Collecting debts from the dead
by David Lazarus
LA Times
Regulators are poised to crack down on debt collectors who ignore rules on pursuing the debts of the deceased.
Death is no excuse for not paying your bills.
But federal authorities say debt collectors have become increasingly aggressive — and often misleading — in their efforts to wring unpaid obligations from dead people's next of kin.
To rein in the practice, the Federal Trade Commission is preparing new rules that would crack down on overzealous debt collection involving the deceased but also potentially make it easier for unscrupulous collectors to dupe the unwary into paying bills they're not responsible for.
Public comment on the proposed rules ended this week, and a vote is expected within a few months.
Aggressive debt collection is a perennial source of controversy, ranking second last year on the FTC's list of most common consumer complaints. But the problem has been exacerbated by the economic downturn, said Joel Winston, the agency's associate director of financial practices.
He said the surge in unpaid bills has been accompanied by a surge in debt collection efforts, and many collectors ignore rules regarding who can be approached — and who's on the hook — for the deceased's obligations.
"Collectors often try to collect from whoever answers the phone," Winston said. "There have been cases where collectors have suggested that people have to pay out of their own money."
Debt doesn't disappear just because a person has died, particularly in states like California with community property laws that can leave a person on the hook for a spouse's obligations.
The Fair Debt Collection Practices Act of 1977 authorizes debt collectors to contact a dead person's spouse, family members or related third parties, such as the executor of an estate.
But the law limits what a collector can say while searching for the holder of the purse strings. For example, the collector can say he's trying to find whoever is handling the deceased's financial affairs. But he can't reveal that he's calling about a debt.
The FTC's rule change would provide collectors with a bit more leeway in this regard. It would allow them to bring up the debt in preliminary conversations with the deceased's loved ones.
Consumer advocates say this is problematic because a collector could attempt to maneuver next of kin into paying off any obligations.
"This proposed rule could open the door for collectors to seek money by prodding and misleading grieving relatives and friends into thinking they have obligations that they don't," said Robert Hobbs, a lawyer with the National Consumer Law Center.
To prevent this, the FTC is proposing that debt collectors be required to make clear that no such responsibility exists. They'd have to state that only the deceased's estate is on the hook.
That's good, as far as it goes. But the agency can do better.
A cooling off period may not be a bad idea. How about prohibiting debt collectors from contacting a deceased's family until, say, at least a month after the death was recorded? This would prevent people from being pestered while they are most vulnerable.
And collectors should be required to specify not just that people don't have to pay out of their own pocket but also that some debt need not be repaid at all because of a statute of limitations.
In California, for example, most obligations older than four years, including credit card debt, don't have to be repaid.
"The FTC should strengthen protections for grieving families and friends, not open the door to debt collection efforts that often aim to exploit the vulnerability of the bereaved," Hobbs said.
