FTC Proposes Significant Changes to FDCPA in Workshop Report

The Federal Trade Commission Thursday proposed a handful of changes to the Fair Debt Collection Practices Act (FDCPA) that could have a major impact on the accounts receivable management industry, including increasing damages for FDCPA suits, restricting collectors from calling mobile phones or texting, and laying out specific criteria for information in a debt validation notice.

In its long-awaited report from a debt collection workshop held in October 2007, the FTC said that “the nature of consumer debt has changed in numerous important ways since enactment of the FDCPA.” The Commission noted that the most significant change in the ARM industry is the growth in debt buying.

To bring the FDCPA current with changes in the industry, the FTC made a number of proposals for changes to the law that governs collector behavior:

• Debt collectors should provide better information to consumers in a debt validation notice, including: (1) the name of the original creditor; and (2) itemization of (a) the principal, (b) the total of all interest, and (c) the total of all fees and other charges making up the debt

• Require that debt collectors inform consumers in validation notices that (1) if they send a timely written dispute or request for verification, the debt collector must suspend collection efforts until it has provided the verification in writing; and (2) if they request in writing that the debt collector cease contacting them, the collector must comply.

• The statutory damages awarded under the FDCPA should be increased to account for inflation.

• The FTC should have regulatory authority under the FDCPA.

• The law should generally prohibit debt collectors from contacting consumers via cell phones. However, the Commission also concludes that debt collectors should be permitted to contact consumers on their cell phones if, among other things, they have obtained prior express consent to such contacts. The report also notes that “The FTC believes that debt collectors generally should be allowed to use all communication technologies, including new and emerging technologies, to contact consumers.”

Read the full FTC report at http://www.ftc.gov/bcp/workshops/debtcollection/dcwr.pdf.

The report is the result of comments and testimony provided in a two-day workshop held in Washington in October 2007 (“Mixed View of Industry by FTC Chief at Workshop,” Oct. 10, 2007 and “Collectors, Consumers Disconnect at FTC Workshop,” Oct. 11, 2007). The workshop was designed to get input from various parties on the direction of the debt collection industry and the FDCPA.

The FTC also noted that the information system used by debt collectors to obtain debtors’ contact information must be updated and improved, but offered no specific proposals.

Rozanne M. Andersen, executive vice president and general counsel at ACA International, an ARM industry trade group, agreed that information flow within the industry should be addressed. “Debt collectors and debt purchasers need to have better access to adequate information about the debts they are asked to collect or which they purchase so they can effectively respond to consumers who request information about their just debts,” she said in a statement.

The Commission also felt that some of the litigation and arbitration practices employed by the ARM industry were in need of change. But “because the workshop record does not contain adequate information for the FTC to determine the nature and extent of these concerns, the agency will convene regional roundtables this year with state court judges and officials, debt collectors, collection attorneys, consumer advocates, arbitration firms, and other interested stakeholders to obtain more information about these concerns and develop possible solutions.”

Although the FTC recommended that statutory damages under the FDCPA be updated to reflect inflation, it did not offer a suggested amount. The report did note that the $1,000 cap put on violations in 1977 would be about $3,600 in 2008 dollars. The FTC said that it still believes the FDCPA is best enforced by private suits and class actions, a central rationale for increasing damages.

But the FTC also noted that it has increased its own enforcement actions, with four major actions in 2008 and three in 2007, and that it will “continue an aggressive law enforcement program that will increase compliance with the law.”

In addition to specific requirements on information shared in validation notices, the FTC proposed a new rule stating that “if a consumer disputes a debt, the debt collector must undertake a ‘reasonable’ investigation that is responsive to the specific dispute the consumer has raised.”

“In more than 30 years since the FDCPA was adopted, the law has changed very little, while consumers’ use of credit and the environment in which the credit and collection industry operates have changed substantially,” said Gary D. Rippentrop, ACA International’s chief executive officer, in a statement. “We’re pleased to see the FTC incorporated numerous comments and testimony from ACA members and staff into their report and recognizes the need to address technological advancements in the collection industry for the benefit of consumers and the industry.”