FTC to Help Consumers Report and Recover from Identity Theft

On January 28th, the Federal Trade Commission (“FTC”) updated identitytheft.com with personalized information and tools for consumers to report and recover from identity theft. This change comes after consumers submitted 47% more identity fraud complaints to the FTC in 2015 than in 2014.  As a result, the FTC has made a form letter available for victims to better communicate with debt collectors about debts incurred due to theft. Additionally, the FTC has recommended victims contact credit bureaus to block information on their credit reports in regards to any fraudulent debts. For more information about the FTC’s new identity theft tools, please contact Joseph Messer at 312-334-3440 or at jmesser@messerstrickler.com.

When a Creditor is a “Debt Collector” Under the FDCPA


The Federal Trade Commission (“FTC”) recently released a statement that the meaning of “debt collector” may be more expansive under the Fair Debt Collection Practices Act (“FDCPA”) than previously thought. A “debt collector” is defined under the FDCPA as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” §803(6). With this definition, it has long been assumed that creditors who collect their own debts are not covered by the FDCPA. However, Section 803(6) goes on to say “the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts.”

The FTC has asserted FDCPA claims against companies using other names to collect their own debts, characterizing them as “debt collectors” under the FDCPA. The FTC has issued a warning toremind creditors that the FDCPA can in fact apply to creditors who collect on their own behalf. Creditors should regularly review their policies to ensure their practices and procedures follow all applicable laws and regulations.

View the FTC’s Original Post Here

To learn more about the FTC’s warning and how to avoid FDCPA violations please contact Joseph Messer at 312-334-3440 or jmesser@messerstrickler.com.

FTC Puts Texas-Based Debt Collector Out of Business

Accordingly to a recent Federal Trade Commission press release (“FTC”), a Houston-based debt collection company, Goldman Schwartz, Inc., used insults, lies, and false threats of imprisonment to collect on payday loans, which in some cases it owned and in others, it acted as a third-party debt collector.  Under the FTC settlement announced last week, the company’s owner will surrender his assets, approximately $550,000, to pay restitution to consumers who were charged unauthorized fees, often in the hundreds of dollars.  Also under the settlement, all defendants, including the company owner, two company managers, and several corporate entities, will be permanently banned from debt collection and prohibited from misrepresenting the characteristics of any financial product or service.  

The FTC had charged Goldman Schwartz, Inc. with multiple violations of both the FTC Act and the Fair Debt Collection Practices Act (“FDCPA”).  According to the Complaint, the FTC charged Goldman Schwartz, Inc. with, among other things: making false threats that consumers would be arrested, falsely claiming to be attorneys and/or working with the local sheriff’s office, disclosing debts to consumers’ employers, collecting bogus late fees and attorneys’ fees, using obscene language and calling at odd hours of the day, failing to inform consumers of their right to dispute the debts or have the debts verified, and failing to obtain the names of the original creditors.  In 2013, at the request of the FTC, a U.S. district court shut down Goldman Schwartz, Inc. and froze its assets pending the outcome of the litigation. 

The remainder of the $1.4 million judgment entered against the owner of Goldman Schwartz, Inc. by agreement is suspended based on the owner’s inability to pay, as is the judgment against the company’s managers.  However, if it is later determined that the financial information provided to the FTC by the defendants is false, the full amount of the judgment will become due. 

The recent settlement demonstrates the FTC’s continued efforts to crackdown on scams that target consumers in financial distress.  For more information on the settlement or fair debt collection statutes generally, contact Katherine Olson of Messer Strickler, Ltd. at 312-334-3444 or kolson@messerstrickler.com.

Credit Reporting Agencies May Be Affected by SECURE Act Amendments to FCRA

Earlier this month, U.S. Senators Sherrod Brown (D-OH) and Brian Schatz (D-HI) held a news conference where they discussed their proposed legislation intended to protect consumers from inaccurate credit reports and credit scores.  The Senators’ legislation, Stop Errors in Credit Use and Reporting (SECURE) Act of 2014, will be introduced after Consumers Union releases a new report addressing credit report errors that affect 40 million of U.S. citizens. 

Under the Fair Credit Reporting Act (“FCRA”) (15 U.S.C. 1681 et seq.), credit reporting agencies (“CRAs”) are required to “Follow reasonable procedures to assure maximum possible accuracy” of information contained in credit reports.  Senators Brown and Schatz contend that many reports still contain many errors that can be prevented.  In fact, in a 2013 report the Federal Trade Commission (“FTC”) found that one in five consumers has an error on at least one of their credit reports.  Those errors were significant enough to impact the credit scores of half of those consumers.

Senator Schatz commented on the legislation: “Errors in a credit report can make the difference between whether someone can live the American Dream and buy a home or even get a job…  Our legislation will make credit reports more accurate, help people to correct any mistakes, give federal agencies more tools to enforce the law, and hold reporting agencies and data furnisher accountable for their mistakes.”

The SECURE Act proposes changes for credit reporting agencies intended to:

1)      Make credit reports more accurate from the beginning;

2)      Ensure that consumers are heard when they dispute information in their credit report;

3)      Provide consumers with a free, meaningful credit score once a year;

4)      Require CRAs and data furnishers to conduct meaningful investigations when consumers file disputes;

5)      Provide additional tools to agencies to adequately regulate and supervise creditreporting agencies; and

6)      Give consumers better legal tools to enforce their rights under the FCRA.

The SECURE Act would provide increased requirements on CRAs and data furnishers:

-          Requires CRAs to pass along documentation sent by consumers to data furnishers and requires data furnishers to consumer the documentation in their re-investigation;

-          Prevents CRAs from ignoring new or additional information provided by a consumer that is relevant to an on-going dispute;

-          Requires CRAs to gather report information on disputesand their resolution;

-          Directs the Consumer Financial Protection Bureau (“CFPB”) to establish minimum procedures that a CRA must follow to ensure maximum possible accuracy of consumer reports.

Among the amendments to the FCRA is section 612, where, among other changes, subsection (b) will be stricken and the following will be inserted:

(b)Free Disclosure After Notice of Adverse Action or Offer of Credit on Materially Less Favorable Terms.—

“(1) In general.—Not later than 14 days after the date on which a consumer reporting agency received a notification under subsection (a)(2) or (h)(6) or section 615, or from a debt collection agency affiliated with the consumer reporting agency, the consumer reporting agency shall make, without charge to the consumer, all disclosures required in accordance with the rules prescribed by the Bureau under section 609(h).

The SECURE Act is also intended to provide:

More disclosures to consumers:

1)      Provides consumers with access to meaningful credit scores free of charge annually; and

2)      Ensures that consumers get the information they need to understand their credit reports by enabling consumers to identify and correct errors on their report, understand how their credit report is being used and by whom, and see the same information that is used by lenders to deny a consumer credit or increase interest rates.

Legal redress:

1)      Holds CRAs accountable to the FTC for negligent violations of the FCRA; and

2)      Provides for injunctive relief as a remedy for consumers who sue CRAs under the FCRA.

Regulatory reforms:

1)      Creates a national registry of CRAs to provide consumers with opportunity to know which companies are collecting and disseminating information about them; and

2)      Directs the Government Accountability Office to conduct a study of existing public credit reporting systems and evaluate the feasibility, costs and benefits of creating a national credit reporting system in the U.S.

For more questions regarding the SECURE Act and the FCRA in general, you may contact Joseph Messer at (312) 334-3440, or at jmesser@messerstrickler.com.

$23 Million Judgment Against Owners of Debt Collection Agency

On March 26, 2014, the United States District Court for the Central District of California entered a Final Order for Permanent Injunction and Monetary Judgment in Federal Trade Commission v. Rincon Management Services, LLC et al. pursuant to a stipulation between the Federal Trade Commission (“FTC”) and the two principal owners of Rincon Management Services, LLC (“Rincon”), a California-based collection agency.  The Final Order entered judgment in the amount of $23,084,885 against the two principal owners as equitable monetary relief.   Furthermore, the Final Order permanently enjoined the two principal owners from engaging in debt collection activities; assisting others engaged in debt collection activities; misrepresenting or assisting others in misrepresenting any material fact concerning financial-related products and services; and advertising, marketing, promoting, offering for sale, selling, or assisting others engaged in the advertising, marketing, promoting, offering for sale, or selling, of any portfolio of consumer or commercial debt and any program that gathers, organizes, or stores consumer information relating to a debt or debt collection activities.  All money paid to the FTC pursuant to the Judgment is required to be used for equitable relief, including consumer redress. 

In October 2011, the FTC filed a complaint for permanent injunction and other equitable relief against Rincon and other companies associated with Rincon.  The complaint alleged that defendants violated the Federal Trade Commission Act (“FTCA”) and the Fair Debt Collection Practices Act (“FDCPA”) by making bogus threats that consumers had been sued or could be arrested.  The Complaint also alleged that the defendants violated the FTCA and FDCPA by calling consumers and their employers, family, friends, and neighbors, posing as process servers seeking to deliver legal papers purportedly related to a lawsuit.  In most of the instances, the consumers did not even owe the debt the defendants were attempting to collect.  As Jessica Rich, the director of the FTC’s Bureau of Consumer Protection, commented: “These debt collectors focused on Spanish-speaking consumers and other people who were strapped for cash, and preyed on them by using abusive collection tactics in violation of federal law.”

As maintained in a recent FTC Press Release, the $23 million judgment will be suspended due to the defendants’ inability to pay.  However, certain personal assets defendants agreed to surrender and the $3 million in frozen funds held by the receiver as part of the FTC’s 2011 temporary restraining order will be exempt from the suspension.

The recent Judgment demonstrates the FTC’s commitment to suppressing illegal debt collection practices.  Notably, litigation still continues against several companies that were involved in Rincon’s illegal debt collection actions.

For more information on this lawsuit or on debt collection and fair debt collection statutes contact Joseph Messer at jmesser@messerstrickler.com or Katherine Olson at kolson@messerstrickler.com.  

Time-Barred Debt Collection Can Violate FDCPA According to Joint CFPB-FTC Brief

On March 7th, 2014, the Consumer Financial Protection Bureau (“CFPB”) and Federal Trade Commission (“FTC”) filed a joint amicus brief with the Sixth Court of Appeals arguing that a settlement offer on an out-of-state account can mislead a consumer thus violating the Fair Debt Collection Practices Act (“FDCPA”).  The brief was filed in a class action case Buchanan v. Northland Group, which has been dismissed by a district court and is currently on appeal to the Sixth Circuit Court.

In Buchanan, the debt collector sent plaintiff a dunning letter that offered Buchanan an opportunity to settle the debt which was beyond the statute of limitations.  Plaintiff filed a class-action complaint accusing Northland Group of violating the FDCPA by using “any false, deceptive, or misleading representation or means in connection with the collection of any debt” in its letter.  The Western District of Michigan ruled that, the letter could not have violated the FDCPA as a matter of law, and dismissed the claim.

In their brief, the CFPB and FTC contend that court’s decision should be reversed because the statements in their dunning letter to the consumer could “deceive or mislead ‘the least sophisticated consumer’ whom the FDCPA was enacted to protect”.  More specifically, Buchanan could be misled into believing that she could be sued for the debt by the wording of a dunning letter which stated that her balance would continue to accrue interest.   The letter also included a warning that the company was not under obligation to renew their settlement offer.  The CFPB and FTC also bring to attention of the court that the dunning letter did not inform the consumer that the statute of limitation on the debt addressed in the letter had expired, arguing that “omissions may also deceive” the consumer. 

The CFPB and FTC filed a similar joint brief in 2013 in Delgado v. Capital Management Services, LP, et al.  In Delgado, the argument is also concerning a settlement offer on a time-barred debt made in a dunning letter.  On March 11, 2014, the Seventh Circuit sided with the CFPB and FTC when it found the defendant-debt collector’s dunning letter potentially misleading.  Specifically, the Seventh state at the record showed that the dunning letter did not inform the plaintiff that debt was subject to statute of limitations defense, and plaintiff alleged that defendant’s use of offer to “settle” the debt gave her impression that underlying debt was legally enforceable. 

Briefs filed in Buchanan and Delgado show that both the CFPB and FTC are concerned about the communications with consumers regarding time-barred debt.  The CFPB also discusses questions concerning time-barred debt in Part IV of its Advanced Notice of Proposed Rulemaking (“ANPR”).  The CFPB expresses its interest in comments about the needs for rules related to collection of time-barred debt.  The CFPB states that “there are no requirements set forth in the FDCPA or the Dodd-Frank Act regarding time-barred debts” and considers creating uniform notices that would be used by collectors to inform consumers regarding their rights in respect to time-barred debt.

We will keep you inform of future developments in this contentious area of the law.  If you have questions regarding these cases or issues regarding the collection of time barred debtsfeel free to  contact Joseph Messer at (312) 334-3440 or at jmesser@messerstrickler.com.

Another $3.5 Million Penalty for FCRA Violations

In early 2014, the Federal Trade Commission (“FTC”) brought a complaint against one of the largest check authorization service companies in the nation, TeleCheck Services, Inc. (“TeleCheck”), and its associated debt collection entity for FCRA violations.  TeleCheck and the collection agency agreed to pay $3.5 million to settle the case.

TeleCheck is a Texas consumer reporting agency (“CRA”) that compiles consumers’ personal information and supplies it to U.S. retail merchants to aid them in their determination of whether to accept consumers’ checks.  Under the FCRA, consumers have the right to dispute the information TeleCheck provides to the merchants and have TeleCheck investigate and correct any inaccuracies if their checks were denied based on the information provided by TeleCheck.

The FTC alleged in its complaint that TeleCheck failed to follow reasonable procedures to assure maximum accuracy of the information it provided to its merchant clients and failed to timely correct mistakes in consumers’ reports.  The FTC also alleged that TeleCheck did not follow proper dispute procedures and even refused to investigate disputes. 

The complaint also included allegations against the associated collection agency, which provided information about consumers to TeleCheck.  The FTC alleged that the collection agency violated the requirements of the FTC’s Furnisher Rule, which requires entities supplying information to CRAs to ensure the accuracy of the information provided. 

TeleCheck and the associated collection agency stipulated to change their business practices going forward to comply with the FCRA requirements and the Furnisher Rule.  The stipulated payment of $3.5 million is one of the largest ever resulting from an FTC filed FCRA complaint.  Another check authorization company, Certegy Check Services, Inc., was charged with a $3.5 million fine for similar allegations earlier this year.  These cases are a part of FTC’s initiative to target practices of data brokers which help companies make decisions about consumers, such as their ability to pay for essential goods and services by check.  As Jessica Rich, the Director of FTC’s Bureau of Consumer protection commented: “If CRAs like TeleCheck provide merchants with inaccurate information, those merchants may wrongly deny consumers the ability to buy even the most essential items, like food and medicine.”

For more information about these cases or FCRA policies and regulations, please contact Joseph Messer at jmesser@messerstrickler.com or (312) 334-3440.

Debt Collection Complaints Analyzed in CFPB Report

On March 20, 2014, the Consumer Financial Protection Bureau (“CFPB”) issued a report analyzing the consumer complaints it received concerning debt collection.  The CFPB started accepting and compiling consumer complaints on debt collection in its consumer response system in July 2013.  The report analyzed over 30,000 complaints received between July and December 2013 in addition to complaints submitted directly to the Federal Trade Commission (FTC).

The report shows that the three top complaints are as follows:

  1. Collectors’ repeated attempts to collect a debt not owed (34% of Complaints).  The vast majority of consumers reported that collection agencies are attempting to collect a debt from them that either does not belong to them or has been paid.  Others complained that the debt sought to be collected was the result of identity theft or discharged in bankruptcy.
  2. Improper communication tactics used by debt collectors (23% of Complaints).  Many of these complaints described improper telephone calls, such as frequent and repeated calls, calls to third parties or employers, and the use of abusive or profane language.
  3. Taking/threatening an illegal action (14% of Complaints).  These complaints mainly consisted of threats of arrest and threats of jail time, threats to sue on time-barred debt, seizures or attempts to seize property, and attempts to collect exempt funds such as unemployment benefits.

The remainder of the complaints concerned false statements of representation (13%), disclosures about and verification of a debt (9%), and improper contacts or sharing of information (8%).

The CFPB sent approximately 36% of the debt collection complaints to companies for their review and response and referred 35% of complaints to other regulatory agencies.  Of the companies that received complaints directly from the CFPB, about 82% have responded. In closing, the CFPB renewed its pledge to continue to develop the complaints process this year and actively protect consumers from the “unfair, deceptive, abusive, and other unlawful conduct of some debt collectors.”  For more information, contact Nicole M. Strickler at 312-334-3442 or nstrickler@messerstrickler.com.

Making Sure Debt Collectors Have the Correct Person, Debt, and Documentation among CFPB’s Chief Concerns

Nearly a year ago, the Federal Trade Commission (FTC) completed a lengthy investigation into debt-buyers. Some of the more interesting findings of the study include the following: • Debt buyers only pay about $0.04 per dollar on the accounts they purchase; • Debt buyers are not being told by the seller if the debt has been challenged; • Debt buyers are rarely given a breakdown of principal, interest, and fees; • Debt buyers are rarely provided supporting documents by the sellers. Moreover, sellers generally disclaim all representations and warranties with regard to the accuracy of the information provided; • At least 500,000 disputed debts go unverified each year.

It is no surprise then that among the Consumer Financial Protection Bureau’s (CFPB) chief concerns is making sure debt collectors have the correct person, debt, and documentation. In its recent notice of proposed rulemaking, the CFPB noted: “It is widely recognized that problems with the flow of information in the debt collection system is a significant consumer protection concern.” As explained in the FTC study, often when a debt is sold for pennies on the dollar, the sale doesn’t include a lot of information about the debtor or his debt. In fact, the documentation might include nothing more than the person’s name, last known address, social security number, and amount of debt. Even ACA International, a trade group for the consumer debt collection industry, believes some updating of the collection laws is in order, stating: “Current federal debt collection laws are woefully outdated when it comes to areas such as communication, documentation, verification, and statutes of limitation.”

To combat the issue, the CFPB is currently considering rules for the debt collection market. Ultimately, it appears, the CFPB is looking to require specific and standardized proof as part of the sale of debt. But before it writes any new regulations or strengthens current legislation, the agency wants the public to weigh in. The first set of questions contained in the agency’s 114-page rulemaking proposal, seems to get to the heart of the issue for consumers, which is: what information is transferred during the sale of debt or the placement of debt with a third-party collector?

Consumers can submit comments at Regulations.gov. Consumers may also learn about the issues and submit comments at RegulationRoom.org, which is run by the students and staff at Cornell Law School. The CFPB is working with Cornell Law School to make it simpler for people to learn about the rulemaking proposal and submit comments. Comments submitted to RegulationRoom.org will be summarized and submitted to the CFPB at the end of the official public comment period.

For more information about the CFPB’s rulemaking proposal, please contact Katherine Olson at 312-334-3444 or kolson@messerstrickler.com.

FTC’s Guidance on Text Messaging for Debt Collectors

Recently, we highlighted a case in which a debt collector, whose text messages violated federal law (FDCPA, 15 U.S.C. 1692 et seq), agreed to settle Federal Trade Commission (FTC) charges. Even though the order is binding only on the defendant, it offers insight into the FTC’s expectations on the use of text messaging in debt collection.  Below is a summary of these expectations:

  1. Text messages must comply with the requirements of the FDCPA as they are considered communications under the FDCPA.
  2. Text messages and their disclosures must be legible on a consumer’s phone.
  3. The required disclosures should be displayed “clearly and prominently”, which means they must be presented in an understandable language; contain no contradictory language; their location, size and type must be noticeable for an ordinary consumer to read; and their print must be in contrast with the background on which it appears.
  4. Debt collectors must obtain “express consent” from the consumer prior to sending text messages, in which it must be clearly and prominently stated that the consumer may receive collection text messages in connection with the transaction which is the subject of the text message.  Consent must be obtained by the consumer’s signature or electronic signature.
  5. Text messages must disclose that they are being sent from debt collectors.
  6. The initial text message must disclose that the defendants are trying to collect a debt and that any information will be used for that purpose.

The FTC is very clear in its expectations on the use and content of text messaging in debt collection and even though the order is not binding on the whole industry, it is logical that these expectations will also apply to future charges brought by the FTC.

The FTC’s First Text Messaging Case- $1 Million Settlement!

On September 25th, the Federal Trade Commission (“FTC”) advised that a debt collector agreed to pay a $1 million civil penalty to settle FTC allegations that collectors communicated improperly through the use of text messages. This is the first action that the FTC has brought against a debt collector who attempted to collect debts in an unlawful manner by using text messages among other means. The FTC alleged that Archie Donovan, as well as National Attorney Collection Services, Inc., and National Attorney Services LLC- the towing companies Donovan controls- committed various violations of the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq (“FDCPA”). Specifically, the FTC argued that the collectors illegally contacted consumers using text messages and phone calls by failing to disclose that their status as debt collectors in violation of §1692(e)(11). Another interesting allegation by the FTC was the use of a certain stamp by Donovan and his companies. They purportedly used mailing envelopes that picture a large arm holding a consumer upside down by his legs and shaking money from him.  The FTC asserted that this violated §1692(f)(a), which prohibits the use of “any language or symbol, other than the debt collector’s address, on [an] envelope” communicated to a consumer as it disclosed the senders status as a debt collector to the public.

In addition to the $1 million in civil penalties, the settlement terms provide that the collectors are barred from communicating with consumers without disclosing their identity as debt collectors, falsely claiming to be law firms, and threatening to seize consumer’s property or garnish their wages.  Further, Donovan and his companies agreed to obtain consumers’ consent before sending text messages in the future.

The FTC has addressed how debt collectors can use text messages to collect debts in a lawful manner while maintaining consumers’ privacy.  You can find this information in FTC’s workshop and report.

To see the complaint:


FTC & CFPB: Who Is to Enforce the FDCPA?

The Consumer Financial Protection Bureau (CFPB) was created in 2011 as a response to the financial crisis of 2007-2008 to regulate consumer protection in regard to financial services and products, thus enforcing the Fair Debt Collection Practices Act (FDCPA).   While the CFPB has become the new institution for the debt collection industry to be considerate of, it is important to remember that the Federal Trade Commission (FTC) is still actively enforcing the FDCPA with its regulations as well. Last year, the CFPB took over the responsibility of submitting the annual FDCPA report to Congress for the first time.  In anticipation of this report, the FTC sent a letter to the CFPB in February of 2013 outlining the FTC’s work for enforcing the FDCPA and concerning the debt collection industry.  In this letter, the FTC described several court actions it took against debt collectors who engaged in unfair or deceptive conduct stating that this is the highest number of cases that it had brought in a year.  The letter also mentions policy and educational initiations in regards to debt collection that the FTC is engaged in.

Also, in January of 2013, the FTC released an extensive 162-page report, “The Structure and Practices of the Debt Buying Industry”, which included an analysis of a large-scale amount of data about buying debt.  This data was gathered after 2009 and contained nearly 90 million consumer accounts.

Since the FTC and the CFPB share in part the jurisdiction of enforcing the FDCPA, both agencies signed a Memorandum of Understanding in 2011, “recognizing that effective cooperation is critical to protect consumers, prevent duplication of efforts, provide consistency and ensure a vibrant marketplace for Consumer Financial Products or Services”.   In March 2012, the CFPB also started sharing the complaints received by consumers with the online database of consumer complaints maintained by the FTC.

Therefore, the FTC and the CFPB are cooperating in the enforcement of the FDCPA and it is critical for the debt collection industry to monitor both of these organizations’ regulations.

Restrictions on Recorded Messages to Debtors

NCO Group, Inc. recently consented to judgment in a lawsuit brought by the Federal Trade Commission (“FTC”) pertaining to recorded messages to debtors.  Even though the Consent Decree does not constitute a legal requirement or regulation governing the activities of debt collectors not party to the action, Fair Debt Collection Practices Act (“FDCPA”)  claims may be brought in the future against collectors based on the Consent Decree’s requirements.  Therefore, under the most conservative approach to FDCPA compliance, a collector should attempt to comply with the requirements of the Consent Decree.  Below is a brief summary of the requirements contained in the consent decree: Collectors generally cannot disclose in a recorded message (e.g. voicemail, answering machine, message service):

  1. the first or last name of the debtor, and
  2. that they are a debt collector, are attempting to collect a debt, or that the debtor owes a debt.

Collectors may only leave such a message if:

  1. the recorded greeting on the messaging system discloses the person’s first and last name, and only that person’s first and last name, and that first and last name is the same as the person who allegedly owes the debt; or
  2. Defendants have already spoken with the person on at least one prior occasion using the telephone number associated with the messaging system, provided that the person has not explicitly prohibited the Collector from leaving recorded messages at that phone number.

Even though courts interpreting FDCPA requirements are not required to give deference to the FTC, they sometimes will.  For that reason it is advisable for credit collectors to follow the restrictions established by the FTC in the consent decree.

Class-Action Targets: Addition of Fees

It can be tempting to creditors to add interest, services fees and even collection costs to delinquent accounts.   However, the addition of these fees could generate unwanted legal attention if not done properly.  As a matter of fact, the largest number of consumer class action claims arise from the improper addition of fees to a debt during the collection process. In consumer collections, the addition of any interest, collection costs, services fees or other expenses incidental to the original debt is permitted when “such amount is expressly authorized by the agreement creating the debt or permitted by law.” 15 U.S.C.1692f (1) [§808(1)] (emphasis added).  Nonetheless, collection laws at the state level also speak to this issue.  Therefore, it is extremely important for both creditors and collection agencies to consider both state and federal law, not just when the accounts become delinquent, but also when drafting the contracts that create the debts.

In its Official Staff Commentary on the FDCPA, the Federal Trade Commission (FTC) explained that “a debt collector may attempt to collect a fee or charge in addition to the debt if either a) the charge is expressly provided for in the contract creating the debt and the charge is NOT prohibited by state law, or b) the contract is silent but the charge is otherwise expressly permitted by state law.  Conversely, a debt collector may not collect an additional amount if either a) state law expressly prohibits collection of the amount or b) the contract does not provide for collection of the amount and state law is silent.”

The FTC has also noted that even in those situations where a contract between a credit grantor and the consumer expressly permits the addition of a “high collection charge”, the amount of the charge could be considered unreasonable and thus, unenforceable.  It is likely that if a court is required to consider what “reasonable” charge is, it would examine the actual cost incurred by the collection agency or creditor to collect the debt.  Many times, the actual cost of collection is much lower than the collection fee charged by the agency.  Therefore, it is important that the contract creating the debt specifies the amount of the collection charge.

Laws and regulations on collection costs, interest, service fees or other expenses incidental to the original debt differ in every state.  There are several states where the laws or regulations are silent as to whether collection agencies may add interests, collection charges and fees, such as Alabama, Alaska, Florida, Indiana, Kentucky, Maryland, Montana, Ohio, and South Dakota.

Other states place unique restrictions on the collection of costs, interest and other fees.   For instance, the state of Colorado allows a consumer credit agreement to provide for the payment of reasonable attorneys fees, but caps the fees at a percentage of the unpaid debt. Virginia and Illinois actually allow the imposition of interest at a statutory rate on open-ended credit plans under certain circumstances.  Louisiana bars a creditor from contracting with a consumer to pay collection agency fees incurred to collect on the consumer’s debt.

With the vast differences in state laws and regulations, it is imperative that both creditors and the collection agencies check with qualified counsel regarding laws and regulations for the states in question.