S. Dean Slough

Text (OCR of the scan at left; may contain errors)

IN THE MATTER OF S. DEAN SLOUGH TRADING AS STATE CREDIT CONTROL BOARD ORDER, OPINION , ETC. , IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION A.T Docket 8661. Complaint, June 16, 1965-Decision, Nov. , 1966 Order requiring a Quincy, Ill., seller of debt collection forms to cease using forms which imply an offcial government connection, that the sender of the forms is a third party collector, and that delinquent accounts are turned over to a State agency for collection. COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act, and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that S. Dean Slough, an individual, trading and doing business as State Credit Control Board, hereinafter referred to as the respondent, has violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as foHows:

PARAGRAPH 1. Respondent S. Dean Slough is an individual trading and doing business as State Credit Control Board. His address is 1302 Royal Road, Quincy, Ilinois.

PAR. 2. Respondent is now, and for some time last past has been, engaged in the advertising, offering for sale, sale and distribution of collection forms to dealers for resale to businessmen and to businessmen directly. Respondent is also engaged in the operation of a remailing service with respect to such forms. PAR. 3. In the course and conduct of his aforesaid business, re- , STATE CREDIT CONTROL BOARD 1319 1318 Complaint spondent now causes, and for some time last past has caused, his said forms, when sold, to be shipped from his place of business in the State of Ilinois to purchasers thereof located in various other States of the United States, and maintains, and at all times mentioned herein has maintained, a substantial course of trade in said products in commerce, as "commerce" is defined in the Federal Trade Commission Act.

PAR. 4. Respondent's forms are designed and intended to be used, and are used, by businessmen and others to whom they are sold for the purpose of inducing the payment of alleged delinquent accounts, with the aid and assistance of the respondent as hereinafter set forth.

Respondent' s forms are of two types: (1) those which are designed to accompany a statement of account made by the creditor under his own name; and (2) those which are designed to be inserted in envelopes provided by the respondent, which envelopes show a return address in the capital city of one of the States of the United States.

Among the forms of the first type is one which contains the following statement: "Unless we hear from you within Ten Days with payment, we shall turn your account in for collection to STATE CREDIT CONTROL BOARD.

Ali of the forms of the second type bear the letterhead of State Credit Control Board" together with a post offce box number in the capital city of one of the States of the United States. A user of this type of form fills in. the appropriate data in the spaces provided, including the name and address of the alleged debtor or other addressee, together with the amount of the alleged indebtedness, and sends the completed form to respondent' agent in the capital city of the appropriate State. Respondent' agent then mails the form from that location. Among and ilustrative of respondent's forms, although not all inclusive thereof, are the following:

CREDIT PROTECTION Referred to file of County Agent An Independent Collection Service (Encircling a seal of JusticeJ County of STATE CREDIT CONTROL BOARD O. Box 1626 - Springfield, Illinois 62700 Creditor FOR COUNTY AGENT USE ONLY Address IF APPLICABLE Date Serving Writ Writ Returnable Complaint 70 F.

Date of Judgment Amount Claimed Name of Court Judge Collection Charges Date Sheriff's Notice -- Date You have been notified that the above claim has been handed to us for immediate attention by the above named creditor. This claim is a legal and just obligation and we have guaranteed to collect or he wil prosecute.

We are withholding" action in this matter for ten days, giving you ample time to communicate with your creditor.

If you fail to get in touch with your creditor within the time limit, it wil be evident that this claim is not only a just one, but that you aye attempting to avoid payment of a legal obligation.

He shall then order legal proceedings brought against you involving judgment, levy or garnishment forthwith.

Very truly yours, /s/ E. Dean Slough E. Dean Slough District Director CORRESPONDING ATTORNEYS THROUGHOUT THE UNITED STATES CREDIT PROTECTION Referred t.o file of County Agent An Independent Collection Service (Encircling a seal of Justice) County of STATE CREDIT CONTROL BOARD O. Box 1626 - Springfield, Ilinois 62700 Notice to Employer 19- To.

Gentlemen:

It may become necessary to Garnishee YOur Employee, M - - - - - - - - - - - - - - - Said party is indebted Should he be compelled to Garnishee said Employee, it wil be compulsory toto make you a party to the suit. However, we desire to save you all unnecessary trouble, annoyance and expense of such proceedings and therefore trust you wiJ bring influence to bear, causing said Employee to adjust said claim at once, direct with the Creditor.

We assure you the Creditor wil be fair and accept reasonable payments, within the Debtor s means.

We hope that sujt will not be necessary. However, if he is compelled to Garnishee said Employee, a complete disclosure may be demanded, compellng you to bring all books, records and vouchers into court for examination and evidence.

$ BOARD 1321 STA TE CREDIT CONTROL 1318 Complaint This notice is sent you as a courtesy. Vole desire to protect your interests and trust our action wi1 be appreciated. All communications in this matter should be addressed direct to Creditor. Yours Truly;

STATE CREDIT CONTROL BOARD Certified Statement of Account I hereby certify that I have examined the record in the matter of the above mentioned claim, and have found the account to be true and correct to the best of my knowledge and belief.

Creditor Address 196_ Amt Date- FINAL NOTICE BEFORE ENTERING SUIT Creditor Name Address Debtor TO THE ABOVE NAMED DEBTOR, FIRST: Take notice that the above namen c?'ediiO'' cla ims that you are indebted to him in the sum of SECOND: Although duly demanded, the snme has not been paid. THIRD: Now therefm' , unless yon remit on or before the day of - 19- - for payment of said claim, or make provision for adjustment thereof, suit may be brought for the total amount U.iith iutercst together with the costs and disbnrsements of the action.

This demand is made acconling to law for the pm.pose of aying a foundation for legal action if not paid before the a.bove date. day ofDa,ted this CERTIFIED STATEMENT OF ACCOUNT The above creditor hereby certifies that he has examined the matter in the above mentioned claim and has found the account to be true and cor1.ect to the best of his knowledge and belief. Cnditor CRBDlT PROTECTION An Independent Collcction Service MAKE PA YlIEc-TS DIRECT (Encircling a seal of JusticeJ TO CREDITOR STATE CREDIT CONTROL BOARD County Agent O. Box 1626, Springfield, Ill. 62700 County of Complaint 70 F.

PAR. 5. By and through the use of the aforesaid statements and representations, and others of similar import but not specifically set forth herein, the respondent represents, and places in the hands of others the means and instrumentalities by and through which they may represent, directly or by implication, that: (a) A request for payment or other request regarding an allegedly delinquent account is being made by an agency of state government.

(b) A request for payment or other request regarding an allegedly delinquent account originates with a party other than the creditor.

(c) An allegedly delinquent account has been or is about to be referred to "State Credit Control Board" for collection. (d) Legal action with respect to an allegedly delinquent account has been or is about to be initiated. PAR. 6. In truth and in fact:

(a) The request for payment or other request regarding an allegedly delinquent account is not being made by an agency of state, federal or local government.

(b) The request for payment or other request regarding an allegedly delinquent account originates with the creditor. (c) The allegedly delinquent account has not been, nor is it about to be referred to "State Credit Control Board" for collection.

(d) Legal action with respect to the allegedly delinquent account has not been, nor in many cases is it about to be, initiated. Therefore, the statements and representations referred to in Paragraphs Four and Five hereof were and are false, misleading and deceptive.

PAR. 7. The use by respondent of the aforesaid false, misleading and deceptive statements and representations has had, and now has, the capacity and tendency to mislead members of the public into the erroneous and mistaken belief that said statements and representations were and are true and into the payment of substantial sums of money by reason of said erroneous and mistaken belief.

PAR. 8. The aforesaid acts and practices of the respondent, as herein alleged, were and are all to the prejudice and injury of the public and constituted, and now constitute, unfair and deceptive acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act.

Mr. David J. Eden supporting the complaint. Mr. Fredric T. Suss, Wash. , D.C" for respondent. STA TE CREDIT CONTROL BOARD 1323 1318 Initial Decision INITIAL DECISION BY JOSEPH W. KAUFMAN, HEARING EXAMINER JANUARY 19 , 1966 The complaint herein alleges false representations in violation of Section 5 of the Federal Trade Commission Act. The alleged misrepresentations are contained in printed forms, prepared and sold by the respondent for the purpose of assisting creditors in the collection of debts. The forms, after beil)g filled out by the creditors, are, most of them, then sent to respondent, who mails them to the debtors as coming from State Credit Control Board his trade name.

Misrepresentation is predicated largely on the theory of placing in the hands of creditors, who are the direct or ultimate purchasers of the forms, the means and instrumentalities whereby the alleged misrepresentations may be made by them to the debtors.

The complaint contains no charge of unfair competition. SUMMARY Except for three preliminary small "sJip " forms, each mailed out by the creditor directly, attached to a bil or statement, the forms with which this case is concerned are captioned or subscribed by STATE CREDIT CONTROL BOARD, respondent's trade name as aforestated. Moreover, when such a form is mailed to a debtor by respondent, acting in behalf of the creditor, it is mailed out in an envelope apparently carrying the State Credit Control Board name, and carrying a box number address in the capital city of the particular State in which the debtor is located, from which capital city it is mailed by respondent. Each of the forms (except the preliminary "sJip" forms) carefully and prominently instructs the debtor to deal only with the creditor directly and to make a1l payments to the creditor. Thus although the forms purport to come from State Credit Control Board, al1 dealings or col1sections are designed to be strictly between the debtor and his creditor, who actual1ly initiates the sending out of the form to the debtor, as already stated. It is admitted and conceded that the accounts are not sent to the respondent for collection, even though respondent's trade name is used to attempt to obtain collection, and even though at least one of the preliminary slip forms expressly states that the account is to be sent to State Credit Control Board for collection. Initial Decision 70 F.

As to respondent' s use of the name State Credit Control Board it may be said at once that the charge that this is a representa tion that a state agency is involved hardly presents a question of great diffculty. The present decision holds that alleged qualifying words (printed upside down beneath a symbol of Justice) do not. cure the misrepresentation. Respondent' s defense of discontinuance (and lack of likelihood of resumption), which is limited to this representation, is disallowed by the decision herein. The claim, in large part, is that respondent now uses the name State Credit Control Service, having changed his first name to Statewhich actually seems to disclose a stubborn intent to continue misrepresentation.

As to the allegation in the complaint that there is misrepresentation because the creditor represents, by the forms, or is enabled to represent, that the account has been sent in for collection there is likewise little diffculty. For one thing, as already indicated, one of the three preliminary "slip" forms (to wit, the final one) used under this system states that the account has been sent in for collection to State Credit Control Board-although, concededly, it has not been sent in for collection. Accordingly, the decision holds that there is a misrepresentation that the account has been sent to respondent, or to State Credit Control Board, for collection. The cease and desist order expressly forbids this practice entirely apart from the use of the name State Credit Control Board.

As to the allegation that, by additional wording in the forms the creditor misrepresents that a legal action is about to be started if payment is not made, there is a measure of diffculty. This is so, perhaps, because of the question of how respondent, a seller of forms, can know what a particular creditor, at the time of using the forms, has in mind about possible legal action. However, after due deliberation, the issue has been resolved by the consideration that the forms comprise a system which has as its very purpose the elimination of the necessity of immediate legal action (or referral to a collection agency) while the forms are in use by a creditor, and that the forms by their very welding, and the instructions which go with them, are eminently fitted for this purpose. Complaint counsel, however, adduced actual proof by testimony from a random sample of users of the forms that many of the creditors, indeed, as alleged in the complaint, were not about to commence legal action. The decision herein holds that misrepresentation has been proved, particularly considering the STATE CREDIT CONTROL BOARD 1325 1318 Initial Decision purpose and wording of the forms as a system cleverly designed to obviate immediate legal action although threatening it. The cease and desist order has a suitable provision as to this. Insofar as the complaint alleges that there is misrepresentation because the creditor also represents by the form that the request for payments "originates" with a party other than the creditor rather than with the creditor, there is also diffculty. First, the respondent, as State Credit Control Board, may be said to originate the request as co-originator with the creditor; the respondent performs actual services in this connection, apart from supplying the forms. Second, the gravamen of the alleged misrepresentation as to origin of the request for payment is realistically that the request comes from a State agency or a collection agency (private or public), not that it comes from a third "party merely assisting in collections by the creditor directly. Third even the rather recent Guides Against Debt Collection Deception, issued by the Commission, do not disapprove, in its examples, of a creditor s use of an independent agency or organization merely to make demands that the debtor pay the creditor. Respondent adduced some testimony herein that this may be a legitimate and desirable service, particularly for small business concerns unable to afford to hire collection agencies or attorneys for small accounts. For one thing, debtors who wil pay no attention to a letter or inquiry from the creditor himself are apt at least to read what is sent by a third party.

Complaint counsel seems to recognize some merit to this contention by allowing the use of third party authority as a defense in his proposed cease and desist order, although under quite impossible conditions. The decision herein holds that this alleged misrepresentation in respect to a generalized third party authority has not been proved, considering the pleadings, the proof generally, and perhaps the issue of public interest. It further holds that, in any event, this alleged misrepresentation does not, on this record and under all.the circumstances, warrant the issuance of a separate prohibition in the cease and desist order issued herein. Respondent also urges that there is no showing of suffcient public interest or suffcient injury to the public to support sanctions which in effect prevent local small business concerns from making some of the representations restrained herein, more particularly, that they have retained or about to retain collection agencies, or arc about to retain attorneys for collection purposes although such may not be precisely the fact. Respondent has also Initial Decision 70 F.

produced evidence that the States in which he operates, or counsel retained by him in each State, have not questioned the forms in connection with these particular representations. Respondent argues that, on balance, these representations are a desirable weapon against "deadbeats." The decision herein does not sustain respondent' s contention or defense, which seems to be directed more at the Commission itself than the hearing examiner. In concluding this ,Summary it may be pointed out that this case, for all practical purposes, is pretty well one of first impression. In general, prior cases have been directed against interstate creditors who did not purchase forms, and, with one inconclusive exception, the cases went no further than consent orders. There is also one case against an interstate seller of forms, but the case also terminated in a consent orrler.

All these cases are an aftermath, so to speak, of the "skip tracing" cases initiated by the Commission, which established, after litigation and appeal, the Commission s power to restrain misrepresentation, in interstate commerce, designed to obtain the addresses of elusive debtors. Complaint counsel also relies on the lottery-device" cases.

FINDINGS OF FACT The following are the findings of fact herein. -\11 proposed findings of fact not incorporated therein, or not treated as facts elsewhere in this decision, are disallowed.

1. Respondent S. Dean Slough is an individual trading and doing business as State Crerlit Control Board. His address is 1302 Royal Road, Quincy, Ilinois. (Admitted by answer. 2. Respondent is now, and for some time last past has been, engaged in the advertising, offering for sale, sale and distribution of collection forms-to dealers for resale to businessmen, and to businessmen directly. Respondent is also engaged in the operation of a remailing service with respect to such forms. (Admitted by answer.

The so-called "remailing" service is a mailing service whereby, upon receipt of the forms, properly filled out, from the businessmen-creditors, respondent mails them to the debtors as coming from State Credit Control Board, respondent's trade name. (Not disputed. ) 3. In the course and conduct of his aforesaid business, respondent now causes, and for some time last past has caused, his said forms, when sold, to be shipped from his place of business STA TE CREDIT CONTROL BOARD 1327 I3IS Initial Decision in the State of Ilinois to purchasers thereof located in various other States of the United States, and maintains, and at al1 times mentioned herein has maintained, a substantial course of trade in said products in commerce, as "commerce" is defined in the Federal Trade Commission Act. (Admitted by answer, as amended by order dated October 1, 1965.

4. Respondent's forms are designed and intended to be used and are used, by businessmen and others to whom they are sold for the purpose of inducing the payment of allegedly delinquent accounts, with the aid and assistance of the respondent as hereinafter set forth. (Admitted by answer.

Respondent' s forms are of two types: (1) those which are designed to accompany a statement of account made by the creditor under his own name; and (2) those which are designed to be inserted in envelopes provided by the respondents, which envelopes show a return address in the capital city of one of the States of the United States. (Admitted by answer.

Among the forms of the first type is one which contains the following statement:

Unless we hear from you within Ten Days with payment, we shall turn your account in for collection STATE CREDIT CONTROL BOARD (Admitted by answer.

Al1 of the forms of the second type bear the letterhead of State Credit Control Board " together with a post offce box number in the capital city of one of the States of the United States. A user of this type of form fills in the appropriate data in the spaces provided, including the name and address of the alleged debtor or other addressee, together with the amount of the alleged indebtedness, and sends the completed form to respondent' s agent in the capital city of the appropriate State. Respondent' s agent then mails the form from that location. (Admitted by answer.

The following findings are also appropriate at this point and are not deemed to be in dispute:

Forms of the first type referred to above are small colored slips ordinarily attached to a bil or statement of account of the creditor and mailed out by the creditor himself in his own envelope. The last and third of this series reads as quoted above, to wit that the account wiIJ be turned over for collection to STATE CREDIT CONTROL BOARD. Forms of the second type (designed to be mailed out by respondent or respondent's agent from the capital of the 1328 FEDERAL TRADE COMMISSIO:- DECISIONS Initial Decision 70 F. T. state in which the debtor is located) are the principal subject matter of the present litigation. They are formal-looking documents, printed on heavy, glossy paper, prominently displaying the name STATE CREDIT CONTROL BOARD. As already indicated, these forms, after being filled out by the creditor, are forwarded to respondent by the creditor and maned by the respondent or his agent to the debtor. The forms are each distinguished by a cut or likeness of Justice, by the use of the capital name of the State in which the debtor is located, and by the use of titles like "County Agent" and "District Director.

Although all of these forms (of the second type) purport to come to the debtor from STATE CREDIT CONTROL BOARD, they an can upon the debtor to deal directly with the creditor and to make payments directly to the creditor.

These forms (and also the preliminary "slip" forms, of the first type) are part of a comprehensive system designed to enable the creditor to collect debts owing to him directly. The forms, starting with the preliminary "slip" forms of the first type, and particularly the more formal forms of the second type, are designed to be used by the creditor consecutively on a more or less fixed time schedule. (See printed Instructions, inside front cover, CX J and 5 ; also see RX B.) The first three forms, of the second type, are demands for payment, containing, directly and indirectly, threats of legal action. There is a fourth form with much the same threats, although its use is indicated to be optional. There are three other forms-a notice to Employer, a Past Due Notice, and, finally, a very form inable-Iooking one entitled Final Notice Before Enter1'ing Suit. The fonowing are copies of an seven forms, of the second type. (Authenticity thereof is admitted by answer or established by testimony of the respondent in connection with the introduction into evidence of CX 1 , and 18. CREDIT PROTECTION An Independent Collection Service (Encircling a seal of Justice) Referred to file of County Agent County of STATE CREDIT COXTROL BOARD O. Box 186 - Indianapolis, Indiana 46206 Creditor Address STATE CREDIT CONTROL BOARD 1329 1318 Initial Decision Amount Claimed Collection Charges FOR COUNTY AGENT USE ONLY IF APPLICABLE Date Serving Writ Writ Returnable Date of .Judgment Name of Court Judge Date Sheriff's Notice - Date - Our Representative is making a preliminary examination of the delinquent accounts for the above named creditor previous to considering the taking of legal action to effect settlement on delinquent claims. An unpaid account in the above amount, which our client says is just and legally due appears against you.

As this may be an oversight on your part, we are mailing this notice ten days in advance of any proceedings, so that you may have an opportunity to make settlement with your creditor before costs are added. This account must be paid or satisfactory arrangements for paym-ent must be made with your creditor immediately.

Very truly yours /s/ E. Dean Slough E. Dean Slough District Director CORRESPONDING ATTORNEYS THROUGHOUT THE VNITED STATES CREDIT PROTECTION An Independent Collection Service (Encircling a seal of Justice) Referred to file of County Agent County of STATE CREDIT CONTROL BOARD O. Box 186 - Indianapolis, Indiana 46206 Creditor Address Amount Claimed Collection Charges FOR COVNTY AGENT USE ONLY IF APPLICABLE Date Serving Writ Writ Returnable Date of Judgment Initial Decision 70 F.

Name of Court Judge Date Sheriff' s Notice Date You have been notified that the above claim has been handed to us for immediate attention by the above named creditor. This claim is a legal and just obligation and we have guaranteed to collect or he wil prosecute.

We are withholding action in this matter for ten days, giving you ample time to communicate with your creditor.

If you fail to get in touch with your creditor within the time Emit, it wil be evident that this claim is not only a just one, but that you are attempting to avoid payment of a legal obligation.

He shall then order legal proceedings brought against you involving judgment levy or garnishment forthwith.

V cry truly yours /s/ E. Dean Slough E. Dean Slough District Director CORRESPO G ATTORNEYS THROUGHOUT THE UNITED STATES CREDIT PROTECTION An Independent Collection Service (Encircling a seal of Justice) Referred to file of County Agent County of STATE CREDIT CONTROL BOARD O. Box 186 - Indianapolis, Indiana 46206 Creditor Address Amount Claimed Collection Charges FOR COUNTY AGENT USE ONLY IF APPLICABLE Date Serving Writ Writ Returnable Date of Judgment Name of Court Judge Date Sheriff's Notice Date You have been requested on several occasions to adjust this matter with your creditor or they would take such remedy as the law permits. If there is any legitimate reason for your not paying this legal obligation or you find that there should be some adjustment, now is the time you should assert it.

You are aware that court action is expensive, not only in money but time lost. STATE CREDIT CONTROL BOARD 1331 1318 Initial Decision To avoid additional cost of expensive litigation, you would do well to communicate with your creditor at once, otherwise he shall advise immediate suit involving the taking of judgment, levy and garnishment proceedings. Very truly yours, /s/ E. Dean Slough E. Dean Slough District Director CORRESPONDING ATTORNEYS THROUGHOUT THE UNITED STATES CREDIT PROTECTION An Independent Collection Service (Encircling a seal of Justice) Referred to file of County Agent County of STATE CREDIT CONTROL BOARD O. Box 186 - Indianapolis, Indiana 46206 Creditor Address Date Amount Due Collection Charges You were recently notified that an unpaid account for the above named creditor had been handed to us for immediate attention. At that time \ve requested that you communicate with your creditor and make arrangements to settle€ this account.

We are withholding any further action for ten days to give you every opportunity to pay your creditor.

We hope that it wil not become necessary to pursue this matter to the point where we may request the cooperation of your employer. This account must be paid 01' satisfactory arrangements made with your creditor immediately.

Very truly yours /s/ E. Dean Slough E. Dean Skugh District Director CORRESPONDING ATTORNEYS THROUGHOUT THE UNITED STATES CREDIT PROTECTION An Independent Collection Service (Encirc1ing a seal of Justice) Referred to fhe of County Agent County of - STATE CREDIT CONTROL BOARD O. Box 186 - Indianapolis, Indiana 46206 Notice to Employer .

Initial Decisjon 70 F.

19.

To- Gentlemen:

It may become necessary to Garnishee your Employee, M - - - - - - - - - Said party is indebted to - - - - - - - of Should he be compelled to Garnishee said Employee, it will be compulsory to make you a party to the suit. However, We desire to save you all unnecessary trouble, annoyance and expense of such proceedings and therefore trust you wil bring influence to bear, causing said Employee to adjust said claim at once, direct whh the Creditor.

We assure you the Creditor wi1 be fair and accept reasonable payments within the Debtor s means.

We hope that suit wi1 not be necessary. However, if he is compelled to Garnishee said Employee, a complete disclosure may be demanded, compelling you to bring all books, records and" vouchers into court for examination and evidence.

This notice is sent you as a courtesy. We desire to protect your interests and trust our action will be appreciated. All communications in this matter should be addressed direct to Creditor. Yours Truly, STATE CREDIT CONTROL BOARD Certified Statement of Account I hereby certify that I have examined the record in the matter of the above mentioned claim, and have found the account to be true and correct to the best of my knowledge and belief.

Creditor Address- Date 196- Amt PAST DUE NOTICE CREDIT PROTECTION An Independent Collection Service (Encircling a seal of JusticeJ STATE CREDIT CONTROL BOARD O. Box 186 - Indianapolis, Indiana 46206 Corresporiding Attorneys and Professional Collectors Throughout the United States Balance due $ THE PROMISED PAYMENT ON YOUR ACCOUNT WITH CREDITOR - ADDRESS IS DL'E IN THEIR OFFICE $ STATE CREDIT CONTROL BOARD 1333 1318 Initial Decision If we are to cooperate with you in permitting this account to be paid in installments-payments must be made to your creditor promptly as promised. There is no need to write a letter. Just place your remittance and THIS NOTICE in an envelope and mail to YOUR CREDITOR 'TODAY. This matter is entirely in our hands now and it is very necessary that all your payments be made DIRECT TO YOUR CREDITOR. STATE CREDIT CO!\TROL BOARD E. Dean Slough District Director FINAL NOTICE BEFORE ENTERING SUIT Creditor Name Address Debtor TO THE ABOVE NAMED DEBTOR:

FIRST: Take notice that the a.bove named creditor clahns that you are indebted to him in the sum of SECOND: A lthough duly demanded, the same has not been paid. THIRD: NOll) thm"efore, u,nless you remit to on or before the day of 19 -- for payment of said claim, or make provision for ad.iustm.ent thereof, suit may be brought for th total amount with interest together with the costs and disbw' s(:ments of the action.

Th1 s demand is made (Lcom-ding to law for the purpose of laying a foundation for legal action 1f not paid before the above date. day of -Da,ted this CERTIFIED STATEMENT OF ACCOU!\T The above creditor hereby certifii3s that he has examined the matter in the above mentioned claim and hus found the account to be true and correct to the best of his knowledge and belief. CREDIT PROTECTION An Independent Collection Service (Encircling a seal of Justice) STATE CREDIT CONTROL BOARD P- O. Box 186, Indianapolis, Ind.

46206 Creditor MAKE PAYMENTS DIRECT TO CREDITOR County Agent County of 5. By and through the use of the aforesaid statements and representations, and others of similar import but not speciiicaiiy set forth herein, respondent represents and places in the hands of Initial Decision 70 F.

others the means and instrumentalities by and through which they may, directly or by implication, make the following representations designated (a), (b), (c), and (d): (a) A request for p';yment or other request regarding an allegealy delinquent account is being made by an agency of state government, to wit, State Credit Control Board. This finding is the same as complaint counsel's proposed finding, except for the additional words "to wit, State Credit Control Board, There cannot be the slightest doubt that the use of the name State Credit Control Board is a representation that the request is being made by an agency of state government, and that a substantial segment of debtors would so regard it. This misrepresentation is enhanced by the use of a figure representing Justice, and of such titles as " County Agent" and "District Director. This is so, even though, in the examiner s opinion, a substantial segment of debtors, including sophisticated "deadbeats, " would, particularly in view of the coJJection language in the last preliminary form, regard the request as being made by a private coJJection agency. (See Finding 5 (c) immediately below. The representation that the request is being made by an agency of state government is not cured by the words " An Independent CoJJection Service " considering that they are printed upside down as weJJ as backwards (from right to left), in small print underneath the figure of ,Justice. It is also significant that respondent does not use the word "private" but confines himself to "independent " a word commonly used in connection with public bodies referred to as j'independent agencies. (b) A request for payment or other request regarding an allegedly delinquent account originates with a party other than the creditor, more particularly State Credit Control Board. This finding is the same as complaint counsel's proposed finding except for the addition of the words "more particularly State Credit Control Board.

However, in the examiner s opinion, a fuJJer finding on the representation as to who originates the request would include the credito,' himself as also o,.igi1W ing the request. The three preliminary "slip" forms contain direct requests from the creditor. The subsequent forms purporting to come from State Credit Control Board refer directly and indirectly to the requests for payment as coming from the creditor. N either the examiner nor the respondent can be bound by any STATE CREDIT CONTROL BOARD 1335 1318 Initial Decision one meaning, particularly a restricted one, of the indefinite word originates" used in the complaint.

(c) An allegedly delinquent account has been or is about to be referred to State Credit Control Board for collection, to wit, as a state agency or as a private collection agency. This finding is as proposed by complaint counsel except for the addition of the wording "to wit, as a state agency or as a private. collection agency, " to carry out the examiner s finding, indicated under (a), of alternative representations. The finding proper is clearly supported by the preliminary slip form expressly stating that the creditor wil "turn your account in for collection to STATE CREDIT CONTROL BOARD" (our emphasis) ; and by the direct 01' indirect meaning of wording in the subsequent forms (i. e., second type), threatening suit, (d) Legal action with respect to an allegedly delinquent account is about to be initiated.

The forms (other than the preliminary slip forms) clearly threaten legal action, directly and by direct implication (boxed material in upper right). Respondent does not really contest that this is the representation, but defends and tries to justify it (Reply Brief, p. 2) .

However, the finding omits complaint counsel's proposal that the representation also is that the delinquent account has bee?! initiated. The forms so cleady indicate prospective legal action by Jaw suit that it is unreasonably strained to construe them to represent an already initiated legal action by representing that there is a proceeding before a state body, State Credit Control Board or that there is any other kind of already initiated legal action. 6. The true facts are set forth in the following paragraphs designated (a), (b), (c). and (d):

(a) The request for payment or other request regarding an allegedly delinquent account is not made by an agency of state, federal, or local government. (Admitted in answer, as amended. This finding is the same as complaint counsel's proposed finding.

(b) The request for payment or other request regarding an allegedly delinquent account originates with the creditor. (Admitted in answer, as amended. ) However, the request also originates with respondent' s State Credit Control Board. The first sentence of this finding is the same as complaint counsel' s proposed finding. The second sentence, that respondent' Initial Decision 70 F.

State Credit Control Board also originates the request, is clearly supported by the evidence and circumstances herein. Respondent, as State Credit Control Board, originates the system and particularly the forms containing the requests for payments, although the forms (second type) are to be filled out by the creditors so as to apply to the particular debtors in each instance. Moreover, as part of the system, respondent, as State Credit Control Board, also undertakes, once the forms are filled out by the creditors, to mail them to the debtors as coming from respondent.

More importantly, respondent, as State Credit Control Board actually does perform the service of mailing out the forms to the debtors, and has a fairly large personnel, spread throughout the States in which he operates, to handle this service. (See TR 672. It is the respondent, of course, who has made the contention that he, as State Credit Control Board, also originates the request. The examiner definitely agrees. Respondent originates it together with the creditor. The request, moreover, coming from respondent, has third party authority, unlike one coming from the creditor alone, and thus can fully originate only after respondent mails the form from its chosen offce in the debtor s State. The supplying of true third party authority is, incidentally, as the examiner views it, prima facie lawful provided that, for one thing, no deceptive trade name or other deception is used. There is credible testimony herein that many debtors who will pay no attention to further letters from their creditors directly wil pay attention to third party communications, although co-originating with their creditors (TR 656, 7).

Finally, it seems clear that certainly the respondent should not be bound or shackled by a bare admission of the allegation of the complaint that the creditor "originates " the request, when a reasonable construction of the word permits the admission to be consistent with origination by State Credit Control Board as well. Accordingly, the representation found in 5 (b), supra, of these Findings, and alleged to be a misrepresentation in FIVE (b) the complaint, is found by the examiner to be true, rather than false.

(c) The allegedly delinquent account has not been, nor is it about to be, referred to "State Credit Control Board" for collection. (Admitted in answer, as amended. J This is so whether State Credit Control Board is represented as being a state agency, a collection agency, or acting in any other capacity. STA TE CREDIT CONTROL BOARD 1337 1318 Initial cision The first sentence of this find; ng is the same as complaint counsel' s proposed finding-. The seq;nd sentence simply carries out, as in 5 (c), the examiner s finding of alternative representations. This finding provides the foundation for the clause in the examiner s order herein, infra, forbidding representations that a delinquent account has been, or is about to be, referred for collection when such is not the fact. It should be noted that complaint counsel asks for no such specific ban but only for the general and broader ban against a representation of third party authority. (d) Legal action with respect to the allegedly delinquent f, count is in many cases not about to be initiated. This is the same as the proposal by complaint counsel except that it eliminates the proposal that legal action "has not been " initiated, which is irrelevant due to the examiner s not finding in 5 Cd) a representation that action "has been" initiated. As already found (Finding 4, latter part), both the preliminary slip" forms and the main forms are part of a comprehensive system designed to enable creditors themselves to collect directly debts owed to them. This, presumably, including respondent' mailing services, is why a book of detachable forms, with duplicates, has been able to sell for as much as $47. 50 and $57. 50. The design to enable creditors to collect without commencing action (or without retaining collection agencies, with or without the commencement of action through them) is suffciently disclosed by the comprehensiveness and substance of the printed Instructions on the inside front cover of the form books (CX 1 and 5). The design is also clearly disclosed by the very wording of the forms, except the preJjminary "slip" forms, referring to future legal action-right up to the Final notice Before Entering Suit. The design and purpose is further made clear by respondent' Guarantee (last page of the form books) that if the "purchaser shall have used thl:S enti,.e system in accordance with the printed instructions contained herein, and having fully complied with said instructions does not collect the sum of $350 the purchase price of $57.50 will he refunded to purchaser * * *" (CX 5, emphasis ours; see also CX 1) .

The design and purpose is admitted by the very claim of respondent and his counsel that respondent' s system is a necessary service for small business concerns unable to afford to retain attorneys or collection agencies for their small accounts. The design and purpose is further demonstrated by a description of the system by the respondent himself in the first para- Initial Decision 70 F.

graph of a letter to a law list publisher (RX B). Moreove1' , as now expressly found, on the basis of the examine/" s own Teading of these forms and of the Instructions, the f01'ms ate ideally and cleverly suited to the design and pU'jJose of enCtbling creditors to collect delinquent accounts dir-ctly on the threat of legal action although no such legal action is contemplated-at least, under the system, not until "the creditors shall have used this entire system in accordance with such instructions.

The design and purpose is so dear and the system with its forms so adequate to the design and purpose, that at the very least a presumption, or its equivalent, is created that legal action is not about to be initiated "in many cases " as alleged in the complaint, Six (d), and found herein 6 (d) proper (nor is the account about to be referred for collection, as also alleged, and found in 6 (c)).

Respondent has not overcome any such presumption. On the contrary, complaint counsel has proved by a satisfactory and concededly random sample of witnesses that in many cases action is not about to be initiated, and as a matter of fact is not initiated in most cases, certainly not by creditors using the "entire system " as contemplated, rather than dropping it in the middle, as some do, and then suing; nor is the account about to be referred for collection.

Complaint counsel caused to be selected at random, from respondent' s customers in Gary, Indiana, the names of 15 customers. It turned out that one customer was recently deceased and three had not yet used the forms.

Complaint counsel called the remaining 11 as witnesses. He has concisely summarized their testimony on pages 10 and 11 of his brief herein, with citations to the transcript of testimony. He states, immediately following the summary proper: An analysis of the foregoing testimony indicates that the questioned forms were used on a minim.um. of 230 accounts. No more than seven suits have actually been filed.

Respondent' s reply to this brief, and to accompanying proposed findings, does not challenge this detailed summary, or the statement just quoted, except as to an inconsequential matter referred to in the first paragraph of page 3 of the reply. Respondent' s counsel has, to be sure, as part of his proposed findings (pages 10-12) presented his own summary and discussion of various testimony in this connection. But what he presents STA TE CREDIT CONTROL BOARD 1339 1318 Initial Decision hardly impeaches complaint counsel's summary of the random samplings in any particular.

For one thing, he presents figures and general testimony, elicited mostly on cross-examination from a very few of these witnesses, in respect to accounts never sought to be collected by the forms, or elicited from a few witnesses of his own not included in this or any other sampling.

Moreover, he presents the fact that four or five of the witnesses in the sample referred some of their delinquent accounts to collection agencies authorized, or more 01' less authorized, to sue if necessary. But these accounts, also, were all, or substantially all, not sought to be collected by respondent's forms. As already found, the forms are expressly designed and worded for the collection of delinquent accounts without referral to attorneys or collection agencies while the forms are in use as a system. There may be, and of course are, accounts of a nature which a creditor prefers to send to a collection agency or an attorney, rather than use a system of forms at all In any event, as already fully indicated, the examiner, even without the sampling evidence, finds that legal action in many cases is not about to be initiated, and so finds on the wording of the forms and the Instructions, u1lebutted as they are by suffcient countervailing evidence.

Accordingly, the statements wnd representations ,' eferTed to in Findings cmd were amd are false, misleading, and deceptiveexcept as to those referred to in (b) thereof relating to origination "with cmy par.ty other than the true originator thereof." In respect to (b), it may be noted here, supplementing comments under 4(b) and 5(b), that even the Guides Against Debt Collection, issued by the Commission as late as June 30, 1965, actually after the issuance of the complaint herein on June 16 1965, contain no express example directed against the use of third party authority as such ill the collection of debts. Of course, if deceptive, such use still can be reached under general language of the Guides, or of the law and practice which they serve more or less to summarize or point up in the form of "practical aids " to businessmen.

However, obviously the gravamen of the violation is permitting creditors to hold out that a state agency or a collection agency, state or otherwise, is making the demand for payment-not any agency apart from a state or collection agency. The present case is a rather remote and meager one in facts for Initial Decision 70 F.

introducing an outright challenge into the case Jaw against third party authority without more. The fact that respondent is so clearly in violation as to representations of state or co1Jection agency authority should 110t lightly lead to what may we1J be a general ruling of law as to a representation of general third party authority. The matter may we1J be one for further Commission investigation and study of the co1Jection business. 7. The use by ?'respondent of the afo/'esaid false, misleading and deceptive statements and rn.'isreprese"fdations has had, and now hos, the copacity and tendency to mislead members of the public into the er1'oneo1.S ond mistaken belief that said statements we?' and are true and into the payment of substantial sn"'s of money by reason of said er1'neous (md mistaken belief. H oweve1' , to be su?' , there is no proof that any such payment of sums of money was for other than actual and lawful indebtedness. The first sentence of this finding is as proposed by complaint counsel; although, of course, it does not apply to representation (b)" in respect to general third party authority. The second sentence is added for clarity, so that there should be no misundcrstanding of the finding in the first sentence. 8. There is suffcient public interest to suppa?'t this l1?'oceeding and the bel010 order. Respondent' s conteidion. to the contrary, 01' lar' gely in ?'espect to representations of l11'oposed legal action collection referral, has no adequate support. The Commission, at least in its administrative capacity, has, as appears in the prefatory paragraph commencing the complaint herein, found that this proceeding "would be in the pubhc interest, Moreover, long prior to the issuance of the complaint herein the Commission in the "skip-tracing" cases laid down the rule approved on appeal, that misrepresentations to delinquent debtors, even for the co1Jection of lawful debts, are not to be condoned but should be restrained in the pubhc interest. There are also quite a few Commission cases involving misrepresentation as to proposed action by attorneys, co1Jection agencies, or the like-although, almost exclusively, directed against the creditors themselves and terminated by consent orders, not actual adjudication. Respondent strenuously contends that there is no public interest in imposing a sanction the result of which is to prevent purely intrastate sma1J business concerns from indulging in their Ameri- 1 As in Finding 6, the emphasis here and in 8 and \) is merely to set off the finding proper from discussion or explanation.

STATE CREDIT CONTROL BOARD 1341 1318 Initial Decision can "right" to threaten suit, or the like, in respect to a lawful debt. He adduced some testimony that form books or forms, similar to his, are of great help to small businessmen pursuing "deadbeats" (Reavis, TR. 371-373; White, TR. 456; Gawrysiak, TR. 259 274) .

Respondent also adduced a limited amount of evidence tending to show that none of the States in which he operates imposes such a sanction. This consists of his own testimony as to advisory opinions of a general nature from apparently reputable counsel in each State, and as to one or two State Attorney General rulings. The testimony is supported in a measure by some documentation. Respondent' s contention is that the public interest in seeing that the debtors pay their lawful debts outweighs the public interest in restraining the misrepresentation, particularly a misrepresentation as to, say, a present intent to sue, or a future likelihood of suing. This leads to the question, although perhaps one of policy, as to whether the Commission, with necessarily limited funds, is going somewhat afield in prosecuting violations of this kind rather than others of greater public interest or concern whether in the area of misrepresentation or perhaps under the antitrust laws tending to favor small business. However, in the examiner s opinion, past determination and pronouncement of the Commission, starting with the "skip-tracing" cases, is definitely opposed to respondent' s contention as to public interest. The Commission s recent Guides Against Debt Collection Deception by and large attest this; although, of course they are not a promulgation of law, but merely a compendium of practical aids" to businessmen, as already stated. If respondent is contending for a change or modification in the Commission s past declarations on public interest, or in its policy, in collection cases, he can address himself properly only to the Commission itself.

9. There ate no facts rrdequately supporting respondent' s defense (implied or other?' wise) of discontinuance Iwd unlikelihood , 110of resumption, nor his contention that, f01' equitable rcnSOl'S order should issue against hint.

Discontinuance is claimed only as to the use of the name State Credit Control Board and related words such as County Agent and District Director, as well as use of the figure representing ) us/ice.

Respondent' s counsel asserts (Proposed Findings, e!c., ;:. 18), apparently without precise supporting testimony, that "all new Initial Decision 70 F.

printings have and wil have the name "State s Credit Control Service." It is explained, and the evidence shows, that respondent has legally had his name changed from S. Dean Slough to State Dean Slough-a curious change indeed. Respondent, to be sure, has testified that "Board" in the name has been changed to "Service" in two states, Ilinois and Ohio (TR. 540, 547). It is counsel also who states in the same place (p. 18) that the seal has been changed from the figure of Justice to the figure of an armored knight. Respondent himself has testified that he has changed, or is changing, County Agent to Company Representative (Tr. 206) and District Director to Director (Tr. 198). In the examiner s opinion the changes, even as claimed, are of little avail to save respondent from a cease and desist order. The use of the name State s is a continnance rather than a discontinuance; and the changed first name of respondent, relied on to .i ustify this, is an absurdity rather than a .instification. Moreover, all the changes are too late. Indeed, even as claimed they are only in the process of being put into effect. They are changes made only after the Commission s hand is on a respondent's shoulder. Respondent' s alleged solicitude for abiding by the law is not demonstrated, at least as to federal law, by the showing made by him (TR. 590; 435, 585, 655) that he consnlted apparently reputable attorneys in each new State he was entering as to the lawfulness of his operations in each state. As far as the evidence shows only one opinion (RX T) from counsel touched on federal law, and then most perfunctorily, stating " statutes were consulted " and nothing found.

or can respondent validly claim that, after the Attorney General of the State of Ilinois directed him to add the words "An Independent Collection Service" underneath STATE CREDIT CONTROL BOARD in his advertising (CX 14), he voluntarny did the same on his forms. As already pointed out, what he actually did on his forms was to print the quoted words underneath the seal of Justice and print them upside down. Respondent also intimates that he has been unfairly singled out among a number of collection form sellers; and tries to intimate that he is one of the smaller collection form sellers, so that there is discrimination against the large form sellers. This is an attempt to come within the language of the opinion in Unive?'sal- Rundle Corp. v. F.T. C. (C. A. 7, October 27, 1965). Suffce to say respondent has adduced no facts in support of his intimations or STATE CREDIT CONTROL BOARD 1343 1318 Initial Decision contentions. His appears to be a substantial concern and, for al1 the record shows, may be a leader in its field. Moreover, the Commission has proceeded against another collection form seller, operating under a name and system much like his, and has obtained a consent order. Furthermore, there are the fairly numerous proceedings against creditors themselves for making misrepresentations similar to those made in his forms. CONCLUSION 1. The aforesaid acts and practices of respondent herein found to be misrepresentations or instrumentalities of misrepresentations- , al1 except those referred to in Finding 4 (b) and 5 (b), relating to third party authority generally-were and are to the prejudice and injury of the public; and they constituted and now constitute, unfair and deceptive acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act.

2. The Federal Trade Commission has jurisdiction herein. CASES The Commission has made clear that misrepresentation for the purpose of col1acting lawful debts stands on the same footing as misrepresentation in general. The fact that lawful debts are sought to be collected does not justify misrepresentation. The end does not justify the means, so to speak. This poiicy was made clear in the "skip-tracing" cases. These involved ef!'orts of creditors to obtain, directly or indirectly, the addresses of delinquent but elusive debtors by various tricks or artifices. It was held to be not in the public interest to permit such misrepresentation even for the purpose of col1acting lawful debts.

The following four are the leading "skip-tracing" cases, al1 of them vigorously contested and upheld on appeal. Al1 of them except one, directed against a creditor, are directed against the seller of forms (as in the case at bar) for use by creditors. The cases are: Silverman v. Fede,' al Trade Com-mission 145 F. 2d 751 (C. A. 9; 1944) Rothschild v. Federal Tmde Commission, 200 F. 2d 39 (C. A. 7; 1952) ; Dejaij Stores Inc. v. Fedeml Tmde Commission 200 F. 2d 865 (C. A. 2; 1952); Moh1 v. Federal Tmde Commission 272 F. 2d 401 (C. A. 9; 1959). See also Matter of Pitler, t/a Cavalier Reserve Fund C. Docket 7538 (1960). The Commission has extended this policy of prosecuting misre- ) .

J344 FEDERAL TRADE COMMISSION DECISIONS Initial Decision 70 F.

presentations for the purpose of col1acting debts. It has done so by commencing a fairly large number of proceedings, or proposed proceedings, directed against misrepresentations as to proposed referrals to attorneys, collection agencies or departments and the like when such proposed referrals were not fact but fiction or never contemplated. Except for one of an inconclusive nature these have al1 ended in consent decrees. There are perhaps 15 of these "false referral" cases ending in consent decrees. Of course, unlike the "skip-tracing" cases, they were not vigorously contested, if contested in any sense at al1 nor, of course, are there any appellate decisions upholding them. Moreover, al1 of them (except one noted below) are directed against creditors, themselves subject to interstate commerce jurisdiction, not against a third party alone supplying that jurisdiction as here. The respondent creditors in these cases were typically more or less substantial book and magazine publishers who were attempting to collect on sales or subscriptions with the preconceived but hidden policy of never commencing legal action or turning the accounts over to outside collection agencies. The following is a list, presumably complete, of these "false referral" cases against creditors ending in consent decrees, all in 1964, the first five being listed by name and the others by consent docket numbers only: Matter of P,-entice-Hall, Inc., C-676; Matter of Modern Handcraft, C-712; Matter of George Macy Companies 740; Matte?" of Popula,- Science Co., C-741; Matter of Boole Club Guild, C-749. Also C-752, C-753 754 755 756 757, C-777, C-779, C-845, C-856.

A t this point there may also be noted the issuance by the Commission on June 30 , 1965, of its Guides Against Debt Collection Deception. These, of course, as already indicated in this decision are purely advisory or indicative, and certainly do not purport to promulgate Jaw. Two pertinent examples of misrepresentation relate to a proposed referral to an attorney or collection agency (Guide 1, par. 6; Guide 5). There is no such example as to referral to a third person generally. There is an express indication that a third party, as here, may make the misrepresentation (see definition of "industry member There is also, of course, the statement that a trade name or other means may not be used to simulate government authority or affliation (Guide 3). There wi1 now be discussed the two cases separately referred to above as exceptions.

STATE CREDIT CONTROL BOARD 1345 1318 Initial Decision First, there is the one "false referral" case which was Jitigated at least to some substantial extent:

Matter of Parents' Magazine Enterprises, Inc. C. Docket 8652 (December 3, 1965) (68 F. C. 980). However, although this case went through a hearing, it does not appear to have been vigorously contested, resulting in a more or Jess pro forma Initial Decision-adopted, after respondents withdrew their notices of intent to appeal, as the decision of the Commission without any opinion of its own.

Second, there is the one "false referral" case which, although ending in a consent decree, was directed against a third party (also a seller of forms as here), not against the creditors themselves. The name respondent traded under is almost the same as that used by the present respondent. Moreover, the complaint is much Jike the present complaint. The case is: Matter of State Credit Bureau, Inc. 1000 (October 8, 1965) (68 F. C. 560). Of course, the consent order in that case prohibits the use of the trade name. Complaint counsel also cites the case, however for its prohibition of the use of third party authority generally as distinguished from misrepresentation as to intended referral to a collection agency, for instance.

The consent order is in other respects much like the one proposed by complaint counsel in the present case. But, obviously, as a consent order it is not a precedent. Respondent there, following Commission consent procedure, did not even admit any violation of the law. The most, perhaps, that the case can be cited for is that the Commission made a preliminary administrative finding of sufficient public interest, coupled with an appended proposed order and that said finding of public interest has continued unchallenged and unchanged.

In respect to the question of public interest, and the hearing examiner s power in respect to this question, reference is made to the following cases: In the Matter of FI01ida Citrus Mutual C. Docket 6074 (May 10, 1954) 50 F. C. 959; In the Matter of Premier Pillow Corporation C. Docket 6136 (December 1954). See also F.T. C. v. Klesner 280 U. S. 19 (1929). The determination as to whether the public interest requires the issuance of an order in cases of discontinuance lies in the sound discretion of the Commission: MILTlene s Inc. v. Federal Tmde Commission 216 F. 2d 556, 559-60 (7 Cir. 1954) ; Eugene Deitzgen Co. v. Federal Tmde Commission 142 F. 2d 321, 330- (7 Cir. 1944).

Initial Decision 70 F.

Discontinuance after the Commission s hand is already on respondent' s shoulder is of little avail: Matter of Bakers of Washington, Inc. C. Docket 8309 (December 3, 1964) (66 F. 1222J ; Cora Inc. v. Federal Trade Commission 338 F. 2d 149 (1 Cir. 1964).

COMMENTS ON ORDER The preliminary unnumbered paragraph' of the below order is the same as the preliminary unnumbered paragraph of complaint counsel' s proposed preliminary unnumbered paragraph-with one exception. The exception is that the below order eliminates the words "or in the solicitation of information concerning debts or debtors." The purpose of this rejected wording is to have the order apply to "skip-tracing" activities, as well as activities to facilitate the collection of accounts. But there is no proof in this case of "skip-tracing" activities or the slightest suggestion that respondent indulges in them. On the contrary, so far as the forms are concerned, respondent's system requires the creditor to supply the debtor s address himself, and write it on the envelope. Respondent, except for mailing the addressed envelope containing the filled-out form (and except for lending his trade name), keeps out of the collection, or precol1ection, process under this system. It is true that, as he testified, he has qualified himself to be a collection agency in one or more states, but this should not, in the examiner s opinion, subject him to the proposed sanction. The wording of 1. in the helow order is precisely the same as the wording of 1. in complaint counsel's proposed order. This wording forbids the use of the name State Credit Control Board the words District Director and County Agent, as well as similar wording.

The introductory wording of 2. of the below order is the same as 2. of the proposed order. This is simply the wording as to "representing" and providing "instrurnentaHties. The wording of " " under 2. , of the below order is the same as the similarly designated wording of the proposed order. This wording is directed against representations of government authority.

From here on, however, the below order significantly differs from complaint counsel's proposed order. The wording of "b" of the appended order, under 2. thereof, is directed simply at a representation that an account is or has been referred for collection when the indicated referral is not for ac- 2 More precisely, the preamble.

STATE CREDIT CONTROL BOARD 1347 1318 Initial Decision tual collection. Said "b" is a substitute for proposed "b" and fi the latter particularly-both directed against misrepresentation as to third party referral or authority generally. Said "b" differs from both in that it follows " " of Paragraphs Five and Six of the complaint.

Said "b" in the below order prohibits the representation "unless such is the fact." This in effect rei acts the extended proviso in proposed " " The examiner regards the proposed proviso not but as anas a Emitation on the primary prohibition or sanction, attempt to cut down respondent's rights in defending an alleged violation of the order by putting the burden of proof on him. The wording of " " in the below order is directed against representations that legal action is about to be commenced. It represents a watered-down version of proposed " Said " " does not, for one thing, refer to representations that legal action "has been" commenced, since the examiner has found that there were no such representations. Said " " in the below order also limits the prohibition, in respect to representations as to proposed legal action, to those made through "any system of such forms." This is in Ene with the examiner s finding of deception by reason of the system and content of the forms, rather than by proof that creditors do not intend to account or ac- resort to legal action in respect to any particular counts.

Said " " moreover, as is consistent with its limitation to a system of forms, contains no saving condition whatever such as either the proposed extensive proviso or as such words as "unless such is the fact," used by the examiner in "b." The prohibition is made unconditional in this respect since, as the examiner has found, the system, with its forms, is inherently an instrumentality of deception as to the imminency of legal action. ORDER It is ordered That respondent S. Dean Slough, individually and trading and doing business as State Credit Control Board, or s agents. repre- under any other name 01' names, and respondent' sentatives and employees, directly or through any corporate or other device, in connection with the collection of, or the attempt to collect, accounts, or with the offering for saJe, sale or distribution of forms, or other materials, for use in the collection of, or the attempt to collect, accounts, or in the soEcitation of informais tion concerning debts or debtors, in commerce, as "commerce" Opinion 70 F.

defined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Using the words " State Credit Control Board District Director County Agent " or any other words of similar import or meaning to refer to respondent's business or any person connected therewith.

2. Representing, or placing in the hands of others, the means and instrumentaliies by and through which they may represent, directly or by implication, that: a. Any communication with respect to an allegedly delinquent account is being made by, through, or in connection with an agcncy of government, whether State Federal, or local;

b. An allegedly delinquent account has been, or is about to be, or may be, referred to any party for collection, unless such is the fact;

c. Legal action with respect to an allegedly delinquent account is about to be initiated-if so represented, directly or indirectly, by a system of such forms or other materials.

OPINION OF THE COMMISSION NOVEMBER 16, 1966 By JONES Commissioner:

This matter is before the Commission on cross-appeals 0:1 "Gunsel from the initial decision of the hearing examiner which sustained in part and rej ectec1 in part the allegations of the complaint. Complaint in this matter was issued on June 16 , 1965 charging S. Dean Slough, an individual, trading and doing business as State Credit Control Board, with making false, misleading and deceptive representations in various debt collection forms sold by him to creditors for use in the collection of debts and with placing in the hands of others the means and instrumentalities by and through which they may make false, misleading and deceptive representations in violation of Section 5 of the Federal Trade Commission Act.

After full evidentiary hearings, the hearing examiner s initial decision was handed down on January 19, 1966, and amended by order of the examiner on January 25, 1966. The hearing examiner concluded that:

(1) Respondent falsely represented that the request for pay- STA TE CREDIT COXTROL BOARD 1349 1318 Opinion ment of the delinquent account emanated from an agency of State government (Findings 5(a) and 6(a)) and that this misrepresentation was not cured by respondent' s disclaimer that it was an independent collection service (Finding 5 (a)) or by respondent' attempts at discontinuance (Finding 9) ; (2) Respondent's forms falsely represented that an allegedly delinquent account has been or is about to be referred to the State Credit Control Board for collection (Findings 5 (a) and 6 (a)) ; and that legal action with respect to the allegedly delinquent account is about to be instituted (Findings 5 (d) and 6 (d)) ; (3) Respondent's forms originate both with respondent who mails them on behalf of the creditor-purchaser and with the creditor who purchases them from respondent and directs respondent to mail them to the debtors and the representation that the creditor was the originator of these forms was not, therefore, false as alleged in the complaint (Finding 6 (b)). On the basis of these findings and conclusions the hearing examiner proposed the entry of a cease and desist order prohibiting respondent from holding itself out as a governmental entity and from making the representations which the examiner found to have been false.

Complaint counsel appeals from the hearing examiner s decision, challenging (1) the examiner s findings that the origination of the forms was not deceptive and that respondent's forms did not represent that legal action had been taken; and (2) the adequacy of the order entered by the examiner. Respondent also appeals from the hearing examiner s decision on the grounds that (1) the entry of the cease and desist order against him is improper because there is insuffcient public interest in the complaint; (2) respondent is being denied due process of law because the complaint and proposed order were so designed as to put respondent out of business without regard to cessation of the challenged practices; (3) respondent cannot be held responsible for any misuse by his customers of respondent' forms which threaten legal action; (4) the order should not prohibit respondent from using "State" in his business name if it is accompanied by adequate affrmative disclaimer of any government affliation; and (5) the examiner erred in refusing to issue a subpoena duces tecum to enable respondent to develop evidence that the practices in which he engaged are common and widespread in the industry and a recognized, acceptable and necessary method of collecting delinquent accounts. Opinion 70 F. T.

STATEMENT OF THE FACTS The evidence of record, as admitted by respondent, establishes that S. Dean Slough, the respondent herein, is an individual residing in Quincy, Ilinois and engaged in the sale of collection forms in some fifteen states under the trade name of State Credit Control Board.

For a brief period and to a Jimited extent prior to the hearings in this proceeding respondent operated a collection agency in Ilinois, Ohio, and Indiana (Tr. 608-610). This aspect of respondent' s business is not involved on this appeal. (Tr. 665-670). Respondent testified (Tr. 540-541 , 547) that in April or May, 1965 he began operation in Ilinois and Ohio under the name "State Credit Control Service" and asserted through his counsel (Proposed Findings, p. 18) that "al1 new printings have and wil have the name 'State s Credit Control Service.''' In 1964 respondent desiring to expand his business into California, the law of which apparently restricted the use of the word "State" in business names, changed his first name on the advice of counsel from Earl" to " State" (Tr. 167). After the State of Ilinois ordered respondent to add an affrmative statement to his advertising that he was an independent collection service, he did so and thereafter also added the same statement to his forms by placing the words in fainter and smaller print upside down and backwards encircling a seal of Justice containing the words at the top and rightside up " Credit Protection (e. CX 1 and CX 5, Collection Letters 1 , 2, and 3).

Respondent' s business consists of the advertising, offering for sale, sale and distribution of debt-collection forms to businessmen, and, on their instruction, the remailing of such forms to debtors under respondent's letterhead and address (J.D. , pars. 3) .

Respondent' s debt collection package consists of eleven different letters, reports and notices. The first three forms, denominated reminder slips, are to be used in connection with debts which are delinquent less than six months and are to be attached by the creditor to the monthly statements which he sends to the debtor (Tr. 172-173). These reminder slip forms are simply routine requests for payment couched in varying degrees of poJiteness, ending up on the final slip with the statement: Unless we hear from you within Ten Days with payment, we ; ; ; STA TE CREDIT CONTROL BOARD 1351 1318 Opinion shall turn your account in fot collection, STATE CREDIT CONTROL BOARD" (emphasis added) (CX 1 and CX 5, Green Reminder Slip No. 3).

Debts delinquent more than six months are serviced by a series of three collection letters, two other forms aimed at the debtor employer and a "Final Notice Before Entering Suit" form. Each of the first five of these collection letters bears respondent' s trading name, State Credit Control Board, on its letterhead, a post offce box address in the capital city of the State in which the creditor and, presumably, the debtor reside and the signature of E. Dean Slough (in later editions S. D. Slough), the respondent who is designated on the letter as " District Director " later changed to "Director" (Tr. 198). In the upper left-hand corner of each of these collection letters is a blindfolded lady of justice with the phrase " Credit Protection " arched over her head. Encircling her and reading downwards, backwards (from right to left), and upside down, is the inscription "An Independent CoJleetion Service" (CX 1 and CX 5).

In the upper right-hand corner of the three white letters is a statement in red ink: "Referred to fie of County Agent " with three blank lines which the creditor is instructed to fill in with the name of respondent's local salesman (which is separately furnished to the creditor) and the county of the debtor (CX 1 and CX 5, Collection Letters 1, 2 and 3). A box appearing below the letterhead and to the right is designated "For County (or Co. in a later edition) Agent l:se Only" and provides space for the following entries: "Date Serving Writ" Writ Returnable Date of Judgment" Name of Court Judge; and "Date Sheriff' s Notice." The creditor is instructed that this box is not to be filled in. The creditor s name and address, the name of the debtor and the amount of the indebtedness are to be filled in by the creditor in the appropriate lines provided (CX 1 and CX 5). The first letter in respondent's series of three white collection letters bearing respondent's letterhead contains the statement that: "Our (State Credit Control Board) Representative is making a preliminary survey. . . previous to considering the taking of legal action to effect settlement on delinquent claims" (CX 1 and CX 5, Collection Letter No. 1). The second letter claims that we have guaranteed to collect or he will prosecute " (CX 1 and CX 5, Collection Letter 1\0. 2, emphasis added). The third form instructs the debtor to communicate with his creditor at once Opinion 70 F. T.

otherwise he shall advise immediate suit. " (CX 1 and CX 5 Collection Letter 1\0. 3).

The language of these white collection letters is carefully couched to suggest that the letter is written by, and therefore comes from the State Credit Control Board, not the creditor. The debtor is explicitly directed, however, to send his payments directly and only to the creditor. Nevertheless, debtors frequently send their payments to the P. O. Box of the respondent who then mails them to the creditor (Tr. 547-549). The creditor is instructed to insert each form letter in this series into an envelope provided by respondent which bears respondent' s return address in that State (CX 2) ; to put the debtor s address on the envelope, together with a stamp; and then to send it under separate cover to the respondent's offce in the capital city. Respondent thereafter mails the collection letter to the debtor from that capital city address (Tr. 175-177). A green form letter is included in respondent's packet to be used by the creditor in the event he does not know the address of the debtor s employers (CX 1 and CX 5, green collection letter). This letter, bearing respondent's letterhead and P. O. Box number located in the creditor s capital city, is to be filled in by the creditor and sent to the respondent for remailing to the debtor between the first and second white form letters. The letter states that the debtor s account "had been handed to us (State Credit Control Board) for immediate attention. " It further observes; We hope that it will not become necessary to pursue this matter to the point where we may request the cooperation of your employer.

If the address of the employer is known, respondent has included a yellow-colored form which is to be sent to the employer at the same time as the second collection letter is sent to the debtor (CX 1, Notice to Employer, and a later version, CX 5, entitled Employment Verification Request). This report form, again bearing respondent's letterhead and appropriate P. O. Box number address, is to be filled out by the creditor and sent to the respondent who then mails it to the debtor s employer. The first version (CX 1) states that "We hope that suit wil not be necessary and that "we. . . trust that you wil bring infiuence to bear causing said Employee to adjust said claim at once, direct with the Creditor. " Thc later version (CX 5) requests the employer to verify the debtor s "employment directly to the above named creditor" and notes that this "request is being made in order that , .. STATE CREDIT CONTROL BOARD 1353 1318 Opinion the creditor may determine if referral to an attorney for court action and garnishment is advisable, If this series of six to seven missives fails, there is a last letter: Final Notice Before Entering Suit" (CX 1), or, in a later edition Final Notice Before Referral to Attorney" (CX 5). This form letter has no letterhead but the blindfolded lady of justice is stil in the upper left corner and the last four lines set in the letter s bottom right-hand corner read:

Co. Agent - - -- - - County of - -- - -- - -- -- -- - - State Credit Control Board State Capital P. O. Box The creditor is instructed to write on the "Co. Agent" line the name of respondent' s representative in the area (usual11y this the salesman) and to fill in the name of the county. This letter alleges that, unless the dehtor pays, "suit may be brought" and that the creditor certifies the debt to be "true and correct" (CX 1 and CX 5).

Two other forms are provided in respondent's packet: a " Past Due Notice" (CX 5 and CX Sa) to a backslider who had made arrangements with the creditor to pay his delinquent account and a Bad Check Notice" (CX 5 and CX 8d). Both of these forms are similar in format to the white collection letters again bearing respondent' s business name in the letterhead and a state capital post offce box address. They are to be filled out by the creditor and sent to the respondent for remailing to the debtor. The "Past Due Notice" states: "This matter is entirely in our hands now. . . . The debtor, however, is requested to pay the creditor directly. Respondent conceded that he has no connection or affliation with any governmental entity (I.D., Paragraph 6a) ; that he has no authority "to collect or otherwise deal with these delinquent accounts other than to lend his name to the letters, mail them to the debtor as alleged in the complaint (Answer, Paragraph Six, and I.D., Paragraph 2 and 6c) and forward to the creditor any communications which it may receive from the debtor or the debtor employer (TO'. 547-49) ; that the letters themselves are filled in addressed, and stamped by the creditors (I.D. , p. 1326), that his forms indicate that legal action is about to be initiated (Respondent' s Answering Brief p. 5) ; and that the use of third-party referrals is a highly efiective collection means since debtors pay more attention to communications respecting their delinquent ac- Opinion 70 F. T.

counts which emanate from third parties than to those sent by the creditor himself (Tr. 656-57).

In view of these admissions, the issues raised by the parties on appeal are the foi1owing:

1. Does respondent's affrmative disclosure that it is an independent coi1ection service negate the representation flowing from its letterhead and other terms used on its form that it is a governmental entity;

2. Are respondent's forms deceptive insofar as they indicate that respondent is the originator of them; 3. Do respondent's forms represent that legal action has been instituted and is such representation false; 4. Did the hearing examiner err in refusing to issue a subpoena duces tecum to the Gary Credit Bureau. 5. Is it in the public interest and consistent with due process to issue an order against respondent? If so, what should be the proper scope of such an order? DISCUSSION OF ISSUES RAISED ON APPEAL 1. Respondent's representation respecting his governmental affliation Respondent concedes that he is in no way connected with any governmental entity (J.D. par. 6a). He argues, however, that his business name and his use of the word "State " together with his use of such terms as Hcounty" or "Co. Agenf' and " District Director" or f!Director" in his form letters and notices do not necessar- Dy connote that he is a governmental entity and in any event any possible implication to this effect is negated by the affrmative representation on each letter that he is "an independent collection service," We do not agree.

There is no doubt that respondent's business name, his use of State capitols as the making address for his debt-collection forms sent to debtors and his use on these forms of such terms as County Agent" and "District Director " clearly convey the impression to the recipients of these forms that respondent is a governmental entity of some kind or has some governmental affliation. Respondent has not pointed to a single legitimate basis for its choice of this business name and its use of these terms. Indeed respondent deliberately changed his own first name from "Earl" to "State" in some vain attempt to give credibility and legitimacy STATE CREDIT CONTROL BOARD 1355 1318 Opinion to his use of the word "State" in his trade name. The governmental connotation flowing from respondent' s use of the terms county agent and director is in no way eliminated or mitigated by respondent' s later abbreviation of these terms to "Co. Agent" and Director." Even in abbreviated form they carry the identical connotation. Nor is respondent's apparent governmental character disavowed by respondent's further statement incorporated on its form letters that he is an independent coi1ection service. Indeed, it is Jikely that if this statement were in fact noticed by any of the debtors receiving respondent's letter, they would only be confused rather than enlightened as to the true nature of respondent' s business.

Considering the purpose of these forms and the importance which debtors attach to payment requests received from third persons other than the creditor, it is obvious that respondent' misrepresentation of itself as a governmental entity engaged in the coi1ection of the recipient's debt is a particularly flagrant and serious deception.

One of the creditor witnesses cai1ed by complaint counsel testified that two or three of his debtors, to whom the chai1enged forms had been sent, asked why he had turned their accounts over to the State (Tr. 479-480). However, other creditor witnesses indicated that they did not believe that their debtors would be deceived into the belief that a request for payment was being made by a government agency (Tr. 358, 369, 459). We are not bound in a matter of this kind by statements of witnesses as to whether 'they were deceived or not. Double Eagle Lubrieants, Ine. v. Federal Trade Commission 360 F. 2d 268, 270 (10th Cir. 1965). Nor are we bound a fortiori by statements of witnessses as to whether that which they are doing wi1 deceive others or not. It is the capacity of representations to deceive which is crucial, not actual deception. Stauff'e," Laboratories, Ine. v. Federal Trade Commission 243 F. 2d 75 (9th Cir. 1965). The Commission s duty is to protect the "gu11ble and credulous as weil as the cautious and knowledgeable. Charles of the Ritz Distribution COTp. v. Federal Trade Commission 143 F. 2d 676 (2d Cir. 1944).

We are convinced from our examination of respondent' s forms that they wi1 convey the impression-at least in many debtor minds-that the forms emanate from some type of governmental entity having responsibilty over delinquent accounts. Accordingly, we reject respondent' s argument and uphold the examiner , .

Opinion 70 F, conclusion that respondent's trade name and associated terms are deceptive despite the inclusion in these letters of the statement that respondent is an independent collection service. 2. Sign1:ficrLnce of Respondent's 01'iginrLi1:on of Collection Forms The complaint alleged that the requests for payment embodied in respondent's forms purported to originate with respondent (Par. 5 (b)) whereas in truth and in fact these requests for payment originated with the creditors (Par. 6 (b)). The hearing examiner found that respondent' s collection forms originated both with respondent and with the creditor and on this basis apparently concluded that respondent's origination of the forms was not deceptive.

The examiner found that many debtors wil pay no attention to payment requests emanating from creditors but wil pay attention to such requests if they come from third parties (J.D., Finding 6 (b)). He concluded therefore, that payment requests coming from respondent would appear to have third party authority which they would not have if they came from the creditor alone (ibid. However, nowhere jn his findings or in his opinion does the examiner explain or define the source of such third party authority. He simply concludes on the basis of these findings that since respondent' s forms originate both with the creditor and with respondent, the complaint allegation that respondent is the originator of these forms is only partially true and therefore the deception fails of proof. Summarizing his decision on this point, he stated: The decision herein holds that this alleged misl'eprespntation in respect to a generalized third party authority has 110t been proved, considering the pleadings, the proof generally and .perhaps the issue of public interest. It further holds that, in any event, this alleged misrepresentation does not, on this record, and under all circumstances warrant the issuance of a separate prohibition in the cease and desist order issued herein (LD. , p. 1325). In our opinion, the examiner erred in his conclusi0J1 on this issue and failed to come to grips with the real issue of deception involved in third party referrals raised by the instant complaint, namely, whether a third party referral or the use of third party authority is deceptive where the third party has no authority with respect to the collection of the debt. Respondent admitted that the requests for payment originated with tho creditor and that, while the requests for payment were referred to the respondent for transmittal to the debtor, they were not referred to him for c01loction and that he merely as- STA TE CREDIT CONTROL BOARD 1357 1318 Opinion sisted in their collection by "lending his name and services there- " (Resp. Ans. and amended Ans. to the Complaint). During the hearing, respondent testified as to the importance of being able to use "third party authority" in the collection of delinquent accounts. According to respondent, many " delinquent accounts will pay as soon as the account is turned over to a third party for collection. They will not pay the original creditor until they are pressed in some manner" (Tr. 656). In response to a question by the hearing examiner as to what impression upon the debtor the third party authority (in this case respondent's agent Loyd Peters, whose name was signed on the collection request in question) is supposed to make, respondent stated: "The debtor may assume that Loyd Peters is soon to be out there to assist in collecting" (Tr. 205). In his own proposed findings submitted to the examiner at the conclusion of the hearing, respondent asked the examiner to find that collection letters of the sort sold by respondent give "the impression to debtor not only that it originates from someone other than the creditor but also that the account has been or is about to be turned over to the credit bureau, collection agency or other third party for coller:Uon" (RPF p. 10), Thus, the record demonstrated that use of third-party referrals is important in the collection of delinquent accounts. The evidence clearly indicates that third-party referrals have this significance not simply because debtors are more apt to read what is sent by third parties, but more importantly because of the debtor s assumption from the fact of such referral that the creditor has placed the delinquent account in the hands of a third party for some affrmative action (Tr. 205, 218, 656), Debtors receiving any third-party communications respecting their delinquent accounts are thereby led to believe that their creditors will no longer extend credit and that they probably intend to collect the debt by legal action, if necessary. The entire purport of respondent' forms is designed to reinforce this assumption on the part of debtors. Thus, the last of respondent' s three initial reminder sJips sent to the debtor by the creditor concludes with the admonition that nonpayment will result in referral of the account to a collection agency for collection (CX 1 and CX 5, Reminder K o. 3). The next form which is to be sent to the debtor carries respondent' letterhead denominating respondent as State Credit Control Board and, if respondent' s upside-down and backwards print is in fact read, asserts that respondent is an independent collection service.

. .

, Opinion 70 F. T, Moreover, the very first letter states: "Our representative is making a preliminary examination. previous to considering the taking of legal action to effect settlement on delinquent claims (CX 1 and CX 5, Collection Letter No. 1). The second letter asserts that "the above claim has been handed to us for immediate attention " and that "we have guaranteed to collect" (CX 1 and CX 5, Collection Letter No. 2). Respondent's green-colored collection letter advises the debtor that his account "had been handed to us for immediate attention" and further advises that we "hope that it wil not become necessary to pursue this matter to the point where we may require the cooperation of yo",' employer (CX 1 and CX 5, green collection letter; emphasis added). We conclude, therefore, that respondent's entire debt-collection packet, designed as it was to be sent out under respondent's letterhead, would create the impression in the minds of the debtors that the payment requests encompassed in these letters were being sent out by respondent and that respondent had authority to collect these ddinquent accounts. Respondent admits that had no such collection authority. Respondent argues, however that it was a bona fide Originator of these letters since it actually did mad and sign the letters and that the third party ,' eferral to it for this purpose was also bona fide and that therefore its actions in this respect were not deceptive. We do not agree. Third-party referral, to the extent it is an effective debt-cal1ecbon device, is effective because it implies to the debtor that the third party has collection authority or authority to take other legal action. If the third party does not in fact have such authority the mere lending of its name and address to the collection of the debt is wholly grounded in deception. This misrepresentation is in no way dissipated, as the hearing examiner apparently concluded, by the finding that in truth and in fact the real originators of the letters included the respondent. The gravamen of the misrepresentation in the instant case is respondent's representation by apparent origination of the letters that he was a third party with authority, where in fact he had no such authority. It is immaterial to the deception, therefore, that technically it could be said that there were two originators of respondent's forms, respondent and the creditor. The real deception is, as the complaint alleged, that respondent purportedly originated these forms, where as in fact the creditor still retained full authority with respect to the delinquent account and the only "origination STATE CREDIT CONTROL BOARD 1359 1318 Opinion act performed by respondent was to perform a mailing service on behalf of respondent. Since it was respondent who prepared and sold the forms which contained this holding-out and who further parti6pated in the misrepresentation by admittedly assisting in the holding of himself out as having such third party authority by undertaking the mailing of these forms under his own name and address, respondent was properly charged with the misrepresentation to debtors that their creditors had referred their delinquent accounts to third persons-a material deception in violation of Section 5.

3. Representation by Respondent that Legal Action Has Been Instituted Although the hearing examiner fouud that respondent' s system represented that legal action was about to be instituted and that this representation was deceptive, the hearing examiner refused to find that the forms represented that legal action "has been" initiated. Complaint counsel argued on appeal that the represented referral to a State agency warrants the conclusion that legal action is pending and not merely prospective. The hearing examiner found that the letters from the State Credit Control Board appeared to come from a State agency. Given this representation, it is reasonable for a debtor to believe that the implied referral of his debt to a governmental agency goes beyond a mere threat to take legal action and represents that legal action is already underway. It is impossible, in this case to separate the fact that respondent's forms represent a referral of the debtor s account to a governmental agency from the issue of whether they also imply that legal action is pending. Respondent counsel seems to recognize this in his brief to the hearing examiner in which he stated: ". . . if the proof of the allegation of misrepresenting government affliation fails, then there is absolutely no foundation for the separate charge of representing that legal action has been initiated" (Respondent' s Reply to Complaint Counsel's Proposed Findings and Brief, p. 2). There is no doubt that debtors may wed believe that there are several types of legal remedies available to their creditors, including action by the State as well as by the creditor himself. Indeed, this is the major purport of respondent' s holding himself out as a governmental entity. Accordingly, we hold that the fact that respondent holds himself out as a governmental agency is likely to create an assumption in the debtor s mind that their delinquent account has , Opinion 70 F. T.

already been turned over to the authorities for action and this could easily imply to many debtors that legal action by the State was imminent, or indeed already pending against them. We are persuaded by the argument of complaint counsel and hold that the hearing examiner erred when he refused to find that the apparent referral to a gaveI'm ental agency did not represent pendency of legal action and that such representation was deceptive.

4. Necessity for and Scope of the Ordel' Agaimt Respondent A. Need for an Order Against Respondent Respondent argued that the issuance of an order in the instant case would not be in the public interest, would violate due process and would be improper because of the examiner s error in refusing to subpoena certain documents requested by respondent. The misrepresentations engaged in by respondent were of a particularly fiagrant and serious nature and respondent has shown an unusual dogged diligence not to yield on its use of these deceptive practices. Respondent' s so-called modification of its various forms or expressed intent to make such modifications after the hand of the Commission was on his shoulder in no wise eliminated the deceptive nature of the challenged representation. The changing of the phrase County Agent" to "Co. Agent " the expressed intent to change the term "District Director" to "Director" and the change of respondent's trade-name from " State Credit Control Board" to "State s Credit Control Service" hardly amounts to substantive changes or to a bona fide attempt on the part of respondent to eliminate the deceptions. As noted above the change from HState" to "State " was occasioned not by respondent' s desire to avoid deception, but in an attempt to avoid any violation of California la\v. l'vloreover, respondent's purported affrmative representation that he is an "independent collection service " came only after the State of Ilinois directed this change to be made on respondent's advertising material. Again, even in complying with this order by the State of IIinois, respondent did so by placing the prescribed words in a circle in fainter and smaller print upside-down and backwards around a seal of Justice containing the words on the top, " Credit Protection. We cannot imagine a dearer case in which the public interest demands that an order be entered against this respondent to ensure that these fiagrant misrepresentations which we have found to have been made shall be stopped.

, STATE CREDIT CONTROL BOARD 1361 1318 Opinion Respondent argued that no order should be entered here because many State laws do not cover the activities challenged in this complaint. This is hardly a basis for not entering' a cease ann desist order against respondent. If anything, that fact lends force to the need for an order against this respondent. Respondent' s arguments that the entry of an orner here would amount to a denial of due process are equally without substance and indeed have already been rejected by the Commission on prior motion hy respondent. ' With respect to respondent's arguments of impossibility they are in any event moot, since the portion of the order proposed by examiner which are claimed to be incapable of being complied with have been deleted by using the order which we are entering. In short, respondent has adduced no facts or arguments which would require this Commission to refrain from entering an order against the respondent or which might bring this case within that very limited number of cases where it can safely be concluded that the public interest does not warrant the issuance of an order against a respondent who has been found to have vio- Jated the law.

Finally, we hold that it was not error for the hearing examiner to refuse respondenes request for a subpoena duces tecum to be issued to the Gary Credit Bureau for the purpose of, developing facts for the record respecting the win''spread use and generally deceptive practice in the debt-collection industry of third-party referrals. The hearing examiner refused respondent' s request as untimely and burdensome (Tr. 160 162) but did issue a subpoena ad testificandum which respondent' s counsel did not use. \Ve agree with the examiner in refusing respondent's request for a subpoena duces tecum. Clearly, the deceptive or nondeceptive nature of a practice is not affected by the number of people who engage in it. The evidence would have been clearly irrelevant to the issues of deception in this proceeding and the hearing ex- 1 ResIJondent argued that he was beinp; denied due process becausp the purpose of the arde! to 11Ut him ont. of business and because in any event it ',,auld be imposible for respondent to comply with it, On September 30 , 196;i respondent filed a motion for d:smissal of the eomplaint because of alJegcd statements by comp aint counsel jJUrl1ortinl' to demonstrate that the Commission s complaint was designed to put respondenl out of business. ResTJondent s motion ""as denied, the Commission noting in part. The recorded comments (of the prehearlng conference) fail to indicate the alleged ' avowed pIHIJOSe of puttir,g Lhe respondent out of business.' The Cornmi,sion, of Cours€', has no power to close the (1001'S of ar.y business, , . . ,The elimination and prevention of the practices charged in tne complaint, if the charges (Ire sustained by the evidence, is the sole PU!'IJose iere. Respomlent has made no showing to justify his request fol' dismissal of the complaint" (Order Denying Responder. s :Ylotion to Withdraw or Dismiss Con nlaint. JJl). 1-2). Opinion 70 F. T.

8miner did not err in excluding it, As stated by the Commission In the Matter of Wm. H. Wi..e Co., Inc. , et al. Docket No. 6288 53 F. C. 408, 417 (1956) :

But 1'C'spondents claim that what they have done in sending out collection letters under the' name " Publishers' Collection Service " is a practice which is essentially universal within the bookselling industry. But in no event is this a defense to a misleading and deceptive practice which violates the Federal Trade Commission Act.

B. Application of the Order to Respondent' s Skip-Tracing Activities The order as originally proposed by complaint counsel was to apply to respondent if it was engaged in the business of collecting debts, of soliciting information respecting debts or debtors, of selling debt-collection materials or forms to solicit information concerning debts or debtors. The hearing examiner, hm:vever, 1imited the applicabilty of the order solely to respondent's activities of debt collection and of the sale of debt-collection materials and of forms to solicit information concerning debts or debtors, thus eliminating from the order any solicitation activities on the part of respondent himself with respect to the whereahouts of debtors. Complaint counsel appeals on the ground that such s1,ip-tracing activities are integral parts of the debt-collection business and that the order proposed by the examiner omitting this aspect of the business is unduly and unreasonably restdcted in scope. We agree with complaint counsel that the examiner s narrowing of the order so that it would not apply to respondent when acting as a bona fide skip-tracer is undnly limiting and renders the order inadequate. The proper scope of an order " depends on the facts of each case and a judgment as to the extent to which a particular violator should be fenced in. Federal Tmde Commission v. Mandel Bros. 359 U.S. 385, 392 (1959). In formulating orders in cases of this nature it has now been well established that orders need not be confined "to proscribing only the particular scheme used in the past" and that orders can be broad enough to prevent "variations on the basic theme. Gonsu-112m' s Sales Gorp. v. Federal Trade Commiss,:on 198 F. 2d 404, 408 (1952). It is only necessary that there be a reasonable relationship between the breadth of the order and the "unlawful practices" found. Siegel Co. v. Federal Trade Commissioll 327 U.S. 608, 613 (1946). Moreover, as the Supreme Court noted in the Mandel Bn)s. case broader orders may be particularly necessary in the case of more extensive and fiagrant violations (359 V. S. 385, 392). STA TE CREDIT CONTROL BOARD 1363 1318 Opinion We are convinced that there is an intep;ral relationship between the business of debt coj1ection and of soliciting information about the whereabouts of debtors. It is neither unlikely nor UJ,reasonable to assume that a party engaging in one aspect of debt coj1ection may in the future expand or switch his operations to other aspects of this business. In the Commission s recently issued Guides Against Debt Collection Deception " three of the seven deceptive practices listed in Guide 1 relate to skip-tracinp; activities, while the remaining four refer to various other debt-coj1ection practices. Respondent himself testified durinp; the hearings of his intention "to p;o back into production on a large-scale" as a bona fide collection agency (Tr. 610) and of his desire to "offer a complete service of the system for picking up the accounts or after they have exhausted this system and not collected we wil take the account over and collect it from that point with ,uhate11fT efforts ate 11eCeSSar!! (Tr. 610; emphasis added). Although respondent did not specifically mention skip-tracing as one of the necessary efforts which he might use, it is obvious that any attempt to offer a complete debt-collection service would have to come to grips at some point with the debtor whose address was unknown. It is not unreasonable to assume, therefore, that at some point in the futile respondent might engage in skip-tracinp; activities. This reasonable likelihood renders it imperative that respondent be barred now from engaging in the same representations in connection with skip-tracing which he has been found to have engaged in in connection with his sale of debt-collection forms. It would be unthinkable to have to bar respondent from holding himself out falsely as having authority to coj1ect a debt and as being affliated with a governmental entity when engaging in the sale of debt-collection forms and yet not prohibit him from making similar false representations when he is engaging only in seeking to elicit information respecting the whereabouts of debtors.

We specifically hold that the function of debt collection is so intimately associated with skip-tracing that the latter could well be vievled as a "variation" of the former. Skip-tracing is certainly a related activity; and any order designed to prevent respondent in the future from making misrepresentations in connection with the collection of debts must extend to a11 aspects of debt collection including the preparation of debt collection and skip-tracing forms, the actual collection of debts and the solicitation of information respecting the whereabouts of debtors. For a11 these Opinion 70 F. T.

reasons we hold that the examiner erred in deleting skip-tracing activities from the application of the order. C. Respondent's Misrepresentations of its Governmental Nature Paragraphs 1 and 2 (a) of the order proposed by the hearing examiner prohibit respondent from using the words "State Credit Control Board'" " District Director County Agent" or other words of similar import to refer to respondent's business and from making a representation implying that he is acting in connection with any governmental entity. We believe that the language of the prohibition as proposed by the examiner must be hroadened somewhat in order to make certain that the order effectively precludes respondent from persisting in his deception. Accordingly, we have amended paragraphs 1 and 2 of the order proposed by the examiner (as indicated by italic) to provide as follows:

1. Using the words " State Credit Control Board District Director County Agent or abbreviations thereof, or any other words or abbrevia.tions of similar import or meaning which indienter or suggest that respondent is afjliarted in (Iny W('?! with any ,governmental entity, whether state, federal or local to refer to respondent' s business or to any person connected therewith. 2. Representing, or placing in the hands of others the means and instrumentalities by and through which they may represent directly or by implication, that any communication with respect to an allegedly delinquent account is being made by, through ,mder the ae,gis of or in connection with any governmental entity or a,gency, whether State, Federal or local. D. Prohibition on Respondent's Representations as to the Origin of Communications Respccting Delinquent Accounts Complaint counsel originally proposed that the order against respondent prohibit him from representing that a communication especting a delinquent account originates with any person other than the true originator thereof. The hearing examiner deleted this provision from the order because of his conclusion, discussed above, that respondent's representation of itself as the originator of the communications was not false and did not constitue a deception.

We have held that the examiner was in error on this point. It is essential that the order herein specifically prohibits respondent from lending his name or the name of any other person for use as STATE CREDIT CONTROL BOARD 1365 1318 Opinion a third-party referral to the collection of a debt by a creditor unless such creditor has given respondent or such other person specific authority to collect the debt in question. Thus, the order must speak in these precise terms and not in terms of the "originator" of the letters. Accordingly, we have reinstated a provision regulating this practice in the order to be entered by us. This provision expands that originally proposed by complaint counsel since in our view complaint counsel's original proposal was ambiguous and would render the ol' del' diffcult of enforcement. Paragraph 3 of the order entered by us is designed to prohibit respondent from misrepresenting his authority with respect to any debt. We have also added to the order new paragraphs 4 and 5 specifically prohibiting respondent from sellng any forms containing its own letterhead or the letterhead of any person other than the purchaser of the forms or some person designated by such purchaser who has in fact been authorized by the purchaser to take the action which such forms represent wi1 be taken in connection with the delinquent account with respect to which form is being used.

E. Prohibitions on Representations Respecting Referrals of Delinquent Accounts for Collection and Intention to Take Legal Action The hearing examiner s order contained two provisions, (Par. 2 (b) and (c)), prohibiting respondent from making representations respecting referrals of the account for collection, unless such was the fact, and intentions of the creditor to take legal action. These provisions as drafted by the examiner were designed to prevent respondent from making these misrepresentations himself and also from selling a system of forms containing representations to be made by the creditor which mayor may not be true. Respondent' s counsel challenged these provisions in the order insofar as they prohibited respondent from sellng a system of forms containing representations respecting the intention of creditors to sue. Respondent argued that it specifically instructs its purchasers not to use these particular forms unless they intend to sue the debtor in question.' Respondent further argued that it cannot and should not be held accountable for the intentions and acts of its creditor-purchasers and that it would be an impossible l Vie find that this cJahr, was not substantiflted by the witnesses. (T)' . PP. 230-231 250 283-284 294, S03 , a08.

Opinion 70 F. T.

burden for respondent to assume to police the use of its forms and prevent their being used in the case of debtors whom the aeditor-purchasers may have no intention of suing. lVloreovcl', respondent argues that it is a creditor s right to threaten suit in order to conect a debt and that therefore there is nothing wrong in respondent' s sale of debt-collection forms containing such threats. We find it unnecessary to rule on these contentions of counsel since we do not believe it is necessary to include in the order any prohibitions on representations respecting the institution of legal action by respondent' s customers.

The provisions of the order proposed by the examiner, insofar as they pertain to representations made by respondent, are essential, since the order which we are entering here applies to the activities of respondent if he engages in the collection of debts or in the solicitation of information respecting the whereabouts of debtors as well as to his activities as producer and seller of debt collection forms. It is obviously necessary to prohibit respondent himself from representing that a particular account is or wil be referred to any party for collection or will be the subject of legal action if respondent has no such intention of taking such action. However, under the terms of the order which we are entering here we do not believe that it is necessary to impose any prohibition on respondent with respect to representations which may be made by the purchasers of respondent's forms. Under the order which we are entering, respondent is prohibited from holding himself out to the debtor as the collector of a delinquent account, unless he has received specific authority from the creditor to collect the balance due on the account in question. Respondent is also prohibited from selling debt collection forms bearing the letterhead of himself or other persons not having such authority. We see no need, therefore, for any additional prohibitions in the order respecting representations made in forms which respondent sells for use by others. Accordingly, subparagraphs (h) and (c) of paragraph 2 of the examiner s order will be deleted and their substance, to the extent they apply to respondent's o\vn representations, incorporated into the new paragraphs 6 and 7, which we have added to the order to be entered by us.

The appeal of respondent' s counsel and of complaint counsel is granted in part and denied in part.

The Findings and Conclusions of the hearing examiner to the extent they confiict with this opinion are overruled. The hearing STATE CREDIT CONTROL BOARD 1367 1318 Final Order examiner s order is modified. An appropriate order wil be entered.

FINAL ORDER' This matter having been heard by the Commission upon cross appeals of counsel from the initial decision and upon briefs in support of and in opposition to said appeals; and The Commission having determined, for the reasons appearing in the accompanying opinion, that the appeals should be granted in part and denied in part, and having further determined that the initial decision should be modified in certain respects: It is ordered That the initial decision be modified by striking the order to cease and desist and substituting therefor the following:

It is ordered That respondent S. Dean Slough, individually and trading and doing business as State Credit Control Board, representatives and employees, directly or through any corporate or other device, in connection with the collection of, or the attempt to collect, accounts, or with the solicitation of information concerning debts or debtors, or with the offering for sale, sale or distribution of forms, or other materials, for use in the collection of or the attempt to collect, accounts, or in the solicitation of information concerning debts or debtors, in commerce, as "commerce JS defined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Using the words " State Credit Control Board District Director County Agent " or abbreviations thereof, or any other words or abbreviations of similar import or meaning which indicate or suggest that respondent is affliated in any way with any governmental entity, whether state, federal or local, to refer to respondent' s business or to any person connected therewith; 2. Representing, or placing in the hands of others the means and instrumentalities by and through which they may represent directly or by implication, that any communication with respect to an allegedly delinquent account is being made by, through under the aegis; of or in connection with any governmental entity or agency, whether state, federal, or local; 3. Mailing any collection letters, notices of debt due, or any other collection materials to any person indebted to a third party, or otherwise contacting any such person unless respondent has actual authority from the creditor to collect or otherwise compromise the debt; and unless an exact description of the extent Final Order 70 F. T.

and nature of the respondent's authority to act in connection with such debt is conspicuously and prominently stated to the debtor; 4. Offering for sale or sellng any form, Jetter, notice or other document, individual1ly or in package or series form, for debt collection purposes which bears respondent's letterhead or any name other than that of the purchaser or of a person designated by the purchaser which represents in any way directly or by implication that a delinquent account has been referred to respondent or any other third party for collection;

5. Authorizing any creditor to utiize respondent' s name or any trade name or style which respondent may adopt or use in connection with any debt collection activity whether directly or through third parties on the part of such creditor; 6. Representing directly or by implication that: (a) Respondent is engaged in the business of collecting de- Jinquent accounts with authority to effect collection by whatever means necessary;

(b) Any delinquent account has been referred to it for collection;

(c) Any legal or other action will be instituted to effect collection or refiect unfavorably on the credit rating of the debtor;

Provided, however It shall be a defense hereunder for respondent to establish that it is engaged in the bona fide collection of delinquent accounts, has the authority and good faith intent to take any represented action, and the specific account in question has been referred to it for collection;

7. Engaging in any scheme, practice or business activity by and through which creditors may falsely represent that a delinquent account has been referred to a bona fide, independent collection agency; any third party has the authority to effect collection of a delinquent account; the delinquent account has been referred to an instrumentaJiy of or agency affliated with any governmental unit.

It is further ordered That the hearing examiner s initial decision, as modified and as supplemented by the findings and conclusions embodied in the accompanying opinion, be, and it hereby is adopted as the decision of the Commission. It is further ordered That respondents shall. within sixty (60) days after service upon them of this order, file with the Commission a report, in writing, setting forth in detail the manner and ,.

NATIONAL OUTDOOR DISPLAY, INC., ET AL. 1369 1318 Complaint form in which they have complied with the order to cease and desist set forth herein.