Consumer Law

FTC Issues Major Report on Debt Collection and Forced Arbitration: System is "Broken"

By Deepak Gupta

by Deepak Gupta

The Federal Trade Commission today issued a major report on debt collection and the forced arbitration of consumer collection disputes. Concluding that "the system for resolving consumer debt collection disputes is broken," the FTC recommends a series of sweeping reforms. The new report, Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration, reflects information gathered at roundtable discussions following a February 2009 report on the same subjects. The vote to issue today's report was 5-0.

Given the heated debate in Congress and the courts over forced arbitration, the arbitration-related material in today's report is likely to receive the most attention. The report addresses concerns about requiring consumers to resolve debt collection disputes through binding arbitration without meaningful choice, bias or the appearance of bias in arbitration proceedings, and procedural unfairness in arbitration proceedings. The FTC's principal recommendations are:

• Consumers should have a meaningful choice about arbitrating debt collection disputes.
• Arbitration forums and arbitrators should eliminate bias and the appearance of bias.
• Arbitration forums should conduct proceedings in a manner that makes it more likely that consumers will participate.
• Arbitration forums should require that awards contain more information about how the case was decided and how the award amount was calculated.
• Arbitration forums should make their process and results more transparent.

Citing the scandal over the National Arbitration Forum, Commissioner Julie Brill issued a separate concurring statement in which she urged Congress to enact a temporary ban on the mandatory arbitration of consumer debt collection disputes:

Such a ban should remain in place until the arbitration process can be shown to be fair, transparent, and as affordable as traditional litigation, and until consumers have a meaningful opportunity to opt out of pre-dispute arbitration without losing access to the credit services they seek. Once these conditions have been met, Congress could lift the ban itself, or it could delegate that authority to the Federal Trade Commission or another appropriate consumer financial protection agency or bureau established in the future.

Today's report also recommended a number of sweeping reforms to consumer collection litigation:

• States should consider adopting measures to make it more likely that consumers will defend themselves in litigation, decreasing the prevalence of default judgments.
• States should require collectors to include more information about the alleged debt in their complaints.
• States should take steps to make it less likely that collectors will sue on debt on which the statute of limitations has run.
• Federal and state laws should be changed to prevent the freezing of a specified amount in a bank account including funds exempt from garnishment.

Full post as published by CL&P Blog on July 12, 2010 (boomark / email).