the obama administration

President Obama has publicly stated that financial reform is his number one legislative priority now that the health care reform bill has been signed into law.  As the two year anniversary of the financial crisis approaches, the President hopes to have a financial reform bill ready for his signature as early as Memorial Day.  President Obama expressly stated his intention that the financial reform legislation reaches the debt industry.  He remarked, “I will not accept attempts to undermine the independence of the consumer protection agency, or to exclude from its purview banks, credit card companies or nonbank firms such as debt collectors, credit bureaus, payday lenders or auto dealers.”¹  The legislative activity on the various financial reform proposals is discussed in greater detail below.  We also discuss in this section some other executive branch activity impacting the debt industry. 

Federal Trade Commission (FTC)

Leadership News

• On April 6th, Julie Brill was sworn in by FTC Chairman Jon Leibowitz as a Commissioner through September 25, 2016.  Brill will take the place of Pamela Jones Harbour, whose term as a commissioner ended in September 2009.
  (http://www.ftc.gov/opa/2010/04/jbrill.shtm)
  
  
• On April 5th, Edith Ramirez was sworn in by FTC Chairman Jon Leibowitz as a Commissioner through September 25, 2015.  Ramirez will serve out a shorter term than Brill to fill a vacancy left by Deborah Majoras, who resigned in March 2008. (http://www.ftc.gov/opa/2010/04/eramirez.shtm)

 Administrative / Enforcement Activities

• On March 18th, the FTC announced a settlement with Credit Restoration Brokers LLC, and Debt Negotiations Associates LLC, and their owner, Sam Tarad Sky for false promises to help solve thousands of consumers’ credit and debt problems. Sky falsely told consumers who bought debt relief services they could satisfy their debt by paying much less than the full amount owed. The settlement calls for $2.5 million in suspended judgments and a prohibition against any future violations of the Credit Repair Organizations Act.
  (http://www.ftc.gov/opa/2010/03/creditrest.shtm)
  
  
• On March 3rd, Credit Bureau Collection Services, a nationwide debt collector, agreed to pay a civil fine of more than $1 million to settle FTC charges that it violated the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA) by inaccurately reporting credit information and pressing consumers to pay debts they did not owe. 
  (http://www.ftc.gov/opa/2010/03/creditcollect.shtm)
  
  
• On February 24th, the FTC released a report listing the top complaints filed by consumers in 2009.  The top two complaints were identity theft complaints and third party creditor / debt collection complaints.  Those two categories totaled 30% of all the complaints received by the FTC in the past year.
  (http://www.ftc.gov/opa/2010/02/2009fraud.shtm)

• On February 5th, the FTC announced it would begin distributing $1.6 million recovered from three companies, operating under the name National Check Control. The FTC had previously charged the companies with harassing and abusing consumers, falsely threatening criminal prosecution, illegally communicating with third parties, collecting amounts that were not due, and other violations of federal laws.  The funds will be distributed to 24,916 consumers who each lost $100 or more as the result of the defendants’ actions.(http://www.ftc.gov/opa/2010/02/checkin.shtm)

• On January 7th, the FTC announced a settlement order containing civil penalties of $375,000 against Albert Bastian and $300,000 against Keith L. Hurt III for violations of the FDCPA and the FTC Act. Bastian and Hurt were senior managers overseeing a Las Vegas collection center and allegedly contributed to false threats of garnishment, arrest, and legal action; improper calls to consumers that consisted of threats and harassment; along with unfair and unauthorized withdrawals from consumers’ bank accounts.  The order concludes all matters raised by the FTC in a larger case brought against Academy Collection Service, Inc. (http://www.ftc.gov/opa/2010/01/academy.shtm)

• On January 5th, the FTC issued an order to nine debt buying companies to turn over information about their practices in buying and collecting consumer debt as part of a FTC study of the debt-buying industry.  The FTC is seeking information to determine whether buyers of consumer debt are contributing to consumer complaints over debt collector practices involving attempts to collect from the wrong consumers or the wrong amounts.
  (http://www.ftc.gov/opa/2010/01/csi.shtm)

Federal Communications Commission

• On February 1st, the Federal Communications Commission (FCC) released its budget request for FY2011, which contained a focus on the implementation of the National Broadband Plan and protection of consumers in the FCC's performance goals, such as rigorous enforcement of the Telephone Consumer Protection Act. (http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-296111A1.pdf)
  
  
• On January 20th, the FCC proposed revisions to its rules under the Telephone Consumer Protection Act that would allow residential telephone subscribers to avoid unwanted telephone solicitations.  The proposal would require sellers and telemarketers to obtain written consent from recipients before making prerecorded calls, commonly referred to as “robocalls,” even when the caller has an established business relationship with the consumer.  The FCC also proposes to simplify the ability of consumers to opt out of receiving robocalls.  (http://hraunfoss.fcc.gov:80/edocs_public/attachmatch/DOC-295839A2.pdf)

Other Agency Activity

• On March 16th, the Administrative Office of the U.S. Courts released figures showing that lawsuits involving violations of the FCRA and the FDCPA increased 53% in 2009 from 2008. The figures indicate that 4,239 suites were filed in 2008, which increased to 6,463 suits filed in 2009.
  http://www.uscourts.gov/Press_Releases/2010/JudicialBusiness2009.cfm
  
  
• On February 24th, the Federal Election Commission (FEC) published proposed rules and a comment request in the Federal Register (75 FR 8274) to implement the Debt Collection Improvement Act of 1996. Among the procedures to be adopted by the FEC under the proposed rules would be to refer debts to the U.S. Department of the Treasury for collection action; and referring debts of more than $100,000 (exclusive of any interest and charges) to the Department of Justice for litigation. (http://www.gpo.gov:80/fdsys/pkg/FR-2010-02-24/pdf/2010-3687.pdf)

• On February 10th, the National Credit Union Administration (NCUA) published a final rule and staff commentary in the Federal Register (75 FR 6558) withdrawing portions of the NCUA’s credit practices regulations, known as the Unfair or Deceptive Acts or Practices (UDAP) Rule. Certain substantive requirements will no longer take effect as scheduled because the passage of the CARD Act and the amendments to Regulation Z have rendered the UDAP rule unnecessary.  However, the revised UDAP Rule will stipulate that it is an unfair act or practice for a federal credit union to levy additional delinquency charges on an amount unpaid that is only comprised of previously charged late fees or delinquency charges.
  (http://www.gpo.gov:80/fdsys/pkg/FR-2010-02-10/pdf/2010-2311.pdf)

• On December 28th, the Department of the Treasury published a final rule in the Federal Register (74 FR 68537) to offset tax refund payments to collect nontax debts owed to the United States. The rule authorizes the offset of Federal tax refunds irrespective of the amount of time the debt has been outstanding.
  (http://www.gpo.gov:80/fdsys/pkg/FR-2009-12-28/pdf/E9-30550.pdf)

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The 111th Congress

Financial Reform

On June 30, 2009, President Obama released legislative text for a comprehensive financial reform bill, including the creation of a Consumer Financial Protection Agency (CFPA), which was discussed in detail in the last DBA newsletter.

On December 11, 2009, the House passed by a vote of 223-202 the Wall Street Reform and Consumer Protection Act (H.R. 4173) that would create a CFPA, similar in many ways to the President’s proposal, with rulemaking and enforcement authority over a number of consumer protection statutes, including the FDCPA. No Republicans voted in favor of the bill, and they were joined by 27 Democrats in voting against the bill.

On March 15th, Senate Banking Committee Chairman Chris Dodd (D-CT) released legislative text for his own comprehensive financial reform bill that departs from the approach advocated by President Obama and House Financial Services (HFS) Committee Chairman Barney Frank (D-MA) by creating a Bureau of Consumer Financial Protection (BCFP) housed within the Federal Reserve rather than an independent CFPA. On March 22nd, the Senate Banking Committee reported out Dodd’s legislative text by a strictly partisan vote: all 13 Democrats on the committee voted in favor and all 10 Republicans on the committee voting against. Although over 450 amendments were filed on the committee level, no amendments were offered during the markup by either Democrats or Republicans except for a Dodd manager’s package. Among the amendments filed was an amendment by Sen. Bob Bennett (R-UT) that would preserve the FTC’s exclusive regulatory authority over the FDCPA and the accounts receivable management (ARM) industry. A coalition of the ARM trade associations (DBA, ACA, NARCA, CLLA) supported this amendment.

Dodd and Senate Majority Leader Harry Reid (D-NV) have both stated plans to have the bill on the President’s desk by Memorial Day. Negotiations between Dodd and Senate Banking Committee Ranking Member Richard Shelby (R-AL) have proceeded in a series of fits and starts, but Dodd continues to publicly affirm his desire for a bipartisan compromise. However, Dodd chose to move forward with a partisan bill in committee, and there is a growing consensus that there are not enough Republican votes to stop this legislation, or even to improve the bill greatly through the negotiation process. A weakened Republican position may result in Shelby conceding on many issues concerning the BCFP in order to improve other areas of the financial reform bill, such as derivatives. One point of contention that Shelby may not compromise on, and may be willing to kill the bill over, is his strong belief that any consumer protections in the bill be subject to safety and soundness principles. The amendment process on the Senate floor could also potentially push the bill toward even more harsh regulation of the ARM industry by the BCFP, including substantive amendments to the FDCPA.

FTC Reauthorization

Throughout the debate on financial reform, the role of the FTC in protecting consumers has received a great deal of attention. FTC Chairman Jon Leibowitz has specifically requested that regardless of how the Congress chooses to reform financial consumer protection functions (CFPA v. BCFP), the “Congress should ensure that the FTC’s authority and ability to protect consumers is neither eroded nor made unclear.”

The Senate Commerce Committee has held two hearings so far this year on the FTC’s consumer protection functions. Testifying before the Committee,² FTC Chairman Jon Leibowitz requested the following new enforcement and regulatory tools to significantly enhance the FTC’s ability to protect consumers:
1. Increased resources and funding;
2. Authority to prosecute entities that aid and abet in unfair or deceptive practices;
3. APA rulemaking;
4. Broad authority to seek civil penalties for violations of the FTC Act; and
5. Authority to prosecute civil penalty cases in federal court in its own name.

GLB Annual Financial Privacy Notices

On July 31, 2009, Rep. Erik Paulsen (R-MN) introduced a bill (H.R. 3506) that would amend the Gramm-Leach-Bliley Act to provide an exception from the continuing requirement for annual privacy notices for financial institutions which do not share personal information with affiliates. HFS Chairman Barney Frank has approached Paulsen on the House floor about moving this bill quickly when the Congress reconvenes.

Problematically, H.R. 3506, as introduced, limits the availability of the waiver to companies that do not share personal information with third parties, including affiliates. Many debt buyers, perhaps most debt buyers, do, in fact, share personal information with their own affiliates – usually debt collection agencies that are owned by the debt buyers. DBA is working to delete the provision in H.R. 3506 that would limit the potential benefits of this bill from those financial institutions that “share information with affiliates under Section 603 (d)(2)(A) of the Fair Credit Reporting Act”. Although Paulsen’s office has accepted DBA’s proposed change to delete the reference, the new language must still be vetted by HFS committee staff before.

Discharge of Indebtedness

On February 2nd, Rep. John Lewis (D-GA) introduced a bill that would provide a limited exclusion from gross income for the discharge of individual indebtedness of up to $10,000. DBA strongly supports the potential benefits of this bill in providing additional incentives for debtors to reach settlement terms with DBA members. DBA, however, is currently working with Rep. Lewis’ staff to clarify whether DBA members would also be relieved of the burden of providing informational requirements about the discharge to the IRS under the bill. DBA hopes to amend the bill to provide relief to DBA Members from the potential liability that arises when a debt buyer does not have the information necessary to complete a 1099-C, such as a precise breakdown of the debt into principal, interest and fees. DBA intends to remain closely involved throughout the legislative process as the Congressman and the House Ways and Means Committee staff work through how the bill will operationally amend the tax code.

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State Legislation

• Florida SB 2727 seek to amend the Florida Consumer Collection Practices Act (“FCCPA”) to deem a violation of the FDCPA, a per se violation of the Florida Deceptive Trade Practices Act. The Bill seeks to eliminate the bona fide error defense, increase the statute if limitations to four (4) years and increase the Attorney General’s ability to enforce actions as well as increasing licensing burdens.

• Illinois Proposed Amendment to 735 ILCS 512-403 requires an assignee of debt to allege and prove title to debts including dated and parties to all assignment to be attached to complaints and without the same, judgments will be void.
  
  
• Kentucky  HB 245 is similar to the North Carolina Bill which passed in 2009 and would require debt buyers who whish to bring suit, arbitration, or otherwise collect on a debt to obtain a copy of the contract or other evidence of the debt, shorten the statute of limitations and prohibits collection on out of statute debts.
  
  
• Massachusetts  SB 1691 would shorten the statute of limitations with regard to contracts in which the money, property or services, that are the subject of the transactions, were primarily for personal, family or household purposes to four (4) years.  The Bill would bar any activity directly or indirectly to collect the debt.
  
  
• Minnesota  SB 2689 would increase burdens on filing suit on a consumer debt by requiring additional documentation, affidavits and itemization.  The Bill is similar to the North Carolina Bill which passed in 2009 and would also shorten statute of limitations and require notice of commencement of suit.
  
  
• New York S 4398-A and A 7558-A would require that the statute of limitations on a consumer debt be three (3) years and eliminate collection past three (3) years. The Bills would increase burdens on the filing of consumer collection suits to include itemization of the debt and evidence of assignment.

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Fair Debt Collection Practices Act (FDCPA) Case Law

• Lawsuits and validation notices. Ellis v. Solomon and Solomon, P.C., 591 F.3d 130 (2nd Cir. 2010) held that law firm violated the FDCPA by filing suit during validation period by failing to reiterate that validation rights continued.
  
  
• Threats of Legal Action. LeBlanc v. Unifund, CCR. No. 08-16031 (March 30, 2010 Eleventh Circuit Court of Appeals) held that least sophisticated consumer might be mislead by letter which indicated suit “may” be referred to attorney in their area and that a cause of action exists for failure to be licensed under Florida law as a FDCPA suit.
  
  
• Foti Message. Edwards v. Niagra, 584 F.3d 1350 (11th Cir. 2009). The Eleventh Circuit held that debt collector was not allowed to rely on the bona fide error defense to avoid disclosing debt by failing to leave a Foti compliant message.
  
  
• Privacy Notice Not Misleading. Verhusen v. Capital Management, 09:cv-00354 (D. Neb. Jan. 29, 2010). Privacy notice attached to collection letter was not by itself a FDCPA violation as the notice was not misleading.
  
  
• 1099C Notice. Gorbaty v. Portfolio Recovery Associates, LLC, 2009 U.S.
  App. LEXIS 26747 (December 9, 2009). Mailing of 1099c form was not attempt to collect debt and when debt was cancelled there was no debt and therefore, no debt collection.
  
  
• Garnishment Rights not required to be stated. Jelencovich v. Dodge Enterproses Inc., 2010 U.S. Dist LEXIS 116309 (December 14, 2009). Debt collector was not required to advise a debtor of possible exemptions to prevent enforcement.
  
  
• Letter stating post judgment rights not a violation. Wise v. CACH, LLC, 2010 U.S. Dist. LEXIS 29247 (March 26, 2010). Debt collection letter which accurately stated post judgment rights regarding foreclosure was not deceptive.
  

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