The FTC issued a report concluding that litigation and arbitration do not provide enough protection for consumers in debt collection actions. The report identifies a number of concerns that the FTC believes contribute to this issue. According to the report, the litigation concerns include:
- filing suits based on insufficient evidence;
- failing to properly notify consumers of suits;
- high prevalence of default judgments;
- improperly garnishing exempt funds from bank accounts; and
- suing or threatening to sue on time-barred debts.
The arbitration concerns include:
- binding consumers to resolve disputes through arbitration without meaningful choice or awareness;
- bias or the appearance of bias in arbitration proceedings;
- procedural unfairness in arbitration proceedings; and
- requiring consumers to pay substantially more to participate in arbitration proceedings than in comparable court proceedings.
The report offers a number of findings and recommendations with respect to debt collection litigation and arbitration. Regarding litigation:
- states should consider adopting measures to make it more likely that consumers will defend themselves in litigation;
- states should require debt collectors to include more information about the debt in their complaints;
- states should take steps to make it less likely that debt collectors will sue on time-barred debt and that consumers will unknowingly waive statute of limitations defenses available to them; and
- federal and state laws should be changed to prevent the freezing of a specified amount in a bank account into which a consumer has deposited funds that are exempt from garnishment.
And, regarding arbitration:
- consumers should have a meaningful choice about arbitration;
- arbitration forums and arbitrators should eliminate bias and the appearance of bias;
- arbitration forums should require that awards contain more information about how the case was decided and how the award amount was calculated; and
- arbitration forums should make their process and results more transparent.
Click here for the report.