The Consumer Financial Protection Bureau’s second annual report to Congress on enforcement of the Fair Debt Collection Practices Act (FDCPA) confirms that debt collection will continue to be a major CFPB focus in 2013.
The report also underscores the expanding reach of the CFPB’s supervisory authority in the debt collection arena. Since issuing its first FDCPA report in 2012, the CFPB finalized its rule defining debt collectors and debt buyers with more than $10 million in annual receipts as “larger participants.” The Dodd-Frank Act gave the CFPB supervisory authority over service providers to large insured depository institutions as well as service providers to nonbank mortgage originators, payday lenders, and private student loan lenders. Those service providers can include third-party debt collectors, regardless of the collector’s size.
As the report notes, while first-party creditors generally are not subject to the FDCPA, the Dodd-Frank Act prohibits them from engaging in unfair, deceptive, or abusive acts or practices (UDAAP) in their own collection activity. The FDCPA also does not apply to servicers when collecting debts that were current when servicing began. The CFPB now supervises mortgage servicers and servicing by large banks, and it has proposed to supervise nonbank servicers of private and federal student loans as “larger participants.” Accordingly, the CFPB can evaluate collection activity by creditors and servicers it supervises for UDAAP compliance.
Highlights of the CFPB report include the following:
Since the CFPB has not yet expanded its complaint system to include debt collection (although it is expected to do so in the first half of 2013), the data discussed in the report is based on the complaints submitted to the Federal Trade Commission through its Consumer Sentinel database in 2012. The report states that the FTC continues to receive more complaints about the debt collection industry than any other specific industry.
For the first time in five years, the most common category of FDCPA complaint received by the FTC was “demanding an amount other than is permitted by law or contract.” This category includes complaints claiming a debt collector was attempting to collect a debt the consumer did not owe at all (including a debt discharged in bankruptcy) or a larger debt than what the consumer owed.
The only CFPB enforcement action described in the FDCPA report was against American Express. The action arose from first-party debt collection activity that was alleged to have violated the Dodd-Frank UDAAP prohibition. The October 2012 settlement of that action, which represented the CFPB’s first public enforcement action involving debt collection practices, is summarized in our legal alert. The report notes that the CFPB “is also conducting several non-public investigations of companies to determine whether they engaged in collection practices that violate the FDCPA or the Dodd-Frank Act.”
Drawing on information in an FTC letter to the CFPB dated February 1, 2013, (included as an appendix) the report describes the FTC’s debt collection enforcement efforts in 2012. In its letter, the FTC indicated that it continues to focus “on bringing a greater number of cases and obtaining stronger monetary relief and injunctive remedies against debt collectors that violate the law.” According to the FTC, the seven debt collection cases it brought or resolved in 2012 matched the highest number of debt collection cases it has brought or resolved in any single year.
Among the practices targeted by the FTC was “phantom debt collection,” meaning attempts by debt collectors “to collect on debts (often related to payday loans) that either do not exist or are not owed” to them. Another target was misleading practices in connection with attempts to collect time-barred debts. Both the CFPB report and FTC letter noted that “what debt collectors must tell consumers” concerning the collection of such debts remains an “ongoing issue in the debt collection industry.”
Ballard Spahr’s Consumer Financial Services Group has formed a Collection Documentation Task Force that conducts extensive reviews of collection procedures and counsels on best documentation practices. The task force brings together litigators in the Group with experience defending mortgage lenders and other consumer lenders in documentation-related lawsuits nationwide and regulatory lawyers in the Group with deep knowledge of the Office of the Comptroller of the Currency’s national bank foreclosure review process and federal and state debt collection laws.
Members of the Group regularly consult with their clients engaged in consumer debt collection on compliance with the FDCPA and state debt collection laws. The Group has created a team of lawyers who are helping debt collection companies subject to CFPB supervision, including debt collectors and debt buyers, to prepare for their first CFPB examinations.
For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or firstname.lastname@example.org, John L. Culhane, Jr., at 215.864.8535 or email@example.com, Collection Documentation Task Force Chair Christopher J. Willis at 678.420.9436 or firstname.lastname@example.org, Glen P. Trudel at 302.252.4464 or email@example.com, Stefanie H. Jackman at 678.420.9490 or firstname.lastname@example.org, or Heather S. Klein at 215.864.8732 or email@example.com.