CFPB Issues New Guidance On Debt Collection Practices
The Consumer Financial Protection Bureau (“CFPB”) has issued two new bulletins designed to provide guidance on what conduct by creditors and debt buyers (collectively, “debt owners”) and debt collectors may be deemed unfair, deceptive, or abusive acts or practices, and what representations regarding a consumer’s credit score, credit report or creditworthiness may be deceptive in violation of the Dodd-Frank Act and the Fair Debt Collection Practices Act (“FDCPA”).
Bulletin 2013-17 discusses what conduct may be considered “unfair, deceptive, or abusive acts or practices” (collectively, “UDAAPs”) in violation of both the Dodd-Frank Act and the FDCPA. The FDCPA makes it illegal for debt collectors to engage in conduct “the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt,” to “use any false, deceptive, or misleading representation or means in connection with the collection of any debt,” or to “use any unfair or unconscionable means to collect or attempt to collect any debt.”
The FDCPA generally applies to third-party debt collectors, such as collection agencies, debt purchasers, and attorneys who are regularly engaged in debt collection. However, the bulletin’s main focus is the Dodd-Frank Act which prohibits any covered person, including creditors who collect their own debts, debt buyers, as well as debt collectors from engaging in UDAAPs in violation of the Act. Therefore, any party covered by the FDCPA must comply with any obligations they have under the FDCPA, in addition to any obligations to refrain from UDAAPs in violation of the Dodd-Frank Act.
The CFPB notes that while a practice may be unfair, deceptive and abusive, each of the prohibitions are “separate and distinct” and governed by separate legal standards. For example, the guidance states an act or practice is unfair when (1) it causes or is likely to cause substantial injury to consumers; (2) the injury is not reasonably avoidable by consumers; and (3) the injury is not outweighed by countervailing benefits to consumers or to competition. By contrast, the guidance defines an act or practice as deceptive when (1) the act or practice misleads or is likely to mislead the consumer; (2) the consumer’s interpretation is reasonable under the circumstances; and (3) the misleading act or practice is material. Therefore, an act or practice must be evaluated under the standards of each of the prohibitions.
Examples of Unfair, Deceptive and/or Abusive Acts or Practices
The CFPB also provided a non-exhaustive list of examples of conduct that could constitute UDAAPs and indicated its intent to watch the listed practices closely:
- Collecting or assessing a debt and/or any additional amounts in connection with a debt (including interest, fees, and charges) not expressly authorized by the agreement creating the debt or permitted by law.
- Failing to post payments timely or properly or to credit a consumer’s account with payments that the consumer submitted on time and then charging late fees to that consumer.
- Taking possession of property without the legal right to
- do so.
- Revealing the consumer’s debt, without the consumer’s consent, to the consumer’s employer and/or co-workers.
- Falsely representing the character, amount, or legal status of the debt.
- Misrepresenting that a debt collection communication is from an attorney.
- Misrepresenting that a communication is from a government source or that the source of the communication is affiliated with the government.
- Misrepresenting whether information about a payment or nonpayment 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, when the company does not, in fact, forgive or waive the debt.
- Threatening any action that is not intended or the covered person or service provider does not have the authorization to pursue, including false threats of lawsuits, arrest, prosecution, or imprisonment for non-payment of a debt.
A creditor who collects its own debts, and any other covered person, should be aware of the prohibitions imposed by the Dodd-Frank Act and review its debt collection practices to ensure it is not engaging in practices that may be deemed unfair, deceptive or abusive.
Bulletin 2013-08 provides guidance to covered persons under the Dodd-Frank Act, and debt collectors under the FDCPA, of what representations in regard to credit scores, credit reports, and creditworthiness in the debt collection process may be considered deceptive. The CFPB warns that certain material representations intended to influence consumers to pay their debts in collection may be deceptive, including but not limited to, statements regarding the relationship between:
- Paying debts in collection and improvements in a consumer’s credit report
- Paying debts in collection and improvements in a consumer’s credit score;
- Paying debts in collection and improvements in a consumer’s creditworthiness; or
- Paying debts in collection and the increased likelihood of a consumer receiving credit or more favorable credit terms from a lender.
The CFPB states its concerns with the prevalence of such representations in the event that it is influencing consumers and the representations are not true or accurate. The CFPB also informs debt owners and debt collectors that “in the course of supervision activities or enforcement investigations,” it “may review communication materials, scripts, and training manuals and related documentation to assess whether owners of debts and third-party debt collectors are making these types of claims and the factual basis for them.” Therefore, debt owners and debt collectors should take steps to ensure that any claims they make about the payment of debts in collection with a consumer’s credit report, credit score, or creditworthiness are not “deceptive under the FDCPA, the Dodd-Frank Act, or both.”