This week, the Federal Trade Commission (FTC) warned companies that they may not realize they are subject to the Fair Debt Collection Practices Act (FDCPA). Christopher Koegel, Assistant Director of the FTC Division of Financial Practices, published a blog post on Dec. 8 warning that the FTC takes a broad view of the FDCPA's applicability, including a narrow reading of exemptions contained in the statute. The FTC's announcement has important compliance implications for all companies that collect on debts, as well as the financial services industry as a whole. It could also forecast expansive changes for the regulation of the debt collection industry by the Consumer Financial Protection Bureau (CFPB), which is currently involved in rulemaking.
The FTC's broad reading of the applicability of the FDCPA announced this week encompasses a large swath of companies that collect on consumer debt. Historically, the FDCPA has been understood to apply to third-party debt collection agencies. However, Koegel warned that the FDCPA is far more nuanced and that many companies may not realize they are subject to its provisions. For example, by its terms the FDCPA also applies to companies that collect on their own debts with consumers while using a different name to do so.
Koegel also suggested that some of the exemptions contained in the FDCPA are narrow. For example, the FDCPA contains an exemption for debts that are not in default when obtained. Koegel, however, warned that loan servicers can become debt collectors subject to the FDCPA should they collect on loans that default while being serviced.
What Does the FTC's Announcement Mean for the Industry?
This announcement serves to put a large swath of companies that collect debt on notice that they may be subject to the FDCPA and Section 5 of the FTC Act. As Koegel noted, "[b]ut even if the FDCPA doesn't apply, your collection activities are still covered by Section 5 of the FTC Act's general prohibition against deceptive or unfair practices." Proper care and compliance management are now critical for all companies engaged in debt collection.
Additionally, for the industry, this week's announcement means exposure to potential supervision and enforcement actions by both the FTC and CFPB. The CFPB is currently engaged in rulemaking for debt collection and is likely to be influenced by the FTC's approach.