Trans World Accounts, Inc

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IN THE ATTER OF TRANS WORLD ACCOUNTS, INC., ET AL.

ORDER, OPINION, ETC., IN REGARD TO ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Doket 9059. Complaint, Sept. 30, 1975 - Final Order. Oct. 25. 1977 This order, among other things, requires a Santa Rosa, Calif. debt collection agency to cease misrepresenting the likelihood or imminency of legal action; and to cease using, or placing in the hands of others, materials which simulate telegraphic communications, or which may otherwise mislead debtor recipients as to the nature, import or urgency of such communications. Appearances For the Commission: Ralph E. Stone.

For the respondents: Kirt F. Zeigler, Spridgen, Barrett, Achor, Luckhardt, Anderson James, Santa Rosa, Calif. 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 Trans World Accounts, Inc., a corporation, and Floyd T. Watkins, individually and as an officer of said corporation, hereinafter sometimes referred to as respondents, have violated the provisions of said Act, and 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 follows: PARAGRAPH 1. Respondent Trans World Accounts, Inc. is a corporation organized, existing and doing business under and by virtue of the laws of the State of California, with its principal offce and place of business located at 2800 Cleveland Ave., Santa Rosa California.

Respondent Floyd T. Watkins is an officer of the corporate respondent. He formulates, directs and controls the acts and practices of the corporate respondent, including the acts and practices hereinafter set forth. His address is the same as that of the corporate respondent.

PAR. 2. Respondents are now, and for some time in the past have been, engaged in the advertising, offering for sale and sale of a service to assist in the collection of alleged delinquent debts. This service consists of the preparation by the respondents of a (2) series 350 Complaint of form notices and letters to be mailed to alleged delinquent debtors at regular intervals.

Two styles of forms have been used in this series: (1) that which is titled TELEGRAM; and (2) that which bears the letterhead of Trans World Accounts, Inc.

PAR. 3. In the course and conduct of their business, respondents are now, and for some time in the past have been, engaged in sending to and receiving from persons, firms and corporations located in various States of the United States, by means of the United States mail, letters, notices, forms and other material for use in the collection of alleged delinquent debts. Respondents maintain, and at all times mentioned herein have maintained, a substantial course of " istrade in said business in or affecting commerce, as "commerce defined in the Federal Trade Commission Act. PAR. 4. In the course and conduct of their business, and for the purpose of inducing the payment of alleged delinquent debts, the respondents have mailed or caused to be mailed to alleged delinquent debtors various printed forms and other printed material. Typical and ilustrative, but not necessarily all inclusive, of said forms and material are the following:

1. A yellow window envelope on which a return address is printed, with no name. The word TELEGRAM is printed in large black type over the window and on the reverse side. TELEGRAM designed to be 2. A yellow printed form, styled of thisinserted in the envelope described in subparagraph 1 paragraph.

PAR. 5. By and through the use of the envelopes and forms described in subparagraphs 1 and 2 of Paragraph Four, the respondents have represented, directly or by implication, that the envelopes and forms are telegraphic communications. PAR 6. In truth and in fact, the envelopes and forms referred to in Paragraps Four and Five are not telegraphic communications. Rather, they are printed form letters mailed to alleged delinquent debtors, which forms by their color and appearance, styling, printing and format simulate telegraphic communications. By (3) virtue of said simulation, these envelopes and forms mislead the recipient as to their nature, import, purpose and urgency. Therefore, the use by respondents of said envelopes and forms as set forth in Paragraph Four was and is false, misleading and deceptive.

PAR. 7. In the course and conduct of their business and for the purpose of inducing the payment of alleged delinquent debts, respondents have mailed, or caused to be mailed, to alleged Complaint 90 F.

delinquent debtors various printed forms, letters and other printed material containing certain statements and representations. Among and typical, but not all inclusive, of such statements and representations are the following:

URGENT - - IMMEDIATELY CONTACT OUR CLIENT AND MAKE AR- RANGEMENTS FOR PAYMENT. IMPERATIVE TO AVOID FURTHER ACTION Which MAY BE TAKEN AGAINST YOU UNDER PROVISIONS OF STATE STATUTES. IF SETTLEMENT IS NOT MADE Within 5 DAYS AFTER RECEIPT OF This TELEGRAM YOU MAY WISH TO CONSULT YOUR ATTORNEY REGARDING YOUR LEGAL LIABILITY. . . YOU ARE HEREBY DIRECTED TO APPEAR AT OUR CLIENT'S OFFICE AT 9,00 A.M. NEXT TUESDAY TO PROTEST LIABILITY OF THE ABOVE CLAIM. FAILURE TO COMPLY MAY RESULT IN IMMEDIATE COMMENCE- MENT OF LITIGATION BY OUR CLIENT. IF JUDGMENT IS GRANTED PROPERTY, INCLUDING MONIES, AUTOMOBILIES, CREDITS AND BANK DEPOSITS NOW IN YOUR POSSESSION, COULD BE ATTACHED. YOU HAVE NOT SATISFIED OUR CLIENT CONCERNING THE ABOVE DEBT AS WE REQUESTED A FEW DAYS AGO. WE STRONGLY URGE YOU TO MAKE PAYMENT DIRECT TO OUR CLIENT While YOU STILL HAVE THE OPPORTUNITY. OUR CLIENT MAY REFER This MATTER TO LEGAL COUNSEL Which COULD BE TURNED INTO AN IMMEDIATE COURT SUIT.

YOU HAVE RECEIVED THE BENEFIT OF EARLIER NOTICES FROM This OFFICE AND HAVE FAILED TO DISCHARGE YOUR OBLIGATION. WE HEREBY REQUEST VERIFICATION AS TO EMPLOYER'S NAME AND ADDRESS, BANKS WITH Which YOU DO BUSINESS, MORTGAGE HOLD- ER ON HOME, AND LEGAL OWNER OF AUTOMOBILE. This INFORMA- TION IS NECESSARY (4 J WHEN FILING SUIT AND IS TO BE FORWARDED IMMEDIATELY TO OUR CLAIMS OFFICE FOR THEIR RECORDS. . URGENT - - - CONTACT OUR CLIENT IMMEDIATELY AND MAKE ARRANGEMENTS FOR PAYMENT. IMPERATIVE TO AVOID FURTHER ACTION BY This OFFICE. IF FULL SETTLEMENT IS NOT MADE Within 48 HOURS AFTER RECEIPT OF This NOTICE, OUR CLIENT SUGGESTS YOU CONSULT YOUR ATTORNEY REGARDING LEGAL LIABILITY. MAKE PAYMENT DIRECT TO OUR CLIENT, NOT TO CLAIMS OFFICE OF TRANS WORLD ACCOUNTS, INC.

PAR. 8. By and through the use of the aforesaid statements and 350 Complaint representations, and others of similar import and meaning not expressly set out herein, respondents have represented, directly or by implication, that legal action with respect to an alleged delinquent debt is about to be, or may be, initiated during the course of the aforesaid series of form notices and letters. PAR. 9. In truth and in fact, legal action with respect to an alleged delinquent debt is neither about to be, nor wil it be, initiated during the course of the aforesaid series of form notices and letters. On the contrary, while respondents' letter writing service was being used no legal proceedings were being or would be initiated on the basis of the alleged debtor s failure to respond to respondents' communications.

Therefore, the statements and representations set forth in Paragraphs Seven and Eight were and are false, misleading and deceptive.

PAR. 10. In the course and conduct of their business, and at all times mentioned herein, respondents have been and are now in substantial competition. in commerce, with corporations, firms and individuals engaged in providing services of the same general kind and nature as those provided by respondents. PAR. 11. The use by respondents of the envelopes and forms as set forth in Paragraph Four hereof, has had the tendency and capacity to mislead and deceive members of the public into the erroneous and mistaken belief that said envelopes and forms are (5 J telegraphic communications. Furthermore, the use by respondents of the aforesaid false, misleading and deceptive statements, representations and practices has had the tendency and capacity to mislead members of the public into the erroneous and mistaken belief that said statements and representations were and are true and to induce the payment of substantial sums of money by reason of said erroneous and mistaken belief.

PAR. 12. The aforesaid acts and practices of respondents, as herein alleged, were and are all to the prejudice and injury of the public and of respondents' competitors and constituted, and now constitute, unfair methods of competition and unfair and deceptive acts and practices in or affecting commerce in violation of Section 5 of the Federal Trade Commission Act.

Initial Decision 90 F. INITIAL DECISION BY DANIEL H. HANSCOM, ADMINISTRATIVE LAW JUDGE.

APRIL 7, 1977 STATEMENT OF THE CASE Allegations of Complaint The complaint in this proceeding alleged that respondents Trans World Accounts, Inc., and Floyd T. Watkins engaged in the sale of a service to assist in the collection of delinquent debts, and charged respondents with using misrepresentations in a series of form notices and letters sent to debtors as part of their service to induce payment. Essentially the complaint charged respondents with sending dunning (2) communications to debtors in a "yellow window envelope with the work "TELEGRAM" printed in large black type over the window and on the reverse side. The notice inside was alleged to be a yellow printed form, styled TELEGRAM." The complaint charged that these communications were not telegrams, but simulated telegrams, and because of such simulation, the envelopes and forms misled recipients as to their nature, import, purpose and urgency. The complaint also alleged that statements in the messages sent to delinquent debtors misrepresented that legal action "is about to be, or may be" taken against the recipient by his creditor, when in actuality legal action with respect to the debt was not initiated during the course of the aforesaid series of form notices and letters. The following are alleged to be typical representations made by respondents in form letters sent to debtors: Urgent - Immediately contact our client and make arrangements for payment. Imperative to avoid further action which may be taken against you under provisions of state statutes.

You are hereby directed to appear at our client' s offce at 9:00 A.M. next Tuesday to protest liability of the above claim. Failure to comply may result in immediate commencement of litigation by our client.

Our client may refer this matter to legal counsel which could be turned into an immediate court suit.

Urgent - Contact our client immediately and make arrangements for payment. Imperative to avoid further action by this offce. The complaint charged that the above statements, and others of 350 Initial Decision similar import, had the tendency to mislead the public as to their truth, and thus to induce payment of substantial sums of money. (3) Respondents ' Answer Respondents fied answer admitting most of the factual allegations of the complaint, denying most of the substantive allegations, and raising several affrmative defenses. Respondents Trans World Accounts, Inc., and Floyd T. Watkins, admitted that they advertise and sell a service to assist in the collection of delinquent debts, and that part of their service includes the preparation by respondents of a series of form notices and letters to be mailed to delinquent debtors.

Respondents admitted they have mailed to delinquent debtors various printed forms and that the examples of their forms, set forth in the complaint, although incomplete in their descriptions, do describe to some extent the forms and materials used by them. They further admitted that one of their form notice and envelope styles included in its title the word TELEGRAM. However, respondents deny that by using such form they have represented, directly or by implication, that the messages are telegraphic communications. Respondents admitted that the notices to debtors are not telegraphic communications, and denied that they simulate such communications, or mislead recipients as to the nature, import, purpose and urgency of the messages.

Although respondents admitted that the excerpts of messages sent to debtors as set forth in the complaint are typical, but not inclusive of representations appearing on printed materials prepared and mailed by them, they denied that they have represented, directly or by implication, that legal action is about to be, or may be initiated during the series of letters. In the alternative, respondents denied that, during the course of their letter mailing service, there is no possibility legal proceedings would be initiated if the debtor failed to respond to a.communication.

Respondents denied that their service injures the public, or constitutes unfair methods of competition or unfair or deceptive acts or practices (4) in violation of Section 5 of the Federal Trade Commission Act. They denied that their printed forms and letters have the tendency and capacity to mislead the public into believing the notices are telegraphic communications, or to induce the public into payment of substantial sums because of representations in the mailed messages which they denied were false. Respondents urged the value of their service and asserted that they have never advertised, offered for sale or sold a service to assist Initial Decision 90 F. in the collection of anything but actual, due and owing delinquent debts. Nor, they claimed, had their service been used for any purpose but to collect lawful, just and delinquent debts. In their answer, respondents admitted that they are now and have in the past engaged in sending and receiving materials from persons located in various states by means of the United States mail and that they engage in substantial competition, in commerce, with like firms.

History of the Proceeding Complaint was served at the end of October 1975. An initial hearing which had been set in the complaint for November 24, 1975 was cancelled. On December 16 the law judge issued an order directing counsel to attempt agreement on a timetable for completion of prehearing matters and a date and place for hearings on the merits. A timetable was agreed upon and established by the law judge s order of January 22, 1976. Hearings on the merits were set for ~ay 10.

Thereafter, discovery was conducted according to the agreed upon timetable with the exception that complaint counsel requested and was granted a week's extension to fie final exhibit lists. On February 23, 1976, counsel supporting the complaint fied a motion for summary decision and respondents were granted time to respond to the motion. Complaint counsel's motion was founded on respondents' admitted use of the telegram format for its series of (5 letters and admitted use of language alleged in the complaint, thus according to complaint counsel, eliminating all factual issues in dispute. Respondents fied their response on ~arch 17 and included a request for oral argument on the motion. They argued that although the language was used as charged, there remained disputed issues of material fact including whether legal action against the debtor as allegedly depicted in the letters was accurate or a misrepresentation. Respondents charged as vague the wording in the proposed order which prohibited the use of materials which misrepresented the nature, import, purpose or urgency of any communication " and urged the need for oral argument to obtain more specific guidance as to what forms would be acceptable, including such possible formats as "Speedogram, Lettergram," and Transogram." Additionally, respondents objected to the disclaimer required by the proposed order to appear on notices sent to debtors to the effect that there would be no suit filed against the debtor until the end of the series of letters. Respondents argued the disclaimer 350 Initial Decision would be inaccurate, would be confusing to debtors, and would destroy the effcacy of their service.

A pretrial hearing was scheduled a d held on ~arch 25. As a result of this oral argument, the law judge concluded there were genuine issues of material fact in dispute. Therefore, the motion for summary decision was denied and the date for evidentiary hearings was reinstated for ~ay 10, 1976.

On April 30, a joint motion was made by the parties to withdraw this matter from adjudication so that the Commission could consider a consent agreement which had been negotiated. The law judge certified the agreement to the Commission and the matter was withdrawn from adjudication on ~ay 18, the hearings scheduled for ~ay 10 having been cancelled. However, the Commission did not accept the proposed consent order and returned the matter for adjudication on September 28.

On receiving notification of this action the undersigned immediately issued an order directing both sides to submit a proposed timetable for further proceedings including a trial date. Hearings on the (6) merits began on January 10, 1977, the earliest date respondents' counsel was available, and concluded after three days of proceedings. Eight witnesses testified including the individual respondent, and the testimony of others was stipulated. The record, consisting of 78 exhibits, many of them multi-paged, and 355 pages of transcript was closed by order of the law judge on January 17, 1977. This matter is now before the undersigned for decision based upon the allegations of the complaint, the answer, the evidence and the proposed findings of fact, conclusions and briefs filed by all parties. All proposed findings of fact, conclusions and arguments, not specifically found or accepted herein, are rejected. The law judge having considered the entire record, and all the contentions of the parties, makes the following findings and conclusions and issues the order set out at the end hereof:

FINDINGS OF FACT Respondents ' Business Activities and Sales in Commerce 1. Respondent Trans World Accounts, Inc.' is a California corporation with its offce and principal place of business located at 2800 Cleveland Ave., Santa Rosa, California (Ans. TWA, I). TWA IIereinafter referred to as TWA.

Initial Decision 90 F. was incorporated in California on November 5, 1970 and is a licensed full service collection agency engaged in the sale of debt collection services (CX 2a, b, 40-41).

2. Individual respondent Floyd T. Watkins formulates, directs and controls the acts and practices of the corporate respondent (admitted Ans. TW A, 1) including the drafting and review of the forms challenged in the complaint (Watkins, Tr. 98, 105, 331, 333-35). He now owns the majority of the outstanding shares of stock of TW (CX 40-41; Watkins, Tr. 55).' He has been an offcer and (7) director of the corporation since its beginning (Watkins, Tr. 53-54; CX 40-41; Ans. TWA , CX 2a). ~r. Watkins has been the vice-president or president and general manager ofTW A since January 1971 and he is currently the president (Watkins, Tr. 53-54; CX 40-41; Ans. TW A CX2a).

3. TW A is currently operating and marketing debt collection services in California, Washington, Arizona, and Hawaii. Previously, TW A sold its services in South and North Dakota, ~innesota ~ontana, ~assachusetts, Alaska, Utah and Nevada (CX 2, 40-41; Watkins, Tr. 83).

In addition to the main offce in Santa Rosa, TW A has had branch offces in Seattle, Los Angeles, Oakland, Dallas and Hawaii (Watkins, Tr. 83). As an example of the size of each b anch offce, ~r. Watkins testified that approximately 10 or 11 people work at the Los Angeles offce (Watkins, Tr. 129-30). There are about 35 employees at the main offce in Santa Rosa (Watkins, Tr. 82). 4. The corporate respondent offers a number of different debt collection services such as collection of accounts for a percentage of the remittance, personal contact of debtors, and the preparation of a series of form notices and letters to be mailed to delinquent debtors at regular intervals (Ans. TW A, 2, CX 2b). The series ofform letters are purchased by creditors for a "flat rate" (CX 3b, 4; Watkins, Tr. 61). The charges in this case are related primarily to the acts and practices which occurred in the operation of TW A's flat rate debt collection service (~otion for Summary Decision, Tr. 44-45). 5. Respondents are one of the ll)rgest debt collection agencies in California and, as estimated by ~r. Watkins, have the largest flat rate service in the state (Watkins, Tr. 84-85). TW A attempts to collect about $40 milion of delinquent debts per year and annually contacts about 130,000 individual debtors (Tr. 345-46). (8) 6. In the course and conduct of their business, TW A and Floyd T. Watkins have been and now are in substantial competition in or , There are eix other stokholders with percen e interests ranging from 1122 percent to 13 percent (Watkins Tr- 55) 350 Initial Decision affecting commerce (as "commerce" is defined in the Federal Trade Commission Act) with other corporations, firms and individuals in the sale of debt collection services (Ans. TW A 1O). 7. The corporation, TW A, is made up of three divisions, Trans World Accounts, Credit ~management Services, and Trans World Computer Services. The Trans World Accounts division is a full service debt collection agency with both flat rate and percentage remittance services. The primary responsibilty, however, for this division of the corporate respondent is the preparation and mailing of the flat rate letter series (Watkins, Tr. 57- 58; 67). About a year after TW A was formed, respondents developed the Credit ~management Services (C~S) division (Watkins, Tr. 65). C~S is also a full service collection agency, but it normally handles the percentage fee accounts after the letter series has been mailed to the debtor and failed to evoke response and the creditor has assigned the account to TWA for "hardcore" collection (Watkins, Tr. 67 74-75). The third division of TW A is a computer services division which provides computer services for the other divisions and to outside entities. The computer division prints TW A's debtor contact letters (Watkins, Tr. 81).

8. Respondents' services are sold to clients by independent commissioned sales representatives (Watkins, Tr. 83). The client using the flat rate service purchases four-part transmittal forms from the sales representatives. The form is filled out by the client with the debtor s name and address and other pertinent information and is sent to TW A. Upon receipt of the transmittal, the letter series is begun by respondents. The client, either because it has received payment or made payment arrangements with the debtor, may send the respondents the second part of (9) the transmittal form and stop the letter series. If the debtor should make a committment to pay on a certain schedule but fail to meet it, the client could send the third part of the transmittal form to TW A to resume the letter series. The fourth part of the form can be used to indicate payment and to generate a "Thank-you" letter to be sent to the debtor (CX 7i; Watkins, Tr. 89, 91-93; Stark, Tr. 176; ~orris, Tr. 201). 9. TW A charges its clients between $3.92 and $8.00 to activate a letter series to a debtor (Watkins, Tr. 122). All of the flat rate letters originate from TW A's Santa Rosa offce, but a local return address may be on the envelope if required by state law where the letter is sent (Watkins, Tr. 102).

A flat rate series of six letters is sent to the debtor over a period of from 85 to 90 days. A five letter series would be mailed over a 60 or g., g., g., Initial Decision 90 F. 70 day period. The letters are sent to the debtors approximately 10 to 14 days apart (Watkins, Tr. 336).

The respondents guarantee to purchasers of the flat rate service that they wil "contact the debtor over a period of 85 to 90 days so many times, depending upon the type of business that' s involved" (Watkins, Tr. 62). Respondents also offer to their creditor-clients, a guarantee that the client will collect from their debtors at least two times their investment to purchase the flat rate service transmittals (CX 8b; Watkins, Tr. 122).

10. In general, an agency which sells only a flat rate letter service does not obtain an assignment of the debt from the creditor. The collection agency s only obligation with respect to the debt is to send the series of letters to the debtor (Brouilette, Tr. 267). A collection agency which pursues a debt beyond a letter series and is paid a percentage of the monies collected normally obtains an assignment of the debt from the creditor.

TW A, however, sells its flat rate debt collection services to creditors on both an assignment and a non-assignment basis (Watkins, Tr. 70-71). The percentage of flat rate services sold on an assignment (10) basis by TW A has increased steadily since its incorporation. Currently, TW A receives an assignment of the debt before the first letter in the series is mailed in about 80-90 percent of all flat rate sales. TW A' s flat rate letter series service is the same whether or not the creditor-client has assigned the debt. Respondents obtain the assignment in the first instance so that if all letters in the series have been sent and there has been no response from the debtor, the account can be transferred to the C~S division for hardcore" collection on a percentage fee basis. C~S employs methods other than letters such as telephone calls and conceivably law suits. Nevertheless, even in "hardcore" collection cases, C~S sends several "pre-treatment" letters over a period of 15 days (Watkins, Tr. 74-75). The principal difference between the letters sent as part of the flat rate service and the "pre-treatment" letters is that in the former the debtor is instructed to pay the creditor while the latter requests payment directly to respondents (Watkins, Tr. 75-76).

11. TWA has used different letters in different states and has changed its forms for the flat rate series at various times, albeit somewhat infrequently (Watkins, Tr. 103-104). Principally, TW A' letters are from one of three series, intensive (see CX 21b, 22b, 23c 24c, 25c); diplomatic (see, CX 21a, 22a, 23b, 24b, 25b); and bad check (see, CX 21c, 22e, 23d, 24d, 25d). Only the first letter in each of the three series differs.

, 350 Initial Deision Telegram Format 12. The complaint alleges and respondents admit that they have mailed through United States mail, as one form of their letter series to delinquent debtors A yellow window envelope on which a return address is printed, with no name. . .The work TELEGRAM is printed in large balck type over the window and on the reverse side " and " yellow printed form, styled TELEGRAM designed to be inserted in the envelope. . .." The forms used by the respondents are reproduced as follows (CX 36a-b)' 3 The name of the allel'lO debwr hll ben delete in the reproduction herein. : :: :: ; ;:;.; : ;\;::....;. ( .:\y,\,j,,: , ...:. , , ::,.. ;:,.. ! .,, :, Initial Decision 90 F. i ". . "fl /:"I , f; '1''11':iVh" .. Charge ! 'he Aocount of ;rh c.ed \t-;, Me"aqe ..,IIbe ,eM AS' T"Iw.'" TRANS world ACCOU TS, I NC . BALOW! N PARK COM UNI TV HOSP DEBTOR NO. 014059Q4 C 1 OSQ40 14148 FRANCl5QU1TC 001 BALDWIN PARK CA 91706 REF. AMT DUE 572. 12/31/14 17444 HOll V OR FONT ANA CA 92335 ABOVE CLAIM IS STtLLUNSATISFIED. ItJvESTIGATION MAY DISCLOSE UNfYAID CHATTELS, LIENS OR OTHER OUTSTANDING i Cl A (M :!N:- SETTLE Above ACCOUNT WITHIN 48 HOUR-$ t:y. MAK-ING FULL PAYMENT OIRECl TO OUR CLIENT WHO I w"rLb ADVrS( US ' "T E,AS"t FURTHER ACTIVITY. 00 NOT CLA 1"5 OFFICE QF 'F,pans WORLD ACCOUNTS, INC., ? AVENUE, SU"lte' \l, S NTA ROSA, CALIF., OR I 2800 C I ANY OF O(jR' ,HUNOREOS OF ASSOCIAT& OFFICES NATIQNW(OE. cy- 3& q Trans World Accounts, Inc., ct al.

D0\k8i: - ' 9059 Message Enclosed in Forecjoing CX- 3GiJ , . . :::..: . 350 Initial Decision P. n f''':U864 MNirl ftSA CAUf. 354 ""i:: I , tff cy- 3(P Trans World Accounts Inc., et al. Front Side of CX- 36b 8l' 9059 Telegram Reverse Side of CX- 36b , Initial Decision 90 F. (13) As the complaint charges, the respondents have represented directly or by implication that the envelopes and forms pictured above are telegraphic communications when in fact they are form letters printed by a computer and sent by United States mail (Watkins, Tr. 109; CX 40- , Adm. No. 30). 13. The Communications Act of 1934, Section 214, gives the Federal Communications Commission authority to approve all entry into public message telegraphic service. Telegrams are messages forwarded by telegraphic service.' Electricity is used to transmit a telegraphic message or telegram.

The Western Union Telegraph Company is the only "carrier" duly licensed by the Federal Communications Commission to conduct a public message telegraphic service. For over thirty years, Western Union has been the sole licensee for this service in the United States. The people in this country associate the term "telegram" with messages sent by telegraphic transmission and also with Western Union.

14. Western Union telegrams are printed on different forms but the different forms are quite similar. One such format used by Western Union is in the record. See attachment to affdavit, CX 43 of~. Borsella, patent attorney for Western Union. For respondents stipulation of the admissibilty of this affdavit, see CX 42a, No. 15. The similarities between the respondents' simulated telegram and the Western Union telegram are obvious. (a) Both forms are yellow (see CX 4 in complaint counsel' s ~otion for Summary Judgment).

e.. smaller than an 8 (b) The forms are relatively the same size 1/2" x 11" standard business letter.

(c) Both forms have a dark band across the top which bears the word "telegram. " (14) (d) Both forms have the following notations which would be extraneous to respondents' forms were they not simulating a Western Union message:

(1) the box on the extreme right with the notations "Over Night Telegram" and "Unless box above is checked, this ~essage wil be sent as a Telegram.

(2) the box in the center which says Charge to the Account of." (3) on the left, the notation for "No. words. (4) Both forms have a box to indicate whether the message is Pd. or Coil."

(e) Both forms are delivered in a yellow envelope of nearly . WebBier s Seventh New Collegiate Dictionary defines telegrtlff 88 a ..telegraphic dispatch .. 350 Initial Decision identical size, both of which have a transparent window for the address.

16. Respondents telegram," sent through ordinary United States mail, is suffciently similar to a genuine telegram to have the tendency and capacity to deceive members of the general public, and lead debtors to believe that respondents' message has been transmitted telegraphically by Western Union.

17. Clearly respondents' use of the yellow "telegram" (CX 35) misrepresented that the message was a telegram, and thus misrepresented the nature of communication. Respondents argue that they developed the telegram format, believing that the word telegram" was in the public domain because of an alleged notice to that effect from the attorney general's office for the State of California (RX 4, but see also CX 39). Even if the word "telegram " is in the public domain, and it is not for this hearing to decide whether it is or is not, respondents went further than just using the word telegram." They attempted both with color and format to make their debtor contact look very much like a Western Union telegraphic communication. (15) This form did then misrepresent the nature of the communication. It appeared to be a Western Union telegram and it was not. At the least, respondents telegram " as stated, had the tendency and capacity to deceive recipients into the mistaken belief that they were receiving a telegraphic communication, and thus had also the tendency and capacity to mislead delinquent debtors or allegedly delinquent debtors as to the nature of the communication received.

18. Western Union charges, or at one time charged, the sender of a telegram $7.95 for a basic delivered 15-word message. Thereafter the cost increased at the rate of 8 cents per word. A Western Union ~ailgram ' now costs the sender about $2. 75 for a single message. Presently a first class message sent by United States mail costs $. per ounce. A reasonable person who sends a message using the Western Union telegram or mailgram must have a particular reason for spending considerably more to use the telegraphic system than the mail. The sender either wants the message to reach the recipient quickly or wants the recipient to regard the message as so important to the sender that extra money was spent to send it, or both. Examples of possible uses for telegraphic messages include notices of personal tragedy, confirmation of contracts, and myriads of others. 19. In everyday life, because of the expense of sending telegraph- , Western Union prently offers the public nn alternative to the telelrarn. caJJed the Mailgram, which is partisJJy sent by telegraphic C(mmunication IInd plirtiaJ!y by mail The mCSe is telegraphed from the sender to the recipient's generallocaLion llfd is then delivered by regular mail A Mailgram is priflte Ofl blue and white paper(RXl).

, Initial Decision 90 F. ie messages, most people receive more items of commumication through the mail through the use of Western Union telegraphic system. By its sheer uniqueness the telegram has athan greater impact' on the recipient than a letter. One client of respondent was aware of this extra impact and testified: (16) Q: Well, why is it that (TWA) is effective in getting results where you yourself have made a phone call and sent a letter and you didn t get results? A: Well, there I have to - having not ben at that end - not being in the customer s organization, I can only suppose what it is. I really think that the telegrams - now Trans Grams - are handed to higher echelon that effect payment. . (Anderson, Tr. 254).

20. The complaint in this case charges respondents with misrepresenting the import and urgency as well as nature and purpose of the communication. The dictionary is our best guide for determining what is meant by misrepresenting "import" and "urgency." Import is equated by Webster s with significance. Urgency is defined as something requiring prompt attention. By its greater impact on the recipient, a telegram tells the recipient that it is more significant and requires prompter attention than a letter. 21. Complaint counsel's recipients all stated that they felt the first communication from the respondents was - upon first impression - more significant and urgent than they regarded it after reading the message, as follows:

When I first received this - looking at the front of the envelope. . . .The Trans- Gram- 7 the first thing that struck my mind r wonder if this is something similar to a Mailgram, urgent letter, you know." So I opened it, you know thinking something has happened to my family or something. Then I see that it' from a collection agency. I was rather distrubed (Doolittle, Tr. 46). (17 J My first contact with Trans World Accounts, Inc., began in mid-1973, when my mother received by mail a billing notice in the form of a telegram. She became very upset when she saw the telegram and thought something had happened to someone in the family. She opened the envelope and read the contents and discovered it was a biling notice and was further upset that it was sent as a fake telegram. When my mother showed me the biling notice, I thought it was a real telegram until I read it and realized it was a fake (Semien, ex 42a, 44a). When I first received the collection notices, I thought they were real telegrams sent by Western Union. I did not realize they were fakes and not real telegrams sent by wireless. . . when I got the fake telegram I got upset becsause I thought something wa.., wrong (pere, ex 42a, 45a,b). . In it.advertisements the Western Union OJmpany emphfriz the "impad" of meses sent by their telegraphic system (RX 3a, Tr. 146- 149) , Respondents have discontinued the use of the yellow form notice to debton which is styled TELEGRAM (Watkins, Tr. 107) They now use a form caHed the Trans- Gram which is blue and white and is mailed to debtors in the same manner as the "telegram" The Trans- Gram and its envelope are in the record and arc di8CUBS laterherein(CX 51a-b).

350 Initial. Decision 22. There is no doubt that respondents' creditor-clients feel respondents' messages are "significant" and "require prompt attention." ~r. Anderson of Bechman Instruments expressed it mostpersuasively: We have an agreement withour customer that we would supply our product, and in our opinion we ve done everything that we had committed ourselves to, and now the customer has a cOffnltment to us, an obJigationto pay, and to pay us according to the terms that we agreed. When he is not living up to that, certinly it s Urgent. The longer it goes beyond our terms the more urgent it becomes. We re a profit making organization, and we must have our money. We must have a continuous cash flow in order to survive (Anderson, Tr. 260).

However, creditors apparently do not consider these messages as important or urgent as they want recipients to believe them to be or they would actually use the (18) telegraphic system and pay the higher cost. If the format of the message causes, or has the capacity to cause, recipients to believe the message has been sent faster or more expensively and is more important than regular mail, the format misrepresents the import and urgency of the message. The undersigned finds that the "telegram" format used by respondents had the capacity to accomplish, and accomplished, this result. 23. The purpose of the format of any debt collection message is to try to make the debtor take special note of the message, to read the message, pay attention to it and pay the debt, as opposed to fiing it away with other mail or throwing it away. If a creditor were to send a real telegram or mailgram to the debtor, the creditor s purpose would be to make the debtor take special note of the message, to read it, and act on it as opposed to filing it or throwing it away. The purpose of both a real telegram and a telegram format in a debt collection context is to impress upon the debtor the import and urgency of the contact. Therefore, it is hard to understand how the use of the telegram format misrepresents the purpose of the communication. Webster s defines purpose as the particular thing to be effected or attained. The creditor wants to attain the attention of the debtor. This can be accomplished by sending a telegram or a simulated telegram, the purpose being the same in either case. Respondents' use of a telegram format thus, in the opinion of the undersigned, did not misrepresent the purpose of the communication.

oijH FEDERAL TRADE COMMISSION DECISIONS Initial Decision 90 FTC. Imminence and Probability of Legal Action against Debtors 24. The complaint charges that statements in the messages sent by respondents during the course of their flat rate letter service misrepresented that legal action "is about to be, or may be initiated" against the debtor during the course of the flat rate letter series. The collection notices sent by respondents do represent, by implication that the third party (TW A) or the creditor brings a lawsuit during its flat rate letter series when, in fact, it does not. The language in the letters sent to debtors during the flat rate letter service has been carefully composed so that no threat of legal action is literally (19) expressed. Nevertheless, what the letters say and what the letters imply are different things. Consider the following sent by respondents to debtors. One letter (CX 25c) says: Urgent - Immediately contact our client and make arrangements for payment. Imperative to avoid further action which may be taken against you under provisions of state statutes. If settlement is not made within 5 days after receipt of this telegram, you may wish to consult your attorney regarding your legal liability.

The second sentence of this communication uses the word "may" to express possibilities but implies, in the context of the communication, high probability. The last sentence tells the debtor that he or she may wish to consult with an attorney regarding legal liabilty (i)f settlement is not made within 5 days." The phrase strongly implies that the recipient will need a lawyer if payment is not made in 5 days. A "net impression" of imminent legal action is thus conveyed. Further, the communication is termed a telegram with a concomitant suggestion of urgency.

25. Another letter, number four in a series (CX 25g), reads, as follows:

Amount of this unpaid claim may justify client taking legal action in small claims court or through his attorney in higher court. If such action is undertaken and results in judgment against you, writ of execution may be issued against your attachable assets. Cost of such proceedings may be assessed against you thereby increasing your indebtedness. Strongly advise you to make payment direct to our client today.

By warning the debtor that the unpaid claim "may justify legal action in small claims court " and making reference to "judgment writ of execution" and "(c)ost (20) of such proceedings," suggesting court costs, the implication is strongly conveyed that, without payment, legal action is likely and imminent. The final sentence (sJtrongly" advising payment "today" reinforces the impression of imminence.

350 Initial Decision 26. Respondents recently added an "attorney letter" to their series which is a form letter typed by computer and signed by an attorney retained by respondents (Watkins, Tr. 338). One example (CX 50) of respondents attorney letter" is recited below: My client, Trans World Accounts, Inc. , has requested this offce review the above claim and contact you. If you owe the debt, I seriously suggest you pay it now or contact your creditor immediately to resolve this matter. Full payment or satisfactory arrangements must be made forthwith or I must recommend to my client that your creditor go forward and seek its full legal remedy under the law. Should this claim warrant legal action, additional expense such as court costs and service of process may well increase your debt and thus your financial obligation. I must advise you to give this matter immediate attention as my offce has no authority to withhold further processing or proceedings. This "attorney letter " signed by respondents' California attorney, is sent to debtors in all the states, although the signing attorney sends delinquent accounts, which have been assigned to TW A for "hard core" collection, to an attorney in the debtor s locale for review and the local attorney fies suit if deemed advisable (Watkins, Tr. 340- 341). The net impression conveyed is strongly that if payment is not forthcoming, the signing attorney wil initiate suit, particularly in view of tbe last sentence which implies that the creditor has ordered legal processes to start and the attorney has no authority to withhold them. (21) 27. Still another letter (CX 22d), conveys the imminent probability of a lawsuit, as follows:

You have not satisfied our client concerning the above debt as we requested a few days ago. We strongly urge you to make payment direct to our client while you stil have the opportunity. Our client may refer this matter to legal counsel which could be turned into an immediate court suit. Such a procedure could be very costly to you. Avoid unpleasant complications and make payment direct to our client, not to claims offce of Trans World Accounts, Inc. 28. Another sequence of letters used by respondents in the State of Washington (CX 21a-g) employs essentially similar language to that in the letters quoted above. An early letter advises: You are hereby directed to appear at our client's office at 9:00 A.M. next Tuesday to protest liability of the above claim. Failure to comply may result in immediate commencement of litigation by our client. If judgment is granted, property, including monies, automobile, credits and bank deposits now in your possession could be attached. If our client receives payment in full prior to the time of protest as scheduled, your appearance wil not be required (CX 21b). This letter suggests that the creditor has some legal power to require the debtor to appear at his office when, of course, the creditor cannot, without a court's intervention, require the debtor to appear Initial Decision 90 F. anywhere. The letter conveys the impression that if the debtor does not appear, the creditor wil sue. The letter implies that unless the debtor pays or (22) appears as directed, he may forthwith lose his property. Again the legal phrases such as "liquidating this claim and "litigation" are used to give the message a legal authoritative, and compellng aura. The net impression of legal action and the imminence thereof is very strong.

29. Another letter in the series states:

You have had ample time to pay this claim. I have advised you of some of the legal remedies our client may use to obtain satisfication, and I strongly advise you not to take that risk. If settlement is not made within 5 days after receipt of this letter you should consult with your attorney regarding your legal liability. Make voluntary payment now and protect your credit standing (CX 21e). This language not only implies legal action, but that it is imminent by stating that the debtor should consult his attorney if settlement is not made within 5 days.

30. The next letter, (CX 21f), reads:

You have received the benefit of earlier notices from this offce and have failed to discharge your obligation. We hereby request verification as to employer name and address. banks with which you do business, mortgage holder on home and legal owner of automobile. This information is necessary when fiing suit and is to be forwarded immediately to our claims offce for their records. If payment has been made, it is imperative that our client notify our offce immediately so we can discontinue the processing of this claim. (23) Again, the net impression that legal proceedings are about to be initiated unless payment is received is strongly conveyed, for example, the employer s name and address, name of banks, etc., are necessary when filing suit," and are to be forwarded by the debtor immediately. " It is suggested to the debtor that his home automobile and savings are in jeopardy. The final sentence reinforces the foregoing. Respondents warn the debtor that it is "imperative that they be notified by the creditor if payment has been made. Why? The sentence suggests that respondents are "on the way to the courthouse with fiing papers in hand" and if the debtor pays, he must tell his creditor to contact TW immediately to stop the suit. 31. The series used by respondents in ~assachusetts, (CX 22), has a letter, #4 in the series, which states the following: Urgent - Appear at Claimant's offce within four days to pay above claim or protest your liability. Failure to appear in person or have legal counsel represent you may result in immediate litigation by our client with ultimate seizure of property, auto, bank accounts and other personal asets if judgment is obtained. This letter suggests, like others already discussed, that respondents 350 Initial Decision and their clients can conduct a court-like proceeding and require the debtor s appearance. ~ore importantly, it conveys the impression that failure to appear in person or by counsel may result in immediate litigation" with ultimate seizure of the debtor s auto and other assets if judgment is obtained. In the language of the complaint, the letter represents that "legal action" is "about to be, or may be, initiated.

32. Respondents argue that because they have an assignment of the debt in approximately 90 percent of the accounts they receive for collection (Watkins, Tr. 70-71), (24) and because they are a full service debt collection agency (Watkins, Tr. 134-135), the possibility of legal action depicted in their letters is, in fact, a distinct reality. In actualiy, however, whether or not the debt was initially assigned made no difference in the consequences of a debtor s failure to respond to any of the letters in the series. 33. In both TW A's assignment and non-assignment flat rate debt collection service, the collection notices are sent in a set sequence (see handwriting on CX 21 through CX 28 which notes are in evidence, Tr. 106). The consequence of the debtor s failure to pay after receipt of one letter was receipt of the next letter. One of the letter series (CX 25b) was read to ~r. Watkins during the hearing and he was questioned about the reference to the statement that in 10 days other collection procedures could begin. Q,. . what would these procedures consist of? A: We d generate another contact, a No. 2 contact to the debtor (Watkins, Tr. 333).

34. Legal action with respect to an alleged delinquent debt was neither about to be, and, except in the rarest of circumstances, would not be initiated by either creditors or respondents during the course of the series of form notices and letters. 35. Creditors who purchased the flat rate service and testified at the hearing, indicated that they did nothing in regard to the account for the duration of the letter writing series: Q: Do you do anything to effect payment of the overdue or delinquent debts during Trans World Account's service? A; No. That' s the nice part of it, from our point of view. I'm responsible for many other things, dollarwse more important and timewise, that there are some (25 J periods during the year where I literally would just be derelict in my duty ifi had to get something out like that. , Initial Decision 90 F. The fact that they sent out automatically on a timely basis these followups, very good. .

if that didn t work, then you Q: So other than sending out the invoices or bils, just turned it over to Trans World Accounts and basically forgot about it? Ao Uh-huh (Stark, Tr. 177).

TW A for the flat rate service, their letter Q: When you turn the account over to service - once you have turned it over to TW A, do you make other reference (sic J to collect the debt? A: No, we do not (Schmale, Tr. 215).

Q: When you have to, you ve gone through your collection procedure and turned it over to Trans World Accounts.

Do you do anything to effectuate payments? A: Only if the member contacts us.

Q: If they don t contact you, you leave it up to Trans World Accounts'? A: (Witness nods Head) (Morris Tr. 205).

36. As in the assignment situations, one creditor client of TW A letter series testifiedwho did not assign his accounts for the flat rate that he would not (26 J begin legal proceedings against a debtor during the course of the letter series:

Q: Do you ever bring a lawsuit while the series of letters is being sent out? A: No. We would first stop the - terminate or suspend TW A. Q: But if they - suppose a debtor has not responded at all after the first, second or third, would you let the series go to its conclusion? A: Yes. That' s our policy.

Q; Then you would decide whether to bring a lawsuit; is that correct? A: Yes, unless we heard through other sources, either from a salesman that goes by and sees them moving out of the building, or some evidence that would indicate that Hey, they re closing up." Then we d stop the service and file suit (Anderson, Tr. 257).

37. TW A, moreover, makes clear in its advertisements that it does not sue when the creditor only purchases the flat rate service: DOES TRANS WORLD ACCOUNTS SUE DEBTORS? NO! . . . OUR LOW CONTACT PRICE MAKES THIS UNFEASIBLE. IF YOU WISH TO SUE, . .

350 Initial Decision YOUR SERVICE REPRESENTATIVE WHO WILL EXPLAIN OUR COST FOR This SERVICE TO YOU (CX 8b).

Thus, TW A, in sellng its flat rate debt collection letter service does not enter into any agreement with the creditor at the outset of the letter service to do anything other than mail a certain number of form letters to debtors.

(27 J 38. After the last notice or letter in the flat rate series has been sent to the debtor, TW A contacts the creditor, whether or not there has been an assignment of the debt, to determine future courses, including legal action (Watkins, Tr. 73-74). Even in assignment situations, the creditor-clients have a right to cancel the assignment after the letter series is completed: Our arrangement with them (TW A) is that all of the accounts are assigned. We do have an option of cancellation within a certain specified time without paying a fee, other than the flat fee that we have paid at the outset (Schmale, Tr. 210; see also Morris, Tr. 205-206).

39. After all letters in the flat rate series have been sent and when the accounts have been assigned and respondents have received approval from their clients to go ahead with "hardcore collection, a lengthy period of time typically elapses before suit is brought, if suit is ever brought.

~r. Watkins explained during the course of the hearings the kind of procedures which are used by most agencies in percentage commission situations:

agencies use what we call the PTL in the industry, a pre-treatment series. That can be anywhere from two, three, four, five contacts by letter that they send out to a debtor.

The advantage of this is the fact that they don t pay a commission to a collector if the account is collected.

Now if the account is not collected on the PTL program, then the account would be given to a collector or assigned to a collector s desk by alphabet. Most collection agencies are divided A through Land et cetera. (28) The collector at that time would make two or three contacts, telephone contacts, and then determine that the account is not collectable through the use of the normal collection procedure. He would make up what we call a court action or a debtor assignment - I mean, a record of assets. He would request permission from his manager to sue the account. The manager, then, would take a look at the assets and make a judgment send it to the attorney s offce with instructions for suit. If the attorney agreed, the account would be sued.

Initial Decision 90 F. After the judgment is granted, then you would execute on the asets, if the debtor didn t pay voluntarily (Tr. 126).

Respondents follow all these procedures typically utilized in the debt collection industry (Watkins, Tr. 127).

40. Even after the pre-treatment letters have been sent by respondents' C~S division, the debtor is not immediately sued. The account is given to a collector to make telephone calls to the debtor. And even if the debtor adamantly refuses to pay, respondents make some evaluation before they bring a lawsuit. Each individual account is reviewed by respondents to determine whether the debtor has any assets, the amount of the debt, and whether the contract with the creditor calls for recovery of costs by respondents. After the review respondents decide whether they wil initiate a lawsuit (Watkins, Tr. 76-78).

41. There are no set policies used by respondents as to which debtors wil be sued, and each case is individually evaluated before respondents bring suit. ~r. Watkins noted respondents' guidelines: (29) One would be the strength of the case. In other words if we look at the account and there s no dispute, there s no problem. Two, if it calls for attorneys' fees, court costs contract where we have an opportunity to recover our costs. Three, there are other things that are also involved. The fact of whether the debtor is currently employed. In other words, what we can job assets, an asset investigation whether there s property involved, attachable assets. Things lie this (Watkis, Tr. 307). 42. Although in many communications with one debtor whose affdavit is in the record of this proceeding, respondents indicated the imminent possibility of suit, almost a year of collection activity was expended and no suit was brought (Watkins, Tr. 305). The same is true of the other debtor who signed an affdavit. This debtor was sent the letter series, her account was transferred to C~S division and she was sent a notice of assignment. She set up a payment program with respondents but failed to meet this commitment (Watkins, Tr. 298-299). She was then sent additional "pre-treatment," dunning letters. Again, although each letter indicated that a lawsuit was imminent, this was not the case (Watkins, Tr. 299-301). 350 Initial Decision CONCLUSIONS 1. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of respondents. Respondents are now sending and receiving and have previously, in the course of their business, sent and received through the United States mail, letters notices, forms, and other materials for use in the collection of delinquent debts. Respondents have done business in various states such as South and North Dakota, ~innesota, ~ontana, ~assachusetts, Alaska, Utah and (30 J Nevada. Respondents currently do business in the States of California, Arizona, Washington, Texas and Hawaii. Respondents have maintained a substantial course of trade in or affecting commerce, as "commerce" is defined in the Federal Trade Commission Act.

2. ~r. Watkins is individually responsible for the acts and practices of the corporate respondent. As an offcer, director, and majority stockholder, he formulates, directs and controls the acts and practices of the corporate respondent, including those challenged in the complaint herein. ~r. Watkins has been the principal manager of TW A since its inception and was associated with the debt collection industry before the establishment of TW A. The order issued herein must be issued against ~r. Watkins individually as well as against the corporate respondent TW A to ensure that the acts and practices violative of Section 5 alleged in the complaint are finally stopped.

3. By the use of the envelopes and forms described in Paragraph Four of the complaint, and shown by the record of this proceeding, respondents have represented, directly and by implication, that the envelopes and forms are telegraphic communications when, in truth and in fact, they are not. The use by respondents of such envelopes and forms has, and has had, the tendency and capacity to mislead and deceive members of the public receiving them into the erroneous and mistaken belief that such envelopes and forms are telegraphic communications, and to mislead and deceive members of the public receiving them as to their nature, import and urgency. 4. Respondents have made statements and representations, as alleged in Paragraphs Seven and Eight of the complaint, in their notices and letters to debtors as part of their flat rate service which were and are false; misleading and deceptive in that they represent, directly and by implication, that legal action with regard to the debt may be, or is about to be, instituted during the course of respondents series of form notices and letters when, in truth and in fact, as Initial. Decision 90 FTC. alleged in Paragraph Nine of the complaint, such was not the case. While respondents' (31) letter writing service was being used, no legal proceedings were being or would be initiated on the basis ofthe alleged debtor s failure to respond to respondents' communications. Such false, misleading and deceptive statements and representations have, and have had, the tendency and capacity to cause members of the public to pay substantial sums of money as alleged in Paragraph Eleven of the complaint.

5. The acts and practices of respondents, as alleged in the complaint and found herein, were and are all to the prejudice and injury of the public and of respondents' competitors and constituted, and now constitute, unfair methods of competition and unfair and deceptive acts and practices in or affecting commerce in violation of Section 5 of the Federal Trade Commission Act. DISCUSSION There can be no doubt that debt collection is a legitimate function in our economic system. Consumers everywhere must subsidize. through higher product prices, those persons who buy products or use services which they do not pay for. Unquestionably there are those who take advantage of the relative ease with which credit can be obtained in this country, buying with little or no intention of paying. There are others, however, who do not pay because they have disputes with their creditors. And there are stil others who do not pay simply because they cannot pay, either due to changed circumstances in their lives or, perhaps, to over extension of their payment capabilities. Whatever the reason for non-payment, payment from debtors may not be exacted by misrepresentation, deception, and other unfair practices in debt collection activities. Floersheim v. F. T c., 411 F. 2d 874 , 878 (1969), cert. denied, 396 U. 1002. (32) Respondents argue that all three of complaint counsel' witnesses have ultimately escaped payment of legitimately owed obligations (Respondents' Proposed Findings, p. 5). The Commission however, has repeatedly expressed its view, as already indicated, that "The legitimate objective of seeking to induce debtors to pay their debts does not justify the use of ilegitimate and unlawful means. There is no lack of public interest in the protection of such persons merely by reason of their delinquency. Allied Information Service, 56 F. C. 1615, 1618 (1960).

350 Initial Decision Telegram Format The telegram format as used by respondents had the tendency and capacity to mislead recipients as to the;;nature, import and urgency of the message. Capacity for deception is suffcient for a violation and the invocation of a cease and desist order under Section 5 of the Federal Trade Comission Act. It has been well settled since Charles of the Ritz v. FT 143 F. 2d 676, 680 (2nd Cir. 1944), that actual deception need not be shown. Respondents contend that complaint counsel should have produced at least one witness who was led by the telegram format to payor to take some other action which would not have been taken if such person had not been misled by the misrepresentation as to the simulated telegram s nature, import and urgency. All three of complaint counsel's witnesses indicated that they felt the message they had received was something other than a regular letter. Though each of these persons ultimately discerned that the messages were simply debt collection letters in the format of a "fake" telegram, their initial impression was that they had received a telegram. As noted in Carter Products, Inc. v. FT 186 2d 821, 824 (7th Cir. 1951):

The law is violated if the first contact or interview is secured by deception Federal Tmde Commission v. Standard Education Society, 302 U.S. 112, 115, 58 S. Ct. 113 82 L.Ed. 141, even though the true facts are made known to the buyer before he enters into (33J the contract of purchase. Prgress Tailoring Co. Federal Tmde Commission. 7th Cir., 153 F. 2d 103, 104, 105. See also Aronberg Federal Tmde Commission, 7th Cir., 132 F. 2d 165, 169. ~moreover, one of complaint counsel's affants apparently did contact Trans World Accounts after she had received the "telegram" and arranged an installment payment plan (Watkins, Tr. 297, 298, 299). Whether this was a reaction to the telegram format or to the statements in the communication in it, or both, is not established. In any event, the Commission can look at the fact that a "fake telegram was utilized and conclude that such practice has the tendency and capacity to deceive.

Respondents, however, oppose inferences drawn from the "four corners" of the "fake" telegram itself relying on the Commission recent decision in the Alaskan artifacts case Leonard F. Porter, Inc. CCH Trade Reg. Rep. 225, Order of October 19, 1976 (88 F. 546). The Commission, after looking at the various artifacts in the record, decided that it could not assume that consumers mistook the souvenirs to be genuine Alaskan art objects without some evidence to that effect. But the Commission determined that this ruling was warranted by the unique circumstances of the Indian artifacts case. Initial Decision 90 F.T.C. No such record evidence is necessary when, as with a "fake telegram, the item or message alleged to be deceptive conveys "the same meaning to the Commission viewing it in chambers as it does to consumers seeing it in their living rooms." The Supreme Court in FTv. Colgate Palmolive, 380 U.S. 374, 391-92 (1964), concluded that it was not "necessary for the Commission to conduct a survey of the veiwing public before it could determine that the commercials had a tendency to mislead for when the Commission finds deception it is also authorized, within the bounds of reason, to infer that the deception wil constitute a material factor in a purchaser s decision to buy" or, by a parity of reasoning, a debtor s decision to pay a claim or to take other action. The Commission has the discretion to interpret meanings of communications and the "impressions they would likely make upon the viewing public. Libbey-Owens-Ford Glass Company v. F. T. G., 352 F. 2d 415, 417 (6th Cir. 1965). (34) Respondents essentially do not insist on any right to continue to use "fake" telegrams, and in fact have stopped such use. Nevertheless, respondents offered numerous exhibits (RX 6-19) to support their contention that their simulated telegram was no more deceptive than somewhat similar devices, such as "Speed- Gram Autogram Gram Messagegram, " etc., currently used in many different situations, e., to notify customers of product sales, to elicit votes in political campaigns and to deliver messages of various kinds. In many if not most of these situations, however, the format does not have the capacity to misrepresent. In the opinion of the undersigned the use of a "fake" telegram reinforced with a message implying dire consequences resulting from non-payment of a debt does, as earlier found, have the capacity to misrepresent to the debtor the nature, import .. d. urgency of a communication which is merely a form letter in a series of form letters. The net impression which the format and communication makes upon the debtor is what counts. Murray Space Shoe Corporation, v. FTC 304 F.2d 270, 272 (2nd Cir. 1962); Kalwajtys v. F. T.G., 237 F. 2d 654, 656 (7th Cir. 1956), cert. denied, 352 U.S. 1025 (1957). The Commission has previously considered, in the case of documents designed to simulate legal process, the impression likely to be generated by the overall appearance of documents. S. Dean Slough v. FTC, 396 F.2d 870 (5th Cir. 1968), cert. denied, 393 U.S. 980. Several other arguments made by respondents should be noted. First, there is no reason to question respondents' good faith. Trans World Accounts, Inc. is a major debt collection operation in California and various other states, and there is no reason to assume 350 Initial Decision that respondents did not try to comply with regulations governing collection practices in all the states in which they did business. Proof of petitioner s intention to (35) deceive is not a prerequisite to a finding of a violation. . .. Regina Corporation v. F.T.C 322 765 (3rd Cir. 1963); Gimbel Bros., Inc. v. FTC, 116 F.2d 578 (2nd Cir. 1941).

Secondly, respondents urge that they have discontinued the use of the "telegram" form. It has been long established that even if a practice has been abandoned and assurances have been made that it wil not be revived, the Commission has discretion to determine if the public interest requires protection against possible related and similar practices in the future, and the Commission can issue an order to prevent such. Libbey-Owens-Ford Glass Company v. FTC, supra at 418.

Respondents have replaced their "telegcam" with a format called the "Trans- Gram." The Trans- Gram is blue and white and approximately the same size as their "telegram" (CX 51a and b). The Trans- Gram does not explicitly refer to itself as a telegram, except in the body of the message of the first Trans- Gram letter in the series which states that if settlement is not made within 5 days after receipt of this telegram," the debtor may wish to consult his attorney (CX 47a).

Respondents have been concerned throughout this proceeding about their abiliy to continue to use the Trans- Gram if an order is entered in this proceeding. The use of the Trans- Gram was not challenged in the complaint and thus a determination of its legality is not required. In the opinion of the law judge, nevertheless, the Trans- Gram envelope with the communication contained in it (CX 51a and b), has the tendency and capacity to mislead recipients. Although the Trans- Gram is less blatant, the name (36) Trans- Gram and the format of the communication is susceptible to being confused by poorly educated, credulous or unthinking recipients with telegraphic communications (see Doolittle, Tr. 46; and Stark, Tr. 172-173). The essence of what has been said with respect to respondents fake" telegram, in our judgment, applies to their subsequent Trans- Gram format.

Similarly, any other label and format used for respondents communication with debtors which has the tendency and capacity to . In fact, there is evidence that respondent! did attempt compliance with the regulations of the various state in which they did busines!. Respondent! did (lt use the telegram in Washingtn and Texas where it Wal prohibite (Watkins, Tr- 9R, 120-121)- Respondents discuoo all of the letter forma use in their buainct/ with the Bureau of Collection snd Investigative Services of the State of California. and althour:h it W/I not the practice of the Bureau to speifically approve debt collection forma, the Bureau did not disapprove of any fonns us by respondents (Biahop, Tr. 221-222; Watkina, Tr. 98) . .

Initial Decision 90 F. mislead by confusion with more expensive, different or urgent types of communication, such as telegraphic or personal delivery, would violate Section 5 and the order issued herein. If the debtor has simply received a letter from respondents, he should know it is simply a letter without possibilty of confusion or deception. Imminency of Legal Action The messages contained in the form letters sent to debtors as part of respondents' flat rate service misrepresented that legal action was about to be initiated against the debtor when, in fact, many steps and much time would intervene, in both assignment and non-assignment situations, before legal action, even if determined upon, truly was imminent.

Respondents argue that because they are a full-service debt collection agency and because they obtain an assignment of the debts from about 90 percent of their clients, that they are fully able to begin legal action at any time against their clients' debtors. Accordingly, respondents contend that thc statements made in their form letters about the possibilities of legal action are literally true. But this does not render respondents' statements nondcceptive because what was misrepresented was the imminence of legal action. Actually in only the rarest of cases, if ever, would respondents bring suit during the course of their flat rate service.

(37) The contention that the abilty to bring suit rendered respondents' communications truthful is rejected. Although there may have been a theoritical ability to institute legal action during the form letter series, as stated, this was never done or was done so rarely as to warrant being disregarded. Even if respondents statements, or some of them, are considered to be literally true, the overall net impression conveyed was that legal action, and concomitant dire consequences, was imminent if the debt were not paid forthwith, or an accommodation entered into forthwith with respect to the debt. This net impression was false and deceptive. In Murray Space Shoe Corporation, supra, the Commission found that a shoe manufacturer s statements about the pain relieving qualities of its shoes were literally true but that the additional implications of its supra, at 272advertisements were misleading. The Second Circuit upheld the Commission and said:

In deciding whether petitioners' advertising was false and misleading we are not to look to technical interpretation of each phrase, but must look to the overall impression these circulars are likely to make on the buying public. And statements susceptible of both a misleading and a truthful interpretation will be construed against the advertiser.

. . . , , p. 350 Initial Decision See also, Katwajtys, supra at 656: "a statement may be deceptive even if the constituent words may be literally or technically construed so as not to constitute a misrepresentation; United States v. 95 Barrels of Vinegar, 265 U.s. 438, at 443 (1924) which states (d)eception may result from the use of statements not technically false or which may be literally true; " and Rhodes Pharmacal Co., F. T C, 208 F.2d 382, 387 (7th Cir. 1953), modified on other grounds, 348 U.s. 940 (1955), noting that (a)advertisements which are capable of two meanings, one of which is false, are misleading. . . . (a)advertisements which create a false impression although literally true, may be prohibited. " That deception by innuendo rather than outright false statements may be so accomplished is firmly established. Bakers Franchise Corporation v. F. T , 302 F.2d 258, 261 (3rd Cir. 1962).

(38) Respondents cite (Final Brief, p. 18) F.TC v. Sterling Drug Company, Inc. 317 F.2d 669 (2nd Cir. 1963), as support for their view that the courts wil curtail the Commission s discretion to determine when literal truths emit misleading impressions. In rejecting a Commission argument the court refused, at 676, to attribute to the ordinary reader "a careless and imperceptive mind" or "a propensity for unbounded flghts of fancy." However, in this case, " unbounded flghts of fancy" would be necessary for a debtor to infer from the letters sent by respondents that suit is imminent, particularly in view of the fact that some of the sentences in respondents' letters have no meaning beyond that suggestion. It may be true, as respondents note in their proposed findings , that "(a) mass mailing of even the mildest type of debtor communication is bound to ferret out a certain percentage of individuals who wil be misled, frightened or intimidated." Respondents' mailings to debtors were not of the mildest kind. Their letters included references to additional court costs, loss of earnings and assets, and investigation of the debtors personal business. Some of the letters told the debtors to payor see a lawyer, and that they would have no further opportunity to pay the debt voluntarily. The undersigned accepts respondents' statement in their final brief that " most people do pay their debts, that often all that is needed to motivate one to pay an obligation, or at least to contact the creditor involved, is a series of reminders which reflect a sense of urgency and importance on the part of the creditor." But reminders to the debtor must accurately and truthfully reflect the situation and cannot convey, directly or indirectly, false or misleading impressions. 1f the reminders are of no value in collections without misrepresentation then reminders as a system of collecting debts . .

Initial Decision 90 F. cannot be countenanced. As the 'Bupreme Court said in FT Colgate-Palmolive, supra at 390-391: (39) we think it inconceivable that the ingenious advertising world will be unable, if it 80 desires, to conform to the Commission s insistence that the public be not misinformed. If, however, it becomes impossible or impractical to show simulated demonstrations on television in a truthful manner, this indicates that television is not a medium that lends itself to this type of commercial, not that the commercial must survive at all costs.

There is, of course, no reason flat rate letter services for debt collection cannot be lawfully marketed. Two cases do show the requirement for carefully scrutinizing the messages sent in the course of such services. In S. Dean Slough v. FTC, 396 F. 2d 870 (5th Cir. 1968), cert. denied, 393 U.S. 980 affirming 70 F. C. 1318, the respondent marketed a variation of the flat rate service in that he sold debt collection forms to businessmen. These were later remailed under respondent's letterhead and address, thus deceptively implying that a third-party had been engaged to collect the debt. The statements made in S. Dean Slough' forms were similar in a number of respects to statements made in TW A' s forms. S. Dean Slough was prohibited from representing directly or by implication that ". . . any delinquent account had been referred to it for collection," and from representing that ". . . any legal or other actions wil be instituted to effect collection" 70 F. C. at 1368. The Commission further noted in S. Dean Slough, at 1358, that third party referral is an effective debt collection device because the debtor feels the creditor has assigned the account for legal action. To the extent that the third party is not in a position to sue, the use of a third party s name and address for the collection of a debt "is wholly grounded in deception. Helix Marketing Corporation, 3 CCH Trade Reg. Rep. 20,368 (1973) (83 F. C. 514), is also in point. It involved a corporation which assigned debts to a separate division with a different name for collection to give its debtors the impression that the account had been assigned to an outside collection agency. The corporation was prohibited from representing that legal action wil be taken unless it is taken in all cases, or that legal action may be taken unless it is (40) taken in a majority of cases. Respondents attempt to distinguish Helix by arguing that because in Helix the assignor and assignee were the same corporate person, there could be no question in the minds of the individuals running the collections division as to what the parent corporation would, in fact, do to collect the debt. There is no merit in respondents' attempt to distinguish this case from Helix. TW A sells its flat rate service as a . . . . .

350 Initial Decision series of form letters to be sent to debtors, and no legal action is planned or taken during this series.

Floersheim v. FT supra, is a case where the debt collectors actions were more egregious than those of TWAin that the debt collection notices were made to simulate legal documents, and were sent by Floersheim from Washington, nc., to give the notice an official government aura. Nevertheless, the Commission s findings in that case are pertinent here. The Commission found "that vague references to state laws permitting attachment of various types of property had a tendency to deceive. . . " and that the sole purpose of including this catalog of creditors' rights is to intimidate and deceive the debtor, rather than to inform him of the legal rights of his creditor.' " Floersheim, at 877. ~moreover, Floersheim was prohibited from giving the impression that a third party, other than the creditor, was interested in the debt.

Respondents counter that they are required by state law to catalogue possible extra costs to the debtors should legal action be taken. The language which is suggested for use by the California Bureau of Collection and Investigative Services is as follows: You are advised that we intend to commence legal action against you. This action can result in a judgment against you which wil include the actual cost of fiing fees and. actual cost of servce of process (Watkins, Tr. 153; RX 5. 6).

However, according to the testimony of the former Chief of California s Bureau of Collection and Investigative Services, this requirement was passed by the California legislature as a consumer protection (41) measure because of the peculiarity of California court system and was directed at regular third party collection measures not flat rate services. He testified that the reason for the rule is that in California collection agencies cannot sue in small claims courts, and the legislators wanted debtors to know that, even though the amount of the debt was small, once the account was assigned to a collection agency, the account would be sued in regular court where costs could be assessed against the losing party (Bishop, Tr. 230-231). The particular language quoted above was suggested because some collection agencies abused the notification requirement (Bishop, Tr. 231-232; RX 5, p. 6).

REMEDY Respondents raise a threshold First Amendment question in Initial Decision 90 F. regard to the order which has been proposed by complaint counsel. First Amendment attacks upon Commission orders are not novel. See Murray Space Shoe Corporation v. FT supra, at 272; Regina Corporation v. F. T. supra, at 770. There is now no question that commercial speech is protected by the First Amendment Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748 (1976), but there is no protection for false and misleading speech. "The power of the Federal Trade Commission to restrain. misleading, as well as false statements. . . has long been recognized. Young v. American Mini Theatres, Inc. 427 U.S. 50, 69 (1976). There is obviously no constitutional right to disseminate false or misleading statements. FT v. National Commission on Egg Nutrition, 517 F.2d 485 (7th Cir. 1975). In view of the recent decision in Beneficial Corp. v. 542 F. 2d 611, 619 (3rd Cir. 1976), any order FT which restricts commercial speech must be as precise as possible and should be no more broad "than is reasonably necessary to accomplish the remedial objective of preventing the violation. The words "nature, import" and "urgency" in the abstract have ranges and shades of meaning when applied to possible future communications of respondents in their debt collection activities which, in the veiw of the undersigned, are too imprecise to serve as a proper guideline. Therefore, the proposed order has been narrowed in this respect. (42 J Disclaimer Respondents vehemently object to the disclaimer contained in the Notice" order for inclusion in all of the letters sent by respondents in their flat rate service. The disclaimer is as follows: This communication is a reminder of creditors' claim. Trans World Accounts Inc., does not take any legal action against the debtor during the letter writing series.

The undersigned is of the opinion that the foregoing disclaimer would be extremely confusing to recipients of TW A's communications. The disclaimer does not state clearly TW A's relationship with its creditor clients and has the capacity to leave the misleading impression that TW A has been engaged to pursue all avenues of collection and has complete authority to sue. The debtor, furthermore, not only does not know how many letters are included in the letter writing series" but, until a number of communications have been received, would not necessarily even understand the phrase letter writing series.

It is without question that the Commission has broad discretion in ;:oU Initial Decision framing an order to insure that law violations wil not continue, so long as there is a reasonable relation between the violation and the remedy. FTC v. Colgate-Palmolive supra; FT v. National Lead Company, 352 U. S. 419 (1957); Jacob Siegel Co. v. FT, 327 U.S. 608 (1946). And where necessary the Commission can require affrmative disclosures. Ward Laboratories, Inc. v. FTC, 276 F.2d 952 (2nd Cir. 1960), cert. denied, 364 U.S. 827. In the opinion of the undersigned, the disclosures here are not only unnecessary but would obscure and render less valuable the truthful representations compelled by the order. Alberty v. 182 2d 36 (D. C. Cir. 1950), cert. denied, 340 S. 818. (43 J ORDER It is ordered, That respondents, Trans World Accounts, Inc. , a corporation, its successors and assigns, and its offcers, and Floyd T. Watkins, individually and as an offcer of said corporation, and respondents' agents, representatives and employees, directly or through any corporation, subsidiary, division or other device, in connection with the offering for sale, sale or distribution of any service or printed matter for use in the collection of, or attempted collection of, or for assisting in the collection of, or for inducing or attempting to induce the payment of, alleged delinquent debts in or affecting commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from: I. Using or placing in the hands of others for use, envelopes letters, forms or any other materials which by their appearance, content, or otherwise, misrepresent that they are telegrams or a telegram.

2. Using or placing in the hands of others for use, envelopes, letters, forms or any other materials which by simulating telegrams or other methods or forms or types of communication misrepresent the nature, import, or urgency of any communication. 3. ~isrepresenting directly or by implication, that legal action with respect to an alleged delinquent debt has been, is about to be or may be initiated, or misrepresenting in any manner the imminency of legal action.

4. Engaging in any misrepresentations in communication with alleged delinquent debtors, or placing in the hands of (44 J others for use in communicating with alleged delinquent debtors, letters forms, or any other materials, which contain misrepresentations. 5. Placing in the hands of others the means and instrumentali- Initial Decision 90 F. ties to accomplish any of the matters prohibited in this order, or which fail to comply with the requirements ofthis order. It is further ordered, That the respondent corporation shall distribute a copy of this order to each of its operating divisions or departments and to each of its present and future offcers, agents representatives, or employees engaged in any aspect of the offering for sale, sale or distribution of any service or printed matter for use in the collection of, or attempted collection of, or for assisting in the collection of, or for inducing or attempting to induce the payment of, alleged delinquent debts, and that said respondent secure a signed statement acknowledging receipt of said order from each such person.

It is further ordered, That the respondent corporation notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondent such as dissolution, assignment or sale resulting in the emergence of a successor corporation. the creation or dissolution of subsidiaries or any other change in the corporation which may affect compliance obligations arising out of the order. It is further ordered, That the individual respondent named herein promptly notify the Commission of the discontinuance of his employment with Trans World Accounts, Inc., and of his affiiation with a new business or employment. In addition, the individual respondent named herein shall promptly notify the Commission of his affiiation with a new business or employment whose principal activities include the offering for sale, sale or distribution of any service or printed matter for use in the collection of, or attempted collection of, or for assisting in the collection of, or for inducing or attempting to induce the payment of, alleged delinquent debts, or of his affiiation with a new (45) business or employment in which his own duties and responsibilities involve the offering for sale, sale or distribution of any service or printed matter for use in the collection , or attempted collection of, or for assisting in the collection of, or for inducing or attempting to induce the payment of, alleged delinquent debts. Such notice shall include individual respondent' current business address and a statement as to the nature of the business or employment in which he is engaged as well as a description of his duties and responsibilities. It is further ordered, That the respondents herein shall, within sixty (60) days from the date this order becomes final, and periodically thereafter as required by the Federal Trade Commission, fie with the Commission a written report setting forth in detail the manner and form of their compliance with this order. , , , iJU lJlSSentmg btatement DISSENTING STATEMENT OF COMMISSIONER COLLIER In my opinion the record proof fails, to support any reasonable interpretation that Trans World Accounts (TW A) threatened debtors with imminent and likely lawsuits. The challenged communications generally followed a two-part format. In the first part, TW A demanded immediate payment and sometimes demanded to be contacted by the debtor as an alternative to payment. In the second part TW A advised debtors (or suggested to them) that a failure to make the payment demanded "may" result in a lawsuit, sometimes an "immediate" one.

This record does not show that TW A's clients never brought lawsuits immediate" or otherwise. Three of the four of these clients who testified said either that they sued or that TW A sued for them. (Tr. 205- , 210-12, 256.) The fourth client was not asked whether his employer sued. (Tr. 171-78.

It cannot be discerned from this record, even in general terms, how much time elapsed between the sending of the letters that mentioned a lawsuit and the subsequent decision to sue. The majority concludes that a lawsuit is not "imminent" if it is not initiated during the letter series. I find no support in the record for placing this meaning on TW A's letters, and the record proof regarding clients' litigation policies is in disarray. The client witness who was asked the most probing questions about his firm s policy testified as follows: Question (by complaint counsel): But if they-suppose a debtor has not responded at all after the first, second or third, would you let the series go to its conclusion? Answer (by Mr. Anderson of Beckman Instruments): Yes, That' s our policy. Q. Then you would decide whether to bring a lawsuit; is that correct? A. Yes, unless we heard through other sources, either from a salesman that goes by and sees them moving out of the building, or some evidence that would indicate that Hey, they re closing up." Then we d stop the servce and file suit, (Tr. 257, (2) This hardly proves that lawsuits were not brought before the series expired" 1 What were the chances of a lawsuit when the challenged letters went out and afterwards? What were the determinants? Were they different between respondents commercial" and "non-commercial" , The aame client earlier testified:

If.. the customer aays Well, look, there isn t any way that r can pay you beause at the advice uf counsel wc re thinking seriously of filing bankruptcy, we have such a cash flow problem that wc really don know whether we re going to stay in busines,' we ll stop the TW A service and immediately turn the account over to an attorney (T. 250.

Dissenting Statement 90 FTC. clients? In all these matters, the Commission is asked to resolve silence against the respondents.

If the communications had told debtors that the respondents or their clients would definitely sue, or even, that they would probably sue if payment were not made, complaint counsel might have proved its case. But the respondents were careful to say only that a lawsuit may" be brought.

In deciding for liability, the majority gives "may" a statistical meaning that runs against common usage. Although the majority purports to do this only for the sake of clarifying the order, it is clear that this statistical conception of "may" is the root of its finding of liability. The word "may" usually conveys uncertainty of a fairly elastic nature, (3) and I think that it must have been understood in this way by the debtors who received the respondents' letters. So far as it is used to express volition, "may" conveys the absence of a present intention-certainly not the presence of one, as the majority suggests. Unlike the situations that we sometimes face where communications are hurled in staccato rhythm at partially attentive audiences of mass media, one can reasonably assume that readers of the morning mail wil read and understand the common meaning simple words.

The majority s decision effectively regulates the word "may" out of respondents' vocabulary, at least insofar as it can be used by them to express the possibility of a lawsuit. If respondents can establish that a debtor has a 51 percent chance of being sued, I do not see why they wouldn t say, "You will probably be sued" rather than "You may be sued. " (Unless, or course, the majority also intends to establish a regulatory meaning for "probably" beyond what is commonly comprehended by that word.

The public policy reasons that dictate this reworking of the English language are obscure to me. There is a public interest in consumers knowing that they may be sued, and possibly assessed costs, in time to head off the consequences.' If the majority believes . Rather than on the testimony, which was inconclusive, complaint counsel may be relying On repondenta' admiBion that certin communications mentioning the poibility of a lawsuit "were sent by Trans World Accounts, Inc. to debtors in instances where the creditor had not asiged the debts involved to Trans World Accounts, Inc- unti after the final notice in the series had ben sent." ex 40 at p. 6, ex 41c. This does not prove that TWA's clients did not bring Buit during the series, lluming arguendo that to be the relevant time period. Morever, there was evidence and the ALJ found that "currently, TWA receives all asigment of the debt before the first letter is mailed in about 80-90 percent of all flat rate 98Je!. " I.D. 10. There was evidence that two years before trial this figure was 60 to 70 percent- (1. 70 . A California statute, which governs II suootantia! part of repondents' operations, effectively conditions II debt collector s reovery of costs in municipal and justice court upon his prior notice to the debtor that the debt collector "intended to commence legsl action against the defendant and that legal action could reuU in a judgment against the defendant which would include the costs and neck8ry disbursments ." Cal. Coe Civ Proc. 1031 (Dring a Ann. Supp. 1977). Obviously, this is a consumer proteion measure, and r do not se that the interest that it guarantee is les important when 8 suit is only poible. 350 Dissenting Statement that there wil be time enough to locate debtors in a class that wil probably be sued, I don t know the basis for that belief. A debtor may be more likely to have the means to pay a debt over a longer period of time than over a shorter one. I do not think we earn the gratitude of those consumers who wil receive the shorter "notice periods" and quicker litigation decisions that the majority s language convention may inspire. Even if the long-term consequences of our language reform efforts are nil, as those who leave their debts unpaid learn not to trust the absence of mention of a lawsuit, there are bound to be some short-term costs of this reeducation process. (4) Having concluded that the text of the letters contains no misrepresentation, I believe that there is no public interest in entering and enforcing an order against respondnets' practice of styling these communications "telegrams, Trans- Grams" and the like.

Clearly TW A would be permitted to call their communications telegrams if they had paid the price to Western Union. Western Union may-or may not-have a private right of action for TW A' conduct.' In the ordinary trademark infringement case, the trademark holder s private right of action can protect the important interest that consumers have in getting what they have chosen, an interest that we also have a duty to protect. See FT v. Algoma Lumber Co., 291 U. S. 67 (1934); but see FT v. Klesner. 280 U.S. 19 (1929). Here, however, the case is different. There is no question that TW A' s clients got what they chose, and the recipients of these communications were not in a position to choose whether they were to receive a Trans World telegram (or Trans- Gram) or a Western Union telegram, because the recipients obviously were not buying the communications. The nature of the consumer injury in this case must be on a different plane than in the ordinary trademark infringement case. It is not apparent exactly what this consumer injury is. Surely it is not merely that respondents failed to pay Western Union.

(5) The majority writes that respondents' practice of calling their communications telegrams is material, because "the obvious conclu- . The rea h of the majority a holding on this issue is unclear. The record, buttres by Ollr experien e in reviewing marketing practi es, indicate that !fil-in-the-blank J- Grll are oftn UB in promotional a tivities ranging from soliciting political capaignontributiona to sales ofproduct. RX 7- . Mr. Mi bael Borslla, patent and trademark attorney for Western Union, semll to admit in his affdavit that the word 'telegram' is a di tionary word in the ptlblic domain," He objects not to the us of the word "telegram btlt to the us of thllt word "on a apurioUB telegraphic format /ogelhfr with a number of proprietory featura ordinarily emboiE in one or more of Western Union s formats (emphllis in orignal) CX 4&. Se also ex 43d While this objecion may be more valid with regard to reapofJdents' original " telegram omn1UfJication (CX 43e ex 430, it sema very weak with regard to the '''rana- Gram'' format &e Western Uninn Telegrph Cv. v. lit World Cvmmunictions Inc.. 164 U. Q. 651 (Patent Ofce Trademark Tral and Appeal Board 1970) (editoria! description) Dissenting Statement 90 F. sion to be drawn from the receipt of a demand to pay, telegraphically communicated at substantial cost, is that precipitous action may follow if immediate response to the message is not made." Presumably this "immediate response" would be either payment of the debt or some communication by the debtor to the creditor. There is no evidence on this record that shows that TW A's practice of styling its communications as "telegrams" induced consumers to pay their debts or communicate with their creditors. Two consumer affants gave evidence of their impressions of respondents' communications.

Affant Semien: When my mother first showed me the billing notice, I thought it was a real telegram until I read it and realized it was a fake. (CX 44a. Affant Pere: When I first received the collection notices, I thought they were real telegrams sent by Western Union. (CX 45a. Both of these statements make clear to my mind that any misimpression was temporary and did not last long enough to induce payment or other prejudicial action by the debtor. A third consumer testified to the same effect:

Question (by respondents' counsel): (YJou received a Trans- Gram from Trans World Accounts? Answer (by Mr. Doolittle): That' s correct. Q. And the first thing you wondered is whether it was something similar to a Mailgram? A. That's correct.

Q. How long did that frame of mind exist? A. Until I opened it. (Tr. 47-48.) On this evidence I am not wiling to find as a matter of expertise that respondents' use of the telegram or Trans- Gram format was a material" deception, even assuming that it was a deception at all. See FTC v. Colgate-Palmolive Co., 380 U.S. 374, 392 (1965). At most, these symbols on the envelope may have led readers to be more attentive to the contents, but this ephemeral reaction is not the sort of public injury that I had thought Congress had charged the Commission with preventing.

(6) The AU held that an incorrect "initial impression" is enough to make a violation, whether or not this initial misimpression induced any action.' I. D. at 32-33. The "first contact" cases that he cites do not go so far as to read the materiality requirement out of . The ALJ found that the tclegTam form8t may have actually induced one consumer to work out an instaUment payment program- J.D. at 33. I reject thill finding. The constlmer to whom the! ALJ refus iR affant SEmien whOB statement quote supra indicate that she WIl diBbwi of her initial millimpresion II aon as she opened the envelope. - JDU Dissenting Statement Section 5. In each, the initial misimpression induced or could have induced consumers to take some action to their prejudice, such as taking a trip to the store Carter Products, Inc. v. FT, 186 F.2d 821 824, (7th Cir. 1951), consenting to a deceptive sales presentation v. Standard Education Society, 302 U.S. 112, 115 (1937), or answering a deceptive offer of employment, Progress Tailoring Co. v. 153 FT 2d 103, 104-05 (7th Cir. 1946).

Because, in my view, the text of the letters were not proved false and the use of the telegram format did not cause material deception I would dismiss the complaint.

I believe that this result is consistent with the soon-to-be-effective Fair Debt Collection Practices Act Pub. Law 95-109, which wil comprehensively regulate deception and unfairness in the debt collection industry.

There is nothing in the Act or in its legislative history to suggest that the general prohibitory sections' set different standards for deception and unfairness than Section 5. Because I do not believe that respondents cognizably violated Section 5, I do not believe that they have violated these general sections. (7) Neither did the respondents violate the specific prohibitions of the Act. Section 807(5) prohibits "the threat to take any action that cannot legally be taken or is not intended to be taken." Nothing that the respondents said about the possibility of a lawsuit could reasonably be construed as a "threat " at least giving that term its plain meaning as Congress apparently intended. There are two specific provisions in the new Act that might be argued to bar the "telegram" and "Trans- Gram" formats. Section 807(9) prohibits "the use or distribution of any written communication. . . which creates a false impression as to its source. . .," I do not believe that respondents misrepresented the "source" of their communications within the meaning of the Act. Even if a consumer thought a Trans World telegram were a Western Union telegram, he would not be mistaken as to the source, because Western Union is a medium of messages, not a source of them. (CX 43c.) A consumer could not possibly doubt from any of the respondents' communica- , Section 807 provides: "A debt collector may not us any fall, deceptive, or misleading represntation or meane in connection with the collection of any debt." Section 808 provides: "A debt collector may not us unfair Or unconecionab!e meane to collect or attempt to collect any deht. . The Act expresly prohibita the Commision from interpreting ita term through admin;etrative regulatione Fair Debt Collection Practices Act, Section 814(d).&e S. Rep. No. 9r.-382, 95th Cong., let Se. 6 (1977) (hereinaftr cite !1 "Senate Report.'. ) Thie feature War Bt.re in the Houe debate. 123 Cong. Re. H2921 (daily ed. April 4 1977) (remarks of Rep. Annunzio); 123 Cong. Re. H2928 (daily ed. April 4, 1977) (remarks of Rep. Evane) Dissenting Statement 90 F. tions on this record that the sourte was TW A. ~moreover, both the prohibitory language associated with the language quoted above' and the Senate Report" make clear that the evil addressed by this provision is the practice of some debt collectors passing themselves off as government offcials, attorneys or credit bureaus. There is no allegation of this kind of deception here. The second specific provision that might be relevant to the respondents' practice of caliing their communications telegrams and Trans- Grams is Section 808(8) which prohibits "using any language or symbol, other than the debt collector s (8) address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business." The interest protected by this provision is obviously the consumer s privacy from the awareness of others that he owes an uncollected debt. As the Senate Report explains, the section prohibits "using symbols on envelopes indicating that the contents pertain to debt collection." There would be little sense, from the perspective of avoiding deception, to read this section to permit use of the word "telegram" on the letter to the debtor and forbid it on the envelope. " Unless the respondents' use of the telegram and Trans- Gram formats links in the public mind their communications to the business of debt collection, I do not see how their use offends this subsection. ~moreover, since this subsection expressly permits debt collectors to send telegrams, I cannot see how TW A' conduct contravenes its policy.

The majority clearly interprets respondents' statements to mean something different than my interpretation of them. If this were a case of a merchant describing his products in language susceptible of misunderstanding, I might be inclined to take another view. In such a case we are entitled to infer injury from the mere fact of misunderstanding of a material aspect of the transaction. FT Algoma Lumber Co. 291 U.S. 67, 78 (1934). But here the injury more remote: it is the possibility that a debtor might because of his misunderstanding pay an unjust debt. In my view, the respondents' proven conduct does not make this a substantial risk. In any event, the real risks of this injury are regulated far more effectively by the , The 6ubstion 807(9) rends infull: "The u. or distribution of /lny written comIDu.nication which simulate or is faJllly repre8nte to be II document authorize, i8!ued, ar approved by any court, offcillJ or agency of the Unite state or Bny State, or which create II false impreion a! to iw BOurce, authoriztion, or approval ,. Senate Report at 8 " This reading of substion 808(8) isreinforced by substion 804(5) which governs collector communications to third parties (not the debtor) Bod forbids the us of identifying symbols on both the envelope and the letter. 00" uplnlOn new Fair Debt Collection Practices Act than they will be by the majority s order.

OPINION OF THE COMMISSION By DIXON, Commissioner:

The extraction of money owed from the pockets of those who owe it is a necessary, if not universally revered occupation in a society, like ours, whose growth and prosperity depend so heavily upon the extension of credit. Worthy ends, nonetheless, cannot excuse means which slide beyond education, persuasion, and exhortation into the realm of deception and unfairness. This case involves allegations of such overreaching by a large West Coast collection agency. Respondents are Trans World Accounts, Inc., (hereinafter Trans World), a full-line collection agency, which contacts over 100 000 consumers per year, and Floyd T. Watkins, its principal shareholder and guiding light. The complaint in this matter, issued in October 1975, charged that respondents had used two sorts of misrepresentations in a series of form (2) notices and letters sent to debtors in an effort to induce payment. Respondents were first alleged to have sent communications in a "yellow window envelope" with the word TELEGRAM" printed in large black type over the window and on the reverse side. The notice inside was alleged to be a "yellow printed form, styled TELEGRAM." The complaint further alleged that these simulated telegrams misled recipients as to the nature, import purpose, and urgency of the message they contained. The complaint also charged that statements in the messages to debtors represented that legal action was about to be, or might be taken against the recipients by their creditors when in fact legal action with respect to the debt would not be taken at all during the course of sending the series of form notices and letters, if ever. A trial was held before Administrative Law Judge (ALJ) Daniel Hanscom who entered an initial decision sustaining the allegations of the complaint and recommended an order to cease and desist. This matter is before the Commission upon the appeal of respondents from the ALJ's decision.

Like many collection agencies, Trans World wil take assignment of delinquent accounts, make contact with the debtor, and attempt to collect the debt, retaining as its fee a fixed percentage (often percent) of any amounts recovered. A more commonly employed offering is a series of form letters which may be purchased by creditors for a "flat rate" and are mailed to debtors by Trans World Opinion 90 F.

over a period of time, typically 85-90 days for a six letter series and 60-70 days for a five letter series. (I.D. 9.)' Trans World offers diplomatic" and "intensive" (3) dunning notices to suit the varied corporate philosophies of its customers.' Both series hint, diplomatic or "intensive" prose, at dire consequences that may befall a debtor who neglects to pay up, but typically the only consequence to affict a person who ignores one letter is the receipt of another, and another until the flat-rate series is exhausted. Should the debtor pay at any point he or she may be sent, at the creditor s option, a message ofthanks. (LD. 8.

I. TELEGRAM A review of the record leaves no doubt that certain of respondents collection notices were misleading because they simulated telegraphic communications. The overwhelming similarities between respon- I The following abbrevilltion8 are us herein: J.D. - Initial Deision,Finding No 0. p. - Initial Deision, Page No.

Tr. - TranscriptofTeatimony, Page No.

ex - Complaint Counsel's Exhibit No RX - Repondenta' Exhibit No.

, ex 3(b). The diplomatic and intentlive approaches are graphically portr!iyed in Trllna World' s promotional materials:

You may choose the service best suited to your accounts. . . .

'NTeNtvE 350 Opinion dents' "telegrams" and Western Union s are set forth in the initial decision at LD. 15.

(4) Affdavits of two consumers obtained by complaint counsel and admitted into evidence (CX 42a) indicated that these people believed that communications they received from Trans World were telegrams. (CX 44a, 45a ) One affant apparently concluded upon further inspection that the communications were fake (CX 44a); it is unclear whether or not the other one did before being contacted by complaint counsel (CX 45a).

In any event, the deception here is a paradigm of the sort which does not require the testimony of consumers to prove, FT Colgate-Palmolive Co. 380 U.S. 374, 391-2 (1965); Carter Products, Inc. v. FT, 323 F.2d 523, 528 (5th Cir. 1963). Our own inspection of exhibits CX 35-37 and 23-25 leaves no doubt that they are designed to look like telegrams and would likely be thought upon casual inspection to be telegrams by many people. Indeed, even after careful study, it is not likely to be apparent to one who has not recently received a real telegram what the differences are. The materiality of the deception is, moreover, manifest. We take judicial notice that on some occasions money speaks louder than words. A creditor would not spend $7.95 to convey a message when 13 cents might suffce, unless the message being sent were of the utmost importance and urgency. The obvious conclusion to be drawn from the receipt of a demand to pay, telegraphically communicated at substantial cost, is that precipitous action may follow if immediate response to the message is not made.

The law judge entered two order provisions (paragraphs 1 and 2) addressed to the deceptive telegram count. Paragraph 1 prohibits respondents from using or placing in the hands of others materials which misrepresent that they are telegrams or a telegram. Respondents do not question the applicability of this provision if an order is to be entered. Respondents do, however, object to Paragraph 2 which prohibits the use or placement in the hands of others of materials which by simulating telegrams or other method or forms or types of communication misrepresent the nature, import, or urgency of any communication. (5) We believe this paragraph is entirely appropriate "fencing in, designed to prevent recurrence in slightly altered form of the violation proven. Jacob Siegel Co. v. FT 327 U.S. 608, 611 (1946); Fedders Corp. v. Federal Trade Commission 529 F. 2d 1398 (2d Cir. cert. denied 429 U.S. 818 (1976). Indeed, there is evidence of record that the misrepresentation proven has already occurred in slightly ( Opinion 90 F.

different form. Following their discontinuance of the "telegram format in 1975 respondents switched to the "Trans- Gram," a blue and white missive which looks suspiciously like a Western Union ~ailgram.' That the Trans- Gram bears striking resemblance to the ~ailgram is further apparent from the testimony of one of respondents' own witnesses, who apparently had trouble tellng the difference:

Question (by Respondents' Counselj Now, as a portion of your accounts receivable operation, do you utilize Trans World Accounts, Incorporated? Answer: Yes, we do.

Q. And what portions of their services do you utilize? A. Well, we use both the Mailgram-not Mailgram-Trans-what' s that thing called? Q. Trans- Gram.

A. Trans- Gram. ('r. 172- 173; See also Tr. 46. Witness Stark's confusion is understandable. It is apparent to us that the current Trans- Gram format is simply a less flagrant variation of the fake telegram scheme previously employed. Respondents ask in their brief whether the second paragraph of the order prohibits their use of (6) the Trans- Gram format. For purposes of assisting them in interpreting the order we reiterate the answer of the ALJ: "Yes.

Respondents are entirely free to attract the debtor s attention with all manner of non-deceptive. eye-catching pictures, colors or words. The order contains no prohibition upon use of such exhortations as Important ~essage" to call the reader s attention to what respondents believe to be a communication deserving serious consideration. What is deceptive, however, is for respondents to attempt to convince their readers that a message is of such urgency or importance that they have taken particular pains or spent extra money to deliver it, when in fact they have not. We think the order as framed by the ALJ is suffciently explicit in this regard, but should respondents remain honestly in doubt as to whether any particular format would run afoul of the order, Section 3.61(d) of the Commission s Rules of Practice permits them to obtain an advisory opinion to allay their uncertainty.

, A mes unit that is telegraphica!ly communicaWd to the general locale of the recipient, and mailed from then . (RX2.

. Thes rem8rk8 apply lo any letter sent to a debtor as oppo to the envelope in which it is sent. In redesiJ.ing their envelope, respondents must take account of our order as well M the Fair Debt Collection Practices Act, Pub. Law No, 95 l09, 15 V, C. 1692 (1977) to take effect shortly. That Act apparently prosribe the use of "tmy language or symbol, other thsn the debt C(JlJector a addres, on any envelope when communicatin.- with a consumer by use of the mails or by telegram, except that a debt collector may use his businc! name if such name does not indicate that he is in the debt collection busines. 808(8), 15 V. C. 1692fj The diBnt concludes that a much narrower reading of thes words is warrante Hum their literal significance suggestl. We intimate no view on the scope of this provision at this time, but it obviously warnUl!. respondenta' attention. 350 Opinion II. IMMINENCE OF LEGAL ACTION We think there can be no questiori that some of respondents communications were intended to, and had the capacity to convince their ceaders that legal action to collect a debt was imminent, when in fact it was not. While it appears that respondents sought to avoid certain of the flagrant express misrepresentations that have characterized cases of this sort in the past, the message they did get across differed very little. What, for example, is a reader likely to understand by these words: (7) Urgent - Appear at Claimant's offce within four days to pay above claim or protest your liability. Failure to appear in person or have legal counsel represent you may result in immediate litigation by our client with ultimate seizure of property, auto, bank accounts and other personal assets if judgment is obtained. (CX 22, I.D. 31.) or these:

You are hereby directed to appear at OUf client's offce at 9:00 A.M. next Tuesday to protest liability of the above claim. Failure to comply may result in immediate commencement of litigation by our client. If judgment is granted, property, including monies. automobile, credits and bank deposits now in your possession could be attached. If our client receives payment in full prior to the time of protest as scheduled, your appearance wil not be required. (CX 21b, J.D. 28. or these:

Urgent - Immediately contact our client and make arrangements for payment. Imperative to avoid further action which may be taken against you under provisions of state statutes. If settlement is not made within 5 days after receipt of this telegram, you may wish to consult your attorney regarding your legal liability. (CX 25c, J.D. 24.) Other examples are cited and analyzed by the administrative law judge at LD. 24-31.

With cespect to the overwhelming majority, if not all of those to whom the above letters were sent, it is evident that neither respondents nor their creditor-clients had any intention of bringing suit in the event that the letters were ignored. Instead, another letter in the series would be sent routinely. Only when the flat rate series and perhaps additional collection techniques (I.D. 39) had been exhausted (a process that would typically consume a period of months) would accounts be ce-evaluated from the standpoint of possible legal action, which might or might not be commenced depending upon the size and other characteristics of the claim. (I. 33-42.

(8) The dissenting statement cites the testimony of one client of Opinion 90 F.

Trans World who indicated (apparently in reference to commercial debtors) that if he discovered that a debtor were about to fie for bankruptcy or close up shop this client might cancel the letter writing series and commence legal action (Tr. 250, 257). Such an occurrence, however, would clearly be fortuitous and wholly unrelated to the failure of the debtor to respond to any of Trans World' s threats of immediate legal action. As the dissent observes this same client testified that in the event a debtor ignored one or more letters in the series, the client's policy was to allow the series to run to conclusion before deciding whether to bring a lawsuit. Other clients of Trans World testified to identical effect (Tr. 177, 205 215), which is consistent with the testimony of ~r. Watkins himself as to how the flat-rate service was designed to operate. Far from being "in disarray," we believe that the record in this case makes perfectly clear that the intention of Trans World (whether or not it had an assignment of the debt) and of Trans World' s creditor-clients when undertaking the flat-rate series was to exhaust the series (which would typically consume 60 to 90 days) before deciding whether to take or not take further action in particular cases.:5 Nevertheless, having made no evaluation of individual fies to determine whether legal action in any particular case would be warranted; knowing nothing about an account except that it was "delinquent;" not having determined whether the debtor refused to pay because he or she had a legitimate complaint, because he or she had lost a job and was not able to pay, or because he or she was a "deadbeat;" and despite the (9) absence of any present intention on its own part or that of its creditors to take any action, Trans World threatened people with the possibilty of being immediately taken to court unless they paid "immediately, within five days, within four days, by 9:00 A.~. next Tuesday" or whenever it would strike the fancy of Trans World's letter writers to threaten. We fail to perceive how this can constitute acceptable conduct under a law that prohibits misrepresentations affecting commerce.

Nor do we believe that the use of the word "may" in Trans World' statements as recited on page 7 of this opinion and in the initial decision serves to diminish the deception. This conclusion is not , Given the testimony of Trans World'lI president IW to how its flat.rate oorvce wa. designed to work complaint couosel were not obliged to call every creitor-client of Trana World in order to prove that the aervice did work in this way. In fact, EJvera! creditors testified that it WaB their policy not to interrupt the series i.e. not to act where thresU! of immediate action were ignored. In respons. to this testimony, Trans World introduced no evidence to suggest thattiny creditor ever tok immediate action againstany debtor in response to the debtor failure to hee one nfTrans World's contrived deadlines. 350 Opinion based on our assignment of an unusual meaning to the word "may but rather upon the plain meaning of the letters in evidence.' A person reading these letters would clearly perceive himself or herself to be in some danger of being named defendant in a lawsuit if payment were not made by the deadlines indicated in the letters. It would never occur to any reader who took the words seriously that neither the writer nor its client intended to do anything other than send another letter if the threat were ignored. (10) As noted above, a worthy end does not justify deceptive means. And a false threat of immediate legal action is highly deceptive. If we had to guess at one class of debtors that might be least likely to be deceived by false threats of legal action we suspect it would be the deadbeats who from long experience probably recognize that such claims are indeed mere "bluff and bluster. Others, however, lacking extensive experience with the collection agent, may be more impressed, perhaps to the point of becoming upset or seeking to pay in situations where they may have a legitimate defense to the debt, or for reasons beyond their control be unable to afford it. All three of complaint counsel' s witnesses in this case, one in person and two by affdavit, testified to a feeling of at least temporary or longer lasting distress upon receiving respondents' communications. (CX 44, 45, Tr. 30- , 46). Where such distress results from a truthful reminder of an arguably legal debt it is an unavoidable cost of a credit society; where, however, the injury results from a misleading threat of impending litigation, the seriousness and imminence of which is further misrepresented by a format which suggests telegraphic or other expedited communication, the Commission is obliged to intervene. (11) Paragraph 3 of the order speaks to the misrepresentation of . In Bl1cceeing paragraphs we disus one ffeElnB by which repondents may asure themseiveB of l1inJithe word "may" non-deceptively in complying with the order entered herein prohibiting mwrepresntationB of the imminence and likelihoo of legal action. This is done in reponse to respondents' reuest for guidance as to the meaning of the ALJ' B propo order. However, repondents' liability is predicate upon their UB of threats that immediate legal action "may" ocur in BituationB where the record shows abslutely no intention to take immediate legld action.

, Although the legtimacy of the claiff a.rt by Trans World against its debtors it irrelevant to the legitimacy of its tactics, we do note that the witness caled by complaint counsel in this caa had Beveral clearly formidable defense to his alleged debt. ('r. 44- , 47.) That notwithstanding he reeived a series of five letters from Trans World, In the second (CX 48) the writer ature the aUeged debtor that if payment were not received he would request that the account be trWlferred to Trans World's attorney for collection. In the third (CX 49a) the aUeged debtor WIi warned that if payment were not B(nt the account would be referred to an attorney for legal action within 7 dayt. In the fourth letter the alleged debtor was told to mllke immediate payment beause the author, this time an attorney, "hat no authority to withhold further procesing or proceeings" (CX 50), the significance of which in the context of CX50 and the earlier letters is abundantly clear. The final letter (CX 51). (date 29 daYB after the 8eond letter threatening legal action within 7 daYB), warned the alleged debtor that hia laat chance had come, and that "legal asignment and authoriztion for suit hag ben requeste or hae already ben obtained." No Buit Wag ever fied. Repondenl.' counsel state at oralargment that the foregoing letters were part of respondenl.' "percentae collection" ae oppo to flat-rate, servce. They neverthele8 contain deceptions g., g., Opinion 90 F.

legal action. As modified by the Commission it would prohibit respondents from misrepresenting the imminence of legal action and from misrepresenting that legal action has been, is about to he or may be initiated or otherwise misrepresenting the likelihood of such action.' Respondents do not question the propriety (if an order is to be entered) of that portion of the paragraph prohibiting misrepresentations of the imminence of legal action, and there can be no doubt that it speaks directly to the violation alleged and proven at trial. The order language pertaining to misrepresentations of the likelihood of legal action is, we think, necessary to prevent recurrence of the violation proven at trial in a very closely related form FT v. Mandel Bros.. Inc., 359 U. S. 385, 393 (1959); Jacob Siegel Co. v. FT, 327 U.S. 608, 611 (1946). An order which prohibited respondents from threatening a debtor with an immediate lawsuit for nonpayment would be of little value if it did not also prevent respondents from threatening the debtor with legal action at an unspecified future time, when in fact such legal action was not being contemplated by the collector or creditor and was not likely ever to he taken.

In their briefs respondents have professed concern over their asserted inabilty to apply a prohibition against misrepresenting that legal action "may be initiated." The quoted language is substantially identical to that contained in numerous litigated and consent orders entered by the Commission in the past Providence Washington Insurance Co., Dkt. 9063 (~ay 3, 1977) (89 C. 345); United Compucred Collections, Inc. et al. 87 F. C. 542 (1976); Trans National Credit Corporation et al., 87 F. C. 549 (1976); Continental Collection Bureau of America, Inc. et al., 87 F. C. 557 (1976); North American Collections, Inc. et al. 87 F. C. 566 (1976); Power s Service, Inc. et aL, 87 F. C. 574 (1976); Continental Collection Service, et al. 87 F. C. 582 (1976); G.C Services Corp. et al. 83 F. C. 1521 (1973); The Hearst Corporation, et al. 82 F. 1792, 1797 (1973), and we do not believe that it should present undue problems (12) in effecting compliance. Indeed, we believe that respondents are much more adept than they acknowledge at determining what meaning alleged debtors are likely to take from their communications. The essence of Trans World's business, after all, is communicating with people, using words to convey a message. As communicators respondents are doubtless aware that the meaning conveyed by words often exceeds or diverges from their . Upon our own review we have added the generalize reference to mmreprenting the "likelihoo" of legal action, which iB merely desigend w encapsulate the ptlrpo of the AL's propo prohibition against misreprenting that legal action " hat ben, W lIoout to be, or may be" initiate. 350 Opinion literal significance, and a debt collector may not exploit this disparity to deceive, using words which a defense lawyer might be able to argue are literally true but which convey a false message to the reader. See J. B. Williams Co. v. FT, 381 F. 2d 884, 889 (6th Cir. 1967); Murray Space Shoe Corp. v. FTC. 304 F.2d 270, 272 (2d Cir. 1962).

On the other hand, we do not agree with complaint counsel that the order entered herein should be read to prohibit necessarily any reference to legal action in respondents' flat rate letter series. But such references must be carefully and selectively employed to avoid deception. Respondents should not state or imply that legal action will be taken unless they indeed take such action in all cases wherein the threat of legal action is not met by payment. Helix Marketing Corporation. et al., 83 F. C. 514 (1973). And respondents should not state or imply that legal action may be taken unless they can demonstrate from their experience that suit is the ordinary response to nonpayment. Cf Fair Debt Collection Practices Act, Pub. Law No. 95-109 805(c)(2); 15 U. C. I692c (1977). For purposes of the guidance respondents have solicited, suit in more than half the instances on nonpayment wil suffce under this order to substantiate a claim that legal action may be taken, Helix Marketing Corp., supra.

In complying with the foregoing standard, respondents would do well to treat discernible classes of alleged debtors differently, depending upon the likelihood that members of each class wil be sued. Unsatisfied claims of a particular client or clients should not be lumped together for the purpose of establishing that legal action is taken in more than 50 percent of all cases where it is the practice to treat different classes of claims in different ways. For example, there is record testimony suggesting that claims below a certain small amount are not ordinarily pursued by some creditors in court. (Tr. 78-79.) If that is the practice then letters used to collect such small debts should n:Jt (13) contain references to legal action (except in a particular case where the fie has been reviewed and a decision to sue has been made). On the other hand, if it is true, as respondents counsel indicated at oral argument, that it is the corporate policy of some clients to pursue nearly all unsatisfied claims, even small ones through the courts, references to the possibility of eventual legal action would be appropriate in a series of letters drafted for such clients.

Distinguishing among discernible classes of debtors can also provide a way for respondents to make mention of possible legal action in a non-deceptive fashion where it might otherwise be Opinion 90 F.

improper. For example, when serving a creditor whose policy is to sue infrequently, respondents might nonetheless be able to make non-deceptive mention of possible legal action in some cases by separating out a class of claims that their non-litigious client would ordinarily pursue (for example, bad checks written for large amounts). In all instances, however, respondents when making any reference to possible legal action must avoid misrepresentation of its imminency. References to specific deadlines by which payment must be made or references to the need for haste, urgency, immediate action or whatever, coupled with references even to tentative legal action, wil inevitably convey the impression that legal action impends. Such an approach is wholly improper in a series of form letters that are mailed over a period of weeks or months without any determination to sue in any particular case having been made. Finally we reiterate that if respondents remain genuinely in doubt as to the propriety of any particular proposed course of action they may obtain Commission advice pursuant to Section 3.61(d) of the Commission s Rules of Practice.

III. PROHIBITION ON ALL MISREPRESENTATIONS The ALJ accomodated what appears to have been respondents principal concern at trial by deleting a provision requiring an affrmative disclosure in their collection notices. Complaint counsel have not appealed from the ALJ's determination and we, therefore, have not considered its propriety in this case. The ALJ, however, added a provision, not present in the notice order, which would prohibit the making of any false statement in connection with the collection of a debt. Under the particular circumstances of this case we believe this paragraph is not (14) warranted. In framing an order to cease and desist the Commission may, of course, go beyond the technical confines of the violation alleged and proven, to "fence in the violator by proscribing conduct of the same general type as that which has occurred, g., FTC v. Mandel Bros. Inc., Jacob Siegel Co. FTC, Fedders Corp. v. Federal Trade Commission, supra. Paragraph 2 ofthe law judge s order is an excellent example of this. It is also, in some cases appropriate to fence in unlawful conduct by means of the broader sort of prohibition on misrepresentations contained in the law judge s proposed paragraph 4, cf. Southern States Distributing Co., et al. 83 F. C. 1125, 1162-63 (1973). Where for example. a wide variety of misrepresentations have occurred, or misrepresentations have recurred despite promises or orders to stop them, a broad blanket prohibition on misrepresentations would be warranted. Here, however, we believe that paragraphs 1-3 and 5 350 Final Order adequately address the violations found to have occurred, as well as related violations to which respondents might turn to achieve the same results. Accordingly we shall delete the AU' s proposed paragraph 4 from the order we enter.

In all other respects the initial decision disposes ably of respondents' contentions and is affrmed and adopted as the decision of the Commission.

FINAL ORDER This matter has been heard by the Commission upon the appeal of respondents' counsel from the initial decision and upon briefs and oral argument in support thereof and opposition thereto, and the Commission, for the reasons stated in the accompanying Opinion, has substantially denied the appeal.

It is ordered, That pages 1-42 of the initial decision of the administrative law judge are hereby adopted as the Findings of Fact and Conclusions of Law of the Commission.

Other Findings of Fact and Conclusions of Law of the Commission are contained in the accompanying Opinion. It is further ordered, That the following order to cease and desist be hereby entered: (2) ORDER It is ordered, That respondents, Trans World Accounts, Inc. , a corporation, its successors and assigns, and its offcers, and Floyd T. Watkins, individually and as an offcer of said corporation, and respondents, agents, representatives and employees, directly or through any corporation, subsidiary, division or other device, in connection with the offering for sale, sale or distribution of any service or printed matter for use in the collection of, or attempted collection of, or for assisting in the collection of, or for inducing or attempting to induce the payment of, alleged delinquent debts in or affecting commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from: 1. Using or placing in the hands of others for use, envelopes, letters, forms or any other materials which by their appearance content, or otherwise, misrepresent that they are telegrams or a telegram.

2. Using or placing in the hands of others for use, envelopes, . We must remind respondents, however, that their counsel's victory on this point is largely pyrrhic, since the Boon to be effective Fair Debt Collection Practice! Act forbids debt collectorato uo !lny " false, deceptive, or misleading represntation Or means if' connection with the collection of any debt:' Pub. Law95-109No. R07 1692(1977).

Final Order 90 F.

letters, forms or any other materials which by simulating telegrams or other methods or forms or types of communication misrepresent the nature, import, or urgency of any communication. 3. ~isrepresenting directly or by implication, that legal action with respect to an alleged delinquent debt has been, is about to be, or may be initiated, or otherwise misrepresenting in any manner the likelihood or imminency of legal action.

4. Placing in the hands of others the means and instrumentalities to accomplish any of the matters prohibited in this order, or which fail to comply with the requirements of this order. (3) It is further ordered, That the respondent corporation shall distrubute a copy of this order to each of its operating divisions or departments and to each of its present and future offcers, agents, representatives, or employees engaged in any aspect of the offering for sale, sale or distribution of any service or printed matter for use in the collection of, or attempted collection of, or for assisting in the collection of, or for inducing or attempting to induce the payment of, alleged delinquent debts, and that said respondent secure a signed statement acknowledging receipt of said order from each such person.

It is further ordered, That the respondent corporation notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondent such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries or any other change in the corporation which may affect compliance obligations arising out of the order. It is further ordered, That the individual respondent named herein promptly notify the Commission of the discontinuance of his employment with Trans World Accounts, Inc., and of his affiiation with a new business or employment. In addition, for a period of ten years from the effective date of this order, the individual respondent named herein shall promptly notify the Commission of his affiiation with a new business or employment whose principal activities include the offering for sale, sale or distribution of any service or printed matter for use in the collection of, or attempted collection of, or for assisting in the collection of, or for inducing or attempting to induce the payment of, alleged delinquent debts, or of his affliation with a new business or employment in which his own duties and responsibilities involve the offering for sale, sale or distribution of any service or printed matter for use in the collection of, or attempted collection of, or for assisting in the collection of, or for inducing or attempting to induce the payment of, alleged delinquent debts. Such notice shall include individual respondent's current 350 Final Order business address and a statement as to the nature of the business or employment in which he is engaged as well as a description of his duties and responsibilities. The expiration of the notice provision of this paragraph shall not affect any other obligation arising under this order.

It is further ordered, That the respondents herein shall, within sixty (60) days from the date this order (4) becomes final, and periodically thereafter as required by the Federal Trade Commission, fie with the Commission a written report setting forth in detail the manner and form of their compliance with this order. Commissioner Collier dissenting.

Complaint 90 F.