Insights

During the summer, the Consumer Financial Protection Bureau issued a couple of bulletins relating to debt collection, including debts collected by creditors servicing their own accounts. One in particular creates an expectation that creditors will comply with certain collection activity requirements and prohibitions in the Fair Debt Collection Practices Act - something most creditors already do as a best practice - by suggesting that the failure to do so could be an unfair, deceptive, and/or abusive act or practice.

The bulletin detailed a non-exhaustive list of activities that could, depending on the specific facts and circumstances, be deemed by the CFPB to be a UDAAP regardless of whether the servicer is subject to the FDCPA. These include

• collecting or assessing a debt and/or any additional amounts in connection with a debt (including interest, fees, and charges) not expressly authorized by the agreement creating the debt or permitted by law;
• failing to post payments timely or properly or to credit a consumer's account with payments that the consumer submitted on time and then charging late fees to that consumer;
• taking possession of property without the legal right to do so;
• revealing the consumer's debt, without the consumer's consent, to the consumer's employer and/or co-workers;
• falsely representing the character, amount, or legal status of the debt;
• misrepresenting that a debt collection communication is from an attorney;
• misrepresenting that a communication is from a government source or that the source of the communication is affiliated with the government;
• misrepresenting whether information about a payment or nonpayment would be furnished to a credit reporting agency;
• misrepresenting to consumers that their debts would be waived or forgiven if they accepted a settlement offer, when the company does not, in fact, forgive or waive the debt[s]; and/or
• threatening any action that is not intended or the covered person or service provider does not have the authorization to pursue, including false threats of lawsuits, arrest, prosecution, or imprisonment for non-payment of a debt.

One subtlety of note is in the title of the bulletin - "Unfair, Deceptive and/or Abusive Acts or Practices." There has long been discussion in the creditor community as to whether an "abusive" practice is something different than an "unfair" or "deceptive" practice or whether it is something more than unfair or deceptive. By using the conjunctive/disjunctive "and/or," the CFPB has indicated it could be either.

Unfair Practices

With respect to "unfair practices" (which requires actual or potential substantial injury to consumers), the CFPB notes that the damage need not take the form of a monetary injury. Citing heavily from its own Examination Manuals, the Bureau states that, while "emotional impact and other subjective types of harm will not ordinarily amount to substantial injury, in certain circumstances emotional impacts may amount to or contribute to substantial injury. In addition, actual injury is not required; a significant risk of concrete harm is sufficient."

Deceptive Practices

Deceptive acts and practices are those where: (1) they mislead or are likely to mislead the consumer; (2) the consumer's interpretation is reasonable under the circumstances; and (3) the misleading act or practice is material. This is the same standard the Federal Trade Commission has used for years.

Under the standard, the CFPB, like the FTC, will consider the totality of the circumstances. Deceptive acts or practices can be express or implied and can include misleading statements or omissions of material facts. Material information is information that is likely to affect a consumer's choice of, or conduct regarding, the product or service. Information that is likely important to consumers is material. Being able to substantiate claims made in advertising or other communications with consumers is unquestionably a best practice.

The CFPB further indicates that it looks to several factors in assessing whether a disclosure or qualifying statement is adequate to prevent deception: (1) whether the disclosure is prominent enough for a consumer to notice; (2) whether the information is presented in a clear and easy to understand format; (3) the placement of the information; and (4) the proximity of the information to the other claims it qualifies.

Abusive Practices

Dodd-Frank armed the CFPB with an incredibly broad definition of "abusive," most likely to be sure it had the jurisdictional authority to stop any unacceptable practice without being hamstrung by years of jurisprudence articulating what is unfair or deceptive.

Under Dodd-Frank, an act or practice is abusive when it: (1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (2) takes unreasonable advantage of - (A) a consumer's lack of understanding of the material risks, costs, or conditions of the product or service; (B) a consumer's inability to protect his or her interests in selecting or using a consumer financial product or service; or (C) a consumer's reasonable reliance on a covered person to act in his or her interests. That last bit has caused some financial services attorneys to recommend that their clients make an express disclosure that they are not acting in their customers' interests in order to defend a claim of "reasonable reliance."

Creditors collecting their own debts are acting prudently when they invoke a policy requiring their collectors and servicers to comply with FDCPA standards. An important piece of that policy is to engage in periodic audits of collection and servicing activities to ensure that compliance is ongoing and to remediate where necessary. What was once merely a best practice is now more in the nature of a legal requirement.

Michael A. Benoit is a partner in the Washington, DC, office of Hudson Cook, LLP. Michael can be reached at 202-327-9705 or mbenoit@hudco.com.