FTC Suggests Use of Confusing Language in Debt Collection Letters

Prelude: In 2010, the Federal Trade Commission released a study entitled “Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration.” What follows is part two of a report on their latest repair efforts.

In a February blog post, I explored the Federal Trade Commission’s press release equating a potential defense (the expiration of a limitations period) with a legal right. I’m headed back to that same press release to consider another questionable call from the FTC’s efforts to “repair a broken system.” So today, here is Chapter Two: “How to Confuse People Into Believing You Are Furnishing Negative Credit Information Concerning Them.”

One of the primary purposes of § 1692g is to prevent debt collectors from dunning the wrong person. S. Rep. No. 95-382, at 4 (1977), reprinted in 1977 U.S.C.C.A.N. 1659, 1699; Ellis v. Solomon & Solomon, P.C., 591 F.3d 130, 134 (2d Cir.  2010); Bartlett v. Heibel, 128 F.3d 497, 499 (7th Cir. 1997).

Given this salutary purpose, the disclosures required by § 1692g do not speak of what action a debt collector may take against the recipient (other than assuming the debt is valid absent a timely dispute); rather, they inform the recipient of certain rights they may exercise. For this reason, § 1692g notices often contain conditional language — rather than state that a collector will take a specific action, it will state “if you do not dispute the debt” or “if you understand this debt is yours and the amount stated is correct,” then the notice’s recipient can pay the debt.

The use of conditional language, I thought, was a best practice until I read the Consent Decree the FTC and the Department of Justice signed off on on Jan. 31, 2012. According to the Consent Decree, which the FTC says is their “template” for future enforcement actions, debt collectors should provide the following written notice with respect to debt that is not past the obsolescence date provided by 15 U.S.C. § 1681c:

If you do not pay the debt, we . . . may [continue to] report it to the credit reporting agencies [as unpaid]. 

Consent Decree, IV, D, 1, p. 13. 

Now this, standing alone, doesn’t seem so bad. But, consider when the FTC mandates the “disclosure” must be made:

in [the] validation notice or other written communication containing the information required by . . .  15 U.S.C. § 1692g

Consent Decree, IV. A., p 11.

That’s right, the Consent Decree requires a debt collector to state in a notice, which is designed to protect unintended recipients from being wrongfully dunned, that the debt they do not owe may be “reported” to a credit reporting agency. Rather than suggesting a conditional disclosure (e.g., “if you understand this debt is yours and the amount due is correct”) the FTC mandates the use of affirmative language: “If you do not pay the debt, we . . . may [continue to] report it to the credit reporting agencies [as unpaid].” Now that’s a pleasant “Hello” designed to protect persons who happen to receive a mistakenly directed letter. 

The FTC and the Department of Justice actually signed the Consent Decree mandating the use of this disclosure. According to the FTC’s press release, three of the four FTC Commissioners voted their approval of the form of this disclosure.

As incredible as all this appears, it does, in fact, get worse for the recipient of a misdirected dunning letter. Not only does the FTC’s Consent Decree compel a debt collector to state to potential unintended recipients that they may “report” debts they do not owe to credit reporting agencies just once, but debt collectors must make this same disclosure over and over again! (at least, I presume, until someone figures out that the disclosure is being made to a person who does not owe the debt). That’s right. This disclosure, that a debt collector may furnish adverse information concerning a person who does not owe a debt, is not limited to when the § 1692g disclosure is made. The Consent Decree provides that if the disclosure is not made every 180 days between communications, there is a rebuttable presumption that the debt collector has misled the recipient.

Those familiar with § 1692e have already have figured out where this is going.

There are plenty of instances where debt collection letters are misdirected to the wrong person. The dispute framework of § 1692g has worked very well over the years to protect unintended recipients of these letters, as the 8th Circuit recently reported. Dunham v. Portfolio Recovery Assoc. LLC, 663 F.3d 997 (8th Cir 2011). Of course, we all know that if a letter is misdirected it means that the unintended recipient is not the target of the debt collector’s efforts, and likely has a different social security number. Id. So, if a debt collector is furnishing information to a credit reporting agency concerning the true target, it is using a different social and nothing is being reported concerning the unintended recipient.

No doubt the FTC is sincerely engaged in fixing a broken system. The problem is it has identified the wrong system that is broken.

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Donald Maurice provides counsel to the financial services industry, successfully litigating matters in the state and federal courts in individual and class actions. He has successfully argued before the Third, Fourth and Eighth Circuit U.S. Courts of Appeals, and has represented the financial services industry before several courts including as counsel for amicus curiae before the United States Supreme Court. He counsels clients in regulatory actions before the CFPB, and other federal and state regulators and in the development and testing of debt collection compliance systems. Don is peer-rated AV by Martindale-Hubbell, the worldwide guide to lawyers. In addition to being a frequent speaker and author on consumer financial services law, he serves as outside counsel to RMA International, on the governing Board of Regents of the American College of Consumer Financial Services Lawyers and on the Governing Committee of the Conference on Consumer Finance Law. From 2014 to 2017, he chaired the ABA's Bankruptcy and Debt Collection Subcommittee.