Insights

Just when you thought you could come up for air from the deluge of federal regulations and requirements, the hits just keep on coming from the Consumer Financial Protection Bureau.

The CFPB recently published two bulletins on debt collection that warn all companies under the CFPB's supervision that they will be held accountable for harmful debt collection practices, including repossessions. In a recent field hearing to discuss debt collection, now-confirmed CFPB Director Richard Cordray stated, "These bulletins make clear that it doesn't matter who is collecting the debt - unfair, deceptive, or abusive practices are illegal."

The CFPB issued the two bulletins on July 10, 2013. The first bulletin (2013-07) warns that any entity subject to the Consumer Financial Protection Act of 2010, whether a third-party collector or a first-party creditor collecting its own debts, can be held accountable for any unfair, deceptive, or abusive acts or practices in collecting a consumer's debts.

In addition to the prohibition of such practices under the Dodd-Frank Act, the Fair Debt Collection Practices Act makes it illegal for a person defined as a "debt collector" to engage in certain conduct. Although the FDCPA's definition of "debt collector" is somewhat limited and does not include some persons who collect consumer debt, such as first-party creditors who are collecting their own debt, under the first bulletin, all covered persons and service providers must refrain from committing any unfair, deceptive, or abusive acts or practices in violation of the Dodd-Frank Act.

The first bulletin contains the following examples of practices that may be illegal:

• threatening any action that the debt collector does not have the authority to pursue, such as making false threats of lawsuits, arrest, prosecution, or imprisonment for not paying the debt;
• falsely representing the character, amount, or legal status of the debt;
• misrepresenting that a consumer's debt would be waived or forgiven if a consumer accepted a settlement offer, when the company is not, in fact, forgiving or waiving the debt;
• failing to properly or timely post payments or to credit a consumer's account with payments that the consumer submitted on time and then charging late fees to the consumer; and
• taking possession of property (i.e., repossession) without the legal right to do so.

As the examples are non-exhaustive, now is a good time for you to review your collection and repossession practices with counsel who is knowledgeable about the FDCPA as well as state debt collection laws.

The second bulletin (2013-08) provides guidance to companies on statements they make about how paying a debt will affect a consumer's credit score, credit report, or creditworthiness. Under the FDCPA, it is illegal for a debt collector to "use any false, deceptive, or misleading representation or means in connection with the collection of any debt." In addition, it is illegal for any covered person or service provider to engage in any deceptive act or practice in violation of the Dodd-Frank Act. The CFPB stated that "based on its supervision, enforcement, and other activities, the CFPB is aware that these types of representations are being made and is concerned that some of them may be deceptive under the FDCPA, the Dodd-Frank Act, or both." The CFPB also indicated that during its examinations and enforcement investigations, it may review "communication materials, scripts, and training manuals and related documentation" to determine if such representations are being made and the factual basis for them. You should take a look at your communications, scripts, and training manuals to ensure that any claims you make about the effect of paying debts on consumers' credit scores, credit reports, or creditworthiness are not deceptive.

In addition, the CFPB published five sample action letters that consumers may use when corresponding with debt collectors. The letters address situations in which a consumer

• needs more information;
• wants to dispute a debt;
• wants to restrict how and when a debt collector can contact the consumer;
• has hired a lawyer; or
• wants the debt collector to stop any and all contact.

You should familiarize yourself with the sample consumer action letters and be ready to respond to them.

Eric L. Johnson is a partner in the Oklahoma office of Hudson Cook, LLP. Eric can be reached at 405-602-3812 or by email at ejohnson@hudco.com.