Debt Collection Enforcement Actions

Temenos – Company

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]; in June, I discussed a few of the supervisory issues addressed in the Report [Supervisory Issues in Debt Collection, Part 1], and in August, I discussed the remaining supervisory issues addressed in the Report [Supervisory Issues in Debt Collection, Part 2]. This article will address the enforcement actions brought by the CFPB and FTC. 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.

Last year, the CFPB brought one public enforcement action related to the FDCPA, resolved two pending lawsuits with FDCPA claims, and filed an action to recover a fraudulent transfer to enforce a prior judgment that penalized a defendant’s FDCPA violations, resulting in $2,260,000 in consumer redress and $882,200 in civil monetary penalties, as well as permanent bans from the collections industry.

Yorba Capital Management, LLC and Daniel Portilla, Jr.

In April, the CFPB issued a consent order against Yorba Capital Management, LLC and its former sole owner and managing member, Daniel Portilla, Jr. From 2017 to April 2020, Yorba and Portilla mailed notices that falsely represented that consumers would be sued and that there would be further legal action if the consumers did not pay the debt amount on the notices. The consent order permanently banned both Yorba and Portilla from participating, or assisting others, in the collection of a consumer debt and assessed $860,000 in damages.

CFPB v. Fair Collections & Outsourcing, et al.

In October, the court entered a final judgment resolving the CFPB’s lawsuit against Fair Collections & Outsourcing, its related firms, and their owner, Michael Sobota. In 2019, the CFPB brought an action alleging that the defendants violated the FDCPA by representing that consumers owed certain debts when they did not have a reasonable basis to assert that the consumers owed those debts. The final judgment requires the defendants to, among other things, pay an $850,000 penalty to be deposited into the CFPB’s civil penalty fund.

CFPB v. BounceBack, Inc.

In November, the court entered a final judgment resolving the CFPB’s lawsuit against BounceBack, Inc. and its president and majority owner, Gale Krieg. The defendants operated bad-check pretrial-diversion programs on behalf of more than 90 district attorneys’ offices throughout the United States. Since at least 2015, BounceBack used district-attorney letterheads to threaten more than 19,000 consumers with prosecution if they did not pay the amount of the check, enroll and pay for a financial-education course, and pay various other fees. BounceBack did not reveal to consumers that BounceBack—and not district attorneys—sent the letters or that district attorneys almost never prosecuted these cases, even against consumers who ignored BounceBack’s threats. BounceBack’s letters also failed to include disclosures required under the FDCPA. The judgment permanently banned the defendants from engaging in debt collection related to any consumer financial product or service and ordered about $1.4 million in damages. The damages were suspended based on the defendants’ demonstrated inability to pay.

CFPB & State of New York v. Douglas MacKinnon, Amy MacKinnon, Mary-Kate MacKinnon, and Matthew MacKinnon

In April, the CFPB and New York Attorney General’s Office brought an action to unwind an alleged fraudulent transfer by defendant Douglas MacKinnon and seize a $1.6 million home transferred to his wife and daughter. In 2019, the CFPB and New York Attorney General’s Office reached a settlement with MacKinnon to resolve a public enforcement action brought to stop him and his companies from harassing, threatening, and deceiving millions of consumers across the nation into paying inflated debts or amounts they did not owe. MacKinnon and his companies were permanently banned from the debt collection industry and ordered to pay $60 million in consumer redress and penalties. This action was brought to recover some of what Mackinnon owes and is still pending.

In 2021, the FTC resolved three FDCPA cases, continued litigation in two enforcement actions addressing unlawful debt collection practices against small businesses, and issued refunds totaling about $4.86 million to consumers in three FDCPA matters.

FTC v. National Landmark Logistics LLC et al.

In February and December, the FTC negotiated two settlement orders to resolve claims against National Landmark Logistics, four related companies, and three individuals. The defendants were involved in an illegal debt collection scheme, which included pressuring consumers to pay debts they did not actually owe or that the defendants had no right to collect. The orders included joint and several monetary judgments of $16,418,306 and $12,098,760, respectively, which were partially suspended due to inability to pay; all eight defendants are permanently banned from the debt collection industry, and the defendants are required to turn over the contents of numerous bank accounts to the FTC.

FTC v. Absolute Financial Services, LLC et al.

In March, the FTC obtained a temporary restraining order and receivership appointment. Absolute Financial Services, two related companies, and two individuals collected millions from consumers, using National Landmark Logistics to place deceptive robocalls on their behalf, alleging that consumers owed debt and faced legal action if they did not reply. Once consumers called the defendants after receiving the message, the defendants often falsely claimed to be representing a law firm or threatened consumers with arrest if they did not immediately pay the debt. All five defendants are permanently banned from playing any role in the debt collection industry and ordered to pay a monetary judgment of $11,281,993, which was partially suspended due to their inability to pay.

FTC v. Critical Resolution Mediation LLC et al.

In September, the FTC and Critical Resolution Mediation agreed to a settlement resolving the action. Critical Resolution Mediation threatened consumers with arrest and imprisonment and tried to collect debts that consumers did not actually owe. The final order bans all defendants from the debt collection industry and imposes a monetary judgment of $3,010,123.65, which was partially suspended based on inability to pay. The defendants were required to pay more than $266,258.95.72.

To avoid potential enforcement actions, debt collectors should review their policies and procedures to ensure that they are only attempting to collect debts where they have a reasonable basis to assert that the consumers owed those debts, they have a right to collect, they verify the amount of the debt, they do not falsely threaten to take legal action unless they plan to actually take legal action against the consumer, they do not threaten to arrest consumers who do not pay, and they include all required disclosures in notices they send to consumers.

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Temenos – Company