In 2015, the CFPB further expanded its reach into debt collection through a number of enforcement actions. The CFPB also continues to conduct research on a potential rulemaking regarding debt collection activities, which may address information accuracy concerns involving debt sales and other collection activity, as well as many other issues regarding how creditors collect their own debts and oversee collectors working on their behalf. In addition to CFPB activity, this year’s Madden v. Midland Funding, LLC decision has important implications beyond the debt collection industry. Finally, developments regarding the Telephone Consumer Protection Act (TCPA) and collections will likely be of interest to regulatory agencies in the new year.
Debt Sale Consent Orders and Regulatory Guidance
Among the CFPB enforcement actions relevant to debt collection in 2015 were two consent orders with large debt buyers. These orders resolved allegations that the debt buyers, among other things, engaged in robo-signing, sued (or threatened to sue) on stale debt, made inaccurate statements to consumers, and engaged in other allegedly illegal collection practices. In particular, the CFPB criticized the practice of purchasing debts without obtaining supporting documentation or information, or taking sufficient steps to verify the accuracy of the amounts claimed due before commencing collection activities. Under the consent orders, one company agreed to provide up to $42 million in consumer refunds, pay a $10 million civil money penalty, and cease collecting on a portfolio of consumer debt with a face value of over $125 million. The second company agreed to provide $19 million in restitution, pay an $8 million civil money penalty, and cease collecting on a consumer debt portfolio with a face value of more than $3 million. In addition, both companies agreed to refrain from reselling consumer debt more generally.
The Office of the Comptroller of the Currency’s (OCC) has also been active in issues affecting debt sales, issuing Bulletin 2014-37. The Bulletin provides guidance requiring national banks to provide the consumer with notice that a debt has been sold, the dollar amount of the debt transferred, and the name and address of the debt buyer; perform due diligence on the debt buyer; provide the debt buyer with the signed debt contract and a detailed payment history; and take other measures designed to ensure that debt buyers fairly and appropriately collect debts that they purchase.
Madden v. Midland Funding, LLC
The Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC carries potentially far-reaching ramifications for the secondary market for credit. In this case, the court held that non- bank assignees of credit obligations originated by national banks are not entitled to rely on National Bank Act preemption from state-law usury claims. In reaching this conclusion, the Court appears to have not considered the “Valid-When-Made Doctrine”—a longstanding principle which provides a loan that is not usurious when made does not become usurious when assigned to another party. Since buyers of defaulted debt, securitization vehicles, hedge funds, and other purchasers of whole loans are often non-bank entities, this decision could create a heightened risk environment for those in the secondary credit market, particularly those who purchase loans originated by banks pursuant to private-label arrangements and other bank relationships, such as those common to the peer-to-peer and marketplace lending industries and various types of on-line consumer credit. The Second Circuit decided not to rehear Madden and the defendants have filed a writ of certiorari to the Supreme Court. Bank sellers of loans and related assets and non-bank assignees of bank-originated credit obligations would be prudent to consider the risks that Madden poses to their business, investments, and operations and whether there are risk mitigation measures that may be available.
Telephone Consumer Protection Act
Recent declaratory rulings by the Federal Communications Commission regarding the TCPA included clarifying the ability of consumers to revoke their consent to receive autodialed calls and requiring callers making autodialed calls to stop calling a number after one call when it has been reassigned to a new subscriber. Debt collectors and others should take note of these issues, as TCPA compliance will likely continue to be an area of interest for regulators moving forward.