On July 10, the Consumer Financial Protection Bureau (“CFPB”) released a bulletin regarding the application of prohibitions against unfair, deceptive or abusive acts or practices (“UDAAPs”) to the collection of consumer debts. Specifically, the guidance contained in the bulletin details acts or practices related to collecting consumer debts that may constitute UDAAPs (though the bulletin states that the ultimate determination would “depend on additional facts and analysis”).
The bulletin states that UDAAP prohibitions are application to debt collection practices when they involve a debt related to a consumer financial product or service. It notes that obligations to avoid UDAAPs are in addition to any obligations arising under the Fair Debt Collection Practices Act (“FDCPA”), and that UDAAP prohibitions may have a broader scope than the FDCPA (which only applies to persons defined as “debt collectors”).
The bulletin provides a summary of each UDAAP component. While standards for “unfair” and “deceptive” are informed by pre-existing standards for those terms under Section 5 of the Federal Trade Commission Act (“FTC Act”), “abusive” is a new standard created under the Dodd-Frank Act.
As provided by the Dodd-Frank Act and the CFPB Exam Manual, an act or practice is abusive when it materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service and it takes unreasonable advantage of: (a) a consumer’s lack of understanding of the material risks, costs or conditions associated with a product or service; (b) a consumer’s inability to protect his or her interests in selecting or using a product or service; or (c) a consumer’s reasonable reliance on a person covered by UDAAP prohibitions to act in the consumer’s interest.
The bulletin reiterates the CFPB’s position that “although abusive acts or practices may also be unfair or deceptive, each of these prohibitions are separate and distinct, and are governed by separate legal standards.” While the bulletin provides some guidance regarding the standard for “deceptive” not contained in previous guidance (that the CFPB will look at “implied representations” and at “implications that statements . . . can be supported”), it does not provide any new insight into the term “abusive” or how it will be applied by the CFPB.
Practices highlighted by the CFPB as potentially constituting UDAAPs (and which the bulletin states the CFPB is closely watching) include:
- Collecting or assessing a debt or related interest/fees/charges when not expressly authorized by the agreement or permitted by law;
- Failing to post payments timely or properly;
- Falsely representing the character, amount or legal status of a debt;
- Misrepresenting that a communication is from an attorney or from a government source (or misrepresenting an affiliation with the government); and
- Threatening any action that is not intended, including false threats of lawsuits, prosecution or imprisonment.
The bulletin concludes by stating that the CFPB “will continue to review closely the practices of those engaged in the collection of consumer debts for potential UDAAPs.”
A full list of the highlighted practices, along with the entire bulletin, can be found here.
In conjunction with a federal action filed by the CFPB against American Debt Settlement Solutions, Inc. (“ADSS”) on May 30 for alleged UDAAP violations, this bulletin appears to represent an increasing focus of the CFPB upon UDAAPs in relation to consumer debt practices. In the action against ADSS, the CFPB alleges that it misled consumers by falsely promising quick settlement of debts while failing to deliver on such promises (and knowing that it was “nearly impossible” to do so in many circumstances).
The CFPB also alleges that ADSS enrolled consumers in its program even though ADSS knew their incomes were inadequate to complete the program. The CFPB argues that this practice was abusive since it took “unreasonable advantage” of consumers’ lack of understanding of how long it would take ADSS to settle their debts and how much money they would spend before realizing any benefits and because “[c]onsumers reasonably rel[ied] on ADSS” to enroll them in a debt-relief program they could be reasonably expected to complete.
A copy of the action against ADSS is available here.