Dealing with Debt: Strategies for Protecting Consumers

1. Dealing with Debt: Strategies for Protecting Consumers Access to Justice/WSBA Conference June 9, 2012 Julie K. Mayer Federal Trade Commission (206) 220-4475 jmayer@ftc.gov

2. FTC and Credit Matters • Law Enforcement: • FTC Act (unfair and deceptive business practices) • FDCPA • FCRA • Telemarketing Sales Rule (including debt relief services) • Mortgage Assistance Relief Rule (MARS) Policy: workshops, reports, Congressional testimony • Consumer and Industry Education

3. Debt Collection • Debt collection complaints top category of FTC complaints. • In 2011, 10% of all consumer protection complaints (2nd place after ID theft). • 180,928 complaints • Top category of complaints from WA consumers (12% of all complaints). • 3,271 complaints

4. Collecting Consumer Debts: The Challenges of Change (2009) • Serious consumer protection concerns with debt collection litigation and arbitration. • Growth of debt buyer industry: increased 500% between 1996-2006. • Estimated 90% of debt sold is credit card debt.

5. Debt Buyers: What are they and what do they do (and not do)? • Purchase accounts in bulk for pennies on the dollar: • Asset Acceptance: over the last decade, purchased debts for an average of 2.7% of face value . . . which generated 253% of that price through collections. • Purchase disproportionately old debt: • Asset Acceptance 2011 10-K: more than 50% of accounts are tertiary debt.

6. Debt Buyers: What are they and what do they do (and not do)? • Receive account info an electronic spreadsheet containing minimal information about accounts. • Underlying documentation typically not purchased. • Contractual agreements often provide limited access to original documents.

7. FTC Roundtables (2009) • Debt collection litigation and arbitration • Nationwide • Nearly 100 expert panelists • Public comments solicited.

8. FTC Report (2010):Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration

9. Key Issues Consumer Participation Evidence of Indebtedness Time-Barred Debt Emerging Issue: Bail Funds & Debt

10. Consumer Participation:Findings • Few consumers appear or defend. • Service and notice problems. • Lack of familiarity with litigation. • Costs of participating. • Appearing or defending would be futile (does filing suit suggest to consumer that collector can prove its case?) • Consequences: default judgment.

11. Consumer Participation: FTC Recommendations • Improve service of process and notice. • Educate and assist consumers to increase their comfort with litigation and awareness of possible defenses. • Decrease costs to consumers: • Use technologies to decrease time and costs of attendance. • Award consumers lost wages and costs, where appropriate. • Encourage pro bono assistance.

12. Consumer Participation: Reforms • Supplemental Notices in addition to Service: • North Carolina – 30 days pre-suit (2009). • NYC – US Mail letter sent by clerk to same address where service was made. Bars entry of default if letter is returned as undeliverable. • Enhanced Service Requirements: • NYC – GPS tracking of process server locations. • MA, CT – require consultation of multiple lists to identify correct, current address. • Pro Bono and Self-Help Measures: • NYC, Chicago – Limited courthouse assistance with debt collection defense. • Checklists of possible defenses. Court-issued consumer education. • Reform Default Procedures: • Several states, e.g., DE, MD, encourage extra judicial scrutiny before granting default judgments for plaintiffs or continuances when plaintiff is unprepared.

13. Evidence of Indebtedness: Findings • Complaints filed against wrong person or for wrong amount. • Complaints lack sufficient information: • Inadequate information about alleged debt. • Inadequate information about the underlying credit contract.

14. Spotlight on Debt Buyers:Insufficient and/or Inaccurate Evidence of Indebtedness • Documents that can establish debt typically not purchased in the first instance. • Contracts may disclaim accuracy of account information or specifically state certain info is inaccurate. • Documents may only be available for a % of accounts purchased.

15. Spotlight on Debt Buyers:Insufficient and/or Inaccurate Evidence of Indebtedness • Acquisition contracts limit the length of time account docs are available from original creditor (and may involve secondary purchaser going back to original creditor, so reduced guarantee of availability). • Available documents may be generic; i.e., pamphlets about general credit card terms not specific to terms of individual account.

16. “Robosigned” Affidavits • Affiant rapidly signs numerous documents swearing s/he has personal knowledge of the underlying issues when not true. • Can debt buyer employee testify as to accuracy of records belonging to credit originator? • Is the affiant even a qualified records custodian of the debt buyer? • Alleged in mortgage and debt collection cases. • Vassalle v. Midland Funding (N.D. Ohio 2011) • Where default is common (as in collection suits), affidavit assertions likely will go unquestioned.

17. Evidence of Indebtedness: Strategies for Consumers • Seek debt verification (FDCPA §809). • Dispute debt: provide as much detail as possible. • Dispute errors on credit reports: • Dispute with CRAs. • Dispute with furnisher (creditor or debt buyer). • FTC’s Furnisher Rule: supplemental avenue for disputing inaccurate reports • In litigation: • raise evidentiary challenges • seek discovery of proof of debt

18. Evidence of Indebtedness: FTC Recommendations • Complaints should include: • Original creditor + redacted account #. • Default/charge-off date + amount due then. • Current owner of the debt. • Total amount due: principal, interest, and fees. • Contract or description of relevant terms.

19. Evidence of Indebtedness: Reforms • Maryland “Judgment on Affidavit” rule (September 2011): • requires personal knowledge and admissible evidence. • Delaware Court of Common Pleas Administrative Directive (effective July 2011): • requires additional information in complaint and original contract and assignment of debt must be attached. • Massachusetts Attorney General Regulations (effective March 2012): • supplements FDCPA §809 and requires “creditor” to provide disputing consumer with evidence of the debt and other information • A “creditor” specifically includes a debt buyer (whether it engages in collection itself or uses third-party collectors)

20. Time-barred Debt: Findings • Much time-barred debt being collected: • Consumers may believe that collectors can sue to recover on this debt. • Consumers may pay on this debt without knowing that such payments may revive the entire balance for a new statute of limitations period. • Some time-barred debt being sued upon, usually leading to default judgments.

21. Time-barred Debt: Strategies for Consumers • Ask the collector if the debt is past-stat. • Even if not required to disclose in the first instance, law requires a truthful answer. • Ask collector what their records show is your date of last payment. • If unsatisfactory response, request verification of the debt (FDCPA § 809). • Avoid inadvertent debt revival. • If agree to pay a lesser amount than is due to settle the debt, get signed. acknowledgment from collector confirming that payment settles the debt. • If sued on time-barred debt, raise defense and consider filing FDCPA counterclaim.

22. Time-Barred Debt: FTC Recommendations • General: • States should clarify statute of limitations, if necessary. • Litigation: • States should make the statute of limitations part of the collector’s case in chief rather than an affirmative defense.

23. Time-Barred Debt: FTC Recommendations • Collectors should disclose that consumers cannot (or will not) be sued if they do not pay. • States should change laws so that payment does not revive full debt unless consumers knowingly consent to its revival. • If states continue to permit revival, collectors should disclose the consequences of partial payments.

24. Time-Barred Debt: Reforms • Wisconsin & Mississippi: bar collection of time-barred debt. • North Carolina: bars debt buyers from collecting on time-barred debts and requires disclosures re consequences of acknowledging debt that is past-stat. • New Mexico: State AG issued rule that requires disclosure to consumers of rights & consequences of paying when collector believes debt is time-barred. • Also Massachusetts and NYC

25. Bail Funds and Debts: • FTC Recommendation: • States should bar debt collectors from seeking or obtaining from the court any posted bail money. • State Law Reform: • Washington State statute bars debt collectors from accepting the bail money of debtors jailed on bench warrants.

26. Role of the FTC • Advocate changes to state policymakers and debt collection stakeholders. • Serve as clearinghouse for state reforms. • Consider law enforcement actions and other activities to deter misleading consumers about time-barred debt. • Collaborate with other federal agencies, such as the Consumer Financial Protection Bureau. • Collaborate and support the work of legal services attorneys in debt collection and other consumer protection matters.

27. Conclusion • Questions?