We have been writing and lecturing about the blurring of the lines between the Fair Debt Collection Practices Act (FDCPA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The CFPB’s recent action against the two largest debt buyers in the US over their use of deceptive tactics to collect bad debt proves our point.
The FDCPA is a law designed to regulate debt collectors and the debt collection industry. It sets forth pretty clear standards as to what are unreasonable collection practices. But, the Dodd-Frank Act is not limited in application to debt collectors. Rather, through its prohibition against unfair, deceptive or abusive acts or practices (UDAAP), it tackles unreasonable collection practices regardless of whether the collector is collecting its own debt, debt of others or purchased debt. In other words, original creditors, you are now subject to federal debt collection laws.
Encore Capital Group and Portfolio Recovery Associates buy defaulted debt. In fact, they have bought over $200 billion in defaulted consumer debts on credit cards, phone bills, and other accounts. Their goal is to turn debt acquired for pennies on the dollar, into much, much more. There is no question that their activities fall squarely within the FDCPA.
So how does this impact ‘original creditors’ like consumer finance companies? The settlements reached with these two by the CFPB on September 9th is telling for all who collect debt from consumers—whether subject to the FDCPA or not. The “illegal practices” include, among other things:
- Attempting to collect on unsubstantiated or inaccurate debt;
- Misrepresentation of their intent to prove debts sued upon in court proceedings;
- Reliance on robo-signed court filings to churn out lawsuits;
- Suing or threatening suit on debt past the statute of limitations; and
- Falsely telling consumers that the litigation burden of proof is on them to disprove debt.
These practices along with other illegal collection practices – such as inadequately investigating consumer disputes, farming out disputed debt to law firms without all information, making harassing collection calls to consumers and misleading consumers into consenting to receive auto-dialed cell phone calls—resulted in hefty penalties. The two companies have agreed to pay $61 million in refunds to consumers, cease collecting over $128 million of debt, and pay the CFPB $18 million in civil money penalties. In addition they have agreed to cease and desist from collecting debts that they cannot verify, ensure the accuracy of lawsuit filings by use of accurate affidavits, and provide consumers with information before filing suit.
The lessons of Encore and Portfolio Recovery should be learned by all who collect debt—including consumer finance companies. Whether the authority comes from FDCPA or UDAAP, the CFPB is focusing on unreasonable debt collection practices.