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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
I ≠
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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/