UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C.
20580
Division of Credit Practices
Bureau of Consumer Protection
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November 26, 1993
Patricia D. Douglass, Esq.
1029 31st St., N.W.
Washington, D.C. 20007
Dear Ms. Douglass:
Mr. Medine has asked me to respond to your letter of July 27,
1993, concerning the propriety of certain debt collection activities
that your client, a debt collection agency, proposes to undertake.
These activities involve the use of two dunning letters, one purportedly
from an attorney and one from your client, about which you seek
an informal staff opinion. Although the Commission's Rules of
Practice prohibit answers to "hypothetical questions"
(Rule 1.1(b)), we do have several comments about these letters
and the circumstances in which your client plans to use them.
Rather than repeating the facts in your July 27 letter, we incorporate
it by reference in the comments set forth below. Since your letter
correctly cites the relevant cases, we will not cite them again
in our reply.
Question 1
You ask whether, under the circumstances you describe, Letter
A (attached) violates Sections 807(3), 807(5) or 807(10) of the
Fair Debt Collection Practices Act (Act). Letter A is a so-called
"attorney letter," i.e., it is headed with
the name and address of an attorney. You indicate that it is produced
for mass mailing to consumers owing small balances by an outside
party or your client itself. We assume that this letter would
not be personally signed by the attorney, but the signature would
be a facsimile of the attorney's signature that would be applied
when the letter is reproduced. The text of the letter is self
explanatory.
Section 807(3): This section prohibits false representations
that a ". . . communication is from an attorney." Because
of the letterhead and the signature, the letter clearly appears
to be "from" an attorney. You indicate, however, that
the letter is not actually "from" an attorney, but rather
from a mailing service or your client itself. In fact, the attorney
whose signature appears on the letter does not know the identity
of any of the letter's recipients and is not otherwise involved
in the collection process at the time the letter is sent. Thus,
under the circumstances described, we believe sending the letter
would violate Section 807(3).
Section 807(10): Section 807(10) is a catch-all provision
of the Act that prohibits the debt collector from using any false
representations or deceptive means to collect a debt. The primary
issues with Letter A are (1) what the letter represents regarding
present and future attorney involvement with the debt; and (2)
whether the representations are false or deceptive.
The letter states expressly that the attorney "represents"
your client but has not personally reviewed the account as of
the date of the letter. Thus, the attorney's current involvement
with the debt appears from the letter to be low, which is true.
The letter strongly implies, however, that there is a continuing
relationship between your client and the attorney and that if
the debt is not paid, future attorney involvement will
increase substantially. Thus, we believe that the real meaning
of the message is contained in what is not said (see
parentheses) in references to personal review and legal activity
by the attorney and continued collection efforts by the debt collector:
"No decision has been made to commence any legal
action (yet) nor have I personally reviewed your account (yet).
However, [collection agency] and its clients intend to continue
to pursue collection of your account (if necessary, through
me) in accordance with . . .."
You indicate that legal action is typically not initiated on
the debts at issue because they are too small. Thus, attorney
involvement in the collection of debts presumably would decrease,
not increase, if the debt is not paid. To the extent that this
is true, any implication to the contrary violates Section 807(10).
Section 807(5): This section prohibits threats of unintended
or illegal actions. The text of the letter suggests that, although
legal action has not currently been commenced, it may be commenced
in the future if the debt is not paid. To the extent that this
implication is contrary to fact (i.e., legal action is
never or almost never initiated), it would also violate Section
807(5).
Question 2
Letter B (attached), to be sent under your client's letterhead,
is entitled "IRS Statutory Notification Letter - Publication
908." The text reminds the letter recipient that he/she has
failed to pay as requested. It then refers to the creditor's "right
to forgive this debt and submit a Form 1099 to the Internal Revenue
Service on all bad debt accounts." Although the last sentence
reassures the consumer that the creditor does not intend to take
such an action at the time, it urges the consumer to remit payment
to "avoid any additional collection activity."
You indicate that the IRS, in fact, does not require a creditor
that discharges a debt to file a Form 1099, no matter how much
the debt is worth. You also indicate that a Form 1099 is not intended
to be and, in fact, is never filed even if the debt remains unpaid.
You ask whether, under the circumstances you describe, the letter
would violate Sections 807(5), 807(9) or 807(10) of the Act.
Section 807(5): The clear implication of the last sentence
of the letter is that, if the consumer does not pay, a Form 1099
will be filed with the IRS. The implication is contained in the
term "additional collection activity" which follows
the reference to Form 1099. Since the filing of such a form is
never the result of a failure to pay and since your client does
not ever intend to file such a form, a representation to the contrary,
such as that noted above, violates Section 807(5).
Sections 807(9); 807(10): Section 807(9) prohibits documents
that fraudulently appear to be officially authorized by the government
or otherwise mislead the recipient as to their authorship. The
purpose of Section 807(9) is to discourage debt collectors from
attempting to use the authority of the government deceptively
to scare consumers into paying the debt at issue. Thus, dunning
consumers with letters that look like government documents violates
both the letter and the spirit of this provision. We do not believe
that Letter B "looks like a government document" such
that it would constitute a per se violation of Section 807(9)
since both the text and the inside address clearly indicate that
the letter originated from a collection agency. However, the heading
"IRS Statutory Notification Letter - Publication 908"
creates the distinct but false impression that the collection
agency is required by the IRS or by a statute administered by
the IRS to send that dunning letter to the consumer. Since this
is not true, the representation violates Section 807(10). This,
in turn, may create the additional false impression that the IRS
has been informed about the debt at issue, also in violation of
Section 807(10).
Question 3
Finally, you ask whether a creditor could have potential liability
under Section 5 of the Federal Trade Commission Act for "engaging
and directing" a debt collector to send Letters A and B.
Using the principles outlined in the complaint and the consent
decree in American Family Publishers cited in your letter,
we answer affirmatively. If a creditor knowingly approves of representations
made by its debt collectors that violate the Act or acts in concert
with or knowingly assists its debt collectors in making these
representations, the creditor may have engaged in unfair or deceptive
acts or practices in violation of Section 5.
You are aware, of course, that these opinions are those of the
Commission staff and, as such, are not binding on the Commission
itself.
I hope this has been helpful.
Sincerely,
John F. LeFevre
Project Advisor for General Credit
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