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August 4, 2011
FTC Issues Final Decedent Debt Collection Policy Statement, Final Mortgage Advertising Rule, FCRA Summary by the Consumer Financial Services Group
On the eve of transferring its rulewriting authority under the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the 2009 Omnibus Appropriations Act to the Bureau of Consumer Financial Protection (CFPB), the Federal Trade Commission (FTC) issued a final rule on mortgage advertising, a final policy statement on collection of decedents’ debts, and a staff report on the FCRA with a summary of interpretations. Mortgage Advertising. On July 19, 2011, the FTC issued a final rule that generally prohibits any material misrepresentation regarding any term of a consumer purpose residential mortgage credit product, whether open-or closed-end. The rule implements the requirement in the 2009 Omnibus Appropriations Act, as clarified by the Credit CARD Act, that the FTC prescribe rules concerning unfair or deceptive acts and practices involving mortgage loans. Although the final rule is issued under Section 5 of the FTC Act, the Omnibus Appropriations Act directed the FTC to use Administrative Procedure Act advance notice-and-comment procedures rather than the cumbersome Magnuson-Moss rulemaking procedures with which the FTC is usually saddled. The final rule applies only to institutions within the FTC's jurisdiction, which means the rule does not apply to banks, thrifts, or federal credit unions. For non-federally chartered credit unions and mortgage originators and brokers, the FTC and the CFPB will have concurrent enforcement authority. The rule can also be enforced by state officials. The final rule, effective August 19, 2011, lists 19 specific types of misrepresentations that would constitute a violation. For example, the rule would be violated if there are misrepresentations about (1) the interest charged; (2) the existence, nature, or amount of fees; (3) the terms, amounts, payments, or other requirements relating to taxes or insurance associated with the mortgage; (4) the variability of interest, payments, and other terms; (5) the type of mortgage offered; or (6) the consumer’s ability or likelihood to obtain refinancing or a modification. According to the FTC, “the types of information in the [specified misrepresentations] involve matters central to consumers’ decisions about mortgage credit products. Thus, the types of misrepresentations the Rule prohibits are ‘material.’” The FTC’s background information includes a discussion of how the prohibitions apply to advertisements that use multiple languages, but the final rule does not contain a specific provision addressing that topic. Collection of Decedents' Debts. On July 20, 2011, the FTC issued its final policy statement to provide guidance on how it would enforce the FDCPA and Section 5 of the FTC Act in connection with the collection of debts of deceased debtors. Retaining the FTC’s proposed approach, the final policy statement, which is effective August 29, 2011, provides that the FTC will not initiate an enforcement action under the FDCPA against a debt collector who (1) communicates for the purpose of collecting a decedent’s debts with a person who has authority to pay such debts from the assets of the decedent’s estate even if that person does not fall within the FDCPA’s definition of “consumer,” or (2) includes in location communications a statement that it is seeking to identify a person with authority to pay the decedent’s “outstanding bills” from the decedent’s estate. The FDCPA, with certain exceptions, prohibits debt collectors from communicating for the purpose of debt collection with anyone other than the “consumer” whose debt is being collected. The FDCPA also prohibits a collector from revealing to a third party that the debtor owes a debt when seeking location information. While the FTC’s policy statement interprets these FDCPA prohibitions to apply to collection efforts after the debtor’s death, it represents an attempt by the FTC to balance the needs of collectors with the decedent’s privacy interests. New in the final policy statement is the FTC’s caution that, depending on the circumstances, contacting survivors about a debt too soon after the debtor’s death may violate the FDCPA prohibition against contacting consumers at an “unusual time” or at a time “inconvenient to the consumer.” The FTC’s proposal contained certain disclosures that collectors could use when communicating with a person with authority to pay the decedent’s debts out of estate assets to avoid creating a misimpression that such person has personal liability for those debts. The final policy statement no longer treats those disclosures as a “safe harbor.” Instead, it provides that such disclosures “generally” will be sufficient to prevent deception, but the information collectors must disclose to avoid deception depends on the circumstances. FCRA Summary. On July 20, 2011, the FTC issued a staff report that, along with a discussion of its role in enforcing and interpreting the FCRA, includes a summary that the report describes as “a compendium of [FCRA] interpretations that [the staff] believes will be of use to the CFPB staff, the businesses subject to the [FTC’s] jurisdiction under the FCRA, public representatives, and consumers.” In a final rule published in the Federal Register on July 26, 2011, and effective the same date, the FTC rescinded its 1990 FCRA Commentary due to what the FTC described as its “staleness.” The summary incorporates certain Commentary interpretations the staff believes are still helpful, written informal staff opinions, unwritten informal opinions, and material from FTC enforcement actions and proceedings under the Fair and Accurate Credit Transactions Act. The report notes that the summary differs from the Commentary in five areas, including that it no longer reflects the position that a Department of Motor Vehicles providing motor vehicle reports for insurance eligibility can be a “consumer reporting agency” (CRA) and that an adverse action notice must include the CRA’s street address, not just a P.O. Box. It also notes four areas in which the summary reflects post-1990 statutory and other developments “because they continue to generate a significant number of questions from the public.” Those areas are the application of the FCRA to credit report resellers and software sellers; the circumstances under which a creditor or auto dealer obtaining a consumer report has, respectively, a permissible “review” purpose or a permissible purpose based on a consumer’s initiation of a transaction; and prescreening (i.e., “firm offers of credit.”). Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). In addition to regularly counseling clients engaged in consumer debt collection on compliance with the FDCPA and state debt collection laws, Ballard Spahr lawyers have extensive experience in defending all manner of debt collection lawsuits. For more information, please contact group Chair Alan S. Kaplinsky, 215.864.8544 or
[email protected]; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or
[email protected]; John L. Culhane, Jr., 215.864.8535 or
[email protected]; Keith R. Fisher, 202.661.2284 or
[email protected]; Barbara S. Mishkin, 215.864.8528 or
[email protected]; or Mark J. Furletti, 215.864.8138 or
[email protected]. Copyright © 2011 by Ballard Spahr LLP. www.ballardspahr.com (No claim to original U.S. government material.) All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher. This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.
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