The Federal Trade Commission has concluded that significant reforms are necessary to make the nation's current debt-collection litigation and arbitration system efficient and fair for consumers.

A recently released FTC report, "Repairing a Broken System," relies on information the FTC gathered in a 2009 series of regional roundtables with panelists including representatives of the debt-collection industry, consumer advocates, and private attorneys. Alan S. Kaplinsky, Chair of Ballard Spahr's Consumer Financial Services Group, participated in the initial roundtable, held in Chicago in August, and his presentation on pre-dispute arbitration agreements is cited extensively in the FTC's report.

The FTC had previously issued a report in February 2009 identifying various consumer protection concerns relating to debt-collection litigation and arbitration. Having concluded in that report that more information was needed to make recommendations addressing those concerns, the FTC convened the roundtables.

The FTC’s recommendations in its latest report include the following:

  • States should consider adopting measures to address the high default rate in debt-collection litigation, such as steps to ensure effective service of process and that the  cost to consumers of defending such litigation is not prohibitively high.

  • States should require collectors to include more information about the debt in their complaints.

  • Federal and state laws should be changed to limit the amount of funds that banks can freeze in an account into which a consumer deposits funds exempt from garnishment.

  • Consumer credit contracts should be drafted in a way that ensures that consumers are aware of their choice to arbitrate and gives them a reasonable method of exercising that choice.

  • Arbitration forums should take steps to prevent bias and the appearance of bias and conduct proceedings in a way that makes consumer participation more likely, such as measures to increase the likelihood that consumers are receiving adequate notice of proceedings and the establishment of rules that limit costs to consumers.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). For more information, please contact group Chair Alan S. Kaplinsky, 215.864.8544 or; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or; John L. Culhane, Jr., 215.864.8535 or; Barbara S. Mishkin, 215.864.8528 or; or Mark J. Furletti, 215.864.8138 or

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