FTC Commissioner Encourages Partnership with CFPB and “Systemic” Change Following FTC Action Against Debt Collections Program – Advertising, Marketing and Branding

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On November 30, 2020, the Federal Trade Commission (FTC) announced that it had taken action against a debt collection company, Midwest Recovery Systems (“Midwest”), alleging that an alleged “debt parking” program caused more than $24 million in damage. to consumers. While the complaint and the settlement themselves are not so remarkable, the dissent filed by Commissioner Chopra is. Commissioner Chopra takes issue with the FTC’s approach to debt collection, suggesting that the FTC refer such cases to the Consumer Financial Protection Bureau (CFPB) and that the FTC focus on other things. We’ve already written about Commissioner Chopra’s other ideas for reshaping the FTC’s approaches and priorities, and if Commissioner Chopra becomes the next chairman under President-elect Biden, things could get interesting at the agency.

First, a few words about the case. Also known as “passive debt collection,” debt parking is the practice of placing false or questionable debts on consumers’ credit reports to compel them to pay. Fake “parked” debt is often not discovered by a consumer until their credit report is viewed in connection with buying a car or home, opening a credit card or looking for a job. So while the debts are invalid, consumers often feel compelled to pay them back, hence the millions of dollars allegedly being transported through the Midwest.

Under the FTC’s proposed settlement, Midwest and its owners will be prohibited from debt parking or suing consumers for alleged debts without reasonable basis, and must remove debts that Midwest had previously reported to credit rating agencies. credit. The settlement includes a $24.3 million monetary judgment, which is partially stayed due to Midwest’s inability to pay. As a result, defendants will only have to pay $56,748 in addition to giving up certain other proceeds and assets.

Commissioners approved the proposed settlement by a vote of 4 to 1. However, in a dissenting statement, Commissioner Rohit Chopra disagreed with the settlement, which allows defendants to “continue their careers in recovering claims” while providing “almost no help” to consumers. In his opinion, the FTC’s agreement to accept only 0.2% of the financial assistance ordered “means that victims are being harmed, with many receiving nothing at all, including those who may have lost employment and housing opportunities due to driving”.

Commissioner Chopra recommended that the FTC “carefully examine [its] priorities in the financial services sector” and, in cases such as Midwest, “where there is almost no money to distribute”, work closely with the CFPB to obtain a civil penalty, in which case the victims could then benefit from a remedy under the Civil Penalty Fund of the CFPB. What exactly this partnership entails is unclear, but historically matters have been settled between one agency or the other and not pursued jointly. Commissioner Chopra’s partnership may be nothing more than the FTC referring debt collection cases to the CFPB, with which he shares debt collection enforcement authority.

Commissioner Chopra also urged the FTC to move away from “mole swooping,” case-by-case enforcement, and seek, alongside the CFPB, “systemic solutions to persistent debt collection abuses.” For example, with regard to debt parking, a systemic solution would require action by Equifax, Experian, Trans Union and other credit reporting agencies, which could prevent illegal activity “taking into account the clear warning signs, such as cutting off providers with abnormally high rates”. deletion rate. Commissioner Chopra believes that the CFPB, rather than the FTC, is in the best position to address this issue by using its authority to define the unfair, deceptive, and abusive practices of these credit reporting agencies.

Commissioner Chopra also urged the FTC to turn to other priorities that he said have been ignored.

In a separate statement, Commissioner Rebecca Kelly Slaughter supported the outcome, but echoed Commissioner Chopra’s recommendation that the FTC partner with its sister agency to ensure consumers get redress in these cases. She also called on Congress to “consider a more direct approach: give the FTC the same power as the CFPB to provide redress to consumers.” Commissioner Slaughter also expressed frustration that the proposed settlement does not prohibit Midwestern defendants from collecting their debts.

It remains to be seen whether the many suggestions Commissioner Chopra has made to reorient the FTC’s approaches and priorities remain suggestions from a commissioner or become policy under a new president. Stay tuned.

Originally published by Venable, December 2020

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