[Federal Register Volume 75, Number 195 (Friday, October 8, 2010)]
[Notices]
[Pages 62389-62395]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25346]
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FEDERAL TRADE COMMISSION
Statement of Policy Regarding Communications in Connection With
Collection of a Decedent's Debt
AGENCY: Federal Trade Commission.
ACTION: Request for public comment.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'')
requests public comment on a proposed statement of enforcement policy
regarding communications in connection with collection of a decedent's
debts.\1\ The statement addresses three issues pertaining to debt
collectors who attempt to collect on the debts of deceased debtors.
First, the proposed statement announces that the FTC will not bring
enforcement actions for violations of Section 805(b) of the Fair Debt
Collection Practices Act (``FDCPA''), 15 U.S.C. 1692c(b), against
collectors who, in connection with the collection of a decedent's debt,
communicate with a person who has authority to pay the decedent's debts
from the assets of the decedent's estate. Second, the proposed
statement clarifies how a debt collector may locate the appropriate
person with whom to discuss the decedent's debt. Third, the proposed
statement emphasizes to collectors that misleading consumers about
their personal obligation to pay a decedent's debt is a violation of
the FDCPA and Section 5 of the Federal Trade Commission Act (``FTC
Act''), 15 U.S.C. 45.
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\1\ An enforcement policy statement describes the Commission's
future enforcement plans, goals, and objectives with respect to a
particular industry or practice. Enforcement policy statements do
not have the force or effect of law, but they may reflect the
Commission's interpretation of a legal requirement. The Commission
issues this proposed statement pursuant to its general legal
authority to enforce the Fair Debt Collection Practices Act, 15
U.S.C. 1692l(a), and Section 5 of the Federal Trade Commission Act,
15 U.S.C. 45.
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DATES: Public comments must be received by November 8, 2010.
ADDRESSES: Interested parties are invited to submit written comments
electronically or in paper form by following the instructions in the
Invitation To Comment part of the SUPPLEMENTARY INFORMATION section
below. Comments in electronic form should be submitted by using the
following weblink: https://ftcpublic.commentworks.com//ftc/deceaseddebtcollection (and following the instructions on the web-based
form). Comments in paper form should be mailed or delivered to the
following address: Federal Trade Commission, Office of the Secretary,
Room H-135 (Annex W), 600 Pennsylvania Avenue,
[[Page 62390]]
NW., Washington, DC 20580, (202) 326-2252.
FOR FURTHER INFORMATION CONTACT: Christopher Koegel or Quisaira
Whitney, Attorneys, Division of Financial Practices, Federal Trade
Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202)
326-3224.
SUPPLEMENTARY INFORMATION:
I. Background
Media reports and a Congressional inquiry have raised concerns that
some debt collectors may be violating federal consumer protection laws
when they attempt to collect debts from the relatives of deceased
debtors (``decedents'').\2\ Staff has investigated whether, in
connection with the collection of decedents' debts, debt collectors
have contacted persons other than those they are permitted to contact
under Section 805(b) of the FDCPA, 15 U.S.C. 1692c(b). Section 805(b)
prohibits collectors, with certain exceptions, from communicating with
any person other than the consumer in connection with the collection of
the consumer's debt. Section 805(d) provides that the term
``consumer,'' for purposes of third-party contacts, includes ``the
consumer's spouse, parent (if the consumer is a minor), guardian,
executor, or administrator.'' \3\
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\2\ See, e.g., You're Dead? That Won't Stop the Debt Collector,
N.Y. Times, Mar. 4, 2009; Dana Dratch, What Happens to Credit Card
Debt after Death, CreditCards.com, Apr. 16, 2010, http://www.creditcards.com/credit-card-news/credit-card-debt-death-1282.php.
\3\ Neither the language of the FDCPA nor its legislative
history address what is meant by the terms ``executor'' and
``administrator'' in Section 805(d). Broadly, an ``executor'' is a
person named by the maker of a will to carry out the directions and
requests stated in the will, and an ``administrator'' is a person
appointed by a court to handle the administration of an estate for
someone who has died without a will, when there is no executor named
in the will, or the person named cannot or will not serve as
executor.
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Staff also has investigated whether collectors have engaged in
unfair or deceptive acts and practices in violation of Section 5 of the
FTC Act or Sections 807 or 808 of the FDCPA, 15 U.S.C. 1692e and 1692f,
in collecting or attempting to collect on decedents' debts. In
particular, staff has evaluated whether collectors may have deceived
relatives of decedents or others about their obligation to pay the
decedent's debts.
Although these investigations have been closed, they revealed that,
because of the interaction of the FDCPA and state probate laws, there
is a great deal of uncertainty among collectors regarding who the
proper persons are with whom they lawfully may discuss a decedent's
debt. In their efforts to identify the person who is responsible for
paying the decedent's debts, collectors in many cases have contacted
persons other than those who fall within the definition of ``consumer''
set forth in Section 805(d) of the FDCPA.
Section 805(b) of the FDCPA was enacted in 1977 to specify, among
other things, the persons whom collectors may contact to seek payment
for the debts of decedents. Since that time, however, probate law and
practice have evolved. Many states have streamlined their probate law
and practice by, among other things, recognizing informal probate
processes and independent estate administration with little or no court
supervision. In addition, a sizable portion of decedents' assets often
now are transferred to others outside of the probate process through
techniques such as placing assets in trust or naming an individual
(rather than the decedent's estate) as the beneficiary of the
decedent's life insurance policies.\4\
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\4\ See Grayson M.P. McCouch, Probate Reform and Nonprobate
Transfers, 62 U. Miami L. Rev. 757 (Apr. 2008).
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In response to these developments, the Commission is publishing
this proposed enforcement policy statement (``Statement'') to clarify
how it intends to enforce the FDCPA and Section 5 of the FTC Act in
connection with the collection of decedents' debts.
II. The Resolution of Estates
A. The Decedent's Estate
When a consumer dies, his or her assets are transferred to others.
These transfers take place either as part of the distribution of the
decedent's estate or outside of the estate. Assets that pass outside of
the estate include: (1) those that are jointly owned by the decedent
and another person; \5\ and (2) those that, for public policy reasons,
pass directly to individuals named as beneficiaries. Some common
examples of assets that do not become part of the estate are the
proceeds of joint bank accounts, real property held by joint tenancy,
life insurance policies,\6\ union or pension benefits, Social Security
benefits, veterans benefits, and various types of retirement accounts.
Assets that never become part of the decedent's estate generally are
beyond the reach of creditors and debt collectors. All other assets,
including cash and real and personal property that are not jointly
owned, become part of the decedent's gross estate. Funeral and
administrative expenses, homestead and exempt property allowances, and
family allowances \7\ are paid out of the probate estate first, leaving
the net estate. Creditors and debt collectors can seek to collect
amounts the decedent owes them from the net estate,\8\ after which the
remaining assets in the estate are transferred to the decedent's heirs
(if the decedent died without a will) or beneficiaries (if the decedent
had a will).
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\5\ In the ten community property states, assets accumulated
during a marriage generally are considered joint property, but the
state laws vary as to which assets of the community can be reached
by creditors of one of the spouses. The ten community property
states are Alaska, Arizona, California, Idaho, Louisiana, Nevada,
New Mexico, Texas, Washington, and Wisconsin.
\6\ If the decedent's estate is named as the beneficiary under
the life insurance policy, however, the proceeds of the policy
become part of the decedent's estate.
\7\ A ``family allowance'' is an amount of money payable out of
the probate estate to support, typically, the spouse and minor
children during the pendency of the estate administration.
\8\ In some circumstances, another person may be personally
liable for the decedent's debts. Examples include a person who
shared a joint credit card account with the decedent or who co-
signed or guaranteed repayment of credit extended to the decedent.
In such cases, both the other person and the decedent's estate are
liable for the account balance at the time of the decedent's death.
This Statement does not apply if a creditor or a collector is
collecting from a person who is personally liable for the decedent's
debt, because in those circumstances the person is a debtor rather
than a third party for purposes of Section 805(b) of the FDCPA.
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B. Probate Law and Estate Distribution
Probate practices are administered under state laws and procedures
that vary significantly. Nineteen states \9\ have adopted the Uniform
Probate Code (``UPC''), which was intended to make probating a will and
administering an estate simpler and less expensive, and to give more
flexibility to executors.\10\ Each state that has adopted the UPC,
however, has modified it, in some cases extensively.\11\ Consequently,
although
[[Page 62391]]
the UPC creates some commonality among state probate laws, there is no
single set of laws that applies in all or even most states.\12\
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\9\ Alaska, Arizona, Colorado, Hawaii, Idaho, Maine,
Massachusetts, Michigan, Minnesota, Montana, Nebraska, New Jersey,
New Mexico, North Dakota, Pennsylvania, South Carolina, South
Dakota, Utah, and Wisconsin.
\10\ UPC, Article III, Part 12, General Comment (2006).
\11\ See, e.g., Alaska--Adopted 1990 Revision of Article II and
1989 Revision of Article VI--Alaska Stat. Sec. Sec. 13.6.5-
13.36.100; Arizona--Adopted 1990 Revision of Article II and 1989
Revision of Article VI--Ariz. Rev. Stat. Ann. Sec. Sec. 14-1101 to
14-7308; Colorado--Adopted 1990 Revision of Article II and 1989
Revision of Article VI--Colo. Rev. Stat.--Sec. Sec. 15-10-101 to
15-17-102; Florida--Adopted 1989 Revision of Article VI--Fla.
Stat.-- Sec. Sec. 655.82, 711.50-711.512, 731.005-731.302, 735.
101-735.302, and 737.101-737.512; Hawaii--Adopted 1990 Revision of
Article II and Part 3 of 1989 Revision of Article VI--Haw. Rev.
Stat. Sec. Sec. 539-1 to 539-12, and 560:1-101 to 560:8-101;
Idaho--Adopted Part 3 of 1989 Revision of Article VI--Idaho Code
Ann. Sec. Sec. 15-1-101 to 15-7-307; Maine--Adopted Part 3 of 1989
Revision of Article VI--Me. Rev. Stat. Ann. tit.18A Sec. 1-101 to
Sec. 8-401; Michigan--Adopted Part 3 of 1989 Revision of Article
VI--Mich. Comp. Laws Sec. Sec. 700.1101-700.8102, and 701.1-713.6;
Minnesota--Adopted 1990 Revision of Article II--Minn. Stat. Sec.
524.1-101 to Sec. 524.8-103; Montana--Adopted 1990 revision of
Article II and 1989 Revision of Article VI--Mont. Code Ann. Sec.
72-1-101 to Sec. 72-6-311; Nebraska--Adopted 1989 Revision of
Article VI--Neb. Rev. Stat. Sec. 30-2201 to Sec. 30-2902; New
Mexico--Adopted 1990 Revision of Article II and 1989 Revision of
Article VI--N.M. Stat. Sec. 45-1-101 to Sec. 45-7-522; North
Dakota--Adopted 1990 Revision of Article II and 1989 Revision of
Article VI--N.D. Cent. Code Sec. 30.1-01-01 to 30.1-35-01; South
Carolina--Adopted Part 3 of 1989 Revision of Article VI--S.C. Code
Ann. Sec. Sec. 35-6-10 to 35-6-100, and 62-1-100 to 62-7-604; South
Dakota--Adopted 1990 Revision of Article II and Part 3 of 1989
Revision of Article VI--S.D. Codified Laws Sec. 29A-1-101 to Sec.
29A-8-101; Utah--Original 1969 version still in effect--Utah Code
Ann. Sec. 75-1-101 to Sec. 75-8-101.
\12\ Indeed, even individual counties in some states have their
own requirements.
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Probate law seeks to provide finality to those with a purported
interest in estate assets by first distributing those assets to pay the
funeral and estate administration expenses and family allowances,
decedent's taxes, and creditors' allowed claims, and then distributing
the remaining assets to beneficiaries as specified by a will, or heirs
as specified by state intestacy laws. The Uniform Probate Code and
similar state laws have created a ``flexible system of administration''
designed to provide persons interested in decedents' estates with the
level of procedural and adjudicative safeguards as desired and
appropriate for their circumstances.\13\ Although there are variations
among the states, there are generally three ways of administering the
distribution of any estate's assets: formal probate and administration;
informal probate and administration; and universal succession or
succession without administration. In addition, the Uniform Probate
Code and state laws generally exempt certain ``small estates'' with no
real property from probate and administration.\14\ The laws provide two
additional ways of implementing the distribution of the small estate's
assets: collection of personal property using an out-of-court affidavit
process and a process known as ``summary administration.''
Extrajudicial disposition of decedents' assets also occurs, whereby
heirs distribute the assets without any procedural or adjudicative
safeguards provided by the state probate codes.
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\13\ See, e.g., UPC, Article III, General Comment.
\14\ For example, in California, probate and administration is
required if the amount of the estate is greater than $100,000. Cal.
Prob. Code Sec. 13100 (2009). In Alabama, however, probate and
administration is required if the value of the estate exceeds
$25,000. Ala. Code Sec. 43-2-692 (2010). As noted above, the
probate estate does not include assets held in joint tenancy or
certain other types of assets, such as life insurance policies or
retirement plans, unless the estate is named as the beneficiary.
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1. Formal Probate and Administration
Formal probate and administration requires a court-appointed
executor (a person designated in the will by the decedent) or
administrator (if no executor has been designated) to assume the
responsibility of managing, distributing, and closing the estate,
including collecting the decedent's assets and notifying creditors of
the pending probate proceeding. Formal probate entails court
supervision and approval of all or part of the probate proceeding and
imposes significant reporting requirements on the executor or
administrator. Most state probate laws require that formal probate and
administration be used if either the ability of the executor named in
the will to administer the estate is uncertain or there is concern that
the beneficiaries (such as minors) cannot look after their own
interests. In addition, most state laws require that formal probate and
administration be used if someone (such as a beneficiary or a creditor)
asserts the right to invoke probate procedures to protect his or her
interest in the estate.
Formal probate and administration is designed to provide notice,
opportunity to participate, and finality to all who assert a claim to
the estate's assets. To this end, the executor or administrator must
attempt to notify creditors of the decedent's death and the deadline
for submitting any claims against the estate. In addition to mailing
notice to all known creditors, many states require that notice be
published multiple times in a newspaper having general circulation in
the city where the decedent lived or in the county where the probate
proceedings are being held.
Creditors have a fixed period of time to file a claim, after which
all claims are barred. If the claim is approved, the bill is paid out
of the estate; if it is rejected, the creditor may sue for payment. If
there are not enough liquid assets to pay all debts, property in the
estate may have to be sold to pay approved creditor claims. State laws
vary as to the order in which debts are paid.\15\
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\15\ See Mary Randolph, The Executor's Guide 185-186 (3d ed.
2008).
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Although formal probate and administration has advantages in terms
of ensuring that all persons with an interest in the estate have an
opportunity to assert their interests, it also can be time-consuming
and expensive.\16\ To address these concerns, especially with respect
to smaller estates, many jurisdictions have adopted alternative methods
to settle and close certain types of estates that reduce or obviate the
need for intervention by the probate courts. These methods are
described further below. A substantial number of estates no longer go
through the formal probate and administration process.
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\16\ The delay and expense are mostly attributable to the
greater detail and accountability the court requires of the estate's
executor or administrator. Formal probate and administration may
take from one to three years to be completed. See, e.g., id. at 319-
20.
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2. Informal Probate and Administration
States that have adopted the UPC also have what is described as an
``informal probate and administration'' process, which is available
regardless of the size of the estate.\17\ According to the drafters of
the UPC, informal probate and administration is designed to keep simple
wills and intestacies that generate no controversy from becoming
involved in ``truly judicial proceedings.'' \18\ Thus, no court
hearings are required in this process.
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\17\ See, e.g., UPC Sec. Sec. 3-301--3-311.
\18\ UPC Sec. 3-302 Comment (italics in original). Accordingly,
informal probate and administration is not available if there is a
known series of testamentary instruments, such as multiple wills
signed by the decedent. UPC Sec. 3-304.
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To begin the informal probate and administration process, a person
must apply to the probate registrar for an informal appointment as
executor or administrator. Thereafter, many states refer to this person
as the ``personal representative.'' Once appointed, the personal
representative has official authority to act on behalf of the estate.
Among other things, the personal representative must arrange for
publication of notice of the appointment as well as notice to
creditors.
Under the UPC, creditors have four months from the date of first
publication of the notice of appointment in which to file any claims
against the estate, after which they become time-barred.\19\ After the
personal representative has resolved any claims and the four months
have elapsed, the personal representative must file with the court the
``final account'' of the decedent's assets and provide a copy to all
appropriate parties. The personal representative may then distribute
the assets to the beneficiaries and heirs.
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\19\ UPC Sec. 3-801.
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3. Universal Succession or Succession Without Administration
The UPC and similar state laws provide an alternative to formal or
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informal probate, a process referred to in the UPC as ``universal
succession'' or ``succession without administration.'' \20\ Under this
approach, the heirs of an intestate estate or the residual devisees
\21\ under a will may apply to the probate registrar to become
universal successors. Upon the registrar's granting of the application,
the universal successor assumes full ownership of all the assets and
full, personal responsibility for the liabilities of the estate, even
if the decedent was insolvent, up to the universal successor's
proportional share of the estate.\22\ Under the UPC, all claims of the
decedent's creditors against the universal successor are barred one
year after the decedent's death.\23\
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\20\ UPC Sec. Sec. 3-312--3-322.
\21\ A ``residual devisee'' is the person named in a will who
takes any property that remains after distributions specified in the
will.
\22\ See, e.g., UPC Sec. 3-321.
\23\ UPC Sec. 3-1006.
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4. Small Estate Resolution
Many states offer two alternatives to the procedures described
above for distributing the assets of small estates: (a) an out-of-court
affidavit procedure, which lets beneficiaries claim assets from
whomever has possession of them by presenting a sworn statement
explaining why they are entitled to the property; and (b) summary
administration, which is similar to informal probate and
administration. These procedures are designed to make it easier and
less expensive for consumers to resolve small estates--in most cases,
they take only a month or two, have minimal court involvement, require
few filings, and do not entail attorneys' fees--and also reduce the
administrative and financial burdens on states and counties. According
to the UPC commenters, most people are able to use the ``small estate''
procedures to resolve estates.\24\
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\24\ UPC, Article III, Part 12, General Comment.
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a. Out-of-Court Affidavit
Many states allow for small estate assets to be distributed through
an affidavit process, eliminating altogether the need for appointment
of an executor or administrator or for probate court
administration.\25\ State laws vary as to who qualifies to sign an
affidavit (``affiant''). For example, in California, only a beneficiary
of or heir (i.e., a ``successor of the decedent'') to the property
sought is authorized to file an affidavit.\26\ In Alaska, however, any
person claiming to be the successor of the decedent entitled to the
property may submit an affidavit, and the person paying for or
delivering the property to the affiant is not required to inquire into
the truth of any statement in the affidavit.\27\
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\25\ See, e.g. Cal. Prob. Code Sec. 13109 (2009); 755 Ill.
Comp. Stat. 5/25-1 (2010); Alaska Stat. Sec. 13.16.680 (2010);
Ariz. Rev. Stat. Sec. 14-3971 (2010); Colo. Rev. Stat. Sec. 15-12-
1201 (2009); Ark. Code Ann. Sec. 28-41-101 (2009).
\26\ See Cal. Prob. Code Sec. Sec. 13101(a)(8) and 13006.
\27\ Alaska Stat. Sec. Sec. 13.16.680(a) and 13.16.685.
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The transfer affidavit typically must state that: (1) The claimant
is legally entitled to inherit the decedent's assets; (2) the value of
the entire estate, less liens, does not exceed the maximum amount
permitted by state law; (3) a minimum number of days (often 30 to 45)
has elapsed since the death; and (4) no petition for the appointment of
an executor or administrator is pending or has been granted by a
probate court.\28\ Frequently, the affiant also must declare that the
debts of the decedent have been satisfied.\29\ These same laws often
hold either the affiant, or the beneficiaries to whom assets are
distributed, personally liable for the decedent's debts, up to the
value of the asset they received, for a period of time after title is
transferred.\30\
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\28\ See, e.g., Cal. Prob. Code Sec. 13101 (2009); Colo. Rev.
Stat., Sec. 15-12-1201 (2009), Ariz. Rev. Stat. Sec. 14-3971
(2010); Ark. Code Ann. Sec. 28-41-1101 (2009); 755 Ill. Comp. Stat.
5/25-1 (2010).
\29\ See, e.g., Ark. Code Ann. Sec. 28-41-101 (2009); 755 Ill.
Comp. Stat. 5/25-1 (2010).
\30\ See, e.g. Cal. Prob. Code Sec. 13109 (2009) (3 years); 755
Ill. Comp. Stat. 5/25-1 (2010) (2 years); Ark. Code Ann. Sec. 28-
41-102 (2009) (same as decedent); Ariz. Rev. Stat. Sec. 14-3972
(2010) (1 year); Alaska Stat. Sec. 13.16.685 (2010) (3 years);
Colo. Rev. Stat. Sec. 15-12-1201 (2009) (1 year).
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b. Summary Administration
Summary administration procedures generally are very similar to
informal probate and administration procedures--they require little
court involvement or supervision and can be used whether or not the
decedent left a will. Summary administration, however, is limited to
small estates, as defined by state law, and requires less notice to
creditors than informal probate.\31\
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\31\ See, e.g., Mark T. Johnson, Comment, A ``Simple'' Probate
Should Not Be this Complicated: Principles and Proposals for
Revising Wisconsin's Statutes for Probate Summary Procedures, Table
1: Comparison of Informal Probate, Summary Settlement, Summary
Assignment, and Transfer by Affidavit, 2008 Wis. L. Rev. 575, 585
(2008).
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Summary administration procedures are usually available if: (1)
Assets do not exceed a specified value; (2) no interested party (such
as a creditor) objects to the use of those procedures; and (3) a will
does not mandate a different procedure. In Florida, for example,
summary administration is available when the decedent's will does not
direct otherwise, and either the value of assets subject to probate
does not exceed $75,000 or the decedent has been dead for more than two
years.\32\ Surviving family members may petition the probate court for
a distribution of the estate assets. The petitioners must make a
diligent search and reasonable inquiry to identify any creditors who
have a claim against the estate, serve a copy of the petition on those
creditors, and provide for payment to those creditors to the extent
that assets are available. At that point, the court may enter an order
of summary administration allowing immediate distribution of the
remaining assets to the persons entitled to them.\33\
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\32\ Fla. Stat. Sec. 735.201 (2009).
\33\ Id. Sec. 735.206. The recipients of the decedent's
property remain personally liable for lawful claims against the
estate to the extent of the value of the property each actually
received, but no claim may be filed against the estate or the
recipients of the estate assets more than two years after the
decedent's death.
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5. Extra-Judicial Resolution of Estates
If an estate has only minimal assets, many survivors choose to
forgo the use of any legal process to distribute a decedent's assets.
An individual (usually a family member) may pay the decedent's debts
out of the assets of the estate. It appears that a significant number
of very small estates are resolved in this manner.
This method forgoes some of the benefits of the probate process,
such as obtaining a final legal resolution and the barring, after a
specified period of time, of claims of creditors against the assets of
the estate. Thus, if a creditor or collector sues the individual who
distributes the assets or the recipients of those assets, they are
potentially liable to pay an unpaid debt of the decedent up to the
amount of the estate's assets.
III. FTC Policy Statement on Collection of Decedent's Debts
When Congress passed the FDCPA, it sought to protect consumers from
abusive, deceptive, and unfair debt collection practices, as well as
unwarranted invasions of privacy.\34\ At the same time, Congress also
recognized that the collection of legitimate debts, so long as it is
done in a fair and honest manner, by requiring people to honor their
obligations and decreasing the cost of credit, is thus beneficial to
consumers.
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\34\ See S. Rep. No. 95-3821, at 4 (1977), as reprinted in 1977
U.S.C.C.A.N. 1695. (``This legislation * * * prohibits disclosing
the consumer's personal affairs to third persons. Other than to
obtain location information, [ ] such contacts are not legitimate
collection practices and result in serious invasions of privacy.'').
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Section 805(b) of the FDCPA, with certain exceptions, prohibits
debt collectors from communicating with
[[Page 62393]]
anyone other than the ``consumer'' whose debt is being collected. This
prohibition prevents debt collectors from unnecessarily revealing debts
to others and thereby inflicting harm to the privacy and reputation of
the debtor.\35\ It also prevents collectors from communicating with
those who have no legal responsibility for paying the debt.
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\35\ Other FDCPA provisions similarly are intended to protect
the privacy of consumers. Section 806(3) prohibits publishing a
debtor's list, Section 808(7) prohibits communicating with a
consumer regarding a debt by post card, and Section 808(8) prohibits
using any language or symbol on an envelope that reveals that the
sender is a debt collector. 15 U.S.C. 1692d, 1692f(7), 1692f(8).
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Section 805(d) expands the definition of a ``consumer'' whom a
collector can contact, but, for purposes of collecting on a deceased
debtor's debts, only to those who are likely to be responsible for
paying a decedent's debts out of the assets of the estate. Thus,
Section 805(d) includes the debtor's ``spouse, parent (if the consumer
is a minor), guardian, executor, or administrator'' as persons the
collector can contact about a debt. As discussed above, however,
probate law and practice have evolved since Congress passed the FDCPA,
and there are now additional categories of persons who have the
authority to pay the decedent's debts from the assets of the estate.
These include personal representatives under the informal probate and
summary administration procedures of many states, persons appointed as
universal successors, persons who sign declarations or affidavits to
effectuate the transfer of estate assets, and persons who dispose of
the decedent's assets extrajudicially.
The Commission believes that it is consistent with the purposes of
the FDCPA, and in the public interest, to allow debt collectors to
communicate with the person who has authority to pay a decedent's debts
from the assets of the estate, even if that person does not fall within
the specific categories listed in Section 805(d). Such communications
do not reveal the decedent's debts unnecessarily because they are made
to an individual who has authority to pay those debts from the assets
of the estate. Moreover, permitting such communications often would
make it faster, simpler, and less expensive for consumers, creditors,
and collectors to resolve the decedent's debts without unduly burdening
the decedent's representative or beneficiaries. Such communication
benefits both creditors and consumers by facilitating appropriate
payments without the need for creditors to initiate formal probate
administration or file actions in court to recover from individuals who
have distributed the estate's assets, or received the assets that were
distributed, without proper notice to creditors. But, when seeking
payment for a decedent's debt from an individual not personally liable
for the debt, in order to avoid creating the misimpression that the
individual is personally liable for the decedent's debt, it may be
necessary for the collector to disclose clearly and prominently that
the collector is seeking payment from the estate and not the
individual.
Accordingly, the Commission proposes a policy not to initiate
enforcement actions against debt collectors who communicate about a
decedent's debt with: (1) The executor or administrator of the
decedent's estate; (2) the decedent's spouse; (3) a minor decedent's
parent; (4) the decedent's guardian; or (5) a person who otherwise has
authority to pay the debts of the decedent out of the decedent's
assets, such as a personal representative under an informal or summary
administration procedure, a person appointed as a universal successor,
a person who signs a declaration or affidavit to effectuate the
transfer of estate assets, or a person who assumes the responsibility
of disposing of the decedent's assets extrajudicially.
Before communicating with any individual in connection with the
collection of a decedent's debt, a collector must assess whether the
potential recipient of any such communication has authority to pay the
decedent's debts from the estate's assets (i.e., falls within one of
the categories listed above). In many cases, the collector will know
that it is contacting the decedent's spouse, parent, or guardian, or a
person appointed by the probate court or the registrar to administer
the decedent's estate. For example, the collector's review of the
probate registrar's filings would identify persons who have been
appointed as executor, administrator, personal representative under
informal or summary administration, or universal successor. If the
collector has identified the person with such authority, it may direct
communications seeking collection of the debt to that person. In
seeking to have these individuals pay the decedent's debts out of the
decedent's estate, the collector must comply with all of the
requirements of the FDCPA and Section 5 of the FTC Act with respect to
collector communications with debtors. For instance, the collector is
prohibited from threatening to use violence against these individuals
in violation of Section 806 of the FDCPA, and from falsely representing
to them the amount of the debt owed--or the assets that must be used to
pay the debt--in violation of Section 807(2)(A) of the FDCPA and
Section 5 of the FTC Act.
In some cases, even if a collector has reviewed probate court
filings and records, the collector may not know who has the authority
to pay the decedent's debts from the estate's assets. To locate the
person with such authority, the collector may initiate a written or
oral communication to the decedent's estate. The collector should state
clearly and prominently at the outset that the communication is
directed to the executor or administrator of the decedent's estate, or
to the estate itself. But until a named individual with authority to
pay the decedent's debts is identified and located, collectors
generally should treat these communications as location communications
under Section 804 of the FDCPA. The communication should state that the
collector is seeking to identify and locate the person who has the
authority to pay any outstanding bills of the decedent out of the
decedent's estate,\36\ but cannot make any other references to the
debts of the decedent, including providing any information about the
specific debts at issue.\37\
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\36\ For example, if a collector is seeking to identify and
locate the person who has the authority to pay the decedent's debts
out of the assets of the estate, the collector may send a letter in
an envelope addressed to either ``The Estate of * * * '' or ``The
executor or administrator of the estate of * * *.'' The body of the
enclosed letter, however, cannot include information relating to the
decedent's debt. As discussed elsewhere in this statement, some
individuals who do not have the authority to pay the debts of the
decedent out of the assets of his estate often undertake various
activities concerning the decedent, including opening his mail. To
avoid thereby revealing the decedent's debts to such individuals,
collectors should not include information relating to these debts in
the body of the letter.
\37\ Section 804 of the FDCPA governs the process by which a
collector can obtain location information for a debtor. That section
prohibits collectors, in seeking location information, from
revealing that the debtor owes a debt. The application of this
provision is relatively straightforward in the typical situation
involving a living debtor--the collector knows who the debtor is but
simply lacks contact information, such as the debtor's home address
and telephone number or place of employment. In this situation, the
collector may contact a third party for location information for the
debtor and has no need to ascertain who the debtor is or mention the
debt.
When the debtor is deceased, however, the procedure becomes more
complicated. The collector must first identify the person who has
authority to pay the decedent's debts out of the estate's assets. In
some cases, collectors will know who that person is, for example, if
a court has named an executor or administrator; in these cases, the
collector, if it needs contact information, can follow the normal
process of seeking such information from a third party without
revealing the debt.
If the collector does not know the identity of the person with
authority to pay the decedent's debts from the estate, it may wish
to contact third parties who may themselves have the requisite
authority or know who does, and then seek location information for
the person they identify. But, in asking a third party for
identification and location information for a person with the
requisite authority, the collector almost inevitably will have to
state or imply that the decedent owed a debt, for example ``I am
trying to find the person who has the authority to pay John Smith's
outstanding bills out of assets in John's estate.'' The Commission
is interested in comments on: (1) Whether such a limited and general
reference to debt in these specific circumstances would result in
harm to the decedent's privacy or reputation, especially given that
even consumers who remained current on their debts while alive often
have bills their estate must resolve after they pass away; (2) other
appropriate ways of identifying the person with authority while
minimizing any reference to the decedent's debts, consistent with
Section 804(2); and (3) the relative costs and benefits of
facilitating communications between collectors and individuals who
have the authority to pay the decedent's debts, including, for
example, the possible harm to the decedent's privacy interests from
revealing the debt versus the possible benefits to consumers in
fostering the efficient payment of debts without the costs and
inconvenience of a formal probate process or litigation.
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[[Page 62394]]
If the recipient of the location communication states with
certainty that he or she has the requisite authority--and that
assertion is not inconsistent with information reasonably available
from another source (e.g., a probate registrar identifying the
appointment of someone else as administrator)--collectors may commence
seeking payment from the estate through that recipient. On the other
hand, if the recipient expresses any uncertainty about whether he or
she has the authority to pay the decedent's debts from the estate's
assets (e.g., ``I think it is me'' or ``it could be me''), the
collector may ask the recipient clarifying questions. The collector,
however, should not use leading questions or otherwise attempt to
persuade the person to assert that he or she has the requisite
authority, or engage in any deceptive, unfair, or abusive acts or
practices. For example, asking if the person contacted is ``handling
the decedent's final affairs'' is so vague that the person may
interpret it as signifying authority when it does not. Similarly,
asking whether a person ``paid for the decedent's funeral,'' or is
``opening the decedent's mail'' also would not provide sufficient
evidence of authority, because relatives often undertake these types of
activities to help out without assuming the general authority to pay
the decedent's debts out of the estate's assets.\38\ Furthermore, in
seeking to have those who assert they have the requisite authority
(including those who make such an assertion in response to clarifying
questions) pay the decedent's debts from the estate, the collector must
comply with all other requirements of the FDCPA and Section 5 of the
FTC Act regarding collector communications with debtors.\39\
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\38\ In addition, simply asking if the person ``has paid any of
the decedent's bills'' is not conclusive evidence that the person
has the authority. See UPC ' Sec. 3-701 (``A personal
representative may ratify and accept acts on behalf of the estate
done by others where the acts would have been proper for a personal
representative.''). But until a named individual with authority to
pay the decedent's debts is identified and located, all
communication may only be for the purpose of seeking location
information for that person and must comply with Section 804 of the
FDCPA.
\39\ If a recipient of a communication denies having the
authority, or is not certain if he or she has the authority, to pay
the decedent's debts out of the assets of the estate, and if in the
future the collector reasonably believes that the response was
erroneous or incomplete and that the recipient now has correct or
complete information as to who has the requisite authority, then the
collector can contact the recipient again for location information.
FDCPA Sec. 804(3), 15 U.S.C. 1692b(3). For example, assume that a
decedent died intestate and was survived by a brother and sister. A
collector calls the brother shortly after the decedent's death, and
the brother states he does not know whether he or his sister will
have the authority to distribute the decedent's assets. A court
subsequently appoints the sister as the administrator of the
decedent's estate, and the collector learns of the appointment, but
the sister's location information provided in the appointment is no
longer accurate. The collector would be allowed to contact the
brother for more accurate information concerning how to reach his
sister.
In addition, if the initial communication recipient subsequently
is appointed as the administrator or personal representative through
formal or informal probate or files an affidavit under the ``small
estate'' administration provisions, the collector then may contact
that person in connection with the collection of the debt.
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Finally, in communicating with persons who have the authority to
pay the decedent's debts out of the estate's assets, the Commission
emphasizes that it would violate Section 5 of the FTC Act and Section
807 of the FDCPA to mislead those persons about whether they are
personally liable for those debts, or about which assets a creditor
could legally seek to satisfy those debts.\40\ Even in the absence of
any specific representations,\41\ depending on the circumstances, a
collector's communication with an individual might convey the
misimpression that the individual is personally liable for the
decedent's debts, or that the creditor could seek certain assets to
satisfy the debt.\42\ To avoid creating such a misimpression, it may be
necessary for the collector to disclose clearly and prominently that:
(1) It is seeking payment from the assets in the decedent's estate; and
(2) the individual could not be required to use the individual's assets
or assets the individual owned jointly with the decedent to pay the
decedent's debt. In determining whether individuals are taking away the
misimpression that they are personally liable for the decedent's debts,
the Commission will consider, among other things, whether the collector
has clearly and prominently made this disclosure. The Commission will
also consider whether the collector has obtained an acknowledgment at
the time of the first payment that the person understands that he or
she is obligated to pay debts only out of the decedent's assets and is
not legally obligated to use his or her own assets--including those
jointly owned with the decedent--to pay the debts.
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\40\ There are times when a collector attempts to collect a
decedent's debt from the person with the requisite authority, but
learns that the decedent's estate has insufficient assets to pay the
debt. In some instances, collectors in this situation attempt to
persuade the person to pay the debt out of her own assets. In doing
so, the collector must avoid (1) stating or implying that the person
has a legal obligation to use her own assets to pay the debt, in
violation of Section 807 of the FDCPA and/or Section 5 of the FTC
Act; and (2) engaging in harassing, oppressive, or abusive conduct
to collect the debt in violation of Section 806 of the FDCPA and/or
Section 5 of the FTC Act. With respect to the latter, the Commission
notes that using high pressure tactics, which could include appeals
to the person's purported moral obligation to pay the debt, could
violate Section 806 of the FDCPA and/or Section 5 of the FTC Act,
depending on the specific facts of the case.
\41\ Simply by virtue of the fact that the communication is
coming from a debt collector, an individual might believe that the
collector is seeking payment from the individual's assets.
\42\ For example, asking whether the recipient received any
money as the beneficiary of a life insurance policy or retirement
account, absent an effective disclaimer, could create a false or
misleading impression to a consumer acting reasonably under the
circumstances that the consumer may have to pay some or all of the
received money to satisfy the decedent's debts, notwithstanding that
the money is not part of the net probate estate from which creditors
can seek payment. Similarly, asking about jointly-held assets, such
as a jointly-titled car or a joint banking account, could also
create the false or misleading impression that the consumer may have
to use that asset to pay the decedent's debt, notwithstanding that
the asset is not part of the net probate estate from which creditors
can seek payment.
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III. Conclusion
The Commission proposes to adopt a policy under which it would not
take enforcement action against collectors who comply with the
principles set forth in this Statement in collecting on a decedent's
debts, as well as comply with all applicable laws and regulations,
including Section 5 of the FTC Act and the FDCPA.
Invitation To Comment
Interested persons are invited to submit written comments
electronically or in paper form. Comments should state ``Deceased Debt
Collection Policy Statement'' in the text and, if applicable, on the
envelope.
The FTC will place your comment--including your name and your
state--on
[[Page 62395]]
the public record of this proceeding, and to the extent practicable,
will make it available to the public on the FTC Web site at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the
Commission endeavors to remove individuals' home contact information
from the comments before placing them on its website. Because comments
will be made public, they should not include: (1) Any sensitive
personal information, such as any individual's Social Security number,
date of birth, driver's license number or other state identification
number or foreign country equivalent, passport number, financial
account number, or credit or debit card number; (2) any sensitive
health information, such as medical records or other individually
identifiable health information; or (3) any trade secret or any
commercial or financial information which is privileged or
confidential, as provided in Section 6(f) of the FTC Act, 15 U.S.C.
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). Comments containing
material for which confidential treatment is requested must be filed in
paper form, must be clearly labeled ``Confidential,'' and must comply
with FTC Rule 4.9(c), 16 CFR 4.9(c).\43\
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\43\ The comment must be accompanied by an explicit request for
confidential treatment, including the factual and legal basis for
the request, and must identify the specific portions of the comment
to be withheld from the public record. The FTC's General Counsel
will grant or deny the request consistent with applicable law and
the public interest. See FTC Rule 4.9(c), 16 CFR 4.9(c).
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Because postal mail addressed to the FTC is subject to delay due to
heightened security screening, if possible, please submit your comments
in electronic form or send them by courier or overnight service. To
ensure that the Commission considers an electronic comment, you must
file it at https://ftcpublic.commentworks.com//ftc/deceaseddebtcollection by following the instructions on the web-based
form. If this Notice appears at http://www.regulations.gov/search/Regs/home.html#home, you may also file a comment through that Web site. The
Commission will consider all comments that regulations.gov forwards to
it. You may also visit the FTC Web site at http://www.ftc.gov to read
the Notice and the news release describing it.
A comment filed in paper form should include the reference
``Deceased Debt Collection Policy Statement'' in the text of the
comment and, if applicable, on the envelope, and should be mailed or
delivered to the following address: Federal Trade Commission, Office of
the Secretary, Room H-135 (Annex W), 600 Pennsylvania Avenue, NW.,
Washington, DC 20580.
The FTC Act and other laws the Commission administers permit the
collection of public comments to consider and use in this proceeding as
appropriate. The Commission will consider all timely and responsive
comments it receives. More information, including routine uses
permitted by the Privacy Act, may be found in the FTC's privacy policy
at http://www.ftc.gov/ftc/privacy.shtm.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2010-25346 Filed 10-7-10; 8:45 am]
BILLING CODE 6750-01-P