[Federal Register Volume 60, Number 152 (Tuesday, August 8, 1995)]
[Rules and Regulations]
[Pages 40263-40265]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19542]



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FEDERAL TRADE COMMISSION
16 CFR Part 237


Guides Against Debt Collection Deception

AGENCY: Federal Trade Commission.

ACTION: Elimination of guides.

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SUMMARY: Because the Commission's Guides Against Debt Collection 
Deception have been superseded by, and submitted in, the Fair Debt 
Collection Practices Act (FDCPA), the Commission has determined that it 
is in the public interest to eliminate them.
    The Guides were adopted in 1967 to codify the results of many debt 
collection cases brought by the Commission against debt collectors and 
creditors under Section 5(a)(1) of the Federal Trade Commission Act 
(FTCA). Although the Guides covered creditors and the FDCPA generally 
does not, proceedings still may be brought against creditors under 
Section 5 of the FTCA for engaging in unfair or deceptive debt 
collection practices, many of which are addressed in the FDCPA. Thus, 
the Commission would expect creditors and other parties whose 
collection activities are not covered by the FDCPA to look to the FDCPA 
for guidance in this regard.

EFFECTIVE DATE: August 8, 1995.

ADDRESSES: Requests for copies of this notice should be sent to the 
Public Reference Branch, Room 130, Federal Trade Commission, 
Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:
John F. LeFevre, Division of Credit Practices, Bureau of Consumer 
Protection, Federal Trade Commission, Washington, DC 20580, (202) 326-
3209.

SUPPLEMENTARY INFORMATION:

I. Background

    The Commission issued its Guides Against Debt Collection Deception 
in 1967.\1\ The Guides reflect principles enunciated in a number of 
prior debt collection cases brought by the Commission against debt 
collectors and creditors under Section 5 of the Federal Trade 
Commission Act.\2\ Among other things, the Commission found that 
various misrepresentations made in connection with debt collection were 
Section 5 violations, including false claims that (1) Accounts had been 
referred to independent debt collection agencies and/or consumer 
reporting agencies; (2) debtors' credit ratings would be adversely 
affected if their debts remained unpaid; (3) legal action would be 
taken; (4) collection agencies had legal divisions; and (5) dunning 
letters were genuine legal documents, telegrams, or other ``official'' 
forms. The Guides served to inform the collection industry and the 
general public of the Commission's position on a number of 
``deception'' issues in debt collection that were regarded as 
particularly pertinent at the time. However, they were never used as a 
basis for instituting formal action against a debt collector for 
violation of Section 5. On September 20, 1977, Congress enacted the 
FDCPA, which became effective on March 20, 1978. Since that time, all 
Commission debt collection cases against debt collectors have been 
based upon violations of the FDCPA.\3\ Under the FDCPA, the Commission 
can obtain, not only an injunction and affirmative relief, but also a 
civil penalty, which is not obtainable under Section 5. The Guides have 
not been useful to the Commission's debt collection enforcement program 
since the enactment of the FDCPA.

    \1\ 32 FR 15539 (Nov. 8, 1967), as amended at 33 FR 5661 (Apr. 
12, 1968).
    \2\ Testimony before the Subcommittee on Consumer Affairs of the 
Senate Committee on Banking, Housing and Urban Affairs, on S. 918, a 
proposed Fair Debt Collection Practices Act, May 13, 1977. See also 
Parents Magazine Enterprises, Inc., 68 F.T.C. 980 (1965); State 
Credit Control Board, 70 F.T.C. 1318 (1966).
    \3\ The Commission has also initiated a few debt collection 
cases against creditors as Section 5 matters, since the FDCPA 
generally does not cover creditors. Aldens, Inc., 98 F.T.C. 790 
(1981); J.C. Penney Co., Inc., 109 F.T.C. 54 (1987); American Family 
Publishers, Docket No. 9240 (1991). If a creditor uses a deceptive 
third-party name or furnishes deceptive forms in collecting debts, 
however, it is covered by the FDCPA.
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II. Comparison of the Guides to the FDCPA

    With few exceptions, the provisions of the FDCPA duplicate or 
expand upon the Guides, as demonstrated by the following comparisons.

A. Definitions [Section 237.0]

1. Industry Member [Section 237.0(a)]
    The standards of conduct in the Guides are directed at ``industry 
members,'' which include all entities that collect debts or help others 
in collecting debts, including creditors and skip-tracers.\4\

    \4\ ``Industry Member shall mean any person, firm, partnership, 
corporation, organization, association and any other legal entity 
engaged in the practice of collecting or attempting to collect any 
and all kinds of money debts for itself or others, or any person, 
firm, partnership, corporation, organization, association, or any 
other legal entity.''
    The comparable provision in the FDCPA is the definition of the 
``debt collector'' [Section 803(6)], which focuses mainly on the third-
party debt collection industry. Generally, creditors are not included 
in the definition unless they (1) use a false name in their collection 
activities to convey the impression that third parties are involved in 
collecting debts or (2) sell deceptive forms. Congress also determined 
that a number of other entities should not be included within the scope 
of the definition, including government employees, non-profit 
organizations, mortgage servicers and other designated groups.
    Although the coverage of the Guides is greater than coverage under 
the FDCPA, particularly with respect to creditors, it has been the 
Commission's experience in enforcing the FDCPA that creditors look not 
to the Guides but to 

[[Page 40264]]
the FDCPA for appropriate criteria to use in collecting their own 
debts. In addition, the Commission's jurisdiction under Section 5 has 
been sufficient to regulate the collection activities of creditors when 
necessary. Also, to the extent that the Commission has proceeded 
against creditors for violations of Section 5 in their debt collection 
activities, it has used the FDCPA as a model for appropriate standards 
of conduct--not the Guides. Thus, the Guides have not been useful to 
the Commission's debt collection enforcement program against either 
creditors or debt collectors.
2. Debt [Section 237.0(b)]
    The Guides' definition of ``debt'' is similar to that in the FDCPA 
[Section 803(5)] except that it includes ``commercial'' as well as 
``consumer'' debts.\5\ Congress determined in enacting the FDCPA that 
there was no need to cover ``commercial'' debts. The Commission's 
experience in enforcing the FDCPA supports this decision. The 
Commission has received few complaints from commercial enterprises 
about debt collection abuse. If the Commission finds that there is a 
problem with the collection of ``commercial'' debts, the problem can be 
addressed adequately under Section 5.

    \5\ ``Debt shall mean money which is due or alleged to be due 
from one to another.''
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3. Debtor [Section 237.0(c)]
    The Guides define a ``debtor'' as one who owes or allegedly owes a 
money debt. The FDCPA's definition of ``consumer'' as ``any natural 
person obligated or allegedly obligated to pay any debt'' is analogous. 
From the Commissions standpoint, they are substantively identical. The 
absence of the Guides will have no effect upon who is considered a 
``debtor.''
4. Creditor [Section 237.0(d)]
    The Guides' definition of ``creditor'' includes all parties to whom 
money is owned or allegedly owed. Since creditors can also be 
``industry members'' under the Guides, the definition does not affect 
the scope of the Guides' coverage. The FDCPA's definition of 
``creditor'' is similar except that it excludes those who receive or 
are assigned debts in default for purposes of collection.
5. Credit Bureau [Section 237.0(e)]
    There is no provision in the FDCPA that is analogous to the Guides' 
definition of ``credit bureau.'' \6\ Sections 806(3) and 807(16) of the 
FDCPA, however, make two references to the definition of a ``consumer 
reporting agency'' (credit bureau) contained in Section 603(f) of the 
Fair Credit Reporting Act (FCRA).\7\ The FCRA definition of ``consumer 
reporting agency'' has rendered the Guides' definition of ``credit 
bureau'' obsolete; the FCRA definition is keyed to the concept of a 
``consumer report'' in the FCRA and was obviously drafted in a credit 
reporting context. The FCRA definition governs insofar as the 
Commission's law enforcement activities are concerned.

    \6\ ``Credit Bureau is any * * * legal entity engaged in 
gathering, recording, and disseminating favorable as well as 
unfavorable information relative to the credit worthiness, financial 
responsibility, paying habits and character of * * * any other legal 
entity being considered for credit extension, so that (the) 
prospective creditor may be able to make a sound decision in the 
extension of credit.''
    \7\ Consumer reporting agency is ``any person which, for 
monetary fees, dues or on a cooperative nonprofit basis, regularly 
engages * * * in the practice of assembling or evaluating consumer 
credit information on consumers for the purpose of furnishing 
consumer reports to third parties.* * *''
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6. Collection Agency [Section 237.0(f)]
    The Guides define a ``collection agency'' as any entity that 
collects money debts for others. This is essentially the focus of the 
FDCPA's definition of ``debt collector'' in Section 803(6) as one ``who 
regularly collects or attempts to collect, directly or indirectly, 
debts owed * * * another.'' Thus, the Guides' definition has been 
subsumed by the FDCPA.

B. Deception (general), Guide 1 [Section 237.1]

    Section 807(10) of the FDCPA is virtually identical to Guide 1.\8\ 
Thus, elimination of Guide 1 will have no effect on the Commission's 
debt collection enforcement policy.

    \8\ Guide 1 states that an industry member ``shall not use any 
deceptive representation or deceptive means to collect or attempt to 
collect debts or to obtain information concerning debtors.'' Section 
807(10) states that a debt collector shall not ``use any false 
representation or deceptive means to collect or attempt to collect 
any debt or to obtain information about a consumer.''
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C. Disclosure of Purpose, Guide 2 [Section 237.2]

    Section 807(11) of the FDCPA \9\ paraphrases Guide 2(a) of the 
Guides,\10\ requiring that all communications made to collect a debt 
contain a disclosure that the debt collector is attempting to collect a 
debt and that any information obtained will be used for that purpose. 
Guide 2(b) prohibits placing communications in the hands of others that 
do not contain the required disclosure. Similarly, knowingly placing 
communications in the hands of others that violate the FDCPA is a 
violation of Section 807(10) as well as the preamble to Section 807 of 
the FDCPA with respect to ``debt collectors'' covered by the Act. Thus, 
Guide 2(b) is also subsumed by Section 807 of the FDCPA.

    \9\ Section 807(11) requires that a debt collector ``disclose 
clearly in all communications made to collect a debt or to obtain 
information about a consumer that the debt collector is attempting 
to collect a debt and that any information will be used for that 
purpose.''
    \10\ ``An industry member shall not use or cause to be used in 
connection with the collection of or the attempt to collect a debt 
or * * * obtaining or attempting to obtain information concerning a 
debtor any * * * material printed or written which does not * * * 
disclose * * * the purpose of collecting or attempting to collect a 
debt or to obtain or attempt to obtain information concerning a 
debtor.''
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D. Government Affiliation, Guide 3 [Section 237.3]
    Guide 3 prohibits false representations of government 
affiliation.\11\ Section 807(1) of the FDCPA is virtually 
identical.\12\ Thus, elimination of Guide 3 will have no effect on the 
Commission's debt collection enforcement policy.

    \11\ ``An industry member shall not use any trade name, address, 
insignia, picture, emblem or any other means which creates a false 
impression that such industry member is connected with or is an 
agency of government.''
    \12\ A debt collector may not falsely represent or imply that it 
is ``vouched for, bonded by or affiliated with the United States or 
any State, including the use of any badge, uniform or facsimile 
thereof.''
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E. Organizational Titles, Guide 4 [Section 237.4]

    Guide 4 prohibits conveying a false impression that an ``industry 
member'' is a ``credit bureau.'' \13\ The analogous provision in the 
FDCPA is Section 807(16), which prohibits the same practice.\14\ As a 
result, elimination of Guide 4 will have no effect on the Commission's 
debt collection enforcement policy.

    \13\ ``An industry member which is not in fact a ``Credit Bureau 
* * * shall not use the term * * * in its corporate or trade name; 
nor shall it use any other term of similar import or meaning * * * 
as to create the false impression that such industry member is a 
credit bureau.''
    \14\ A debt collector may not falsely represent or imply that it 
``operates or is employed by a consumer reporting agency. * * * ''
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F. Trade Status, Guide 5 [Section 237.5]

    Guide 5 prohibits an ``industry member'' from creating the false 
impression that it is a collection agency.\15\ Since the FDCPA 
principally regulates the activities of genuine collection agencies, it 
has no analogous provision. To the extent that it regulates the 
activities of ``creditors,'' Section 

[[Page 40265]]
803(6) prohibits creditors from using names other than their own that 
would create the false impression that a third party (presumably a 
collection agency) is involved. This addresses the problem highlighted 
by Guide 5. Section 812 of the FDCPA also prohibits furnishing forms 
creating a false impression of third-party collection agency 
involvement. In the main, the practices addressed by Guide 5 are 
addressed by the FDCPA.

    \15\ ``In collecting debts * * * an industry member shall not, 
through the use of any designation or by other means, create the 
impression that he is a collection agency, unless he is such as 
defined in this part.''
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G. Services, Guide 6 [Section 237.6]

    Guide 6 prohibits an ``industry member'' from misrepresenting the 
services it renders in soliciting accounts.\16\ Similarly, Section 
807(2) of the FDCPA prohibits the false representation of ``any 
services rendered or compensation received by any debt collector for 
the collection of a debt.'' Thus, elimination of Guide 6 will have no 
effect on the Commission's debt collection enforcement policies.

    \16\ ``In the solicitation of accounts for collection or for 
ascertainment of credit status, an industry member shall not 
directly, or by implication, misrepresent the services he renders.''
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III. Conclusion

    The Commission's Guides Against Debt Collection Deception have been 
superseded by the FDCPA and are no longer needed. Few in the debt 
collection industry are even aware that the Guides exist. The 
Commission has never taken any enforcement action alleging violation of 
Section 5 because the conduct at issue violated the Guides. Since they 
are superfluous, the Commission has determined that it is in the public 
interest to eliminate the Guides.

List of Subjects in 16 CFR Part 237

    Credit, Trade practices.

PART 237--[REMOVED]

    The Commission, under authority of Sections 5(a)(1) and 6(g) of the 
Federal Trade Commission Act, 15 U.S.C. 45(a)(1) and 46(g), amends 
chapter I of Title 16 of the Code of Federal Regulations by removing 
Part 237.

    By direction of the Commission.
Donald S. Clark,
Secretary.
Statement of Commissioner Mary L. Azcuenaga Concurring in 16 CFR Part 
14, Matter No. P954215; Repeal of Mail Order Insurance Guides, Matter 
No. P954903; Repeal of Guides Re: Debt Collection, Matter No. P954809; 
and Free Film Guide Review, Matter No. P959101

    In a flurry of deregulation, the Commission today repeals or 
substantially revises several Commission guides and other 
interpretive rules.\1\ The Commission does so without seeking public 
comment. I have long supported the general goal of repealing or 
revising unnecessary, outdated, or unduly burdensome legislative and 
interpretive rules, and I agree that the repeal or revision of these 
particular guides and interpretive rules appears reasonable. 
Nevertheless, I cannot agree with the Commission's decision not to 
seek public comment before making these changes.

    \1\ Administrative Interpretations, General Policy Statements, 
and Enforcement Policy Statements, 16 C.F.R. Part 14; Guides for the 
Mail Order Insurance Industry, 16 C.F.R. Part 234; Guides Against 
Debt Collection Deception, 16 C.F.R. Part 237; and Guide Against 
Deceptive Use of the Word ``Free'' In Connection With the Sale of 
Photographic Film and Film Processing Services, 16 C.F.R. Part 242.
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    Although it is not required to do so under the Administrative 
Procedure Act, 5 U.S.C. 553(b)(A), the Commission traditionally has 
sought public comment before issuing, revising, or repealing its 
guides and other interpretive rules. More specifically, the 
Commission adopted a policy in 1992 of reviewing each of its guides 
at least once every ten years and issuing a request for public 
comment as part of this review. See FTC Operating Manual ch. 8.3.8. 
The Commission decided to seek public comment on issues such as:
    (1) The economic impact of and continuing need for the guide; 
(2) changes that should be made in the guide to minimize any adverse 
economic effect; (3) any possible conflict between the guide and any 
federal, state, or local laws; and (4) the effect on the guide of 
technological, economic, or other industry changes, if any, since 
the guide was promulgated.

Id. The Commission has sought public comment and has posed these 
questions concerning a number of guides since adopting its 
procedures for regulatory review in 1992.\2\

    \2\ See, e.g., Request for Comments Concerning Guides for the 
Hosiery Industry, 59 FR 18004 (Apr. 15, 1994); Request for Comment 
Concerning Guides for the Feather and Down Products Industry, 59 
Fed. Reg. 18006 (Apr. 15, 1994).
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    Notwithstanding its long-standing, general practice of seeking 
public comment and its specific policy of seeking public comment as 
part of its regulatory review process, the Commission has chosen not 
to seek public comment before repealing or revising these guides and 
interpretive rules. Why not? Has the Commission changed its view 
about the potential value of public comment? Perhaps the Commission 
knows all the answers, but then again, perhaps not. Although 
reasonable arguments can be made for repeal or revision of these 
guides and interpretive rules, public comment still might prove to 
be beneficial.
    In addition, the relatively short period of time that would be 
required for public comment should not be problematic. The 
Commission has not addressed any of these guides or interpretive 
rules in the last ten years. Indeed, it has not addressed some of 
them for thirty years or more. For example, the Commission 
apparently has not addressed the interpretive rule concerning the 
use of the word ``title'' in designation of non-ceramic products 
since it was issued in 1950.\3\ The continued existence of these 
guides and interpretive rules during a brief public comment period 
surely would cause no harm because they are not binding and because, 
arguably, they are obsolete. I seriously question the need to act so 
precipitously as to preclude the opportunity for public comment.\4\

    \3\ 16 C.F.R. 14.2.
    \4\ Unfortunately, seeking public comment would not permit the 
Commission to count the repeal and revision of these guides and 
interpretive rules in its tally of completed actions in the 
Regulatory Reinvention Initiative Report that will be sent to the 
President on August 1, 1995, but perhaps that harm could be 
mitigated by reporting to the President that the Commission is 
seeking public comment concerning repeal or revision.
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    In 1992, the Commission announced a careful, measured approach 
for reviewing its guides and interpretive rules, and public comment 
has been an important part of that process. Incorporating public 
comment into the review is appropriate and sensible. Although I have 
voted in favor of repealing or revising these guides and 
interpretive rules, I strongly would have preferred that the 
Commission seek public comment before doing so.

[FR Doc. 95-19542 Filed 8-7-95; 8:45 am]
BILLING CODE 6750-01-M