CFPB and NY Attorney General file federal court action against debt buyers

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The CFPB announced that, jointly with the New York Attorney General, it has filed a lawsuit in a New York federal court against three companies that purchased consumer debts and two of the companies’ individual principals alleging that the defendants engaged in a “massive illegal debt-collection scheme.”

The complaint alleges that the defendants’ conduct violated the FDCPA, the UDAAP prohibition of the Consumer Financial Protection Act, and various New York laws, including New York’s debt collection and UDAP laws.  The FDCPA and NY state law claims are asserted by only, respectively, the CFPB and NY AG, while the UDAAP claims are asserted by both the CFPB and NY AG.  Under CFPA Section 1042, a state AG is authorized to bring a civil action for a violation of the CFPA UDAAP prohibition. While Section 1042 is not cited in the complaint, presumably the UDAAP claims rely on Section 1042 for the NY AG’s authority.  Although the NY Department of Financial Services has previously relied on Section 1042 to file a lawsuit alleging UDAAP violations, this is the first time we are aware of that the NY AG has relied on Section 1042 to assert UDAAP claims in court.  Several other state AGs have also used Section 1042 to assert UDAAP claims.

Each of the claims alleged in the complaint are asserted against one or more of the defendant companies and both individual principals.  The UDAAP claims allege that the individuals are liable for the companies’ UDAAP violations because they knew or should have known of the companies’ alleged illegal practices.  According to the complaint, the individuals directed the companies’ operations, were aware of a debt seller’s audit that identified illegal practices by the companies, and the companies had received numerous complaints and inquiries from consumers, government agencies and consumer organizations about their collection practices.  With regard to the FDCPA claims, the CFPB alleges that the individuals’ involvement in the companies’ debt collection activities, including their management of staff and approval of the companies’ collection policies and practices, made them “debt collectors” under the FDCPA.

The complaint alleges that the defendants engaged in unlawful conduct that included:

  • Adding $200 to each consumer debt account the companies acquired without regard to whether the addition of such amount was permitted by applicable state law or the underlying contract between the consumer and the original creditor
  • Falsely threatening consumers with legal action they had no intention of taking and impersonating law enforcement officials, government agencies, and court officers, including using call-spoofing technologies to make it appear that collectors were calling from government agencies.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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