FTC Policy on Deceased Debt on the Right Track; Clarifies FDCPA

In October 2010, the Federal Trade Commission (FTC) proposed a new policy statement to clarify the Commission’s position on collection activities related to decedents’ debt under the Fair Debt Collection Practices Act (FDCPA).  The newly proposed policy statement seeks to make transparent the FTC’s planned course of action and to align the Commission’s procedures with precedents established by expanded probate laws on the individual state level since the FDCPA was enacted in 1977.

Phillips & Cohen Associates (PCA) strongly supports the FTC’s position that “it is consistent with the purposes of the FDCPA, and in the public interest, to allow [deceased] debt collectors to communicate with the person who has authority to pay a decedent’s debts from the assets of the estate, even if that person does not fall within the specific categories listed in Section 805(d) [of the FDCPA].”

Specifically, the categories listed in 805(d) to whom a collector may disclose the debt includes the consumer’s “executor” and “administrator,” but those terms are not defined in the FDCPA.  As the FTC details in the Statement, many individuals now die intestate (e.g. without a will and therefore without an “executor”) and their estates are resolved through processes that do not involve the appointment of anyone with the title of “Administrator.”  These include:

• Informal probate processes in which a “Personal Representative” (rather than an Administrator) has the authority to distribute the assets and pay the debts of the decedent’s estate;
• Universal succession procedures, under which no Administrator is appointed;
• Small estate resolution procedures that are available in most states, which  often do not require the appointment of an Administrator; and
• Extra-judicial estate resolution in which a family member or friend pays the debts and distributes the assets of the estate without involving the courts.

An interpretation of the FDCPA that limited the definition of “administrator” to those with that specific title and excluded those who performed the exact same functions in the processes outlined above (hereinafter “Informal Administrators”), would not only be inconsistent with the purposes of the FDCPA, but also lead to significant negative consequences for consumers.

As the statute itself, the legislative history, and subsequent FTC opinions have made clear, the purpose of the FDCPA prohibition against disclosing a consumer’s debt to a third party was to outlaw the tactic of bullying a consumer into paying a debt by disclosing a debt (or threatening to do so) to friends, family members, and work colleagues.  Clearly, therefore, interpreting 805(d) to allow communications with Informal Administrators, who after all have specifically assumed the responsibility of paying the debts and distributing the assets of the decedent, would not in any way frustrate the purposes of that section.

Furthermore, while the drafters of the FDCPA clearly intended to proscribe misleading and abusive collection practices, they were equally clear that they did not want to create an environment in which debt collection would be so restricted that creditors would be unable to collect debts without involving the courts.  But that is exactly the situation in which collectors would find themselves if 805(d) were interpreted to exclude Informal Administrators.  With respect to a very significant percentage of deceased debts, there would quite literally be no human being alive with which the collector could legally discuss the debt.  Rather than resolving the debt amicably or through fair negotiation, creditors would have to either write off debt that might otherwise be paid voluntarily (raising the cost of credit to other customers) or go to court to collect the debt.  Particularly given the fact that relatives are grieving and often overwhelmed by the responsibilities of handling the final affairs of their loved one, such an interpretation would seem to leave nobody better off and everybody – families, creditors, courts and consumers generally – worse off.

As a result, PCA strongly supports the FTC’s conclusion that allowing collectors to speak with Informal Administrators is both permitted by the FDCPA and in the public interest.

For further context on the FTC’s position, please see http://www.ftc.gov/opa/2010/10/debtcollect.shtm.

About Phillips & Cohen Associates
Phillips & Cohen Associates, Ltd. is a full service accounts receivable management company providing customized services to creditors in a variety of specialized market segments.  For more than a decade, the company has served as the industry leader in deceased account care by establishing processes based on compassion, understanding, and proven results.  Phillips & Cohen Associates is headquartered in Wilmington, DE, with additional offices in Colorado, Nevada, Florida, and New Jersey, as well as international offices in the UK and Canada.  For more information about Phillips & Cohen Associates visit http://www.phillips-cohen.com.