The Federal Trade Commission’s continuing focus on the debt collection and debt relief industries was clearly demonstrated by several recently announced lawsuits and settlements. One of the two debt relief companies targeted by the FTC offered credit card debt reduction services, and the other offered auto loan modifications.

The new lawsuits were the following:

• In a complaint filed on January 14, 2013, for a permanent injunction against several Texas-based debt collection companies, the FTC alleged violations of Section 5 of the FTC Act and the Fair Debt Collection Practices Act. The alleged violations included making false claims of affiliation with law enforcement agencies, false threats of arrest or jail, collecting unauthorized late fees and attorney’s fees, and failing to inform consumers of their dispute rights. The preliminary injunction, entered by a Texas federal district court on January 28, 2013, bans the defendants from engaging in debt collection and appoints a permanent receiver to assume control of the defendant companies.
• Also on January 14, 2013, the FTC filed a complaint in a Florida federal district court against a company that made telephone solicitations to consumers offering credit card interest rate reduction services. Described by the FTC as the “seventh action in three months against debt relief companies,” the complaint alleged violations of Section 5 of the FTC Act and the FTC’s Telemarketing Sales Rule. The alleged violations included misrepresenting the services provided and the company’s refund policy and charging a fee before providing debt relief services. The complaint seeks relief that includes injunctive relief and restitution. On the date it was filed, the court entered a temporary restraining order freezing the defendant’s assets and appointing a temporary receiver.

The new settlements were the following: 

• • On January 30, 2013, the FTC announced it had settled an action filed in a California federal district court against two companies that offered auto loan modification services. These services included obtaining reductions in consumers’ monthly car payments and preventing repossessions. The FTC charged the companies with violating Section 5 of the FTC Act by falsely representing their services and failing to refund their fees as promised. The settlement bans the companies and their principals, who were also defendants, from providing any type of debt relief services, and it imposes a $279,728 judgment (which was suspended regarding the principals for inability to pay).
  • On January 17, 2013, the FTC announced it had settled with the primary defendants in an action filed in 2011 in a California federal district court against three debt collection companies, various related companies, and the companies’ owner and various principals. The FTC charged the defendants with violations of Section 5 of the FTC Act and the FDCPA that included false threats of lawsuits, arrest, or garnishment, and improper communications with third parties. The FTC also alleged that the defendants violated Section 5 in their dealings with small business clients through conduct that included not forwarding amounts due for collected debts.
    
    The settlement imposes a $33.8 million judgment against the debt collection companies, the owner, and his wife (with all but $700,000 suspended as to the owner and his wife due to inability to pay), and separate judgments totaling $277,795 against two other principals (also suspended due to inability to pay). The settlement bans these defendants from engaging in debt collection, promoting, or selling such services, or assisting others in such promotion or sales.

The debt collection industry also is facing increased scrutiny from the Consumer Financial Protection Bureau. On January 2, 2013, the CFPB’s final rule defining larger participants of a market for consumer debt collection became effective. Ballard Spahr’s Consumer Financial Services Group has created a team of lawyers who are already assisting debt collectors and debt buyers to prepare for their first CFPB examinations. In addition, lawyers in the Group regularly consult with their clients engaged in consumer debt collection on compliance with the FDCPA and state debt collection laws.

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, John L. Culhane, Jr., at 215.864.8535 or culhane@ballardspahr.com, Debt Collection Task Force Chair Christopher J. Willis at 678.420.9436 or willisc@ballardspahr.com, Glen P. Trudel at 302.252.4464 or trudelg@ballardspahr.com, Stefanie H. Jackman at 678.420.9490 or jackmans@ballardspahr.com, or Heather S. Klein at 215.864.8732 or kleinh@ballardspahr.com.