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for purposes of the FDCPA, but the creating hospital would not. Therefore, there would be less restriction as to the name the collecting entity could use.

In determining whether the collection entity is "truly independent" of the creating hospital, the staff reiterated general rules specified in its opinion letter covered in the December issue of RR. The staff added that it would be difficult to establish independence in situations in which the creating hospital management overlaps with the collection entity management, there is an interface between the hospital management and the collection entity or there are other connections between the 2.

Reffkin Comments: One issue not addressed in the staff's letter, but of major importance, is the distinction between collecting defaulted debts and those debts not yet in default. A creditor's use of a name other than its own when collecting any debts it is owed (whether or not the debts are in default) will make it a collector for purposes of the FDCPA. While a creditor may run afoul of the Act when collecting its own debts that are not overdue, a collection agency must be concerned with the Act's provisions only when collecting debts that were in default when they were obtained from its client. See Sec. 803(6) Giii of the FDCPA. (FTC staff letter, Dec. 15, 1983.)

CAB Trial Date Set,
Depositions Authorized

It looks like the FTC's case against Central Adjustment Bureau Inc., the Texas-based debt collection agency charged with violations of the FDCPA, finally will come to trial in early June.

The company had maintained in pleadings filed with the court that it will

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undergo further loss of business if the government is permitted to take depositions from certain customers. Nevertheless, the U.S. District Court has given the government the right to obtain depositions from 15 debtors, from 10 client-creditors of the company and from former and present employees. The court said the depositions are "clearly relevant" to the claims made in the complaint and that damage to the company's business can be "minimized" by limiting the number of individuals deposed.

The 1980 FTC complaint, which requests civil penalties and injunctive relief, involves charges on a wide range of FDCPA violations including (1) implying that legal and other actions will be taken, when not intended, (2) sending communications in the form of post cards, (3) failing to state that the purpose of the initial dunning communication is collection of a debt and (4) seeking from third parties information that is prohibited by the FDCPA. (U.S. v. Central Adjustment Bureau Inc., et al., U.S. N.D. Texas, Civil No. 3-801671-R, Nov. 10, 1983.)

Credit Bureaus

Correcting Inaccurate Information Can Be a Successful Defense

A credit bureau that is sued for including inaccurate information in a consumer credit report could have the court rule in its favor if the credit bureau, once it is made aware of the error by the consumer, takes the prescribed steps to reinvestigate and correct that information, as required by the Fair Credit Reporting Act (FCRA).

That is what happened in a case before the New York Supreme Court involving a consumer who sued Central Credit Bureau for failing to designate

The Reffkin Report/January 1984

that an obligation in the consumer's credit report had been discharged in bankruptcy.

The court ruled that because the credit bureau reinvestigated the information after the consumer had disputed it and had subsequently corrected the report as required by the FCRA, there was no basis for imposing liability on the credit bureau.

The court explained that "this Act imposes liability for the failure to make appropriate corrections in credit records upon request of consumers and also for the failure to follow appropriate procedures...the statute requires no more." (Johnson v. Beneficial Finance Corp., Supreme Court, 4226 NYS 2d 553 (Sup. 1983] June 6, 1983.)

Administrative Orders Can
Establish Permissible Purpose

Under the provisions of the FCRA, government agencies fall into the category of consumer-report users which may have impermissible purposes for consumer reports. For several years, however, the FTC staff has said government child-support agencies do have a permissible purpose for such reports when they attempt to collect childsupport payments pursuant to an existing court order. The rationale, the staff said, is that the court order makes the agency a judgment creditor (or an agent working on behalf of a judgment creditor) and thus has a permissible purpose.

What if a state has established administrative procedures to take the place of the judicial process in child-support cases? In such states, a court order is not issued to enforce the child-support payment. Rather, a legally binding support obligation is issued through an administrative process.

According to a recent letter to the FTC from a Maryland child-support enforcement office, 14 states have already enacted laws to substitute administrative

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procedures for the more time-consuming judicial processing of child-support cases. The question posed to the FTC staff was whether administrative orders are enough to provide child-support enforcement agencies with permissible purpose. The staff said "yes."

It is the consequence, not the process, that is important in establishing a permissible purpose. What is vital, according to the staff, is that the "judgment creditor" status be established before obtaining a consumer report for enforcement action. "Since the quasijudicial administrative process described in your letter establishes a legally binding child-support debt," the staff said, "a child-support agency which is functioning as (or on behalf of) a judgment creditor has a permissible purpose to obtain a consumer report on the debtor parent, based on the order."

Reffkin Comments: When furnishing a consumer report to users like government agencies, which may have both permissible and impermissible purposes, it is important to take precautionary measures to ensure that the reports are being furnished only for permissible purposes. Although the staff has usually advised that a consumer-reporting agency receive oral or written certification before issuing a report, that standard has been held to be flexible and the staff has, in fact, approved other methods. (RR, July 1983, p. 6.)

In its opinion, the staff noted that administrative procedures used to obtain legally binding orders should pose no problem in ensuring proper certification. The staff noted that a consumerreporting agency could just as easily obtain an administrative order number as a judgment number to verify that the inquiry pertained to a specific debt. (FTC staff letter, Dec. 2, 1983.)

Court Decision on TILA
Favors Creditors

By overturning a lower court decision which had held a department store to

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exceptionally strict "clear and conspicuous" standards when making Truth In Lending Act (TILA) disclosures, an appellate court weighted the interpretation of the TILA'S "clear and conspicuous" requirement in favor of creditors.

The court found that even though some information in the store's monthly account statements to consumers could have been provided in a clearer manner, "imperfections in format" did not necessarily violate the law, nor did technical inaccuracies that were unlikely to mislead consumers make the company liable under the TILA.

The court gave its decision in a case involving G. Fox and Co., which had been accused of not disclosing information in a clear and conspicuous manner. In its examination of the case, the court established important standards. It held that if information not required to be disclosed by the TILA is provided in a confusing manner, no TILA violation can be found. It also held that even if information required by the TILA could have been provided in a clearer manner, the Act has not necessarily been violated.

Multistate Account Statements

The defendant uses form multistate account statements which must accommodate disclosure to consumers whose balances are subject to a break-rate system (different interest rates applied to different balances) as well as to consumers in states (like Connecticut, where the case was brought) which allow only one interest rate.

When the form, which has fill-in-theblank portions for 2 different interest rates, is completed for consumers in states that allow only one interest rate, rather than leaving one part blank, the company states that the annual percentage rate and periodic rate are applied to balances up to or equal to $0.00. The other portion states that the rates are applied to balances in excess of $0.00. While the court acknowledged

The court also threw out as "ridiculous" and "without merit" several arguments alleging technical violations. For example, the plaintiffs said the company violated the Act by failing to place dollar signs before all monetary amounts on the statements (even though headings clearly indicated that figures were amount, payment, charges, etc.). The court noted that there is no express requirement to use dollar signs and that there is no "realistic possibility" that consumers would not realize these numbers referred to monetary amounts.

Print-Style Requirements

The court also held that the reverseside disclosure notice required by the Act imposes no print-style requirements on the creditor. The notice, which says "Notice: See Reverse Side for Important Information," must be on the face of a statement if disclosures required by the TILA are printed on the reverse side. The plaintiffs argued that the store's failure to capitalize and italicize the words in the notice exactly as the TILA does constituted a violation of the Act.

This argument is "without merit," the court said. It explained that the Act's