Trans World Accounts, Inc

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

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

MODIFYING ORDER IN REGARD TO ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 9059. Final Order, Oct. 25, 1977 —- Modifying Order, Oct. 25, 1979 This order further modifies the Commission’s July 25, 1979 “Modified Order to Cease and Desist,” 44 FR 49650, 94 F.T.C. 141, by inserting paragraph 3 which had been omitted pending its reformulation in accordance with the March 29, 1979 mandate of the Court of Appeals for the 9th Circuit. ORDER ON REMAND.

This matter is before the Commission upon remand from the Ninth Circuit Court of Appeals, which affirmed the Commission’s findings of violation and enforced the order entered by the Commission save for paragraph 3 thereof. As to that paragraph, the Court remanded to the Commission for reformulation. The Commission found, inter alia, that Trans World Accounts has misrepresented the imminency of legal action in its form collection letters, implying therein that legal action would be taken within very short periods of time following refusal by the alleged debtor to pay a debt, when, in fact, the only response to nonpayment by Trans World would be to send another letter in its form series. Paragraph 3 of the Commission’s order prohibited both misrepresentations of the imminency of legal action, and of its likelihood. This was intended to eliminate misrepresentations of the imminency of legal action, and to “fence-in” related misrepresentations of the likelihood of legal action. In remanding this order provision, the Court of Appeals applied the terms “vagueness and overbreadth” to that portion of the order fencing-in misrepresentations of the likelihood of legal action. Respondents argue that the Court held that a showing of misrepresentations of the imminency of legal _ action was insufficient to justify any fencing-in order as to the likelihood of legal action. Complaint counsel argue that the Court made clear that the Commission was not powerless to fence-in misrepresentations of the likelihood of legal action, but merely objected to the manner in which the Commission had done so. From the Court’s opinion, we are not entirely sure what is the source of its objection to the breadth of the Commission’s order. Both sides have offered plausible interpretations. For the reasons noted Modifying Order 94 F.T.C.

below, we believe that it will be sufficient for the purposes of this proceeding if we adopt the order proposed by respondents.! The Fair Debt Collection Practices Act, 15 U.S.C. 1692, prohibits on pain of $10,000 civil penalties per violation, any “false, deceptive, or misleading representation or means in connection with the collection of any debt”, 15 U.S.C. 1692e. Among the deceptive practices specificaliy enumerated are “The threat to take any action that cannot legally be taken or that is not intended to be taken.” 15 U.S.C. 1692e(5).

Respondents suggest that their messages are merely “educational” rather than “threatening.” The two attributes are not mutually exclusive, however, and coalesce perfectly in the typical debt collection missive. In our experience, debt collectors are not in business to give free correspondence courses in Creditors’ Remedies. When a letter is sent to a debtor for the purpose of collecting a debt, and the writer makes the observation that the debtor “will” or “may” be sued if he or she does not pay, that observation is very likely to be perceived by the debtor as a threat. Why else, after all, would the debt collector have spent money to include that information in its letter? This commonsense proposition finds support in the decision of the Ninth Circuit, as complaint counsel observe. The Court recognized that statements to the effect that legal action “may” be taken if the debtor did not pay within five days were threats of imminent legal action, not merely abstract statements of creditors’ legal rights. In this case, of course, as the Court and respondents observe, there was no proof that respondents misrepresented the likelihood of legal action, and no order against such misrepresentations will enter. But respondents would err grievously to assume that they, therefore, are entitled in the future to misrepresent the likelihood of legal action, particularly given the provisions of the Fair Debt Collection Practices Act cited above.

A valid function is performed by advising debtors of the possibility of legal action if legal action as to the debtor being informed _ is, indeed, a realistic possibility. Where form letters are used to communicate the possibility of legal action, however, some care is necessary to avoid deception. If, for example, debtors allegedly owing small amounts are rarely or never sued in the event that they fail to pay, it is plainly deceitful to threaten such debtors with the reasonable possibility of legal action. The deceit as to those debtors ‘1 We have, however, retained the term “legal action” rather than “lawsuit”. There is no reason why respondents should be allowed to misrepresent the imminency of any form of “legal action” (e.g., referral to an attorney, levying on a judgment). This is clearly permissible fencing-in, and the Court of Appeals expressed no objection to this formulation in the order that was before it. 1051 Modifying Order not likely to be sued is not obviated merely because the same form letters are sent to other debtors, owing much larger amounts, who are likely to be sued.

A debt collector must, therefore, take care that when threatening legal action, the threat be accompanied by an intention to take such legal action as to the debtor being threatened in the event that payment is not made or a defense not raised by the debtor. In the case of form-letter threats, particular care is needed to assure that such threats are not directed at recipients against whom the collector or creditor would be unprepared to take legal action in the event that payment or a defense were not forthcoming. If particular creditors do not take legal action against debtors owing small amounts, then it is simply dishonest to send form letters on behalf of those creditors to those debtors that in any way suggest that legal action may be taken.

With these observations we shall enter the order proposed by respondents, after substitution of the words “legal action” for “lawsuit”.

Therefore, it is ordered, That the Commission’s “Modified Order to Cease and Desist’ dated July 25, 1979, be further modified by the insertion of paragraph 8 to read:

8. Misrepresenting directly or by implication, that legal action with respect to an alleged delinquent debt has been or will be initiated, or misrepresenting in any manner the imminency of legal action.

Complaint 94 F.T.C.