On July 10, 2013, the Consumer Financial Protection Bureau (“CFPB”) issued two bulletins regarding debt collection activities. The bulletins continue the CFPB’s recent focus on debt collection practices as a key item on their regulatory agenda. Both debt collectors as well as creditors collecting their own debts (and their service providers) should pay close attention to these new bulletins.
Regulating the Practices of Creditors
The CFPB’s first bulletin, CFPB Bulletin 2013-07, explains that all persons and service providers covered by the Consumer Financial Protection Act are prohibited from engaging in unfair, deceptive, or abusive acts or practices (“UDAAPs”). The bulletin then applies the UDAAP prohibition to collection practices – specifying that debt collectors, debt buyers, creditors, and service providers are all prohibited from engaging in UDAAPs as part of their collection of debts. The bulletin also lists a number of practices that would be considered UDAAPs, including:
- Collecting amounts not expressly authorized by the agreement or permitted by law.
- Failing to post timely payments and charging late fees when payments are submitted on time.
- Falsely representing the character, amount, or legal status of a debt.
- Threatening action that is not intended or that the person does not have authorization to pursue, including false threats of lawsuits.
The CFPB acknowledges in the bulletin that creditors and their service providers are generally not subject to the Fair Debt Collection Practices Act (“FDCPA”), which is the principal federal statute governing debt collection. The FDCPA prohibits many of the same practices outlined in the bulletin, but the FDCPA generally applies only to third-party debt collectors. However, the CFPB’s bulletin states that these practices will be unlawful for creditors, as well, if the practices meet the definition of UDAAPs. Notably, the bulletin does not state that the more technical and procedural rules of the FDCPA—such as the requirement to send validation notices or give so-called “mini-Miranda” warnings—apply to creditors.
Creditors have often looked to the FDCPA as a guide for best practices in the debt collection area. Although the new bulletin does not directly apply the FDCPA to creditors, creditors (and their non-debt collector service providers) should review the bulletin to consider whether the FDCPA’s requirements and limitations may also be the basis of UDAAPs.
Debt Collection Practices Relating to Credit Reports
The CFPB’s second bulletin, CFPB Bulletin 2013-08, warns creditors, debt collectors, and debt buyers about collection practices that make promises about the effect of paying a debt on a consumer’s credit report, credit score, or creditworthiness. Such statements could be deceptive and therefore unlawful under the FDCPA or a UDAAP theory. For example:
- A representation that paying a debt will improve a consumer’s credit report may be deceptive if the debt is too old to even be included on a credit report, or if the collector does not have a practice of actually reporting the payment to consumer reporting agencies.
- A representation that paying a debt will improve a consumer’s credit score may be deceptive because of the numerous factors that may influence a credit score, and the possibility that a payment—even if reported to a consumer reporting agency—will have no effect on the score.
- A representation that paying a debt will improve a consumer’s creditworthiness or improve the likelihood of receiving future credit may be deceptive because of the greatly varying factors that lenders consider in evaluating creditworthiness.
This guidance should be reviewed carefully because it suggests that statements that have common sense appeal (such as that paying off a debt will improve a credit score or creditworthiness) may be considered deceptive because the truth is outside the control of the person making the statement. Any creditor or debt collector making such statements should consider the ability to substantiate the claims.
Form Letters for Consumers
The CFPB also issued five form letters that “consumers can consider using when corresponding with debt collectors.” The letters relate to consumers’ rights to request validation and to stop or restrict communications from debt collectors under the FDCPA. However, creditors should also expect to receive these letters from consumers given that they are now available on the CFPB’s website.
Although most of the letters are fairly straightforward, one of the letters—designed for consumers who need “more information on the debt” —deserves particular attention. In addition to detailed information about and documentation of the debt, the letter seeks the debt collector’s analysis of the applicable statute of limitations, and information about the debt collector and its state licensing. It may require substantial effort to gather and provide this information – including the legal conclusion about the statute of limitations.
The CFPB has announced, and these bulletins confirm, that debt collection practices are a central part of its agenda. Debt collectors as well as creditors and their service providers should carefully review this latest guidance. If you have questions regarding these matters, please contact James Huizinga ( , (202) 736-8681) or John Van De Weert ( , (202) 736-8094).
1 CFPB Bulletin 2013-07, “Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of Consumer Debts,” available at http://files.consumerfinance.gov/f/201307_cfpb_bulletin_unfair-deceptive-abusive-practices.pdf; CFPB Bulletin 2013-08, “Representations Regarding Effect of Debt Payments on Credit Reports and Scores,” available at http://files.consumerfinance.gov/f/201307_cfpb_bulletin_collections-consumer-credit.pdf. 2 12 U.S.C. § 5481 et seq. 3 15 U.S.C. § 1692 et seq.
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