CFPB Report Highlights Debt Collection Issues; Collectors AND Creditors Should Take Note

Yesterday the Consumer Financial Protection Bureau (CFPB) released its Summer Supervisory Highights report for the first half of 2017 which, among other things, highlighted findings related to debt collection.

You can download a copy of the full report here.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB is authorized to supervise banks and credit unions with more than $10 billion in assets, as well as certain nonbanks. These include mortgage companies, private student lenders, payday lenders and others – like debt collection agencies -- defined as "larger participants." Larger debt collection participants are defined as those with annual receipts of more than $10M.

In this latest report, the bureau notes that at one or more entities, the examiners review included activities conducted in a foreign country.

The following FDCPA violations were noted:

• Unauthorized communications with third parties
• False representations made to authorized credit card users regarding their liability for debts
• False representations regarding credit reports
• Communications with consumers at inconvenient times

Unauthorized communications with third parties

Under section 805(b) of the FDCPA, a debt collector generally may not communicate with a person other than the consumer in connection with the collection of a debt without permission from the consumer. Examiners determined that one or more entities did not confirm that the correct party had been contacted prior to beginning collection activities. As a result, one or more entities communicated with a third party in connection with the collection of a debt by discussing the debt with an authorized user of a credit card who was not financially responsible for the debt (and who was not otherwise a “consumer” under section 805(b)).

In response to these findings, one or more entities enhanced consumer verification processes to include the verification of first and last names, and confirmation of date of birth or the last four digits of Social Security number, before disclosing the debt or the nature of the call to the consumer. Additionally, one or more entities revised their processes to discuss the debt with an authorized user only after explicit authorization from the cardholder. Lastly, the entities trained their collection agents on the enhanced policies and procedures. [emphasis added]

False representations regarding authorized users’ liability for debts

Under section 807(10) of the FDCPA, a debt collector may not use false representations or deceptive means to collect or attempt to collect any debt. Examiners determined that one or more entities violated the FDCPA by attempting to collect a debt directly from the authorized user of a credit card even though the authorized user was not financially responsible for the debt. The practice of soliciting payment from a non-obligated user in a manner that implies that the authorized user is personally responsible for the debt constitutes a deceptive means to collect a debt in violation of the FDCPA. One or more entities have undertaken remedial and corrective actions regarding these violations, which are under review by Supervision.

False representations regarding credit reports

As noted above, a debt collector may not use false representations or deceptive means to collect or attempt to collect any debt under section 807(10) of the FDCPA. Examiners found that one or more entities made false representations to consumers about the effect on their credit score of paying a debt in full rather than settling the debt for less than the full amount.

As the CFPB explained in a 2013 bulletin, representations about the impact of paying a debt on a consumer’s credit score may be deceptive. The bulletin states that “in light of the numerous factors that influence an individual consumer’s credit score, such payments may not improve the credit score of the consumer to whom the representation is being made. Consequently, debt owners or third-party debt collectors may well deceive consumers if they make representations that paying debts in collection will improve a consumer’s credit score.” In response to these findings, one or more entities amended training materials to remove references to how a consumer’s credit score may be affected by either settling the debt in full or paying the debt in full.

In response to these findings, one or more entities amended training materials to remove references to how a consumer’s credit score may be affected by either settling the debt in full or paying the debt in full.

Communications with consumers at inconvenient times

Under section 805(a)(1)of the FDCPA, a debt collector may not communicate with a consumer in connection with the collection of any debt at any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer. Examiners discovered that consumers were contacted by one or more entities outside of the hours of 8:00 am to 9:00 pm (which, in the absence of knowledge to the contrary, may be assumed to be convenient) or at times consumers had previously informed the entities were inconvenient.

These violations were caused by the failure to accurately update account notes and the use of auto dialers that based call parameters solely on the consumer’s area code, rather than also considering the consumer’s last known address. Supervision directed one or more entities to enhance compliance monitoring for dialer systems to ensure that they input system parameters accurately and to ensure that they properly monitor collectors for inputting and adhering to account notations.

Finally, the report notes in its debt collection overview that “at one or more entities, examiners discovered that debt collectors followed client instructions that led to violations of the FDCPA.” There are no specifics provided as to what these instructions were.

insideARM Perspective

insideARM recommends that all debt collection organizations, whether at a creditor, debt buyer, collection law firm or debt collection agency, review the CFPB supervisory highlights reports in detail, and compare findings to your own training practices, policies and procedures.

With that said, two of these latest findings are worth some discussion.

First, confirming that a collector is speaking with the “right party” prior to disclosing any information is perhaps one of the thorniest challenges in collection today. We have written about this issue on several occasions. The Federal Trade Commission, the CFPB, and consumer advocates regularly caution consumers against providing personal information to collectors. This is understandable in today’s identity-theft prone environment. Yet the law requires that debt collectors request such information in order to confirm that they are speaking with the right person before providing any information… including the fact that they are a debt collector (which, by law, they are also required to disclose).

For the benefit of all parties involved, this conundrum needs to be resolved. In addition to creating an incredibly uncomfortable and awkward interaction from the start, this “authentication dance” gets in the way of the quality communication between consumers and collectors that is required to calmly answer questions and resolve debts.

Second, the bureau advises in their report that “Entities can mitigate the risk of an FDCPA violation if they determine whether client instructions would violate the FDCPA before following them.”

This is another common conundrum for many collection agencies. Clients may require certain activity or procedures in their “work standards” that are provided to agencies and often incorporated into contracts. If and when a client suggested/mandated work standard could be deemed to be a FDCPA violation, a UDAAP, or even a risk of potential litigation, the agency needs to have candid discussion with the client about that particular work standard. Clients need to listen and hear concerns. 

If a client insists that the work standard remain, the agency should either walk away from the opportunity (this is very difficult to do when the client is a very large organization promising significant business) or insist on indemnification from the client in the event of suit or regulatory penalties (this is nearly impossible, as collection agencies typically have little to no leverage in negotiating contract terms with very large credtior oganizations).  

What could be very helpful in this situation is if the CFPB in its upcoming rulemaking would eliminate as many grey areas as possible. This would minizmize the gap between client and service provider interpretations of the law.