For decades, most finance companies have ignored the Fair Debt Collection Practices Act (FDCPA). Those days are numbered.
In the late 1970s, Congress enacted the FDCPA as a key consumer protection law designed to curtail abusive debt collection practices. Most provisions of the FDCPA apply to debt collectors (i.e., companies collecting debts owed to others), not original creditors (i.e., companies collecting their own debts). There are two circumstances in which a finance company could become a debt collector under the FDCPA—1) if the finance company uses a fictitious name to collect a debt, and 2) if the finance company acquires a loan that is in default (for example, as part of a portfolio). But, other than those two limited exceptions, finance companies generally have not paid much attention to this law.
The CFPB has identified debt collection as a central focus in its mission to protect consumers. And, it is clear that the CFPB is not just looking at FDCPA debt collectors. Last year, the CFPB published an Advance Notice of Proposed Rulemaking in which the CFPB explained, “Debt collection affects a significant number of consumers and the Bureau is considering proposing rules relating to debt collection.”
At some point in the near future, finance companies can expect that the CFPB will use its authority to designate certain practices as Unfair, Deceptive or Abusive Acts or Practices (UDAAP) (discussed in last week’s Federal Law Friday post) to extend provisions of the FDCPA to original creditors, including finance companies. For that reason, finance companies should consider adopting certain substantive sections of the FDCPA as part of the company’s comprehensive UDAAP policy.
Specifically, finance companies, even though not debt collectors, should consider provisions of the FDCPA dealing with Harassing or Abusive Practices, False or Misleading Representations, Unfair Practices and Deceptive Practices.
Prohibited practices that are harassing or abusive include:
- Threats of violence to collect
- Use of obscene or profane language
- Publishing a shame list
- Advertising debt for sale to coerce payment
- Use of annoying, abusive or harassing calling techniques
- Not properly identifying oneself in collecting
Prohibited practices that are false or misleading include:
- A collector claiming to be associated with the government
- Falsely representing the character, amount or legal status of the debt
- Falsely representing the status of the collector
- Threatening action which is not legal
- Using media made to look like legal process
- Falsely representing or implying that nonpayment will result in certain actions
Prohibited practices that are unfair include:
- Collecting interest, fees, charges or expenses not allowed by law and contract
- Soliciting post-dated checks to use as a threat to institute criminal prosecution
- Causing communication charges by concealing the true purpose of the communication
- Threatening to repossess or disable property when the creditor has no enforceable right to do so
- Using a postcard to contact a consumer about a debt.
A prohibited practice that is deceptive includes:
- Designing, compiling or furnishing any form that creates the false impression that someone other than the creditor is participating in the collection of the debt.
Many of these substantive FDCPA restrictions are good business and just common sense. The takeaway this week is that a finance company may not be subject to the FDCPA today, but those days are numbered.