The Federal Trade Commission’s recent announcement that it entered into a record settlement with “the world’s largest debt collection operation” demonstrates that it intends to continue its vigorous enforcement of the Fair Debt Collection Practices Act (FDCPA).
Under the settlement, filed in a Texas federal district court, the defendants must pay a $3.2 million civil penalty for violations of Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices, and the FDCPA. According to the FTC, this represents “the largest [civil penalty] ever obtained by the [FTC] against a third-party debt collector.”
The FTC’s complaint alleged that the defendants engaged in unlawful conduct that included:
Making unsubstantiated representations in telephone calls that consumers owed debts, despite such consumers having previously indicated that they did not
Calling debtors three or more times per day and at times known to be inconvenient to the debtor
Continuing to call debtors after being asked in writing to stop communications
Calling debtors’ workplaces despite knowing that the employers prohibited such calls
Leaving recorded messages that disclosed the debtor’s name and the existence of the debt on answering machines on which the greeting included no name, or a name different from that of the debtor
Continuing to call non-debtors for a debtor’s location information without a reasonable belief that the non-debtors’ previous denial of knowing that information was erroneous or incomplete
Making deceptive representations about stopping future calls
In addition to payment of the record civil penalty, the FTC’s proposed stipulated order requires the defendants to follow specific procedures and time frames for conducting investigations after a person disputes owing a debt or its amount. It also includes standards the defendants must follow for leaving recorded messages and recordkeeping requirements for calls to obtain location information.
For six years, the defendants are required by the order to tape-record at least 75 percent of calls with anyone contacted in collecting a debt and maintain the recordings for 90 days. For five years, the defendants must include a specified disclosure in all written debt collection communications that advises debtors how to contact the defendants or the FTC with complaints and obtain information about their legal rights when dealing with collectors. For 10 years, defendants must follow certain recordkeeping requirements, such as maintaining records containing specified information on all employees involved in debt collection and all consumer complaints, and retain such records for five years.
The debt collection industry is also facing increased scrutiny from the Consumer Financial Protection Bureau, which shares FDCPA enforcement jurisdiction as to nonbanks with the FTC. In addition, as discussed in our previous legal alert, the CFPB recently issued two bulletins warning creditors and servicers that are not covered by the FDCPA that their collection practices are subject to the CFPB’s authority under Section 1031 of the Dodd-Frank Act, which prohibits “unfair, deceptive, or abusive” acts or practices.
The FTC does not have supervisory and examination authority and only has authority to investigate and bring enforcement actions against nonbank third-party debt collectors and debt buyers. In contrast, the CFPB has authority to supervise and examine certain nonbank debt collectors and debt buyers (e.g., larger ones, those that pose significant risks to consumers, and those that act as service providers to other entities supervised by the CFPB) for compliance with the FDCPA and Section 1031 of the Dodd-Frank Act. The CFPB also can investigate and bring enforcement actions against nonbank debt collectors and debt buyers, regardless of their size, for violations of those same laws.