A Change Is Coming: Can ARM Industry Adapt and Embrace FDCPA Reform?

In the final days of September, as the fleeting warmth of summer faded into early autumn, the United States Congress voted to recess until after the November elections. This vote means that its members can do what they do best by returning to their home states to campaign for reelection. The vote also confirms that survival is a basic human instinct, however pundits are continuing to assess the likely survival rates of each of the campaigners.

On the way out the door, Al Franken, former comedian and Saturday Night Live alum, who accomplished a mid-life career change and was elected to the Senate from Minnesota by the narrowest of margins, introduced Senate Bill 3588, the "End Debt Collector Abuse Act of 2010." This legislation would significantly change the practice of third party debt collection. The ARM Industry faces the challenge of making sure that Mr. Franken does not have his last laugh at the expense of the hardworking business owners and employees whose job it is to recover delinquent debts and to return monies to creditor s for the benefit of the economy.

The core components of Mr. Franken’s bill, when parsed down to the level at which the mass media delivers information for public consumption, yields three "talking points." First, the proposal requires collectors to have detailed documentation of the debt before pursuing collection. Second, collectors must conduct reasonable investigations of consumer disputes. Third, collectors cannot seek arrest warrants against consumers who do not pay debts, a truism that carries over from the first days of the Republic, when the United States abolished the English system of debtor’s prisons. The proposal also includes enhanced damages, but more on that topic later.

Senator Franken’s proposal may be the first, but it is likely not a final effort at FDCPA reform to come from Congress in the coming year. Those in the know have predicted this push in the aftermath of the 2007 Federal Trade Commission’s Debt Collection Workshop Report and its follow up 2010 report on Debt Collection Litigation and Arbitration.

Regulatory reform imposes external change on businesses and industries. History tells us that the debt collection industry adapted to the passage of the Federal Fair Debt Collection Practices Act in 1977 and even embraced the coming change by supporting key elements of the final bill. The ARM Industry can be ahead of the curve by anticipating and reacting to likely changes in the FDCPA. Although it is far from certain that any of the specifics contained in Senator Franken’s bill will ultimately pass as written, the ARM Industry should consider these proactive steps:

Obtain Documentation of the Underlying Debt

The information and internet age allows consumer s to obtain several years credit card account records through on-line access. Creditors who make this information available to their customers should likewise provide the data to their third party collectors. Collection agencies and debt buyers should begin the process of upgrading their business models to demand better documentation from the original creditors. The ARM Industry should send the message out to its clients that the days of spreadsheet collection s are coming to an end.

Resolving Disputes

Collectors who have access to more original documentation are better equipped to respond to a substantive debtor dispute. Although recovery rates may not necessary increase by enhanced dispute resolution procedures, collectors who ignore disputes, even though the FDCPA permits collectors to cease collecting the debt without responding to disputes, inviters lawsuits, particularly where the account is passed down the line to another collector.

Reducing the Exposure to Enhanced Damages

Consumer advocates are pushing hard for an increase in the statutory damage amount allowed under the FDCPA. Although no one in the ARM Industry wants this to happen, the most effective means of combating any increase in damages is stepped up compliance and training procedures. Businesses need to calculate the cost of non-compliance and invest that expense into better and more thorough compliance programs.

What the ARM Industry Can Do

Lobbyists and advocates for the collection industry will be busy in the coming months contacting legislators in an effort water down or eliminate proposed changes to the FDCPA. The truism of legislative comprise suggests that some efforts will prevail and others will fail.

ARM Industry advocates need to focus their efforts on modernizing the FDCPA to take the law into the 21st Century. As written, the law places obstacles on communicating with debtor s by cell phone, e-mail or text messages, the most common forms of communication in this new century. It is likewise imperative that collectors are provided with a clear and unequivocal rule that explains what can be said when a message is left for the debtor. Additionally, collectors should not be subject to liability when making repeated efforts to telephone the debtor where the calls are never answered and where the debtor knows of the call only because the call is recorded on the debtor’s caller ID.

In the coming months, the best advice to ARM Industry members is to follow the advice that "if you don’t create change, change will create you."

Mr. Canter is the founding member of The Law Offices of Ronald S. Canter, LLC of Rockville, Maryland. He is a member of the Bars of Maryland, Pennsylvania, Florida and the District of Columbia. He is also admitted to practice in federal courts through the United States, including the Supreme Court and several courts of appeal.

Mr. Canter has been engaged in the private practice of law since 1980. He is a recognized authority on creditor’s rights and the regulation of collection practices. He has represented creditors, attorneys and collection agencies in complex litigation in both Federal and state courts. Mr. Canter has successfully prosecuted appeals before state and federal courts on a number of significant issues affecting the credit and collection industry. He appeared, as counsel of record for the National Association of Retail Collection Attorneys (NARCA), in Heintz v. Jenkins, the only Fair Debt Collection Practices Act case to reach the Supreme Court.