Why it matters

In conjunction with the announcement of a $10.5 million agreement with a lender that allegedly engaged in illegal debt collection practices, the Consumer Financial Protection Bureau (CFPB) issued a bulletin warning the financial services industry about potential unlawful conduct during in-person collections. Going to consumers' homes and workplaces to collect debt presents a "heightened risk" for lenders, according to Compliance Bulletin 2015-07, raising concerns about engaging in unfair or deceptive acts and practices that violate both the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. As an example, the CFPB pointed to its enforcement action against Texas-based EZCORP, a small-dollar lender that visited borrowers' homes and places of employment. The Bureau alleged the company ran afoul of federal law by disclosing consumers' debts to third parties and causing adverse employment consequences to consumers such as disciplinary actions or termination. To settle the charges, EZCORP agreed to change its practices, pay a $3 million civil penalty, and provide $7.5 million in refunds to consumers.

Detailed discussion

A recent enforcement action by the CFPB triggered a Compliance Bulletin from the Bureau about the risks of in-person collection of consumer debt.

Intended to provide guidance to creditors, debt buyers, and third-party collectors, Compliance Bulletin 2015-07 sets forth collection activities prohibited by federal laws such as the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Fair Debt Collection Practices Act (FDCPA). Despite the ban on actions such as contacting third parties or engaging in harassing conduct, the Bureau said it has recently observed such practices in its supervisory examinations and enforcement investigations, resulting in the need to remind lenders about the scope of proper activities.

First- or third-party debt collectors "run a heightened risk of committing unfair acts or practices in violation of the Dodd-Frank Act when they conduct in-person debt collection visits, including to a consumer's workplace or home," the CFPB wrote. Pursuant to the statute, an act or practice is unfair "when it causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and is not outweighed by countervailing benefits to consumers or competition."

Depending on the facts and circumstances, in-person collections can easily meet this definition, the CFPB said. Arriving in person at a consumer's home or workplace may result in third parties (such as coworkers, supervisors, customers, roommates, landlords, or neighbors) learning that the consumer has a debt in collection.

"When such information is revealed to such third parties, it could harm the consumer's reputation and, with respect to in-person collection at a consumer's workplace, result in negative employment consequences," the Bureau said. Even if such information is not revealed to third parties, injury could still occur, the agency added, if "a collector goes to a consumer's place of employment when the consumer's employer prohibits the consumer from having personal visitors there, which could also result in negative employment consequences."

In-person collection raises multiple concerns under the FDCPA as well. Section 805(a)(1) and (3) of the statute makes it illegal for those collectors subject to the Act to communicate with a consumer in connection with the collection of any debt "at an unusual time or place or a time or place known or which should be known to be inconvenient to the consumer" or at a place of employment if the debt collector knows or has reason to know the employer prohibits the consumer from receiving such communication.

"Consumers may find in-person collection visits to be inconvenient and collectors may know or should know of this inconvenience; similarly, collectors may know or have reason to know that a consumer's employer prohibits the consumer from receiving such communication at the workplace," the CFPB said.

In addition, Section 805(b) of the FDCPA prohibits third-party debt collectors and others subject to the FDCPA from communicating with any person other than the consumer in connection with the collection of any debt; in-person collection poses a real threat to violate this provision, the Bureau suggested.

Sections 806 and 808 of the statute ban a debt collector from engaging in any conduct the natural consequence of which is to harass, oppress, or abuse any person, and from using unfair or unconscionable means to collect or attempt to collect any debt. "In-person collection visits may pose a heightened risk that collectors will violate these provisions," the CFPB said.

"If the CFPB determines that a company has engaged in acts or practices that violate the Dodd-Frank Act, the FDCPA, or other Federal consumer financial law, it will take appropriate supervisory or enforcement actions to address the violations and seek all appropriate corrective measures, including remediation of harm to consumers and assessment of civil money penalties," the Bureau promised.

Demonstrating the intent to make good on its promise of enforcement, the CFPB announced a settlement with a debt collector that allegedly engaged in unlawful in-person collections, reaching a $10.5 million deal.

A small-dollar lender based in Texas, EZCORP engaged in illegal debt collection practices, including visits to consumers at their homes and workplaces, false threats of legal action, lying about consumers' rights, and unlawful electronic withdrawals resulting in bank fees for borrowers, the CFPB alleged.

Specific violations of the Dodd-Frank Act's prohibition against unfair, deceptive or abusive acts or practices occurred when the company disclosed consumers' debts to third parties and caused adverse employment consequences to consumers such as disciplinary actions or termination. The company called consumers at their place of business despite being asked to stop and made repeated, false threats to sue borrowers for nonpayment.

EZCORP also violated the Electronic Fund Transfer Act, requiring many consumers to repay installment loans through electronic withdrawals from their bank accounts. Consumers were subject to bank fees when the company made multiple withdrawals for a single payment or made withdrawals earlier than scheduled, the CFPB said.

To settle the suit, EZCORP agreed to refund $7.5 million to about 93,000 consumers and halt collection of remaining debts for another 130,000 borrowers, as well as pay $3 million in penalties. In addition, the company promised to abide by federal law going forward, with a ban on in-person debt collection.

To read Compliance Bulletin 2015-07, click here.

To read the consent order in In the Matter of EZCORP, click here.