FTC Testifies on Efforts to Protect Consumers of Financial Services
Published: April 2, 2009
Commission urges for new tools for stronger enforcement authority through all stages of the credit life cycle.

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On March 24, 2009, the Federal Trade Commission (FTC) testified to the U.S. House Subcommittee on Commerce, Trade and Consumer Protection that the commission will continue protecting consumers from predatory lending and other illegal practices through all stages of the credit life-cycle, from advertising of credit through the collection of debt. The FTC also recommended legislative and other remedies to enhance the agency's effectiveness.

FTC Chairman Jon Leibowitz testified about the commission's stepped-up law enforcement efforts to protect consumers of financial services—especially consumers in financial distress. The agency has targeted unfair, deceptive or otherwise unlawful mortgage lending and credit offers.

The FTC has also taken action against creditors and loan servicers who misrepresent fees and amounts owed when they collect payments from consumers who are current on their debts. For consumers who are delinquent or in default on their debts, the commission provides protection from mortgage foreclosure “rescue” scams, bogus credit repair and debt settlement operations, and abusive and deceptive debt collection practices.

The testimony described the FTC's consumer protection work in consumer and business outreach, and its research and policy development efforts. To allow the agency to perform a more effective role in protecting consumers, the commission's testimony recommended that Congress:

• Permit the FTC to use “notice and comment” rulemaking procedures to declare acts and practices relating to financial services to be unfair or deceptive in violation of the FTC Act.
• Authorize the FTC to obtain civil penalties for unfair or deceptive acts and practices related to financial services and authorize the agency to bring suit in federal court to obtain civil penalties.
• Provide additional resources to assist the FTC in increasing its law enforcement activities related to financial services and expanding its critical research on the efficacy of disclosures and other topics.
• Ensure that, because of the commission's unequaled and comprehensive focus on consumer protection, its independence from providers of financial services, and its emphasis on vigorous law enforcement, the FTC is considered as Congress moves forward in determining how to modify federal oversight of consumer financial services.

Visit the FTC Web site to view the entire testimony.

Special Care is Required When Collecting on Accounts From the Deceased
Published: April 2, 2009
Collecting the debt of a deceased consumer presents many unique issues for debt collectors.

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A debt collector must approach estate collection with compassion. Collecting on accounts from the deceased is an incredibly sensitive matter, requiring a delicate appreciation for seeking recovery of legitimate financial obligations and for the context in which such collections are undertaken. Collection efforts regarding a financial obligation where a consumer has passed must comply with the Fair Debt Collection Practices Act (FDCPA) and state law.

The FDCPA expressly prohibits debt collectors from engaging in any harassment or abuse; from making any false, deceptive or misleading representations; and from using any unfair means in connection with the collection of a debt from any person, including the executor or representative of an estate or other relative.

In order to comply with the FDCPA, a collector may not communicate that an individual, other than the deceased, is obligated to pay the decedent's debt unless the collector has obtained information that indicates otherwise.

In order to commence collection from the decedent's estate or through probate, a collector must contact the administrator or executor of the decedent's estate, often referred to as the personal representative. The law permits debt collectors to contact relatives or other third parties to identify the personal representative.

The personal representative is afforded the full protection of the FDCPA. This includes the ability to cease communications with the collector regarding the debt. If a collector receives a written notice from the personal representative requesting the collector cease communication or refusing to pay the obligation, the collector is obligated to comply with this request.

If a collector seeks payment of a debt from proceeds or an estate administered by a personal representative, the debt collector must provide a validation notice informing the personal representative of certain information regarding the existing obligation. The communication should include the Mini-Miranda as well as any state-required text.

In situations when the estate is insolvent or unable to pay all debts, state law further determines the order in which creditors are satisfied. In these cases, the personal representative will sell some of the estate's property to pay the outstanding debts. After liquidation if claims still remain, the assets are divided and distributed to the creditors proportionally. Although personal representatives have the authority to act on behalf of the estate, a personal representative generally is never personally liable for the decedent's debt.

Collecting the debt of a deceased consumer presents many unique issues for debt collectors. Therefore, it is important to develop policies and procedures to assist in the collection process. It is possible for creditors to recover debts from deceased consumers, but due to the specific time parameters, it is of the utmost importance that debt collectors act with compassion, diligence and efficiency.

Continued Bankruptcies, Late Payments, Mortgage Delinquencies Kick Off 2009
Published: March 9, 2009
The deteriorating economy is evident in recent consumer credit woes as bankruptcies, past-due credit card payments and delinquent mortgages pile up, according to a new report.

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The latest Credit Trends Monitor Report from Equifax shows that last month consumers continued to drop behind in their credit card payments, the number of mortgage holders who were 30-days past due was up by 50 percent since January 2008, and personal bankruptcies also increased significantly year-over-year.

To add to the economic woes, home equity line of credit 30-day delinquency rates also saw an accelerated month-to-month increase, rising 3.39 percent from December 2008 to January, the largest jump in 10 years.

Consumer bankruptcies continued to rise, with January 2009 figures 25 percent higher than January 2008. Most of the increase is in Chapter 7 filings, which is 37 percent higher than the same period last year. Those filing Chapter 13 increased only six percent. Chapter 7 is a liquidation proceeding in which a debtor receives a discharge of all debts while Chapter 13 is a reorganization bankruptcy enabling filers to pay off debt over a set period of years.

Projections indicate that 30-day mortgage delinquencies, which have continued to increase, will result in even more 60- and 90-day delinquencies.

Other highlights from the Credit Trends Report:

• Credit scores continue to decline indicating that future credit card use and payment capability could be negatively impacted.
• Home equity delinquencies (30-days past due) accelerated in January, increasing more than 48 percent from January 2008. Approximately 65 percent of the home equity delinquencies are in the South Atlantic and Pacific regions, reflecting two states - Florida and California—where the housing bubble was the greatest.

Data for the Credit Trends Monitor Report is sourced from Equifax's nearly 200 million files of U.S. consumers using credit.

Mortgage Loan Delinquency Rates Rise for Eighth Straight Quarter
Published: March 9, 2009
Delinquencies have increased 53 percent from the same period last year.

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According to a new analysis of trends in the mortgage industry for the fourth quarter of 2008 and the associated impact on the U.S. consumer from TransUnion, mortgage loan delinquency (ratio of borrowers 60 or more days past due) increased for the eighth straight quarter, hitting a national average high of 4.58 percent for the fourth quarter of 2008. Traditionally seen as a precursor to foreclosures, this statistic is up almost 16 percent from the previous quarter's 3.96 percent average and up approximately 53 percent from the same period last year (2.99 percent).

Mortgage borrower delinquency rates in the fourth quarter of 2008 were highest in Florida (9.52 percent) and Nevada (9.01 percent), while the lowest mortgage delinquency rates were found in North Dakota (1.21 percent), Alaska (1.74 percent) and South Dakota (1.97 percent). The three areas showing the greatest percentage growth in delinquency from the previous quarter were Arizona (26.2 percent), Montana (24.5 percent) and South Dakota (23.9 percent). However, the news is not altogether bad: North Dakota and Alaska both showed a decline in mortgage delinquency rates, down respectively from the previous quarter's 10 percent and 19 percent.

The average national mortgage debt per borrower rose slightly (0.26 percent) to $192,789 from the previous quarter's $192,287. On a year-over-year basis, the fourth quarter 2008 average represents a 0.74 percent increase compared to the fourth quarter 2007 average of $191,370.

The dramatic rise in the mortgage delinquency rates since the end of 2007 (the official beginning of the current recession) highlights a worthwhile comparison to our last recession. The 2001 recession, beginning in March of 2001 and ending in November of the same year, resulted from a collapse in the dot com bubble combined with the terrorist attacks of Sept. 11. During that time, the mortgage delinquency ratio increased by almost 28 percent. While considered a large increase at the time, in comparison to the delinquency impact of the current recession it might be viewed as modest. This time around the national average mortgage delinquency rate has increased by almost 79 percent to date—essentially tripling what occurred in the last recession.

"Our forecasting models for the mortgage sector show a decrease in nonpayment behavior as measured by the national 60-day mortgage delinquency rate. Although our national predictions were within 2 percent of the actual delinquency rate for year-end 2008, the economic outlook throughout 2009 has prompted significant revisions to our long term forecasts. These forecasts now show the 2009 mortgage delinquency rates reaching as high as 8 percent or more by year end," said Keith Carson, a senior consultant in TransUnion's financial services group. "Economic factors will continue to have a significant impact on the credit markets as unemployment increases and housing prices continue to erode. However, if government efforts to reduce mortgage rates are successful, there could be a gradual increase in home purchases, moving toward a stabilization of housing prices and a decrease in mortgage loan delinquencies in 2010."

Information for this analysis is culled quarterly from approximately 27 million anonymous, individual credit files, providing a real-life perspective on how U.S. consumers are managing their credit health.

New York City Council Amends Licensing and Collection Requirements for Debt Collectors and Asset Buyers
Published: March 16, 2009
If signed into law by the mayor, the bill will expand the local licensing requirement; amend required and prohibited collection practices; and increase penalties for unlicensed collection activity.

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On March 12, 2009, the New York City Council unanimously passed legislation to amend New York City's administrative code concerning licensing and collection requirements for third-party debt collection agencies and asset buyers. If enacted, the bill (Int. No. 660-A) will expand the local licensing requirement; amend required and prohibited collection practices; and increase penalties for unlicensed collection activity. As of March 13, 2009, the mayor of New York City has not signed the legislation.

New York City currently requires a “debt collection agency” to obtain a license, which includes third-party debt collectors as well as asset buyers that directly engage in debt collection activities.

The bill expands the definition of “debt collection agency,” broadening the scope of the licensing requirements by requiring asset buyers that purchase delinquent debt and seek to collect on the debt either “directly or through the services of another” to obtain a license. This means purchasers of delinquent debt that refer a debt to a licensed third-party debt collection agency will also be required to obtain a license, even if the asset buyer itself does not directly engage in collection activity. Additionally, any attorney-at-law or law firm that “regularly engages in activities traditionally performed by debt collectors” must obtain a license.

The bill also requires debt collection agencies to provide specific information in communications with the consumer in both written and verbal communications with the consumer. The collection agency must provide:

1. A call-back number to phone that is answered by a natural person.
2. The name of the collection agency.
3. The originating creditor of the debt.
4. The name of the person to call back.
5. The amount of the debt at the time of the communication.

Additionally, a debt collection agency must send the consumer written confirmation, within five business days, of any payment schedule or settlement agreement reached regarding the debt.

Additionally, under the bill, if a consumer requests verification of the debt, the collection agency must cease collection activity until the agency furnishes the consumer written documentation identifying the creditor who originated the debt and itemizing the principal balance and other charges owing on the debt. Unlike federal law, the bill does not require the consumer to request verification in writing or within the 30-day validation period in order to trigger a collector's verification duties.

Further, the legislation prohibits a collection agency from contacting a consumer regarding a time-barred debt unless the agency first provides the consumer with information about the consumer's legal rights. The commissioner is directed to prescribe what must be provided in this notice.

Penalties for violations of the debt collection agency requirements range from $700-$1,000 per violation. In addition, the bill subjects a debt collection agency that fails to obtain a collection license to an additional $100 penalty each time contact is made with a consumer in violation of the licensing requirements.

The local law takes effect 120 days after it is enacted into law. View the current status and text of the bill.

Congress Considers Employee Free Choice Act
Published: March 23, 2009
If enacted, the EFCA would dramatically change U.S. labor relations and make union formation easier..

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The Employee Free Choice Act (EFCA) (H.R. 1409, S. 560), introduced in both the House and the Senate on March 10, 2009, aims to amend the National Labor Relations Act, transforming labor relations in the United States and making it significantly easier for employees to form a union.

The EFCA attempts to amend the National Labor Relations Act by:

1. Eliminating the Secret Ballot: The EFCA would effectively eliminate the secret ballot election by requiring the National Labor Relations Board (NLRB) to certify a bargaining representative without directing an election, if a majority of employees signed cards requesting unionization. Under the EFCA, a union has no obligation to tell an employer it is launching an organization drive.
2. Binding Arbitration: Under the EFCA, within 10 days of receiving a written request for collective bargaining from a certified union representative, the union and the employer must begin bargaining for a contract. If a collective bargaining agreement is not completed within 90 days, either party may refer the matter to the National Mediation and Conciliation Service (NMCS). If an agreement still isn't reached within 30 days of referral to the NMCS, either party can refer the matter to a federal arbitration panel. The arbitration panel will then hand down a collective bargaining agreement that is binding on both sides for two years.
3. Imposing New Penalties: The EFCA would impose new, tougher penalties on employers who discriminate against an employee or who willfully or repeatedly commit any unfair labor practice during an organization campaign or during negotiations for a first collective bargaining agreement.

If an employer discriminates against an employee for union activity, the employer can be held liable for the employee's back pay plus two times that amount as damages.

If any employer willfully or repeatedly commits any unfair labor practice, the employer may be required to make the employee whole and be held liable for a civil penalty up to $20,000 for each violation.

Watch your e-mail in the coming weeks for ACA's call to action to its members encouraging them to ask their representatives and senators to vote against the EFCA and ensure the delicate balance between organized labor and employers remains intact.

Understanding the Red Flag Rules

By Rachel Remley
Published: November 18, 2008
Financial institutions and creditors must implement an identity theft prevention program..

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Financial institutions and creditors will be required to create an identity theft prevention program by Nov. 1, 2008, under the Red Flag Rules created by a group of federal regulatory agencies, including the Federal Trade Commission (FTC), to protect consumers and businesses from the threat of identity theft.

Although the FTC announced in October 2008 that it will delay enforcement of the regulations for qualifying entities until May 1, 2009, it is important for financial institutions and creditors to learn not only what is considered a red flag, but also the elements that should be put in place to create an identity theft prevention program.

During a Campus ACA teleseminar, “Identity Theft Prevention: Evaluate Red Flag Rules,” held Oct. 13, 2008, Valerie Hayes, Esq., ACA's vice president of legal and government affairs, discussed the elements of identity theft and how to implement an identity theft prevention program. Hayes was joined by Tomio Narita, Esq., founding partner of Simmonds & Narita LLP in San Francisco, and David Cherner, Esq., ACA's legislative director of state government affairs.

The purpose of an identity theft prevention program is to detect, prevent and mitigate identity theft linked to the opening and maintaining of certain covered accounts. The Fair Credit Reporting Act (FCRA) defines a covered account as one created for personal, family or household purposes that allows multiple payments, or for which there is a reasonable, foreseeable risk of identity theft occurring.

When implementing an identity theft prevention program, it's important to be aware of what constitutes identity theft and identifying information. Identity theft is fraud committed or attempted using the identifying information of another person without that person's authority. Identifying information includes:

• A person's first name, last name, Social Security number, date of birth, driver's license number, passport number and/or tax payer identification number.
• A person's biometric data—finger prints, retina scans, etc.
• A person's credit card number, routing number or cell phone number.

Who Should Comply?
The Red Flag Rules require financial institutions and creditors develop an identity theft prevention program. According to the FCRA, a creditor is an entity that regularly extends, renews or continues credit; any entity that regularly arranges for the extension, renewal or continuation of credit; or any assignee of an original creditor that participates in the decision to extend, renew or continue credit.

Although the guidance does not explicitly omit asset buyers and third-party collectors from the Red Flag Rules, Hayes said those entities could be considered creditors if they assist in arranging for the extension or renewal of credit in any way.

The rules also require creditors and financial institutions to exercise appropriate and effective oversight of service provider arrangements. A service provider is a person who provides a service directly to the financial institution or creditor. Cherner said the creditor or financial institution must make sure all of its service providers have reasonable policies and procedures in place that could detect and prevent identity theft.

Hayes added, “If you're considered a creditor, you're going to have several service provider arrangements, whether it's the person doing your skiptracing or the person who does your letter agreements. You need to make sure your service provider has an identity theft prevention program in place.”

What Elements Should be Included?
The program itself should be tailored to fit the size of the financial institution and the complexity/nature of the operation. In essence, the program should have reasonable policies and procedures in place to:

• Identify and incorporate red flags into the program.
• Detect red flags.
• Respond appropriately to any detected red flags.
• Ensure periodic review and updating.

If your organization already has a program in place, you can incorporate the existing program into the new identity theft prevention program.

What is a Red Flag?
A red flag is a pattern, practice or specific activity that indicates a warning of possible identity theft. The categories include:

• Alerts or notifications—
  1. When a fraud or active duty alert is included with a consumer report.
  2. A credit reporting agency (CRA) provides notice of a credit freeze.
  3. A CRA provides notice of an address discrepancy.
  4. The consumer report indicates an unusual pattern of activity such as an unusual number of recently established credit relationships.
• Suspicious personal identifying information on an application.
• Unusual use of a covered account.
• Notice is received of possible identity theft occurring in connection with covered accounts.

Suspicious Documents
One way to look for red flags is to pay close attention to the documents associated with accounts. Documents that may be considered warning signs of identity theft, or red flags, include those that appear to have been altered or forged, or that have information that is inconsistent with the information provided by the person opening the account.

It might also be a red flag if the signature on an application looks like it was traced or was rewritten after being crossed out. “If the application looks like it was piecemealed together, that's something that would be a red flag or a trigger that possible identity theft has occurred,” Hayes said.

The rules do not require creditors and financial institutions provide all red flags included in the guidance, but such entities are required to consider the guidance and include those red flags in their program as appropriate.

Examples of Suspicious Activity
If an account holder requests a new bank card, attempts to take out a lot of cash advances or requests a new authorized user shortly after an address change, it might be an indication that someone intends to commit fraud or identity theft. In that scenario, the financial institution that extended the credit should have steps in place to verify the information with the customer.

In addition, it might be a red flag if a consumer cannot provide information about him or herself beyond a driver's license, such as a mother's maiden name or what high school he or she attended.

Detecting and Responding to Red Flags
The guidance suggests red flags can be detected in at least one of two ways:

1. By obtaining identifying information about a person opening an account.
2. By verifying the validity of any changes made to the account.

The way in which a creditor or financial institution responds to a red flag alert or notification should correspond to the type of threat it detected. First and foremost, the entity should determine whether the red flag that was discovered poses a risk of identity theft and, if so, it should respond based on the degree of risk associated with the red flag. Responses could include:

• Monitoring an account for evidence of identity theft.
• Contacting the customer.
• Changing any passwords, security codes or other security devices that permit access to a covered account.
• Reopening an account with a new account number.
• Notifying law enforcement.

Ensure Program is Periodically Updated
According to Hayes, the guidelines don't specify how often an identity theft prevention program should be updated, but it should be done periodically. An organization should review its previous experience with identity theft and methods of mitigating the risk of identity theft to determine the extent of the program.

Although there is no private cause of action for not having an identity theft prevention program in place, Hayes said financial institutions could be subject to fees imposed by the FTC for not implementing a program.

Narita said the Red Flag Rules make sense for business entities handling personal identifying information.

“Most of what the regulations are requiring you to do is probably already covered by portions of the FCRA,” he said. “So you already have an obligation to keep your customers' data secure.”

Properly training staff members who handle account information about your individual identity theft prevention program will help prevent identity theft and ensure the program works effectively.

“You need to make sure they aren't inadvertently giving out information that could result in identity theft,” Narita said.

ACH Volume Increases 4.5 Percent
Automated Clearing House statistics reflect increase to more than 3.8 billion transactions in the fourth quarter of 2008..

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The National Automated Clearing House Association (NACHA) has released the 2008 fourth quarter Automated Clearing House (ACH) statistics, which continue to show an increase in the number of transactions taking place via the network over last year. The ACH Network processed a total of 3,803,612,900 transactions in the fourth quarter of 2008 worth more than $7.3 trillion. This is a 4.47 percent increase from the fourth quarter of 2007 and a 2.48 percent increase from the third quarter of 2008.

Of these 3.8 billion transactions, 1,457,431,084 transactions were represented by the six eCheck Standard Entry Class Codes of ARC, BOC, POP, RCK, TEL and WEB. The eCheck transactions represented 38.32 percent of all transactions.

The greatest increase in eCheck services over the past year occurred with BOC (Back Office Conversion) transactions, which experienced an increase of 1,177.50 percent from the fourth quarter of 2007, reaching 39,381,205 transactions. This is a 49.21 percent increase from the third quarter 2008. BOC allows retailers and billers that accept checks at the point-of-sale or at manned bill payment locations to convert eligible checks to ACH debits in the back-office.

WEB transactions experienced the second highest increase during the past year with a total of 552,087,493 transactions in the fourth quarter of 2008. This is a 16.45 percent increase from the fourth quarter 2007, and a 5.58 percent increase from the third quarter 2008. A WEB transaction is a debit entry initiated pursuant to an authorization that is obtained from the consumer via the Internet to effect a transfer of funds from the consumer's account.

During the fourth quarter of 2008, ARC transactions totaled 653,155,176, which is a 5.24 percent decrease from the fourth quarter 2007. This is a 0.10 percent increase from the third quarter 2008. An ARC transaction is a single entry debit initiated by an Originator to a consumer's account pursuant to a specified source document. The source document is provided to the Originator by the consumer via the United States mail or at a dropbox location. The Originator is the party originating the transaction, such as a merchant, collector, utility company, etc.

POP experienced a decrease of 7.91 percent from the fourth quarter of 2007, totaling 123,579,513 transactions. This is a 5.15 percent increase from the third quarter 2008. A POP transaction is a debit entry initiated by an Originator pursuant to a single entry authorization and a specified source document. The source document for a POP transaction is provided by the consumer at the point-of-purchase in order to effect a transfer of funds from the consumer's account.

During the fourth quarter, TEL transactions totaled 85,384,869 in volume, which is a 2.46 percent decrease from last year at this time. A TEL transaction is a single entry debit which is initiated pursuant to an oral authorization obtained over the telephone to effect a one-time transfer of funds from the consumer's account. TEL transactions experienced a 0.97 percent decrease from the third quarter of 2008.

Finally, RCK transactions decreased 18.88 percent from the fourth quarter of 2007. There were 3,842,828 RCK transactions in the fourth quarter of 2008, which is a 2.85 percent decrease from the third quarter of 2008. An RCK transaction is a debit entry which is made when a negotiable instrument or other eligible item is dishonored and is subsequently electronically presented through the ACH Network.