# Repairing A Broken System

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Repairing A Broken System
Protecting Consumers in Debt Collection
Litigation and Arbitration

Federal Trade Commission
July 2010

Repairing A Broken System:
Protecting Consumers in Debt Collection
Litigation and Arbitration

July 2010

Federal Trade Commission
Jon Leibowitz, Chairman
William E. Kovacic
J. Thomas Rosch
Edith Ramirez
Julie Brill

This report also is available on the Internet. The online version of this report contains hyperlinks
to news releases, reports, articles, transcripts, brochures, policy statements, and other information
referenced in this report. You can find the report at
ftc.gov/os/2010/07/debtcollectionreport.pdf. You can also access the Internet
page for the roundtable discussions, with links to many related documents, at
ftc.gov/bcp/workshops/debtcollectround/index.shtm.

Protecting Consumers in Debt Collection Litigation and Arbitration

Contents
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Chapter 1: Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Chapter 2: Litigation Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
I.
II.
III.
IV.
V.

The Legal Framework of Debt Collection Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consumer Participation in Debt Collection Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Evidence of Indebtedness in the Debt Collection Litigation Process. . . . . . . . . . . . . . . 14
Statutes of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Garnishment of Exempt Funds in Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Chapter 3: Arbitration Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
I. The Arbitration Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
II. Meaningful Consumer Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
III. Fair Arbitration Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Chapter 4: Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Appendix A: Debt Collection Roundtable Panelists. . . . . . . . . . . . . . . . . . . . . . A-1
Appendix B: FTC Contributors to Debt Collection Roundtables. . . . . . . . . . . . B-1
Appendix C: Agendas for Debt Collection Roundtables. . . . . . . . . . . . . . . . . . . C-1
Appendix D: Debt Collection Roundtables Public Comments. . . . . . . . . . . . . . D-1
Appendix E: Sample State Debt Collection Checklists. . . . . . . . . . . . . . . . . . . . E-1

Repairing A Broken System

Protecting Consumers in Debt Collection Litigation and Arbitration

Executive Summary
Creditors and collectors seek to recover on consumer debts through the use of litigation
and arbitration. Based on its extensive analysis, the Federal Trade Commission (“FTC” or
“Commission”), the nation’s consumer protection agency, concludes that neither litigation nor
arbitration currently provides adequate protection for consumers. The system for resolving
disputes about consumer debts is broken. To fix the system, the FTC believes that federal and
state governments, the debt collection industry, and other stakeholders should make a variety of
significant reforms in litigation and arbitration so that the system is both efficient and fair.
Credit benefits consumers by allowing them to obtain goods and services without paying the
entire cost at the time of purchase. This lets consumers make purchases they might not otherwise
be able to afford, and allows them to benefit from goods and services immediately while paying
for them over time. Because consumers sometimes fail to pay their creditors, debt collection
plays a vitally important role in the consumer credit system. Debt collection benefits individual
creditors, of course, who are repaid money they are owed. More importantly, however, by
providing compensation to creditors when consumers do not repay their debts, the debt collection
system helps keep credit prices low and helps ensure that consumer credit remains widely
available.
Sometimes consumers are unable or unwilling to pay their creditors. Such payment
problems often worsen during times like the recent economic downturn. When consumers do not
pay their debts, creditors and collectors may decide to commence proceedings against consumers
to compel payment. Debt collection proceedings are an important means through which
creditors and collectors can collect amounts they are owed.
Collectors use two types of proceedings to compel payment on consumer debt. They may
file an action in court alleging that a consumer has not paid and seeking a judgment from the
court that he or she owes the debt. Alternatively, if permitted by the credit contract or other
agreement between the creditor and the consumer, the collector may commence an arbitration
proceeding. In the proceeding, the collector may claim that the consumer has not paid and seek
an arbitration award stating that the consumer owes the debt. In that situation, the collector
would then ask a court to confirm the arbitration award and enter a judgment against the
consumer. Collectors may seek to recover on judgments against consumers through garnishing
bank accounts and wages, or through other means.
As part of a comprehensive assessment of the debt collection system, in late 2007 the FTC
convened a public workshop to identify consumer protection problems and possible solutions

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to those problems. In a February 2009 workshop report, the Commission concluded that the
debt collection system is in serious need of reform and set out concrete proposals to improve the
system. With regard to debt collection litigation and arbitration, the Commission concluded that
“certain debt collection litigation and arbitration practices appear to raise substantial consumer
protection concerns.” Among the concerns relating to litigation were: (1) filing suits based on
insufficient evidence; (2) failing to properly notify consumers of suits; (3) the high prevalence
of default judgments; (4) improperly garnishing exempt funds from bank accounts; and (5)
suing or threatening to sue on time-barred debts. The concerns relating to arbitration included:
(1) binding consumers to resolve disputes through arbitration without meaningful choice or
awareness; (2) bias or the appearance of bias in arbitration proceedings; (3) procedural unfairness
in arbitration proceedings; and (4) requiring consumers to pay substantially more to participate in
arbitration proceedings than in comparable court proceedings.
Although it identified these concerns, the FTC concluded that it needed more information
before recommending specific solutions. To obtain more information, during the latter part
of 2009 the FTC convened public roundtables in Chicago, San Francisco, and Washington,
D.C. These events brought together representatives of the debt collection industry, consumer
advocates, private attorneys, academics, government officials, arbitration providers, judges, and
others. To supplement the information gleaned from the discussions at these roundtables, the
Commission also solicited and received public comments.
During the time that the FTC was conducting its roundtables, there were major
developments in the use of arbitration to resolve debt collection disputes. In July 2009, the
Minnesota Attorney General (“Minnesota AG”) filed suit against the National Arbitration
Forum (“NAF”), the leading debt collection arbitration forum, alleging that NAF had engaged
in consumer fraud, deceptive trade practices, and false advertising. NAF purportedly held itself
out as an impartial arbitration forum when in fact it had financial ties to key members of the
debt collection industry. Days after the suit was filed, NAF entered into a settlement with the
Minnesota AG, which required NAF to cease providing debt collection arbitration services. In
the wake of the settlement with NAF, the American Arbitration Association, which had handled
some debt collection arbitrations, imposed a moratorium on conducting such arbitrations. A
number of large banks also announced that they would discontinue the use of mandatory predispute arbitration provisions in their credit card contracts.
At this critical juncture, the FTC believes that articulating its views would be helpful in
reforming the system of debt collection litigation and arbitration. Based on the record from the
roundtables (including the associated public comments) and its experience in debt collection

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Protecting Consumers in Debt Collection Litigation and Arbitration
matters, the Commission’s principal findings, conclusions, and recommendations with respect to
debt collection litigation are:

YY States should consider adopting measures to make it more likely that consumers
will defend in litigation. Very few consumers defend or otherwise participate in debt
collection litigation, resulting in courts entering default judgment against them. States
should take steps to ensure that: (1) consumers receive adequate notice when actions
have been commenced; and (2) the costs to consumers of participating in such actions
are not prohibitively high.

YY States should require collectors to include more information about the debt in
their complaints. Complaints often do not contain sufficient information to allow
consumers in their answers to admit or deny the allegations and assert affirmative
defenses. To assist them in doing so, states should consider requiring that debt
collection complaints include: (1) the name of the original creditor and the last four
digits of the original account number; (2) the date of default or charge-off and the
amount due at that time; (3) the name of the current owner of the debt; (4) the total
amount currently owed on the debt; (5) the total amount owed broken down by
principal, interest, and fees; and (6) the relevant terms of the underlying credit contract,
if the contract itself is not attached to the complaint.

YY States should take steps to make it less likely that collectors will sue on timebarred debt and that consumers will unknowingly waive statute of limitations
defenses available to them.
OO

OO

OO

In circumstances where it is difficult to determine the correct statute of
limitations, it would be advantageous if states developed more clear and uniform
statutes of limitations.
Consumers do not understand that in many states a statute of limitations
constitutes an affirmative defense which may preclude collectors from
successfully suing to collect, so they rarely assert this affirmative defense.
These states should assign to collectors the burden of proving that debts are not
time-barred and require that they include the date of default and the statute of
limitations in their complaints.
Consumers are not aware that collectors cannot lawfully sue to recover on timebarred debt. To prevent deception, collectors who seek to collect debt they know
or should know is time-barred should disclose that they cannot lawfully sue
the consumers. Consumers likewise do not know that in many states making a

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partial payment on a time-barred debt revives the entire debt for a new statute of
limitations period. Collectors in these states should disclose to consumers that
making a payment will revive such debt.

YY Federal and state laws should be changed to prevent the freezing of a specified
amount in a bank account into which a consumer has deposited funds that are
exempt from garnishment. When banks freeze the accounts of consumers who
receive government payments such as Social Security (which are exempt from
garnishment), it may result in significant hardship for consumers, including many who
are indigent. To alleviate such hardship, federal and state laws should be changed to
limit the amount that banks can freeze in accounts receiving exempt funds.
The Commission’s principal findings, conclusions, and recommendations relating to debt
collection arbitration are:

YY Consumers should be given meaningful choice about arbitration. Consumers
currently have little, if any, choice regarding mandatory pre-dispute arbitration
provisions in contracts. Creditors should draft their consumer credit contracts in a way
that ensures consumers are aware of their choice whether to arbitrate, and provides
consumers with a reasonable method of exercising that choice. The public and
private sectors should increase efforts to educate consumers, so that they have a basic
understanding of arbitration and its consequences. They should evaluate whether,
and under what conditions, options beyond the initial choice about arbitration must be
offered in consumer credit contracts.

YY Arbitration forums and arbitrators should eliminate bias and the appearance
of bias. Especially in the wake of serious concerns relating to the conduct of NAF,
arbitration forums should take significant and concrete steps to prevent bias and the
appearance of bias. Forums should develop, adopt, and vigorously enforce standards
prohibiting bias and the appearance of bias for themselves and their arbitrators.
Forums should diversify their rosters of arbitrators, rotate matters randomly among
arbitrators, and limit the number of matters each arbitrator handles. Forums should
make the process and procedures they use for selecting arbitrators as transparent as
possible.

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Protecting Consumers in Debt Collection Litigation and Arbitration

YY Arbitration forums should conduct proceedings in a manner which makes it more
likely consumers will participate.
OO

OO

Consumers frequently do not appear in arbitration proceedings. While it is not
clear to what extent notification problems cause low participation rates, arbitration
forums should adopt measures to increase the likelihood they have valid addresses
for consumers, track and document delivery of notices, and use envelopes which
make it clear that their contents are important while not disclosing consumer debts
to third parties. Arbitration forums and arbitrators also should conduct a closer
assessment of consumers’ assertions that they did not receive adequate notice.
Arbitration forums should establish rules that limit the total cost to consumers of
arbitrating a dispute to the cost that they would pay to defend against a similar
proceeding in court.

YY Arbitration forums should require that awards contain more information about
how the case was decided and how the award amount was calculated. Arbitrators
rarely accompany awards with an opinion setting forth a statement of the law and an
application of the law to the facts, which makes it difficult to understand the basis for
the award. Arbitration forums should require that arbitrators issue reasoned opinions
setting forth: (1) the law applied; (2) how the law was applied to the facts; and (3)
how the amount of the award was calculated, including how the amount of principal,
interest, and fees awarded was determined.

YY Arbitration forums should make their process and results more transparent. For
the public to assess the costs and benefits of arbitration, and for consumers to decide
whether to agree to arbitration, the process used and the results reached must be more
transparent. To promote such transparency, Congress should consider creating a
nationwide system requiring arbitration forums to report and make public arbitration
awards and decisions.

YY The Commission will continue to closely monitor debt collection arbitration,
and evaluate whether creditors and arbitration forums provide consumers with
meaningful choice and fair process. As appropriate, the Commission will report its
views on new debt collection arbitration models to policymakers, industry, consumer
groups, and the general public.

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The Commission believes that reforms such as those discussed in this report should be
undertaken to ensure that the debt collection litigation and arbitration systems adequately protect
consumers without unduly burdening legitimate debt collection. The agency is interested in
continuing to work with interested parties on implementing these recommendations and taking
other steps to improve debt collection litigation and arbitration.

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Protecting Consumers in Debt Collection Litigation and Arbitration

Chapter 1
Introduction
In February 2009, the Federal Trade Commission issued a comprehensive report with
findings, conclusions, and recommendations concerning consumer protection issues related to
debt collection. Among other things, the Commission’s report, Collecting Consumer Debts: The
Challenges of Change – A Workshop Report,1 concluded that “certain debt collection litigation
and arbitration practices appear to raise substantial consumer protection concerns.”2 The report,
however, also concluded that the FTC needed more information to formulate recommendations
as to how these concerns should be addressed.
To obtain this information, during the latter part of 2009 the FTC convened public
roundtables in Chicago,3 San Francisco,4 and Washington, D.C.5 These events brought together
representatives of the debt collection industry, consumer advocates, private attorneys, academics,
government officials, arbitration providers, judges, and others6 to discuss potential consumer
protection problems arising in debt collection litigation and arbitration as well as possible
solutions to those problems.7 To supplement the information gleaned from the discussions at
these roundtables, the Commission also solicited and received public comments.8

1.

Federal Trade Commission, Collecting Consumer Debts: The Challenges of Change – A Workshop Report
(2009), available at http://www.ftc.gov/bcp/workshops/debtcollection/dcwr.pdf (hereinafter Challenges of
Change).

2.

Id. at i-ii.

3.

See Transcript I, Aug. 5, 2009, available at http://www.ftc.gov/bcp/workshops/debtcollectround/090805CHIL/transcript-90805.pdf; Transcript II, Aug. 6, 2009, available at http://www.ftc.gov/bcp/workshops/
debtcollectround/090805-CHIL/transcript-90806.pdf. Citations to the transcripts in this report will follow the
format “Tr. X at a,” where “X” indicates the roman numeral of the transcript cited and “a” denotes the page
number of the transcript on which the reference can be found.

4.

See Transcript III, Sept. 29, 2009, available at http://www.ftc.gov/bcp/workshops/debtcollectround/090929SANF/90929ftc.pdf; Transcript IV, Sept. 30, 2009, available at http://www.ftc.gov/bcp/workshops/
debtcollectround/090929-SANF/90930ftc.pdf.

5.

See Transcript V, Dec. 4, 2009, available at http://www.ftc.gov/bcp/workshops/debtcollectround/091204-DC/
transcript.pdf.

6.

A list of roundtable participants is set forth in Appendix A to this report. A list of FTC contributors is set forth
in Appendix B to this report.

7.

The agendas for each of the roundtables are included in Appendix C to this report.

8.

A list of the individuals and entities that submitted public comments is included in Appendix D to this
report. Comments can be found at the following three locations: http://www.ftc.gov/os/comments/
debtcollectroundtable1/index.shtm; http://www.ftc.gov/os/comments/debtcollectroundtable2/index.shtm; and
http://www.ftc.gov/os/comments/debtcollectroundtable3/index.shtm.

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Based on the information received at and in connection with the roundtables as well as
the Commission’s extensive experience in debt collection matters, this report makes findings
and conclusions as to debt collection litigation and arbitration and their effect on consumers.
The report also makes a variety of recommendations concerning how changes in law, court
procedures, and industry practice could improve the system of debt collection litigation and
arbitration.
Chapter 2 addresses debt collection litigation, nearly all of which occurs in state courts. The
report finds very few consumers defend or otherwise participate in debt collection litigation. The
Commission therefore recommends state and local governments consider making a variety of
reforms to service of process, pleading, and court rules and practices to increase the ability of
consumers to defend or otherwise participate in debt collection litigation. The report also finds
complaints and attachments in debt collection cases often do not provide adequate information
for consumers to answer complaints or for judges to rule on motions for default judgment. The
FTC therefore recommends that courts more rigorously apply existing rules to require that
collectors provide adequate information and that jurisdictions consider adopting rules mandating
the information which must be included in or attached to the complaint. The report additionally
finds that state statutes of limitations on filing actions to recover on debt are sometimes variable
and complex, and generally not understood by consumers. The Commission suggests that
states consider modifying their laws to make it simpler to determine the applicable statute of
limitations, and to require that collectors provide consumers with important information about
their legal rights when collecting debt they know or should know is time-barred. The report
further finds that consumers suffer significant hardship when funds in consumer bank accounts
exempt from garnishment under existing law are frozen pending a state court determination
of whether the funds are subject to garnishment. To prevent such hardship, the Commission
recommends that federal and state governments change the law to limit the amount that banks
can freeze in accounts receiving exempt funds.
Chapter 3 addresses debt collection arbitration. The report finds that consumers are not
given meaningful choice whether to enter into arbitration and that the debt collection arbitration
process is fundamentally unfair to them. Creditors, collectors and arbitration forums should
adopt changes to ensure that: (1) consumers are given a meaningful choice about whether to
arbitrate and a reasonable method of exercising that choice; (2) neither arbitration forums nor
arbitrators are biased or appear to be biased; (3) consumers are given adequate notice of the
commencement of arbitration and their costs of participating in arbitration are limited to the costs
the consumers would have incurred to defend against similar proceedings in court; (4) arbitrators
issue reasoned, written decisions to support their awards; and (5) arbitration and its results are

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Protecting Consumers in Debt Collection Litigation and Arbitration
sufficiently transparent to instill confidence in use of arbitration as alternative to the public
court system. The FTC will continue to closely monitor, evaluate, and report, as appropriate, on
whether debt collection arbitration models are providing consumers with meaningful choice and
a fair process. Chapter 4 provides a brief conclusion.

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Protecting Consumers in Debt Collection Litigation and Arbitration

Chapter 2
Litigation Proceedings
I. The Legal Framework of Debt Collection Litigation
Every debt collection action begins with a consumer credit obligation. If a consumer credit
account appears not to be paid timely, the creditor will usually attempt to obtain payment from
the consumer. This usually entails a series of letters and telephone calls from the creditor to
convince the consumer to pay.
If the creditor is not able to collect on its own, it may contract with a contingency collection
agency to collect the debt. The creditor also may resell the debt to a “debt buyer” for some
fraction of the amount the creditor is owed. Selling debt of all types (e.g., credit card debt,
telecommunications debt, medical debt, or utility debt)9 has become an increasingly common
industry practice during the past decade. Debt buyers may then collect on the debts they
purchase, employ contingency collectors, or resell the debt to other debt buyers. Indeed, much
purchased debt is resold one or more times as it moves through the debt collection system,10
often making it more difficult for consumers to recognize the debt being collected because the
owner of the debt is not the original creditor.
If collection efforts are unsuccessful, the debt may be referred to a collection attorney to file
a lawsuit to collect on the debt.11 The number of collection cases on court dockets has increased
in recent years.12 Collectors may also employ litigation more quickly than in the past; industry
sources “have noted that the growth of the debt-buying industry has resulted in increases in
collection lawsuits because entities that purchase delinquent debt often use collection law firms
as their primary tool for recovery.”13 A collector may obtain a court order requiring the consumer
to pay the debt, either through a judgment in litigation or through an arbitration proceeding
9.

Challenges of Change, supra note 1, at 13 (citing DBA, Inc. comment).

10. According to the U.S. Government Accountability Office, as many as half of all credit accounts purchased
directly from original creditors eventually are resold. U.S. Gov’t Accountability Office, Credit Cards: Fair
Debt Collection Practices Act Could Better Reflect the Evolving Debt Collection Marketplace and
Use of Technology (Sept. 2009), available at http://www.gao.gov/new.items/d09748.pdf (hereinafter GAO
Report).
11. Depending on the terms of the contract giving rise to the debt, collectors may commence private arbitration
proceedings rather than lawsuits in court. These issues are discussed extensively in Chapter 3.
12. See, e.g., Challenges of Change, supra note 1, at § VI.C.1; see also sources cited in GAO Report, supra note
10, at 41.
13. GAO Report, supra note 10, at 41 (citing Kaulkin Ginsberg and the National Association of Retail Collection
Attorneys).

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followed by a court proceeding to confirm the arbitration award and reduce it to a judgment.
Once collectors obtain a judgment, they have additional, powerful tools at their disposal – wage
garnishment and property garnishment – to collect on the judgment.
Debt collection lawsuits almost invariably are filed in state courts, where state law is the
main source of the applicable substantive and procedural standards. Each state generally sets
its own substantive standards governing the rights and obligations of creditors and debtors with
regard to debts. Each state also applies its own rules of civil procedure and evidence and uses
them to determine whether service of process was adequate, the pleadings contained appropriate
and sufficient information, and judgments should be granted. These substantive and procedural
standards may vary considerably by state and, in some instances, within a state depending on the
local jurisdiction or whether they are used in small claims court or civil court.
Although debt collection litigation is primarily a matter of state law, the conduct of
collectors in these cases is also subject to federal law. The Fair Debt Collection Practices Act
(“FDCPA”)14 prohibits debt collectors15 from engaging in unfair, deceptive, and abusive acts or
practices and identifies specific conduct that is banned. The FDCPA sets forth some standards
to which collectors must adhere in connection with debt collection litigation in federal or state
court. For example, as interpreted by numerous federal courts, the FDCPA prohibits collectors
from threatening to sue or suing on a debt on which the applicable state statute of limitations
has run.16 Many states have enacted their own statutes similar to the FDCPA which govern the
conduct of debt collectors.17

II. Consumer Participation in Debt Collection Litigation
Fundamental fairness dictates that the legal process afford consumers a reasonable
opportunity to defend themselves. To ensure that consumers have such an opportunity, they
must receive adequate notice of the commencement of a lawsuit and have a method of defending

14. 15 U.S.C. §§ 1692-1692p.
15. “Debt collectors” are persons engaged in the collection of debts owed to another, with certain exceptions.
Creditors collecting on their own debts generally are not “debt collectors” for purposes of the FDCPA.
Debt buyers – persons who collect debt on their own behalf that they have purchased from creditors or debt
collectors – are covered by the FDCPA if the accounts were in default at the time the debt buyers purchased
them. FDCPA §§ 803(4), 803(6); 15 U.S.C. §§ 1692a(4), 1692a(6); see also Ruth v. Triumph P’ships, 557 F. 3d
790, 796-97 (7th Cir. 2009); FTC v. Check Investors, 502 F. 3d 159, 171-72 (3rd Cir. 2007). Section 5 of the
FTC Act, 15 U.S.C. § 45(a), broadly prohibits unfair or deceptive acts or practices, including those of creditors.
16. See Kimber v. Fed. Fin. Corp., 668 F. Supp. 1480, 1489 (M.D. Ala. 1987); see also cases cited infra at note
106.
17. See, e.g., Cal. Civ. Code §§ 1788-1788.33; Fla. Stat. §§ 559.55-559.785; Ill. Comp. Stat. 425/1-25.

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Protecting Consumers in Debt Collection Litigation and Arbitration
themselves that is not unduly costly. Most alleged debtors fail to answer complaints or otherwise
defend themselves in debt collection actions.
There was a broad consensus among roundtable panelists that relatively few consumers who
are sued for alleged unpaid debts actually participate in the lawsuits. Although no empirical data
were presented or submitted, panelists from throughout the country estimated that sixty percent
to ninety-five percent of consumer debt collection lawsuits result in defaults, with most panelists
indicating that the rate in their jurisdictions was close to ninety percent.18
Roundtable panelists and commenters differed widely on why there is such a high default
rate in debt collection litigation. In general, industry representatives asserted that most debtors
who default do so because they owe the debt and therefore recognize that disputing it would
be futile. Consumer advocates, on the other hand, generally attributed the low participation
rate to debtors not receiving notice of the action or to procedural hurdles that make it difficult
and expensive for debtors to defend. The Commission is unaware of any empirical data
bearing on this question, making it difficult to draw definite conclusions as to why consumers
do not participate. Nevertheless, given how few consumers appear and the risk of adverse
consequences from not appearing, the Commission believes that the public would benefit from
efforts to increase consumer participation in debt collection litigation.

18. See, e.g., Abrams, Tr. V at 18 (well over 60%); Buckles, Tr. I at 24 (85%); Domestic Policy Subcommittee
Minority Staff Report of the House Oversight and Government Reform Committee (Domestic Policy
Minority Staff) Comment, 3-4 (80% in New York City and Massachusetts, citing Urban Justice Center,
Debt Weight: The Consumer Credit Crisis in New York City and its Impact on the Working Poor, 1 (Oct.
2007), available at www.urbanjustice.org/cdp); Evans, Tr. V at 19 (70-80%); Fisher, Tr. V at 193 (70%);
Groves, Tr. V at 22-3 (80-90%); Lipman, Tr. I at 21-2 (85-90%); MFY Legal Services (MFY) Comment
at 1-2 (90% of New York City debtors fail to answer in suits filed by seven largest debt collection law
firms, citing MFY’s 2008 report, Justice Disserved: A Preliminary Analysis of the Exceptionally Low
Appearance Rate by Defendants in Lawsuits Filed in the Civil Court of the City of New York, available
at http://www.mfy.org/Justice_Disserved.pdf); Moiseev, Tr. I at 21 (85-90%); Moore, Tr. IV at 18 (80%
based on California Creditors’ Bar Association informal survey); Neighborhood Economic Development
Advocacy Project (NEDAP) Comment at 2 (75% default rate in New York City and 90% rate of failure
to answer collection suit); Redmond, Tr. V at 22 (percentage is “certainly very high”); Surh, Tr. IV at 55
(95%); The Legal Aid Society, Neighborhood Economic Development Advocacy Project, MFY Legal
Services, and Urban Justice Center – Community Development Project, Debt Deception: How Debt
Buyers Abuse the Legal System to Prey on Lower-Income New Yorkers (May 2010), 8, available at
http://www.nedap.org/pressroom/documents/DEBT_DECEPTION_FINAL_WEB.pdf (hereinafter Debt
Deception) (finding among 336 collection cases brought by the 26 most litigious debt buyers in New York City
that 81% of cases initially resulted in default judgments for the debt buyers); but see also Moore, Tr. IV at 151
(95% of cases that go to judgment are by default).

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A. Notice to Consumers of Debt Collection Litigation
When a collector files an action against a consumer, it must serve a copy of the summons
and complaint on that individual. Jurisdictions vary in their requirements for who may serve
process and how they must do so.19 In some cases, service requirements depend on the court
in which the action is filed, such as a small claims court or a court of general jurisdiction.20
Typically, process servers are required to complete an affidavit attesting to the fact that they
made service on a specific individual at a particular time and place.
Service of process informs defendants that an action has been commenced and permits
them to exercise their rights to defend the action. If a defendant does not receive process, she is
unlikely to know of the lawsuit, typically leading to the entry of a default judgment.
Service of process may be inadequate or improper for many reasons. For example, process
may fail to reach the consumer if it is delivered to an old or otherwise incorrect address or it is
delivered to the wrong person, such as someone with a similar name.21 Some process servers
may simply not serve the consumer but falsely assert that they have done so.22
Roundtable participants differed as to whether inadequate or improper service is prevalent.
Many consumer advocates and judges who adjudicate debt collection cases stated that

19. See, e.g., Buckles, Tr. I at 29-30, 74-75 (Michigan); Edelman, Tr. I at 47 (Illinois – substitute service);
Leibsker, Tr. I at 26 (Cook County, Illinois); Lipman, Tr. I at 28-29 (Iowa). For state-specific rules, see
generally NAPPA Membership Directory and Civil Rules Guide, Fall 2009, passim; Feerick Center for Social
Justice at Fordham Law School (Feerick Center) Comment, passim.
20. See, e.g., Iowa R. Civ. P. 1.302(3); V.R.C.P. 3. See also Mass. Ann. Laws Unif. Small Claims Rule 2(b).
21. See, e.g., Edelman, Tr. I at 47-48 (wrong person is served either at old address or with name similar to intended
defendant).
22. This is sometimes referred to as “sewer service” – the server throws the documents “down the sewer” and then
falsifies its affidavit of service. See, e.g., United States v. Brand Jewelers, Inc., 318 F. Supp. 1293 (S.D.N.Y.
1970); see also, e.g., Coffey, Tr. V at 24 (“predominantly, the reason that people are not showing up [in
court] in these kinds of cases is because of sewer service”); Faulkner, Tr. V at 25-26 (“Sewer service is a big
problem” such as when service in a collection case purportedly took place at the consumer’s home after that
consumer was evicted following foreclosure, and the home was obviously empty); NEDAP Comment at 2
(sewer service is the primary reason most defendants do not appear in court).

8

Protecting Consumers in Debt Collection Litigation and Arbitration
inadequate or improper service occurs frequently.23 One local official reported that her agency’s
comprehensive investigation of process servers in New York City revealed that “many are not
performing service. They are filling out false affidavits of service. They are not going to the
addresses. They are not sufficiently checking the addresses.”24 A Chicago judge explained
similarly that one of his colleagues had conducted a “spot audit” of one process server and found
that he “claimed to be in areas thirty miles apart in the Chicago-land area within minutes . . . .
And we [asked,] ‘Is he Superman?’”25
In contrast, collection industry representatives at the roundtables generally asserted that
inadequate or improper service is not prevalent in debt collection cases.26 According to some,
service problems are rare and play a very small role in the failure of consumers to appear and
defend.27 Similarly, representatives of professional process server organizations maintained that
many or most process servers do serve properly, but acknowledged that not all do so.28
Most of the information available as to problems with service of process is anecdotal or
relates to particular local jurisdictions, specifically, large metropolitan areas. The Commission
23. See, e.g., Appleseed, Due Process and Consumer Debt: Eliminating Barriers to Justice in Consumer Credit
Cases (Feb. 2010), 12, available at http://ny.appleseednetwork.org/LinkClick.aspx?fileticket=dFHdRj22C
XY%3d&tabid=252 (hereinafter Appleseed Report); Brown, Tr. I at 23 (many consumers who come in at
garnishment stage after default judgments have been entered against them claim they never received service
of summons and complaint); District Council 37 Municipal Employees Legal Services (DC 37) Comment at
6-7 (of 238 New York City debt collection defendants represented by the DC 37 legal services from January
2008 through June 2009, 65 defendants, or 27.3% of the total, first learned of the lawsuit when their wages
were garnished or their bank accounts restrained); Donnelly, Tr. I at 35, 45 (fraudulent service detected upon
“spot audit”), 79-80 (“I’m not sure how big the problem [of improper service] is. I suspect that it’s larger than
we as judges know, and the New York lawsuit brings that to bear.”); Hillebrand, Tr. IV at 42-43 (familiar with
numerous instances of consumers who first discovered they had been sued and a default had been taken when
wages or bank accounts were garnished); Maurer, Tr. IV at 73-75 (when consumers with defenses to debt
collection cases claim not to have been served and to have first learned of suits at garnishment stage, Maurer’s
clinic seeks evidence including the original proof of service in the underlying case and has found numerous
instances of improper service); MFY Comment at 1; Moiseev, Tr. I at 33, 37 (instances of faulty claims by
process server of “simultaneous service”); Debt Deception, supra note 18, at 9 (finding that 71% of collection
suit defendants who called a New York City legal hotline were either not served or served improperly, and
more than half received no notice of the lawsuit at all); see also Gargano, Tr. IV at 35.
24. Tepper, Tr. V at 47 and 64.
25. Donnelly, Tr. I at 35.
26. See, e.g., ACA International (ACA) Comment at 10-11; Needleman, Tr. V at 34-35.
27. See, e.g., Gagnon, Tr. V at 35 (only 0.02% percent of her law firm’s consumer defendants file motions to
vacate judgment claiming lack of service); Leibsker, Tr. I at 62 (only about 1% of people at most are not
served; “in general, people are getting served”); Needleman, Tr. V at 34-35 (“the percentage of nonservice is
extraordinarily small . . . I don’t think that’s the main issue of why [consumer defendants] are not coming [to
court]”).
28. See, e.g., Certified Civil Process Servers Association of Texas (CCPSA Texas) Comment at 2; Estin, Tr. IV at
38; National Association of Professional Process Servers (NAPPS) Comment at 2; Tamaroff, Tr. IV at 56-58;
Yellon, Tr. V at 61-63, 69-70.

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Repairing A Broken System
is not aware of any reliable, nationwide empirical data on the prevalence of service of process
problems, including whether the problems found in some jurisdictions are present throughout
the country. Nevertheless, the very high rate at which consumers do not appear and the service
of process problems documented in some jurisdictions give the Commission a sufficient basis
to conclude that efforts to improve service of process in debt collection litigation would benefit
consumers in many locations.
The FTC believes that service of process problems should be addressed at the state and
local level. The nature and scope of service of process problems likely vary by jurisdiction
and process servers ordinarily are regulated and overseen at these levels, through state law and
court procedural rules. Further, the Commission recommends that state and local jurisdictions
consider adopting four types of measures that some jurisdictions have already undertaken.
First, randomly conducted audits would be useful in determining the nature and extent of
the service problems, if any, that exist in debt collection cases filed in specific jurisdictions. An
audit by a judge in Cook County, Illinois, for example, revealed more extensive and serious
service of process problems than some of his colleagues thought existed.29 Audits also could
reveal individual process servers or agencies engaging in unlawful practices. The New York
Attorney General’s office conducted such an audit and, finding a variety of unlawful servicing
practices, criminally prosecuted the process server.30
Second, jurisdictions should also consider amending service of process rules to require
greater verification. Some jurisdictions have modified these rules to make it more likely that
the correct consumers are served.31 For example, in response to the efforts of a working group
of judges, consumer advocates, and creditor representatives, Massachusetts recently changed
its small claims court rules to require that collectors in most debt collection cases verify the
29. Donnelly, Tr. I at 35.
30. The records of the process server, American Legal Process, revealed numerous instances in which process
servers claimed: to be at two or more locations at the same time; to be at two locations in sequence when
physically impossible in light of the time required to travel the distance between them; to have served
documents at times before those documents were received; to have attempted service at times before the court
index number had been purchased; and to have notarized signatures when physically impossible to do so. In
re Hon. Ann Pfau v. Forster & Garbus et al., Index No. 2009-8236 (Erie County Supreme Court), Attorney
Affirmation of James M. Morrissey (July 2009).
31. See, e.g., Appleseed Report, supra note 23, at 13-15 (New York City Civil Court Uniform Rules § 208.6
requires a new notice to be mailed by the court to each consumer debt defendant as a second notice
mechanism, and default judgment may not be granted when notice is returned to court as undeliverable);
Tepper, Tr. V at 63-65 (New York City Department of Consumer Affairs) (service of process can improve
by: (1) ensuring process servers are paid enough to motivate them to do their jobs properly; (2) using new
technologies to monitor the location of process servers throughout the day; and (3) promulgating laws or rules
requiring enhanced bookkeeping and record keeping). See also Mass. Ann. Laws Unif. Small Claims Rule
2(b); State of Connecticut Judicial Branch, Report of the Bench/Bar Small Claims Committee 3-4 (2009).

10

Protecting Consumers in Debt Collection Litigation and Arbitration
current addresses of consumers by consulting reliable sources (such as municipal or motor
vehicle records) and attest, under penalty of perjury, that they have engaged in such verification
efforts.32 Likewise, a bench and bar working group in Connecticut recently recommended that
debt collectors consult two reliable sources to verify a consumer’s address and attest, under
oath, that they consulted such sources.33 The requirements adopted in Massachusetts and under
consideration in Connecticut may be useful models for other jurisdictions.
Third, some jurisdictions now require, in addition to regular service of process, use of the
United States mail to provide consumers with supplemental notice of debt collection lawsuits.
For example, North Carolina requires debt buyers to provide consumers with written notice of
their intent to file suit thirty days prior to initiating suit; the notice must include relevant debtrelated information such as an itemized accounting of amounts sought and proof of ownership
of the debt.34 New York City requires that collectors prepare a notice about the lawsuit, which
the court clerk sends to the purported debtor by United States mail, and local law provides that
the court may not enter a default judgment if the notice is returned as undeliverable.35 These
supplemental notice mechanisms can be an important backstop if ordinary service efforts are
problematic or unsuccessful. In New York City, following the adoption of these mechanisms,
more consumers are appearing in court and many of the consumers who do appear explain that
the clerk-mailed notices were their only notice of the pending legal action.36 Other jurisdictions
may benefit from implementing similar supplemental notice requirements.
Finally, law enforcement actions and judicial sanctions could help deter fraud by process
servers. Some states recently have taken action against bogus process servers. The New York
Attorney General, for example, filed civil and criminal actions against process servers who
had engaged in widespread misrepresentations and “sewer service” in debt collection litigation

32. Mass. Ann. Laws Unif. Small Claims Rule 2(b).
33. State of Connecticut Judicial Branch, Report of the Bench/Bar Small Claims Committee 3-4 (2009). See also
Connecticut Rules Committee for the Superior Court, proposed practice book revision § 24-9, published in
Connecticut Law Journal, 58C-59C (May 19, 2009) (version of Bench/Bar Committee’s recommendation that
was proposed by the Rules Committee).
34. N.C. Gen. Stat. §§ 58-70-115(5) and (6).
35. N.Y. City Civ. Ct. Unif. Rules § 208.6 (2009); see also N.Y. City Civ. Ct. Chief Clerk’s Memorandum CCM176 (Apr. 1, 2008).
36. Appleseed Report, supra note 23, at 13-15.

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Repairing A Broken System
matters.37 These suits allege over 100,000 instances of faulty service in New York State which
resulted in default judgments against consumers.

B. Costs of Defending in Debt Collection Litigation
Assuming that consumers have been properly served, roundtable participants suggested
additional reasons that they may not answer or otherwise defend against debt collection suits.
Representatives of the collection industry generally asserted that the primary reason is that
consumers know they owe the debts and do not have any viable defenses, although some
industry representatives conceded that consumers’ trepidation about the legal process and
inability to retain counsel may also play a role.38 Consumer advocates said that consumers may
not answer or otherwise defend because they cannot take time off work without pay, are afraid of
courtroom processes and unfamiliar with their options, have complex and multiple demands in
their lives, have transportation difficulties, or cannot obtain effective representation.39

37. See, e.g., People v. Zmod Process Corp. DBA Am. Legal Process & Singler, Index No. 2009-4228 (Erie County
Supreme Court) (Apr. 2009) (civil suit); People v. Singler & Zmod Process Corp. dba Am. Legal Process, Inc.
(Apr. 2009) (felony complaint). See also In re Pfau v. Forster & Garbus et al., Index No. 2009-8236 (Erie
County Supreme Court) (July 2009) (civil petition to vacate default judgments obtained against consumers in
debt collection cases, filed against numerous attorney collectors who used American Legal Process to serve
process and obtained default judgments in New York).
38. See, e.g., Asset Acceptance, LLC (Asset) Comment at 2; Buckles, Tr. I at 24 (“[M]ost of the people, in my
opinion, don’t file an answer because they have no defense.”); Leibsker, Tr. I at 62 (consumer fear of court,
lack of representation, and lack of money to repay debt are reasons for high default rate); Portfolio Recovery
Associates (PRA) Comment at 2; Needleman, Tr. V at 33 (“some of them . . . owe the money, and . . . they’re
not sure . . . what to do”); Zezulinski, Tr. V at 50 (consumers don’t appear because of “helplessness and
hopelessness. . . . They owe the debt. They just don’t know what to do about it.”). See also Donnelly, Tr. I at
62 (very few consumers at garnishment hearings raise claims they were never served); but see also Groves, Tr.
V at 23 (transportation or getting off work may play a part); Needleman, Tr. V at 33-34 (consumer priorities,
hardships, fear, and misinformation from debt settlement companies and the internet advising consumers not
to respond are among the reasons for the high consumer nonappearance rate); Redmond, Tr. V at 46 (“it’s
certainly true that the biggest reason [for consumer court nonappearance] is . . . just the human nature of not
wanting to go through [the court] experience”).
39. See, e.g., Abrams, Tr. V at 17-18, 57 (numerous problems may be affecting consumers, such as housing
emergencies, medical bills, lack of transportation, and other more high-priority complexities; consumers
commonly exercise their “natural inclination . . . to try [to] ignore [the lawsuit] and hope it will go
away”); Appleseed Report, supra note 23, at 21; Bragg, Tr. I at 25 (lack of representation and advice is
a cause of consumer non-appearance); Coffey, Tr. V at 24 (sometimes consumers do not appear because
they do not recognize the entity suing them, have other things going on in their lives, or do not want the
stress of a court appearance); Evans, Tr. V at 19 (difficulty getting off work due to finances, fear of the
system, and hopelessness because consumers don’t have representation on their side are among the causes
of nonappearance); Hillebrand, Tr. IV at 43 (some consumers don’t appear from misunderstanding the
court papers they receive); Rosmarin, Tr. V at 38-41 (fear and unfamiliarity, lack of legal representation,
misunderstanding the summons, not recognizing the entity suing them, not understanding that they need to
appear, and believing it’s a case of mistaken identity are among the reasons that consumers who receive service
may not appear in court).

12

Protecting Consumers in Debt Collection Litigation and Arbitration
Although no empirical data were submitted bearing on which, if any, of the many possible
explanations are correct, the FTC believes that it is worthwhile to encourage measures that could
increase consumer participation in debt collection litigation. Roundtable participants suggested
a number of measures to reduce the costs to consumers or otherwise encourage them to defend.
If lack of understanding and fear about the litigation process is deterring some consumers from
appearing in court, then jurisdiction-specific consumer education materials40 explaining the
debt collection litigation process in clear and concise terms could encourage participation. In
addition, if counsel assisted consumers in connection with debt collection litigation, it might
demystify the process and help consumers understand their rights and assert defenses.41 In some
jurisdictions, pro bono attorneys, legal services attorneys, or students from law school clinics
appear in court to offer such assistance.42 State and local courts, bar associations, law schools,
and others should consider measures to increase the availability of counsel to assist consumers in
debt collection litigation.
Other roundtable participants stated that the costs of appearing in court to defend debt
collection lawsuits may deter some consumers from participating. Consumers may lose income
if they are absent from work, or they may lack reliable transportation to and from the courthouse.
To reduce such costs, roundtable participants suggested increasing the use of technology and
making available alternative ways to communicate and participate.43 For example, holding
hearings by telephone or Internet might enable consumers to lose less time from work and spend
less money on transportation.44 Likewise, online exchanges of information about the debt, such
as evidence of indebtedness, might eliminate the need for, or reduce the length of, a hearing.
40. The Commission engages in extensive consumer education on a wide variety of topics, including debt
collection. Because the procedures and rules related to debt collection litigation are jurisdiction-specific, state
and local officials would be better placed than the FTC to develop accurate and helpful consumer education for
particular jurisdictions. See also Appleseed Report, supra note 23, at 22-23 (discussing court website, public
access terminals, pro se resources, and forms available at New York City courts, including a check-off list and
explanations of available defenses in consumer debt collection actions).
41. Accord Rosmarin, Tr. V at 50-51.
42. See, e.g., Appleseed Report, supra note 23, at 33-34; Drysdale, Tr. V at 206; Drysdale Comment at 1; Loftus,
Tr. V at 206-07; MFY Comment at 3 (CLARO programs in courthouses in 4 of the 5 New York City boroughs).
Some other courthouse-based programs to assist consumers in debt collection matters include CARPLS in
Chicago (www.carpls.org) and an incipient Fair Debt Collection “Attorney for the Day” program run by the
Boston Bar Association Volunteer Lawyers Project. See also Rosmarin, Tr. V at 50-52; but see Debski, Tr.
V at 29 (claiming that such programs may unethically involve “poaching clients or soliciting clients at the
courthouse steps while they’re in an emotional state”).
43. Such technological measures should be made available to consumers who are able to access and use them, but
their use should not be required of consumers who are unfamiliar with or lack access to them.
44. See, e.g., Debski, Tr. V at 29-30 (“I think that a lot of times . . . the consumer or debtor should be allowed to
appear by telephone . . . . They wouldn’t be missing work. They would be able to . . . maybe take a break from
work and appear at the court.”).

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Repairing A Broken System
State and local jurisdictions thus should consider whether there are lower-cost methods of
adjudicating collection disputes.
Participating in litigation is particularly costly for consumers if collectors are unprepared
to proceed when consumers appear in court. Collectors often seek continuances or dismissals
without prejudice; when courts grant such requests and set a new hearing date, the consumer is
required once again to bear the costs of taking off work and coming to court.45 To discourage
collectors from engaging in these practices, courts should consider awarding consumers the costs
of preparing for and attending the canceled hearing, including their lost wages and transportation
costs.

III. Evidence of Indebtedness in the Debt Collection Litigation
Process
A. Debt Collection Pleadings and Related Information
1. Complaint Information
Most states have adopted notice pleading requirements for civil litigation, including
debt collection litigation, although some states continue to use more elaborate code pleading
requirements.46 Many state notice pleading systems are modeled on the notice pleading
requirements included in the Federal Rules of Civil Procedure (“F.R.C.P.”). Under F.R.C.P.
8(a), the complaint must include: (1) a “short and plain statement” of jurisdiction; (2) a “short
and plain statement” of the claim; and (3) a demand for judgment.47 The United States Supreme
Court recently explained that F.R.C.P. 8(a) requires that a complaint “give the defendant fair
notice of what the . . . claim is and the grounds upon which it rests”48 by making a “claim to
relief that is plausible on its face.”49 In such a claim, “the plaintiff pleads factual content that
45. See also Appleseed Report, supra note 23, at 27, 30 (recommending that New York state courts should limit
adjournments as repeated court appearances create hardship for consumers and suggesting that plaintiffs may
sometimes “use repeated adjournments strategically” to encourage settlements or default judgments if the
consumer cannot continually appear).
46. Code pleadings require more detailed factual pleading than notice pleadings. Code pleadings state the
“ultimate facts” making out each element underlying a cause of action. See John B. Oakley, A Fresh Look
at the Federal Rules in State Courts, 3 Nev. L.J. 354 (2002); Charles Alan Wright & Arthur R. Miller,
5 Fed. Prac. & Proc. Civ. § 1218 (3d ed. 2010). Some examples of code pleading states include Florida,
Illinois, Louisiana, Nebraska, and Pennsylvania. Z.W. Julius Chen, Following the Leader: Twombly, Pleading
Standards, and Procedural Uniformity, 108 Colum. L.R. 1431 (2008).
47. Fed. R. Civ. P. 8(a).
48. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal cites omitted). See also Berman, Tr. V at 141;
Berman Comment at 2.
49. Twombly, 550 U.S. at 570.

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Protecting Consumers in Debt Collection Litigation and Arbitration
allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged”50 and allows the court to infer “more than the mere possibility of misconduct.”51 In
answering the complaint, F.R.C.P. 8(b) requires only that the defendant admit or deny every
element of the plaintiff’s claims, and F.R.C.P. 8(c) requires that the defendant state any
affirmative defenses he or she wants to assert. If the complaint is “so vague or ambiguous that
the [defendant] cannot reasonably prepare a response,” the defendant can move the court to order
the plaintiff to file a more definite statement.52
Many roundtable participants expressed views as to the nature and quality of information
collectors should be required to include in their complaints. Numerous consumer representatives
asserted that debt collection actions too often are filed against the wrong consumer, seek the
wrong amount, or both, or are otherwise based on erroneous information.53 To address these
concerns, most consumer advocates favor complaints that set forth detailed debt-related
information54 including: (1) the name of the original creditor and redacted original account
number;55 (2) the amount owed to the original creditor;56 (3) the date of last payment;57 (4)
the cause of action;58 (5) the governing state law;59 (6) the amount the consumer currently
owes, broken down by principal, interest, fees, and other charges;60 (7) information about the

50. Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949 (2009) (internal cites omitted).
51. Iqbal, 129 S. Ct. at 1950.
52. Fed. R. Civ. P. 12(e).
53. See, e.g., Bromberg, Tr. V at 163; DC 37 Comment at 3; Edelman, Tr. I at 123, 135-37, 151-53, 171-72; Elder
Comment at 1; Martin, Tr. V at 155; Maurer, Tr. IV at 156; NEDAP Comment at 3; Pittman, Tr. V at 187.
54. See, e.g., AARP Comment at 11-15 (emphasis on information possessed by the creditor prior to initiating suit);
Appleseed Report, supra note 23, at 23-26; Consumers Union Comment at 2, 4 (emphasis on information
possessed by collector and shared with consumer prior to initiating suit); Edelman, Tr. I at 136-37, 171-72;
Flory, Tr. IV at 170; Greater Boston Legal Services (GBLS) Comment at 2-3; Hillebrand, Tr. IV at 163, 17273; Kinkley, Tr. IV at 159, 163; Lyngklip, Tr. I at 143; Maurer, Tr. IV at 156; National Consumer Law Center
(NCLC) Comment at 5 (emphasis on information possessed by collectors prior to initiating suit).
55. See, e.g., Appleseed Report, supra note 23, at 25; Consumers Union Comment at 2; Hillebrand, Tr. IV at 163,
172-73; Kinkley, Tr. IV at 163.
56. See, e.g., Consumers Union Comment at 2; Hillebrand, Tr. IV at 163; Kinkley, Tr. IV at 163.
57. See, e.g., Appleseed Report, supra note 23, at 25; Consumers Union Comment at 2; Edelman, Tr. I at 136;
Hillebrand, Tr. IV at 163; Kinkley, Tr. IV at 163.
58. See, e.g., Hillebrand, Tr. IV at 163; Kinkley, Tr. IV at 163.
59. See, e.g., Lyngklip, Tr. I at 143-44.
60. See, e.g., Appleseed Report, supra note 23, at 25; Consumers Union Comment at 2; GBLS Comment at 2-3;
Hillebrand, Tr. IV at 163; Kinkley, Tr. IV at 159, 163.

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Repairing A Broken System
applicable statute of limitations and from when it runs;61 and (8) information as to the full chain
of assignments of the debt.62
Several judges who participated in the roundtables expressed concern that the information
in many debt collection complaints appears to be inadequate.63 They reported that the most
common question of consumer defendants in debt collection cases is, “Where is this from?”64
That is, consumers are often puzzled by the allegations that they owe a debt to an entity they do
not recognize,65 and they are puzzled about the timing and amount of the alleged debt. Some
judges stated that more information should be included in debt collection complaints so that
consumers can understand who is suing them, on what basis, and for how much.66
Some collector representatives emphasized that, although they regularly provide more
information in their complaints, in a notice pleading system they are only required to provide
limited information.67 Most collector representatives favored including enough information
in the complaint itself to enable the defendant to easily recognize and understand the debt on
which the complaint is based.68 Other collector representatives, however, favored including
more information in their complaints, such as: (1) the name of the original creditor and a
redacted version of the original account number for purchased accounts, perhaps accompanied
by a statement that the account was transferred from the original creditor to the current owner;69

61. See, e.g., GBLS Comment at 2-3; Kinkley, Tr. IV at 159.
62. See, e.g., Appleseed Report, supra note 23, at 25; GBLS Comment at 2-3; Edelman, Tr. I at 136; Lyngklip, Tr. I
at 143.
63. See, e.g., Donnelly, Tr. I at 146; Moiseev, Tr. I at 113.
64. See, e.g., Donnelly, Tr. I at 89; Fisher, Tr. V at 150; Moiseev, Tr. I at 91; Nordlund, Tr. V at 146.
65. See discussion about the growth of debt buying, supra, at Chapter 2, § I. When debt is purchased by a new
entity, in some instances consumers may mistakenly believe that their lack of familiarity with the entity
indicates that they never incurred the alleged debt.
66. See, e.g., Donnelly, Tr. I at 146, 154-55; Fisher, Tr. V at 150, 164, 167; Moiseev, Tr. I at 155-57; Nordlund, Tr.
V at 146.
67. See, e.g., ACA Comment at 15; Asset Comment at 4; Bender, Tr. V at 159; Buckles, Tr. I at 108-09; Moore, Tr.
IV at 186; NARCA Comment at 7-8; Newburger, Tr. IV at 191-92, 198; PRA Comment at 3; Sinsley, Tr. I at
102-03.
68. See, e.g., ACA Comment at 16 (complaint should contain sufficient information to evaluate the claim
for indebtedness); Bender, Tr. V at 159-60 (“Responsible collection attorneys want there to be sufficient
information attached to a complaint so that a consumer is fully informed regarding what his or her
responsibilities are alleged to be.”); Moore, Tr. IV at 153 (through pleading “I’m also trying to give the
consumer enough information so that they know why I’m suing them”); Myers, Tr. V at 198; Newburger,
Tr. IV at 154-55 (some firms are “careful about pleading in a way that the consumer can identify what the
account is that’s being sued”); Olshan, Tr. V at 189 (“We need to find ways for there to be transparency through
information in the pleading.”); Ray, Tr. IV at 169-70.
69. See, e.g., Buckles, Tr. I at 133; Moore, Tr. IV at 153; Newburger, Tr. IV at 154-55; Olshan, Tr. V at 145, 154;
Ray, Tr. IV at 169; Sargis, Tr. IV at 175.

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Protecting Consumers in Debt Collection Litigation and Arbitration
(2) the date of default or charge-off and the amount of the debt at that time;70 and (3) the
amount of interest demanded and the basis for how the interest amount was computed, perhaps
accompanied by a statement of fees and other charges incurred since the time of charge-off.71
The function of debt collection complaints in a notice pleading system is to provide
sufficient information so that: (1) consumers can determine whether to admit or deny the
complaint allegations and assert affirmative defenses in their answers; and (2) judges can
determine whether to grant a motion for a more definite statement or enter a default judgment.
To ensure that sufficient information is provided, the Commission believes collectors generally
should include the following information in complaints: (1) the name of the original creditor72
and the last four digits of the original account number; (2) the date of default or charge-off and
the amount due at that time; (3) the name of the current owner of the debt; (4) the total amount
currently due on the debt; and (5) a breakdown of the total amount currently due by principal,
interest, and fees.73
Based on the evidence gathered in connection with these proceedings, the FTC believes that
many debt collection complaints do not provide this information to consumers. The Commission
recognizes that the rigorous application of existing rules in individual cases could mitigate
this problem, but some jurisdictions may want to consider more systematic solutions. Several
jurisdictions now require that all debt collection complaints include the kind of information the
Commission believes is appropriate.74 The FTC recommends that jurisdictions consider adopting
such requirements to the extent that application of existing rules does not result in sufficient
information being set forth in debt collection complaints.

70. See, e.g., Berman, Tr. V at 141-42; Moore, Tr. IV at 152, 164; Newburger, Tr. IV at 154, 164-65; Olshan, Tr. V
at 145, 154. See also Naves, Tr. IV at 87 (creditor account record information “is inherently reliable from our
perspective, because [creditors] are using that to conduct their business. The dates that we get for a charge-off,
the dates that we get for date of last payment, the dates that we get for original default are the dates that are
provided by the companies that have a responsibility to keep those records and they are indeed the records by
which they manage their businesses.”).
71. See, e.g., Moore, Tr. IV at 152; Newburger, Tr. IV at 164-65; Olshan, Tr. V at 145.
72. In its February 2009 workshop report, the Commission advocated requiring more information be provided
to consumers under the FDCPA’s validation notices. This included the name of the original creditor and an
itemized breakdown of a debt into principal, interest, and other fees and charges. Challenges of Change,
supra note 1, at § VI.A.2.b.
73. As explained below in Part IV, the FTC recommends for other reasons that debt collection complaints include:
(1) the date of default or last payment on the debt, and (2) the applicable statute of limitations on the debt.
74. See, e.g., Mass. Ann. Laws Unif. Small Claims Rules 2(a), 2(b); Michigan Court Rules 3.101; N.C. Gen.
Stat. §§ 58-70-115, 58-70-145, 58-70-150, 58-70-155 (2009); see also Fairfax County, Virginia General
District Court Best Practices: Default Judgments/Debt Buyers and Purchased Debt-Default Judgment Checklist
(2009); State of Connecticut Judicial Branch, Report of the Bench/Bar Small Claims Committee at 4, 10
(2009).

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Repairing A Broken System
2. Complaint Attachments
Roundtable participants expressed widely varying views as to the information that collectors
should be required to include as attachments to complaints. Consumer advocates tended to favor
extensive attachments to complaints, such as the underlying contract giving rise to the debt75 or
evidence of the underlying contract (including the applicable terms and conditions and the signed
account application), copies of account statements or other records of the debt, and the chain
of title showing how the collector came to own the particular obligation.76 Consumer group
representatives emphasized that some states require certain complaint attachments including a
copy of the contract giving rise to the cause of action,77 or a summary statement with the precise
amount of the claim and any interest and a bill showing services rendered and sold.78 Other
states require even more extensive attachments. In cases involving credit card debt, one state
requires that the plaintiff attach “the actual documents, including evidence that the consumer
was the one who signed the account application, a copy of the account agreement, and a copy of
billing statements.”79
Some judicial participants said that the inclusion of attachments with debt collection
complaints would be useful. Other judges, however, expressed reservations about imposing such
a requirement because the additional paper filed would add to the difficulty the courts already
have in managing the documents they receive.80

75. Consumer advocates recently supported proposed legislation in Massachusetts that would require the contract
be attached as part of a debt collection complaint. See Mitchell-Munevar, Tr. V at 156. Likewise, a bill
pending in Minnesota would require debt buyer plaintiffs to attach the original contract, an affidavit setting
forth the date and amount of the last payment, and written proof that the plaintiff does, indeed, own the debt.
See Minnesota S.F. No. 2689 (2009-2010). Similarly, New York’s proposed “Consumer Credit Fairness Act,”
Assem. B. 7558/S. 4398, Leg. 232 Sess. (N.Y. 2009), would require that the contract or other instrument on
which the action is based be attached to a consumer debt collection complaint.
76. See, e.g., Barry, Tr. I at 138; Bromberg, Tr. V at 162 (“you have to have copies of the cardholder agreements,
amendments, chains of assignment, proof of assignment . . . [and] copies of bills”); Brown, Tr. I at 171-72;
Edelman, Tr. I at 136-37; Kinkley, Tr. IV at 159, 194; Mitchell-Munevar, Tr. V at 190 (supporting “an up-front
submission of more documentation” because no discovery is ordinarily permitted in Massachusetts small
claims courts); Wu, Tr. V at 147.
77. See, e.g., Carpenter, Tr. V at 148 (Pennsylvania); Coleman, Tr. IV at 178 (California: either attach the contract
or state its relevant terms); Drysdale, Tr. V at 171 (Florida); Lyngklip, Tr. I at 131 (Michigan); MitchellMunevar, Tr. V at 156 (a proposal before the Massachusetts legislature would require contracts be attached to
complaints); Myers, Tr. V at 200 (North Carolina’s new statute as to debt buyers).
78. Md. Rule 3-306. See also Bender, Tr. V at 142.
79. Wu, Tr. V at 147 (describing Arkansas law); see also Danner v. Discover Bank, 99 Ark. App. 71, 72 (Ark. Ct.
App. 2007).
80. See, e.g., Fisher, Tr. V at 167; Surh, Tr. IV at 193.

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Protecting Consumers in Debt Collection Litigation and Arbitration
Collectors and creditors raised concerns about including documentation with the complaint.
One collector representative stated that collectors should be required to include information
about contracts in complaints but not to attach the contracts to complaints, in part because “in the
21st century, contracts are not always in writing.”81 A debt collection attorney from California (a
state where the contract must be attached or the relevant terms of the contract must be stated in
the complaint) objected that “to require [the contract itself be included as] an attachment would
be to change California law.”82 Similarly, one collection attorney from Michigan (a state which
requires attaching the underlying contract) disfavored attaching copies of the contract assigning
a debt to its present owner.83 In discussing whether the chain of title for a purchased debt should
be attached to the complaint, another collector representative maintained that attachment should
not be required, and that the chain of title should not be produced unless the consumer contests
the claim that the plaintiff owns the debt.84
As with information in the complaint itself, the information contained in attachments to
the complaint needs to be sufficient for consumers to determine how to answer the complaint
allegations and for judges to decide motions for a more definite statement or for a default
judgment. Although some consumers and courts would benefit if they knew more about the
debt, including information about the underlying contract and transaction history, mandating the
attachment of extensive documentation about the debt (such as contracts and account statements)
would result in increased costs to collectors and court systems. The Commission therefore
recommends that courts rigorously apply current court rules to require that contracts or other
documentation be provided with complaints only if they are necessary for consumers to answer
the complaint or for courts to decide whether to grant motions for more definite statements or
for default judgments. Jurisdictions should also consider specifying documents (or explanations
in lieu of documents) that must accompany complaints if judicial application of existing rules in
individual cases would not be sufficient to change the information set forth in complaints.

B. Default and Summary Judgment Checklists
If a defendant does not answer or otherwise defend a debt collection action, a default
judgment may be entered against the defendant. First, the clerk of the court must enter a
default if “a party against whom a judgment for affirmative relief is sought has failed to
81. Olshan, Tr. V at 153-54.
82. Coleman, Tr. IV at 178.
83. Buckles, Tr. I at 132-3. Note that some Michigan consumer advocates interpret the requirement of attaching
the contract giving rise to the suit to extend to a requirement that the assignment contracts be attached. See
Lyngklip, Tr. I at 131.
84. Ray, Tr. IV at 194. See also Berman Comment at 15-16.

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Repairing A Broken System
plead or otherwise defend” and the failure to plead or defend has been “shown by affidavit or
otherwise.”85 Second, unless the claim is for a sum certain or a sum that can be made certain
by computation, the plaintiff must apply to the court for a default judgment after the clerk has
entered a default. In considering a motion for a default judgment, the court may: (1) conduct
an accounting; (2) determine the amount of damages; (3) establish the truth of any allegation by
evidence; or (4) investigate any other matter.86 After considering the available information, the
court has discretion in deciding whether to grant a default judgment.87
As discussed above, the Commission recommends steps to increase consumer participation
in debt collection litigation to help decrease the prevalence of default judgments. In an effort to
address this problem in another way, some court systems have adopted measures to encourage
judges to apply appropriate and consistent standards – including legal standards and court
rules – in deciding whether to grant such judgments.88 Massachusetts developed a checklist
for magistrates setting out the elements that must be shown to grant a default judgment in a
debt collection case.89 The Commission recommends that other state court systems consider

85. Fed. R. Civ. P. 55(a).
86. Fed. R. Civ. P. 55(b)(2).
87. “In determining whether to enter a default judgment, the court is free to consider a number of factors that
may appear from the record before it. Among these are the amount of money potentially involved; whether
material issues of fact or issues of substantial public importance are at issue; whether the default is largely
technical; whether plaintiff has been substantially prejudiced by the delay involved; and whether the grounds
for default are clearly established or are in doubt. Furthermore, the court may consider how harsh an effect
a default judgment might have; or whether the default was caused by a good-faith mistake or by excusable
or inexcusable neglect on the part of the defendant. Plaintiff’s actions also may be relevant; if plaintiff has
engaged in a course of delay or has sought numerous continuances, the court may determine that a default
judgment would not be appropriate. Finally, the court may consider whether it later would be obliged to set
aside the default on defendant’s motion, since it would be meaningless to enter the judgment as a matter of
course if that decision meant that the court immediately would be required to take up the question of whether it
should be set aside.” Charles Alan Wright & Arthur R. Miller, 10A Fed. Prac. & Proc. Civ. § 2685 (3d ed.
2010). See, e.g., Wright v. Liguori, 2009 U.S. Dist. LEXIS 93840, *6-*7 (D. Del. 2009); Fanning v. Permanent
Solution Indus., Inc., 257 F.R.D. 4, 7 (D.D.C. 2009).
88. See, e.g., Mass. Ann. Laws Unif. Small Claims Rules 7(d) (see also Small Claims Default Judgment Checklist
provided in Trial Court of the Commonwealth of Massachusetts District Court Department Memorandum
from Hon. Lynda M. Connolly, Chief Justice (Sept. 11, 2009)); Fairfax County, Virginia General District Court
Purchased Debt-Default Judgment Checklist (2009); State of Connecticut Judicial Branch, Report of the
Bench/Bar Small Claims Committee at 10-11 (2009) (see also proposed Connecticut Small Claims Judgment
Checklist for Magistrates at Appendix E, Judicial Branch, Report of the Bench/Bar Small Claims Committee
(2009)); see generally also N.C. Gen. Stat. §§ 58-70-145, 58-70-150, 58-70-155 (2009). See Appendix E for
examples of such checklists.
89. Mass. Ann. Laws Unif. Small Claims Rules 7(d); Small Claims Default Judgment Checklist provided in Trial
Court of the Commonwealth of Massachusetts District Court Department Memorandum from Hon. Lynda M.
Connolly, Chief Justice (Sept. 11, 2009).

20

Protecting Consumers in Debt Collection Litigation and Arbitration
adopting similar checklists, to promote the application of proper and uniform requirements for
determining whether to grant a default judgment.90
Some jurisdictions also have adopted specific checklists for granting judgments in actions
brought by debt buyers. North Carolina recently enacted a statute requiring courts to use a
special checklist of elements a debt buyer must meet to be awarded default or summary judgment
in a debt collection action.91 Fairfax County, Virginia, also provides a checklist for judges to use
in determining whether to grant a default judgment to a debt buyer.92 New York City requires
debt buyers to present special affidavits showing the chain of title to obtain a judgment.93 The
rationale for mandating that courts follow a checklist or review special affidavits is that, if debt
buyers sue to collect, the debts at issue have changed hands more often and are older than other
debts. The FTC has not reached any conclusions as to whether different standards should apply
to debt buyers than to other owners of debts,94 but jurisdictions concerned about the validity of
the debts on which debt buyers are suing may want to adopt one of these models.95

C. Unnecessary Litigation Costs
A number of roundtable participants stated that the litigation practices of collectors have
imposed unnecessary costs on consumers. At times, according to these participants, collectors,
particularly debt buyers, are not ready to proceed to trial when consumers appear to defend.96
Given how infrequently consumers appear and defend, some collectors may decide not to
expend the costs necessary to be ready to proceed to trial on the off chance that the consumer
might appear. Because they are not prepared to go to trial, such collectors reportedly often seek
continuances or dismissals without prejudice so that the cases can be pursued or re-filed at a later

90. See Appendix E for examples.
91. N.C. Gen. Stat. § 58-70-155 (2009).
92. Fairfax County, Virginia General District Court Purchased Debt-Default Judgment Checklist (2009).
93. N.Y. City Civ. Ct. Directives and Procedures DRP-182 (May 13, 2009).
94. In December 2009, the Commission commenced a comprehensive study of the debt buying industry by
ordering the production of information from nine of the largest debt buyers in the United States. Once the FTC
has reviewed and analyzed this information, the agency will be able to offer better-informed views as to the
conduct of debt buyers and the standards that should apply to them.
95. Legislation aimed at scrutinizing debt buyer evidence was recently introduced in the Minnesota legislature. It
would require such plaintiffs to provide contract copies, affidavits of last consumer payment date and amount,
and written proof of ownership, among other features. See Minnesota S.F. No. 2689.
96. See, e.g., Barry, Tr. I at 105, 112; Donnelly, Tr. I at 108; Flory, Tr. IV at 170; Lipman, Tr. I at 107, 149; Nepveu,
Tr. I at 106; Pittman, Tr. V at 187; but see also Donnelly, Tr. I at 112 (collectors may decide “it’s not worth it”
to fight the consumer); Sinsley, Tr. I at 112 (same).

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Repairing A Broken System
date.97 In addition to the burdens this practice imposes on the court system, it is inconvenient
and costly to consumers who have appeared in court, and then must re-appear in court when the
case is rescheduled.98 Some courts have acted to deter this practice. For example, according to
a judge of the Blair County, Pennsylvania “Credit Card Court,” if the plaintiff does not appear at
an initial mandatory conciliation conference, the case is dismissed with prejudice.99 Courts also
may impose sanctions on parties or their counsel to deter this practice, or order that they pay the
costs of the consumers who have appeared for trial. To the extent that judges conclude that a
collector has engaged in this practice, they may want to consider taking similar measures.

IV. Statutes of Limitations
States usually establish a particular period of time, known as the statute of limitations, to
set the duration during which an action to compel payment of a debt may be brought. Statutes
of limitations help ensure that consumers can defend themselves in collection actions and that
courts will have the evidence they need to resolve these disputes.100 Statutes of limitations also
provide a bright line for collectors and consumers as to the date after which the collector should
no longer file an action to collect on a debt.
In most states, the running of the statute of limitations does not extinguish the consumer’s
underlying debt.101 But if the collector files a legal action to recover on the debt, the consumer
can raise the running of the statute of limitations as an affirmative defense.102 The running of the

97. See sources in supra note 96; Appleseed Report, supra note 23, at 27, 30; Pittman, Tr. V at 187 (describing his
experience with a debt buyer with no access to documentary media: “If [any consumer] comes to court, [the
debt buyer is] going to dismiss, because they can’t get the proof.”).
98. See Donnelly, Tr. I at 146; Weinberg, Tr. I at 158.
99. Carpenter, Tr. V at 183. See also Mass. Ann. Laws Unif. Small Claims Rules 7(c) (requiring that a judgment
for the defendant, rather than a dismissal, must be entered if the defendant is present for the scheduled trial, the
plaintiff does not appear or is not prepared to proceed to trial, and there is no good cause for a continuance).
100. See United States v. Kubrick, 444 U.S. 111, 117 (1979) (statutes of limitations “protect defendants and the
courts from having to deal with cases in which the search for truth may be seriously impaired by the loss of
evidence, whether by death or disappearance of witnesses, fading memories, disappearance of documents, or
otherwise”).
101. In Mississippi and Wisconsin the expiration of the statute of limitations legally extinguishes the debt. Miss.
Code Ann. § 15-1-3 (2009); Wis. Stat. Ann. § 893.05 (2009).
102. See, e.g., Evans, Tr. V at 89 (Florida); Gargano, Tr. IV at 119 (California); Lipman, Tr. I at 90 (Iowa); Surh,
Tr. IV at 113 (California). In Mississippi and Wisconsin, however, the expiration of the statute of limitations
legally extinguishes the debt, thus making a suit on a time-barred debt subject to dismissal for failure to state
a cause of action. Miss. Code Ann. § 15-1-3 (2009) (see, e.g., Lowery v. Statewide Healthcare Serv., Inc., 585
So. 2d 778, 780 (Miss. 1991)); Wis. Stat. Ann. § 893.05 (2009) (see, e.g., Klewer v. Cavalry Invs., LLC, 2002
U.S. Dist. LEXIS 1778, *6, *8 (W.D. Wis. 2002)).

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Protecting Consumers in Debt Collection Litigation and Arbitration
statute of limitations, however, does not prohibit the collector from using non-litigation means
(such as collection telephone calls) to try to collect on the debt.103
Nearly all courts that have examined the propriety of suing or threatening to sue to collect
on a debt that is older than the applicable statute of limitations (also known as “time-barred
debt”) have concluded that such practices violate the FDCPA. In Kimber v. Federal Financial
Corp., the court held it was unfair and unconscionable in violation of Section 808 to sue on timebarred debt in light of the strong public policy favoring statutes of limitations and the likelihood
that the “least sophisticated consumer” would “unwittingly acquiesce” to suit due to lack of
awareness that the passage of time could be raised as a defense.104 It further held that to threaten
suit on a time-barred debt was deceptive in violation of Section 807 because it “implicitly
represented that [the collector] could recover in a lawsuit, when it [could] not properly do
so.”105 Most other courts addressing this issue have reached the same result.106 Industry groups
have also adopted policies requiring members to refrain from suing or threatening suit on timebarred debts.107 The Commission agrees with the interpretation that the FDCPA bars actual or
threatened suit to collect on time-barred debts.108

103. Even in the absence of a legal obligation to repay a debt, people may choose to pay for moral or other reasons.
See, e.g., John H. Langbein, The Nonprobate Revolution and the Future of the Law of Succession, 97 Harv.
L. Rev. 1108, 1121 (1983-1984) (“I found the belief widespread among credit industry professionals that
voluntary payment is motivated largely by moral as opposed to legal considerations”).
104. Kimber v. Fed. Fin. Corp., 668 F. Supp. 1480, 1487 (M.D. Ala. 1987).
105. Kimber, 668 F. Supp. at 1489.
106. Freyermuth v. Credit Bureau Servs., Inc., 248 F.3d 767 (8th Cir. 2001); McCullough v. Johnson, Rodenberg
& Lauinger, 2009 U.S. Dist. LEXIS 69881 (D. Mont. 2009); Ramirez v. Palisades Collection, L.L.C., 2008
U.S. Dist. LEXIS 48722 (N.D. Ill. 2008); Larsen v. JBC Legal Group, P.C., 553 F. Supp. 2d 290 (E.D.N.Y.
2008); Martsolf v. JBC Legal Group, P.C., 2008 U.S. Dist. LEXIS 6876 (M.D. Pa. 2008); Rawson v. Credigy
Receivables, Inc., 2006 U.S. Dist. LEXIS 6450 (N.D. Ill. 2006); Thinesen v. JBC Legal Group, P.C., 2005
U.S. Dist. LEXIS 21637 (D. Minn. 2005); Dunaway v. JBC & Assocs., Inc., 2005 U.S. Dist. LEXIS 37885
(E.D. Mich. 2005); Spencer v. Hendersen-Webb, 81 F. Supp. 2d 582 (D. Md. 1999); Stepney v. Outsourcing
Solutions, Inc., 1997 U.S. Dist. LEXIS 18264 (N.D. Ill. 1997); Martinez v. Albuquerque Collection Servs.,
867 F. Supp. 1495 (D. N.M. 1994); Beattie v. D.M. Collections, Inc., 754 F. Supp. 383 (D. Del. 1991); but see
Simmons v. Miller, 970 F. Supp. 661 (S.D. Ind. 1997) (no FDCPA violation where suit had not been knowingly
filed beyond statute of limitations); Lindbergh v. Transworld Sys., Inc., 846 F. Supp. 175 (D. Conn. 1994) (no
FDCPA violation where suit was not knowingly filed beyond statute of limitations).
107. See, e.g., ACA Comment at 12 (collectors that “threaten or pursue litigation of an out of statute account do so
in violation of the law and ACA’s Code of Ethics”).
108. Likewise, the Commission believes that threatening or commencement of arbitration proceedings to collect on
time-barred debts may violate Sections 807 and 808 of the FDCPA, 15 U.S.C. §§ 1692e, 1692f. See Kimber,
668 F. Supp. at 1489.

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Repairing A Broken System

A. Statute of Limitations Period
Most statutes of limitations on consumer debt begin to run from the date that the
consumer defaulted on the debt.109 The period of time for the statute of limitations varies by
state. In addition, for each state, the period of time may vary with the particular kind of debt
and circumstances under which it arose (e.g., whether the debt arose under a written or oral
contract).110
Roundtable participants said that it is sometimes difficult to determine which among several
potential statutes of limitations is applicable to a particular debt.111 In Illinois, for example,
recent case law clarified that the appropriate statute of limitations for an action to collect on
credit card debt depends on whether the suit is based on a written contract.112 If the collector
produces a written contract, a ten-year statute of limitations applies. If the collector cannot do
so, a five-year statute of limitations applies.
Uncertainty as to the applicable statute of limitations could harm both consumers and
collectors. For instance, if consumers are not certain as to how long collectors have to sue them,
they may make partial payments on time-barred debt, thereby unintentionally reviving the statute
of limitations. In addition, if collectors are uncertain as to the applicable statute of limitations,
they may inadvertently file actions to recover on time-barred debt.113

109. See, e.g., Nat’l Consumer Law Ctr., Collection Actions §§ 3.7.6, 3.7.7 (1st ed. 2008) (hereinafter NCLC
Collection Actions).
110. See, e.g., Portfolio Acquisitions, LLC v. Feltman, 391 Ill. App. 3d 642, 652 (Ill. App. Ct. 1st Dist. 2009)
(holding that, under Illinois law, a credit card contract was oral rather than written and subject to the 5-year
statute of limitations for oral contracts rather than the 10-year statute of limitations for written contracts
where parol evidence would be required to show all essential terms and conditions of the contract). See also
Donnelly, Tr. I at 125 (ambiguity of complaint as to whether it refers to an account-stated or an oral contract,
which have different applicable statutes of limitations); Markoff, Tr. I at 98; Lipman, Tr. I at 106-107, 123.
111. See, e.g., NARCA Comment at 7 (“several different statute of limitations may apply to a debt claim”)
(emphasis added); Coleman, Tr. IV at 95; Debski, Tr. V at 121; Donnelly, Tr. I at 125; Edelman, Tr. I at 82;
Evans, Tr. V at 101, 121; Flitter, Tr. V at 98; Kinkley, Tr. IV at 85; Lipman, Tr. I at 106; Naves, Tr. IV at
127, 145-46; Newburger, Tr. IV at 92; Sinsley, Tr. I at 84. See also Florida Consumer Turns Tables on Debt
Collector – Sued for $800.00 Dollars, Consumer Collects $120,000.00 Dollars From Debt Collector, Yahoo!
News, Mar. 1, 2010, available at http://www.prweb.com/releases/2010/03/prweb3657014.htm (describing
consumer’s defense of state collection action and subsequent pursuit of federal FDCPA action against collector
for suit on time-barred debt, where collector filed based on the wrong state’s statute of limitations and where
contract was held to be oral rather than written).
112. See Portfolio Acquisitions, 391 Ill. App. 3d at 652.
113. See, e.g., Asset Comment at 3 (some cases involving allegations of suit on time-barred debt involve “intricate
legal issues” such as choice of law provisions and distinguishing between written and oral contracts); NARCA
Comment at 6-7 (actions should be governed by the statute of limitations of the forum state, not the state where
the credit agreement originated).

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Protecting Consumers in Debt Collection Litigation and Arbitration
Roundtable participants discussed whether a single, uniform statute of limitations for
consumer debt cases would reduce such uncertainty where it exists. Many participants favored
this concept in theory, although consumer advocates and collector representatives recognized
that they likely would differ widely as to how long such a statutory period should be,114 and
they expressed serious reservations about Congress establishing a national standard.115 Most
participants preferred that states continue to perform their traditional role in setting statutes of
limitations for debt collection actions,116 though many expressed that making state statutes more
uniform would be beneficial for both collectors and consumers.117
To the extent that states conclude there is uncertainty as to the applicable statute of
limitations for a debt or how to apply it, the Commission recommends that they consider
modifying their laws to reduce the uncertainty. If state statutes of limitations for consumer debts
are clear, simple, and uniform, consumers and collectors stand to benefit.

B. Collecting on Time-Barred Debt
Roundtable participants discussed the collection of time-barred debt. As noted above, state
law generally does not prohibit collectors from using methods other than threatening to file or
filing an action in court118 to collect on time-barred debt. The two major issues participants
discussed were whether the FDCPA should be amended to prohibit the collection of such debt
and whether the law should permit payments on such debt to “revive” the unpaid amount of the
debt.

114. See, e.g., Kinkley, Tr. IV at 141-42; Moore, Tr. IV at 146-47; Naves, Tr. IV at 127, 145-46; Newburger, Tr.
IV at 148. See also ACA Comment at 15 (promoting a uniform statute of limitations of 10 years across all
jurisdictions); Cada Comment at 1 (11/22/09) (suggesting all states should adopt a statute of limitations of 4
years); Staulcup Comment at 1 (favoring a uniform statute of limitations of 7 years).
115. Proposed Levin Amendment SA 1097 to the Credit Card Act of 2009 would have amended the Truth in
Lending Act to provide for rulemaking to establish a uniform statute of limitations for collecting debt on credit
card accounts after the accounts had been closed by the creditor or the cardholder, but this amendment was not
included in the Credit CARD Act of 2009. CQ Congressional Record Service, Congressional Record, Senate,
Page S5445, May 13, 2009.
116. See Abrams, Tr. V at 121; Coffey, Tr. V at 121; Debski, Tr. V at 121; Faulkner, Tr. V at 121-22; Flitter, Tr. V at
122; Gagnon, Tr. V at 122; Groves, Tr. V at 122; McNulty, Tr. V at 123; Needleman, Tr. V at 123; Redmond,
Tr. V at 123; Rosmarin, Tr. V at 123. See also Evans, Tr. V at 121; Lebedeff, Tr. V at 123; Zezulinski, Tr. V at
123.
117. See, e.g., Kinkley, Tr. IV at 141-43; Naves, Tr. IV at 127, 145-46; Newburger, Tr. IV at 148.
118. Recent statutory reform in North Carolina provides that it is an unfair practice for a debt buyer collector to
“[bring] suit or [initiate] an arbitration proceeding against the debtor or otherwise [attempt] to collect on a debt
when the [collector] knows, or reasonably should know, that such collection is barred by the applicable statute
of limitations.” N.C. Gen. Stat. § 58-70-115(4) (emphasis added).

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Repairing A Broken System
Participants differed in their views about whether the FDCPA should be amended to bar
the collection of time-barred debt. Most collector participants favored continuing to allow
the collection of time-barred debt, provided that collectors neither sue nor threaten to sue
the consumers from whom they are trying to collect.119 Many consumer advocates asserted
that the FDCPA should prohibit such collection attempts, or, in the alternative, that collectors
should explicitly be required to disclose to consumers that they cannot be sued to collect on the
debt.120 Collector representatives countered that making such a disclosure would require that the
collector interpret state law as to the applicable statute of limitations, which state officials could
construe as the unauthorized practice of law.121
The Commission takes no position on whether the FDCPA should be amended to preclude
collectors from collecting debt that they know or should know is time-barred. Nevertheless,
because most consumers do not know or understand their legal rights with respect to the
collection of time-barred debt, the Commission believes that in many circumstances such a
collection attempt may create a misleading impression that the collector can sue the consumer
in court to collect the debt, in violation of Section 5 of the FTC Act and Section 807 of the
FDCPA.122 To avoid creating this misleading impression, collectors would need to disclose
clearly and prominently to consumers before seeking payment on such time-barred debt that,

119. See, e.g., Debski, Tr. V at 88; Sinsley, Tr. I at 86; but see also Groves, Tr. V at 85 (“it’s clear that collecting on
out-of-stat[ute] consumer debt is a bad idea”).
120. See, e.g., AARP Comment at 2 (favors requiring an affirmative disclosure about the statute of limitations when
collecting time-barred debts); Barry, Tr. I at 120 (FDCPA should be amended to require disclosure to consumer
that the statute has expired); Edelman, Tr. I at 83 (stated he has seen debt buyers “badger somebody into
making a small payment” the only purpose of which is to re-trigger the statute of limitations), 94 (stated debt
buyers frequently send collection letters on time-barred debts implying that there is still “a binding, legally
enforceable obligation”); Edelman Comment at 20 (collecting time-barred debts should be declared an unfair
or deceptive practice unless there is a reasonable basis to believe the debts are not time-barred); Flory, Tr. IV
at 139 (consumers are told to send a little bit of money to “show good faith” even where they do not owe the
medical bill or their insurance company should be paying it); Kinkley, Tr. IV at 138-39 (“And there are a lot
of debt collectors who sort of trick somebody and say: Just send me five bucks” without disclosing that such
payment would make “a debt that’s uncollectible judicially now collectable”); NCLC Comment at 5 (collectors
should be required to clarify that consumers cannot be sued for non-payment of a time-barred debt); NEDAP
comment at 5 (FDCPA language should be amended to explicitly prohibit debt collectors from filing suits
on time-barred debts); Nepveu, Tr. I at 91 (consumers do not know that it matters how long ago something
happened); Weinberg, Tr. I at 96 (has seen debt buyers scare senior citizens into authorizing small payments
on aged debts that they really don’t recognize in order to re-trigger the statute of limitations); but see also
Donnelly, Tr. I at 121 (consumers wouldn’t understand such disclosures).
121. See, e.g., Andersen, Tr. I at 116; Sargis, Tr. IV at 135; Sinsley, Tr. I at 117-18. See also ACA Comment at 14
(consumer disclosure might lead consumers mistakenly to believe that the debt is no longer valid).
122. FTC Act § 5(a), 15 U.S.C. § 45(a); FDCPA § 807, 15 U.S.C. § 1692e. In addition, the failure to disclose this
information may violate state laws prohibiting unfair and deceptive acts and practices.

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Protecting Consumers in Debt Collection Litigation and Arbitration
because of the passage of time, they can no longer sue in court to collect the debt or otherwise
compel payment.123
The second issue related to collecting on time-barred debt roundtable participants addressed
was the “reviving” of such debt. In many states, making a payment on a debt after it has gone
into default triggers the start of a new statute of limitations period for the entire debt, even if the
original statute of limitations period has already expired.124 For example, if such a state has a
three-year statute of limitations for credit card debt and it has been five years since a consumer
paid on his $3,000 credit card debt, the collector could not lawfully sue him to collect on the
debt. But if he decides to pay the collector $10, the payment would start a three-year period
during which the collector could sue for the remaining $2,990.125 Debt collectors generally do
not disclose to consumers that making any payment on a time-barred debt revives the collector’s
ability to sue to collect on the entire debt.126
Roundtable participants differed in their views about whether a payment should revive
the statute of limitations on a time-barred debt. Some opined that state law should continue to
allow the revival upon payment of time-barred debts.127 Other participants contended that state
law should be amended so that a payment on a time-barred debt does not revive the statute of
limitations.128 Still others asserted that state law should be changed to require that the collectors

123. In some circumstances, collecting on time-barred debt could be an unfair act or practice under Section 5 of
the FTC Act or state laws prohibiting unfair acts or practices. For collecting on time-barred debt to be unfair
under Section 5 of the FTC Act, the Commission would have to demonstrate that “the act or practice causes or
is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves
and not outweighed by countervailing benefits to consumers or to competition.” FTC Act § 5(n); 15 U.S.C. §
45(n). Determining whether an act or practice is unfair is a fact-specific inquiry.
124. See, e.g., NCLC Collection Actions, supra note 109, at § 3.7.7.3.1.
125. For sake of simplicity, we have not included in this amount additional interest or fees that the credit contract
may impose.
126. Most consumers do not understand that a payment will revive the statute of limitations. Some roundtable
participants suggested that many consumers do not even understand the basic concept that a statute of
limitations prevents collectors from suing to collect on debts after the passage of a period of time. See,
e.g., Nepveu, Tr. I at 91; but see also Lerch, Tr. I at 100 (consumers do know about the concept that when
something happened too long ago, suit is barred).
127. See, e.g., Debski, Tr. V at 118-19 (no need for disclosure or affirmation when consumer continues to pay on an
out-of-statute debt).
128. See, e.g., Rosmarin, Tr. V at 96.

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Repairing A Broken System
disclose to consumers the effect of paying on a time-barred debt, or to require consumers to
make a knowing affirmation that they waive their rights to be immune from suit.129
The Commission recommends that states in which a partial payment revives the statute of
limitations consider modifying their laws so that a payment on a time-barred debt does not revive
the debt unless the consumer is aware of and acknowledges its revival. Otherwise, consumers
do not expect that a partial payment toward a time-barred debt will have the serious, adverse
consequence of starting a new statute of limitations during which the collector can sue to collect
the entire debt. Limiting consumers’ responsibility to the amount of the partial payment on a
time-barred debt would conform the law to reasonable consumer expectations.
In states where laws continue to provide that a partial payment on a time-barred debt
revives it, the Commission believes that in many circumstances a collector’s attempt to collect
a debt that it knows or should know is time-barred may create a misleading impression as to the
consequences of making such a payment, in violation of Section 5 of the FTC Act and Section
807 of the FDCPA.130 To avoid creating a misleading impression, collectors would need to
disclose clearly and prominently to consumers prior to requesting or accepting such payments
that (1) the collector cannot sue to collect the debt and (2) providing a partial payment would
revive the collector’s ability to sue to collect the balance.

129. See, e.g., AARP Comment at 2 (creditors should be required to disclose affirmatively that debt is time-barred
and that making partial payment will revive the obligation); Evans, Tr. V at 119-20 (favors a disclosure
requirement for consumers paying on time-barred debts because “we have to make sure [consumers]
understand what they’re doing and they’re doing it with knowledge”); Faulkner, Tr. V at 81-82 (“it should
be an unfair practice to buy or sell out-of-statute debts” and, without a disclosure, consumers are misled to
believe they are under threat of suit on time-barred debts); Lebedeff, Tr. V at 84-85 (familiar with collection
practice of asking for a token payment to prolong statute or revive an out-of-statute debt obligation); Rosmarin,
Tr. V at 118 (disfavors reviving a time-barred debt through subsequent payment except when consumers
write affirmative statements evincing understanding of their lack of legal obligation to pay and affirming
that they still want to pay); but see also ACA Comment at 14 (notification that a debt is time-barred might
confuse consumers); Midland Credit Management (Midland) Comment at 3 (providing consumers with more
information regarding an account’s legal status would only confuse consumers and should not be attempted).
130. FTC Act § 5(a), 15 U.S.C. § 45(a); FDCPA § 807, 15 U.S.C. § 1692e.

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Protecting Consumers in Debt Collection Litigation and Arbitration

C. Suits on Time-Barred Debts
Many consumer advocates and some judges expressed the view that some collectors
regularly sue consumers on time-barred debts.131 Some consumer advocates suggested that debt
buyers are more likely than original creditors to threaten or bring suits on time-barred debts.132
One New York legal services provider analyzed a sample of all the debt collection cases in its
office over an eighteen-month period and found that over fifty percent of the cases for which
sufficient information was available were filed after the statute of limitations period had expired.
In addition, in thirteen percent of all cases, the debt’s time-barred status was apparent from the
face of the complaint.133 On the other hand, many collector representatives maintained that it
would be against a collector’s interest to sue on a time-barred debt, and that such suits are rarely
if ever filed.134
A significant consumer protection problem related to suits on time-barred debt appears to
arise from the combination of collectors filing them and consumers not defending them. Because
an expired statute of limitations is an affirmative defense in most states, collectors have no
obligation to allege in the complaint that the debt is not time-barred, and many collectors do not

131. See, e.g., Abrams, Tr. V at 96-97; Coffey, Tr. V at 95; DC 37 Comment at 4; Edelman, Tr. I at 82-84; Edelman
Comment at 18; Evans, Tr. V at 89; Faulkner, Tr. V at 108; Lipman, Tr. I at 89; McNulty, Tr. V at 95; NEDAP
Comment at 4; Rosmarin, Tr. V at 83; but see also Phillips, Tr. I at 86-87 (“we don’t know what the instance
is of filing suits beyond the statute of limitations because we don’t have the data” and the majority of debt
collection complaints are silent as to the relevant information); Weinberg, Tr. I at 100 (“so many of the debt
buyers have no . . . reliable information as to the date of last payment or date of default . . . . I think a lot
of lawsuits are filed where the lawyer has made no effort to determine whether it’s beyond the statute of
limitations because [the lawyer has] no information.”). Note that case law has established that it is generally
a violation of the FDCPA for a collector to sue or threaten to sue on a time-barred debt. See, e.g., Kimber v.
Fed. Fin. Corp., 668 F. Supp. 1480, 1487 (M.D. Ala. 1987); Ramirez v. Palisades Collection LLC, 2008 U.S.
Dist. LEXIS 48722, *13 (N.D. Ill. June 23, 2008); McCorriston v. L.W.T., Inc., 536 F. Supp. 2d 1268, 1271 n.2
(M.D. Fla. 2008).
132. See, e.g., Edelman, Tr. I at 82 (“I think it’s very common among the debt buyers”); Faulkner, Tr. V at 81-82
(“There are people in the debt-buying industry [who] make it a practice to buy primarily . . . out-of-statute
debt.”); Kinkley, Tr. IV at 84 (speaking about collection rather than litigation).
133. Letter to FTC from Robert A. Martin of DC 37 Municipal Employees Legal Services, Feb. 11, 2010 (on file
with FTC), at 1-2, supplementing the information described in DC 37 Comment.
134. See, e.g., ACA Comment at 12; Andersen, Tr. I at 115; Asset Comment at 3-4; Coleman, Tr. IV at 96; Debski,
Tr. V at 88-89; Midland Comment at 2; Gagnon, Tr. V at 94; Lerch, Tr. I at 100; Markoff, Tr. I at 98-9; NARCA
Comment at 7; Needleman, Tr. V at 82-83; Newburger, Tr. IV at 111; Redmond, Tr. V at 124-25; Sinsley, Tr. I
at 84; see also Groves, Tr. V at 85-87 (collecting as well as filing suit on time-barred debt is a “bad idea”).

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Repairing A Broken System
include this information.135 If consumers do not defend, there is no one to raise the defense that
the debt is time-barred. Indeed, some judges who participated in the roundtables stated that,
even if a debt collection action appears to be time-barred, it would be improper for courts to
consider affirmative defenses that no party had raised.136 As a result, some courts appear to be
granting default judgments on time-barred debt.
The Commission recommends that states change their laws to require collectors to prove
that the debts they are collecting are not time-barred, rather than imposing on consumers the
burden of raising the running of the statute of limitations as an affirmative defense. As discussed
above, states also should revise their laws to require that collectors set forth in their complaints
the date of default and the applicable statute of limitations.137 These changes would highlight the
statute of limitations issue in debt collection litigation for consumers and make it appropriate for
courts to consider the issue before granting default judgments to collectors.
Federal action also could assist in decreasing the extent to which default judgments are
entered in actions based on time-barred debts. The Commission recommends that Congress
amend Section 809(a) of the FDCPA to require that collectors include the date of default in
the validation notices they provide to consumers at the outset of the collection process.138 If
collectors are required to have this information when collection begins, then it should be readily
available at the time an action is filed. Further, because increased enforcement actions against

135. Few complaints currently state the date of default or the length of the applicable statute of limitations. See,
e.g., Abrams, Tr. V at 97; Donnelly, Tr. I at 89, 107; Evans, Tr. V at 90-91; Hillebrand, Tr. IV at 112-13;
Kinkley, Tr. IV at 85; Lipman, Tr. I at 89-90; Moiseev, Tr. I at 113-14; Phillips, Tr. I at 87; Rosmarin, Tr. V at
96; Surh, Tr. IV at 113-14. In some states, however, collectors are required to include this information in their
complaints. See, e.g., N.Y. City Civ. Ct. Chief Clerk’s Memorandum 186 (May 13, 2009); Fisher, Tr. V at
195; Lebedeff, Tr. V at 93. In addition, some creditor attorneys have adopted as a best practice the inclusion of
such information in their complaints. See, e.g., Buckles, Tr. I at 133 (routinely provides date of last payment in
complaint); but see Debski, Tr. V at 115.
136. See, e.g., Abrams, Tr. V at 97 (often saw cases suing on out-of-statute debt but “I felt my hands were tied”);
Evans, Tr. V at 90; Lipman, Tr. I at 90.
137. Similarly, the Commission believes that arbitration forums should require that collectors initiating arbitration
proceedings state the date of default and applicable statute of limitations, and that arbitrators should determine
whether the claim is time-barred.
138. Pursuant to Section 809(a) of the FDCPA, 15 U.S.C. § 1692g(a), a collector must send, within five days after
the initial communication with the consumer in connection with the collection of a debt, a written “validation
notice” containing: (1) the amount of the debt; (2) the name of the creditor to whom the debt is owed; (3) a
statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the
debt, or any portion thereof, the debt will be assumed to be valid by the debt collector; (4) a statement that if
the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion
thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the
consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
(5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will
provide the consumer with the name and address of the original creditor, if different from the current creditor.

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Protecting Consumers in Debt Collection Litigation and Arbitration
collectors who violate the FDCPA by threatening to file or filing time-barred lawsuits would
deter such practices, the Commission intends to focus more of its enforcement efforts on those
who engage in such conduct.139

V. Garnishment of Exempt Funds in Bank Accounts
Many roundtable participants identified the freezing and garnishment of exempt funds
in bank accounts as a critical issue for consumers. If a collector obtains a judgment against a
consumer, then the collector may seek to recover on that judgment by attempting to garnish the
consumer’s bank account. Although each state has its own garnishment rules, a collector usually
must apply to a state court for a garnishment order. A collector typically must give notice of its
application to the consumer,140 and the collector generally provides a copy of the application to
the bank. Upon receiving this notice, the bank typically “freezes” the funds in the consumer’s
account pending resolution of the application. If the state court issues a garnishment order, then
the collector serves a copy of the order on the bank and the bank pays the collector from the
funds in the account.
Federal and state law declare that certain funds in the bank accounts of consumers are
exempt from garnishment.141 Federal law generally exempts Social Security, Supplemental
Security Income (SSI), veterans’ benefits, and numerous other federal benefits from
garnishment.142 Many state laws exempt similar state benefits from garnishment. The
fundamental objective of these laws is to ensure that the garnishment of these funds by judgment
creditors does not create undue hardship for benefit recipients, many of whom are indigent.143
Notwithstanding such laws, banks frequently freeze accounts that contain exempt funds
pending resolution of the collector’s application for a garnishment order.144 Such freezes create
139. For threatening to file time-barred suits, see United States v. Whitewing Fin. Group, No. H-06-2102 (S.D. Tex.
June 22, 2006); FTC v. Capital Acquisitions & Mgmt. Corp., No. 04C7781 (N.D. Ill. Dec. 2, 2004).
140. Consumers typically do not receive such notices until after their accounts have been frozen by the bank.
This ensures that consumers do not withdraw all funds from their accounts in anticipation of a freeze or
garnishment.
141. There are limited exceptions pursuant to which exempt funds may be garnished. For example, exempt
funds are sometimes reachable to pay federal income taxes, child support or alimony. See generally NCLC
Collection Actions, supra note 109, at § 12.5.10.
142. See, e.g., 42 U.S.C. §§ 407, 1383 (Social Security and SSI benefits); 38 U.S.C. § 5301 (veterans’ benefits). See
generally NCLC Collection Actions, supra note 109, at Appendix C.
143. Hillebrand, Tr. IV at 238 (“you know, you don’t want to leave a person penniless when there’s food to be
bought and kids to be sent to school and rent to be paid”); Kinkley, Tr. IV at 226 (exempt funds are intended to
be spent on rent, food, and subsistence).
144. See, e.g., Hillebrand, Tr. IV at 210-11; Markoff, Tr. I at 175; Moore, Tr. IV at 217-18; Nepveu, Tr. I at 176-77;
Newburger, Tr. IV at 227; Tyler, Tr. V at 213-14; Weinberg, Tr. I at 178-79; Wilner, Tr. V at 213.

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Repairing A Broken System
considerable hardship for consumers.145 Once the consumer’s bank account is frozen, he or she
cannot get access to the funds in the account, often causing rent checks to bounce, debit card
withdrawal requests to be rejected, and so forth. Further, banks typically charge consumers fees
for freezing the account and for checks that bounce because of the freeze, charges which many
indigent consumers find difficult to pay. The duration of freezes on bank accounts varies, but
roundtable participants estimated that consumers often are without access to funds for about a
month.146
There was a consensus among roundtable participants that banks should not freeze funds
that are exempt from garnishment under federal or state law. There was significant disagreement,
however, as to who is responsible when these funds are frozen. Most debt collectors expressed
a desire to comply with the law and avoid garnishing exempt funds.147 Collectors explained
that they usually do not have information from the consumer or the bank identifying the exempt
benefits consumers receive, which accounts contain exempt funds, and whether such funds have
been commingled with other funds.148 Without such information, collectors contend that as a
practical matter they cannot avoid asking that exempt funds be frozen when they seek to garnish
bank accounts. Collector participants and others suggested that, because banks have more

145. See, e.g., Brown, Tr. I at 180 (“by the time we get into court [objecting to the garnishment of exempt funds,]
the client is facing tons of other financial problems, as well as the bank fees that have accumulated, because
their money has actually been frozen); Maurer, Tr. IV at 215 (a freeze can “result in all kinds of bank charges”
and consumers might “[miss] their rent payment, and so it’s a real hardship”); Moiseev, Tr. I at 200 (consumers
are “finding out about [the garnishment] when their checks are bouncing”); Nepveu, Tr. I at 176 (freezing the
account causes consumers to face freeze fees and multiple insufficient funds fees for checks that bounce),
202-03 (“When those accounts are frozen, [consumers] don’t have money for food; they don’t have rent; they
don’t have medicine”); Newburger, Tr. IV at 227; Tenhundfeld, Tr. V at 221; Weinberg, Tr. I at 179 (by the
time the bank account is unfrozen, “so much damage [has been] done” such as the rent check having bounced
and forcing the family into eviction proceedings); Wilner, Tr. V at 218 (“[m]aybe [consumers whose bank
accounts have been garnished are] trying to buy groceries at the store because they have no food, and now their
card doesn’t work, they have no access to money. So, we have people who need to go to food pantries, who
need to borrow money from relatives to survive, but maybe they don’t have any relatives or friends. . . . We
have had clients getting eviction notices because they weren’t able to pay their rent because of the frozen bank
accounts.”).
146. See, e.g., Nepveu, Tr. I at 202-03 (“When those accounts are frozen, [consumers] . . . usually don’t have [access
to the account] for [approximately] a month.”); Maurer, Tr. IV at 215 (consumers may be without their funds
for approximately a month).
147. See, e.g., Andersen, Tr. I at 210; Asset Comment at 6; Buckles, Tr. I at 183; Midland Comment at 4; Leibsker,
Tr. I at 186-7; Markoff, Tr. I at 175-6; Moore, Tr. IV at 217-18; NARCA Comment at 8; Olshan, Tr. V at 215;
PRA Comment at 3; Ray, Tr. IV at 215-16.
148. See, e.g., Asset Comment at 6 (creditors almost never know the source of funds in an account); NARCA
Comment at 8 (banks should be required to notify collectors that an account contains exempt funds before the
collector freezes or garnishes the account); PRA Comment at 3 (consumers must communicate with collectors
to let them know about exempt funds in accounts).

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information than collectors about the origin of deposited funds, banks should bear the primary
responsibility for not freezing exempt funds.149
Bank representatives maintain that they are “between a rock and a hard place.”150 They
acknowledged that at times they freeze exempt funds in bank accounts, explaining that it can
be difficult to de

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Aftc%3Adbbe6d52faa850f7. Public record. Not legal advice.