Federal Trade Commission FTC Statement on Collection of Decedents Debts & Debt Settlement Rule

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1 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)

2 Disclaimer I 2

3 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) 3

4 FTC Debt Collection Program 1. Enforcement 2. Business & Consumer Education 3. Research & Policy Initiatives 4

5 FTC Debt Collection Program Enforcement Actions: ~10 since Jan. 1, (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 5

6 FTC Debt Collection Program 6

7 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. 7

8 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 8

9 Enforcement Policy Statement 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. 9

10 Enforcement Policy Statement 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

11 Enforcement Policy Statement 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. 11

12 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 12

13 Debt Relief Rule 13

14 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 14

15 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) 15

16 Debt Settlement Rule Requirements: i. Prohibits advance fees ii. iii. Requires certain disclosures Prohibits specified misrepresentations 16

17 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 17

18 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 18

19 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 19

20 Resources FTC Final Policy Statement on Decedent Debt: Debt Relief Rule: FTC Business Center: 20