Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: FTC highlights enforcement of Fair Debt Collection Practices Act, (Mar 5, 2014)

By J. Preston Carter, J.D., LL.M.

The FTC has outlined its debt collection program, including stepped up enforcement of the Fair Debt Collection Practices Act in a letter to the Consumer Financial Protection Bureau. The FTC and CFPB share federal jurisdiction for enforcing the FDCPA, and the Dodd-Frank Act requires the CFPB to submit an annual report to Congress on the act. The FTC’s summary of its recent work on debt collection issues assists the CFPB in preparing its report.

The FTC stated that its debt collection program is a three-pronged effort: (1) vigorous law enforcement; (2) education and public outreach; and (3) research and policy initiatives. Over the past year, the FTC has employed all three prongs in its effort to curb unlawful debt collection practices and protect consumers.

Law enforcement. Both the FDCPA and the FTC Act authorize the FTC to investigate and take law enforcement action against debt collectors that violate those statutes. If an FTC investigation reveals that a debt collector violated the law, it may file a federal court action seeking injunctive and equitable monetary relief under Section 13(b) of the FTC Act (15 U.S.C. §53(b)) or refer the matter to the Department of Justice for civil penalties and injunctive relief.

During 2013, the FTC brought or resolved nine debt collection cases—the highest number in any single year. The FTC obtained preliminary or permanent injunctive relief in seven Section 13(b) cases involving debt collection, and referred two additional cases to the Department of Justice for civil penalties.

In FTC v. Forensic Case Management Services, Inc., the FTC secured substantial monetary judgments against a debt collection enterprise and a complete ban on future debt collection activity, along with other injunctive relief. In United States v. Expert Global Solutions, Inc., it secured a $3.2 million civil penalty for unlawful collection practices—the highest penalty the FTC has ever obtained against a third-party debt collector.

In United States v. National Attorney Collection Services, Inc., the FTC brought its first enforcement action involving the use of text messages to collect debts. It alleged that the company’s text messages falsely portrayed it as a law firm and failed to disclose that it was a debt collector. The settlement imposed a $1 million civil penalty.

In FTC v. Asset & Capital Management Group, the FTC obtained a temporary restraining order with an asset freeze, receivership, and immediate access to the business premises against a debt collector that the FTC alleged extorted payments from consumers by using false threats of lawsuits and calculated campaigns to embarrass consumers by unlawfully communicating with family members, friends, and coworkers. Litigation in this matter is ongoing.

In FTC v. Security Credit Services, LLC, the FTC alleged that a debt collection enterprise falsely threatened consumers with lawsuits and misled consumers into paying unnecessary “convenience fees.” This settlement secured nearly $800,000 in restitution for consumers.

The FTC recently settled allegations in FTC v. AMG Services, Inc., that a payday lender, collecting on its own behalf, violated the FTC Act by falsely threatening to take legal action against consumers. Also, the FTC obtained a temporary restraining order with an asset freeze in FTC v. Goldman Schwartz—a case alleging that the defendant falsely threatened consumers with arrest, disclosed consumers’ debts to third parties, collected unauthorized fees, engaged in harassing and abusive conduct, failed to provide required notices, and made collection calls before 8:00 a.m. and after 9:00 p.m.

The FTC also filed or resolved two actions against phantom debt collectors—those who engage in unfair, deceptive, or abusive conduct by attempting to collect on debts that either do not exist or are not owed to the phantom debt collector.

In FTC v. Pro Credit Group, LLC, the FTC obtained stipulated permanent injunctions and judgments totaling $67.5 million for violations of the FTC Act and the Telemarketing Sales Rule (16 C.F.R. Part 310). The complaint alleged that the defendants, working closely with an overseas call center in India, defrauded consumers out of millions of dollars by collecting payments for debts that the consumers did not owe to them or did not owe at all. The settlement includes an unsuspended judgment of approximately $25 million against one of the individual defendants. Although monetary judgments against the other defendants were largely suspended based on inability to pay, they were all required to turn over cash on hand, real estate, and other significant assets.

In FTC v. Pinnacle Payment Services, LLC, the FTC alleged the collection and processing of millions of dollars in payment for phantom debts using robocalls and voice messages that threatened legal action and arrest unless consumers responded within a few days. The FTC Commission obtained an ex parte temporary restraining order with an asset freeze, receivership, and immediate access against the defendants. Litigation in this matter is ongoing.

The FTC also filed three amicus briefs in the last year. In its brief for the Seventh Circuit, the FTC argued that a payday lender’s mandatory pre-dispute arbitration clauses may be unconscionable, in part because they require alleged debtors to arbitrate in a remote tribal court, effectively pressuring those consumers to abandon their legal claims or defenses. The FTC joined the CFPB in filing two other amicus briefs. The first, submitted to the Seventh Circuit, argued that a debt collector violates the law whenever its communications tend to deceive or mislead consumers into believing that a time-barred debt could be the subject of a collection suit. The second, submitted to the Second Circuit, argued that debt collectors whose process servers failed to notify consumers that they were being sued violate the Fair Debt Collection Practices Act, which broadly prohibits deceptive and unfair collection practices in any form.

Education and public outreach. The FTC educates consumers through English and Spanish print and online materials, one-on-one guidance, blog posts, and speeches and presentations. FTC staff works with an informal network of about 10,000 community-based organizations and other interest groups that order FTC products and distribute FTC information to their members, clients, and constituents.

The FTC educates industry by developing and distributing business education materials, delivering speeches, participating in panel discussions at industry conferences, and providing interviews to general media and trade publications. As part of the FTC’s Legal Services Collaboration project, FTC staff regularly meets with legal services providers to discuss various consumer protection issues, including the FTC’s work in the debt collection arena.

Research and policy initiatives. In the past year, the FTC has continued to monitor and evaluate the debt collection industry and its practices. It has collaborated with the CFPB to examine the role of data integrity in debt collection, and has provided the bureau with input on debt collection rulemaking and guidance initiatives. The FTC and the CFPB convened a group of consumer advocates, credit issuers, collection industry members, state and federal regulators, and academics to discuss the flow of consumer data throughout the debt collection process.

The FTC also works closely with the CFPB to coordinate efforts to protect consumers from unfair, deceptive, and abusive debt collection practices. As part of this coordination, the staff of both agencies regularly meet to: discuss ongoing and upcoming law enforcement, rulemaking, and other activities; share debt collection complaints; cooperate on consumer education efforts in the debt collection arena; and consult on debt collection rulemaking and guidance initiatives.

Companies: AMG Services, Inc.; Asset & Capital Management Group; Forensic Case Management Services, Inc.; National Attorney Collection Services, Inc.; Pinnacle Payment Services, LLC; Pro Credit Group; Security Credit Services, LLC

News: ConsumerProtection FederalTradeCommissionNews