Sovern Publishes in SMU Law Review & Fortune

Professor Jeff Sovern’s article, co-authored with St. John’s Associate Professor of Psychology Kate Walton, Are Validation Notices Valid? An Empirical Evaluation of Consumer Understanding of Debt Collection Validation Notices, 70 SMU L. Rev. 63 (2017), has been published. Here is the abstract:


Jeff Sovern

A principal protection against the collection of consumer debts that are not actually owed is the Fair Debt Collection Practices Act’s validation notice, which obliges debt collectors demanding payment to notify consumers of their rights to dispute debts and request verification, among other things. This Article reports on the first public study of whether consumers understand the notices or what they take away from them. For nearly four decades, courts have decided whether validation notices satisfied the FDCPA without ever knowing when or if consumers understand the notices. This Article attempts to remedy that problem.

Collectors who prefer that consumers focus on the request for payment rather than a statement of consumer rights will find our results heartening. When we surveyed consumers by showing them a collection letter the Seventh Circuit had upheld against challenge, on most questions respondents did not show significantly better understanding of the validation notice in that letter than on an otherwise identical letter without any validation notice at all. More than half the court-approved letter respondents seemed confused by the notice’s phrasing about when the collector would assume the debt to be valid. About a quarter did not realize they could request verification of the debt, and nearly all who realized they could seek verification also thought that an oral request was sufficient even though both the statute and notice specify that a writing is required. More than a third of respondents thought that if they did not meet the thirty-day deadline specified in the validation notice for disputing the debt, they would have to pay the debt or could not defend against a suit to collect it even if they did not owe the debt. Under the standard the FTC uses for determining deception in surveys, the notice would be found deceptive.

Our results raise troubling questions about the effectiveness of current forms of validation notices, and therefore whether consumers being pursued by collectors for debts they do not owe are appropriately protected. The willingness of courts to approve validation notices that do not serve Congress’s goals creates the illusion of consumer protection without the reality.

In addition, Fortune posted Professor Sovern’s commentary about the Consumer Financial Protection Bureau’s new arbitration rule, titled How This New Rule Prevents Your Bank From Ripping You Off.  Professor Sovern explained:

Most people don’t sue when someone takes advantage of them for, say, $300. It’s just not worth it. That’s where class actions and the CFPB come in * * *
* * *
Wells Fargo * * * agreed [in the unauthorized account class action] to a class action settlement of $142 million. The settlement still requires court approval, but the court approved it preliminarily earlier this month. Lawyer fees are capped at 15% of the $142 million. And if the remaining money isn’t enough to compensate its customers, pay the lawyers, and provide injured customers with an extra $25 million, Wells Fargo will chip in more.
The Wells Fargo case shows the difference between arbitration and class actions: the difference between getting nothing and getting something. * * *
* * *
Critics of the rule claim that class actions are just giveaways to lawyers. It’s true that not all class actions work as well as the Wells Fargo one, but the remedy for bad class actions is no more to eliminate them than the remedy for bank misconduct is to eliminate banks. Rather, the remedy is to make sure courts live up to their obligation to approve class action settlements only if they are “fair, reasonable, and adequate.”

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