Compliance with FTC Policy Causes FDCPA Class Action Lawsuit

Note: Moss & Barnett associate Issa Moe also contributed to this article.

John Rossman

The Federal Trade Commission (“FTC”) recently issued a statement in which it provided guidance on the collection of a decedent’s obligations.  Unfortunately, one debt collector’s attempts to collect debts in compliance with the FTC statement were recently met with a class action lawsuit apparently asserting that the FTC guidelines violate the FDCPA.

Changes in Probate Law Create Challenges for Debt Collectors Attempting to Collect a Decedent’s Debts

Creditors have the right to collect a decedent’s debts from the assets of the decedent’s estate.  Under the FDCPA, a debt collector may contact an “executor” or “administrator” of an estate about the decedent’s debts.  Due to the time-consuming and expensive nature of formal probate, however, most states adopted probate laws permitting less formal procedures for resolving smaller estates.  Under these laws, courts do not appoint a formal “executor” or “administrator.”  Rather, a personal representative is given authority to deal with the estate’s creditors.

This evolution in probate laws created challenges for debt collectors attempting to collect on a decedent’s debts while still complying with the FDCPA.  Indeed, without a formal, court-appointed “executor” or “administrator,” debt collectors were left to wonder whether they would be exposed to litigation by contacting the very person authorized to deal with the estate’s creditors.

The Federal Trade Commission Provides Guidance

Recognizing the difficulties caused by changes to state probate law, the FTC recently issued its Statement of Policy Regarding Communications in Connection with the Collection of Decedents’ Debts ( the “Policy Statement”).  The substance of the Policy Statement is summarized in the concurrence of Commissioner Julie Brill as follows:

“First, when contacting the family members, the debt collector must include in the statement that he is looking for the person who is responsible for paying the outstanding bills of the decedent ‘from the decedent’s estate.’”

“Second, until such time as it is established that the debt collector is talking to the person with such authority, the collector cannot reveal that the decedent owes a debt. This should eliminate any opportunity by debt collectors to make appeals to those without authority to pay bills from the estate’s assets to pay a debt out of a sense of moral obligation.”

“Third, the Policy Statement makes clear the debt collector’s general responsibility to disclose that the person with authority to pay the debts from the estate is not required to use his individual’s assets to pay the decedent’s debt.”

“Finally, if the debt collector does reach the person with authority to pay the bills from the estate of the decedent, that person stands in the shoes of the ‘consumer’ and must be given notice that he is entitled to proof of the decedent’s debt and has the right to contest it.”

Locating Proper Individuals for Collection Communications

According to the Policy Statement, a debt collector must make a “good faith” effort to identify the executor or administrator of an estate before sending a letter addressed generically to the “estate of” the decedent.  The Policy Statement provides guidance on how to identify and locate the person with authority to pay the debts out of the assets of the decedent’s estate in situations where an executor or administrator cannot be located.

In regard to communicating with a decedent’s estate or an unnamed executor or administrator, the Policy Statement provides:

“[T]he Commission concludes that a communication addressed to the decedent’s estate, or an unnamed executor or administrator, is a location communication and must not refer to the decedent’s debts or otherwise violate Section 804 of the FDCPA.”

Complying with the FDCPA when Communicating with Permitted Individuals

The Policy Statement also provides guidance on how to avoid misleading consumers about their personal obligation to pay the decedent’s debts.  In that regard, the Policy Statement provides as follows:

“[T]he Commission concludes that the information that must be disclosed to avoid deception when collectors contact individuals with the authority to pay the decedent’s debts depends on the circumstances. The proposed Statement suggested two possible disclosures: (1) that the collector is seeking payment from the assets in the decedent’s estate; and (2) the individual could not be required to use the individual’s assets or assets the individual owned jointly with the decedent to pay the decedent’s debt.”  (emphasis added).

Consumer Class Actions Against Debt Collector Asserts that Compliance with the FTC Guidance Violates the FDCPA

One recent FDCPA class action lawsuit challenged the FTC’s guidance by asserting that a debt collector violated the law in mailing a location letter addressed to the “estate” of the deceased and the letter did not include the mini-miranda.   The FTC comments – quoted above – clearly state that such a location letter must not reference the debt and thus cannot include the mini-miranda, similar to any location communication under the FDCPA.   It is further interesting to note that the debt collector’s communications challenged in the recent class action did include a specific disclaimer – also as suggested by the FTC – that the individual paying the debts from the estate is not personally liable for the debt.

Conclusion

It is an unfortunate reality of the debt industry that many legal issues present a “catch-22” wherein compliance with one law or ruling may be alleged to be at odds with another:  Collectors are sued both for including a Foti compliant message and for failing to include such a message.   Collectors are also sued for both disclosing that interest may accrue on a past due account and for failing to disclose that interest may accrue.  It appears that the collection of decedents’ debts now presents another “catch-22” where collectors could face a consumer class action for complying with the FTC policy or risk FTC action for failing to comply.

John K. Rossman is a shareholder and Chair of the Creditors’ Remedies Practice Group at Moss & Barnett, P.A. Mr. Rossman is a nationally acclaimed authority on the Fair Debt Collection Practices Act and the labyrinth of laws that impact the debt industry. He is a counselor and advisor to national and international companies and noted for his intelligent, creative and successful representation of collection agencies, debt buyers, creditors and fellow attorneys in cases across the country.

Issa K. Moe focuses his practice in Moss & Barnett’s creditors’ remedies and bankruptcy group.  He has experience representing individual and commercial debtors, unsecured and secured creditors, trustees and other parties-in-interest in bankruptcy proceedings and in litigation, both inside and outside the bankruptcy forum.  Mr. Moe’s practice also includes the defense of debt buyers and debt collection agencies in connection with claims under the Fair Debt Collections Practices Act and Fair Credit Reporting Act.

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