Guides Against Debt Collection Deception

FEDERAL TRADE COMMISSION

16 CFR Part 237

Guides Against Debt Collection Deception

AGENCY: Federal Trade Commission.

ACTION: Elimination of guides.

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SUMMARY: Because the Commission's Guides Against Debt Collection

Deception have been superseded by, and submitted in, the Fair Debt

Collection Practices Act (FDCPA), the Commission has determined that it

is in the public interest to eliminate them.

The Guides were adopted in 1967 to codify the results of many debt

collection cases brought by the Commission against debt collectors and

creditors under Section 5(a)(1) of the Federal Trade Commission Act

(FTCA). Although the Guides covered creditors and the FDCPA generally

does not, proceedings still may be brought against creditors under

Section 5 of the FTCA for engaging in unfair or deceptive debt

collection practices, many of which are addressed in the FDCPA. Thus,

the Commission would expect creditors and other parties whose

collection activities are not covered by the FDCPA to look to the FDCPA

for guidance in this regard.

EFFECTIVE DATE: August 8, 1995.

ADDRESSES: Requests for copies of this notice should be sent to the

Public Reference Branch, Room 130, Federal Trade Commission,

Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

John F. LeFevre, Division of Credit Practices, Bureau of Consumer

Protection, Federal Trade Commission, Washington, DC 20580, (202) 326-

3209.

SUPPLEMENTARY INFORMATION:

I. Background

The Commission issued its Guides Against Debt Collection Deception

in 1967.\1\ The Guides reflect principles enunciated in a number of

prior debt collection cases brought by the Commission against debt

collectors and creditors under Section 5 of the Federal Trade

Commission Act.\2\ Among other things, the Commission found that

various misrepresentations made in connection with debt collection were

Section 5 violations, including false claims that (1) Accounts had been

referred to independent debt collection agencies and/or consumer

reporting agencies; (2) debtors' credit ratings would be adversely

affected if their debts remained unpaid; (3) legal action would be

taken; (4) collection agencies had legal divisions; and (5) dunning

letters were genuine legal documents, telegrams, or other ``official''

forms. The Guides served to inform the collection industry and the

general public of the Commission's position on a number of

``deception'' issues in debt collection that were regarded as

particularly pertinent at the time. However, they were never used as a

basis for instituting formal action against a debt collector for

violation of Section 5. On September 20, 1977, Congress enacted the

FDCPA, which became effective on March 20, 1978. Since that time, all

Commission debt collection cases against debt collectors have been

based upon violations of the FDCPA.\3\ Under the FDCPA, the Commission

can obtain, not only an injunction and affirmative relief, but also a

civil penalty, which is not obtainable under Section 5. The Guides have

not been useful to the Commission's debt collection enforcement program

since the enactment of the FDCPA.

\1\ 32 FR 15539 (Nov. 8, 1967), as amended at 33 FR 5661 (Apr.

12, 1968).

\2\ Testimony before the Subcommittee on Consumer Affairs of the

Senate Committee on Banking, Housing and Urban Affairs, on S. 918, a

proposed Fair Debt Collection Practices Act, May 13, 1977. See also

Parents Magazine Enterprises, Inc., 68 F.T.C. 980 (1965); State

Credit Control Board, 70 F.T.C. 1318 (1966).

\3\ The Commission has also initiated a few debt collection

cases against creditors as Section 5 matters, since the FDCPA

generally does not cover creditors. Aldens, Inc., 98 F.T.C. 790

(1981); J.C. Penney Co., Inc., 109 F.T.C. 54 (1987); American Family

Publishers, Docket No. 9240 (1991). If a creditor uses a deceptive

third-party name or furnishes deceptive forms in collecting debts,

however, it is covered by the FDCPA.

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II. Comparison of the Guides to the FDCPA

With few exceptions, the provisions of the FDCPA duplicate or

expand upon the Guides, as demonstrated by the following comparisons.

A. Definitions [Section 237.0]

1. Industry Member [Section 237.0(a)]

The standards of conduct in the Guides are directed at ``industry

members,'' which include all entities that collect debts or help others

in collecting debts, including creditors and skip-tracers.\4\

\4\ ``Industry Member shall mean any person, firm, partnership,

corporation, organization, association and any other legal entity

engaged in the practice of collecting or attempting to collect any

and all kinds of money debts for itself or others, or any person,

firm, partnership, corporation, organization, association, or any

other legal entity.''

The comparable provision in the FDCPA is the definition of the

``debt collector'' [Section 803(6)], which focuses mainly on the third-

party debt collection industry. Generally, creditors are not included

in the definition unless they (1) use a false name in their collection

activities to convey the impression that third parties are involved in

collecting debts or (2) sell deceptive forms. Congress also determined

that a number of other entities should not be included within the scope

of the definition, including government employees, non-profit

organizations, mortgage servicers and other designated groups.

Although the coverage of the Guides is greater than coverage under

the FDCPA, particularly with respect to creditors, it has been the

Commission's experience in enforcing the FDCPA that creditors look not

to the Guides but to

[[Page 40264]]

the FDCPA for appropriate criteria to use in collecting their own

debts. In addition, the Commission's jurisdiction under Section 5 has

been sufficient to regulate the collection activities of creditors when

necessary. Also, to the extent that the Commission has proceeded

against creditors for violations of Section 5 in their debt collection

activities, it has used the FDCPA as a model for appropriate standards

of conduct--not the Guides. Thus, the Guides have not been useful to

the Commission's debt collection enforcement program against either

creditors or debt collectors.

2. Debt [Section 237.0(b)]

The Guides' definition of ``debt'' is similar to that in the FDCPA

[Section 803(5)] except that it includes ``commercial'' as well as

``consumer'' debts.\5\ Congress determined in enacting the FDCPA that

there was no need to cover ``commercial'' debts. The Commission's

experience in enforcing the FDCPA supports this decision. The

Commission has received few complaints from commercial enterprises

about debt collection abuse. If the Commission finds that there is a

problem with the collection of ``commercial'' debts, the problem can be

addressed adequately under Section 5.

\5\ ``Debt shall mean money which is due or alleged to be due

from one to another.''

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3. Debtor [Section 237.0(c)]

The Guides define a ``debtor'' as one who owes or allegedly owes a

money debt. The FDCPA's definition of ``consumer'' as ``any natural

person obligated or allegedly obligated to pay any debt'' is analogous.

From the Commissions standpoint, they are substantively identical. The

absence of the Guides will have no effect upon who is considered a

``debtor.''

4. Creditor [Section 237.0(d)]

The Guides' definition of ``creditor'' includes all parties to whom

money is owned or allegedly owed. Since creditors can also be

``industry members'' under the Guides, the definition does not affect

the scope of the Guides' coverage. The FDCPA's definition of

``creditor'' is similar except that it excludes those who receive or

are assigned debts in default for purposes of collection.

5. Credit Bureau [Section 237.0(e)]

There is no provision in the FDCPA that is analogous to the Guides'

definition of ``credit bureau.'' \6\ Sections 806(3) and 807(16) of the

FDCPA, however, make two references to the definition of a ``consumer

reporting agency'' (credit bureau) contained in Section 603(f) of the

Fair Credit Reporting Act (FCRA).\7\ The FCRA definition of ``consumer

reporting agency'' has rendered the Guides' definition of ``credit

bureau'' obsolete; the FCRA definition is keyed to the concept of a

``consumer report'' in the FCRA and was obviously drafted in a credit

reporting context. The FCRA definition governs insofar as the

Commission's law enforcement activities are concerned.

\6\ ``Credit Bureau is any * * * legal entity engaged in

gathering, recording, and disseminating favorable as well as

unfavorable information relative to the credit worthiness, financial

responsibility, paying habits and character of * * * any other legal

entity being considered for credit extension, so that (the)

prospective creditor may be able to make a sound decision in the

extension of credit.''

\7\ Consumer reporting agency is ``any person which, for

monetary fees, dues or on a cooperative nonprofit basis, regularly

engages * * * in the practice of assembling or evaluating consumer

credit information on consumers for the purpose of furnishing

consumer reports to third parties.* * *''

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6. Collection Agency [Section 237.0(f)]

The Guides define a ``collection agency'' as any entity that

collects money debts for others. This is essentially the focus of the

FDCPA's definition of ``debt collector'' in Section 803(6) as one ``who

regularly collects or attempts to collect, directly or indirectly,

debts owed * * * another.'' Thus, the Guides' definition has been

subsumed by the FDCPA.

B. Deception (general), Guide 1 [Section 237.1]

Section 807(10) of the FDCPA is virtually identical to Guide 1.\8\

Thus, elimination of Guide 1 will have no effect on the Commission's

debt collection enforcement policy.

\8\ Guide 1 states that an industry member ``shall not use any

deceptive representation or deceptive means to collect or attempt to

collect debts or to obtain information concerning debtors.'' Section

807(10) states that a debt collector shall not ``use any false

representation or deceptive means to collect or attempt to collect

any debt or to obtain information about a consumer.''

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C. Disclosure of Purpose, Guide 2 [Section 237.2]

Section 807(11) of the FDCPA \9\ paraphrases Guide 2(a) of the

Guides,\10\ requiring that all communications made to collect a debt

contain a disclosure that the debt collector is attempting to collect a

debt and that any information obtained will be used for that purpose.

Guide 2(b) prohibits placing communications in the hands of others that

do not contain the required disclosure. Similarly, knowingly placing

communications in the hands of others that violate the FDCPA is a

violation of Section 807(10) as well as the preamble to Section 807 of

the FDCPA with respect to ``debt collectors'' covered by the Act. Thus,

Guide 2(b) is also subsumed by Section 807 of the FDCPA.

\9\ Section 807(11) requires that a debt collector ``disclose

clearly in all communications made to collect a debt or to obtain

information about a consumer that the debt collector is attempting

to collect a debt and that any information will be used for that

purpose.''

\10\ ``An industry member shall not use or cause to be used in

connection with the collection of or the attempt to collect a debt

or * * * obtaining or attempting to obtain information concerning a

debtor any * * * material printed or written which does not * * *

disclose * * * the purpose of collecting or attempting to collect a

debt or to obtain or attempt to obtain information concerning a

debtor.''

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D. Government Affiliation, Guide 3 [Section 237.3]

Guide 3 prohibits false representations of government

affiliation.\11\ Section 807(1) of the FDCPA is virtually

identical.\12\ Thus, elimination of Guide 3 will have no effect on the

Commission's debt collection enforcement policy.

\11\ ``An industry member shall not use any trade name, address,

insignia, picture, emblem or any other means which creates a false

impression that such industry member is connected with or is an

agency of government.''

\12\ A debt collector may not falsely represent or imply that it

is ``vouched for, bonded by or affiliated with the United States or

any State, including the use of any badge, uniform or facsimile

thereof.''

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E. Organizational Titles, Guide 4 [Section 237.4]

Guide 4 prohibits conveying a false impression that an ``industry

member'' is a ``credit bureau.'' \13\ The analogous provision in the

FDCPA is Section 807(16), which prohibits the same practice.\14\ As a

result, elimination of Guide 4 will have no effect on the Commission's

debt collection enforcement policy.

\13\ ``An industry member which is not in fact a ``Credit Bureau

* * * shall not use the term * * * in its corporate or trade name;

nor shall it use any other term of similar import or meaning * * *

as to create the false impression that such industry member is a

credit bureau.''

\14\ A debt collector may not falsely represent or imply that it

``operates or is employed by a consumer reporting agency. * * * ''

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F. Trade Status, Guide 5 [Section 237.5]

Guide 5 prohibits an ``industry member'' from creating the false

impression that it is a collection agency.\15\ Since the FDCPA

principally regulates the activities of genuine collection agencies, it

has no analogous provision. To the extent that it regulates the

activities of ``creditors,'' Section

[[Page 40265]]

803(6) prohibits creditors from using names other than their own that

would create the false impression that a third party (presumably a

collection agency) is involved. This addresses the problem highlighted

by Guide 5. Section 812 of the FDCPA also prohibits furnishing forms

creating a false impression of third-party collection agency

involvement. In the main, the practices addressed by Guide 5 are

addressed by the FDCPA.

\15\ ``In collecting debts * * * an industry member shall not,

through the use of any designation or by other means, create the

impression that he is a collection agency, unless he is such as

defined in this part.''

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G. Services, Guide 6 [Section 237.6]

Guide 6 prohibits an ``industry member'' from misrepresenting the

services it renders in soliciting accounts.\16\ Similarly, Section

807(2) of the FDCPA prohibits the false representation of ``any

services rendered or compensation received by any debt collector for

the collection of a debt.'' Thus, elimination of Guide 6 will have no

effect on the Commission's debt collection enforcement policies.

\16\ ``In the solicitation of accounts for collection or for

ascertainment of credit status, an industry member shall not

directly, or by implication, misrepresent the services he renders.''

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III. Conclusion

The Commission's Guides Against Debt Collection Deception have been

superseded by the FDCPA and are no longer needed. Few in the debt

collection industry are even aware that the Guides exist. The

Commission has never taken any enforcement action alleging violation of

Section 5 because the conduct at issue violated the Guides. Since they

are superfluous, the Commission has determined that it is in the public

interest to eliminate the Guides.

List of Subjects in 16 CFR Part 237

Credit, Trade practices.

PART 237--[REMOVED]

The Commission, under authority of Sections 5(a)(1) and 6(g) of the

Federal Trade Commission Act, 15 U.S.C. 45(a)(1) and 46(g), amends

chapter I of Title 16 of the Code of Federal Regulations by removing

Part 237.

By direction of the Commission.

Donald S. Clark,

Secretary.

Statement of Commissioner Mary L. Azcuenaga Concurring in 16 CFR Part

14, Matter No. P954215; Repeal of Mail Order Insurance Guides, Matter

No. P954903; Repeal of Guides Re: Debt Collection, Matter No. P954809;

and Free Film Guide Review, Matter No. P959101

In a flurry of deregulation, the Commission today repeals or

substantially revises several Commission guides and other

interpretive rules.\1\ The Commission does so without seeking public

comment. I have long supported the general goal of repealing or

revising unnecessary, outdated, or unduly burdensome legislative and

interpretive rules, and I agree that the repeal or revision of these

particular guides and interpretive rules appears reasonable.

Nevertheless, I cannot agree with the Commission's decision not to

seek public comment before making these changes.

\1\ Administrative Interpretations, General Policy Statements,

and Enforcement Policy Statements, 16 C.F.R. Part 14; Guides for the

Mail Order Insurance Industry, 16 C.F.R. Part 234; Guides Against

Debt Collection Deception, 16 C.F.R. Part 237; and Guide Against

Deceptive Use of the Word ``Free'' In Connection With the Sale of

Photographic Film and Film Processing Services, 16 C.F.R. Part 242.

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Although it is not required to do so under the Administrative

Procedure Act, 5 U.S.C. 553(b)(A), the Commission traditionally has

sought public comment before issuing, revising, or repealing its

guides and other interpretive rules. More specifically, the

Commission adopted a policy in 1992 of reviewing each of its guides

at least once every ten years and issuing a request for public

comment as part of this review. See FTC Operating Manual ch. 8.3.8.

The Commission decided to seek public comment on issues such as:

(1) The economic impact of and continuing need for the guide;

(2) changes that should be made in the guide to minimize any adverse

economic effect; (3) any possible conflict between the guide and any

federal, state, or local laws; and (4) the effect on the guide of

technological, economic, or other industry changes, if any, since

the guide was promulgated.

Id. The Commission has sought public comment and has posed these

questions concerning a number of guides since adopting its

procedures for regulatory review in 1992.\2\

\2\ See, e.g., Request for Comments Concerning Guides for the

Hosiery Industry, 59 FR 18004 (Apr. 15, 1994); Request for Comment

Concerning Guides for the Feather and Down Products Industry, 59

Fed. Reg. 18006 (Apr. 15, 1994).

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Notwithstanding its long-standing, general practice of seeking

public comment and its specific policy of seeking public comment as

part of its regulatory review process, the Commission has chosen not

to seek public comment before repealing or revising these guides and

interpretive rules. Why not? Has the Commission changed its view

about the potential value of public comment? Perhaps the Commission

knows all the answers, but then again, perhaps not. Although

reasonable arguments can be made for repeal or revision of these

guides and interpretive rules, public comment still might prove to

be beneficial.

In addition, the relatively short period of time that would be

required for public comment should not be problematic. The

Commission has not addressed any of these guides or interpretive

rules in the last ten years. Indeed, it has not addressed some of

them for thirty years or more. For example, the Commission

apparently has not addressed the interpretive rule concerning the

use of the word ``title'' in designation of non-ceramic products

since it was issued in 1950.\3\ The continued existence of these

guides and interpretive rules during a brief public comment period

surely would cause no harm because they are not binding and because,

arguably, they are obsolete. I seriously question the need to act so

precipitously as to preclude the opportunity for public comment.\4\

\3\ 16 C.F.R. 14.2.

\4\ Unfortunately, seeking public comment would not permit the

Commission to count the repeal and revision of these guides and

interpretive rules in its tally of completed actions in the

Regulatory Reinvention Initiative Report that will be sent to the

President on August 1, 1995, but perhaps that harm could be

mitigated by reporting to the President that the Commission is

seeking public comment concerning repeal or revision.

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In 1992, the Commission announced a careful, measured approach

for reviewing its guides and interpretive rules, and public comment

has been an important part of that process. Incorporating public

comment into the review is appropriate and sensible. Although I have

voted in favor of repealing or revising these guides and

interpretive rules, I strongly would have preferred that the

Commission seek public comment before doing so.

[FR Doc. 95-19542 Filed 8-7-95; 8:45 am]

BILLING CODE 6750-01-M