The Federal Trade Commission released a report on reforming debt collection litigation and arbitration entitled, “Repairing a Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration” as a follow up to its 2009 debt collection roundtable discussions. In its report, the FTC recommends that federal and state governments, the debt collection industry and others take certain steps to fix the litigation and arbitration system so that consumers are provided with adequate protection.

    To fix the litigation system, the FTC recommends that:

    • States adopt measures to address the high prevalence of default judgments by ensuring that consumers receive adequate notice of lawsuits and controlling consumers’ litigation costs;
    • States require collectors to include certain information in their complaints so that it is easier for consumers to admit or deny allegations and assert affirmative defenses;
    • States decrease lawsuits on time-barred debts and unknowing waivers of statute of limitation defenses by (i) developing more clear and uniform statutes of limitation, (ii) requiring creditors to prove that debts are not time-barred and include the date of default and the statute of limitations in their complaints and (iii) requiring collectors to inform consumers that they cannot sue to recover a time-barred debt and that a partial payment will revive the debt; and
    • Federal and state laws be amended to prevent the freezing of a specified amount in a bank account to which a consumer has deposited funds that are exempt from garnishment.

    To fix the arbitration system, the FTC recommends that:

    • Consumers be given a meaningful choice to arbitrate and that creditors draft consumer credit contracts to notify consumers of that choice and provide them with a reasonable method of exercising that choice;
    • Arbitration forums and arbitrators take steps to eliminate bias and the appearance of bias and take steps to increase consumer participation;
    • Arbitration forums require awards to contain more information about how the case was decided and how the award was calculated; and
    • Arbitration forums make their process and results more transparent by creating a nationwide system requiring arbitration forums to report and make public arbitration awards and decisions.

    The FTC has indicated that it will continue to work with all interested parties to implement these reforms as soon as practicable.

    With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, creditors and debt collectors likely will see increased scrutiny of debt collection practices. The Act, among other things, establishes a Consumer Financial Protection Bureau that will have rulemaking authority under the federal Fair Debt Collection Practices Act and shared enforcement authority with the FTC.

    • Margaret Stolar and Chuck Gall


    The United States District Court for the Northern District of Illinois has held that a debt collector violated the federal Telephone Consumer Protection Act (“TCPA”) by delivering prerecorded messages to a debtor’s cellular telephone number without prior express consent and by failing to properly identify itself in the messages. Sengenberger v. Credit Control Servs., Inc., No. 09 C 2796, 2010 WL 1791270 (N.D. Ill. May 5, 2010). In Sengenberger, the debtor provided his doctor with his cell phone number when requesting medical treatment. His doctor in turn gave the number to a laboratory that performed testing in connection with the treatment. The lab hired a debt collector to collect an amount allegedly owed for the lab tests and provided the debt collector with the debtor’s cell phone number. The debt collector delivered numerous prerecorded messages to the debtor’s cell phone number which identified the debt collector using a d/b/a name rather than its legal name. Some of the messages were left after the debtor sent the debt collector a letter disputing the debt and requesting no further calls.

    The debtor sued the debt collector for violating the TCPA’s prohibition against using a prerecorded voice when making calls to a cell phone without the prior express consent of the called party. See 47 U.S.C. § 227(b)(1). The court indicated that according to the Federal Communications Commission regulation, a debtor provides “prior express consent” if he or she provides his or her cellular telephone number to a creditor, e.g., as part of an application. Moreover, calls placed by a third-party collector on behalf of a creditor to whom prior express consent was provided are treated as if the creditor placed the call. Nonetheless, the court found that the debt collector did not have consent to make the calls that occurred after the debtor disputed the debt in writing because the written dispute would have been sufficient to revoke any consent. The court found that the debt collector did not meet its burden of showing that it obtained prior express consent for the calls that occurred prior to the written dispute, apparently because the debtor did not provide his cell phone number directly to the lab who hired the debt collector, but rather provided his number to a third party who gave the cell phone number to the lab without authorization.

    The debtor also sued the debt collector for allegedly failing to properly identify itself pursuant to the TCPA regulations, which provide that prerecorded telephone messages must state, among other things, the name under which the caller is registered to conduct business with the State Corporation Commission (or comparable regulatory authority). 47 C.F.R. § 64.1200(b)(1). The court found that the debt collector did not properly identify itself because it used a d/b/a name rather than its true legal name. According to the court, a d/b/a name may be used, but it must be in conjunction with the entity’s legal name.

    In addition, the debtor sued the debt collector for allegedly failing to provide its telephone number during certain prerecorded messages as required by FCC regulations. 47 C.F.R. § 64.1200(b)(2). The court found that the debt collector satisfied the regulations by including the telephone number in its messages even though the portion of the messages containing the number was not recorded by the debtor’s voicemail in connection with all calls.

    The TCPA provisions addressed by Sengenberger are not the only requirements and restrictions that collectors must follow when leaving prerecorded messages. Debt collectors also must comply with various requirements and restrictions under the federal Fair Debt Collection Practices Act, state debt collection statutes and other laws. Addressing all of these laws can be challenging, particular because a number of court decisions have not been favorable to collectors leaving prerecorded messages. Nonetheless, steps can be taken to mitigate the risks.

    • Margaret Stolar and Chuck Gall