Federal Trade Commission FTC Statement on Collection of Decedents’

Debts & Debt Settlement Rule

By Colin Hector, FTC, Bureau of Consumer Protection,

Division of Financial Practices (Staff Attorney)

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Disclaimer

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FTC Authority

• Enforcement

– Section 5 of the FTC Act

(unfair/deceptive practices)

– Fair Debt Collection Practices Act (FDCPA)

• Rulemaking

– No FDCPA rulemaking

• Consulting Role w/ CFPB

– APA under Telemarking Sales Rules (TSR)

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FTC Debt Collection Program

1. Enforcement

2. Business & Consumer Education

3. Research & Policy Initiatives

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• Enforcement Actions: ~10 since Jan. 1, 2012

– 13(b) actions, often seeking ex parte TRO, asset freeze, receivership, etc.

• FTC v. Asset & Capital Management

• Phantom Debt Collection Cases (American Credit Crunchers; Broadway Global; Pro Credit Group)

– Civil penalty actions, referred to DOJ • FTC v. Expert Global Solutions

• FTC v. Asset Acceptance

FTC Debt Collection Program

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FTC Debt Collection Program

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Enforcement Policy Statement

• The Problem: Tension Between the FDCPA and evolving

state probate procedures

Section 805: Communication in connection with debt collection

(d) “Consumer” defined

For the purpose of this section, the term “consumer”

includes the consumer’s spouse, parent (if the

consumer is a minor), guardian, executor, or

administrator.

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Enforcement Policy Statement

• Describes FTC’s future enforcement plans, goals,

and objectives.

1. With whom a debt collector may lawfully discuss a

decedent’s debt

2. How a debt collector may locate the appropriate person

with whom to discuss the debt

3. How a debt collector can avoid misleading consumers

about their personal obligation to pay the debt

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1. With whom a debt collector may lawfully

discuss a decedent’s debt

– Individual who has the authority to pay a decedent’s debts

out of the estate’s assets. The title of this individual may

vary by state (e.g. “personal representative” or “universal

representative”).

– Attempts to balance substantive protections of the FDCPA

with desire to avoid imposing unnecessary costs by forcing

many estates into the probate process.

Enforcement Policy Statement

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2. How a debt collector may locate the appropriate

person with whom to discuss the debt

– Location Contacts: may refer generally to outstanding bills but may not include details about specific debts.

– Location Questions: Cautions against problematic leading questions, e.g. whether person contacted is “handling decedent’s final affairs.”

– Time/Place: No set cooling-off period; but must adhere to 805

Enforcement Policy Statement

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3. How a debt collector can avoid misleading consumers about their personal obligation to pay

the debt

– Disclosure: (1) that the collector is seeking payment from the assets in the decedent’s estate; and (2) the individual could not be required to use the individual’s assets or assets the individual owned jointly with the decedent to pay the decedent’s debts.

– Avoid Misleading Questions: Cautions against questions regarding assets that may give the impression that there is a legal obligation for an individual to pay debts out of exempt assets or out of personal assets.

Enforcement Policy Statement

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Debt Relief Rule

• Background:

– IRS scrutiny 2003/2004

– GAO Report (Apr. 2010)

– Some state regulation

• Evading oversight by not “touching the money”

– FTC Enforcement/ 2008 Workshop

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Debt Relief Rule

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Debt Relief Rule

Findings

– Large fees: upfront; monthly maintenance; admin.

• Frequently undisclosed

• Amounting to hundreds or thousands of dollars, often making

the ultimate payout more than the consumer originally owed

– Misrepresentations about where $ is going

– Misrepresentations about results

• In reality, very low completion/success rates

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Debt Settlement Rule

Scope

All for-profit companies that sell debt relief services over the phone

– Debt Relief: includes credit counseling (including ostensibly nonprofit entities), debt settlement, and debt negotiation

– Limited to unsecured debt (MARS covers mortgages)

– Includes inbound calls (by rule)

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Requirements:

i. Prohibits advance fees

ii. Requires certain disclosures

iii. Prohibits specified misrepresentations

Debt Settlement Rule

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Debt Settlement Rule

i. Prohibits advance fees

– No fee until debt has been altered by agreement and

first payment is made

– Proportionality requirement to ensure that large fees

do not attach when one small debt is altered while

much larger debt amount remains

– Can require consumers to set aside funds in

dedicated bank account; but must be independent

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Debt Settlement Rule

ii. Requires certain disclosures

– The amount of time necessary to achieve the represented results

– The amount of savings needed before the settlement of a debt

– Potential consequences of failing to make timely payments to creditors

– Consumer owns funds placed in dedicated account and may withdraw money without penalty

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Debt Settlement Rule

iii. Prohibits specified misrepresentations, including

misrepresentations related to:

– Savings claims

– Money & time needed before provider attempts

to alter debt

– Percentage or # of customers who attain

represented results

– Effect of the service on customer’s creditworthiness

– Whether service is provided by nonprofit

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Resources

• FTC Final Policy Statement on Decedent Debt:

http://www.ftc.gov/opa/2011/07/fdcpa.shtm

• Debt Relief Rule:

http://www.ftc.gov/opa/2010/07/tsr.shtm

• FTC Business Center: http://business.ftc.gov/