On December 28, 2018, New York Governor Cuomo signed into law amendments to the state’s General Business Law (GBL) that address the collection of family member debts.  The amendments made by Senate Bill 3491A become effective March 29, 2019.

While the legislative history indicates that the amendments are intended to address the collection of a deceased family member’s debts, they are drafted more broadly to prohibit “principal creditors and debt collection agencies” from: (a) making any representation that a person is required to pay the debt of a family member in a way that contravenes the FDCPA; and (b) making any misrepresentation about the family member’s obligation to pay such debts.

The GBL defines a “principal creditor” as “any person, firm, corporation or organization to whom a consumer claim is owed, due or asserted to be due or owed, or any assignee for value of said person, firm, corporation or organization.”  The amendments define a “debt collection agency” as “a person, firm or corporation engaged in business, the principal purpose of which is to regularly collect or attempt to collect debts: (A) owed or due or asserted to be owed or due to another; or (B) obtained by, or assigned to, such person, firm or corporation, that are in default when obtained or acquired by such person, firm or corporation.” 

In 2011, the FTC issued its final Statement of Policy Regarding Communications in Connection With the Collection of Decedents’ Debts to provide guidance on how it would enforce the FDCPA and Section 5 of the FTC Act in connection with the collection of debts of deceased debtors.  The policy statement provides that the FTC will not initiate an enforcement action under the FDCPA against a debt collector who (1) communicates for the purpose of collecting a decedent’s debts with a person who has authority to pay such debts from the assets of the decedent’s estate even if that person does not fall within the FDCPA’s definition of “consumer,” or (2) includes in location communications a statement that it is seeking to identify a person with authority to pay the decedent’s “outstanding bills” from the decedent’s estate.  It also contains a caution that, depending on the circumstances, contacting survivors about a debt too soon after the debtor’s death may violate the FDCPA prohibition against contacting consumers at an “unusual time” or at a time “inconvenient to the consumer.”



In my blog post yesterday, I shared my concerns regarding the potential consequences of the CFPB’s proposed 30-day hold on all collection contacts after the date of a consumer’s death.  A 30-day holding period in which collectors are prohibited from contacting a surviving spouse about a debt would, standing alone, have little impact on the way that decedent debt is collected today at the major agencies that specialize in this work.  However, combining the 30-day hold with the radical proposal to prohibit all collector contact with the tens of thousands of personal representatives who regularly administer the majority of probate estates would completely change the way decedent debt is collected.

Informal personal representatives who have not been court-appointed manage most decedent estates.  This has been true for decades.  The CFPB’s proposals would prohibit collectors from contacting these people.  Decedent debt collectors could only contact people who have “state- approved documentation,” showing that they are formally appointed to administer an estate.  Such a rule would not only gut the FTC’s enforcement policy, it would make informal estate administration useless.  The FTC’s research concluded that most estates do not go through formal probate and thus no executor or administrator is appointed.  Although precise data is difficult to ascertain, today no more than roughly 11% of decedent estates go through a formal process.  The overwhelming majority of personal representatives would thus be off-limits to collectors under the CFPB’s proposals.

The 30-day hold would not help informal representatives; it would complicate and impede their ability to pay creditors.  Nor would the hold protect surviving spouses.  Instead, it would expose them to difficulties that informal probate already resolves.  Here’s a typical example:

Dad passes away leaving an 87-year-old widow. The couple has 61-year-old son who is a CPA. The son is taking care of dad’s estate informally because there is no reason to incur the time and expense of formal probate.  Under the CFPB’s proposals, collectors could not communicate with the CPA son. Collectors would be required to communicate only with the widow.

A 30-day hold would also have the unwanted effect of encouraging collectors to use the option of forcing open estates.  Here’s what a typical scenario might look like:

Mom, who was a widow, passed away. She leaves a 55-year-old daughter who has an MBA. It took a creditor about five months to learn that mom has passed. The daughter is taking care of matters informally, and does not plan to open a formal estate. Collectors cannot legally contact the daughter, so they have no way to determine whether their bills will get paid.  They decide to force open the estate and appoint an executor.

The FTC’s enforcement policy is the principal reason why both above examples above are currently resolved differently.  Collectors can talk to the CPA son and not trouble his widowed mother.  Or they can contact the MBA daughter, get the information and cooperation they need and resolve her deceased mother’s debts without forcing open an estate.

The CFPB’s proposal to require collector contact only with formally-appointed executors and administrators is also inconsistent with existing CFPB rules implementing the CARD Act.  Under Section 504 of the CARD Act, credit card issuers must have procedures in place so that an “administrator” of an estate can timely resolve credit card balances.  The official staff commentary to Regulation Z (Comment 1026.11(c)-1) defines the term “administrator” as “an administrator, executor, or any personal representative of an estate who is authorized to act on behalf of the estate.” (Emphasis added). Thus, the definition recognizes that persons without a formal appointment can act on behalf of an estate.

The CFPB’s proposals would thus create a muddled scenario where a person acting as an informal personal representative has the right under the CARD Act to contact a credit card issuer and receive information about the decedent’s credit card balance, but the creditor’s collector could not follow-up and communicate with that same individual about payment.  The creditor would be forced to open an estate to get its bill paid.

Both the FTC in its policy statement and the Federal Reserve Board in adopting the CARD Act regulations (authority for which was later transferred to the CFPB) sought to spare consumers from the time and expense of having formal estates forced open against their wishes.  The FTC cautioned that it hoped to avoid “a hyper-technical reading of the [FDCPA] that allows contact only with statutorily mandated, but in reality, non-existent administrators or executors.”

Cost to Consumers.  The American Public has been turning away from the considerable expense of probate court ever since Norman Dacey wrote his best-selling book in 1965, How to Avoid Probate.  That’s why the overwhelming majority of estates are settled informally.  Thousands of families make this economically sensible rational and practical choice every week.  Congress, the FTC, and every state legislature all recognize informal estate resolution is a choice the public needs to be able to make.  The CFPB’s proposal takes this option away.

I don’t think the CFPB understands the magnitude of the cost shifting from debt owners and collectors to consumers that would result from its proposals.  What Dacey wrote more than 50 years ago is as true today as it was nearly 165 years ago when Dickens wrote Bleak House—probate court is the greatest engine for fees the legal profession has ever created.

If the CFPB is acting out of distaste for the decedent collection industry and thinks that a rule eliminating contact with informal representatives is going to deter collections, they are completely incorrect.  Their proposal will enrich creditors and shifts the entire cost of collection to consumers.

Currently, here’s how the economics of deceased collections play out:

Assume the decedent had a credit card bill of $1200.  The collection agency contacts the personal representative and they agree on a settlement of $1000.  The collection agency has a contingent fee arrangement of 20%–so the agency keeps $200 and sends the creditor $800.  The estate has paid $1000.  The creditor has incurred collection costs of $400: $200 in fees and $200 as a settlement discount.  The estate has saved $200.

Now let’s take the same scenario, except the CFPB has prohibited the collection agency from contacting the informal personal representative:

An attorney is retained to force open an estate and appoint an executor.  The attorney is not going to negotiate with himself over a $1200 bill, so he will send the executor a bill for the full $1200.  The attorney will then resolve other estate issues and receive very typical court-approved fees of $5000.  The creditor has paid collection costs of $0.  The estate has paid $6200.

Let’s assume that only 50,000 cases a year shifted from the current informal paradigm to forced administration.  That’s a very modest estimate, only a fraction of the annual new inventory of new deceased accounts.  Assume that the average fees for attorneys, accountants, appraisers and other professional involved in each formal estate are a frugal $5000.  The result would be an annual additional cost to consumers of $250,000,000.  In its introduction to the SBREFA outline, the CFPB states that it has recovered over $300 million for consumers.  Under its proposals for decedent debt collection, that amount of money would be disgorged from consumers in about fifteen months.

The current state of affairs in which informal probate administration is recognized is beneficial to all concerned.  The CFPB’s proposals would throw that system out of balance, if not destroy it.  Today, creditors, collectors, and personal representatives have managed to create arrangements where collection costs are kept low and estates are resolved quickly.  Time is of the essence for creditors when filing probate claims.  For example, in California there is an absolute deadline of one year from the date of death for filing a claim seeking payment from an estate.  If a collector cannot contact persons acting informally and there is a 30-day hold on contacting a surviving spouse, there will be an industry-wide shift towards creditors and collectors forcing open estates.

Once the economic benefits of that approach are understood, there will be no turning back.  The work of collection agencies will become much easier— if they cannot quickly settle the account with the surviving spouse or file a claim if there is an existing probate estate, they will take the next step of forcing open an estate.  Creditors will adjust because the delays they will experience in receiving most payments will be offset by the fact that they will have collection costs of near zero.  There will be no shortage of lawyers available to do this relatively simple and highly remunerative work.  Only the general public will suffer.

This blog post is the first of two on the proposals being considered by the CFPB regarding the collection of decedent debt.  In tomorrow’s blog post, I will share my thoughts on the CFPB’s proposal to prohibit debt collector contact with informal representatives.

Some background.  The CFPB has been sending signals for quite some time that it finds fault with decedent debt collection.  In its November 2014 report, “A Snapshot of Debt Collection Complaints Submitted by Older Consumers,” there is a reference to an older widow who sadly became upset during a phone call she placed to a collection agency.  The woman’s narrative did not indicate that the collector she talked to said anything wrong.  The CFPB’s underlying data for the period that was covered by the Snapshot had so few complaints about decedent debt collection that the category did not even register a slice on the Snapshot’s illustrative complaint pie chart.  It is thus somewhat remarkable that in the materials accompanying the CFPB’s outline of its debt collection proposals for the SBREFA panel, the CFPB reported that a survey it conducted just a few months later showed that of the consumers responding to the survey who had been contacted about a debt in collection, six percent reported they had been contacted about a decedent debt.

In an earlier blog post, I criticized the CFPB for failing to make any attempt at external validation of its complaints.  There is also reason to question the validity of its data on decedent debt.  Given that, for the reasons explained below, there is so little collection of decedent debts, it’s hard to believe that even a weighted sample of consumers who had a 60-day delinquency, a reported collection or both, would include that many consumers who had been contacted about decedent debt.

If someone were to review the approximately 10,000 FDCPA cases that are filed each year, he or she would find that there are very few lawsuits brought against collectors of decedent debt. The reason there are so few lawsuits is simple.  Those engaged in decedent debt collection are made aware daily that many consider the task distasteful.  Collectors operate knowing that a single misstep, never mind a violation of law, can result in bad press, a loss of business, investigations by regulators and attorneys general, and even the intervention of elected officials.  And collectors of decedent debt know that surviving spouses, personal representatives, administrators, and executors often have ready access to lawyers.  These factors mandate the exercise of restraint at every point.

Despite these facts, the debt collection proposals being considered by the CFPB would both upend the FTC’s successful and well-settled 2011 enforcement policy for the collection of decedent debt and destroy the ability of consumers to resolve estates through informal methods.  In developing its “Statement of Policy Regarding Communications in Connection with the Collection of Decedents’ Debts,” the FTC spent over a year investigating the decedent debt collection industry and conducting a comprehensive survey of state probate law.  (In fact, I have been told by two former senior FTC officials that they consider the Statement of Policy to be one of the best examples of guidance the FTC has ever produced.)

30-day hold. The proposals being considered by the CFPB would impose a 30-day hold on all collection contacts after the date of a consumer’s death.  The FTC considered and rejected this idea because it found that there was no significant incidence of contact by collectors immediately following a debtor’s death.  Contrary to common perception, there is no database that gives collectors (or anyone else) immediate information about recent deaths.  The FTC noted that it typically takes a significant period of time—weeks or even months for a creditor to learn of a debtor’s death and then it takes even more time for the creditor to transfer the account to an agency that specializes in decedent debt collection.

Many of the agencies that collect decedent debt have their own internal holds on some classes of accounts.  But a mandated 30-day hold is unlikely to be a universal solution for all creditors and collectors.  It is also unlikely to benefit survivors and estate administrators because it ignores the common fact that family members universally want quick resolution of a decedent’s financial matters.  Ask any probate judge and one will quickly learn that the most frequent complaint about the estate process is that it takes too long.

The 30-day hold will also create fertile ground for litigants to raise technical violations.  The collector who mistakenly sends a letter that is received on day 29 becomes a target. There are cases that occur daily where the consumer is alive at the time the debt goes to collection but dies while has his or her spouse is working with the collector towards resolution of the debt.  Would the CFPB place even common decency on hold, thereby exposing a collector who calls the spouse to express condolences to potential liability for a technical violation?

The proposed 30-day hold does not account for the fact that, under the FDCPA, many spouses have dual status.  A spouse who is a co-signer on a loan or lives in a community property state is a “consumer” under Section 803(3) of the FDCPA because that person has a legal obligation to pay the debt.  The spouse is also simultaneously a “consumer” under FDCPA Section 805(d) because the FDCPA includes a person’s spouse as a “consumer” with whom a collector can discuss that person’s debts.  Under the proposed rule, it appears that even where a surviving spouse has a legal obligation to pay the debt, collectors would be prohibited from contacting the surviving spouse for 30 days.