FTC recommends changes to the FDCPA
Recently, the Federal Trade Commission issued a report recommending changes to the Fair Debt Collection Practices Act. The FTC’s primary conclusions are:
Major problems exist in the flow of information within the debt collection system.
The FTC ’s first main concern is the lack of information debt collectors have about the debt when they seek payment from consumers. As a former debt collection attorney, I agree with this conclusion wholeheartedly. For the majority of accounts, all the debt collector receives from the creditor is the alleged debtor’s name, address, phone number, social security number, outstanding balance, and interest rate. Often the contact information is several years old. With this sparse information, its difficult for the debt collector, assuming they were so inclined, to verify they are collecting the correct amount from the proper person. This lack of information also creates a problem when the consumer requests verification under the FDCPA. Currently, many debt collectors are simply verifying that the amount in their file matches the amount in the creditor’s file without actually verifying that the amount itself is correct or that they are seeking payment from the right person. To remedy these problems, the FTC recommends that debt collectors provide the name of the original creditor and an itemization of the principal, interest, and other fees that make up the outstanding balance in their validation communications. To me, this is a no-brainer. The FTC also recommends that debt collectors be required to conduct a “reasonable” investigation when the consumer disputes the debt. This is a good suggestion, but “reasonable” needs to be defined.
The FTC’s second main concern is the lack of notice that debt collectors are required to provide to consumers about their rights under the FDCPA. Specifically, the FTC recommends notifying consumers that if they dispute the debt or request validation, then the debt collector must cease all collection efforts until they validate the debt. The FTC also recommends that consumers be notified that if they notify the debt collector to stop contacting them, the debt collector must honor this request. These are already requirements under the FDCPA, but because debt collectors are not required to notify consumers of these rights, few consumers know about them.
Debt collection laws need to be modernized to account for changes in technology.
The FTC points to three technological trends that require updates to the FDCPA: (1) the widespread use of cellular phones; (2) the ease of recording collection calls; and (3) the use of electronic payment methods. The FTC recommends amending the FDCPA to prohibit debt collectors from calling or text messaging a consumer without their express consent, changing federal preemption laws to allow consumers to record calls with debt collectors without the debt collectors knowledge or consent, and changing the FDCPA to require the consumer’s express consent before the debt collector can access the consumer’s bank account electronically. From the consumer’s perspective, these are good suggestions, particularly the possibility of recording calls without the collector’s consent. In many states, including Minnesota, both parties are required to consent before a call can be recorded. Because many debt collectors will not consent to the consumer recording the call, consumers have a difficult time proving abusive conduct that occurs over the phone. Allowing consumers to record collection calls should help deter abusive conduct and lead to a more efficient resolution of FDCPA claims of abuse.
Certain debt collection litigation and arbitration practices appear to raise substantial consumer protection concerns.
While the FTC recognized the problems with some debt collection litigation and arbitration, it refused to recommend any changes to the FDCPA, citing a lack of sufficient information. This is disappointing. The problems with mandatory binding arbitration are well-documented and the FTC’s failure to recommend changes will lead to continued abuses of the judicial and arbitration systems by debt collectors.
The amount of statutory damages allowed under the FDCPA needs to be increased.
The FTC recognizes that the amount of statutory damages under the FDCPA has not been changed since the FDCPA was enacted in 1977. Currently, the FDCPA allows for statutory damages of $1,000 for violations of the FDCPA. The Commission recommends increasing this amount to adjust for inflation and to provide a more effective deterrent for debt collectors. This would be a very beneficial change for consumers. Too many debt collectors view the $1,000 penalty as merely the cost of doing business. Accordingly, the prospect of having to pay $1,000 in damages rarely results in changes to their collection practices. Higher statutory damages would provide a stronger deterrent for abusive behavior.
If you live in Minnesota and believe a debt collector has violated your rights under the FDCPA, please contact me.