Fair Debt Collection Practices Act (FDCPA)

On Wednesday November 6, the CFPB released an Advanced Notice of Proposed Rulemaking (ANPR) seeking comment on debt collection practices and noting that the Bureau is considering proposing rules regarding debt collection. The CFPB simultaneously announced that it was adding approximately 5,000 consumer debt collection complaints to its public Consumer Complaint Database. According to the announcement, debt collection complaints constituted approximately 30 percent of total complaints filed since July 10, 2013 when the CFPB began accepting debt collection complaints.

With regard to the ANPR, the CFPB seeks information regarding various aspects of the debt collection industry and current practices and comments on possible approaches to regulation. The ANPR cites to the CFPB’s authority under the Dodd-Frank Act to prescribe rules implementing the Fair Debt Collection Practices Act, along with its general authority to prescribe rules to prevent unfair, deceptive or abusive acts or practices.

Notable issues raised by the ANPR include:

  • whether the Bureau should harmonize regulation of third-party collectors with regulation of first-party collectors;
  • whether regulation should depend on the type of debt being collected;
  • whether the Bureau should develop requirements related to the transfer of specified information or documents as part of the sale of a debt or the placement of a debt with a third-party collector;
  • whether the Bureau should require notification to the consumer when a debt is sold or placed for collection;
  • the format and content of validation notices, including the approach to itemization;
  • how communications between consumers and industry should be regulated in light of technological advancements; and
  • the role of the CFPB in state debt collection litigation.

The ANPR is available here. The ANPR will be published in the Federal Register within the next few days and interested parties will then have 90 days to submit comments.

 

As initially reported, the CFPB and FTC held a public roundtable last week that brought together industry stakeholders, government officials and consumer advocates to discuss the use of consumer data throughout the debt collection process. Participants acknowledged that the transfer and sale of debt presents unique obstacles for the use of consumer data across the life of a debt, but that certain steps could be taken to move towards a more efficient system for all parties.

Providing welcoming remarks along with FTC Commissioner Julie Brill, Acting Deputy Director of the CFPB Steve Antonakes noted that the discussion could be broken down into three “areas of focus.” First, one must consider the initial accuracy of information that debt collectors use to pursue consumers. Second, one should consider the accuracy of the information over time, meaning whether the information “deteriorates as it ages or gets passed down the line to secondary or tertiary buyers.” Third, even accepting the accuracy of the information relied upon, safeguards should be taken to ensure that the consumer can dispute debts believed to be incorrect.

The daylong roundtable generally echoed these themes as various presenters and panels provided their thoughts on the present system and prospective channels for improvement. Most notably, participants from industry and consumer protection groups agreed that moving towards a more uniform system for data standards would facilitate a more efficient market, thus benefitting industry and consumers. While some details concerning potential data standards remained unclear, widespread agreement emerged that certain basic information should be included as part of any debt file, including the identity of the original creditor and the amount owed.

Continue Reading Industry Stakeholders, Government Officials and Consumer Advocates Discuss Data Use in Debt Collection at CFPB-FTC Roundtable

The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) will co-host a roundtable on June 6, 2013 to examine how consumer data is used and maintained in the debt collection process, according to an FTC news release issued yesterday. The roundtable will include a discussion of such topics as:

• the amount of documentation and other information currently available to different types of collectors and at different points in the debt collection process;
• the information needed to verify and substantiate debts;
• the costs and benefits of providing consumers with additional disclosures about their debts and debt-related rights; and
• information issues relating to pleading and judgment in debt collection litigation.

Continue Reading FTC and CFPB Announce Public Roundtable on Data Integrity in Debt Collection

The Consumer Financial Protection Bureau (CFPB) plans to begin accepting consumer complaints regarding the debt collection industry in the second quarter of this year, according to a report issued yesterday by Bloomberg News. The CFPB presently accepts complaints regarding a limited number of CFPB-regulated products and services, including bank accounts, credit cards, credit reporting, money transfers, mortgages, student loans, and vehicle or consumer loans.

The Dodd-Frank Wall Street Reform Act requires the CFPB to “facilitate the centralized collection of, monitoring of, and response to consumer complaints regarding consumer financial products and services.” The CFPB complaint system is distinguishable from other agency complaint systems in that CFPB will follow-up with the consumers to describe the steps taken by the CFPB or another agency in response to the complaint and whether the entity complained of has responded. Certain non-confidential complaint information is subsequently published in the CFPB’s complaint database, including the product and issue involved, the company complained of, and the company’s response.

The expansion of CFPB’s consumer complaint collection to the debt collection industry follows the release of the “Larger Participant” rule in October 2012, which defined “larger participant” for the purposes of entities engaging in the consumer debt collection market, and the beginning of the Bureau’s supervision program over debt collectors on January 2, 2013. Debt collection industry participants should take note as the CFPB continues to ramp up its oversight in this field.

The FTC and CFPB have issued reports on their FDCPA enforcement actions and other FDCPA related activities in 2011. The FTC previously had responsibility for issuing annual reports on FDCPA enforcement but the Dodd-Frank Wall Street Reform and Consumer Protection Act transferred reporting responsibility to the CFPB. The CFPB, however, has only just begun its program to administer and enforce the FDCPA. Thus, the FTC styled its report as a letter, dated March 13, 2012, to the CFPB and outlined its recent enforcement activities, while the CFPB’s report, released March 20, 2012, focused on its initial steps. 

Continue Reading CFPB and FTC Issue Annual Reports on the Fair Debt Collection Practices Act

The FTC’s final Statement of Policy Regarding Communications in Connection with the Collection of Decedents’ Debts was published on July 27, 2011 in the Federal Register. The policy statement clarifies that the agency will not take enforcement action under the Fair Debt Collection Practices Act (FDCPA) or the FTC Act against a debt collector for communicating with certain classes of individuals specified in the FDCPA or an individual who has the authority to pay debts out of the assets of the decedent’s estate. This final Statement will be effective on August 29, 2011.

Continue Reading FTC Releases Final Statement of Policy Regarding Communications in Connection with the Collection of Decedents’ Debts

The FTC released a proposed policy statement with a call for public comments on October 4, 2010. The policy statement clarifies when the FTC will take action under the Fair Debt Collection Practices Act (FDCPA) and the FTC Act against companies collecting the debts of deceased consumers.

In general, the FDCPA permits collectors to contact the decedent’s spouse or the executor or administrator of the decedent’s estate. State probate laws have expanded the list of persons authorized to pay a decedent’s debts beyond the FDCPA categories. The proposed enforcement policy statement seeks to reconcile the FDCPA’s requirements with state probate law developments by stating that the FTC will not take enforcement action for violations of Section 805(b) of the FDCPA against collectors communicating with a person authorized to pay the debts from assets in the decedent’s estate.

The proposed statement also clarifies how a debt collector may locate the appropriate person with whom to discuss the decedent’s debt and emphasizes that misleading consumers about their personal obligation to pay a decedent’s debt is a violation of the FDCPA and Section 5 of the FTC Act. The statement notes that in order to avoid giving the misleading impression that the person is personally liable or could be required to pay the decedent’s debt with his own assets or jointly held assets, debt collectors may need to affirmatively disclose that this is not the case.

The FTC is accepting public comments on the proposed policy statement until November 8, 2010.

Yesterday, the Supreme Court issued a decision in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA (“Jerman”) (Docket 08-1200) that resolves a circuit split regarding the scope of the Fair Debt Collection Practices Act’s bona fide error defense and disposes of a key defense to FDCPA liability for debt collector defendants.

The FDCPA’s “bona fide error” defense allows a debt collector defendant to avoid liability for FDCPA violations if it “shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” 15 U.S.C. §1692k(c). While the majority view has been that this defense is available for clerical and factual errors only, a number of circuits, including the Sixth Circuit, have held that it also applies to mistakes of law so long as the debt collector had reasonable procedures in place to avoid such mistakes, such as ongoing FDCPA training, procuring the most recent case law, and/or having lawyers dedicated to ensuring FDCPA compliance.

In 2006, Jerman brought a class action complaint against the defendant debt collector, a law firm, alleging that the firm’s debt validation notice violated the FDCPA by misinforming debtors that any dispute of a debt must be made in writing. The firm moved to dismiss, arguing that debt disputes do need to be in writing and that the notice was therefore accurate. The district court, while acknowledging some divergence of authority on the issue, held that the FDCPA does not require disputes to be in writing and that the notice was deceptive in violation of the Act. The firm then moved for summary judgment, arguing that its violation was the result of an honest mistake of law and thus a bona fide error. The firm provided evidence of procedures reasonably adapted to avoid such mistakes, including a firm lawyer dedicated to ensuring FDCPA compliance, regular attendance of debt collection CLE’s, and subscriptions to relevant legal periodicals. The district court entered summary judgment in the firm’s favor, and the Sixth Circuit affirmed, holding that a mistake of law can qualify as a bona fide error under the FDCPA.

The Supreme Court’s decision in Jerman reverses the Sixth Circuit, holding that a mistake of law, no matter how genuine, can never qualify as a bona fide error. The Court cited the long recognized legal maxim that that “ignorance of the law will not excuse any person, either civilly or criminally.”

The decision should be a warning to all debt collectors and law firms regularly engaged in debt collection. As Justice Kennedy noted in his dissenting opinion, “[a]fter [yesterday’s] ruling, attorneys can be punished for advocacy reasonably deemed to be in compliance with the law or even required by it.” No matter what procedures such firms have in place to ensure accurate FDCPA compliance, mistakes of law will not be excused. Debt collectors and lawyers for debt collectors should take special care to keep abreast of FDCPA case law and legal developments, and where there are splits of authority, err on the side of caution.