On November 30, 2020, the Federal Trade Commission (FTC) announced that it had taken action against a debt collection company, Midwest Recovery Systems (“Midwest”), alleging that an alleged “debt parking” scheme caused more than $24 million in harm to consumers. While the complaint and settlement themselves are not that remarkable, the dissent filed by Commissioner Chopra is. Commissioner Chopra challenges the FTC’s approach to debt collection, suggesting the FTC refer such cases to the Consumer Financial Protection Bureau (CFPB) and that the FTC focus on other things. We have written previously about Commissioner Chopra’s other ideas for reshaping FTC approaches and priorities, and if Commissioner Chopra were to become the next Chair under President-elect Biden, things could get interesting at the agency.

First, a few words about the case. Also known as “passive debt collection,” debt parking is the practice of placing fake or questionable debts onto consumers’ credit reports to coerce them to pay. The “parked” bogus debt is often not discovered by a consumer until his or her credit report is accessed in connection with buying a car or home, opening a credit card, or seeking employment. Thus, although the debts may not be valid, consumers often feel pressured to pay them off—hence the millions of dollars allegedly hauled in by Midwest.

Under the FTC’s proposed settlement, Midwest and its owners will be prohibited from the practice of debt parking, or otherwise pursuing consumers for alleged debts without reasonable basis, and must delete the debts Midwest previously reported to credit reporting agencies. The settlement includes a monetary judgment of $24.3 million, which is partially suspended based on Midwest’s inability to pay. As a result, the defendants will be required to pay just $56,748 in addition to giving up certain other proceeds and assets.

The Commissioners approved the proposed settlement in a 4-1 vote. However, in a dissenting statement, Commissioner Rohit Chopra disagreed with the settlement, which allows the defendants to “continue their careers in debt collection” while providing “almost no help whatsoever” to consumers. In his view, the FTC’s agreement to accept only 0.2% of the monetary relief ordered “means that victims are shortchanged, with many getting nothing at all, including those who may have lost out on job and housing opportunities due to the conduct.”

Commissioner Chopra recommended that the FTC “carefully review [its] priorities in the financial services sector” and, in cases like Midwest, “where there are almost no funds to distribute,” work closely with the CFPB to obtain a civil penalty, in which case victims might then qualify for redress under the CFPB’s Civil Penalty Fund. Exactly what this partnership involves is unclear, but historically matters have been cleared to one agency or the other, and have not been pursued jointly. Commissioner Chopra’s partnership may be nothing more than the FTC referring debt collection cases to the CFPB, with which it shares enforcement authority over debt collection.

Commissioner Chopra also urged the FTC to pivot away from “whack-a-mole,” case-by-case enforcement, and pursue, alongside the CFPB, “systemic fixes to persistent debt collection abuses.” For example, with respect to debt parking, a systemic fix would require action by Equifax, Experian, Trans Union, and other credit reporting agencies, which could prevent illegal activity “by heeding clear warning signs, such as by cutting off furnishers with unusually high deletion rates.” Commissioner Chopra believes that the CFPB—rather than the FTC—is best positioned to address this problem by using its authority to define unfair, deceptive and abusive practices by these credit reporting agencies.

Commissioner Chopra also urged the FTC to pivot to other priorities that he believes have been ignored.

In a separate statement, Commissioner Rebecca Kelly Slaughter supported the outcome but echoed Commissioner Chopra’s recommendation that the FTC partner with its sister agency to ensure consumers receive redress in these cases. She also called on Congress to “consider a more direct approach: Grant the FTC the same authority the CFPB has to provide redress to consumers.” Commissioner Slaughter likewise expressed frustration that the proposed settlement does not ban the Midwest defendants from debt collection.

Whether the many suggestions Commissioner Chopra has made for reorienting approaches and priorities at the FTC remain suggestions of one Commissioner or become policy under a new Chair remains to be seen. Stay tuned.