On July 12, 2013, the Consumer Financial Protection Bureau (CFPB) updated its definitions regarding what constitutes an “unfair” practice by a debt collector under the Fair Debt Collection Practices Act (FDCPA). ((Consumer Financial Protection Bureau (CFPB), Fair Debt Collections Practices Act. http://business.ftc.gov/documents/fair-debt-collection-practices-act July, 2010. p. 2.)) Debt collections regulations govern all consumer debt including: mortgages; bank account credit cards and service fees; private student, auto, and other consumer loans; and medical bills.
CFPB may review collection efforts for potential violations of this and other federal consumer financial laws. A thorough understanding of this Act is extremely important as the CFPB looks closely at the conduct of third party service providers’ conduct in debt collection and loan servicing.
The FDCPA restricts debt collectors from unfair, deceptive, or abusive practices (UDAAPs). Practices that are deemed “false, deceptive, or misleading” include a collection representative:
- Falsely representing themselves as an attorney.
- Threatening to do things they do not intend to follow through on or to commit illegal acts (imprisonment, bodily harm, etc.).
- Attempting to collect charges in addition to the debt amount that are not allowed by written contract and/or state law.
- Harass a debtor. Consumers are entitled to prevent continued contact from unwanted or inappropriate collections activities.
- Contacting a debtor at what is known to be an inconvenient time.
- Contacting a debtor instead of their attorney once the debtor has indicated they have engaged an attorney to handle the matter.
- Refusing to validate a debt that they are trying to collect.
- Knowingly mislead the consumer, including attempting to collect debt that has become obsolete or misrepresenting the amount owed.
- Using visible (publically visible information outside of the envelope) symbols or language on any correspondence indicating that they are a debt collection. This includes using a postcard.
- Making claims regarding how the collection of the debt will affect a consumer’s credit report, score, or creditworthiness.
The collection company also must refrain from:
- Taking possession of property without legal right.
- Revealing the debt, without the consumer’s consent.
- Misrepresenting that a debt could be waived upon settlement when that is not intended.
- Failing to post payment in a timely manner.
Examples of FTC determination of non-compliance can be seen on the FTC website.
The FDCPA was originally enacted in response to significant evidence of use of such practices and the fact that these were shown to contribute directly to the number of personal bankruptcies, loss of employment, marital instability, and in many cases constituted invasion of personal privacy laws. As many debt collectors carry out business activities through interstate commerce, this law is intended to provide a level platform for these activities. There are also other state and federal laws that prohibit generally unfair, deceptive, or abusive business practices/acts. This broad range of laws must always be taken into account when designing and implementing collection policies and procedures.
Both the CFPB and the FTC provide ongoing information updates and resources related to debt collection practices, as does each State Attorney General’s office.
Santa Fe Group Consultant and Shared Assessments Program Director, Brad Keller, has more than 25 years of experience developing and leading risk management and third-party risk assessment programs. Brad is responsible for the development of the Shared Assessments Program’s Tools and key partnerships.