The Federal Trade Commission recently reached a $2.5 million settlement agreement with a debt buyer for alleged violations of the Fair Debt Collection Practices Act, the Fair Credit Reporting Act and the Federal Trade Commission Act.
The debt buyer purchased accounts from credit originators, health clubs, and telecommunications and utilities providers. Most of the purchased accounts were at least one year old, with some accounts surpassing 10 years old. A collector is prohibited from threatening to take legal action or taking legal action once the statute of limitations has expired. Making a partial payment on a debt may re-start or revive the statutory clock, depending on state law. In this case, the debt buyer allegedly made several misrepresentations to consumers when attempting to collect past-statute debt.
The settlement agreement was outlined in a Consent Decree issued by the U.S. Department of Justice. The settlement requires the debt buyer to take a number of steps when responding to consumer disputes and collecting on accounts that are past the statute of limitations. The Decree acknowledges the debt buyer did not admit to any of the allegations of wrongdoing set forth in the complaint and the Decree is not an admission of any such allegations of wrongdoing or violation of law.
Reasonable Investigation
The Consent Decree requires the debt buyer conduct a reasonable investigation when (1) it receives a dispute from a consumer, or (2) the debt buyer has knowledge of or a reason to believe that information contained in the account is incorrect.
Dispute
When a consumer submits a dispute, the debt buyer is required to either close the account and delete it from the consumer’s credit file, or report the account as disputed to the consumer reporting agencies (CRA) and conduct a “reasonable investigation” to ensure the accuracy of the account.
Reasonable Basis for Inaccuracy
If a debt buyer has actual knowledge or has a reason to believe information contained in a consumer’s account is inaccurate, the debt buyer must terminate all collection efforts until it conducts a reasonable investigation. Factors a debt buyer should consider when evaluating the material accuracy of an account include, but are not limited to, whether:
- accounts in a particular portfolio have been disputed by consumers for similar reasons at disproportionately high rates;
- documents from the original creditor (excluding affidavits) are/are not available;
- age, missing data, or other characteristics have resulted in a disproportionately high number of accounts being supplemented by data from third-party sources; or
- any other information learned about a particular portfolio’s credit originator and its methods of doing business calls into question the accuracy or completeness of the information.
Investigation
After receiving a dispute or determining information contained in an account may be inaccurate, a reasonable investigation must be conducted. The Decree states a “reasonable investigation” includes evaluating:
- the reliability of the information used when collecting or attempting to collect the debt;
- the accuracy and completeness of any information from the credit originator;
- the accuracy and completeness of any information obtained from third-party sources, including data aggregators, brokers or consumer reporting agencies;
- the strength and credibility of any information provided by the consumer;
- the nature and frequency of disputes received concerning accounts within the same portfolio;
- the methods used to collect information from the consumer; and
- any other information that confirms, contradicts, or calls into question the accuracy or completeness of such information.
If the investigation shows inaccuracies, the debt buyer must adequately correct them or close the account, delete it from the consumer’s credit file, and return it to the creditor. The Decree also prohibits the debt buyer from selling the debt to any entity other than the entity from which it acquired the debt, if the buyer cannot substantiate that the consumer owes the debt.
Collecting Debt Outside the Statute of Limitations
The Decree also requires that when the asset buyer knows or should know the statute of limitations has expired it must disclose to the consumer that it will not sue on the debt.
If the applicable reporting period under the FCRA has not expired, the following disclosure must be provided:
“The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, we [Agency Name], may [continue to] report it to the credit reporting agencies [as unpaid].”
If the applicable reporting period under the FCRA has expired, the following notice must be provided:
“The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency.”
Once the debt buyer has made the disclosure, the buyer may not initiate any arbitration or legal action to recover the debt. Additionally, the debt buyer must include notification to any subsequent buyer or assignee of the debt that the buyer is withholding any right to litigate the debt.
Other Requirements
The Decree also requires the asset buyer adhere to the FDCPA and FCRA. The Decree outlines additional notices and disclosures that must be provided by the debt buyer for a period of 5 years. The asset buyer must also provide an annual compliance report to the FTC.
The debt buyer must provide a disclosure on each written communication informing consumers of how to file a cease communication request and notifying consumers where to direct complaints. The disclosure states:
Federal law prohibits certain methods of debt collection, and requires that we treat you fairly. You can stop us from contacting you by writing a letter to us that tells us to stop the contact or that you refuse to pay the debt. Sending such a letter does not make the debt go away if you owe it. Once we receive your letter, we may not contact you again, except to let you know that there won’t be any more contact or that we intend to take a specific action.
If you have a complaint about the way we are collecting this debt, please write to us at [current physical address], email us at [current email address], or call us toll-free at [current phone number] between 9:00 A.M. and 5:00 P.M. Eastern Standard Time, Monday - Friday.
The Federal Trade Commission enforces the Fair Debt Collection Practices Act (FDCPA). If you have a complaint about the way we are collecting your debt, please contact the FTC online at www.ftc.gov., by phone at 1-877-FTC-HELP; or by mail at 600 Pennsylvania Ave., N.W., Washington, D.C. 20580.
Additionally, for a period of 5 years, the debt buyer must provide all employees with a specific FDCPA notice that must be signed by the employee. The notice states:
Debt collectors must comply with the federal Fair Debt Collection Practices Act, which limits our activities in trying to collect money from consumers. In particular, Section 804 of the Act says that you may not contact any person other than the consumer for the purpose of acquiring location information about the consumer more than once unless you have reason to believe that the earlier response of the person was incomplete and that such person now has corrected or complete location information.
Also, Section 805 of the Act says that you may not contact a consumer at work if you know or should know it is inconvenient for the consumer, and that you may not communicate with any person other than the consumer in connection with the collection of a debt, for any purpose other than to obtain location information about the consumer.
In addition, Section 806 of that Act states that you may not engage in any conduct the natural consequences of which is to harass, oppress or abuse any person in connection with the collection of a debt, including, but not limited to, using language the natural consequence of which is to abuse the hearer or reader.
Furthermore, Section 807 of that Act prohibits the use of any false, deceptive or misleading representation or means in connection with the collection of any debt, including, but not limited to, communicating or threatening to communicate to a consumer reporting agency information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.
Individual debt collectors may be financially liable for their violations of the Act.
The settlement agreement reinforces the FTC’s continuing efforts to protect consumers adversely affected by the economy. FTC officials commented the settlement provides a model that all debt buyers and debt collectors should follow.
Debt buyers should be aware of the increased scrutiny the FTC has placed on the industry and ensure continued compliance with the FDCPA, FCRA and state law when collecting on debts in which the applicable statute of limitations has expired and when responding to consumer disputes.