UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
March 19, 1999
The Honorable Albert Gore, Jr.
President of the Senate
United States Senate
Washington, D.C. 20510
Re: Twenty-First Annual Report to Congress
Pursuant to Section 815(a) of the Fair Debt Collection Practices Act
Dear Mr. President:
The Federal Trade Commission ("Commission") is
required by Section 815(a) of the Fair Debt Collection Practices Act ("FDCPA" or
"Act"), 15 U.S.C. §§ 1692-1695o, to submit a report to Congress each year
summarizing the administrative and enforcement actions taken under the Act over the
preceding twelve months. These actions are part of the Commission's ongoing effort to
curtail abusive, deceptive, and unfair debt collection practices in the marketplace. Such
practices have been known to cause various forms of consumer injury, including emotional
distress, invasions of privacy, and the payment of amounts that are not owed, and can
severely hamper consumers' ability to function effectively at work. Although the
Commission is vested with primary enforcement responsibility under the Act, overall
enforcement responsibility is shared by other federal agencies. In addition, consumers who
believe they have been victims of statutory violations may seek relief in state or federal
This report presents an overview of the types of consumer
complaints received by the Commission over the past year, a summary of the Commission's
consumer and industry education initiatives this year, and a summary of the Commission's
debt collection enforcement cases that became public in 1998. The report also contains
four recommendations for changes to the FDCPA that the Commission believes will improve
the statute's clarity and its effectiveness as a law enforcement tool. These
recommendations have been included in previous annual reports. Finally, the report
outlines the activities of the other federal agencies responsible for administering and
enforcing the Act with regard to entities under their respective jurisdictions.
Although the Fair Debt Collection Practices Act prohibits
abusive, deceptive, and otherwise improper collection practices, it permits reasonable
collection efforts that promote repayment of legitimate debts. Thus, the Commission's goal
is to ensure compliance with the Act without unreasonably impeding the collection process.
The Commission recognizes that the timely payment of debts is important to creditors and
that the debt collection industry offers useful assistance toward that end. The Commission
also appreciates the need to protect consumers from those debt collectors who engage in
abusive and unfair collection practices.
Congress enacted the FDCPA in an effort to balance the
debt collector's right to recover just obligations with the consumer's right to protection
from harassment, deceit, invasions of privacy, interference with the employment
relationship, and other abusive collection tactics. Many members of the debt collection
industry supported this legislation when it was proposed, and most debt collectors now
conform their practices to the standards the Act imposes. The Commission staff continues
to work with industry groups to clarify ambiguities in the law and to educate the industry
and the public regarding the Act's requirements.
CONSUMER COMPLAINTS RECEIVED BY THE COMMISSION
Most of the Commission's information about how debt
collectors are complying with the Act comes from consumers. Occasionally, however, debt
collectors contact us to express concern about allegedly violative practices of
competitors, because they fear that such practices may cause them to lose business to
collectors who violate the law. Complaints to the Commission about third-party debt
collectors ranked second only to complaints about credit bureaus in 1998. We continue to
believe that the number of consumers who contact the Commission represents a relatively
small percentage of the total number of consumers who actually encounter problems with
debt collectors.(1) Experience indicates that some
consumers may not even be aware that the Commission enforces the Act or that the conduct
they have experienced violates the Act.
Not all consumers who complain to the Commission about
collection problems have experienced law violations. In some cases, for example, consumers
complain that a debt collector will not accept partial payments on the same installment
terms that the original lender provided when the account was current. Although a
collector's demand for accelerated payment or larger installments may, in these
circumstances, be frustrating to the consumer, such a demand is not a violation of the
Act. Many consumers, however, complain of conduct that, if accurately described, clearly
violates the Act. Some of the allegations that we hear most frequently are the following:
Harassing the alleged debtor or others:
This was the complaint we heard most frequently in 1998. Many of these consumers
complained that a debt collector was harassing them by calling periodically. Infrequent
contacts, such as once a week or once a month, certainly might induce stress in a consumer
but would not be "harassment" under the FDCPA. Other consumers, however,
described collection tactics that, if described accurately, clearly do constitute
"harassment." Such apparent violations ranged from collectors calling several
times within a very short period to collectors screaming obscenities and racial slurs, or
even threatening violence to the consumers or their family members.
Failing to send required consumer notice:
The FDCPA requires that debt collectors send consumers a written notice that includes,
among other things, the amount of the debt, the name of the creditor to whom the debt is
owed, and a statement that, if within thirty days of receiving the notice the consumer
disputes the debt in writing, the collector will obtain verification of the debt and mail
it to the consumer.(2) Many consumers complained that
collectors who contacted them did not provide such a notice. Without the notice, these
consumers did not know how much the debt collector was demanding or to which creditor they
allegedly owed a debt. Consumers who did not receive the notice also did not know they had
to send their dispute in writing if they wished to obtain verification of the debt.
Moreover, because many of these collectors even refused to give consumers the name of
their company, the consumers could not complain to law enforcement agencies or Better
Failing to verify disputed debt:
The FDCPA also provides that, if a consumer does submit a dispute in writing, the
collector must cease collection efforts until it has provided verification of the debt.
Many consumers told us that collectors ignored their written disputes, sent no
verification, and continued their collection efforts. Other consumers told us that some
collectors who did provide them with verification continued to contact them about the
debts between the date the consumers submitted their dispute and the date the collectors
provided the verification, a practice that also violates the FDCPA.
Calling consumer's place of employment:
A debt collector may not contact a consumer at work if the collector knows or has reason
to know that the consumer's employer prohibits the consumer from receiving such contacts.(3) Many consumers complained that debt collectors continued
to call them at work after they or their colleagues specifically told the collector that
such calls were prohibited by the consumer's employer. By continuing to contact consumers
at work in these circumstances, debt collectors may put the consumers in jeopardy of
losing their jobs.
Revealing alleged debt to third parties:
We continue to receive complaints about unauthorized third-party contacts. Consumers'
employers, relatives, children, neighbors, and friends have been contacted and informed
about consumers' debts. Such contacts typically embarrass or intimidate the consumer and
are a continuing aggravation to third parties. Contacts with consumers' employers and
co-workers about their alleged debts jeopardize continued employment or prospects for
promotion. Relationships between consumers and their families, friends, or neighbors may
also suffer from improper third-party contacts. In some cases, collectors reportedly have
used misrepresentations as well as harassing and abusive tactics in their communications
with third parties. Third-party contacts for any purpose other than obtaining information
about the consumer's location violate the Act, unless authorized by the consumer or unless
they fall within one of the Act's exceptions.
Continuing to contact consumer after receiving
"cease communication" notice: The FDCPA requires debt collectors
to cease all communications with a consumer about an alleged debt if the consumer
communicates in writing that he wants all such communications to stop or that he refuses
to pay the alleged debt.(4) This "cease
communication" notice does not prevent collectors or creditors from filing suit
against the consumer, but it does stop collectors from calling the consumer or sending
dunning notices. Many consumers complained that collectors ignored their "cease
communication" notices and continued their aggressive collection attempts.
Threatening dire consequences if consumer
fails to pay: Another source of complaints involves the use of false or
misleading threats of what might happen if a debt is not paid. These include threats to
institute civil suit or criminal prosecution, garnish salaries, seize property, cause job
loss, have a consumer jailed, or damage or ruin a consumer's credit rating. Some of these
practices, such as those involving false threats of the consequences of nonpayment, are
specifically prohibited by the Act.(5) Other practices,
such as the threat to cause a consumer's arrest, violate the Act only if the collector
does not have the legal authority or intent to accomplish the promised result.(6)
Demanding a larger payment than is permitted
by law: The FDCPA prohibits debt collectors from (1) misrepresenting the
amount that a consumer owes on a debt(7) and (2) collecting
any amount unless it is "expressly authorized by the agreement creating the debt or
permitted by law."(8) The Commission received a large
number of complaints in 1998 about debt collectors that attempted to collect amounts far
higher than the amounts owed. In particular, complaints concerning medical and hospital
debts are becoming more prevalent. Some consumers allege that they never receive a final
statement from the medical service provider and their accounts are forwarded, without
further notice, to collection agencies which then attempt to charge exorbitant interest,
late fees and other collection costs in addition to the original debt. Some of these
charges exceed the debt itself. Finally, consumers are complaining in increasing numbers
that debt collectors are debiting their bank accounts without their knowledge or
permission and that banks are permitting the practice on the erroneous assumption that
consumers have authorized the transfers. Collectors may be obtaining consumers' account
numbers from checks consumers have written in the past, from current checks written on
accounts with insufficient funds, or from consumers themselves on false pretenses. While
it is true that some transfers are supported by proper authorization and are, in fact,
more convenient for both consumer and debt collector alike, it appears that some abuse of
the practice is occurring.
Complaints about creditors' in-house
collectors: The Commission continued to receive many complaints about
creditors collecting their own debts. Because creditors are not generally covered by the
FDCPA, some in-house collectors use no-holds-barred collection tactics in their dealings
with consumers. While the Commission cannot pursue such creditor employees under the
FDCPA, it can do so under the Federal Trade Commission Act. The agency has brought such
cases in the past and will continue to do so as appropriate cases present themselves in
CONSUMER AND INDUSTRY EDUCATION:
The First Prong of the FDCPA Program
The Commission's consumer education initiative and
business education initiative combine to form the first prong of the Commission's FDCPA
program. The other prong is the Commission's enforcement initiative, discussed below. The
consumer education initiative informs consumers throughout the nation of their rights
under the FDCPA and the requirements that the Act places on debt collectors. With this
knowledge, consumers can identify when collectors are violating the FDCPA and exercise
their rights under the statute. An informed public that enforces its rights under the
FDCPA operates as a powerful, informal enforcement mechanism. The industry education
initiative informs collectors of the Commission staff's positions on various FDCPA issues.
With this knowledge, industry members can then take all necessary steps to comply with the
Tools for both consumers and industry: Two
of the Commission's educational tools are useful in both the consumer education initiative
and the industry education initiative. The Commission staff's Commentary on the Fair Debt
Collection Practices Act ("Commentary"),(9) was
issued in 1988 and provides the staff's detailed analysis of every section of the Act. The
comments serve as valuable guidance for consumers, their attorneys, courts, and members of
the collection industry.(10) The Commentary superseded
staff opinions issued prior to its publication, but staff members have issued many
additional opinion letters since that date. Like the Commentary, these letters provide
consumers, attorneys, courts and the collection industry with the Commission staff's views
on knotty statutory interpretations. In October 1998, both of these educational tools --
the Commentary and the staff opinion letters -- were added to the Commission's new FDCPA
web page, located at "www.ftc.gov/os/statutes/fdcpajump.htm." To date, the web
page has been viewed by 13,227 online users, which gives great confidence that this
important information is reaching its intended audiences.
Tools specifically for consumers:
The Commission's "Facts for Consumers" brochure explains the FDCPA in the
language of a layperson. In 1998, the Commission dispersed more than 100,000 of these
brochures to consumers through non-profit consumer groups, state consumer protection
agencies, Better Business Bureaus, and other sources of consumer assistance. Like the
Commentary and the staff opinions, the brochure is available from the Commission's web
site. The brochure was viewed by online users more than 23,000 times in 1998. Another
extremely valuable component of the Commission's consumer education initiative is the
Consumer Response Center ("CRC"), whose highly trained contact representatives
respond to telephone calls and correspondence (in both paper and electronic form) each day
from consumers concerning a wide array of issues. As noted above, a large percentage of
these consumer contacts relate to debt collection. For those consumers who contact the CRC
seeking only information about the FDCPA, the contact representatives answer any urgent
questions and then mail out the Facts for Consumers or refer the consumer to the web page
to find it there. As noted above, however, many consumers who contact the CRC complain
about specific third-party debt collectors. For these consumers, the CRC contact
representatives provide essential information about the FDCPA's self-help remedies, such
as the right to demand that the collector cease all communications about the debt and the
right to obtain written verification of the debt. The contact representatives also record
information about debt collectors who are the subjects of complaints, enabling the
Commission to track patterns of complaints for use in its enforcement initiative described
below. A third component of the consumer education initiative stems from the public
speaking that Commission staff members do to groups of consumers across the country. From
local talk shows, to military bases, to county fairs, staff members inform consumers of
their rights under a number of consumer-finance statutes. Almost invariably, these
presentations include a discussion of the FDCPA.
Tools specifically for the collection
industry: Commission staff also deliver speeches and participate in panel
discussions at industry conferences throughout the year. Several recent presentations have
focused on debt collectors' new responsibilities under the amended Fair Credit Reporting
Act ("FCRA"), 15 U.S.C. §§ 1681-1681u. Congress amended the FCRA in
response to, among other things, complaints about the accuracy of information in credit
reports. Some of the amendments are applicable to debt collectors. Section 623 of the
amended FCRA imposes duties upon "furnishers" of credit information, including
all debt collectors who report information to consumer reporting agencies. For example,
furnishers may not report information that they know is inaccurate; in addition, they have
a duty to correct information previously reported if it is subsequently found to be wrong.
If a furnisher receives notice of a dispute from a consumer reporting agency about
information reported by the furnisher, the furnisher must conduct an investigation to
determine whether the information reported was correct and report the results of the
investigation to the consumer reporting agency within thirty days, even if the dispute is
received beyond the verification period found in the FDCPA. Various remedies are available
to consumers, states, and the Commission for failure to comply.
In addition to the presentations at industry conferences,
Commission staff maintain an informal communications network with the leading trade
associations, which permits staff members to exchange information and ideas and discuss
problems as they arise. Commission staff members also provide interviews to trade
publications. These interviews provide yet another vehicle for staff to make their
positions known to the nation's debt collectors.
ENFORCEMENT: The Second Prong of the FDCPA
Every consumer who learns which debt collection tactics
are illegal and asserts their FDCPA self-help rights assists the Commission in policing
the collection industry. Every debt collector who hears or reads about FDCPA compliance
issues is that much more likely to comply with the Act without the need for a Commission
investigation. Thus, both consumer education and industry education encourage voluntary
compliance by debt collectors and conserve the Commission's enforcement resources.
There are times, however, when it appears to Commission
staff, based often on complaints from consumers, state or local agencies, or other
industry members, that a debt collector is not complying with the statute voluntarily.
Accordingly, the Commission's FDCPA program includes investigations of certain debt
collectors. If an investigation reveals evidence of continuing FDCPA violations, staff
contacts the debt collector and attempts to negotiate a settlement before recommending
that the Commission issue a complaint. If a settlement is reached and the Commission
accepts the staff's recommendation to approve a proposed consent order, the Commission
delivers the proposed order and accompanying complaint to the Department of Justice, which
files them in the appropriate federal district court.(11)
If the debt collector will not agree to an appropriate settlement that remedies the
alleged violations, the Commission requests that the Department of Justice file suit in
federal court on behalf of the Commission, usually seeking a civil penalty and injunctive
relief that would prohibit the collector from continuing to violate the Act. On occasion,
debt collectors agree to an appropriate settlement only after suit has been brought.
The Commission staff is currently conducting several
non-public investigations of debt collectors to determine whether they are or have engaged
in serious violations of the Act. In addition, there have been significant developments in
several Commission enforcement actions.
In October 1998, the Commission announced a settlement in
which Nationwide Credit, Inc. ("NCI") agreed to pay a
$1 million civil penalty, the largest the Commission has ever obtained in a debt
collection case, for widespread FDCPA violations. The complaint alleged that NCI harassed
consumers, made false and misleading representations, failed to send required validation
notices, failed to verify debts when requested to do so by consumers, and revealed debts
to third parties impermissibly. Many of the alleged violations are the same as those
addressed in a settlement with the Commission that NCI entered into in 1992; the company
paid a civil penalty of $100,000 at that time. As part of the new settlement, NCI is
developing a comprehensive consumer complaint and resolution program and is revamping its
training program. NCI must submit a draft syllabus and the materials to be used during the
training program to Commission staff for approval.
In July 1998, the Commission reached a settlement with the
principal of Lundgren & Associates, P.C., a collection law
firm that allegedly made baseless threats of suit and misrepresented the amount that the
firm was entitled to collect under state law. Under the settlement, the principal is
prohibited from violating any provisions of the FDCPA in the future and must include, in
any written communication to a consumer from whom he is collecting a debt, two disclosures
that explain the consumer's rights under the FDCPA.
In a January 1998 complaint, the Commission alleged that Capital
City Mortgage Corporation and its owner, Thomas K. Nash, among other things,
violated the FDCPA by falsely representing that letters from the company's in-house
attorney were from a third-party collector, making false and misleading representations
when collecting loan payments, and engaging in unfair or unconscionable debt collection
practices. The case is now in the discovery phase, and no trial
date has been set. The Commission is seeking injunctive relief for the FDCPA violations.
In August 1998, General Electric Capital
Corporation ("GE Capital") and its wholly-owned subsidiary,
Montgomery Ward Credit Corporation, reached an agreement with the Commission over charges
that GE Capital regularly sought out consumers who filed for bankruptcy protection to
persuade them to "reaffirm" credit account debts and falsely represented that
these "reaffirmation agreements" would be filed with the bankruptcy courts, as
required by law. In November 1998, the Commission reached an agreement with the May
Department Stores Company ("May") that settled similar
allegations. Although the FDCPA does not apply to creditors such as GE Capital and May
collecting their own debts, the Commission alleged that these practices violated Section
5(a) of the Federal Trade Commission Act. The Commission charged that in many cases either
(1) GE Capital and May did not file the agreements or (2) the bankruptcy courts did not
approve the agreements. Under either scenario, the Commission alleged, the reaffirmation
agreements were not legally binding on consumers, but GE Capital and May nonetheless
collected many of these debts unfairly. Under the two agreements, GE Capital agreed to
make full refunds totaling at least $60 million, and May agreed to make full refunds
totaling at least $15 million. The Commission coordinated both of the actions with actions
by state attorneys general nationwide.
The Commission recommends four amendments to, or
clarifications of, the FDCPA as permitted by Section 815 of the Act. These recommendations
have been reported in past annual reports.
Section 809(a): Clarity of Notice: The
Commission continues to recommend that Congress amend Section 809 to make explicit the
standard for clarity to be applied to the notice required by that Section. Section 809(a)
of the Act 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.
As presently drafted, the FDCPA does not specify any
standard for how the 809(a) notice must be presented to consumers such as the color and
size of the typeface and the location on the collection notice. Attempting to take
advantage of this lack of clarity, some debt collectors print the notice 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. 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.(12) The courts reasoned that the payment demand in the text
both contradicts and overshadows the required notice.(13)
Neither of the courts attempted to specify which elements of presentation would constitute
a clear disclosure to consumers of their dispute rights under Section 809(a).
The Commission recommends that Congress eliminate this
problem by amending Section 809 explicitly to require a more conspicuous format for the
notice by mandating that it be "clear and conspicuous." That standard could be
defined as "readily noticeable, readable and comprehensible to the ordinary
consumer." The definition could also reference various factors such as size, shade,
contrast, prominence and location that would be considered in determining whether the
notice meets the definition. A number of Commission decisions and orders define the
"clear and conspicuous" standard in a variety of contexts.(14)
Proper application of such a standard in Section 809(a) would help ensure that the
information in the required notice is effectively conveyed and eliminate dunning letters
artfully designed to confuse their readers and frustrate the purposes of this provision of
Section 809(b): Effect of Thirty-day Period:
Section 809(b) of the FDCPA provides that if a consumer, within the thirty-day period
specified in Section 809(a), disputes a debt in writing, the collector must cease all
collection efforts until verification of the debt is obtained and mailed to the consumer.
In opinion letters and the staff Commentary on the FDCPA,(15)
Commission staff have consistently read Section 809(b) to permit a debt collector to
continue to make demands for payment or take legal action within the thirty-day period.
Nothing within the language of the statute indicates that Congress intended an absolute
bar to any appropriate collection activity or legal action within the thirty-day period
where the consumer has not disputed the debt.
Federal circuit courts that have addressed this issue
recently have arrived at the same conclusion. In a 1997 opinion, the Seventh Circuit
stated that "[t]he debt collector is perfectly free to sue within the thirty days; he
just must cease his efforts at collection during the interval between being asked for
verification of the debt and mailing the verification to the debtor."(16)
In a case decided in December 1998, the Second Circuit held that a collector's dunning
notice violated Section 809(a) because the language on the front, "[t]he hospital
insists on immediate payment," contradicted the Section 809 notice on the back and
would make the consumer uncertain as to her rights.(17)
The court added, however, that the debt collector "could have both sought immediate
payment and complied with the [FDCPA] simply by inserting into the text of its letter
transitional language that referred the addressee to the validation notice."(18)
Although these courts have been consistent with the
position taken by the Commission staff, some continue to argue that the thirty-day time
frame set forth in Section 809 is a grace period within which collection efforts
are prohibited, rather than a dispute period within which the consumer may insist
that the collector verify the debt. The Commission therefore recommends that Congress
clarify the law by adding a provision expressly permitting appropriate collection activity
within the thirty-day period, if the debt collector has not received a letter from the
consumer disputing the debt. The clarification should include a caveat that the collection
activity should not overshadow or be inconsistent with the disclosure of the consumer's
right to dispute the debt specified by Section 809(a).(19)
Section 803(6): Litigation Attorney as
"Debt Collector": The Supreme Court has resolved the conflict in
the federal courts concerning whether attorneys in litigation to collect a debt are
covered by the Act. In Heintz v. Jenkins, 514 U.S. 291 (1995), the Court held that
they are, in fact, covered like any other debt collector because they fall within the
plain language of the statute.(20) The difficulties in
applying the Act's requirements to attorneys in litigation, however, and the anomalies
that result, still remain. For example, pretrial depositions could violate Section 805(b)
because they involve communicating with third parties about a debt.(21)
In addition, it appears that an attorney must include the Section 809 validation notice in
a complaint, if the complaint represents the attorney's initial contact with that
consumer. Such a notice does not make sense in a litigation context. For example, the
notice would state that, if the consumer sends a written request for verification within
thirty days, the attorney will provide the verification. If the consumer does make such a
request, it appears that Section 809(b) requires the attorney to put the lawsuit on hold
until he or she provides the verification.(22)
Because it still seems impractical and unnecessary to
apply the FDCPA to the legal activities of litigation attorneys, and because ample due
process protections exist in that context, the Commission continues to believe that
Congress should intervene and make its intent in this area clear. The Commission,
therefore, recommends that Congress re-examine the definition of "debt
collector" and state that an attorney who pursues alleged debtors solely through
litigation (or similar "legal" practices) -- as opposed to one who collects
debts through the sending of dunning letters or making calls directly to the consumer (or
similar "collection" practices) -- is not covered by the statute.
Section 803(6)(F)(iii): "Early Out"
Programs: Section 803(6) of the FDCPA sets forth a number of specific
exemptions from the law, one of which is collection activity by a party that
"concerns a debt which was not in default at the time it was obtained by such
person."(23) The exemption was designed to avoid
application of the FDCPA to mortgage servicing companies, whose business is accepting and
recording payments on current debts.(24) The theory
behind the exemption was that the Act should not apply to a business whose focus was the
routine processing of remittances (as opposed to the collection of delinquent accounts)
simply because such business continued to work an account after the account went into
The Commission staff has become aware, however, of a
number of industry members that acquire all of the accounts of their clients (hospitals or
other service providers) at an early stage when the accounts are current (sometimes called
an "early out" program) and then claim exemption from the FDCPA because each
account constitutes a "debt that was not in default when it was obtained" from
the creditor. In fact, collection of delinquent debts is the major focus of these
businesses. Apart from the fact that they acquire accounts prior to default, these
businesses function in all respects like typical debt collectors. Nevertheless, they can
argue that they are exempt from the FDCPA.
The Commission believes that Section 803(6)(F)(iii) was
designed to exempt only businesses whose collection of delinquent debts is secondary to
their function of servicing current accounts. However, the existing formulation of the
exemption, which focuses on the status of the individual debts at the time they are
obtained by the third party, allows collectors that obtain current debts that routinely go
into default to escape the coverage of the FDCPA. Therefore, the Commission recommends
that Congress amend this exemption so that its applicability will depend upon the nature
of the overall business conducted by the party to be exempted rather than the status of
individual obligations when the party obtained them. For example, the provision could be
redrafted to exempt an activity that "is incidental to a business whose principal
purpose is the servicing of current debts for others" or words to that effect. In
this manner, the mortgage servicer (who acts more like a creditor than a debt collector)
would not be covered, even though it might continue to collect the small fraction of its
accounts that become delinquent. By contrast, the debt collector that primarily collects
delinquent accounts (regardless of whether they were current when obtained) would be
unmistakably within the scope of the FDCPA.
ADMINISTRATION AND ENFORCEMENT BY OTHER
Section 814 of the FDCPA places enforcement obligations
upon seven other federal agencies for those organizations whose activities lie within
their jurisdiction. These agencies are the Office of the Comptroller of the Currency, the
Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision, the National Credit Union Administration, the Department of Transportation,
and the Department of Agriculture. These agencies have provided the Commission with a
description of their activities during the past year. Almost all of the organizations
regulated by these agencies are creditors and, as such, largely fall outside the coverage
of the Act. When these agencies receive complaints about debt collection firms that are
not under their jurisdiction, they generally forward them to the Commission.
The Office of the Comptroller of the Currency
("OCC") enforces compliance with the FDCPA's provisions with respect to national
banks. The OCC reports that its examination of all national banks on a regular basis shows
that there is a high level of compliance with the Act.(25)
No violations of the Act were discovered as a result of the OCC examinations of national
banks in 1998. The OCC also resolves complaints against national banks. It received 68,553
consumer complaints, of which 2480 involved debt collection practices or tactics. No
violations of the Act by national banks were identified.
The Federal Reserve Board ("FRB") enforces
compliance with the FDCPA's provisions with respect to member banks of the Federal Reserve
System other than national banks. The FRB continues to enforce the Act, as it applies to
state member banks, through regular compliance examinations. The FRB encountered no
significant problems enforcing the Act in 1998 and considers compliance with the Act by
state member banks to be satisfactory. A review of the 1998 Consumer Affairs examination
reports submitted to the FRB by December 31, 1998, revealed one violation of the FDCPA. In
1998, the FRB received 33 complaints alleging violations of the Act. Nine of the
complaints were against state member banks. None of the nine complaints was subject to the
Act because state member banks collected only their own debts.
The Federal Deposit Insurance Corporation
("FDIC") enforces compliance with the FDCPA's provisions with respect to banks
(other than members of the Federal Reserve System) whose deposits or accounts are insured
by the FDIC. The FDIC encountered no significant problems with enforcement of the FDCPA in
1998. Examiners checked for compliance with the Act during the course of regular
compliance examinations of approximately 6100 insured nonmember institutions that are
supervised by the FDIC. Based upon a review of 1863 compliance examination reports
completed in 1998, the FDIC found that only seven institutions supervised by the FDIC
engaged in activities that brought them within the FDCPA's coverage. None of the seven was
cited for FDCPA violations.
The Office of Thrift Supervision ("OTS")
enforces compliance with the FDCPA with respect to institutions subject to certain
provisions of the Home Owners Loan Act of 1933, the National Housing Act, and the Federal
Home Loan Bank Act. The OTS's examiners conducted 463 compliance examinations in 1998. No
FDCPA violations were cited. During 1998, the number of complaints received regarding the
Act was less than one percent of all complaints received for the year.
The National Credit Union Administration
("NCUA") enforces compliance with the FDCPA's provisions with respect to federal
credit unions. The NCUA has delegated the enforcement of the Act to six regional directors
who supervise field examiners in conducting on-site examinations of credit unions under
its jurisdiction. The NCUA's publication, Compliance: A Self-Assessment Guide,
provides credit union officials with information about the requirements of the Act. The
NCUA found no FDCPA violations in 1998 and received no complaints of federal credit unions
violating provisions of the Act. In general, federal credit unions do not perform debt
collection services for other credit unions or lenders.
The Department of Transportation ("DOT")
enforces compliance with the FDCPA's provisions with respect to air carriers subject to
the Federal Aviation Act of 1958. DOT did not report any FDCPA violations in 1998. DOT
states that air carriers collect their own debts and are thus largely outside the scope of
the provisions of the Act.
The United States Department of Agriculture
("USDA") enforces compliance with the FDCPA's provisions with respect to any
activities subject to the Packers and Stockyards Act. The USDA reports that it has
encountered no fact situations that fall within the statutory provisions of the Act.
STATE EXEMPTIONS FROM THE FDCPA
Section 817 of the FDCPA permits states to petition the
Commission for an exemption from the provisions of the Act.(26)
Pursuant to Section 817, the Commission promulgated regulations shortly after the
statute's enactment that provide criteria and establish procedures whereby the Commission
may exempt from the Act any debt collection practice within a state.(27)
To seek an exemption under the Act, a state must petition the Commission for a
determination that under the laws of that state, any class of debt collection practices
within that state is subject to requirements that are substantially similar to, or provide
greater protection for consumers than, the requirements of the FDCPA. To obtain an
exemption under the Act, the petitioning state must provide documentation demonstrating
that the state law provides protections substantially similar to those of the FDCPA, and
that the state has sufficient resources to enforce its law. The Commission received no
petitions for exemption in 1998.
As noted above, a high percentage of debt collectors
covered by the FDCPA already comply with the FDCPA. The Commission's balanced FDCPA
program of education and enforcement will continue to encourage those collectors to comply
and provide strong incentives for those who are not complying to do so in the future.
By direction of the Commission.
1. We cannot determine the extent to which abusive debt
collection practices in general are represented by the complaints the Commission receives.
Based on our enforcement experience, we know that many consumers never complain, while
others complain to the underlying creditor or to other enforcement agencies.
2. Section 809(a), 15 U.S.C. § 1692g(a). The collector
need not send such a written notice if the collector's initial communication with the
consumer was oral and the consumer received this information in the initial communication.
3. Section 805(a)(3), 15 U.S.C. § 1692c(a)(3).
4. Section 805(c), 15 U.S.C. § 1692c(c).
5. Section 807(5), 15 U.S.C. § 1692e(5).
6. Section 807(4), 15 U.S.C. § 1692e(4).
7. Section 807(2)(A), 15 U.S.C. § 1692e(2)(A).
8. Section 808(1), 15 U.S.C. § 1692f(1).
9. 53 Fed. Reg. 50,097 (1988).
10. A small number of the staff's Commentary positions are
now inaccurate because of a minor amendment to the statute and several recent court
11. Consent orders are for settlement purposes only and do
not constitute an admission by the debt collector that it violated the law.
12. 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). See also United States v. National Financial
Services, Inc., 98 F.3d 131, 139 (4th Cir. 1996) ("bold commanding type of the
dunning text overshadowed the smaller, less visible, validation notice printed on the back
in small type and light grey ink").
13. Miller, 943 F.2d at 484; Swanson, 869 F.2d
at 1225-26. Both the format and the substance of the letter were held to
"overshadow" the notice required by Section 809(a) in each case.
14. See, e.g., Geocities, Docket No.
3849, 1999 FTC Lexis 17, *14 (Feb. 5, 1999) (consent) (website privacy disclosure); California
Suncare, Inc., 123 F.T.C. 332, 383 (1997) (consent) (skin-tanning product warnings).
15. 53 Fed. Reg. at 50,109, comment 809(b)-1.
16. Bartlett v. Heibl, 128 F.3d 497, 501 (7th Cir.
1997) (Posner, J.).
17. Savino v. Computer Credit, Inc., 164 F.3d 81, 85
(2d Cir. 1998).
18. Id. at 86.
19. A current bill in the Senate, S. 576, proposes just such
20. Heintz, 514 U.S. at 299 ("[T]he Act applies
to attorneys who "regularly" engage in consumer-debt-collection activity, even
when that activity consists of litigation.").
21. Section 805(b) permits collectors to reveal a debt to
third-parties under certain circumstances, including with "the express permission of
a court of competent jurisdiction." Thus, an attorney could obtain "express
permission" from the court before taking each third-party deposition, but this seems
an inefficient method of proceeding.
22. Because of a 1996 amendment to Section 807(11),
attorneys do not have to state in their pleadings that they are attempting to collect a
debt and that any information obtained will be used for that purpose -- the so-called
23. Section 803(6)(F)(iii), 15 U.S.C.
24. The principal Senate Report on the final version of the
FDCPA states that the Senate committee that drafted the Act did not intend the definition
of "debt collector" to cover "mortgage service companies and others who
service outstanding debts for others, so long as the debts were not in default when taken
for servicing." S. Rep. No. 382, 95th Cong., 1st Sess. 7, reprinted in 1977
U.S. Code Cong. & Ad. News 1695, 1698.
25. The OCC's compliance program includes examinations of
all national banking companies every 24 or 36 months depending on the size and complexity
of the bank.
26. Section 817, 15 U.S.C. § 1692o provides:
The Commission shall by regulation exempt from the
requirements of this title any class of debt collection practices within any State if the
Commission determines that under the law of that State that class of debt collection
practices is subject to requirements substantially similar to those imposed by this title,
and that there is adequate provision for enforcement.
27. These regulations are
codified at 16 C.F.R. Part 901 et seq.