5 Key Points from CFPB’s Annual Report on FDCPA

Natalie Mencia

The CFPB had a very busy 2014 administering the Fair Debt Collection Practices Act (FDCPA). In the CFPB’s Annual Report, the Bureau gives us a glimpse into it’s agenda. Here are the five key points to draw your attention to.

1. Ensure You Have Enough “Media”.  It is no secret that the CFPB wants creditors and debt collectors to produce documentation (also known as Media) to support claims against consumers. In November 2013, the CFPB released the Advanced Notice of Proposed Rulemaking (ANPR) where the Bureau considered using its “rulemaking authority to develop requirements related to the transfer of specified information or documents as part of the … the placement of a debt with a third-party collector” (Pg. 26). While the Bureau has yet to propose any rules, it is certainly exercising its supervisory and enforcement abilities under the FDCPA to achieve the same effect.Section 1692e of the FDCPA prohibits entities from making false or misleading representations in connection with the collection of a debt. According to the CFPB, filing a legal action and dismissing upon receipt of an Answer due to failure to obtain documentation to support claims is false and misleading, therefore it violates section 1692e. In the Annual Report, the Bureau stated that it uncovered a number of these violations during its examinations (Pg. 19). The Bureau’s interpretation will impact your company if you rely on limited to no media. The Bureau can enforce the FDCPA through enforcement action if your company is subject to the larger participant rule. Your company may also be vulnerable to civil action as consumer-friendly courts begin to adopt this CFPB interpretation.

2. You Are Never Too Small to Get Noticed. No debt collector should believe they are below the CFPB’s radar. Just look at the Bureau and FTC enforcement actions. In each action, the defendants’ were relatively small. They were payday lenders, a school, a law firm, automobile lenders, and retail-installment lenders (Pg.22-31). Does that mean larger players are immune? No, it is no coincidence that the CFPB casually mentioned that the two largest debt buyers earned $1.9 billion in annual revenues in 2014 (Pg. 8). If the Bureau isn’t already paying these debt buyers a visit, they should expect a knock on the door in 2015.

3. Don’t Do The Same Thing and Expect A Different Result. For the most part, all of the enforcement actions list the same FDCPA violations. Debt collectors disclosed the existence of debt to third parties, called consumers at work when not permitted, and falsely threatened consumers with litigation or arrest. Debt collectors should ensure they have robust policies and procedures to deal with these hot button issues to ensure compliance.

4. Don’t Tell Everyone and Their Mother.  In almost every enforcement action, the debt collectors systemically disclosed consumers’ debts to their friends, family, co-workers, and bosses to coerce payment. What’s worse is that they did this to service members, which are part of a high risk population of consumers. Even a small retail installment lender like Freedom Furniture met the wrath of the CFPB when they reached out to servicemembers’ commanding officers to discuss their debts without consent to do so. Or how about Goldman Schwartz, a debt collector that disclosed debts to consumers’ employers and military superiors. See the trend?

5. Don’t Be SOL. While the CFPB is well-known for its enforcement abilities, the Bureau also influences the judiciary through its amicus briefs. In March 2014, the Bureau convinced the Seventh Circuit that “a time-limited settlement demand in a consumer dunning letter seeking to recover on a time-barred debt could violate the FDCPA, even absent an explicit threat of litigation” (Pg. 36-37). The Bureau noted that several courts had previously held that a collector who sues or threatens suit on a time-barred debt violates the FDCPA. The Bureau convinced the Seventh Circuit to expand this logic to time-limited settlement offers as they could “plausibly mislead a consumer to believe a debt is enforceable in court, even if the offer is unaccompanied by any clearly implied threat of litigation” (Pg. 37). Moral of the story:  Tread carefully with time-barred debt.

Natalie Mencia is a managing partner for the Consumer Financial Services Division at Brock & Scott, PLLC. She regularly consults financial institutions and debt collectors on regulatory compliance and licensing, conducts compliance audits and due diligence reviews, and drafts tailored policies and procedures. Ms. Mencia has extensive experience working with federal and state regulators on examinations and settlement negotiations.