CFPB Intends to Extend Reach of Federal Debt Collection Law to All Financial Institutions
On July 10, 2013, all financial institutions that are regulated under the Dodd-Frank Act and collect debts, whether as original creditors or as legally-defined debt collectors, were put on notice by the CFPB that they are now subject to the requirements of current federal debt collection law. In two “bulletins” issued by the CFPB, the CFPB went a long way toward eradicating decades of Fair Debt Collection Practices Act (FDCPA) precedent, which unambiguously holds that original creditors are not debt collectors and, thus, are not subject to Federal regulation under the FDCPA. The CFPB has taken the position that its general authority to prevent “unfair, deceptive or abusive acts or practices” (UDAAP) applies to debt collection, and has announced that the type of conduct barred under UDAAP is analogous to conduct subject to enforcement under the FDCPA.
Indeed, Director Richard Cordray stated that “these bulletins make clear that it doesn’t matter who is collecting the debt – unfair, deceptive or abusive practices are illegal.” Based on this statement and the CFPB’s latest guidance, any original creditor, while not explicitly subject to the FDCPA, therefore, is essentially subject to FDCPA-like supervision and examination by the CFPB.
Many financial institutions subject to the Dodd-Frank Act collect their own debts and are not subject to the FDCPA. With the CFPB’s newest declaration regarding non-FDCPA entities -- i.e., banks and other financial institutions within the scope of the CFPB supervisory/enforcement jurisdiction - the entire legal landscape of federal regulation of debt collection has changed. Federal debt collection law now applies to all consumer debt collection activities conducted by any financial institution regulated by the Dodd-Frank Act.
CFPB Bulletin 2013-07
The first of the two debt collection industry bulletins issued by the CFPB yesterday is primarily concerned with the prohibition of unfair, deceptive, or abusive acts or practices in the collection of consumer debts. The CFPB specifically provides that “[a]lthough the FDCPA’s definition of ‘debt collector’ does not include some persons who collect consumer debt, all covered persons and service providers must refrain from committing [unfair, deceptive, or abusive acts or practices] in violation of the Dodd-Frank Act.”
The CFPB also explains that it considers an act or practice to be “unfair” if it “causes or is likely to cause substantial injury to consumers,” which can include acts that lead to emotional injuries. The CFPB enumerates several specific examples of UDAAP violations including:
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Collecting or assessing a debt not expressly authorized by the agreement or permitted by law (including interest, fees, and charges);
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Failing to post payments timely or properly;
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Taking possession of property without the legal right to do so;
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Revealing the consumer’s debt, without the consumer’s consent, to the consumer’s employer and/or co-workers;
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Falsely representing the character, amount, or legal status of the debt;
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Misrepresenting that a debt collection communication is from an attorney;
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Misrepresenting whether information about a payment or non-payment would be furnished to a credit reporting agency;Misrepresenting to consumers that their debts would be waived or forgiven if they accepted a settlement offer; and
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Threatening any action that is not intended.
These concerns essentially replicate many of the requirements imposed upon debt collectors by the FDCPA and signal that the CFPB intends to transfer FDCPA requirements from the debt collector world onto original creditors through use of its UDAAP authority over original creditors.
CFPB Bulletin 2013-08
In its second bulletin, the CFPB provides additional guidance regarding certain deceptive claims and representations that creditors, debt buyers and third-party debt collectors may make in the course of collecting debts in an effort to persuade consumers to pay. Again, this bulletin is directed not only at entities subject to the jurisdiction of the FDCPA but also at original creditors. The CFPB identified four problematic types of representations, which include statements regarding the relationship between:
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Paying debts in collection and improvements in a consumer’s credit report;
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Paying debts in collection and improvements in a consumer’s credit score;
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Paying debts in collection and improvements in a consumer’s creditworthiness; or
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Paying debts in collection and the increased likelihood of a consumer receiving credit or more favorable credit terms from a lender.
The CFPB does explain that such representations are likely to be important to consumers and their future access to debt. As a result, the CFPB views these types of potentially deceptive claims as a matter of “significant concern.” While these concerns are subject to FDCPA regulation, original creditors must now be explicitly mindful of them, based on the CFPB’s guidance.
Practical Implications
The CFPB appears to be setting a new standard through regulatory guidance: that is, original creditors should now view the FDCPA requirements as essentially being applicable to them.
About Troutman Sanders
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. Troutman Sanders’ CFPB Team monitors the development and activities of the CFPB on its CFPB Report blog and also advises clients on CFPB and Dodd-Frank issues. Additionally, Troutman Sanders’ Financial Services Litigation practice group has successfully litigated a wide variety of individual and class action litigation, as well as other federal and state consumer protection laws now under the umbrella of the CFPB. Finally, Troutman Sanders’ White Collar and Government Investigations Practice Group has represented numerous financial institutions, officers, directors, and employees in federal and state criminal investigations.
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