In a Changing CFPB – Debt Collection Continues

The CFPB as we knew it is changing every day – a new director, a new mission statement, and new areas of focus. Although the CFPB is slowing and reevaluating its enforcement actions and rulemaking procedures, generally, the CFPB’s focus on debt collection practices is continuing. The CFPB announced plans to release this year a proposed debt collection rule regarding FDCPA collectors’ communications practices and consumer disclosures. This should not come as a surprise since debt collection remains one of the most prevalent topics for complaints received by the CFPB, with over 84,000 complaints last year. Even though the CFPB’s planned rulemaking is intended to cover only FDCPA collectors, the CFPB continues to use its UDAAP authority to bring enforcement actions against first-party collectors.

Debt collection practices supervision and enforcement is not under the sole purview of the CFPB – on the federal side, the FTC also has jurisdiction. In 2017, the FTC filed or resolved 10 cases against 42 defendants, obtaining over $64 million in judgments, and banning 13 companies and individuals from debt collection again. States remain active as well with changes to existing laws.

In recent weeks, the CFPB published its Semi-Annual Report to Congress, and also published in conjunction with the FTC, an annual report on the two agencies’ supervision and enforcement activities under the FDCPA.

The joint report by the CFPB and FTC detailed four areas of debt collection activities that the CFPB focused on in the past year:

•    Impermissible communications with third parties – Examiners found that entities did not adequately confirm that they had contacted the correct party before discussing the debt. In response to these findings, entities enhanced consumer verification processes to verify first and last names, and confirm the date of birth or last four digits of the Social Security number before disclosing the debt or the nature of the call to the consumer. Further, entities revised processes to discuss the debt with an authorized user only after explicit authorization from the cardholder.

•    Deceptively implying that authorized users are responsible for debt – Examiners found that entities attempted to collect a debt directly from authorized users of a credit card even though the authorized user was not financially responsible for the debt. Examiners concluded that soliciting payment from a non-obligated user that implies that user is personally responsible for the debt constitutes a deceptive act.

•    False representations – Examiners found that entities made false representations to consumers about the effect on their credit scores of paying a debt in full rather than settling for less than the full amount. In response, entities amended training materials to remove references to how a consumer’s credit score may be affected by paying the full amount.

•    Communicating with consumers at an inconvenient time – Examiners found that entities had contacted consumers at a time or place known or which should be known to be inconvenient to the consumer. These improper calls occurred because the debt collectors failed to accurately update account notes and modify the use of auto dialers. In response, entities were directed to enhance compliance monitoring of dialer systems.

CFPB debt collection rulemaking

A CFPB rulemaking addressing debt collection has been in the works for years, including a notice of proposed rulemaking in 2013 and a SBREFA panel in 2016 reviewing an outline of rulemaking proposals. When former Director Richard Cordray stepped down in November of last year, the debt collection rule had not yet been proposed. However, it remained on the CFPB’s Fall 2017 Rulemaking Agenda released in January 2018 after Director Mulvaney took over the CFPB, and has been featured in the CFPB’s Semi-Annual Report.

The CFPB’s Semi-Annual Report noted that an upcoming proposed rule is in development that would address FDCPA collectors’ communications practices and consumer disclosures. The CFPB is continuing to consider the feedback received through the SBREFA panel and from other stakeholders that have connected with the CFPB in response to the outline of proposals. The CFPB is also engaged in research and market outreach to build on its work in 2017 that included CFPB staff speaking at regional and national debt collection industry events and conducting industry site visits.

State law changes

•    State legislatures remain active in the debt collection space. Numerous state legislatures are considering or have enacted new requirements for debt collectors regarding licensure and collection practices. For example, in Maine – two bills were enacted that broaden the scope of licensable debt collection activities (S 613) and clarifies that a debt buyer must possess the total amount due at charge off (H 1165).

•    Oregon – a recent bill (S 1153) awaits the governor’s signature that makes it a deceptive act to collect or attempt to collect a debt if the debt collector is a debt buyer, or is acting on a debt buyer’s behalf, and is collecting or attempting to collect purchased debt without providing the debtor with 30 days after the debtor’s request to provide documents required to substantiate a debt.

•    Tennessee – a proposed regulation (Rule 6717, amending Tenn. Admin. Code § 0320-5-.1 et seq.) is pending that would create numerous requirements for a debt collector’s communications with both the debtor and third parties, including requirements governing what a debt collector can say to third parties about the debt, and a list of actions that would count as unfair, deceptive, or abusive practices.

Debt collection litigation

Lawsuits stemming from alleged deceptive debt collection acts and practices continue to flood into courtrooms around the country. Additionally, numerous aspects of debt collection are still finding their way to Courts of Appeals. Recently, the Seventh Circuit joined the Fourth and Ninth Circuits when it held that a debt collector did not violate the FDCPA by only verifying the information in its records instead of contacting the creditor to verify the debt. At issue in the case was what a debt collector must verify after receiving a dispute to verify the accuracy of the underlying debt. The court held that the FDCPA is designed to eliminate abuse practices, so the verification required of the debt collector need only ensure that the letter sent to the debtor accurately state the information it received from the creditor. See Walton v. EOS CCA, 2018 WL 1417495 (7th Cir. Mar. 21, 2018).

CFPB and state attorney general coordination

Finally, as part of the CFPB’s Semi-Annual Report, the CFPB highlighted actions it has taken in conjunction with state attorneys general. The Semi-Annual Report documented one case the CFPB is pursuing in partnership with the New York

Attorney General against a network of companies that allegedly harass, threaten, and deceive consumers into paying inflated debts or amounts not owed. The case is still pending before the Western District of New York. See CFPB v. Northern Resolution Group (W.D.N.Y. No. 1:16-cv-00880).

While the CFPB may be slowing down, companies should continue to focus on debt collection practices with the expectation of continued pressure from the federal government, the states, and private litigants.

Nanci Weissgold is a member of Alston & Bird’s Financial Services & Products Group and a co-leader of the Consumer Finance Regulatory Compliance Team. She advises financial institutions and financial service providers on issues relating to mortgage lending and mortgage servicing, valuation and other consumer lending issues as part of her national regulatory compliance practice.