Debt Collection CFPB Regulatory Update by Jonathan L. Pompan and Alexandra Megaris he regulation of debt buyers and collectors con- T CFPB v. Freedom Debt Relief, LLC tinued at the Consumer Financial Protection Bureau (CFPB) during 2017. The two most In November 2017, the CFPB fjled a lawsuit against significant CFPB developments were (1) the Freedom Debt Relief, LLC, reportedly the nation’s larg- announcement of a bifurcated debt collection rule- est debt-settlement services provider, and its co-CEO making and (2) the resignation of Richard Cordray as for allegedly deceiving consumers. The CFPB alleges director of the CFPB and the subsequent presidential that Freedom charges consumers without settling their appointment of Mick Mulvaney as acting director, which debts as promised, makes customers negotiate their own is being disputed in court. Tie CFPB also announced settlements, misleads them about its fees and the reach law enforcement actions involving the debt collection of its services, and fails to inform them of their rights to practices of servicers, debt settlement companies, and funds they deposited with the company. Tie CFPB is collection law fjrms—an area that continues to attract seeking compensation for harmed consumers, civil pen- intense scrutiny. The CFPB continued its practice of alties, and an injunction against the defendants to halt issuing supervisory highlights and reports on research their conduct. on debt collection, and fjling amicus briefs. CFPB v. Federal Debt Assistance Association, LLC, et al. Debt Collection Rulemaking In October 2017, the CFPB fjled a lawsuit against two In June 2017, the CFPB announced that, based on companies operating under the name “FDAA,” a service the feedback received, it had decided to bifurcate an provider to the companies, and their owners for alleg- anticipated debt collection rulemaking. First, the CFPB edly falsely presenting FDAA as being affjliated with the said it would issue a proposed rule concerning FDCPA federal government. Tie CFPB also alleges that FDAA’s collectors’ communications practices and consumer so-called debt validation programs violated the law by disclosures. Tie CFPB plans separate follow-up about falsely promising to eliminate consumers’ debts and potential rules covering information flows between improve their credit scores in exchange for thousands of creditors and collectors and fjrst-party collections. Tie dollars in advance fees. Tie CFPB’s lawsuit seeks to end CFPB fjrst announced it was considering rules for debt these practices, obtain redress for harmed consumers, collection in 2013. and impose civil money penalties. CFPB Enforcement Litigation and Settlement CFPB v. National Collegiate Student Loan Trusts Highlights In September 2017, the CFPB took action against the The CFPB brought several new public enforcement National Collegiate Student Loan Trusts (NCSLT) and actions involving debt collection and continued litiga- their debt collector for allegedly fjling illegal student loan tion in other cases that had been fjled previously. debt collection lawsuits. According to the CFPB, con- sumers were sued for private student loan debt that the CFPB v. Think Finance, LLC companies couldn’t prove was owed or was too old to sue over. NCSLT consented to a judgment that required an In November 2017, the CFPB fjled a lawsuit against independent audit of all 800,000 student loans in the Tiink Finance, LLC, formerly known as Tiink Finance, trusts’ portfolio. It prohibits NCSLT, and any company Inc., for its alleged role in deceiving consumers into it hires, from attempting to collect, reporting nega- repaying loans that were not legally owed. Tie CFPB tive credit information, or fjling lawsuits on any loan alleges that Tiink Finance illegally collected on loans that the audit shows is unverifjed or invalid. In addi- that are void under state laws governing interest rate caps tion, it requires NCSLT to pay at least $19.1 million, or the licensing of lenders. Tie CFPB seeks to recoup which includes initial redress to harmed consumers, relief for harmed consumers and impose a penalty. relinquished funds to the Treasury, and a civil money penalty. Under a separate consent order, the third-party 42 RMA Insights Magazine Spring 2018
debt collector hired to collect NCSLT debt (and coordi- service members’ commanding offjcers about debts and nate the collections litigation on NCSLT’s behalf) was exaggerating the consequences of not paying. Tie CFPB ordered to pay a penalty and agree to take certain mea- alleged SNAAC violated the prior order by failing to sures on lawsuits already fjled, and on a go-forward basis, provide refunds and credits to consumers. Tie consent where the requisite account level documentation is not in order requires SNAAC to pay the redress it owes to those the collector’s possession. consumers and pay an additional $1.25 million penalty. In the Matter of: Security National Automotive CFPB v. Weltman, Weinberg & Reis Co., L.P .A. Acceptance Company, LLC Legal collections continued to draw the attention of In April 2017, Security National Automotive Acceptance the CFPB. In April 2017, the CFPB fjled a lawsuit in Company (SNAAC), an auto lender specializing in loans an Ohio federal district court against the debt collec- to servicemembers, entered into an administrative con- tion law fjrm Weltman, Weinberg & Reis (“Weltman”). sent order with the CFPB for allegedly violating a CFPB Tie CFPB alleges that Weltman falsely represented in consent order. In 2015, the CFPB ordered SNAAC collection letters sent to consumers that attorneys were to pay both redress and a civil penalty for illegal debt involved in collecting the debt. According to the CFPB, collection tactics, including making threats to contact the law firm made statements on collection calls and Summary of 2017 Supervisory Highlights Related to Debt Collection TOPIC EXAMINATION FINDING CORRECTIVE ACTION No confjrmation that the correct party Enhanced consumer verifjcation of fjrst Impermissible communications with had been contacted prior to beginning and last names, and confjrmation of third parties. (Section 805(b) of the collection activities. date of birth or the last four digits of FDCPA) consumer’s SSN, before disclosing the debt or the nature of the call. Review process to discuss debt with authorized user only after explicit authorization. Training Deceptively implying that authorized Attempt to collect from an authorized Remedial action users are responsible for debt. (Section user of a credit card even though the 807(10) of the FDCPA) user was not fjnancially responsible for the debt. False representations regarding the False representations to consumers about Amend training materials to remove ref- efgect on a consumer’s credit report of the efgect on their credit score of paying erences to how a consumer’s credit score paying a debt in full rather than set- debt in full. may be afgected by either settling the tling the debt. (Section 807(10) of the debt in full or paying the debt in full. FDCPA) Debt owners or third-party collectors may deceive consumers if they make representations that paying debts in col- lections will improve a consumer’s credit score. Consumer contact outside of the hours Enhance compliance monitoring for Communicating with consumers at of 8 am to 9 pm (which, in the absence dialer systems to ensure that they input a time known to be inconvenient. of knowledge to the contrary, the system parameters accurately and to (Section 805(a)(1) of the FDCPA) CFPB asserted may be assumed to be ensure that they properly monitor col- convenient) or at times consumers had lectors for inputting and adhering to previously informed the entities were account notations. inconvenient. Violations caused by the failure to update account notes and the use of auto dialers that based call parameters solely on area code. Spring 2018 RMA Insights Magazine 43
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