the obama administration

Consumer Financial Protection Bureau

On July 21st, President Obama signed into law the financial reform bill (H.R. 4173) that creates a Consumer Financial Protection Bureau (CFPB)¹. The CFPB, at least initially, is likely to be religiously pro-consumer and anti-business. The President has yet to name anyone to serve in the role as the CFPB’s first director, but a coalition of Senators and House members, including House Financial Services Committee Chairman Barney Frank (D-MA), have asked the President to select consumer crusader Elizabeth Warren. Assistant Treasury Secretary Michael Barr and deputy Attorney General Eugene Kimmelman are also widely believed to be on the short list of potential candidates. Even if Warren, or another like-minded individual, takes the reins of the CFPB, the entity will not necessarily focus initially on debt industry issues. The CFPB will be brand new; staffing will be a challenge; and the CFPB may be preoccupied with the larger parts of the financial services industry, such as the mortgage industry and the credit card industry and retail banks.

The Fair Debt Collection Practices Act (FDCPA), and other consumer protection laws such as the Fair Credit Reporting Act (FCRA) and the Gramm-Leach-Bliley Act (GLB), will be transferred from the Federal Trade Commission (FTC) to the CFPB, giving the CFPB jurisdiction over those entities regulated by the FDCPA. Thus, passive debt buyers will be subject to CFPB jurisdiction as will active debt buyers engaged in collection activity. Collection agencies that engage only in third party debt collection are also covered. The bill defines a financial activity as including “collecting debt related to any consumer financial product or service.” Importantly, DBA members and other covered entities will not have to pay for this new layer of government oversight, as the CFPB will not be empowered to impose assessments on covered persons.

The CFPB’s responsibilities under the FDCPA and under the other enumerated statutes will not become effective until a designated “transfer date”. The transfer date will be negotiated by the CFPB and the FTC, and will be set sometime in the next 6 months to 18 months.

The powers and authorities of the CFPB are still taking shape, but as granted to CFPB in the financial reform bill:

• Rulemaking - The CFPB has broad rulemaking authority.
  
  
  • The CFPB is empowered to issue rules to administer, enforce, and otherwise implement the FDCPA. Thus, for the first time in its thirty-three year history, the FDCPA will be subject to administrative rulemaking. This raises the prospect of comprehensive and adverse changes to the FDCPA. DBA and the debt industry will have to be actively engaged with the CFPB and participate in any FDCPA rulemaking.
    
    
  • The CFPB has broad rulemaking authority to prohibit acts or practices that the CFPB determines are unfair, deceptive or abusive.
    
    
  • The CFPB may prescribe rules to ensure that the features of any consumer financial product or service, both initially and over the term of the product or service, are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the product or service.
    
    
  • The CFPB will issue a rule to make available to consumers, upon request, information in the control or possession of DBA members, including information relating to any transaction, series of transactions, or to the account including costs, charges and usage data.
    
    
  • The CFPB may prescribe rules to ensure that DBA members are able to perform their “obligations to consumers”, including background checks for principals, officers, directors, or key personnel and bonding or other appropriate financial requirements.
    
    
  • The CFPB may, by rule, impose registration requirements applicable to covered persons, including DBA members.
    
    
• Supervisory - The CFPB has intrusive new supervisory powers over covered persons.
  
  
  • The CFPB may require DBA members to provide a timely response, in writing where appropriate, to the CFPB in response to a consumer complaint or inquiry. The CFPB will establish a database of consumer complaints, including FDCPA complaints and complaints against DBA members individually, and the CFPB will coordinate complaint resolution. It remains to be seen what efforts the CFPB will make to resolve individual complaints.
    
    
  • The CFPB may monitor risks to consumers in the offering or provision of consumer financial products or services, including developments in specific markets. This includes the power to gather information “from time to time” on DBA members through condition reports and examinations about the organization, business conduct, markets, and activities of debt buyers.
    
    
  • The CFPB may require DBA members to generate, provide, or retain records for the purpose of facilitating the CFPB’s supervision and the CFPB’s assessment and detection of risks to consumers
    
    
• Enforcement - The CFPB is empowered to act unilaterally to initiate judicial actions, unlike the FTC which must pursue litigation through the Department of Justice. The civil penalties that may be assessed by the CFPB for any violation of a law (i.e. the FDCPA), rule, or final order can range up to:
  
  
  • $5,000 per day for any violation;
  • $25,000 per day for reckless violations; and
  • $1 million per day for knowing violation
    
    
• Aid and Abet - The CFPB may also pursue enforcement actions against those alleged of aiding and abetting any violator by "knowingly or recklessly providing substantial assistance to a covered person who is in violation".
  
  
• Investigative - The CFPB has investigative powers to:
  
  
  • Issue subpoenas;
  • Demand documentary materials, tangible things, written reports, or testimony;
  • Conduct hearings and adjudication proceedings; and
  • Issue cease-and-desist orders.

The bill is not preemptive, so states have the authority to enact more stringent consumer protection requirements than the CFPB. The State Attorneys General are also empowered to enforce rules promulgated by the CFPB on the state level.

Federal Trade Commission (FTC)

Although the CFPB’s FDCPA rulemaking authority goes into effect immediately, the FTC will continue to have authority over the FDCPA until the designated transfer date. As a practical matter, any substantive activity on the FDCPA will likely be delayed for some time, especially because there will be no automatic transfer of FTC staff to the CFPB. On the other hand, until the FDCPA is transferred to the CFPB, the FTC is expected to strongly exert its consumer protection authority. Newly confirmed FTC Commissioner Julie Brill spoke in mid-July to the ACA Annual Convention and emphasized her commitment to improving protection for consumer debtors.

The FTC also retains its existing jurisdiction over Section 5 of the FTC Act. The CFPB will also have the power to take action against unfair, deceptive or abusive practices. However, the ability of the FTC to enforce CFPB rules is controlled by the following language:

“The Bureau and the Federal Trade Commission shall negotiate an agreement for coordinating with respect to enforcement actions by each agency regarding the offering or provision of consumer financial products or services by any covered person … The agreement shall include procedures for notice to the other agency, where feasible, prior to initiating a civil action to enforce any Federal law regarding the offering or provision of consumer financial products or services.”

The agreement to divide enforcement authority between the CFPB and the FTC must be reached no later than six months after the transfer date. Regardless of the agreement, the CFPB and the FTC will still have the power to intervene and be heard on any civil actions, including FDCPA actions, filed by the other agency.

Despite many efforts throughout the legislative process, including the support of President Obama, language was not included in the financial reform bill to provide enhanced powers to the FTC. This was a particularly controversial point during the conference process, which concluded with the House conceding to the Senate and removing language that would have given the FTC enhanced civil penalty authority, the ability to pursue litigation in the FTC's own name rather than through the Department of Justice, and APA rulemaking.

FTC Actions in 2010

• On July 22nd, the FTC announced a settlement with Mutual Consolidated Savings after the company allegedly misled American and Canadian consumers about a program to rapidly reduce credit card debts. The FTC has also alleged that the company called numbers listed in the Do Not Call Registry, transmitted phony Caller ID information, did not identify themselves during phone calls, and made robocalls. The order requires the defendants to pay $1.5 million.
  (http://www.ftc.gov/opa/2010/07/mutualconsol.shtm)
  
  
• On July 12th, the FTC issued a report entitled, “Repairing a Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration,” that provides recommendations regarding litigation and arbitration reforms. The FTC recommends that states consider adopting measures to ease the ability of consumers to defend against litigation by requiring debt collectors to include more information about the debts in their complaints.
  (http://www.ftc.gov/opa/2010/07/debtcollect.shtm)
  
  
• On April 23rd, the FTC released the “FTC’s 2010 Annual Report,” which highlights the FTC’s efforts to protect financially distressed consumers and promote competition during the economic downturn. Among FTC activities including in the report was a discussion of the FTC’s recent public roundtables to explore consumer privacy.
  (http://www.ftc.gov/os/2010/04/2010ChairmansReport.pdf)
  
  
• On April 22nd, FTC Commissioner Julie Brill testified before the Senate Commerce Committee at a hearing on the debt settlement industry. Brill addressed rules the FTC may propose to combat deceptive and abusive telemarketing of debt relief services. The change to the Telemarketing Sales Rule would apply when consumers call telemarketers in response to debt relief advertising and would require these telemarketers to make certain disclosures and prohibit them from making false claims. The FTC staff is currently reviewing public comments on the proposal.
  (http://www.ftc.gov/opa/2010/04/debttestimony.shtm)
  
  
• On April 8th, the FTC announced charges against payday lenders, Ecash and GeteCash, for violations of the FTC Act, the FDCPA, and the Credit Practices Rule. The FTC alleges that the companies illegally attempted to garnish borrowers’ wages to collect on delinquent loans. The companies also allegedly informed employers and co-workers of the debts in violation of the FDCPA.
  (http://www.ftc.gov/opa/2010/04/getecash.shtm)
  
  
• On April 2nd, the FTC released its “Annual Report 2010: Fair Debt Collection Practices Act,” which details the types of consumer complaints the FTC received in 2009. The report noted that although the number of consumer complaints to the FTC about third-party debt collectors increased in absolute terms, the numbers decreased as a percentage of all complaints that consumers filed directly with the FTC.
  (http://www.ftc.gov/os/2010/04/P104802fdcpa2010annrpt.pdf)
  
  
• On March 26th, the FTC announced a settlement with Group One Networks, Inc. arising from an advance-fee credit card offer and an advance-fee interest-rate reduction/debt negotiation program. The FTC alleges that the company debited consumer bank accounts without permission, failed to tell consumers they would not be able to get a refund, and illegally called consumers whose names were on the National Do Not Call Registry. The order imposes a $17.2 million suspended judgment.
  (http://www.ftc.gov/opa/2010/03/groupone.shtm)
  
  
• 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 alleged false promises to help solve thousands of consumers’ credit and debt problems. According to the FTC, Sky charged consumers before performing services while failing to tell customers they could cancel contracts within three business days; and 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 against Sky and the companies 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 FDCPA and the Fair Credit Reporting Act by inaccurately reporting credit information and pressing consumers to pay debts they did not owe. In addition to imposing civil penalties, the FTC settlement order bars the defendant from making unsupported statements to collect a debt or obtain information about a consumer.
  (http://www.ftc.gov/opa/2010/03/creditcollect.shtm)
  
  
• On January 7th, the Federal Trade Commission announced a settlement order containing civil penalties of $375,000 against Albert Bastian and $300,000 against Keith L. Hurt III for alleged violations of the Fair Debt Collection Practice Act and 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 settlement 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, which the FTC intends to use for a study of the debt-buying industry. The FTC is seeking information to determine whether buyers of consumer debt are contributing to consumer reports of debt collector practices involving attempts to collect from the wrong consumers or the wrong amounts.
  (http://www.ftc.gov/opa/2010/01/csi.shtm)
  
  
• At the beginning of 2010, the FTC launched a video to inform consumers of their rights when facing debt collection activity.
  (http://www.ftc.gov/multimedia/video/credit/debt/debt-collection.shtm)

Federal Communications Commission (FCC)

• On January 20th, the FCC proposed revisions to its rules under the Telephone Consumer Protection Act (TCPA) 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 telemarketing 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 consumer to opt out of receiving robocalls.
  (http://hraunfoss.fcc.gov:80/edocs_public/attachmatch/DOC-295839A2.pdf)
  
  
• On June 21st, DBA and a coalition of business associations submitted comments to the FCC on the proposed rules. The comments state that:
  
  
  • The coalition opposes the current proposed rule that would extend the written consent requirement to autodialed or prerecorded calls to wireless services.
    
    
  • Businesses regularly contact their customers to deliver a wide range of important communications, and due to the expanded use of wireless devices, these communications are increasingly made through autodialed and/or prerecorded message calls to wireless devices.
    
    
  • The scope of the proposed rules is too broad and seeks to extend the TCPA’s written consent requirements beyond the Telemarketing Sales Rule to include calls other than commercial sales calls, such as noncommercial, safety, and informational messages.
    
    
  • The requirement of written consent to use autodialers and prerecorded messages when calling wireless devices would also extend to text messages sent using autodialers, and would include even those messages requested by customers (e.g., reporting an account balance or transaction).
    
    
  • The coalition requests that the FCC reaffirm its prior position that “prior express consent” obtained orally or in writing is sufficient to make autodialed and/or prerecorded non-marketing calls to wireless services.

Other Federal Agency Activity

• On June 15th, the Federal Reserve approved a final rule under the CARD Act to protect credit card users from unreasonable late payment and other penalty fees and to require credit card issuers to reconsider interest rate increases imposed since the beginning of last year. Generally, the provisions in this final rule will go into effect on August 22, 2010.
  (http://www.federalreserve.gov/consumerinfo/wyntk_creditcardrules2.htm)
  
  
• The Department of Education (DOE) has removed from public view the series of procedures used by the companies DOE hires to collect from defaulted student loan borrowers. DOE stated it was “reviewing” what information should be public, and that once the review was completed, DOE would “re-post all appropriate information.” In the meantime, DOE is directing borrowers to its “Guide to Defaulted Student Loans.”
  (http://www.usnews.com/blogs/college-cash-101/2010/07/05/government-mulls-making-debt-collection-rules-secret.html)
  
  
• On April 22nd, the Government Accountability Office (GAO) released a report arguing that some debt settlement companies engage in fraudulent, deceptive, and abusive practices that pose a risk to consumers, such as claiming unusually high success rates for their programs. The report found consumer experiences to be consistent across widespread complaints and charges made by federal and state investigators on behalf of real consumers against debt settlement companies.
  (http://www.gao.gov/new.items/d10593t.pdf)
  
  
• On March 16th, the Administrative Office of the U.S. Courts released figures showing that lawsuits involving violations of the Fair Credit Reporting Act and the FDCPA increased 53% in 2009 from 2008. The figures indicate that 4,239 suits 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 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, because 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 January 8th, the IRS released a report on the termination of the IRS’ private debt collection program. The report concludes that there was no indication in the history of the program that the private collection agencies hired by the IRS did not comply with procedures related to taxpayer rights.
  (http://www.treas.gov/tigta/auditreports/2010reports/201030013fr.pdf)
  

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The 111th Congress

Consumer Financial Protection Agency (CFPA)

For two weeks during the month of June and concluding on June 25th, a formal conference was held to resolve differences between the House and the Senate versions of the financial reform bill (H.R. 4173). On June 30th, the House adopted the conference report of the Dodd-Frank Wall Street Reform and Consumer Protection Act. On July 15th, the Senate voted on final passage as well. On July 21st, President Obama signed the bill into law.

Throughout the legislative process, DBA was actively involved to address potential threats to the debt industry. Among the amendments proposed, but not included in the bill, was an amendment by Sen. Chuck Schumer (D-NY) that would have sought to impose new regulatory requirements on the debt settlement industry. Ultimately, the financial reform bill did not include any substantive changes to the existing regulatory regime that oversees debt buyers, deferring instead to future action by the newly formed CFPB.

We do, however, expect subsequent legislation that could substantively modify or merely clarify portions of the bill. Barney Frank (D-MA), Chairman of the House Financial Services Committee, has already indicated that, at a minimum, there will be follow-up legislation to make technical corrections.

FTC Authority

As stated, the financial reform bill does not provide enhanced powers to the FTC. The bill, however, does include language that will prevent the wholesale transfer of FTC employees to the CFPB.

The FTC continues to advocate before the Congress for expanded FTC authority through various other legislative vehicles, such as a FTC reauthorization bill. Last year Rep. Bobby Rush (D-IL) introduced the Consumer Credit and Debt Protection Act (H.R. 2309) that would offer the FTC expedite rulemakings on debt settlement and automobile sales as well as grant the FTC enforcement authority to pursue consumer credit or debt practices in violation of the FTC Act.

The Senate Commerce Subcommittee on Consumer Protection, Product Safety, and Insurance held two hearings earlier this year (February 4th; March 17th) to discuss the FTC’s role in consumer protection, but no bill has yet been introduced.

GLB Annual Financial Privacy Notices

On April 14th, the House passed on suspension a bill (H.R. 3506) by Rep. Erik Paulsen (R-MN) that would amend the Gramm-Leach-Bliley Act (GLB) to provide an exception from the continuing requirement for annual privacy notices for financial institutions which do not share personal information with affiliates. DBA members are in the unique position of being forbidden by law, under the FDCPA, from sharing the type of information covered in this GLB notice. Thus, this bill would relieve DBA members of the administrative burden of sending a notice that serves little purpose other than to confuse consumers. DBA is working with Senate staff to move this bill in the Senate before the end of the 111th Congress.

Debt Settlement

On April 27th, Sen. Chuck Schumer introduced a bill (S. 3264) to provide for regulation of debt settlement services. On May 25th, Rep. Luis Gutierrez (D-IL) introduced a companion bill (H.R. 5387) in the House. The bills would restrict certain fees and marketing practices as well as impose new written contract obligations. Under these bills, the regulatory authority over the debt settlement industry would be at the FTC. We do not expect either of these bills to see further movement in the 111th Congress.

Information Security Requirements & Data Breach Notification

On December 8, 2009, the House Energy and Commerce Committee reported out a bill (H.R. 2221) by Commerce, Trade and Consumer Protection Subcommittee Chairman Bobby Rush (D-IL) that seeks to protect consumers by requiring reasonable security policies and procedures to protect computerized data containing personal information, and to provide for nationwide notice in the event of a security breach. The House passed the bill under suspension of the rules later that same day. The bill has been referred to the Senate Commerce Committee where Subcommittee Chairman Mark Pryor (D-AR) plans to move the bill, possibly through some formal action (i.e. a hearing or a markup) or as a rider to the Senate defense authorization bill (S. 3454). DBA is working directly with Hill staff to narrow the scope of the bill so that debt buyer and skip tracing activities will not be covered.

Two other bills that include information security or breach notification provisions have been reported out by the Senate Judiciary Committee:

• S. 139 introduced by Sen. Dianne Feinstein (D-CA) would require Federal agencies, and persons engaged in interstate commerce, in possession of data containing sensitive personally identifiable information, to disclose any breach of such information.
  
  
• S. 1490 introduced by Sen. Patrick Leahy (D-VT), Chairman of the Senate Judiciary Committee, is a broader bill that seeks to prevent and mitigate identity theft, to ensure privacy, to provide notice of security breaches, and to enhance criminal penalties, law enforcement assistance, and other protections against security breaches, fraudulent access, and misuse of personally identifiable information. This bill also contains data broker language that could impact debt buyers.

Other Federal Legislative Activity

Caller ID

On April 14th, the House passed under suspension of the rules a bill (H.R. 1258) by Rep. Eliot Engel (D-NY) that would prohibit manipulation of caller identification information by causing any caller identification service to transmit misleading or inaccurate caller identification information with the intent to defraud or cause harm. The bill has been referred to the Senate.

Two other bills that include caller ID provisions have also been introduced in the 111th Congress:

• On January 7, 2009, Sen. Bill Nelson (D-FL) introduced a bill (S. 30) to prohibit manipulation of caller identification inforation. On November 2, 2009, the Senate Commerce Committee reported out the bill for consideration by the full Senate.
  
  
• On February 23, 2009, Rep. Bobby Scott (D-VA) introduced a bill (H.R. 1110) to prevent caller ID “spoofing”. On November 2, 2009, the House Judiciary Committee reported out the bill for consideration by the full House.

Although each of these bills contains a trigger requiring the “intent to defraud or cause harm” before liability would arise, given the challenges presented by the Telephone Consumer Protection Act and by other restrictions on phone messaging, DBA is closely tracking Caller ID legislation.

Payday Lending / Usury & Interest Rate Caps

There are a number of bills that have been introduced in the 111th Congress addressing the issue of

• On April 22nd, Sen. Kay Hagan (D-NC) introduced a bill (H.R. 3245) to establish rules for payday loans and all small denomination, short-term, unsecured cash advances.
  
  
• On May 21, 2009, Rep. Heath Shuler (D-NC) introduced a bill (H.R. 2563) that would establish additional protections for consumers with regard to payday loans.
  
  
• On April 2, 2009, Sen. Daniel Akaka (D-HI) introduced a bill (S. 786) calling for low cost alternatives to payday loans.
  
  
• On April 1, 2009, Rep. Joe Baca (D-CA) introduced a bill (H.R. 1846) to preempt state payday lending laws and establish consumer disclosure requirements.
  
  
• On February 26, 2009 Rep. Luis Gutierrez (D-IL) introduced a payday lending bill (H.R. 1214) to provide addition consumer disclosures and protections.

There are at least 5 other bills (H.R. 1608, H.R. 1640, H.R. 5689, S. 257, S. 500, S. 582) that would establish a national usury rate. At least two of these bills were introduced with the intent to regulate the payday lending industry, but all the proposed legislation sets a maximum interest rate that will directly impact the availability of payday loans. Also, on May 19th, an amendment to the financial reform bill by Sen. Sheldon Whitehouse (D-RI) was defeated on the Senate floor by a vote of 35-60. The amendment would have allowed states to impose “usury” limits on interest rates.

Miscellaneous

• Medical Debt – Rep Mary Jo Kilroy (D-OH) introduced a bill (H.R. 3421) that would exclude from consumer credit reports medical debt that has been in collection and has been fully paid or settled. On July 27th, we expect the bill to be marked up and reported out by the House Financial Services Committee. A companion bill (S. 3419) has been introduced by Sen. Jeff Merkley (D-OR), but has not seen further Senate action.
  
  
• Debt Discharge – Rep. John Lewis (D-GA) has introduced a bill (H.R. 4561) to amend the IRS Code to provide an exclusion from gross income for the discharge of consumer debts up to $10,000. Congressman Lewis is currently the Chairman of the House Ways & Means Oversight Subcommittee.
  
  
• Identity Theft – Rep. John Adler (D-NJ) introduced a couple of bills (H.R. 2345 / H.R. 3763) that would amend the Fair Credit Reporting Act to provide for an exclusion from Red Flag Guidelines for certain businesses, including health care practices with 20 or fewer employees.
  
  
• Identification Verification – Rep. Marsha Blackburn (D-TN) introduced a bill (H.R. 3174) that would provide that only certain forms of identification of individuals may be accepted by financial institutions.
  
  
• Online Privacy – Multiple legislative proposals have emerged during the 111th Congress to address online consumer information. Which of these competing proposals emerges as the primary legislative vehicle is unlikely to be resolved during the 111th Congress.
  
  
  • Rep. Rick Boucher (D-VA) and Rep. Cliff Stearns (R-FL); the Chair and Ranking Member of the House Energy & Commerce Subcommittee on Communications, Technology, and the Internet; have released draft legislation that would impose new privacy requirements on the collection, use, and disposal of online consumer information. Public comments were accepted on the draft, and significant changes are expected before the bill is formally introduced.
    
    
  • Rep. Bobby Rush (D-IL) has introduced a competing bill (H.R. 5777) to address the commercial use of personal information. Rush serves as Chair of the House Energy & Commerce Subcommittee on Commerce, Trade, and Consumer Protection. On July 22nd, Rush held a hearing to discuss the impact of his bill before his subcommittee.
    
    
  • Sen. John Rockefeller (D-WV) has introduced a very narrow online privacy bill (S. 3386) that focuses on only placing restrictions on three specific activities: (1) post-transaction consumer charges by third-party sellers; (2) “data-pass” from initial merchants to third-party sellers; and (3) negative options. Rockefeller is the Chair of the Senate Commerce Committee. On June 9th, the Senate Commerce Committee reported out his bill. Rockefeller has also scheduled a hearing for July 27th on the issue of consumer online privacy.
    
    
• Financial Literacy – Sen. Daniel Akaka (D-HI) held hearings earlier this year before his Senate Homeland Security Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia on the federal government’s role in empowering Americans to make “informed financial decisions”.
  
  
• Student Loans – Rep. Steve Cohen (D-TN) has introduced a bill (H.R. 5043) that would allow the discharge of student loans in bankruptcy. On April 22nd, hearings were held before the House Judiciary Subcommittee on Commercial and Administrative Law, but there has been no further House action. A Senate companion bill (S. 3219) introduced by Sen. Richard Durbin (D-IL) has not moved.

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State Legislation

• Colorado  H.B. 1222 passed effective July 1, 2010.  Requires licensed debt collectors to maintain an office in Colorado, keep a record of funds collected, accept payments physically, and provide the address and telephone number of the in-state office in each written communication.

• Florida  SB 2086 passed effective October 1, 2010 increasing the requirements for applicants, increasing application fees, and granting the office of financial regulations more authority to fine and investigate debt collectors (fines increased to up to $25,000). 

• Massachusetts SB 1712, S2557 passed the Senate, moving to House; which increased exemptions on cars to $7,500 ($15,000 for elderly and disabled) and funds in bank accounts up to $2,500 are protected.

• Minnesota  SF 2689. This Bill was not passed but remains on the forefront of Minnesota Bills that may be received.  This Bill is a parallel Bill to the North Carolina Bill which passed last year shortening the statute of limitations, cutting off the right and remedy to collect past the statute of limitations, requiring receipts for payments, and itemization for suit among other stringent requirements.
  
  
• New Jersey A1700 and S250 passed the New Jersey Assembly, contains provisions relating to identity theft but also would require a copy of the FDCPA to be attached to each collection letter.

• New York 
  • 7558-A (Weinstein) Same As S.4398-A (Schneiderman) – The Bill is entitled, "The Consumer Credit Fairness Act." It reduces the statute of limitations on consumer credit actions to three years, from a current six years under state law. It also would require an additional mailing from the Supreme Court Clerk to the debtor prior to a default judgment being entered; based upon an affidavit from the original creditor, establishing the exact chain of title of the debt, and verifying that the statute of limitations had not expired. A creditor would be required to meet enhanced pleading requirements, most problematic of which is the itemization of the debt to show principal, finance charges, fees, and other penalties; a form that the original creditor does not maintain the debt.   The State has issued an RFP for the collection of outstanding tax liabilities (approximately $800 Million), this has created the impetus for the Finance Committee in the Senate to review the Bill, at our behest. The Bill passed the Assembly on 6/16/10. Other entities oppose this Bill such as the NY Bankers Association, the Business Council of NYS, the Court Clerks Association, etc. DBA International has issued a memo in opposition.
    
    
  • A.271-B (Pheffer) Same A S. 7303-A (Peralta) - This Bill requires debt collectors to send consumers a written notice of their rights under state law in the initial correspondence with the debtor. Failure to do so is $250, which grows to $500 for each subsequent failure. This Bill would be prohibitively expensive (approximately $25,000,000). It may also confuse the consumer and create liability for the collector if there is future litigation.   The Bill was reported to Codes Committee in the Senate and was reported to the 3rd Reading Calendar in the Assembly. We will continue to monitor for any movement.
    
    
  • A.3926-D (Pheffer) Same As S. 7071-A (Schneiderman) - The proposal requires debt collection agencies, attorneys and buyers to be licensed by the state. In addition to business information, applicants must disclose methods used to verify debts, policies regarding the sale of debt, a summary of record-keeping policies, and processes for handling disputes. A license could be denied if an applicant has ever violated the FDCPA or the NY version of the law. The amendment to the Bill allows the state law to pre-empt local laws, with a carve out for currently existing local laws, including increasing the fees for licensure.  This Bill remains in Consumer Protection in the Senate, but passed the Assembly on 6/22/10. 
    
    
  • A.7268 (Pheffer) Same As S. 7317 (Peralta) - The proposal requires entities that offer to serve as an intermediary between an individual and one or more creditors for the purpose of obtaining concessions, often referred to as debt management services, to register with the Banking Department. Registration would require submission of detailed information concerning the service, including its financial condition, the identity of principals, locations at which service will be offered, form for agreements with debtors and operational history in other jurisdictions. To register, a service must have an effective insurance policy against fraud, dishonesty, and theft in an amount no less than $250,000. It must also provide a surety bond of a minimum of $50,000.  S.7317 had its enacting clause stricken by the Sponsor. This means the Bill is dead in the Senate. However, the Assembly Bill is still active and remains in Committee in that House.
    
    
  • A.IHI0 (Gibson) Same As S.7265 (Schneiderman) - This Bill would require third party process servers to obtain a license by October 1, 2010 from the Department of State (DOS). Licenses would cost $500 and be valid for two years. In addition to the submission of the usual license application information, such as business name, address and telephone number, applicants would be required to submit a description of the methods or practices used to ensure that its employees act in compliance with applicable laws in carrying out the service of process. The Secretary of State would be authorized to refuse to issue a license to any applicant found to have been convicted of larceny of have failed to pay any civil judgment relating to work as a process server. Surety bonds would be required.   It would require that the State license all process servers, with the only exception being for an attorney. There is no pre-emption language, and it encourages municipalities to create more stringent licensure and registration provisions by local law. This Bill is in committee in both houses.
    
    
  • A. 7889-B (Rosenthal) Same As S.7205 (Savino)
     S.5046-A (Hassell-Thompson) No same as - These Bills are similar, but not identical. The first Bill is a flat prohibition on collection for a debt which the creditor knows to be deceased; the second is a disclosure of the rights and liabilities of the family of the deceased. A collector must notify any person it contacts with respect to the debt of a deceased person that they are not liable for the debts of the deceased.   Amendments have been offered to account for the informal administration of the majority of estates, but the sponsors have not introduced them. The Rosenthal Bill passed the Assembly 6/14/10, but both Senate Bills remain in Consumer Protection Committee. 
    
    
  • A.3532-A (Gianaris) Same As S. 2458-A (Sampson)- This Bill creates a private right of action for improper debt collection procedures under the NYS Fair Debt Collection Law (art. 29-H of the General Business Law.  The Bill is still in Consumer Protection in Senate; it passed the Assembly 6/17/10. This Bill is not a high priority, but is duplicative of S.6036/A.8840-B below, which goes much further.
    
    
  • A.8840-B (Pheffer) Same As 8.6036 (Perkins)- This Bill would amend the NYS Fair Debt Collection Law (Art. 29-H of the General Business Law) to more closely track the FDCPA, including private right of action, limits on hours of contact, and notification of the sale of the debt.   This Bill was reported and committed to Codes in Senate; it remains on 3rd Reading Calendar in the Assembly. There are still a few minor changes that were requested be made to this Bill.

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Fair Debt Collection Practices Act (FDCPA) Case Law

• U.S. Supreme Court:  No bona fide error – Mistake of Law.   On April 21, 2010, the U.S. Supreme Court ruled that the bona fide error defense does not apply to a mistake of legal judgment by way of a mistaken interpretation of the FDCPA.  The original issue of Jerman was whether or not a validation notice violated the FDCPA by requiring a dispute to be in writing and the interpretation of law on the topic.  The Supreme Court held that the bona fide error defense in § 1692k(c) does not apply to a violation of the FDCPA resulting from a debt collectors incorrect interpretation of the requirements of the statute.  Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LP. Et al, 130 S. Ct. 1605 (2010).

• Joint Checking Garnishment – Minnesota.   On April 22, 2010, the Minnesota Supreme Court ruled in favor of the creditor and held that the creditor did not have the burden of proof to show the funds only belonged to a particular customer.  The Court held that the creditor could presume that all funds in a joint account belonged to the consumer unless they are informed otherwise.  Savig v. First Nat’l. Bank, 781 N.W.2d 335 (Minn. 2010).

• Sanctions against Plaintiff Attorneys.  The Middle District of Florida recently sanctioned the firm of Krohn & Moss for filing a boilerplate complaint alleging telephone harassment.  The Court held that calls were not excessive but that the Plaintiff attorneys multiplied the proceedings unnecessarily and exhibited a deliberate indifference to the facts.  Tucker v. CBE Group, Inc., 2010 U.S. Dist. LEXIS 54892 (M.D. Fla. May 5, 2010).

• Debt Collector Does Not Have to Warn Regarding Increase of Interest.  The Southern District of New York held recently that the FDCPA does not require a debt collection letter to warn about increases in interest, rather 15 U.S.C. § 1692g(a)(1) requires only the “amount of the debt”.  Adlam v. FMS, Inc., 2010 U.S. Dist. LEXIS 33433 (S.D.N.Y. April 2, 2010).

• Attorney Letterhead.  The Middle District of Pennsylvania recently held that attorney debt collectors must advise consumers whether they are active in the capacity of a debt collector or as an attorney as attorney letterhead was held to imply they were acting as an attorney and that implies a threat of litigation.  Lesher v. Law Office of Mitchell N. Kay, P.C., 2010 U.S. Dist. LEXIS 58263 (M.D. Pa. June 14, 2010).
  
  
• TCPA Revoked Consent.  The Northern District of Illinois held that a consumer would revoke express consent by sending a letter disputing the debt.  Sengenberger v. Credit Control Servs., U.S. Dist. LEXIS 43874 (N.D. Ill. May 5, 2010).
  

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