THE FAIR DEBT COLLECTION PRACTICES ACT
at the
FEDERAL TRADE COMMISSION

"A Creditor is worse than a master;
for a master owns only your
person, a creditor owns
your dignity, and
can belabour
that"(1)

MARY L. AZCUENAGA

COMMISSIONER
FEDERAL TRADE COMMISSION

before the

CALIFORNIA ASSOCIATION OF COLLECTORS
The Universal Sheraton Hotel
Universal City, California

May 17, 1994

Remarks Before
the
California Association of Collectors

May 17, 1994

I am delighted to be here today to discuss the Fair Debt Collection Practices Act and the FTC's program to enforce this important statute. Let me begin by offering a disclaimer: the views I express today are my own and not necessarily those of the Commission or any other commissioner.

I would like to give you an overview of the Fair Debt Collection Practices Act and to do that I plan to cover four areas: First, I will briefly give a background of the law; second, I will address separately the legal responsibilities of debt collectors, attorney collectors, and creditors under the law; third, I will attempt to provide you with an overview of enforcement and other activities recently conducted by the Commission to remedy debt collection practices that violate the Act; and finally, I will report on several recommended legislative amendments that the Commission has proposed to Congress to improve the effectiveness of the Act.

I. BACKGROUND

A. The Statute

The FDCPA prohibits abusive, deceptive and unfair debt collection practices, and it imposes certain affirmative duties on debt collectors. Congress enacted the FDCPA in response to what it saw as an increasing incidence of consumer abuse by debt collectors. This abuse included practices that appeared designed to inflict severe emotional distress and otherwise to injure consumers by invading their privacy, damaging their reputations and intimidating them into taking actions they might not have been obligated to take. Frequently reported tactics included:

• Sending purported debtors phony legal documents threatening court action to force payment;
• Harassing debtors at home and at work with multiple calls in short periods of time;
• Impersonating attorneys, policemen and other authority figures; and
• Threatening bodily harm or even death to either the purported debtor or his or her family.

Congress concluded that such "collection abuses by independent debt collectors are serious and widespread and that existing State laws are inadequate to curb these abuses," and it declared that the purpose of the Act was "to eliminate abusive practices, not disadvantage ethical debt collectors . . . ." FDCPA § 802.

In passing the legislation, Congress rejected the contention of some that the primary beneficiary of debt collection legislation would be "deadbeats," finding only a very small percentage of people who willfully refuse to pay just debts. The Committee Report stated:

One of the most frequent fallacies concerning debt collection legislation is the contention that the primary beneficiaries are 'deadbeats.' In fact, however, there is universal agreement among scholars, law enforcement officials, and even debt collectors that the number of persons who willfully refuse to pay just debts is minuscule.

[This] is echoed in all major studies: the vast majority of consumers who obtain credit fully intend to repay their debts. When default occurs, it is nearly always due to an unforeseen event such as unemployment, overextension, serious illness, or marital difficulties or divorce.

Senate Committee on Banking, Housing and Urban Affairs, S. Rep. No. 95-382, 95th Cong., 1st Sess. 3 (1977).

In light of some of the conduct engaged in by apparently small segments of the collection industry toward relatively "innocent" consumers, it is easy to understand the continuing need for the FDCPA and the protections it provides to consumers.

The FDCPA provides that consumers may sue debt collectors in state or federal court for violations, in addition to providing for enforcement by a number of federal agencies, primarily the Commission. Nothing in the FDCPA, however, prohibits debt collectors from assisting creditors in the legal collection of debts due to them by consumers. Many members of the debt collection industry supported the passage of the Act and have voluntarily conformed their practices to its requirements since its enactment.

B. Consumer Complaints

As I mentioned earlier, problems with debt collection are often featured in complaints received by the Commission. Consumer complaints greatly assist the Commission in its FDCPA enforcement program by helping our staff focus very limited resources on areas that appear the most in need of action. As the Commission reported to Congress in testimony last year in oversight hearings on the FDCPA held by the Subcommittee on Consumer Affairs and Coinage of the House Banking, Finance, and Urban Affairs Committee, consumer complaints to the Commission increased significantly in 1992 over prior years, although the volume is still far below what we received prior to enactment of the FDCPA.

To the extent that consumer complaints allege violations of the Act, they fall primarily into the categories of disclosure of the debt to unauthorized third parties, improper telephone collection techniques, misrepresentation of the consequences of nonpayment and failure to respond to consumer requests for verification of alleged debts. Of course, not all complaints to the Commission about collection problems reveal law violations. In some cases, for example, consumers may complain of lawful conduct that, nonetheless, may be annoying or upsetting. One complaint of this kind that comes in with some frequency is that debt collectors do not accept partial payments even though the original creditor might have accepted them. Others complain that debt collectors are rude on the telephone, and still others complain of acts by creditors who are collecting their own debts rather than using the services of a debt collector, and who, therefore, are exempt from the Act. While these alleged practices may frustrate and upset some consumers, they generally do not violate the Act.

Of course, not all consumers who have a quarrel with abusive tactics of debt collectors complain to the Commission. Some are unaware of the Act or of the Commission's role in enforcing it and complain only to state and local consumer protection agencies or to their creditors. Others do not complain at all, perhaps hoping that the annoying collection contacts eventually will cease. The Commission is continuing its efforts to expand public awareness of the Act and the Commission's enforcement program. As part of those efforts, the Commission's Consumer Education Office has published and distributed a brochure on fair debt collection. Over 361,300 copies of this brochure have been sent out since its first edition was published in 1979, and in March, 1994, alone, 15,000 of the latest edition were sent out. It is available both in English and Spanish.

II. DEBT COLLECTOR RESPONSIBILITIES

Let me turn next to the responsibilities of debt collectors under the Act. They fall generally into five areas:

A. Section 805(b) -- Communication with Third Parties

As you know, Section 805(b) of the Act bars debt collectors from communicating with most third parties about consumers' debts. Consumers continue to complain of unlawful communications by debt collectors with third parties who are not obligated to pay, such as the consumers' employers, co-workers, personnel or payroll offices, children, grandchildren, in-laws, parents, landlords, ex-spouses, roommates, girlfriends, boyfriends, aunts, uncles, brothers, sisters, secretaries, neighbors and friends. To the extent that debt collectors communicate to such third parties about consumers' alleged debts, their communications violate the Act. Sometimes, the collectors try to be clever, instructing their employees not to disclose the debt directly, but to "give every clue possible" to the third party about the debt so there can be no doubt what is intended.

The potential for consumer injury is obvious in this context, because communications with consumers' employers and co-workers about purported debts can jeopardize the consumers' continued employment and prospects for promotion. These unlawful disclosures obviously embarrass consumers, and their relationships with family, friends, co-workers and neighbors may suffer from such contacts.

Consumers' complaints in this area indicate that some debt collectors use harassing collection techniques on third parties as if the third parties were the consumers purportedly owing the debt, or simultaneously call multiple third parties, such as neighbors or co-workers, simply for the purpose of intimidation. Unless the consumers consent, the FDCPA prohibits debt collectors from contacting any third party for any purpose other than obtaining information about the consumer's location, with few exceptions -- for example, a debt collector, without the consumer's consent, may communicate about the debt with the consumer's attorney, the creditor, the creditor's lawyer, the debt collector's lawyer and, under some circumstances, with a consumer reporting agency. Perhaps the most offensive practice in violation of this section that I have seen is communication to minor children of the debtor. I can assure you that collectors who use children in their attempts to collect debts can expect no sympathy from me.

B. Section 806 -- Harassment or Abuse

Section 806 prohibits "conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt." Conduct expressly covered by this injunction includes, for example, the use of or threat of violence, the use of obscene or profane language and the making of repeated or continual telephone calls to harass the person being called. The Commission has received some complaints of abusive telephone collection techniques involving allegations that the collectors used profane, obscene, or other degrading or defamatory language to intimidate consumers, including racial and ethnic slurs and overt sexual comments to women. References to mental retardation and "brain problems" also have been made. Other complaints alleged that collectors reportedly have made repeated and continuous telephone calls, apparently for the sole purpose of harassing consumers in order to extract payment. In some instances, we have found evidence of debt collectors' calling a consumer once every five minutes for extended periods, or using an automatic redial for 15 minutes at a time.

C. Section 805(a) -- Communications with the Consumer

Section 805(a) provides that without prior consent of the consumer, debt collectors may not communicate with a consumer about the collection of a debt at unusual times or places or at times or places that the collectors know or should know are inconvenient for the consumer -- in the absence of information to the contrary, the hours between 8:00 a.m. and 9:00 p.m. are assumed to be convenient. Presumably, this would take care of situations such as those in which the debtor has unusual working hours. Section 805(a) also generally bars communications about the debt with the consumer if the consumer has a lawyer and the debt collector knows this and knows or can readily ascertain the lawyer's name and address. It prohibits communications with the consumer about the debt at his or her place of employment if the debt collector knows or has reason to know that the consumer's employer prohibits the consumer from receiving such calls at work.

The Commission has received complaints from consumers alleging that debt collectors call them at the work place even after the debt collectors have been advised that such calls are not permitted by their employers. Consumers can lose their jobs because of these calls. Yet we have found information suggesting that some collectors simply destroy written instructions from the consumer not to make the calls. We also have received reports from consumers that they have been called by debt collectors before 8:00 a.m. or after 9:00 p.m., or at other inappropriate times or places. For example, one collector called a hospital's intensive care unit to talk to a consumer who was a relative of a gravely ill patient. Another called a child of a deceased parent at the funeral home. And still another collector insisted on calling a consumer who was under medical care in the hospital. Instances of this sort make clear the continued need for the Act, even if its effect is felt largely by a relatively small percentage of the debt collection industry.

D. Section 807 -- False or Misleading Representations

Section 807 prohibits debt collectors from using false, deceptive or misleading representations or means in connection with the collection of a debt. We have received complaints involving misrepresentations by debt collectors of the likely results if a consumer does not pay a debt. These misrepresentations include false threats to institute civil or criminal court actions, garnish wages, attach property, cause job loss, or have the consumer arrested or jailed. Such representations violate the FDCPA if the threatened action is unlawful in the consumer's jurisdiction or if the collector lacks the legal authority to accomplish the promised result. For example, in states where garnishment requires a court order, a collector has no independent power to garnish a debtor's wages and therefore may not represent that it will do so.

The FDCPA also prohibits collectors from threatening action that they do not intend to take. Examples include threats by collectors to file suit, or to report adverse information to credit bureaus, when they do not intend to take such actions.

The Commission also continues to be concerned about complaints involving dunning letters that appear to have been sent by attorneys because they are sent on attorney letterheads but that are from non-attorney debt collectors or creditors. These letters not only often falsely threaten legal action, but also, may misrepresent the extent to which attorneys actually are involved in the collection process.

Finally, collectors often misrepresent their identities in order to get the consumer to talk to them. For example, a concerned parent wants to talk to a teacher, who allegedly owes the debt. The so-called parent turns out to be the collector. Or a prospective employer or financial advisor of the consumer turns out to be another collector. Or the collector pretends to be having an affair with the consumer's husband. Or, perhaps most outrageous, the collector calls as a police officer or hospital representative concerning a family emergency. These examples show the depths to which some unscrupulous members of the industry will sink to further their aims in violation of the statute.

E. Section 809 -- Validation of Debts

Section 809 requires, among other things, that debt collectors notify the consumer of the amount of the debt and the name of the creditor and that they include in the notice a statement that unless the consumer disputes the validity of the debt within 30

days of the notice, the debt will be assumed valid.(2) Consumers complain that debt collectors often fail to respond to letters from consumers disputing alleged debts and fail to obtain verification of disputed debts as the Act requires. Specifically, the Act gives a consumer the right to dispute a debt in writing and obligates the debt collector, on receipt of the dispute, to verify the debt with the creditor and send the verification to the consumer. This provision is designed to ensure that the debt collector has properly identified the consumer and has accurately determined the amount that the consumer owes, a central purpose of the FDCPA. I cannot over emphasize the importance of this requirement.

F. Enforcement Actions

Ever since the FDCPA became effective in 1978, the Commission has pursued two parallel and complementary courses of action to bring about the maximum possible compliance with the law. Because it is preferable that debt collectors voluntarily comply with the statute, the Commission continuously has made extensive efforts to educate consumers and industry alike on the FDCPA's requirements. Despite the Commission's efforts to encourage voluntary compliance, some collectors choose not to comply voluntarily. The Commission, therefore, has also maintained a policy of vigorous enforcement of the FDCPA, particularly when the agency has encountered a pattern of serious violations.

The Commission's formal investigations may be prompted by consumer complaints, reports of collector misconduct by state and local agencies or information from other industry members. When an investigation produces evidence that indicates likely violations of the FDCPA by a debt collector, the staff of the Commission informs the violator of the results of its inquiry and attempts to settle its allegations before recommending to the Commission that a complaint be issued.

If a matter is settled and approved by the Commission, a consent judgment is drafted and forwarded to the Department of Justice, which files the judgment and a formal complaint in the appropriate federal district court. (Consent judgments are for settlement purposes only and do not constitute an admission by the debt collectors that they violated the law.) If settlement efforts fail, the Commission requests that the Department of Justice file suit in federal court on behalf of the United States, usually seeking a civil penalty and injunctive relief prohibiting the collector from continuing to violate the Act.

This past August, the Commission filed suit against Payco American, one of the country's largest debt collection agencies.(3) Payco was charged with illegally revealing consumer debts to third parties, using obscene or abusive language and falsely threatening arrest, garnishment of wages, or other legal action against consumers from whom they were attempting to collect debts for clients, in violation of the FDCPA.

The Commission asked the federal district court to issue an order prohibiting Payco from violating the FDCPA in the future and assessing a civil penalty of up to $10,000 for each violation of the law. In addition to asking the court to prohibit further violations of the FDCPA and to require the defendant to pay a civil penalty, the FTC has asked the court to require Payco to include, in each written collection communication to consumers in the future, a disclosure that the consumer has the right to have Payco stop communicating with them about their debt. The FTC also has asked the court to require Payco to provide each of its present and future employees a notice that the FDCPA says that, unless the consumer consents, a debt collector may not discuss the debt with any person other than the consumer and a few other persons, such as the consumer's attorney or spouse and that individual debt collectors may be financially liable for their violations of the Act. The case currently is pending decision.

The Commission's enforcement program has achieved a number of significant successes in recent years. The Commission won a significant preliminary victory in its case against a Maryland debt collection agency, National Financial Services, Inc., the owner of the agency, Robert J. Smith, and Frank Lanocha, an attorney who participated in the preparation and mailing of the company's debt collection letters.(4) The Commission's complaint alleged that the defendants had violated the FDCPA when they threatened to take legal action against consumers without intending to do so, implied in their dunning letters that their attorney was significantly involved in the collection process when his actual involvement was minimal and sent collection letters that essentially failed to give consumers notice of their right to dispute and to require to reverify the alleged debts. In an opinion on cross-motions for summary judgment dated January 8, 1993, the court appointed magistrate found for the government on all three violations charged. The government intends to seek an order enjoining future violations of the FDCPA and imposing a substantial civil penalty on the defendants.

The Commission obtained a $100,000 civil penalty settlement to resolve its charges that Credit Claims & Collections, an Atlanta-based debt collection company, violated the FDCPA by using obscene language, threatening to use violence, illegally contacting consumers at their jobs, causing the telephone to ring repeatedly at consumers' homes, contacting consumers when they know consumers are represented by an attorney with respect to the debt, and falsely claiming affiliation with the government.(5) I might add here that falsely claiming affiliation with the government is another one of my pet peeves, right after repeating threats to minor children of the debtor. In addition to the civil penalty, the Credit Claims & Collections Company entered into a consent decree that includes broad prohibitions of future FDCPA violations and requires the collector to inform the consumers it contacts in writing that Federal law prohibits debt collectors from harassing them.

The Commission obtained a $130,000 civil penalty from D.C. Credit Services, a California-based debt collection company, and its former President, David Cohen, in settlement of its charges that they violated the FDCPA by using obscene language, threatening violence, calling consumers at their jobs when they knew employers prohibited such calls, ignoring written requests by consumers to cease communication with them, causing the telephone to ring repeatedly at consumers' homes, falsely representing that they were attorneys, misrepresenting the consequences of nonpayment and continuing to collect debts that consumers had disputed in writing before the defendants verified them.(6) In addition to the civil penalty, the defendants entered into a consent decree that permanently enjoined future violations of the FDCPA and required defendants to notify consumers in their first letter of their rights under the FDCPA and of the Commission's responsibility to enforce the law.

Most recently, the Commission settled another debt collection matter after extensive litigation against David Renner, formerly doing business in Florida as Collections, Unlimited.(7) The consent decree permanently enjoins the defendant from engaging in numerous violations of the FDCPA alleged in the complaint. At the time of settlement, the defendant's collection business had ceased operations, and the defendant had been convicted of violating Florida's criminal fraud statutes.

G. Education and Informal Enforcement

As in other areas of the law, the Commission considers its program to educate both industry and consumers about the Act essential to the success of its enforcement program. The staff of the Commission maintains with industry members and other groups, a continuing dialogue that assists its informal enforcement activities designed to promote voluntary compliance with the FDCPA. This approach allows the Commission staff to focus its scarce resources on litigation to halt serious, persistent violations of the Act.

In 1988, the staff of the Commission issued a Staff Commentary on the FDCPA,(8) collecting the staff's informal written opinions on various aspects of compliance with the Act. This is an important document for you to know about. It epitomizes the Commission's program of industry and consumer education. Although it does not constitute a binding regulation or even a guideline that is binding on the Commission, the Staff Commentary continues to be well received by attorneys, industry representatives and consumers because it provides guidance to all parties on the staff's views concerning the application of the FDCPA to various debt collection practices and suggests likely Commission positions on such matters.

In appropriate cases, the Commission staff contacts the debt collectors and asks them to comply with the FDCPA. When made aware of potential law violations, many debt collectors voluntarily correct their conduct. This type of cooperation is particularly desirable when violations appear to be either technical or otherwise relatively minor. If violations can be corrected informally, resort to more formal and time-consuming enforcement actions often becomes unnecessary.

The Commission also advises consumers who call or write the Commission about debt collection problems, informing them of their rights and of any self-help remedies available to them and outlining the principal benefits the Act provides to consumers. For example, a consumer may be informed, where applicable, of his or her right to (1) write to the debt collector to request verification of the debt, which the collector must provide before resuming collection activity, (2) demand in writing that the collector cease all further communication or (3) sue a collector that appears to be violating the Act, in order to recover actual damages and certain additional damages (plus court costs and attorneys' fees) if their litigation is successful. This advice makes consumers aware of the specific steps they may take under the FDCPA to help themselves when dealing with abusive debt collectors. Where the staff believes that no violation is apparent, consumers are so informed.

State and local officials who administer state laws governing debt collectors as well as state and local consumer protection organizations are also valuable resources for the Commission. The Commission's staff regularly exchanges information with these organizations and, where appropriate, forwards complaints to local officials for remedial action, or receives complaints from such officials for use in focusing the Commission's investigations.

Finally, the staff of the Commission often participates in conferences and workshops sponsored by industry members, facilitating communication with debt collectors in a context that affords an opportunity to (1) discuss the Commission's views and goals, (2) distribute materials that explain the staff's interpretations of the FDCPA, and (3) listen to the concerns of debt collectors. Additionally, the staff maintains an informal communication network with trade associations like this one and with individual collection firms that is designed to enhance exchanges of information.

III. ATTORNEY RESPONSIBILITIES

A. Recent Enforcement Actions

I already have mentioned the case against National Financial Services, Inc. In separate but related actions against Phonequest, Inc., and Seattle attorney Arnold Joseph Barer,(9) the FTC announced that Barer -- whose signature appeared on the letters that were written on his letterhead -- has agreed to pay a $5,000 civil penalty to settle identical FTC charges that he violated the FDCPA. According to the FTC complaint detailing the allegations against the corporate defendants, these companies provided telephone information services that consumers accessed by calling specific 900 or 976 numbers.

The FTC alleged in its complaints that, on numerous occasions from April 1988 to June 1990, the defendants sent copies of a collection letter, drafted by Barer and approved by another defendant, to thousands of consumers who had disputed specific charges on their telephone bills for the defendants' services. The FTC alleged that the letter was printed on letterhead that said "Law Offices of Arnold J. Barer" and included a facsimile of Barer's signature even though, the FTC charged, he was not involved in the collection of the alleged debts to the extent the letters represented, nor did he sue any of the consumers to whom the letter was sent as represented in the letters. According to the complaints, the defendants represented to consumers that the letter was from an attorney, threatened to take legal action they did not intend to take, and otherwise used false representations to collect debts -- all violations of the FDCPA. The FTC also charged all the defendants, including Barer, with failing to notify consumers -- in the initial debt-collection letter, or within five days of the letter, as required by the FDCPA -- of their right to dispute debts or to seek to have them validated.

B. Statutory Requirements

As originally enacted, the FDCPA exempted "any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client . . . ." In July 1986, Congress removed that total exemption of attorneys, because of its concern that it was unfair to allow attorneys to engage in the same abusive practices that were proscribed by the FDCPA for non-attorney debt collectors. Because traditional debt collectors had been made subject to the FDCPA's restrictions when they sent consumers dunning letters and made phone calls to consumers to collect debts on behalf of others, Congress apparently believed that attorneys performing the same functions should be similarly limited.

C. Court Decisions

A recent federal appellate decision held that an attorney whose collection practice is limited to the filing of lawsuits is covered by the FDCPA. Scott v. Jones, 964 F.2d 314 (4th Cir. 1992). Notwithstanding the apparent lack of any traditional debt collection activity, such as dunning letters and phone calls, the court viewed the attorney's filing of collection lawsuits to be literally covered under the definition of "debt collector" set forth in Section 803(6), because the attorney was operating a "business the principal purpose of which is the collection of any debts . . . owed or due another." In its view, the language of the statute was "clear and unambiguous" and "the legislative history sufficiently sparse, that the legislative history has relatively little persuasive weight in comparison to the plain meaning of the statute."

Several federal courts have taken the opposite view. Most recently, in Green v. Hocking, 792 F. Supp. 1064 (E.D. Mich. 1992), the court granted summary judgment in favor of an attorney charged in a private action under the FDCPA, stating that holding an attorney who only files lawsuits liable under the FDCPA "would produce a result demonstrably at odds with Congress' intent in enacting the 1986 amendment, and thus the statute's seemingly strict language is not controlling."

Other decisions have cited the FTC Staff Commentary on the FDCPA, as well as the legislative history, in finding that attorneys are not debt collectors unless they engage in traditional collection actions. For example, in Fireman's Ins. Co. v. Keating, 753 F. Supp. 1137, 1142-43 (S.D.N.Y. 1990), the court held that because a law firm initiating a legal proceeding to recover a debt cannot be deemed a "debt collector" as defined by the FDCPA, the venue provisions of the FDCPA are inapplicable. And in National Union Fire Ins. Co. v. Hartel, 741 F. Supp. 1139, 1141 (S.D.N.Y. 1990), the court found that a law firm representing a plaintiff guarantor of notes executed by defendant investor in limited partnership is not a "debt collector" within the meaning of the FDCPA because it has engaged in activities only of a purely legal nature in seeking reimbursement for the plaintiff.

Coverage of attorneys who litigate lawsuits to recover consumer debts could produce anomalous results. For example, an attorney who conducted a third party pretrial deposition would violate Section 805(b)'s prohibition on disclosing the debt to third parties. The filing of a complaint alone would trigger disclosure requirements that lack a persuasive rationale in this context. The attorney would have to include the notice required by Section 807(11) -- stating that the attorney was attempting to collect a debt and that information would be used for that purpose -- when he or she served the consumer, and would have to include (or follow up with) the "validation" notice required by Section 809.

If the consumer responded to the Section 809 notice by disputing the debt, the attorney may arguably be required by the Act to drop (or at least stay) the lawsuit, because the provision requires a debt collector to "cease collection of the debt" until he or she verifies it with the creditor. Therefore, it may not be practical to apply the FDCPA to the activities of litigation attorneys.

IV. CREDITOR RESPONSIBILITIES

A. Statutory Exclusion

The definition of debt collector under the FDCPA excludes creditors collecting their own debts.

B. Potential Liability

Recently, the Commission issued an administrative complaint alleging that American Family Publishers, one of the largest sellers of magazine subscriptions in the nation, knew about and approved deceptive debt collection letters sent by its collectors, thereby assisting conduct that was unlawful under the FDCPA.(10) Under the terms of a Commission-approved settlement agreement, American Family Publishers is required to instruct its collectors to comply with the FDCPA in the future and is prohibited from misrepresenting either that an attorney is actively and substantially involved in the collection of any debt, or that legal action with respect to any alleged debt is about to be or will be initiated.

In connection with any sale of its accounts to debt collectors, American Family Publishers agreed not to encourage misrepresentations by the debt collector of the degree of attorney involvement or the likelihood of legal action resulting from a debtor's failure to pay a debt. In addition, American Family Publishers also must determine whether the debt collector is making misrepresentations, and refuse to sell accounts to debt collectors that it knows are making them. Finally, it must notify the Commission when it terminates any sale of accounts to a debt collector for that reason.

V. LEGISLATIVE ISSUES -- AMENDMENTS PROPOSED BY THE COMMISSION

Section 815 of the FDCPA directs the Commission to submit annual reports to Congress "concerning the administration of its functions under this title" and authorizes it to include "such recommendations as the Commission deems necessary or appropriate." The Commission has recommended two amendments to the FDCPA in accord with this mandate.

A. Section 807(11)

The first of these recommendations would amend Section 807(11) of the Act, which specifically requires a debt collector to "disclose clearly in all communications made to collect a debt or to obtain information about a consumer, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose." The Commission has recommended that Congress amend this provision to clarify its meaning in light of two conflicting appellate court decisions.

A 1985 decision by the Ninth Circuit in Pressley v. Capital Credit & Collection Service, 760 F.2d 922 (9th Cir. 1985), held that the Section 807(11) disclosure need only be given in the first communication. The Ninth Circuit took the view that requiring the disclosure in every communication with a debtor ignores congressional intent, and that it serves no useful purpose to require repetition of a formal warning when the debt collection purpose of the communication is clear to the recipient. In 1988, the Commission Staff Commentary on the FDCPA adopted the Pressley court's reasoning in its discussion of Section 807(11) of the FDCPA.

In a 1989 decision, however, the Second Circuit in Pipiles v. Credit Bureau of Lockport, 886 F.2d 22 (2d Cir. 1989), explicitly rejected Pressley and took a literal approach. According to that opinion, the language of the statute unambiguously requires that the Section 807(11) notice be given in all communications made to collect a debt, "even if there were little discernible purpose in repetition" of the notice in follow-up communications, and it is improper for courts to substitute an alternative view.

These two decisions demonstrate that the two courts of appeal are now irreconcilably split in their interpretations of Section 807(11). The Commission, therefore, has recommended that Congress reexamine that provision and clarify its intent.

B. Section 809

Second, the Commission has recommended that Congress amend Section 809 to make explicit the standard for clarity to be applied to the notice required by Section 809 of the Act. Section 809(a) requires debt collectors to send a written notice to each consumer within five days after the consumer is first contacted, stating that if the consumer disputes the debt in writing within thirty days after receipt of the notice, the collector will obtain and mail verification of the debt to the consumer. Section 809(b) provides that if the consumer, within the thirty day period, disputes the debt in writing, the collector must cease all collection efforts until verification of the debt has been obtained and mailed to the consumer.

Some debt collectors print the notice required by Section 809(a) in a type size considerably smaller than the other language in the dunning letter, or obscure the notice by printing it on a non-contrasting background in a non-contrasting color. For example, the use of light ink and tiny print on a white background was found to be a violation of Section 809 in the magistrate's opinion upholding the Commission's complaint allegations in the National Financial Services case.

Significantly, two courts of appeal have held that collection letters that use small or otherwise obscured print in the notice required by Section 809(a) and at the same time use much larger, prominent or bold faced type in the text of the letter, violate the Act. Miller v. Payco-General American Credits, Inc., 943 F.2d 482 (4th Cir. 1991); Swanson v. Southern Oregon Credit Services, Inc., 869 F.2d 1222 (9th Cir. 1989). The courts reasoned that the payment demand in the text both contradicts and overshadows the required notice. Neither of the courts attempted to specify what elements of presentation (e.g., the color and size of type, location in the document) would constitute a clear disclosure to consumers of their dispute rights under Section 809(a) of the Act.

The Commission has recommended that Congress obviate this problem by amending Section 809 explicitly to require a more conspicuous notice. As presently drafted, Section 809(a) does not specify that the notice be in any given format, that it use a particular design or type-size or that it appear in any stated location in dunning letters. The Commission has recommended that Congress amend the provision to require, for example, that the notice be made in a manner that is "clear and conspicuous," a standard that the Commission has used for disclosures of material information in other contexts. A number of court decisions have defined the "clear and conspicuous" standard in a variety of contexts, and proper application of such a standard in Section 809(a) would help ensure that the information in the required notice is effectively conveyed. It also would reduce the incidence of dunning letters that are artfully designed to confuse their readers and frustrate the purposes of this provision of the Act.

VI. CONCLUSION

This concludes my prepared remarks. I would be happy now to answer your questions.

Endnotes:

1. V. Hugo: Les Miserables V.ii.

2. The Section also provides that the debt collector must tell the consumer that if he or she notifies the debt collector in writing within the 30-day period that the debt is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and mail it to the consumer. The debt collector also must tell the consumer that the name and address of the original creditor will be provided if it is different from that of the current creditor. If the consumer notifies the debt collector in a manner consistent with the Act, the debt collector must cease collection of the debt or any disputed portion until obtaining verification and notifying the consumer. A consumer's failure to dispute the validity of a debt under § 809 "may be construed by any court as an admission of liability by the consumer."

3. United States v. Payco American Corp., Civ. No. 93-C-0801 (E.D. Wis. filed Aug. 2, 1993).

4. United States v. National Financial Services, Inc., Civ. No. L-91-226 (D. Md. Jan. 8, 1993) (decision on summary judgment holding defendants liable; decision on injunction and civil penalties pending).

5. United States v. Nationwide Credit, Inc., d/b/a Credit Claims & Collections, Inc., Civ. No. 1-92-CV-1219-MHS (N.D. Ga. May 22, 1992).

6. United States v. D.C. Credit Services, Inc., Civ. No. 92-3778-AWT (C.D. Cal. filed June 26, 1992); United States v. David Cohen, Civ. No. 92-3777-ER (C.D. Cal. filed June 26, 1992)

7. United States v. David Renner, Civ. No. 89-1503-Civ-T-10A (M.D. Fla. March 14, 1994).

8. 53 Fed. Reg. 50097-50110 (December 13, 1988).

9. United States v. Arnold J. Barer, Civ. No. C-93-567 (W.D. Wash. May 12, 1993); United States v. HDL, Inc., Civ. No. C-93-566 (W.D. Wash. April 27, 1993).

10. American Family Publishers, Inc., FTC Docket No. 9240, January 21, 1993.