11 questions of how the passage and quality of 

12 information and data in the debt collection 

13 ecosystem affects the litigation process. 

14 And so what I'd like to do first is 

15 just to remind all our panelists that we've got 

16 a lot of great fans out there watching this panel 

17 on the webcast and so please try to talk into the 

18 microphone so that they can all hear us just as 

19 well. 

20 And first if we could just start with 

21 brief, 2-minute introductions of yourselves and 

22 talk just about what perspective you bring to 
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1 this issue and how your experience is relevant 

2 to the topic we're going to talk about. 

3 So, Brandon, can you start? 

4 MR. BLACK: Sure. So my name's 

5 Brandon Black. I think my title today is father 

6 to Aidan, Trevor, and Lia. Yesterday I was the 

7 CEO and director of Encore Capital Group. So I 

8 was the chief executive for 8 years and had been 

9 with the company for 15 total. 

10 Encore is one of the largest debt 

11 buyers and so I think I can bring a national 

12 perspective to the discussion. I think that 

13 there are many topics that have come up today 

14 that I think I can shed light on. 

15 An example from earlier today was 

16 the notion of buying a portfolio for pennies on 

17 the dollar and then doing things like litigation 

18 where you collect more. Just to set the record 

19 straight we do spend pennies on the dollar, maybe 

20 we spend 5 cents on the dollar and we collect 

21 about 11 back. 

22 So there's this notion that we spend 
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1 5 and somehow get 60. I wish that was the case 

2 as a public company CEO. Our returns would be 

3 a lot better and the banks probably wouldn't sell 

4 it to us. 

5 But the mere fact is 8 out of 10 

6 people do not pay after their account charges 

7 off. And litigation unfortunately is a 

8 necessity at times because there are only three 

9 means of collections. You can send a letter, 

10 you can make a phone call, and you can pursue 

11 litigation. That's all we can do. And in some 

12 ways collections is a simple business. 

13 And we live in a day and age where 

14 I turn my phone off but everyone in the room here 

15 today has got a phone. You probably got a call 

16 today and you can see who called you and you can 

17 decline that pretty easily or you can accept it. 

18 So if you're a consumer who's certainly going 

19 through a difficult process of collections 

20 you're going to probably decline that call. You 

21 don't want to have the conversation. 

22 And then the second thing we can do 
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1 is send you a letter. And you can choose to call 

2 us back or not. 

3 But if you choose not to call us back 

4 we're left with one and only one choice, and that 

5 choice unfortunately is to pursue litigation if 

6 we think the consumer has the ability to pay. 

7 And if we do it is the last choice for us because 

8 it's the most expensive thing we do. It's not 

9 something we take lightly. It costs us about 40 

10 cents on a dollar to collect a dollar through 

11 litigation. It costs us about 10 cents on the 

12 dollar if we pursue it through making a phone 

13 call or sending a letter. 

14 So I think I can talk about the 

15 economics of the business. I can talk about it 

16 from a national perspective and hopefully bring 

17 some data and some information to a discussion 

18 which is very emotional. It's charged with a 

19 lot of anecdotes. I'm sure it's very scary for 

20 people to go through the litigation process. 

21 And hopefully I can bring some of those 

22 information to light and help inform the 
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1 discussion. 

2 MR. KOEGEL: Thank you, Brandon. 

3 Looking forward to your contributions. Peter 

4 Holland? 

5 MR. HOLLAND: Hi, thank you. My 

6 name's Peter Holland. I'm currently at the 

7 University of Maryland Law School where I run a 

8 consumer protection clinic where we defend a lot 

9 of debt buyer cases. 

10 My background really is private 

11 practice, however, for most of my career. And 

12 I come to this having known really nothing about 

13 debt buyers. I never really heard of them. And 

14 as far as the litigation I had no idea what went 

15 on until I kind of stumbled upon it. And I was 

16 really shocked because what I found is that 

17 there's a shadow system out there in our 

18 courthouses. I went into courtrooms with no 

19 judges in them. People summoned to court to sit 

20 down and a plaintiff's lawyer has the court file, 

21 says how much would you like to pay. So I was 

22 kind of really interested. 
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1 I've studied it. And Maryland was 

2 actually one of the states where a number of the 

3 debt buyers didn't make any phone calls, didn't 

4 send any letters because their position was they 

5 were just this passive entity and their lawyer 

6 was doing all of the suing. So their first line 

7 of offense was not a phone call or letter, but 

8 a lawsuit. 

9 So where I come from is looking at 

10 these cases every day, defending them every day. 

11 And frankly despite all the rules changes I 

12 continue to be shocked, amazed, and disappointed 

13 in just how shoddy the paperwork is that I see 

14 filed in court. 

15 MR. KOEGEL: Thank you, Peter. And 

16 now we have Thomas Lawrie. 

17 MR. LAWRIE: Hi. My name's Tom 

18 Lawrie. I'm an assistant attorney general, 

19 state of Maryland. I represent the 

20 Commissioner of Financial Regulation and the 

21 State Collection Agency Licensing Board. 

22 In that position we've brought 
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1 several major actions against some of the large 

2 national debt buyers. They have to be licensed 

3 as collection agencies in Maryland. So we 

4 brought actions. I won't name names but I'm 

5 sure they're glaring at me right now. 

6 But the -- we brought several 

7 actions. The first one was back in 2009. We 

8 brought another one in the 2011-2012 time frame. 

9 And we brought actions against several smaller 

10 debt buyers. And it was all for the 

11 collections-related litigation practices. 

12 We also have brought action -- we 

13 brought at least one action against a law firm 

14 that was licensed as a collection agency that was 

15 bringing actions on behalf of the debt buyers. 

16 So in addition to the enforcement 

17 piece we also drafted the proposed changes to the 

18 Maryland rules that went into effect on January 

19 1, 2012. And that came about in part based on 

20 a recommendation by the Department of 

21 Legislative Services in Maryland and in part 

22 based on the FTC report. 
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1 The Office of the Attorney General 

2 and the Licensing Board, we drafted a proposed 

3 change, submitted that to the Maryland judiciary 

4 and that was hotly debated throughout a lot of 

5 2011. And those were finally passed by the 

6 Court of Appeals and went into effect on January 

7 1, 2012. So I have that perspective as well. 

8 MR. KOEGEL: Thank you, Tom. 

9 Joann? 

10 MS. NEEDLEMAN: Hi, good afternoon. 

11 My name is Joann Needleman. I am vice president 

12 of Maurice & Needleman. I also wear another 

13 title. I am also the incoming president of the 

14 National Association of Retail Collection 

15 Attorneys. So we talk about debt collection 

16 attorneys, they are our members. They are our 

17 member law firms. We have over 700 nationwide. 

18 And I want to thank the CFPB and John 

19 Tonetti and the FTC for inviting me. I was part 

20 of the roundtables here in Washington when we 

21 talked about "Repairing the Broken System." So 

22 I appreciate that they were willing to call me 
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1 back. 

2 A little bit about NARCA. As I said 

3 NARCA is a national trade association. We have 

4 over 700 law firms nationwide that makes up our 

5 membership. And NARCA members are not only 

6 licensed attorneys but abide by a code of conduct 

7 that NARCA enacts that we want to treat consumers 

8 with dignity and respect, and that we want to 

9 observe our professional and ethical standards 

10 not only to our client but also to adhere to the 

11 public trust as attorneys do. 

12 I have been a collection attorney 

13 for 17 years. Part of my practice in the last 

14 6 or 7 years has been the defense of FDCPA and 

15 FCRA cases. So I have seen this world from both 

16 sides. 

17 I respect the court system and I 

18 think that while the system needs to be improved, 

19 I would like to have a discussion, I don't know 

20 whether it's necessarily broken. But does it 

21 need to be enhanced and help the consumer? 

22 Absolutely. 
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1 And I hope we can have that dialogue 

2 here today to make the -- and we're talking about 

3 small claims courts. And we're talking about 

4 cases that are small. And I hope that we can 

5 have a productive dialogue about how to make 

6 consumers not afraid if the last avenue of any 

7 communication we're having with them is the 

8 litigation process that they are not scared and 

9 frightened to come to court, and that the court 

10 is a place to protect them. And it should 

11 protect them. It should protect all litigants. 

12 So I hope we have that discussion. 

13 Some of the topics I know we're going 

14 to be talking today is why do -- how come 

15 consumers don't appear. We talked about that in 

16 2009. I don't have the answer to that question. 

17 And to the gentleman from American University 

18 who spoke on the first panel maybe that's a 

19 research issue. Maybe we need to really find 

20 out why consumers don't appear. I can make a lot 

21 of guesses and I'm sure Mr. Lawrie and Mr. 

22 Holland have a lot of reasons why they're not 
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1 showing up as well. 

2 But we really need to understand why 

3 because you just saw there have been really nice 

4 collaborative efforts to change and enhance the 

5 local court rules to provide consumers with more 

6 information. And yet I'm still seeing even with 

7 all this information being put out there to 

8 consumers, being put in complaints, they're 

9 still not coming to court. So I think we really 

10 need to look at that and really need to talk about 

11 why that is. 

12 Because as we've heard all day we 

13 want to communicate with consumers. We want to 

14 help them resolve a bad situation and not make 

15 them feel that because they're in this situation 

16 they're any less important in this process. 

17 Thank you. 

18 MR. KOEGEL: Thank you, Joann. And 

19 Your Honor? 

20 JUDGE RIZZO: Hi, my name is Annette 

21 Rizzo. Good afternoon. No, good afternoon. 

22 I want a little response. I never get it. I 
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1 wish I would have brought my robes, it's freezing 

2 in here. At any rate, I'm from the First 

3 Judicial District of Pennsylvania, 

4 Philadelphia, and I'm so glad to be here. I am 

5 affiliated as a CAB advisor, Consumer Advisory 

6 Board member of the CFPB. A lot of alphabet 

7 there. 

8 And I am so glad our panel was later 

9 in the day for me to learn and react to. And I'm 

10 also glad I'm at the end of this panel because 

11 I have some things to say. 

12 Last I checked I'm probably the only 

13 member of the judiciary in the room. Is anyone 

14 with me? Any other colleague? And yet a lot of 

15 discussion is about the broken system of the 

16 courts. So I'm here. I'm here to listen. I'm 

17 in a listening session myself. And I'm here to 

18 impart. So I am going to get a little bit on my 

19 soapbox when I get to speak and tell you all what 

20 you've got to do. 

21 (Laughter) 

22 JUDGE RIZZO: And part of it is to 
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1 step up. And I mean it, I mean it. And so I'm 

2 going to be sharing some things with you. 

3 I want to just tell you a little bit 

4 about myself. I actually came from -- it's 

5 interesting, I call it a Nor'easter of life. 

6 When I was in college at Penn I ran a consumer 

7 group that was quite effective. Went on, got 

8 the law degree and all that. Ended up serving 

9 in government, a law firm, doing a lot of 

10 litigation. I was with a major insurance 

11 company in-house, did government affairs and 

12 sort of saw the corporate side. 

13 Then took the oath of office to the 

14 bench for 15 years. And then my present docket 

15 is with major civil cases. In the past I've had 

16 a docket that has involved all these debt type 

17 cases. But I also oversaw and I developed with 

18 others in the First Judicial District the 

19 Mortgage Foreclosure Diversion Program. 

20 Here's the deal. We've learned a 

21 lot from that. I have lessons learned to impart 

22 that may have some direct applicability in this 
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1 arena. 

2 Who likes Venn diagrams? Raise 

3 your hand. Who likes them? Okay. This is a 

4 Venn diagram discussion. Because many of the 

5 people who come through my court in foreclosure, 

6 and what we do is a conciliation, a mandatory 

7 conciliation process, that's our story, we're 

8 sticking to it. Really have another side of the 

9 story. It's complex, right, and a lot of them 

10 have this kind of debt with them. A lot of times 

11 to get the deal for their home requires some 

12 resolution of this credit card debt and other 

13 debts such as this hospital debt, et cetera. So 

14 I want to share some things with that. 

15 And I can tell you one thing with 

16 respect to your FTA rate, failure to appear rate, 

17 when we started the program 5 years ago, we're 

18 celebrating an anniversary next week, 90 percent 

19 failure to show. But now we have a 70 percent 

20 show rate, 30 percent. I'm going to tell you 

21 how, all right? Stay tuned. 

22 MR. KOEGEL: I'm a little worried 
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1 that nobody's got an opinion on this group. 

2 (Laughter) 

3 MR. KOEGEL: In all seriousness, 

4 this promises to be a real lively discussion and 

5 I think we've got this issue really surrounded 

6 from a variety of different perspectives here. 

7 So I look forward to hearing some 

8 recommendations from people and seeing if we can 

9 find a little common ground. 

10 So, why don't we start just by 

11 reminding ourselves what we just heard in the 

12 last presentation. So in the roundtables 

13 leading up to the FTC's "Repairing a Broken 

14 System" report, participants reported that as 

15 many as 90 to 95 percent of debt collection 

16 lawsuits end in default judgment for the 

17 collector or the creditor. 

18 In response to those kinds of 

19 findings and those facts, the FTC recommended in 

20 that same report that debt collection complaints 

21 should include the following minimal pieces of 

22 information. And again this is something Bevin 
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1 touched on just a few minutes ago. The name of 

2 the original creditor, the last four digits of 

3 the original account number, the date of default 

4 or charge-off, the amount due at the time of 

5 charge-off, the name of the current owner of the 

6 debt, the total amount currently owed, and a 

7 breakdown of the amount by principal, interest, 

8 and fees. 

9 We've also heard from Colin that 

10 since that report came out, various states, 

11 Texas, Delaware, Maryland, for example, have 

12 implemented some of these recommendations and in 

13 some cases tried some things of their own. 

14 And so I'm curious at first to see 

15 what has been the effect of those kinds of 

16 changes. And I know we've got some people from 

17 Maryland here. Maybe they could start the 

18 conversation for us a little bit, talk about what 

19 they tried and what they've found to be the 

20 effect of those changes in Maryland. 

21 MR. LAWRIE: So the rules that went 

22 into effect in Maryland on January 1, 2012 
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1 included all of the proposed recommendations in 

2 the FTC report, plus a lot of other types of 

3 information. 

4 Those were followed by various 

5 efforts to provide assistance to consumers in 

6 understanding the lawsuits. There was a -- the 

7 Maryland State Bar Association, the pro bono arm 

8 of that, set up some clinics at courts where they 

9 would help consumers fill out notices to defend 

10 and that type of thing. Peter Holland's clinic 

11 at the University of Maryland provides free 

12 legal representation in these types of suits. 

13 So there was a lot of effort to try to increase 

14 consumer participation in addition to 

15 implementing the rules. 

16 And what we found is still over 90 

17 to 95 percent of consumers still don't 

18 participate in the process. And it's 

19 complicated. 

20 I mean we're talking about these 

21 aren't -- they don't tend to be upper middle 

22 class individuals. These are, many are 
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1 underprivileged or vulnerable populations. 

2 You have the poor, the elderly, non-English 

3 speakers, minorities, immigrants. You have a 

4 lot of people that simply don't -- even if they 

5 understand the debt part of it with the new rules 

6 where the information -- they just might 

7 understand the debt, many of them still have no 

8 idea how the legal process works or what to do 

9 about a lawsuit. 

10 So even if you get to the point where 

11 they understand the original creditor and the 

12 nature of the debt they may not understand the 

13 legal paperwork. They may not even be able to 

14 read the legal paperwork. They may not be able 

15 to -- if they can't understand it they still may 

16 not understand the legal process or how to defend 

17 the suit if they want to. 

18 And if you get past all of that then 

19 you have the problem with, okay, so how does a 

20 consumer go about defending his suit for $1,000. 

21 I mean, if you hire a private attorney it's going 

22 to cost you more in attorney's fees than the 
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1 suit's worth. So that's unviable. 

2 Some will be able to have the 

3 wherewithal to hook up with a non-profit 

4 organization or a pro bono organization or a law 

5 school clinic. Most don't. So they can either 

6 try to muddle through the defense process 

7 themselves or they can do nothing. And so what 

8 I think you're probably having is consumers 

9 doing nothing a lot of times. 

10 But it's a very complex -- the real 

11 answer is going to be when the research is said 

12 and done it's going to be very complex, 

13 multifaceted reason that people aren't 

14 participating. 

15 But all that goes to the fact that 

16 since we knew 90 to 95 percent of consumers 

17 weren't participating at the time we drafted the 

18 rules, the rules were drafted with that in mind, 

19 with that assumption that they would not be 

20 participating. So the rules that went into 

21 effect were meant to protect not just the 5 to 

22 10 percent that are participating but also the 
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1 90-95 percent that aren't. So for any states 

2 adopting rules I think they need to make sure 

3 that they're fair and just for all of the 

4 consumer defendants, not just the ones that 

5 participate in the process. 

6 And I would finally note that I think 

7 that the states need to recognize that -- because 

8 the debt buying industry certainly understands 

9 -- that the overwhelming number of consumers are 

10 not going to participate. That's the model that 

11 the industry is founded upon. The business 

12 model wouldn't work if the consumer 

13 participation rate was 70 percent. The model is 

14 founded on an assumption that the overwhelming 

15 number of consumers will never participate in 

16 the process. 

17 MR. KOEGEL: If I could just have 

18 one follow-up and I'll come back to you, Brandon. 

19 Tom, did the rules changes have any effect on the 

20 number of collection lawsuits that were filed in 

21 Maryland? 

22 MR. LAWRIE: Initially they went -- 
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1 well maybe Peter could answer that at this point. 

2 MR. HOLLAND: Yes. I mean, not 

3 really. There was a steep -- before the rule 

4 went into effect there was a huge ramp-up. So 

5 you were seeing some people filing, one entity, 

6 5,000, 6,000 cases a month at a time when they 

7 have maybe 4 or 5 or 6 lawyers in the entire 

8 state. So you know, 1,000 lawyers caseload per 

9 lawyer, 2,000 per lawyer. There was a spike, 

10 then a drop. And right now it's kind of getting 

11 nearer to where it was. 

12 If I could just add though, what the 

13 new rules were designed for was affidavit 

14 judgments only. That would be if the person 

15 doesn't show. 

16 But my vantage point is where I'm 

17 actually defending these cases. So 

18 theoretically I'm defending, you know, they 

19 should be the best of the best cases. They 

20 should be fully documented, you've had a lawyer 

21 screen it, you've had them talk to their client 

22 to get the best documents. And what I find is 
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1 that they're just as shoddy as they ever were. 

2 I looked at a case the other day, it 

3 was actually New York, not Maryland, but the 

4 affidavit to prove that this account was sold to 

5 this debt buyer was from a different seller to 

6 a different buyer. 

7 I had one in Maryland recently where 

8 the bill of sale that proves this was sold under 

9 the penalty of perjury they file it, one of them 

10 with the complaint, and then we get into the case 

11 and another one under the penalty of perjury, two 

12 different dates the same account sold. 

13 So I just see this general 

14 sloppiness and it's just really disappointing. 

15 The kind of integrity of the court system really 

16 is at stake. 

17 And I just don't really want to get 

18 into well, why don't the people answer. That's 

19 a whole `nother conversation. But the quality 

20 of the cases being filed in litigation I think 

21 is really deeply troubling. 

22 MR. KOEGEL: Brandon, you had 
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1 something you wanted to add. 

2 MR. BLACK: Just a thought. I 

3 actually think the best thing that could happen 

4 to a debt buyer is that people show up in court. 

5 Because right now part of the problem is, okay, 

6 we have a judgment, great. We haven't had 

7 contact with the consumer. We don't really know 

8 their situation. And so now we're going to 

9 spend a period of time to actually get in touch 

10 with them and figure it out. 

11 Had they shown up, (a) we probably 

12 would have had a conversation in advance and 

13 never gotten there. But if they showed up we can 

14 negotiate something right there in front of the 

15 judge. So I actually think the model would be 

16 much better off, quite frankly. The economics 

17 would be much better off if people showed up. 

18 And so I think you'll find this 

19 industry is very much in favor of hearing Judge 

20 Rizzo's proposal because I think what we all 

21 believe is that the legitimate debt collection 

22 is better off when there's a conversation 
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1 between the individual and between the creditor, 

2 whether it's a debt buyer, whether it's an 

3 issuer. And if we can find a way to make that 

4 happen. 

5 I do believe the problem is not one 

6 of figuring out the magical combination of 

7 documents. Part of the reason in Maryland the 

8 volume drops is as a debt buyer, a national debt 

9 buyer, we have 50 states making rules all the 

10 time. And we have some judges who may take their 

11 own idea and we have to create processes for 

12 every single one of them. 

13 And so the reason there's a drop is 

14 not because the information is not available, 

15 there's a drop because we now have to change our 

16 process, build new technology, create new 

17 systems and put them in place. And once they're 

18 in place then we just go back to what we were 

19 doing before. 

20 But it's not a lack of information. 

21 The problem we have is a lack of engagement. We 

22 have people who are in fear of collections. And 
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1 it starts with the letters and the phone calls. 

2 We're always on opposite sides of the table. 

3 The people who are on the consumer 

4 side think the debt buyers -- I mean "debt buyer" 

5 almost sounds like "crack dealer" to some people 

6 when you use it. And it's used in that way 

7 because it sounds sensational but at the end of 

8 the day we all have the same goals. I believe 

9 we all think people who legitimately borrow 

10 money that can pay it back should. We all 

11 believe that people who can't should not be 

12 hounded by collectors. We all believe people 

13 should get the information they need to pay their 

14 debts. 

15 Nobody who's a legitimate company is 

16 trying to create processes that circumvent a 

17 natural communication and allows for the 

18 repayment of debts that need to be repaid for the 

19 system to work. 

20 And so I just think if we could talk 

21 -- we should talk about what the right 

22 information is. I think you'll find all the big 
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1 debt buyers are -- and collection agencies will 

2 provide, and the issuers will provide us the data 

3 to substantiate the claim. But people still 

4 aren't going to show up as you found in Maryland. 

5 In the state of New Jersey the court 

6 sends out three certified notices, the court 

7 does it. Eight out of ten people don't show up. 

8 And so this whole notion of trying to get more 

9 information, more documents in front of people 

10 is not solving the problem. And we've got to 

11 find a way to turn this into an engagement 

12 discussion and away from what's the right field 

13 and the right document and the right place. 

14 And what we don't need is 50 states 

15 coming up with their own rules. And so if there 

16 is any way for the CFPB in partnership with the 

17 FTC to create a set of rules that we could apply 

18 in one place it would be great. Judge Rizzo will 

19 probably tell me that's crazy. 

20 But that's part of the problem here 

21 is 50 different states, thousands of 

22 jurisdictions, different rules. You've got to 
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1 comply with all of them. 

2 MR. KOEGEL: Joann, do you have any 

3 perspective or experience from maybe some other 

4 states other than Maryland that's similar? 

5 MS. NEEDLEMAN: Well, I can 

6 certainly talk about Pennsylvania and I'm 

7 familiar with Judge Rizzo's court because I've 

8 been in it several times. And I can talk a 

9 little bit about New Jersey. 

10 One thing I want to point out to Mr. 

11 Holland's point. No attorney should -- my 

12 philosophy is be prepared, try our case. So no 

13 attorney should be unprepared, no attorney 

14 should come to court trying to use the system in 

15 a way that the system is not there for people to 

16 use. 

17 But we need to be very, very clear 

18 when we're talking about litigation there's two 

19 aspects to litigation. There's the pleading 

20 stage which is a notice of claim and then there's 

21 the evidentiary stage which is proof of your 

22 case. 
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1 And while I can appreciate what Mr. 

2 Holland is saying because he's dealing with 

3 consumers directly on a day-to-day basis and 

4 he's seeing the worst of the worst situations, 

5 quality of evidence is a determination by a 

6 judge. And we can't forget that. 

7 The way the courts are set up, 

8 whether it's a matrimonial case, whether it's 

9 employment law, doesn't matter what civil action 

10 you're talking about, you have to file a 

11 complaint to give notice of your opponent of the 

12 claim. 

13 And then as you proceed, even in 

14 small claims court as you proceed that is the 

15 opportunity to bring forth your evidence. And 

16 if you get to that point where the evidence is 

17 bad, you know, judges, many of the smaller courts 

18 are using -- in Philadelphia they call them trial 

19 commissioners. Thank you. They have the 

20 opportunity to evaluate. I mean that's where 

21 the discussion has to be. 

22 But I don't think it's appropriate 
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1 for adversaries -- I mean that's their job is to 

2 object to the evidence and say that they haven't 

3 proven what they needed to prove. But 

4 ultimately it's the judge and the court that 

5 makes that decision. 

6 To Brandon's point, yes, I mean as 

7 the judge will tell you we need to create 

8 environments. Things get done when people are 

9 meeting face to face or you give consumers an 

10 opportunity to be a part of the system where 

11 they're not feeling inferior. 

12 One of the discussions I had 

13 recently is, you know, you have single moms with 

14 four kids. They have three jobs. They've run 

15 into some credit issues. They can't take 4 

16 hours off and come to court. Why can't they call 

17 in by phone? I mean I think there's other 

18 opportunities to allow consumers to 

19 participate. I mean I think those are issues 

20 that we have to think through. But I think 

21 there's a lot of options in this day and age to 

22 make the court system more user-friendly. 
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1 JUDGE RIZZO: Okay, I've got to step 

2 in. 

3 MS. NEEDLEMAN: I gave you the lead. 

4 JUDGE RIZZO: Thank you, that was 

5 great. We're a tag team. All right, I'm not 

6 going to devour this panel but if you think about 

7 what's been said up to this point it's all about 

8 the court, the court, the court. 

9 I want you to just step back a 

10 moment. And as much as you all have in your 

11 respective constituent groups the mission, the 

12 mission of the judge in the court is really to 

13 do justice, right? We have to worry about 

14 something called DP, due process. Anybody hear 

15 about that? Right. 

16 So what we are seeing as the court 

17 -- and I just want you to understand the 

18 stressors on the court system. Yes, we're 

19 overburdened. Yes, we have too many cases. 

20 Yes, there's a cut in budget. Yes, all of that. 

21 And that's been in experience throughout really 

22 the universe, right? Just like it's all about 
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1 communication, right, and there's all these 

2 standards that we can apply. 

3 From the court's perspective, and 

4 what I really am very admiring of just the 

5 judiciary is that we're finally taking pause to 

6 see that there is this cadre of cases with pro 

7 se -- we now call them self-represented 

8 litigants -- to the point of where there's 

9 actually training at judicial colleges to deal 

10 with this. 

11 I dialogue all the time, even out of 

12 the arena of credit card cases and these types 

13 of cases the stressors on the court system to 

14 provide that level playing field because that's 

15 what it's about. All parties stand equally 

16 before the court. 

17 When you have someone who does not 

18 have representation it really already creates 

19 that imbalance. Your problem I'm hearing which 

20 really distresses me to say the model is built 

21 on not showing up for court? Not having your 

22 right to be heard? Well that's a disgrace on 
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1 everyone's part. So I think we have to look at 

2 the various touch points for these cases to maybe 

3 fix it before you even have to use the court 

4 system. 

5 Or once in to really sit down in 

6 terms of really problem-solving from all aspects 

7 to assist the court, assist the court on how to 

8 develop a system that works. You may not like 

9 always the answers but it's a system where if 

10 everyone feels when they come out, hey, I've been 

11 heard. That's what it's about. So you really 

12 have to work diligently on that. 

13 I'm going to just share a minute it 

14 is about the -- it is all about the face to face. 

15 I call it the George Bailey model. Nightline 

16 came in a few years ago and did a whole thing on 

17 our program. 

18 And I'll tell you what it does. And 

19 it may not exactly work because of the nature, 

20 the volume, and the amount of these cases and 

21 what is at stake. But for foreclosure where 

22 your house is at stake we have easy-read notices 
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1 that must be served with the complaint of 

2 foreclosure that says you've just been sued. 

3 Call a hotline. We have a hotline ready, 

4 willing, and able, lawyer trained, they triage. 

5 But not 2 minutes. They spend almost an hour 

6 with homeowners to decide what it is, what track, 

7 and refer them on to housing counselors who can 

8 work through it. Whether the demographics show 

9 you're a senior, you have senior counselors who 

10 help on special issues, language issues, et 

11 cetera. 

12 And then when you come into the room 

13 it is all about the face to face. But we don't 

14 leave it to that because we actually have door 

15 knock. We have outreach of community members 

16 who go out and say did you just get sued in 

17 foreclosure? Oh yes, I got -- did you get the 

18 notice? Did you call the hotline? Did you call 

19 the hotline? The service is free. Here's my 

20 cell phone, call the hotline now. 

21 Will that work in all of these kinds 

22 of cases? I don't know. But it's all about the 
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1 person-to-person touch. It's all about 

2 structure. 

3 Maybe cattle calls certain days 

4 where everyone is wired up in the room from the 

5 various constituent groups to deal with these 

6 cases right there, hands on, under the 

7 supervision of the court to make sure DP, due 

8 process, is had. 

9 There is a way. There is a way to 

10 deal with this. And I just can't -- all these 

11 amazing, brilliant minds and models, we've got 

12 to focus on the issues to bring the parties 

13 together. You can do this. Of that I am sure. 

14 MR. KOEGEL: Joann, did you want to 

15 add something? 

16 MS. NEEDLEMAN: Yes, I just had -- 

17 and Judge Rizzo, you may know. There's a small, 

18 tiny, little county, Blair County -- 

19 JUDGE RIZZO: Yes. 

20 MS. NEEDLEMAN: -- in Pennsylvania 

21 that Judge Carpenter actually spoke at the FTC 

22 workshop back in 2009. He set up his credit card 
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1 court exactly modeled after Judge Rizzo. 

2 And what happens is you file your 

3 complaint. Before you can even start judgment 

4 process the parties have to come to court. And 

5 the consumer has to show up, the attorney has to 

6 show up. If the consumer wants to see 

7 documents, wants to see evidence, the attorney 

8 has to provide it. 

9 And I don't know -- I have no data, 

10 I apologize. I don't know what the appearance 

11 rate is. I think it's probably better than 

12 average. But again it's the face to face. But 

13 I know Judge Carpenter was touting this program 

14 in 2009 and the ability to resolve. And again, 

15 we're talking small credit card cases, less than 

16 $5,000. The ability to get the ones who at least 

17 do appear resolved. I don't think there's a 

18 case that's gone to trial. I can probably count 

19 on a couple of hands since that court has 

20 started. So I think that there is lessons and 

21 there's models that a lot of us can use. 

22 MR. KOEGEL: I'm interested -- 
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1 Joann and Brandon if you could comment on -- I'm 

2 not hearing you guys object that there are major 

3 additional costs to the debt buyer or to the 

4 collections attorney for these kinds of changes 

5 that we're talking about, the ones already 

6 instituted by Maryland or the ones that have been 

7 tried in some of these other courts that Judge 

8 Rizzo is explaining. Do I have that right? 

9 MS. NEEDLEMAN: You're correct. 

10 I'll speak just from the consumer attorneys and 

11 what's been said in all three panels. We want 

12 to talk to the consumer. We want to get that 

13 communication. And if it means -- I'm not 

14 seeing additional cost but if you were telling 

15 me it is going to be additional cost I think that 

16 it's something -- a cost worth paying. 

17 MR. BLACK: And I'm not familiar 

18 with the one case but I do think that's a novel 

19 approach. It's something that hasn't been 

20 tried. Certainly what's been put in place 

21 today, the get more documents doesn't cost a lot 

22 more other than time, money, and effort. And it 
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1 certainly doesn't change the economics. 

2 And I think what Judge Rizzo is 

3 talking about is something different than we've 

4 been talking about as it relates to this issue. 

5 To date it's been more documents, different 

6 documents, different wording. And it's not 

7 about creating a dialogue, creating engagement, 

8 creating it earlier so you're never actually in 

9 court. 

10 No one wants to go to court. We 

11 don't want to go to court. I can only speak for 

12 the company I ran. Nobody has any desire to go 

13 to court with a consumer. The goal is to engage 

14 early on. It gives the consumer a lot more 

15 flexibility, a lot more choice. 

16 Because ultimately if we have to go 

17 to court our flexibility goes down. We're 

18 incurring additional cost that we then take out 

19 of the flexibility of discounts to the consumer. 

20 If you go through the legal process you're going 

21 to pay us 90 cents on the dollar. If you talk 

22 to us voluntarily you're going to pay 65 cents 
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1 on the dollar. 

2 The difference between the two is 

3 the cost we have to incur. So the consumers 

4 lose, we lose, nobody wins. We should be 

5 talking about engagement earlier, not new 

6 documents. And I think you'll find us all get 

7 right behind that. 

8 MR. KOEGEL: You know, Judge Rizzo 

9 and maybe Joann as well, I'd like to see if we 

10 could dive a little deeper, maybe get a little 

11 more specific about some of the things that have 

12 been tried in the mortgage foreclosure cases and 

13 in that credit card court to see if we can get 

14 specific here and find a couple of things we can 

15 all get behind. And why we think they may have 

16 worked. 

17 JUDGE RIZZO: I just want to talk 

18 about why you think they didn't show up. Part 

19 of it is they get bombarded with a lot of notices, 

20 bankruptcy. This is all obvious, right? They 

21 get papered. That's why if we break that 

22 juggernaut by actually having the 
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1 person-to-person contact kind of puts it in 

2 perspective. 

3 A lot is at stake. And there's an 

4 explanation that if you don't step up in this 

5 case you may lose your home, right. So that's 

6 a horrendous thing. 

7 The other is a study was done 

8 actually by University of Pennsylvania to show 

9 aligned with people in foreclosure proceedings 

10 that there was such a -- and this is an obvious 

11 finding I would think, but documented now -- 

12 there's an uptick of really a lot of medical 

13 issues. And I can assure you in discussions 

14 with distressed borrowers for housing that this 

15 tick-up meant more medical services, meant that 

16 if they were trying to scratch together money to 

17 pay to not be in default of mortgage they were 

18 credit carding all the rest of their living 

19 expenses. 

20 Do you see this, right? You see 

21 this scenario, right? You're nodding your 

22 heads. This is what happens. They're living 
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1 on their credit cards. And they're not 

2 intending necessarily to pay them timely because 

3 they don't have the money. And then they get 

4 more ill. 

5 So we know we have unemployment. 

6 That's the overlay to why they're in this 

7 situation. But the health issue is very, very 

8 interesting. So when we break it down, 

9 childcare, elder care. Elderly. Estate 

10 issues. There's just so much that overlays and 

11 overlaps. So it's complexity at its best. And 

12 those of you who are in the pit living it, you 

13 understand that. 

14 So you break it through with the 

15 person-to-person contact with that person. 

16 There's no one else in the room but me and you. 

17 I'm talking about you and your matter. That's 

18 what counts, right? That's what it is. 

19 So you have to find ways among 

20 yourselves to do the outreach. And maybe flip 

21 the infusion of resources, financial and 

22 otherwise, to what would be a new way to deal with 
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1 an old problem. Let's look at the new problem 

2 and deal with it the old way, person to person, 

3 face to face. I would just suggest that we try 

4 to do that in terms of shaking it up. 

5 And aligning with the court to make 

6 sure that there is input on what you think are 

7 better rules of procedure to -- by court 

8 administrators as well as the court. And I just 

9 think you cannot step by the sidelines. 

10 You know what I call them? Back of 

11 the bussers. You're in the back of the bus 

12 complaining? Step up, tell us what it is, 

13 engage the court, engage your local communities 

14 to actually get some change that you think helps 

15 your community. 

16 MR. KOEGEL: What are the one, two, 

17 or three changes you think that were made that 

18 got the participation -- just got the consumer 

19 into the court and flipped the participation 

20 rate from 90 to 95 percent not showing up to only 

21 30 percent not showing up? 

22 JUDGE RIZZO: What happened was a 
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1 complete infusion of bombardment. Our Mayor, 

2 Michael Nutter, was really great to align, to 

3 give us what are called these neighborhood 

4 action committees that actually went out door to 

5 door. They knew the people, one. 

6 Two, in utility bills there were 

7 statements with his beautiful face on it -- he'll 

8 like me saying that -- to say if you're sued in 

9 foreclosure call the hotline. Everything was 

10 singular message, one message. Call this 

11 hotline. Once you're in that chute we can 

12 assist you and direct you otherwise. It's the 

13 touch point. 

14 I often say to the lender servicers 

15 we're doing your job. We're doing the outreach 

16 to make that connection that starts the 

17 important dialogue. So there was a lot of media 

18 around it. There was a lot -- the PSAs. There 

19 was a lot on buses. There was a lot continually 

20 out there to say one message, call this hotline, 

21 we're going to get you into the chute. And 

22 that's what really I think made a difference. 
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1 MR. KOEGEL: Tom or Peter, do you 

2 have any ideas on how something like that could 

3 be implemented in a debt collection context to 

4 try to bump up that participation rate, get them 

5 in the courtroom to have a conversation? 

6 MR. LAWRIE: Well, one of the things 

7 that I would caution. I know that -- I don't 

8 think Judge Rizzo mentioned it but I know in her 

9 program each of those consumers is represented 

10 by an attorney or some other advocate on their 

11 behalf. 

12 JUDGE RIZZO: Well, that's -- once 

13 you're in the chute it's alignment with housing 

14 counselors. There's also credit counseling. 

15 We also are attached to financial literacy and 

16 work with a local lender, PNC, to actually 

17 finance under it because what I want is 

18 sustainability. I don't want re-default. I 

19 don't want you back. I got you in once, I don't 

20 want you back. So I agree with you. 

21 Pro bono attorneys have donated $2 

22 million, $2.5 million worth of pro bono services 
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1 to date in 5 years. But you're right, it is an 

2 engagement of not -- what would be again not a 

3 level playing field with just a borrower and a 

4 lender -- credit attorney. 

5 MR. LAWRIE: So that's one of the 

6 concerns is in -- I've heard in various states 

7 where there's courts that will put the consumer, 

8 an unrepresented consumer, together with the 

9 attorney representing the debt buyer and lo and 

10 behold they would work out a settlement. 

11 Well, that's because the consumer 

12 was coerced into the settlement by the attorney 

13 from the other side. So it's something that 

14 courts should be very careful about doing, 

15 putting an unrepresented party together with a 

16 sophisticated plaintiff and their counsel on the 

17 other side. That's one thing I would note. 

18 Then I'd also like to add there was 

19 a discussion -- or there was a mention that 

20 getting more documents isn't a problem. The 

21 business model doesn't work that way. In 

22 forward flow agreements, in the numerous 
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1 agreements that we've reviewed from many 

2 different debt buyers they might get 10 percent 

3 of documents for free, or something along those 

4 lines. You know, it can vary from 5 to 20 

5 percent or whatever. 

6 But it's a fraction of the 

7 underlying account documents that the debt buyer 

8 can get for free from the original creditor. 

9 After that there's a substantial cost not just 

10 for all the documents but per page or per 

11 document. So if they have to get a lot of 

12 underlying account documents that might be 

13 necessary to justify a lawsuit to show that they 

14 actually own the debt, or the existence of a 

15 contract, or what the terms and conditions of 

16 that debt really are, the economics may not work. 

17 I just respectfully disagree. 

18 There's -- if right now they get 10 percent for 

19 free, if they have to start paying for every 

20 single account it wouldn't work. Economically 

21 it just would not work. 

22 MR. BLACK: On that one, just so 
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1 we're clear, we actually sue a very small 

2 percentage of the accounts that we acquire. So 

3 as a company I think on average we sue between 

4 6 and 8 percent of the accounts ultimately get 

5 sued. 

6 So even in a model where there's 

7 constrained media and quite frankly we can 

8 factor that into the economic equation. We can 

9 make a decision at the account level. So maybe 

10 that increases the minimum balance with which 

11 you could pursue litigation. It doesn't 

12 fundamentally change the economics of the 

13 business. 

14 So you've got a small number of 

15 consumers as a percentage who actually go into 

16 the system. And it's my belief that today and 

17 I think through a lot of the good work that's been 

18 done by the CFPB and other places provisions of 

19 media have gotten tremendously better. I mean 

20 we buy from a lot of issuers where we get 12 or 

21 18 months of statements at the point of 

22 acquisition. 
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1 So I think you've done good work with 

2 many of the rules that have been put in place 

3 today. And the industry has evolved. And the 

4 economics can be modeled to the point where if 

5 it costs a little more, fine. 

6 But I believe that if we work on 

7 engagement we'll never actually get to the 

8 courtroom. If we work on the problem of getting 

9 people to have a conversation where they're 

10 going to have more flexibility, more choice, 

11 more optionality, where they're going to pay 

12 less, we're not going to need the court system 

13 as much. 

14 If we continue to drive a wedge 

15 between the companies who are trying to collect 

16 and the individuals the outcome really is if they 

17 don't pick up their telephone, if they don't call 

18 us back, the only thing, the only thing. 

19 There's not five, six, seven, there's one, and 

20 that's to pursue litigation. And if we continue 

21 to drive a wedge around engagement we're going 

22 to end up right back to this conversation again 
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1 because people -- there's nothing else to do. 

2 And if you think the person can pay that's all 

3 you can do. There's nothing else. 

4 And so I think it's going to allow 

5 for more dialogue. The economics -- you can 

6 certainly take care of it. The world has 

7 evolved a lot I think because of a lot of good 

8 work that you've put in place. Asking for more 

9 documents means the issuers have to provide 

10 more. We're all learning, we're all growing, 

11 but we haven't fixed the engagement problem. 

12 We're dealing with the symptoms of the problem, 

13 not the actual problem itself. 

14 MR. KOEGEL: Peter, you wanted to 

15 add something? 

16 MR. HOLLAND: Yes. The theme here 

17 is data integrity. So what I would hope we could 

18 walk away all agreeing, I think there's two and 

19 only two documents that would really make a huge 

20 difference. Judge, they would keep people out 

21 of court. They would never get into court. And 

22 that is if you would provide with every lawsuit 
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1 a copy of the forward flow agreement. 

2 And here's why that's so important. 

3 What the forward flow agreements I've said -- and 

4 by the way, someone in the prior session said 

5 they don't have as-is anymore. I would 

6 encourage everybody to go to 

7 www.documentcloud.org and search for forward 

8 flow agreement. And I think you'll see some 

9 there that have lots of as-is. 

10 And the as-is when it's spelled out 

11 may say the data hasn't been verified. It may 

12 say the bank has no duty to verify the accuracy. 

13 It may say that the accounts might have already 

14 been settled or the person might have been dead 

15 or bankrupt, identity theft. 

16 And I have one that I like the most 

17 which says that the account balances are only 

18 approximate. And so what happens then is that 

19 now it's put into litigation and they won't give 

20 you that forward flow agreement. They won't 

21 show it to the judges that say this data is 

22 inherently suspect, it's inherently unreliable. 
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1 On the contrary, they argue to the 

2 judge every day, Judge, we all know banks are 

3 highly regulated and they have high reporting 

4 duties so you can trust this data. It's 

5 inherently reliable and accurate. 

6 And so I would hope we could walk out 

7 of here maybe agreeing that those need to be made 

8 public. What I experience is people ask for a 

9 protective order when you subpoena it. I think 

10 it should be stamped on every bill of sale, a 

11 website where you could go to read and download 

12 that forward flow agreement. 

13 Because that is after all referred 

14 to specifically in every single bill of sale in 

15 every lawsuit. It says this is defined pursuant 

16 to the terms and conditions in this forward flow 

17 agreement. 

18 The second thing I think would make 

19 a huge difference that we've heard throughout 

20 the day that I hope we could agree on is giving 

21 the breakdown of all of the principal versus 

22 interest and fees, and not the post-charge off, 
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1 the same information that the bank has. 

2 So if the bank sued you and you said 

3 well I contest the amounts here. I don't think 

4 I agreed to that interest rate. They have no 

5 contract, remember, and the only way you could 

6 get interest or fees would be pursuant to a 

7 contract. That's important in a credit card 

8 case. It's really important in what I'm seeing 

9 more of, payday lender cases where the interest 

10 rate may be seven, eight hundred percent APR. 

11 And so the bulk of what they're collecting is 

12 interest that would only be allowed if they had 

13 a contract and would break it down. So those two 

14 items I would hope we could walk out of here with 

15 agreement on. 

16 MR. KOEGEL: Joann and Brandon, I'd 

17 be interested to hear from you what you think 

18 about that idea. Is there a downside to 

19 providing those two things? 

20 MS. NEEDLEMAN: Let me take 

21 charge-off and I'll have Brandon do forward flow 

22 since that's more what used to be his space. 
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1 Look, and we talked about it in a 

2 couple of other panels. Bank information as 

3 Manny said is inherently reliable. The issue is 

4 accessibility. That's fine. If you want to 

5 laugh about that, that's fine. But there are 

6 four federal agencies that regulate charge-off 

7 balance, the Federal Reserve, the OCC, the FDIC, 

8 and the SEC. And as Manny said, when a bank 

9 closes its doors tomorrow every single balance 

10 on there is deemed to be reliable. 

11 I don't have a problem with -- and 

12 I know in many of the courts, I know in Maryland 

13 speaking with my colleagues, I know in some of 

14 the other states, recently Minnesota, 

15 California, some of the states that the 

16 gentleman from the FTC showed us of the new 

17 collection laws, courts are rejecting 

18 pre-charge off itemization because they 

19 understand that charge-off is inherently 

20 reliable. 

21 I do agree that after somebody gets 

22 an account they should absolutely itemize any 
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1 other fees and charges that they're going to tack 

2 on because it's probably not appropriate. And 

3 it should be itemized. 

4 But I think that chart -- in 

5 Connecticut there's a special rule regarding 

6 charge-off. So any discussion about 

7 information and balance, and especially when 

8 you're talking about default. And most of 

9 these, by the time these get to even a collection 

10 agency they are post-charge off. The 

11 discussion has to begin and end with charge-off, 

12 and anything after that has to be itemized and 

13 has to be documented very, very clearly. 

14 MR. BLACK: You know, we often run 

15 into this pre-charge off itemization issue. 

16 And I like to describe it as saying if you wanted 

17 to sell a used car you had to track everywhere 

18 it went along the way, that the odometer reading 

19 actually isn't any good. So when you say my car 

20 has 65,000 miles on it, the only way to prove that 

21 it did is you had to track everywhere you went, 

22 add it all up and prove it added to $65,000. 
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1 That's ridiculous. 

2 The bank's data is accurate and it's 

3 something where it is regulated. The 

4 charge-off functions as what they put in their 

5 loan loss reserves and it should be the 

6 foundation for every single beginning of 

7 collection. 

8 And the practice we have as a company 

9 is we use that balance. We subtract any 

10 payments we've gotten between the time we 

11 acquired it and -- part of litigation and that 

12 becomes the balance. So we give the consumer 

13 the lowest balance possible. We don't assess 

14 interest in between. 

15 So we find ourselves with a balance 

16 that I think is -- you can go back to federal 

17 regulations and prove it up, and you can show 

18 your math going in between. So I think 

19 charge-off balance is a great one. 

20 As it relates to contracts, look, 

21 it's a private party transaction. No one's 

22 trying to hide it. If Judge Rizzo asked to see 
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1 the contract we would show it to her under 

2 protective order. But we don't want it in the 

3 public domain. It has pricing. It has 

4 conditions. It's something that needs to be in 

5 place. 

6 But let me be really clear. I ran 

7 a public company. We spent $550 million last 

8 year. We did not buy a single account with an 

9 as-is clause, not one. Five hundred and fifty 

10 million dollars we spent last year. So I'm sure 

11 somebody somewhere in the system did it. And 

12 maybe if you went back 10 years ago you could find 

13 it. 

14 But I guarantee you we have a 

15 contract that says we're buying this portfolio 

16 as is with the exception of these reps and 

17 warranties which include accuracy of data, which 

18 includes the treatment of the account prior to 

19 us getting it, which includes the institution's 

20 knowledge, their knowledge that no one is dead 

21 or bankrupt or deceased. 

22 Who would possibly in today's day -- 
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1 think about -- we're having this meeting. Who 

2 would ever intentionally sell an account in 

3 dispute, would intentionally an account where 

4 someone was dead? It makes no sense. You're 

5 just going to end up back here in a lot of 

6 trouble. 

7 So I love -- I have a complete belief 

8 that we need to be able to provide information 

9 to prove that we own the account, that it was part 

10 of a transaction, that the data is accurate and 

11 there should be a way to do that. But putting 

12 all of our contracts out in the public domain is 

13 not something I think we should think about. 

14 MR. HOLLAND: Well, I guess the 

15 point is rather than me saying I have seen 

16 contracts that have those and you saying they 

17 don't exist and I say they do exist, why not make 

18 them public? They are integral to the bill of 

19 sale. It says you could only understand this 

20 pursuant to the reps and warranties in the 

21 forward flow agreement. And you're saying 

22 well, you don't do that. Well, why can't we see 
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1 those documents? 

2 MS. NEEDLEMAN: Can I address that? 

3 I mean we're getting back to proofs. What does 

4 a forward flow agreement have to do with proofing 

5 the debt? What does it have to do with balance? 

6 I mean that's, as Brandon said, it's a private 

7 transaction. I think it's more prejudicial 

8 than it is probative. 

9 MR. HOLLAND: But if it says the 

10 balance is only approximate and then your 

11 lawyers are going to say the balance is accurate 

12 to the penny you don't think that's relevant, 

13 Judge? 

14 (Laughter) 

15 MR. HOLLAND: I know, I know, but we 

16 have a judge. 

17 MS. NEEDLEMAN: I was going to let 

18 her answer. 

19 (Laughter) 

20 MR. KOEGEL: I've lost all control 

21 up here. I'm just going to step down. 

22 (Laughter) 
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1 JUDGE RIZZO: And I'm going to get 

2 it back to you. First of all, I'm out of 

3 jurisdiction so I can't say. I mean all of this 

4 really does come in. 

5 So here's the real rub with it. So 

6 a judge in Cincinnati may say, you know, you are 

7 going to produce that, it will be part of it, it 

8 will be part of public domain. And yet another 

9 judge in Nebraska may say it's under seal. And 

10 another judge in California may say I don't need 

11 it. Right? So you have all of these 

12 inconsistencies. 

13 So I know we're going back, and boy, 

14 if you don't see the theme you have been asleep 

15 or on your phone too much. It's all about 

16 getting some sort of generic dialogue, some sort 

17 of rulemaking that will make it consistent. But 

18 I'm going to suggest another forum for that and 

19 that'll be in a minute. 

20 But to your point on all this, we -- 

21 I mean again, parallel with this in the mortgage 

22 world. The whole thing is we need to see the 
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1 servicing agreement, you know, all of these 

2 types of things. 

3 I have not -- I should just as a 

4 backstop to this, I did not really handle the 

5 adjudicatory matter of these cases. I actually 

6 kept myself in a chute to only deal with the 

7 conciliation process of trying to get these 

8 cases turned around. Once they came into the 

9 court system conciliation by intent and by 

10 title. Because for the most part the debt was 

11 owed. If there were some legal issues with the 

12 contract they had to go a litigation route, no 

13 one was going to take that away. But for the 

14 most part it was a discussion of, you know what, 

15 my husband lost his job and I have a kid who's 

16 really sick who needs long-term medical care and 

17 we just couldn't make the payments. So what do 

18 we do with that. And that's where the reality 

19 overlay of the face-to-face could make the deal 

20 happen. 

21 So with terms of actually 

22 adjudicated matters where things are at stake 
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1 the whole panoply of evidentiary rulings, it 

2 must be reviewed. It could be in camera, it 

3 could be whatever it is. It's that individual 

4 judge in that case making the ruling. And I've 

5 got to tell you it's a checkerboard. You're 

6 going to have it all over the map. So you have 

7 to submit on papers to me and I'll give you my 

8 ruling. It's held under advisement. 

9 MR. KOEGEL: Maybe we’ll try to 

10 transition a little bit here briefly. Judge, is 

11 it feasible to think that courts can review 

12 complaints at the time of filing to ensure that 

13 they have sufficient documentation and 

14 information? 

15 JUDGE RIZZO: So here's where, you 

16 know, and I saw all of that and I said wow, that 

17 would be -- that's one of those issues where 

18 you've got to have people from the court system 

19 to deal with this. And it could be that 

20 pre-review, but that's a mechanism that is 

21 costly and may not be affordable or permissible, 

22 permissible under the rules as they exist either 
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1 in the state or local rules. So that's number 

2 one. 

3 And what really would be the 

4 mechanism is you file the statement of claim or 

5 the complaint, whatever it is in your 

6 jurisdiction. And of course it could be 

7 contested by way of what we have called 

8 preliminary objections or whatever you want to 

9 do to dismiss it. You're not going to have that 

10 mechanism in these pro se's. And that goes back 

11 to my problem trying to deal with special 

12 handling when we have self-represented 

13 litigants defending. So you can have volunteer 

14 lawyers, you can have help with all that, but I 

15 do think it would be a difficult process. 

16 If the rules were up front, okay, 

17 different story. But we actually have a rule in 

18 Pennsylvania that anything that comes across the 

19 desk of the prothonotary -- I'm going to have you 

20 have a new word to take away, prothonotary. 

21 There's only two in the whole country. That's 

22 our clerk of court. You love that old English 
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1 term. They are required to take whatever is 

2 filed with the fee and then it's worked out 

3 later. I mean that's just the requirement to 

4 have that open process. 

5 So I think it would be difficult but 

6 I think with rules up front and understanding it 

7 would actually change culture and shift what 

8 would be filed to accommodate and to make it 

9 work. 

10 MR. KOEGEL: Joann, you indicated 

11 you had something to add. 

12 MS. NEEDLEMAN: Yes. I think to 

13 the judge's point I think efficiencies weigh 

14 into that decision of whether a court should 

15 review complaints. 

16 But remember too, especially if the 

17 pleadings are being filed by an attorney, if an 

18 attorney's filing something and it's wrong or I 

19 mean they're filing it under Rule 11 or whatever 

20 your equivalent Rule 11 may be in your 

21 jurisdiction. If that's false or wrong, I mean 

22 wrong to the point where it's sanctionable I mean 
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1 that's where the protections lie. That's where 

2 the court system has inherent -- has those 

3 mechanisms to ensure that we as officers of the 

4 court are being truthful. 

5 And you can all snicker and say, oh, 

6 that doesn't work. Well, I mean I do a lot of 

7 work in New Jersey and the courts take that very 

8 seriously. So we have to rely on the officers 

9 who enforce those type of things and understand 

10 that we as officers of the court need to dot our 

11 i's and cross our t's, right Tom? 

12 MR. LAWRIE: I wish it was that 

13 straightforward and that's what was being done. 

14 But unfortunately we have cases, multiple cases 

15 where we have evidence of the affiant for the 

16 debt buyer robo-signing affidavits, where 

17 literally they're filing, 400, 500, up to, say 

18 900 affidavits a day. 

19 Those are being filed by the debt 

20 buyer's affiant. And then the complaints are 

21 being robo-signed by the law firms where you 

22 might see 10 different signatures for the same 
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1 attorney in one court file. So, and a judge may 

2 not see that. 

3 MS. NEEDLEMAN: Are you making 

4 those referrals to your disciplinary board? 

5 MR. LAWRIE: We do everything we can 

6 with all of those. But you know, sometimes 

7 they're hard to prove but it's not an uncommon 

8 -- it's not an uncommon occurrence here, 

9 especially since the attorneys a lot of times are 

10 -- everything that they're doing is being 

11 directed by the debt buyers. 

12 The agreements, the operating 

13 agreements that we've reviewed between the debt 

14 buyers and the attorneys, the debt buyer calls 

15 all the shots. They say when it -- everything 

16 that has to be filed, what the attorney has to 

17 notify them about. And the profit that the 

18 attorneys are making is very small on these 

19 cases. So they're relying on a large volume as 

20 well. 

21 So, which is why they're subject to 

22 regulation. They're subject to the FDCPA, the 
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1 attorneys are, and they're subject to state 

2 regulators as well. So it's -- if everyone in 

3 the process was doing the right thing I would 

4 agree with you. But everyone in the process is 

5 not doing the right thing. 

6 JUDGE RIZZO: Well, we've learned 

7 though -- I'm sorry, just from foreclosure we've 

8 learned, right? The robo-signing which is now 

9 a common phrase. We've learned that when you 

10 come under radar, that's what I'm saying, 

11 lessons learned from what has happened is sort 

12 of leading all this. And a culture shift has 

13 existed or the court's going to impose it as they 

14 did in New Jersey and froze everything. 

15 And then what happened is the bigger 

16 lenders obviously took in house to say we're 

17 stopping the business, we're getting our 

18 internal act together, we're doing our due 

19 diligence, we're putting the M word, the 

20 moratorium. We're holding things back to get 

21 our act together. So the hope is learning from 

22 that industry that this would occur as well here. 
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1 MS. NEEDLEMAN: And I'm not saying 

2 everything is perfect, you're right. But there 

3 are mechanisms in place that when people don't 

4 do right things, especially officers of the 

5 court, that's when you as a court officer, as an 

6 AG, myself, if I see an attorney not acting and 

7 following the rules, I have a duty to report. 

8 MR. LAWRIE: Sure, but that doesn't 

9 help the consumer in an individual case which is 

10 why it's important that the court actually have 

11 the ability to review the file and make its own 

12 determinations on whether they've sufficiently 

13 proved liability and damages. 

14 JUDGE RIZZO: Well, the way I 

15 understood the question it would be at the time 

16 of filing they would review the complaint. 

17 MR. KOEGEL: And thank you for that, 

18 Your Honor, because what I'd like to do here, 

19 we've got about 20 minutes left and I'd like to 

20 save at least 5 at the end for at least one or 

21 two questions from the audience. 

22 What I'd like to do now is switch the 
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1 focus from the time of filing the complaint to 

2 now when the debt collector is requesting 

3 default judgment and what kinds of information 

4 are being included in that request for default 

5 judgment and would adding additional 

6 requirements or information affect the process 

7 at all for consumers in any way. 

8 So maybe, Tom, you could launch us 

9 a little bit by talking about what's currently 

10 required in a default judgment application. 

11 MR. LAWRIE: Well, in Maryland -- I 

12 don't know how many other states actually have 

13 this judgment on affidavit process. But in 

14 Maryland that's almost every debt buying case is 

15 filed under a judgment on affidavit, a process 

16 where they hope to never even go to trial. 

17 The case, if a consumer doesn't file 

18 a notice of intention to defend, the judge can 

19 grant judgment automatically without a trial at 

20 all. So that's kind of the intention of the 

21 rule. 

22 I mean that's what it's there for is 
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1 if everything is filed correctly and if the court 

2 finds that it's acceptable, what's filed, then 

3 they can grant judgment on affidavit with no 

4 trial whatsoever. And that's -- I mean the 

5 defendant has the opportunity to participate but 

6 this assumes that the defendant doesn't. 

7 But then what happens is in Maryland 

8 if a judgment on affidavit is denied the case 

9 isn't necessarily thrown out. It can go to, 

10 depending on the judge and how they treat the 

11 cases, it can go to a -- it will be set for trial. 

12 And then there can be a default judgment at that 

13 point. 

14 Now, the changes to the Maryland 

15 rules that went into effect requires judges to 

16 consider all of the same factors or all of the 

17 same requirements, documents, information in 

18 the affidavit judgment rule as they do in the 

19 default judgment rule. So they're going to be 

20 looking at all the same types of documents. 

21 So what I would say that is important 

22 in this context, first of all I'd say you have 
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1 to take two things into account before you -- at 

2 the onset of drafting any type of rules. 

3 One would be that debt buyer 

4 plaintiffs owe, and any collection agency 

5 including the attorneys, owe consumer 

6 defendants a higher standard of care than any 

7 plaintiff owes any defendant in any other type 

8 of litigation. Under the FDCPA they owe them a 

9 least sophisticated consumer standard of care 

10 and that's higher than the normal standard of 

11 care that a plaintiff owes a defendant in a 

12 lawsuit. 

13 So they should be filing -- the 

14 lawsuits that they're filing should be as good 

15 as or better than any other type of lawsuit 

16 that's being filed. The reality is a lot of 

17 times they're much worse than what's actually 

18 being filed. 

19 The second issue that we have to take 

20 into account is that this isn't just trying to 

21 collect on the debt. This is trying to take an 

22 unsecured debt and turn it into a debt secured 
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1 by a judgment where they can garnish wages, file 

2 liens, and do all sorts of other things to 

3 collect. 

4 So it's important from a regulatory 

5 perspective, it's important that if the debt 

6 buyers want to take that step to litigation that 

7 they dot all their i's and cross all their t's 

8 and follow the letter of the law in all these 

9 cases. 

10 So what are some of the things that 

11 we found to be important in these cases? One is 

12 to prove standing, prove that they actually own 

13 the debt. And part of the new Maryland rules, 

14 the -- at any assigned debt case they have to 

15 provide the assignment documents in an unbroken 

16 chain from the original creditor to the current 

17 plaintiff. 

18 And each of those assignment 

19 documents has to specifically reference the 

20 consumer's debt being sued upon. And we're 

21 finding that that's a problem in a lot of these 

22 cases where these assignment documents in some 
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1 instances just don't exist. 

2 And they're either -- we've seen 

3 cases where there's something created after the 

4 fact to give kind of a historical summary of what 

5 allegedly occurred, or other types of things 

6 that are being filed that supposedly show the 

7 consumer's debt was part of the assignment. 

8 But there might be the Excel 

9 database that shows all the consumer debt 

10 information. It's not part of the database that 

11 was actually included with the assignment 

12 documents. So in a lot of instances these 

13 assignments just don't exist. But we think 

14 that's important, to be able to prove standing 

15 in this. 

16 Another document that's very 

17 important we think is proof of the existence of 

18 the contract. So, in a normal contract action 

19 you would provide the original contract signed 

20 by the defendant or proof of some -- some other 

21 means of providing written proof of the 

22 existence of the contract. 
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1 And what the Maryland rules require 

2 is if you don't have the proof of the existence 

3 of the contract, for example, in a credit card 

4 case because there is no signed contract by the 

5 consumers, you have to show the existence of the 

6 contract. And how do you do that? You have to 

7 provide account statements that show actual use 

8 of a credit card by the consumer, a charge at 

9 Target, or you know, something along those 

10 lines, or an actual payment on the account. 

11 That's not the charge-off statement 

12 that comes 6 months later which is what the debt 

13 buyers typically acquire in -- when they 

14 purchase accounts. So the charge-off statement 

15 doesn't prove the existence of the account under 

16 the Maryland rules. So that's something that we 

17 think is important that they should have to file. 

18 MR. KOEGEL: Tom, we have about 10 

19 minutes left, so if we could get through what 

20 else is required for default judgment in 

21 Maryland then get some comments from the other 

22 panelists. 
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1 MR. LAWRIE: A couple of other 

2 things are, let's see, depending on whether 

3 they're asking for principal or interest, 

4 certified or otherwise properly authenticated 

5 copies of the terms and conditions of the 

6 contract. 

7 Now, that's not an exemplar 

8 contract. A lot of times you'll see the exact 

9 same photocopy of a Sears agreement filed in 

10 multiple different cases. But that's not the 

11 contract necessarily applicable to that 

12 specific consumer. So it needs to be the terms 

13 and conditions applicable to that consumer. 

14 And all of these documents need to 

15 be properly certified or authenticated. And 

16 the downstream debt buyer can't certify those 

17 documents. Those are something that needed -- 

18 and this is a big problem industry-wide is those 

19 are documents that need to be certified by the 

20 original creditor because they're the ones that 

21 know the business practices that was made at or 

22 near the time of the event, all those things that 
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1 go into business record certification. 

2 And the last thing is our new rule 

3 took from the old rule but it's still hotly 

4 litigated is the issue of personal knowledge, 

5 that the affiant for the plaintiff has to file 

6 their affidavit based on personal knowledge. 

7 And what we have learned is a lot of 

8 times the affidavits say we've reviewed all the 

9 account documents and I have personal knowledge 

10 of the account and it's true and correct and all 

11 that. 

12 But in reality is at that point they 

13 haven't even seen the original account documents 

14 because they haven't purchased them from the 

15 original creditor yet. We'll see cases where we 

16 see an affidavit swearing to personal knowledge 

17 based on review of the account documents and if 

18 you look at the time line in the case what happens 

19 is if a defendant files a notice of intention to 

20 defend the attorneys will notify the debt buyer 

21 that they need additional documents. Those 

22 will come from the original creditor. But the 
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1 original affiant never had those documents at 

2 the time they swore their affidavit. 

3 So there are issues that the 

4 personal knowledge is important. The proof of 

5 the account. The unbroken chain of assignments 

6 specifically referenced in a consumer's 

7 account. Those are some of the ones that we 

8 focused on. 

9 MR. KOEGEL: And so what I'd like to 

10 do here, just to kind of be quick about this, is 

11 I'd like to get Judge Rizzo's perspective on 

12 whether these kinds of documents and information 

13 would be helpful for the court, hear from Peter 

14 maybe on what effect this would have for 

15 consumers, and then lastly Joann and Brandon or 

16 one of you weigh in on what would this mean for 

17 debt collectors or debt buyers or other costs or 

18 benefits from their perspective. So, Judge 

19 Rizzo, maybe? 

20 JUDGE RIZZO: Just really quickly. 

21 What's suggested is that this type of case is 

22 treated differently than others. And I just 
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1 don't know if other jurisdictions would 

2 necessarily jump on that bandwagon, because then 

3 there would be other constituent groups that say 

4 that they would want their cases handled a 

5 certain way. But there could be some fixes to 

6 what would be the state rules or local rules that 

7 would from an evidentiary as well as just a 

8 processing standpoint regulate that. 

9 I should also note we didn't talk 

10 about service that much. Big issue. Big issue 

11 up front. And we have a mechanism of 

12 alternative service which I would always be 

13 dealing with in a very detailed fashion. So if 

14 the service isn't right from the beginning you 

15 can't start anything, right? So that's what 

16 that is about. 

17 What's suggested would be extremely 

18 helpful if consistently that would be the packet 

19 absolutely where the court would have faith that 

20 this is complete, accurate, verified, all the 

21 things that would meet all evidentiary 

22 thresholds under the rules and under what is a 
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1 fair process then of course that would be helpful 

2 to move cases forward. 

3 But again there would have to be 

4 agreement and understanding of what that 

5 template would be. But also taking into 

6 consideration that it's each consumer, each case 

7 is individual and stands on its own. So it has 

8 peculiarities. 

9 MR. KOEGEL: So it would give you a 

10 little bit more confidence that you're doing 

11 justice here, that we've got the right debtor and 

12 the right amount. 

13 JUDGE RIZZO: There's no -- and 

14 again that's learned from foreclosure, the 

15 assignments. That's a huge issue, huge issue 

16 and every court, every judge may deal with it 

17 differently because there's not consistency of 

18 that. To have that template where the industry 

19 embraces that and does that and knows that's 

20 what's going to be acceptable. Because this 

21 judge is not going to accept anything less than 

22 you got it. 
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1 MR. KOEGEL: Peter, what about from 

2 a consumer perspective? I realize we're 

3 talking about people who are not in court. 

4 MR. HOLLAND: Well, let's talk 

5 about people who are in court, that's my point. 

6 So what I see is a contested case. I represent 

7 people, my students do. So again theoretically 

8 this should be the best of the best, the proof. 

9 I go to court. There is no witness 

10 for the plaintiff. They refuse to bring a 

11 witness for the plaintiff. One plaintiff I 

12 subpoenaed and the lawyer called me and said you 

13 know, they don't even have any employees, okay, 

14 literally that's what I was told. 

15 And so what I see over and over is 

16 just basically lawyers testifying, handing in 

17 affidavits that they have no knowledge of. The 

18 person who signed them, you know, had no 

19 knowledge of anything. 

20 And it's really, we really are 

21 talking about a breakdown of the rule of law. I 

22 mean we are a self-governing profession and we 
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1 have courtrooms in this country with no judges. 

2 We have courtrooms with judges who allow people 

3 -- who allow lawyers to testify. You can't 

4 cross examine. 

5 And so again I think that there's a 

6 big dirty secret here. And the big dirty secret 

7 is guess what? The forward flow agreement says 

8 this information is inherently suspect. 

9 Notwithstanding that banks, you might believe 

10 banks are highly regulated and highly reliable. 

11 Even if we accept that, this batch of accounts 

12 we are telling you buyer beware, as is, 

13 inherently suspect. And that document is not 

14 being shown to the judges, to the consumers, to 

15 the lawyers, or to the public. And I really 

16 think it needs to change. And I think it would 

17 really have a huge impact on cleaning up what's 

18 a really shameful industry right now. 

19 MR. KOEGEL: Joann and/or Brandon, 

20 any comment on the costs and benefits of these 

21 four pieces of information that Tom is talking 

22 about being required to be attached to a motion 
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1 for default judgment? 

2 MS. NEEDLEMAN: I agree -- I'm 

3 sorry. Go ahead, Brandon. 

4 MR. BLACK: I was going to say I 

5 think we get off task when we get down to these 

6 conversations in some respects. Even in 

7 Maryland we're saying still 95 out of 100 people 

8 don't show up. Didn't change the volume. 

9 The only thing I've heard thus far 

10 that changes the fundamental engagement is 

11 what's happening in Philadelphia. I don't know 

12 if it could happen in the collection of unsecured 

13 debt. But it's around engagement. It's 

14 literally not around more documents and more 

15 time. 

16 We have found the way. It's there, 

17 the data is there. It's changing not only in 

18 Maryland, it's changing -- quite frankly it's 

19 changing in every state, what's required. And 

20 yet time and time again we're able to meet those 

21 needs. 

22 And again, Peter, I don't know the 
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1 agreements you reference but I can tell you that 

2 in 2013 given the financial crisis we went 

3 through, given all the scrutiny about 

4 everything, the last thing a large financial 

5 institution and a large debt buyer, a large 

6 collector wants to do is enter into an agreement 

7 that has any ambiguity around the accuracy of the 

8 data. 

9 And it just doesn't happen. It 

10 sounds great in front of all these people in this 

11 room. It's not what happens in practice. I do 

12 believe we need to find a way to engage 

13 differently and better, and I love the standard, 

14 but it's not more documents. 

15 And there aren't a lot of people 

16 going around hiding their contracts. Quite 

17 frankly we had to give them all to the CFPB. 

18 They looked at them. And so there's a party in 

19 this room that's actually seen all of our 

20 agreements. And I think even they would go 

21 through it and say you know what? Even though 

22 we used the language earlier these guys get reps 
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1 and warranties. It's clear that there's title 

2 that's being transferred. And so there is a 

3 party in this room that knows exactly what you're 

4 worried about and they're not. At least I don't 

5 hear it from them. 

6 MR. LAWRIE: We are worried about 

7 it. 

8 MR. BLACK: I understand. 

9 MR. LAWRIE: Because the forward 

10 flow, there might -- there might be 

11 representation and warranties as to account 

12 amounts, but there's certainly lots of aspects 

13 of the sales agreement or the forward flow 

14 agreements where there's no representations or 

15 warranties. 

16 And that goes including to the 

17 actual account, underlying account documents. 

18 I've yet to see a forward flow agreement where 

19 the seller reps the authenticity and the 

20 accuracy of the underlying account documents 

21 that are being sold. I have not seen one. 

22 MR. KOEGEL: Joann, did you have 
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1 anything you wanted to add? 

2 MS. NEEDLEMAN: Well, I mean you 

3 have to think about what litigation is about. 

4 It's about, you know, you file a lawsuit and 

5 there has to be an end. And default judgment is 

6 one of the ends -- there's three possibilities 

7 when you file a lawsuit. You file a lawsuit and 

8 someone defends and you go to court. You file 

9 a lawsuit and you settle which is what most 

10 judges want you to do. Or you file a lawsuit and 

11 nobody responds and you get a default judgment. 

12 So I want to be clear that when we 

13 talk about default judgments don't necessarily 

14 -- that that's like this horrible thing. It is 

15 a logical conclusion to the end of litigation. 

16 I agree with Tom and Peter that there 

17 has to be some reliability to the information. 

18 If you're going to ask a consumer to pay some 

19 money that the pleadings that you're making have 

20 to be valid, they have to express information, 

21 and the consumer needs to be aware. And when 

22 you're making representations to the court they 
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1 have to be truthful. 

2 So I'm not going to get into the 

3 weeds of what Maryland is. It's been -- you guys 

4 have collaborated with your bars and you've come 

5 up with rules and they seem to work. Or you seem 

6 to be satisfied with them. But understand 

7 litigation is a process. And there's 

8 conclusions to the process. So unfortunately 

9 default judgment may be one of them. 

10 And to think that there is this idea 

11 that we want a default judgment. You know what 

12 that means? It's part of the process, it gives 

13 the consumer an idea that there's an obligation 

14 maybe down the road to be owed. But again as 

15 Brandon talked about it's just more money that 

16 our clients have to pay then to start to enforce 

17 it. So it's not always a positive ending. 

18 MR. KOEGEL: Well, I want to thank 

19 everybody. I want to give us a minute or two so 

20 we can transition to the next panel. But this 

21 is an incredible and lively discussion and thank 

22 you all for helping. 
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1 (Applause) 

2 MR. DWYER: Thank you so much. And 

3 now I'd like to call to the stage Alice Hrdy, 

4 Deputy Assistant Director in the Office of 

5 Supervision Policy at the CFPB, and all the 

6 members of our fourth and final panel. 

7 MS. HRDY: If everyone could take 

8 their seats we'll go ahead and get under way. 

9 Okay, here we are. Kudos to our Federal Trade 

10 Commission colleagues for keeping us on time. 

11 Here we are at 4:20 starting panel 4. 

12 And we have a very distinguished 

13 panel batting cleanup today. And I salute our 

14 collective stamina for this tremendous day of 

15 what I think has been very lively and productive 

16 dialogue. 

17 So we'll get under way with this 

18 fourth panel talking about time-barred debt. 

19 And this is a very specialized kind of debt. And 

20 just to level-set definitionally when we talk 

21 about time-barred debt we're talking about debt 

22 that is beyond the period of time as prescribed 
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1 by state law that a consumer can be sued for it. 

2 So we just had a very lively panel 

3 about that period of time when a consumer can be 

4 sued for debts. We're now venturing into the 

5 territory, the period of time where that is not 

6 the case, where under state law the statute of 

7 limitations has expired and the consumer cannot 

8 be sued. And as many of you know in very 

9 specific detail that state laws vary and the 

10 statute of limitations can be as short as 2 years 

11 or as long as 10 years. 

12 And so I think what we'll do for this 

13 panel is I'll ask each of our panelists to open 

14 up the conversation with just a couple of minutes 

15 giving us their perspective on time-barred debt. 

16 And we'll begin with Larry Costa. 

17 MR. COSTA: Thank you. I'm Larry 

18 Costa. I'm the executive vice president of 

19 Capital Management Services. We are a third 

20 party collection agency. We perform all level 

21 of collections for our clients, from the 

22 beginning stages as we talked about today, the 
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1 life cycle of debt in the pre-charge off world 

2 all the way to the end of the life cycle of debt. 

3 A very small portion of our 

4 operations is focused on the collection of 

5 time-barred debt. And of course we do this in 

6 complete compliance with all federal, state and 

7 local regulations. 

8 Now, our perspective is very simple. 

9 As you've witnessed today there are tremendous 

10 variation between the various states and 

11 localities. We're looking for consistency. 

12 And of course in the collection of 

13 time-barred debt it should also be noted that 

14 consumers have an opportunity at a significantly 

15 lower cost to address their obligation. 

16 I'm going to turn it over to my 

17 distinguished panelist Karen Meyers. 

18 MS. MEYERS: My name is Karen 

19 Meyers. I'm the head of the Consumer Protection 

20 Division for the state of New Mexico attorney 

21 general. 

22 And as it was mentioned before we 
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1 have a time-barred debt regulation. That 

2 regulation was developed after we saw a 

3 significant practice in our state for efforts to 

4 collect affirmatively through litigation on 

5 time-barred debt. 

6 So litigation ensued against one 

7 particular debt collector and that case was 

8 ultimately settled through consent decree. 

9 After that we decided that it was appropriate to 

10 look at whether or not under our regulatory 

11 authority we should promulgate a rule that would 

12 apply to all debt collectors who sought to pursue 

13 time-barred debt in New Mexico. 

14 I thought it was interesting the 

15 comment about testing that was made before 

16 because we did two things. One is we determined 

17 that just common sense it seemed like knowing 

18 that a debt was time-barred debt people would 

19 want to know about that, that it would be 

20 material to a consumer's determination about 

21 what to do, what their choice was at responding 

22 to a letter from a debt collector. 
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1 But we did not just limit ourselves 

2 to our own best sense or common sense. So we 

3 actually engaged with a University of New Mexico 

4 social scientist and asked if he would test that. 

5 And he did. He had a significantly significant 

6 study. And got control groups and provided, you 

7 know, did the social science process. As you 

8 can tell I'm not a social scientist. 

9 And confirmed that for the 

10 participants in the study -- and it's 

11 interesting because the participants ranged 

12 over the demographic. So you had young people, 

13 you had older people, you had people with high 

14 incomes, low incomes. People who had 

15 significant debt, people who had very little 

16 debt. But generally it was material to them 

17 whether or not they were told that the debt could 

18 not be sued on. And that was material to them 

19 determining how to respond. 

20 With that information we 

21 promulgated a rule which you have in your 

22 materials. It's been in effect for 3 years now. 
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1 And we -- I will talk about it later so I don't 

2 take too long but we have looked at what has been 

3 the impact of that and we have some follow-up 

4 information from debt collectors about what they 

5 did as a result of it. 

6 MS. HRDY: Thanks, Karen. 

7 MR. PHILIPPS: Hi, my name is Dave 

8 Philipps. I run an involuntary compliance 

9 department for the collection industry. I sue 

10 debt collectors. And I represent the elderly 

11 and disabled primarily. I represent about 300 

12 consumers a year exclusive of class actions. 

13 And I guess really this part should 

14 be, you know, our whole discussion here today was 

15 life of debt and this is when debts will never 

16 die. And I don't say that lightly. Some of 

17 these debts just never die. I've litigated with 

18 Arrow where they bought a huge portfolio of 

19 Parisian debts which I learned in the case was 

20 the Marshall Field's of the South, or the Neiman 

21 Marcus, or the Saks of the South. 

22 And the debts were 15 to 20 years old 
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1 and most of them were subject to bankruptcies. 

2 But because the collection industry, the debt 

3 buyers don't want the stop signs and just want 

4 the blips of data they ignored that and they 

5 started collecting on these debts and 

6 threatening litigation. 

7 In that case we ultimately got data. 

8 We got somebody from Saks who was fired the day 

9 of her deposition who had gone to the hard drive 

10 that she knew that actually had the bad stuff on 

11 it and printed it all out. Unfortunately these 

12 debts won't die. 

13 And you know, my position would be 

14 stop collecting on time-barred debt, period. 

15 Now, I doubt that's going to happen. At the very 

16 least I think you have to make disclosures. 

17 What's the date of last payment. What's the 

18 statute of limitations. Now, that's all 

19 complicated by the 50 states' statute of 

20 limitations and choice of law and all kinds of 

21 problems like that. 

22 A further example of the problem in 
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1 this industry is despite the FTC's best efforts 

2 to get a big Michigan-based debt buyer to start 

3 making disclosures on time-barred debt and 

4 change the way they're doing things, and despite 

5 that Michigan-based debt buyer being told in 

6 Indiana that the statute of limitations was 6 

7 years. They were told that in 2010. And then 

8 the FTC entered into a consent decree in January 

9 of 2012. 2013 they were filing proofs of claim 

10 on 15-year-old debts in bankruptcy courts. 

11 So there's a real problem here on 

12 collecting these time-barred debts. People 

13 don't have 15 years of records to show I already 

14 paid that. People don't even have necessarily 

15 the documents to show I went bankrupt after 15 

16 years. 

17 And in fact, LexisNexis Banko won't 

18 even pick up any bankruptcy that's older than 7 

19 years. So there's a real problem here that 

20 needs to be solved. 

21 MR. THURMOND: Okay. Good 

22 afternoon. As Alice mentioned my name's Tom 
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1 Thurmond. I'm division president of Resurgent 

2 Capital Services. Resurgent is the master 

3 servicer for affiliated debt buyers with over 

4 600 employees in South Carolina, Texas, and Ohio 

5 offices. 

6 Previously I was in various 

7 operational roles with Capital One and prior to 

8 that I served as a bank examiner for the Federal 

9 Reserve System. 

10 I'd like to thank the FTC and the 

11 CFPB for the invitation to participate in 

12 today's roundtable and I hope that today's 

13 discussion will prove to be a valuable source of 

14 information for the policymakers at both 

15 entities. 

16 As mentioned a little bit previously 

17 determining the statute of limitations on a debt 

18 is often not nearly as easy to determine as one 

19 might think. As a debt collector or as a 

20 consumer there is not a simple table or chart to 

21 look at that says in this state it's 3 years but 

22 in this state it's 4 years. When does the clock 
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1 start? Do you use the statute for written 

2 contract? Or do you use one for oral contracts? 

3 Is it an open account? Is it a retail card? Is 

4 it a bank card? 

5 Some states have complex 

6 determinations on how a statute of limitations 

7 is calculated such as using what is known as the 

8 choice of law clause as stated in the contract 

9 between the consumer and the creditor. Or the 

10 place of incorporation of the issuing bank is 

11 used as the state instead of where the consumer 

12 actually resides. 

13 To date almost every state allows 

14 the collection of time-barred debt through 

15 traditional means such as letters and phone 

16 calls while only a few states have completely 

17 extinguished the debt once the statute of 

18 limitations has passed. And to date courts have 

19 refused to find violations of FDCPA with respect 

20 to the collection of past-statute debts where 

21 there were no threats of suit. 

22 It should be noted that if the state 
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1 statute of limitations is relatively short the 

2 debt may still be reported on the consumer's 

3 credit bureau as a trade line for a time period 

4 that actually exceeds the statute of 

5 limitations. 

6 The Fair Credit Reporting Act allows 

7 for a trade line to be reported for 7 years while 

8 the statute of limitations in most states is 

9 between 3 and 6 years. 

10 For consumers who have not had their 

11 debts discharged in bankruptcy it can often take 

12 more than 3 or 4 years to recover from whatever 

13 traumatic event caused their financial 

14 difficulties. So allowing collections on 

15 time-barred debt extends the consumer's 

16 opportunity to improve their creditworthiness. 

17 As with any well-intended outcome 

18 there are unintended consequences. If states 

19 move to shorten the statute of limitations or 

20 prohibit the traditional collection of 

21 time-barred debt the reality of the collection 

22 cycle will be that the cost of credit in that 
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1 state will dramatically increase and collectors 

2 and credit grantors will file more suits than 

3 they otherwise would. 

4 As a matter of corporate policy 

5 Resurgent does not allow its agencies or law 

6 firms to threaten suit if the statute of 

7 limitations has expired or if no suit is 

8 intended. 

9 In addition, Resurgent does not 

10 allow payments that are made by consumers after 

11 the statute of limitations has passed to re-toll 

12 the statute, even in states where that practice 

13 is permissible. Once an account has become 

14 time-barred Resurgent will continue to work with 

15 the consumer for voluntary payments and no suit 

16 will be threatened nor filed. 

17 With respect to disclosures two 

18 states, Massachusetts and New Mexico, and one 

19 city, New York City, have enacted laws requiring 

20 disclosures to be given to consumers that inform 

21 them that they cannot be sued if the statute of 

22 limitations has passed. 
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1 Disclosures are intended to provide 

2 clarity to the consumer but often such 

3 disclosures are written in legalese and most are 

4 not nearly as clear to the “least sophisticated 

5 consumer” as they were intended. 

6 In addition, there are also complex 

7 legal issues in making legal determinations and 

8 legal representations as a debt collector who is 

9 not an attorney and who is not counsel to the 

10 consumer. Even collection attorneys hired by a 

11 debt buyer or creditor may have issues with 

12 disciplinary and ethical rules governing 

13 attorneys and the giving of legal advice to 

14 non-represented parties. 

15 Lastly, I want to reiterate that 

16 Resurgent will not knowingly allow a suit to be 

17 filed on an account that is past statute. We do 

18 not desire to shift the burden of declaring an 

19 affirmative defense to the consumer and we do not 

20 wish to defend the related FDCPA action. 

21 However, we do feel that the 

22 consumer should not avoid the obligation and 
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1 that the repayment of the debt benefits not only 

2 the consumer but the entire credit cycle. Thank 

3 you for your consideration today and I look 

4 forward to the discussion. 

5 MS. HRDY: Thank you, Tom, and thank 

6 all of you for those excellent opening comments. 

7 So I want to pick up on our previous 

8 panel and one comment in particular from Brandon 

9 Black who said that in his view or in his 

10 experience 8 out of 10 consumers do not pay debt 

11 after charge-off. 

12 So presuming that's true, and feel 

13 free to take issue with that if you have a 

14 different view. And again in the time-barred 

15 debt space. So we're talking about almost 

16 always post-charge off debt, what is the benefit 

17 to collecting when the statistics appear to say 

18 that so few consumers will pay? And I'll start 

19 with Larry. 

20 MR. COSTA: The benefit in 

21 collecting is that there are consumers that do 

22 pay. And 2 out of 10 is a reasonable ratio. And 
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1 again it gives the opportunity to the consumer 

2 at a significant discount to take care of their 

3 obligation so that there is money to be collected 

4 as long as it is done in a compliant manner. So 

5 20 percent is a reasonable batting average in 

6 this type of segment. 

7 MS. HRDY: Great. Karen? 

8 MS. MEYERS: I couldn't comment on 

9 the data. I think that I can comment on the 

10 impact. 

11 What we see are attempts to collect 

12 from people who are the wrong people, who clearly 

13 don't have access to any information because 

14 it's so old to necessarily either verify it 

15 themselves or dispute it. And so I think that 

16 you get a compounding of the problem by allowing 

17 those efforts to continue. 

18 I also think that one of the problems 

19 that we see is -- I ask the question of myself 

20 during one of the earlier panels which is is 

21 there a difference in response when a consumer 

22 contacts you, a debt buyer or a debt collector, 
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1 or when the attorney general's office challenges 

2 and asks for verification, or when a private 

3 attorney does. Because it appears to us that 

4 there is. 

5 When we have consumers come in and 

6 file a complaint we have a voluntary dispute 

7 resolution process. They come in and file a 

8 complaint arising from a debt collection effort. 

9 Oftentimes they'll tell us the story of I called, 

10 I talked to so and so, I wrote, I called, I talked 

11 to so and so, I told them I wasn't the right 

12 person. I told them this wasn't my debt. I 

13 told them whatever I had available to challenge 

14 it. And they're still doing it, or they sold it 

15 to somebody else, and now they're doing it. 

16 When we call or we write suddenly 

17 there's a different response. And I think that 

18 what that raises is somewhat what the judge was 

19 talking about which is a much bigger issue which 

20 is an access to justice issue which is if you can 

21 get help, if you can get intervention versus if 

22 you're a self-litigator, a pro se litigant, the 
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1 experience is very different. So I don't think 

2 that the cost-benefit analysis that Larry is 

3 proposing necessarily tips the balance for 

4 consumer protection. 

5 MS. HRDY: Okay. Dave? 

6 MR. PHILIPPS: Well, I think that 

7 the rest of the debt buying industry at a minimum 

8 should follow LVNV's example and not sue on 

9 time-barred debt. You shouldn't rely on a 

10 broken system to catch time-barred debt. 

11 I lectured to the Indiana Judicial 

12 College and the judges there were furious at the 

13 debt buying industry because there was no date 

14 of last payment, there was no who was the 

15 original creditor, just basic information that 

16 would allow somebody who actually wanted to 

17 defend a suit to defend it. 

18 And this oh, we need to do some study 

19 to find out why consumers don't show up in court. 

20 They can't afford to. Duh. 

21 MS. HRDY: Okay, Tom. 

22 MR. THURMOND: I mean specifically 
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1 to one of the things Karen said about attempting 

2 to collect on time-barred debt from the wrong 

3 person. What that speaks to typically in the 

4 older debts is not that the consumer did not have 

5 an account with a particular bank, it's the 

6 result of a bad phone number. So what 

7 collectors are trying to do is locate the person 

8 and talk to them to work out the debt. 

9 So they might be trying to contact 

10 David Philipps. They get a phone number through 

11 a skip trace service that says it's Dave 

12 Philipps. So they call Dave Philipps. Now all 

13 of a sudden Dave Philipps is freaking out because 

14 he's been called about a debt that's clearly not 

15 his. 

16 So what we've spent the better part 

17 of 2 years working on as part of our operation 

18 is trying to remove what we call known bad phone 

19 numbers at the account level. Great concept, 

20 sounds really easy. It's actually fairly 

21 complicated from a technical standpoint. 

22 We think at the end of the day it is 
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1 the obligation of the industry to do that. So 

2 if you know one collection agency has reached out 

3 to a consumer, got the wrong number, got the 

4 wrong consumer, you should have an obligation to 

5 attach it to the account and make sure that 

6 permeates the system for the life of that account 

7 and eliminate collecting on the wrong folks. 

8 MR. PHILIPPS: But unfortunately 

9 the industry doesn't do that. 

10 MS. HRDY: So let's -- 

11 MR. PHILIPPS: In fact -- hang on. 

12 In the debt buying industry -- you cut me off 

13 before. In the debt buying industry we have 

14 dozens and dozens of cases where the consumer is 

15 represented by counsel, tells the debt buyer I 

16 can't pay the debt, gives the debt buyer an 

17 affidavit of their income and assets, and that 

18 debt buyer closes it down and sells it to another 

19 debt buyer without any of that data because they 

20 don't want to transfer that media. And it's a 

21 big problem. 

22 MS. HRDY: So Larry, I'll turn it to 
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1 you. In light of these problems and some of the 

2 solutions that Tom is implementing or trying to 

3 implement can you talk a little bit more specific 

4 to time-barred debt about the best practices 

5 that a collector should be engaging in when they 

6 are collecting on debt which in most states is 

7 permitted. 

8 And as Tom noted, the consumers need 

9 to know that if they do make a payment and in some 

10 states if they simply make a promise to pay that 

11 the clock starts over in terms of the statute of 

12 limitations. And so the statute of limitations 

13 begins again. So in light of that could you talk 

14 about some best practices? 

15 MR. COSTA: Well, clearly as 

16 earlier mentioned today verification is very 

17 important. So you need to spend time on 

18 verification. As I've already talked about 

19 earlier, it's engaging with the consumer. If it 

20 isn't the right consumer then you need to report 

21 it. 

22 We don't buy debt. We strictly do 
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1 in the contingency role we collect for people 

2 that do purchase time-barred debt. So it's 

3 informing the purchaser of that debt that it is 

4 the wrong party and we have an obligation to do 

5 that and we do do that. 

6 MS. HRDY: I'm sorry, say that 

7 again? It's important to do what? 

8 MR. COSTA: To inform the owner of 

9 the debt that it is the wrong party. And we do 

10 that. And we make sure that we do that because 

11 they have no interest in pursuing somebody who 

12 doesn't owe the debt. There's no upside to 

13 that. There's no reason to do that. The person 

14 doesn't owe the debt, let's notate it and let's 

15 move onto the, you know. 

16 That's the proper practice. That's 

17 the question I guess. That's the proper 

18 practice. 

19 And then when you're engaged with 

20 the consumer it is not to be deceptive. The 

21 people we collect for do not -- I believe the word 

22 was re-toll. They do not follow that practice. 
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1 We won't collect for people that follow that 

2 practice. 

3 Our collection techniques are very 

4 simple. It's a settlement. It's a very low 

5 settlement for the ability -- for the consumer 

6 to pay that obligation. Goods, services were 

7 purchased by that consumer. Once it's verified 

8 and it is the correct consumer it's an 

9 opportunity to pay at a significant discount. 

10 That's our practice and we think that's a good, 

11 sound practice. 

12 We don't sue, we don't garnish, we 

13 don't engage in any of those practices and we 

14 won't engage in any of those practices. We're 

15 strictly a third party contingency collection 

16 agency and again it's a very small portion of 

17 what we do. 

18 MS. HRDY: And Larry and then Karen, 

19 let's talk about the question of what notice -- 

20 how you accomplish giving notice to consumers 

21 given that even under the best circumstances 

22 when the consumer is maybe only 30 days past due 
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1 and you have to try and give a validation notice. 

2 And we've talked at length today 

3 about the challenges. Here it's even a more 

4 complicated picture of what you have to try and 

5 explain to consumers about the debt. So Larry 

6 and then Karen, can you talk about this challenge 

7 of communicating clearly to consumers what the 

8 consequences are, what the debt is and what the 

9 consequences are if they pay or make a promise 

10 to pay. 

11 MR. COSTA: Well again -- 

12 MS. HRDY: If there are 

13 consequences. 

14 MR. COSTA: Again, there are no 

15 legal consequences of time-barred debt. 

16 MS. HRDY: But if they make a 

17 payment. In some states. 

18 MR. COSTA: We provide all the 

19 necessary disclosures that all the regulators 

20 indicate. So we're not engaged in the 

21 re-tolling process. We're just not involved in 

22 that process. We take voluntary payments for 
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1 amounts owed. That's really the way we proceed. 

2 And when consumers ask questions we 

3 can't give them legal advice because we're not 

4 attorneys. We can't give them tax advice 

5 because we're not tax experts. We simply 

6 explain to them the situation, offer them the 

7 settlement. If they don't want to pay it, 

8 that's fine. 

9 MS. HRDY: Karen? 

10 MS. MEYERS: Some of the issues that 

11 have been raised in response to the kind of 

12 notice and how do -- the question of how do we 

13 decide what the statute of limitations is. And 

14 I understand we're talking about one state. 

15 What was interesting to us is after 

16 passing our regulation we did a follow-up to a 

17 random sample of debt collectors to find out how 

18 they were complying. And we had several debt 

19 collectors write back and say we have not added 

20 the required language to our notice because 

21 we're not collecting time-barred debt anymore in 

22 your state. We have implemented appropriate 
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1 technology that all of that debt is scrubbed and 

2 we do not seek to pursue it. 

3 So the thought that that struck me 

4 with when I saw those letters was well I guess 

5 you do have the capacity to make those fine-tuned 

6 determinations through some data system and 

7 determine based on some algorithm I would assume 

8 what debt is time-barred at least for New Mexico. 

9 And so I wonder why that couldn't be 

10 done being as sophisticated as we are 

11 technologically at this point for multiple 

12 states. I don't think it is rocket science. 

13 For us it's, you know, we have a 

14 defined statement. There's specific safe 

15 harbor language that most creditors have 

16 adopted. And it is also required that it be 

17 disclosed at certain points during a telephone 

18 conversation contact. 

19 But it's -- and frankly I'm not sure 

20 we can say that we know how -- what the impact 

21 is. But we do know from anecdotal review of the 

22 complaints we've gotten is that there clearly 
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1 are people coming into our office who have 

2 received that notice, that they're clearly 

3 concerned about the fact that it's an old debt 

4 and they've read the notice, and that even though 

5 they've told the debt collector that it wasn't 

6 them, or the debt was old, that the debt is still 

7 being pursued not through suit but through debt 

8 collection efforts until we get involved. 

9 MS. HRDY: So Dave and then Tom, 

10 would you react to Karen's statement it can't be 

11 rocket science to use technology to sort through 

12 the different statute of limitations and marry 

13 it up with the debt portfolios? 

14 MR. PHILIPPS: I don't think it's 

15 rocket science but it's an issue of the 

16 disclosures being blended into all the other 

17 disclosures and the nationwide debt collectors, 

18 debt buyers, third party collectors burying it 

19 in plain sight with a New York resident notice 

20 and a Chicago resident notice and a 

21 Colorado-only resident notice and the 

22 validation notice. 
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1 You heard the professor earlier in 

2 the day talk about the validation notice, he 

3 hadn't studied it. I did. I paid an expert to 

4 study it. It reads at a 17th grade reading 

5 level. Now I did the math so you don't have to 

6 worry about that, that's grad school level. So 

7 it's incomprehensible. 

8 At least the asset acceptance 

9 disclosure that the FTC got and the disclosure 

10 that New Mexico have read I think at a sixth or 

11 seventh grade reading level. So they're 

12 actually readable if you can find them. 

13 So I think one of the things that if 

14 we're going to have more disclosure, if we can't 

15 eliminate the practice we have to make 

16 disclosures unique to a state and not have them 

17 buried in plain sight. 

18 MR. THURMOND: Well, there are two 

19 or three things floating around in that. One 

20 was the notion of consumers coming to Karen's 

21 office and the distinction between the debt 

22 being old and them being the wrong person. 
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1 If the debt's old and they've been 

2 disclosed to I don't see a problem. If it's the 

3 wrong person we've already -- I do think that's 

4 a problem. 

5 As far as the scrubbing of the 

6 portfolio to determine if the account's in or out 

7 of stat we do that regularly. So from a 

8 technology standpoint it is very doable. 

9 The hardest part of that process is 

10 building the underlying logic to interpret all 

11 the state laws. So some states are very easy, 

12 I will acknowledge that, but there are a myriad 

13 of others that are very difficult. 

14 And it's a moving target. 

15 Minnesota changed theirs last week I think. 

16 Arizona changed theirs earlier in the year. 

17 Then there's someone files suit and 

18 all of a sudden choice of law becomes prevalent 

19 in that state where it didn't exist before. So 

20 getting the logic right, that's the hard part. 

21 The technology is there though. 

22 And then I think the other part was 
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1 Dave's point. He and I talked about this the 

2 other day. The disclosures are difficult to 

3 read. And one of Dave's issues is all of the 

4 disclosures being on all the letters even though 

5 the person doesn't live in that state. 

6 It's sort of a safety issue for the 

7 debt collector to prevent mistakes. Because we 

8 know when we make a mistake we pay for it. And 

9 given the volume nature of our business we don't 

10 make one mistake, you know, 100 accounts will get 

11 the wrong disclosure. So it's kind of a belts 

12 and suspenders approach. 

13 MS. HRDY: Okay. So, in the 

14 instance that a consumer does make a payment on 

15 a time-barred debt and in the instance where they 

16 then stop paying and a collector decides to 

17 initiate a lawsuit because the statute of 

18 limitations has been reactivated currently in 

19 most states if the statute of limitations then 

20 ultimately does run that's an affirmative 

21 defense that consumers have to raise. So if the 

22 statute of limitations runs and they are then 
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1 ultimately sued the consumer has to raise that 

2 as an affirmative defense. 

3 Could we talk about the relative 

4 pros and cons of keeping that burden of pleading 

5 on the consumer versus shifting it to the 

6 collector, the plaintiff who's suing the 

7 collector for the debt? Larry? 

8 MR. COSTA: I don't really think 

9 that we have any issue with eliminating that 

10 clause. I think that it's a time-barred debt. 

11 I don't think the clock should restart. I don't 

12 think anybody in the industry really is in that 

13 position to really advocate that position. 

14 It's time-barred debt. If they make several 

15 payments or they make payments, the clock 

16 shouldn't restart. So we're not opposed to the 

17 elimination of that clause. 

18 MS. HRDY: And so then if say the 

19 statute of limitations runs and then the 

20 consumer is still sued and in that instance the 

21 consumer has a defense that the statute of 

22 limitations has run do you think it should be -- 
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1 the burden should be on the consumer to raise 

2 that defense in litigation? Or again should we 

3 be thinking about the pros and cons of making the 

4 plaintiff -- 

5 MR. THURMOND: Alice -- 

6 MS. HRDY: Yes. 

7 MR. THURMOND: Since -- I'll jump in 

8 for Larry. They don't do a lot of litigation 

9 work so Larry is that okay? Okay. I'm sure 

10 Larry's okay with that. 

11 (Laughter) 

12 MR. COSTA: I'm good, Tom. 

13 MR. THURMOND: I think effectively 

14 the various attorneys general and the courts 

15 have already decided that, that if you do any 

16 sort of systemic suing of accounts that are past 

17 the statute of limitations they're going to pull 

18 you in as an unfair and deceptive practice. 

19 So it's unconscionable to us. So if 

20 -- you have your defense if it's a mistake but 

21 I don't think any reputable debt buyer is sitting 

22 there going how can we sue out of stat debts and 
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1 hope the people don't show up. So no, we 

2 wouldn't put that burden. 

3 MS. HRDY: Dave? 

4 MR. PHILIPPS: I think it's too 

5 patchwork to be left up to individual AGs some 

6 of whom are, you know, one minute consumer 

7 enforcers and then there's a change in 

8 administration and they disappear from the 

9 scene. 

10 I think the problem with the 90 

11 percent default rate is too much of an epidemic 

12 to rely on the consumers. A consumer who is 

13 making minimum wage can't take off to 

14 participate in the litigation process for four 

15 or five court appearances. They just can't do 

16 it to defend a $1,000 or $2,000 or $3,000 debt. 

17 It's just impossible. Even if they had the 

18 documents to do it they can't leave work and come 

19 in for the first hearing and in Cook County sit 

20 through a court call for 3 or 4 hours only to have 

21 an order entered of, okay, we'll continue this 

22 for documents. That's what they do, we'll 
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1 continue it for documents. And then they'll 

2 give them another chance to continue it for 

3 documents. 

4 And at some point the consumer is 

5 going to slip up. Either they give up, or they 

6 couldn't get off from work, or they're late on 

7 their bus. It's just not a system that should 

8 be relied upon. It should be barred on a 

9 nationwide basis. 

10 MS. HRDY: So -- oh, Karen. 

11 MS. MEYERS: Yes, I'd like to add 

12 something. One of the things that we're aware 

13 of from our consumer bar is that there are 

14 instances where there are recorded payments 

15 entered into a record in order to bring it into 

16 statute. 

17 And since payment in New Mexico does 

18 revive the debt that's something that's very 

19 difficult to prove but it happens. So I think 

20 that the equities really do argue to, one, across 

21 the board not allow a payment to revive a 

22 time-barred debt. 
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1 I think that if what Larry is saying 

2 which is that the interest is, you know, where 

3 a consumer really wants to pay on the debt that 

4 that should be a voluntary thing but not to put 

5 them in jeopardy then of being put into a -- that 

6 their effort to be responsible or be responsive 

7 should not then undercut any protections that 

8 they've realized because of the passage of time. 

9 And so I think that would be 

10 something very helpful and very important to do 

11 to balance out the equities in this area. 

12 MS. HRDY: And so what I'm hearing 

13 in the conversation here is when it becomes the 

14 point in time where whether a collector sues or 

15 not, but if the consumer does want to pay and that 

16 is -- a partial payment, and that is going to 

17 revive the debt, and it does become in a 

18 litigation model. 

19 Picking up on some of the discussion 

20 of our previous panel and some of the 

21 recommendations that Judge Rizzo was commending 

22 to us I'd like to ask the panel is there an 
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1 application to those kinds of new strategies 

2 that could be applied in this area as well? 

3 I mean, we were talking about debt 

4 collection sort of writ large in the previous 

5 panel, but are there any particular -- did you 

6 see any particular application to what was 

7 discussed in that panel to this area? Tom, I'll 

8 start with you. 

9 MR. THURMOND: I'm not sure I 

10 understand the question. Ask again? 

11 MS. HRDY: Okay. So if what we're 

12 saying is there a consumer comprehension 

13 problem. And so if we're in a time-barred debt 

14 situation and a consumer is sued, so it's what 

15 Dave was talking about. Do you see what Judge 

16 Rizzo was talking about, some outreach to 

17 consumers? Is there some additional outreach 

18 to consumers once they are in litigation to be 

19 useful in this area? And Dave, maybe you have 

20 experience that you would want to bring to bear 

21 whether that's even -- could be effective. 

22 MR. THURMOND: So you asked 
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1 explicitly about time-barred debt. I think it 

2 would be more beneficial for the education to 

3 occur prior to litigation, just general consumer 

4 awareness, particularly in the states where it 

5 is easy to interpret the statute of limitations. 

6 But it is complicated. You know, 

7 some states start at the date of default. You 

8 know, there was a slide up earlier that said, it 

9 said the default/charge-off date and the amount 

10 at that time. Those are two different dates. 

11 So understanding that is -- I understand that as 

12 a former regulator, former banker, and a debt 

13 buyer. I'm not sure the consumer can digest 

14 that very easily. 

15 So certainly any educational 

16 efforts are the right thing to do pre or post 

17 litigation. I guess that's the best way I would 

18 answer it. 

19 MS. HRDY: Okay. So -- oh, Karen, 

20 did you want to mention something? 

21 MS. MEYERS: Yes. I think it goes 

22 back to the Maryland rule as an example. 
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1 Because with the high incidence of defaults you 

2 have to I think put together that reality with 

3 the experience for most consumers. 

4 And what will make a difference is 

5 to educate the courts at what to look for so that 

6 if it's time-barred the way the court will know 

7 it's time-barred because the consumer is not 

8 there to raise it. And if it's inappropriately 

9 being sued on it's under the radar is to put in 

10 the date of default, to put in the last payment 

11 so that that is evident. 

12 And then the supporting 

13 documentation. You have to increase and raise 

14 the bar on what has to be submitted to 

15 substantiate a claim. 

16 When I bring a lawsuit I may be able 

17 to get a default but I don't get a damage award 

18 or restitution or injunction without proving 

19 something. I mean no judge -- I would love it 

20 if they would, if they'd just say great, Karen, 

21 you know, whatever you say it must be true. It's 

22 never happened to me in 30 years. And yet that's 
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1 what happens with these default judgments. 

2 And so to raise the bar on that so 

3 that there is an appropriate level of proof even 

4 if it's a default. 

5 MS. HRDY: Okay. I wanted to ask a 

6 different question now and that's about when 

7 collectors are seeking to collect on a debt 

8 that's past the statute of limitations. And 

9 let's say it's past the statute of limitations 

10 but it could still be furnished to a consumer 

11 reporting agency and still appear on a 

12 consumer's credit report. 

13 What are some of the sort of red 

14 flags that you've seen in terms of claims that 

15 are made to consumers about the effect on their 

16 creditworthiness if they do make a payment on the 

17 time-barred debt? 

18 MR. COSTA: Well first of all, you 

19 can't make any claim to the consumer. You can't 

20 indicate to the consumer what effect it'll have. 

21 MS. HRDY: And why is that, Larry? 

22 MR. COSTA: Because that's clearly 
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1 defined by the regulations. You don't know. 

2 You have no idea what effect it's going to have. 

3 Again, it's -- time-barred debt is 

4 very simple. It's a voluntary payment of an 

5 obligation. And that's all it is. It really 

6 isn't anything other than that as far as we are 

7 concerned. Again, we have no representation as 

8 to legality, we have no representation as to the 

9 effect on their bureau. Okay, we just again in 

10 a very simple way ask them to pay us at a 

11 substantially discounted rate. 

12 So now there are some adverse 

13 effects that could affect a consumer if you were 

14 to bar collection of time-barred debt. So let's 

15 go back to this, you know, and we always have to 

16 use these crazy examples to make a point, right. 

17 So let's say someone's looking for 

18 employment, are going to be gainfully employed 

19 and they have a time-barred debt by a state that 

20 has a 3-year statute and it's been on the report 

21 -- it'll be on the report for another 4 years. 

22 How do they affect that? How do they get that 
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1 off their bureau if the collection of 

2 time-barred debt is no longer allowed? Again, 

3 crazy example but it does happen. 

4 A lot of the things we talked about 

5 today are crazy examples because some 

6 statistics, you talk about 3 percent, 2 percent, 

7 1 percent. So we tend to regulate the 

8 exception. We tend to regulate the non-typical 

9 behavior. So let's look at these situations. 

10 And so there are some adverse effects that could 

11 occur if you bar the collection of time-barred 

12 debt. 

13 MS. HRDY: So I'd like Dave and then 

14 Tom to react to that. Because Dave, I know 

15 you're out, your sort of first position is we 

16 should bar the collection. There should be a 

17 prohibition. 

18 MR. PHILIPPS: I think the 

19 instances where the statute of limitations has 

20 expired and it's still credit reported are very 

21 rare. The vast majority of them, it's 

22 time-barred, it's beyond the statute, changing 
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1 that entry on the credit bureau isn't going to 

2 affect their credit score one bit. 

3 Usually it's collected upon at a 

4 closing table in a real estate matter where they 

5 can't get into the nuances of oh, is this 

6 time-barred, should it be off the credit report, 

7 shouldn't it be -- it's just no, you've got to 

8 pay this if you want to close on this loan, if 

9 you want your house. You're stuck. You're 

10 paying at the butt of a gun. 

11 And you know, maybe there are some 

12 instances where there might be some benefit but 

13 that's not what I see. I see they're just trying 

14 to collect on time-barred debt and hoping they 

15 get a default judgment. Not from LVNV but from 

16 a number of LVNV's competitors. It's a very 

17 profitable market, they pay almost nothing for 

18 time-barred debt, just like they pay almost 

19 nothing for bankrupt portfolios but they still 

20 collect on those. 

21 I want to give all my money to Mr. 

22 Black. You know, he made it sound like it was 
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1 bad business to pay 5 cents and get 11 cents. 

2 I'll be happy to double my money up. 

3 MS. HRDY: Tom and then I think 

4 Larry wanted to say something. 

5 MR. THURMOND: So a couple of 

6 things. If the account is still on the credit 

7 bureau because the original question is why 

8 can't you say that, right? 

9 MS. HRDY: Or you know, can you say 

10 it and what should a consumer think about if that 

11 is a representation that is made to them. 

12 MR. THURMOND: So the reason that 

13 doesn't get represented, common sense would tell 

14 you if you make a payment and pay off the debt 

15 that should improve your credit score. The 

16 reality is the credit score is a vastly 

17 complicated moving target that has to do with 

18 open to buy on other lines, the total amount of 

19 utilization on your credit cards, are you late 

20 on any other accounts. So there's never an 

21 isolated event that occurs. It's constantly 

22 being evaluated. 
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1 So that's why you can't use common 

2 sense in this business because if you said that 

3 and the guy goes and pulls his credit score and 

4 the credit score went down I have misled the 

5 consumer. So you can't do that. 

6 The other part -- that's all I'll say 

7 on that. 

8 MS. HRDY: Okay. Larry, did you 

9 have something? 

10 MR. COSTA: Well again, all along 

11 the life cycle of debt the consumer has an 

12 opportunity to take care of this obligation. 

13 This is not the first phone call they've 

14 received. This is not the first letter they've 

15 received. So all along the life cycle they've 

16 had the opportunity. 

17 And again, our position is very 

18 clear. We're offering a low, very low 

19 opportunity to settle this obligation. And 

20 that's our approach to time-barred debt. 

21 Again, it's a very small portion of our business. 

22 MS. HRDY: Karen, did you want to 
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1 weigh in on this? No. Okay. So we have about 

2 10 minutes left. I have one question so far from 

3 the audience. Recommend or commend you the 

4 question cards. If you need one I'm sure there 

5 are extra. 

6 And I'll ask the audience if you 

7 don't necessarily have a question in light of 

8 everything you've heard particularly on this 

9 panel if there's one thing you would change about 

10 the collection of time-barred debt including a 

11 vote for barring it across the board I'd love to 

12 sort of get a crowdsourcing reaction from 

13 everyone. And I'm certainly going to ask the 

14 panelists as well. 

15 Okay. So I'll go to the audience 

16 questions now. And here's one question. For 

17 those who collect on time-barred debt in states 

18 where no disclosures are required what 

19 information if any is conveyed to the consumer 

20 about the litigation status of the debt? I take 

21 that to mean about the fact that if the statute 

22 of limitations has run that they cannot be sued 
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1 on it. And perhaps I'll ask this of Tom. 

2 MR. THURMOND: Say the first part 

3 again? 

4 MS. HRDY: So, if you're collecting 

5 on time-barred debt in a state that does not have 

6 a law that requires an affirmative disclosure. 

7 MR. THURMOND: Yes. 

8 MS. HRDY: What if anything should 

9 a collector be saying to the consumer? Or what 

10 practice do you see in your company and in 

11 others? 

12 MR. THURMOND: Well, speaking to 

13 how I think it should work for everyone you 

14 certainly shouldn't imply or threaten a lawsuit. 

15 And then if asked a direct question, answer it. 

16 Can I be sued on this account? No. So you need 

17 to have a common sense no deception honesty 

18 policy for all your debt collectors. That 

19 should be the standard way you should operate. 

20 MS. HRDY: Dave, I don't know if you 

21 want to chime in on this in terms of what you 

22 think would be the best practice? 
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1 MR. PHILIPPS: I already said stop 

2 collecting them. 

3 MS. HRDY: Okay, right, right. 

4 Thank you. So here's a question from our 

5 Twitter feed. What happens when consumers move 

6 from a state where the debt is out of statute to 

7 a state where the debt is in statute? I'll open 

8 it up to anyone who might want to answer that 

9 puzzle. 

10 MR. THURMOND: It's now in statute. 

11 MS. HRDY: Dave? 

12 MR. PHILIPPS: Good question. 

13 Back to choice of law. And if it's dead I don't 

14 think you revive it by moving. 

15 MS. HRDY: Is it governed by -- are 

16 you saying, Dave, it's governed by the credit 

17 contract? 

18 MR. PHILIPPS: Well, I think if I 

19 ever saw one of the credit contracts from a debt 

20 buyer, from an original creditor, and the right 

21 credit contract. Instead if we get a credit 

22 contract from a debt buyer and we actually look 
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1 at the revision date we have a debt that was 

2 charged off in 2005 and the debt collection 

3 attorney is proud to produce a contract for terms 

4 and conditions that's from 2009. I don't think 

5 that's probably the correct one. 

6 So it's a moving target. It's a 

7 lack of documentation, the inability to discover 

8 what contracts involved. Is there a choice of 

9 law in there. You know, it's almost an Abbott 

10 and Costello routine. Who's on first, what's on 

11 second, and I don't know is on third base. 

12 MS. HRDY: Any other comments? 

13 MS. MEYERS: I think you'd have -- 

14 I have not researched this but I think you'd have 

15 a serious Constitutional question on the right 

16 to travel if that were to happen. 

17 MS. HRDY: Okay. We have a 

18 comment. I get a call every month from a new 

19 collector for a person I have never heard of. 

20 How do I make this stop? I tell them every time 

21 to note that they have the wrong number. 

22 Any thoughts? I mean that's sort of 
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1 a general -- 

2 MR. COSTA: That falls on us as the 

3 collection agency is that we have to make sure 

4 our collectors notate that the person won't be 

5 called anymore. Stop calling. Remove the 

6 number. That falls on us. And we will make 

7 sure that happens. 

8 MS. MEYERS: Can I ask a question? 

9 MS. HRDY: Yes. 

10 MS. MEYERS: Well, so we've been 

11 talking about all these practices and most of the 

12 panelists say well, that's not what we do. And 

13 I take them at their word. So who is doing this? 

14 Because we're seeing this stuff and where are 

15 they? 

16 And what do we do to bring the people 

17 who are violating the law and engaging in what 

18 I think would be deceptive or unconscionable 

19 practices to a place where they are compliant? 

20 And I think that's not just a 

21 question for consumer advocates or attorneys 

22 general. And I guess I should say I'm speaking 
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1 for myself, not my attorney general when I say 

2 any of these things. 

3 But you know, it's also a question 

4 for the industry. 

5 MS. HRDY: Does anyone want to 

6 answer Karen's question? 

7 MR. PHILIPPS: It's such a loaded 

8 question. Find a good NACA member, National 

9 Association of Consumer Advocates. Find a 

10 consumer attorney in your state and sue that debt 

11 buyer for not following these best practices. 

12 MS. HRDY: And I would note for the 

13 person who submitted the question about getting 

14 the calls, I would always recommend that you file 

15 a complaint with your attorney general, with the 

16 Federal Trade Commission. And once the 

17 Consumer Financial Protection Bureau starts 

18 taking debt collection complaints I would 

19 recommend filing a complaint there as well. 

20 In addition to telling them that 

21 they have the wrong person and they should not 

22 call you back. 
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1 MR. THURMOND: Alice, I think 

2 that's a great point. Because the complaint 

3 process that exists today that's being enhanced 

4 as well, you know, serious debt collectors 

5 review those complaints on a regular basis and 

6 they not only remediate that specific person's 

7 issue, they're looking for systemic problems. 

8 Is there a break somewhere in their internal or 

9 external operations that there's another one of 

10 these out there. 

11 And I personally review every 

12 complaint every month. And that's what I'm 

13 looking for is if there's one out there is there 

14 another one. I want to find it before Dave does. 

15 MR. PHILIPPS: And if your phone's 

16 a cell phone find a NACA member and sue under the 

17 TCPA because there's no consent to call you. 

18 MR. COSTA: That will be a topic for 

19 tomorrow, the TCPA. 

20 (Laughter) 

21 MR. COSTA: Just so you know your 

22 iPhone is an automated dialer by that 
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1 definition. 

2 MS. HRDY: And we'll just note for 

3 folks who don't know what the TCPA, almost 

4 everyone here does, the Telephone 

5 Communications Protection Act which is enforced 

6 by the FCC. Just noting that. 

7 (Laughter) 

8 MR. COSTA: To build on Tom's point 

9 -- 

10 MS. HRDY: It's a technical point. 

11 MR. COSTA: And to build on Tom's 

12 point, the people that we collect for, they hold 

13 us to very high standards. We don't want to 

14 generate any complaints. We don't want to have 

15 that conversation because the people we collect 

16 for, if we generate complaints we will no longer 

17 be collecting for them. So that takes care of 

18 all the economics and all the other decisions. 

19 We try and do things the best way 

20 possible and we're going to continue to strive. 

21 When we make a mistake, we make a mistake, we own 

22 up to it, we pay the fine and we move on. 
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1 MS. HRDY: So in the final minutes 

2 I'm going to ask -- I sadly didn't get any 

3 crowdsourcing response. It's not too late to 

4 wave your magic wand and say what's one thing 

5 that you would change if you could. 

6 So I'll start with Tom and Tom, it's 

7 up to you. You can wave your magic wand and say 

8 what's one thing you would change in regards to 

9 the collection on time-barred debt. Or any 

10 other comment or any other thing that you feel 

11 needs to be said before we close out today. 

12 MR. THURMOND: I won't add much here 

13 because I think, you know, it's easy for a debt 

14 buyer and particularly a national debt buyer to 

15 be able to wish for a uniform set of standards. 

16 And I hope the CFPB is successful 

17 with the FTC in that. I think it's a practical 

18 impossibility given our Constitution and how the 

19 states are chartered. And as a debt buyer we've 

20 signed up to navigate those waters, try to treat 

21 consumers respectfully and make a profit. And 

22 that's what we'll try to continue to do. 
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1 MS. HRDY: Thanks, Tom. Dave? 

2 MR. PHILIPPS: I think we've said 

3 enough. 

4 MS. HRDY: Really? Karen. 

5 MS. MEYERS: Pass. 

6 MS. HRDY: Really, wow. Because 

7 it's almost 5:10. Larry, you have the final 

8 word. What will it be? 

9 MR. COSTA: Again, we're looking 

10 for consistency. We're looking for not 

11 necessarily regulation on the exception but 

12 we've got to take a sensible approach to all 

13 this. And some of the things we're going to talk 

14 about tomorrow, some of these -- especially the 

15 TCPA which puts all of us in a very, very 

16 difficult light. 

17 So we welcome the opportunity to 

18 work with the industry. We thank you so much for 

19 inviting us. And we'll do everything we can to 

20 make sure we stay compliant. 

21 MS. HRDY: So I want to thank our 

22 panelists for a terrific discussion. And thank 
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1 you, audience, for the questions. 

2 (Applause) 

3 MS. HRDY: And I'm turning it over 

4 to Jessica Rich, the Associate Director for the 

5 Division of Financial Practices, who will give 

6 us closing remarks today. 

7 MS. RICH: Well, hello. Glad 

8 people stayed; it's great. Thanks to everyone 

9 for participating in our roundtable. It was a 

10 great discussion. I think we all learned a lot. 

11 We like to sum up these meetings at 

12 the end so the audience can at least hear what 

13 some of the people organizing it think they 

14 heard. And so that's what I'm doing. 

15 So, as you all know, the focus of 

16 this event was the availability and accuracy of 

17 data throughout the debt collection life cycle. 

18 These issues are important because if data is 

19 inaccurate or incomplete, it can lead to 

20 collection of debts from the wrong consumer, or 

21 the wrong amount. Or consumers who owe debts 

22 may not be able to recognize that they owe the 
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1 debt and make informed decisions about whether 

2 to pay them. 

3 We looked in particular at four key 

4 phases in the debt collection life cycle. What 

5 consumers are told at the beginning of 

6 collection, what happens when a consumer 

7 disputes a debt. That is, what information is 

8 required to substantiate the debt and what sort 

9 of investigation must be undertaken. 

10 What happens when debt collectors 

11 pursue a debt in court. What information is 

12 included in the complaints and whether consumers 

13 have a fair opportunity to participate in the 

14 process. Lots of discussion on that. 

15 And finally, what if the debt is 

16 beyond the statute of limitations. What should 

17 consumers be told about this. 

18 We heard there are problems and 

19 concerns at each of these phases, barriers that 

20 prevent collectors from obtaining underlying 

21 documentation and records from collectors. 

22 Questions about whether debt collectors provide 
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1 adequate information to consumers about their 

2 debts so they can evaluate whether they owe the 

3 debts and should pay them. 

4 Questions about whether debt 

5 collectors are taking adequate steps to verify 

6 debts that consumers have disputed. Concerns 

7 about the low level of consumer response to debt 

8 collection lawsuits, lawsuits that impose real 

9 liability on them and have a real consequence for 

10 their financial well-being. 

11 Concerns about the information 

12 included in court complaints and whether it 

13 provides sufficient notice to consumers and to 

14 the courts about the claims being asserted. And 

15 general lack of disclosures to consumers about 

16 when debt is time-barred and unenforceable 

17 through a lawsuit. 

18 From where I was sitting, and I'll 

19 admit I went upstairs because it was cold in here 

20 but I was listening the whole time on my 

21 computer, I didn't hear agreement on the 

22 solutions to all of these issues. But I did hear 
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1 some areas of agreement, and in particular 

2 repeated reference on every panel, to the need 

3 for consistent standards. And I did hear 

4 agreement that the issues we talked about today 

5 are the essential ones to address as we evaluate 

6 how the FDCPA is working and whether the balance 

7 between legitimate debt collection activities 

8 and consumer protection is sitting right or out 

9 of whack. 

10 Moving forward, the issue with data 

11 integrity in debt collection is on the forefront 

12 of both agencies’ agendas. And the discussion 

13 here was incredibly valuable as we develop 

14 solutions to the issues which may range from 

15 stepped up enforcement of existing statutes, to 

16 the use of technology to improve data 

17 availability and accuracy, to enactment by more 

18 states of rigorous court rules, and of course 

19 rulemaking by the CFPB. 

20 So we're hardly done. We're right 

21 in the middle of a continuing process of 

22 improvement. And there's going to be a lot more 
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1 on this. 

2 In closing, I'd like to thank the 

3 team that put today's roundtable together. It 

4 does take a lot of people to put a roundtable like 

5 this together. 

6 The planning team at the CFPB is 

7 Corey Stone, John Tonetti, Nate Viebrock, Heidi 

8 Johnson, Kristin McPartland and Tom Pahl. At 

9 the FTC, it's Dan Dwyer, Tom Kane, Chris Koegel 

10 and Tiffany George. And our friends in Consumer 

11 and Business Ed and other offices who made the 

12 event run smoothly include Carrie Gelula, 

13 Samantha Konstandt, Gail Kingsland, Lara Busby, 

14 Wayne Abramovich, Cheryl Hackley, Bruce 

15 Jennings, Kenethia Felder, Amanda Savitt, 

16 Monica Naranjo Correa and a number of great law 

17 clerks. So thank you so much for participating 

18 today. 

19 (Applause) 

20 (Whereupon, the foregoing matter 

21 went off the record at 5:14 p.m.)