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Division of Credit Practices
Bureau of Consumer Protection

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.


John F. LeFevre
Project Advisor for General Credit

David Szwak
Chairman, Consumer Protection Section, Louisiana State Bar Association
Bodenheimer, Jones & Szwak
509 Market Street, 7th Floor
Mid South Tower
Shreveport, Louisiana 71101
Fax 318-221-6555

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