The CFPB recently issued its Annual Report on the Fair Debt Collection Practices Act (FDCPA, 15 USC §§ 1692-1692p) to Congress. The Report, among other things, describes common consumer complaints, issues identified by examiners, and enforcement actions related to the FDCPA and debt collection generally. In May, I discussed common consumer complaints in debt collection [Consumer Complaints In Debt Collection], and in June, I discussed a few of the supervisory issues addressed in the Report [Supervisory Issues in Debt Collection, Part 1]. This article will address the remaining supervisory issues identified in the Report. It should be noted that the issues discussed herein are not limited to the FDCPA and creditors not subject to the FDCPA and Regulation F (12 CFR Part 1006), its implementing regulation. Any entity collecting debts, whether they are collecting debts owed to them or are a third-party debt collector, should take note of this Report.
In recent examinations of debt collectors, the CFPB has identified several violations of the FDCPA and Regulation F. In addition to the issues discussed in this article, a summary of recent developments in the CFPB’s supervision program and remedial actions related to debt collections can be found in the Summer 2021 and Fall 2021 Supervisory Highlights.
Communicating and Threatening to Communicate False Credit Information
Section 807(8) and § 1006.18(c)(2) of Regulation F prohibit communicating or threatening to communicate credit information that the debt collector knows or should know is false, including the failure to communicate that a disputed debt is disputed. The CFPB found that debt collectors knew or should have known that debts were disputed, resulted from identity theft, and were not owed by the relevant consumers. Despite this, debt collectors threatened to report to Credit Reporting Companies that the consumer owed the debt if it was not paid, and the debt collectors then reported the debt to Credit Reporting Companies and failed to report that the consumer disputed the debt.
False Representations or Deceptive Means of Collection
Section 807(10) and § 1006.18(d) prohibit a debt collector from using any false, deceptive, or misleading representation or means in connection with the collection of any debt or obtaining information concerning a consumer. The CFPB found that several debt collectors falsely represented to consumers the impact that paying off their debts would have on their credit profiles. In one case, a debt collector told a consumer the debt would no longer “impact” their credit profile once paid. Another debt collector told a consumer that making a payment would help to “fix” the consumer’s credit. These statements are false and misleading.
For more information on representations regarding the effect of debt payments on credit reports and scores, please refer to the CFPB Bulletin 2013-08, available at https://files.consumerfinance.gov/f/201307_cfpb_bulletin_collections-consumer-credit.pdf.
The CFPB also found that debt collectors discussed restarting a payment plan with consumers and represented that improvements to the consumers’ creditworthiness would occur upon final payment under the plan and deletion of the tradeline. Numerous factors influence an individual consumer’s creditworthiness, including potential tradelines previously furnished by prior owners of the same debt. Thus, a payment may not improve the credit score of the consumers to whom the representation is made. The CFPB found that such representations could lead less sophisticated consumers to conclude that deleting derogatory information would result in improved creditworthiness, thereby creating the risk of a false representation or deceptive means to collect or attempt to collect a debt.
Incorrect Systemic Implementation of State Interest-Rate Caps
Section 808 and § 1006.22 prohibit a debt collection from using any unfair or unconscionable means to collect or attempt to collect any debt. Section 808(1) and § 1006.22(b) specifically identify the collection of any amount not expressly authorized by the agreement creating the debt or permitted by law as an unfair practice. The CFPB found that debt collectors entered inaccurate information regarding state interest rate caps into an automated system, resulting in some consumers being overcharged.
Unlawful Initiation of Administrative Wage Garnishment During Consolidation Process
Section 808 and § 1006.22 prohibit a debt collection from using any unfair or unconscionable means to collect or attempt to collect any debt. The CFPB has determined that debt collectors sent administrative wage garnishment orders to consumers’ employers by mistake despite having received completed applications from the consumers to consolidate the debt, which should have stopped the wage garnishment process based on standard procedures.
Failure to Send Complete Validation Notices
Section 809(a) and § 1006.34 requires a debt collector to send a notice containing certain information (a “validation notice”) to the consumer within five days after the initial communication with the consumer, with certain exceptions. The CFPB found that debt collectors sent validation notices that lacked some of the required information because template changes had not been reviewed by compliance personnel.
Debt collectors and creditors should review their policies and procedures and improve their training and monitoring to ensure that they are not communicating or threatening to communicate credit information that they know or should know is false (including the failure to communicate that a disputed debt is disputed); they do not make any false, deceptive, or misleading representation or means in connection with the collection of any debt or obtain information concerning a consumer (including the risks to consumers that may arise from deceptive statements by collection agents and third-party service providers about the effects of payment or non-payment on consumer credit, credit reporting, or credit scoring); not using any unfair or unconscionable means to collect or attempt to collect any debt (including ensuring that they are not collecting any amount not expressly authorized by the agreement creating the debt or permitted by law is an unfair practice); and that their board and management oversight of new letter templates. In my final article, I will discuss recent enforcement actions by the CFPB, other federal regulator agencies, and the FTC. Until then, debt collectors and creditors should review the CFPB’s Report and Regulation F to ensure that they are avoiding potential UDAAPs in their debt collection practices.