Compliant Collections Under the

Dodd-Frank ActJustin B. Hosie

October 11, 2014

-News stories

-FDCPA and “Lenders”

-General Do’s

-General Don’ts

-Difficult Situations

-Beyond the FDCPA

-CFPB Activity

Overview

News portrayal of debt collection http

://www.kptv.com/story/25417450/bill-collectors-accused-of-making-abusive-foul-mouthed-calls

Does the FDCPA apply to us as a lender?

Director Cordray: “…it doesn’t matter who is collecting the debt — unfair, deceptive, or abusive practices are illegal”

CFPB Press Release: “any entity subject to the Consumer Financial Protection Act of 2010, whether a third-party collector or a creditor collecting its own debts, can be held accountable for any unfair, deceptive, or abusive practices in collecting a consumer’s debts”

Link to the Bulletins: http://www.consumerfinance.gov/newsroom/the-cfpb-puts-companies-on-notice-about-harmful-debt-collection-practices/

Information about the CFPB’s position Information about unfair, deceptive, and abusive practices Model letters for consumers to send in response to collection activity

Congress said the FDCPA only applies to debt collectors?

Yes But, unless you’re prepared to fight the CFPB,

assume it applies for compliance purposes UDAAP authority is broad That very interesting discussion is outside the

scope of this presentation

What should you do when you collect a debt?

Treat consumers fairly Be honest and forthright  Always disclose the caller’s identity to debtor Use the Company’s actual name Call after 8AM and before 9 PM – The consumer’s

time Follow the consumer’s instructions on applying

payments Stop calling when asked and when the consumer has

a lawyer

What should we refrain from doing?

Don’t: Threaten violence or criminal means, arrest, imprisonment, or reporting to

“Legal Authorities”• Falsely represent or imply legal process • Hide the legal nature of communications• Misrepresent legal rights• Pretend to be an attorney• Distribute phony legal documents• Make criminal allegations

Use obscenity, profanity, or abusive language Publish a list of nonpaying consumers Advertise a debt for sale to coerce a payment Impersonate a government affiliation Falsely represent information about the debt Make false threats Threaten to communicate false information

What else should we refrain from doing?

Don’t: Falsely represent or imply account sale Falsely Represent or imply you’re with a consumer

reporting agency Collect amounts beyond those explicitly provided in the

consumer’s agreement Cause the consumer to incur charges by concealment

(fees for telephone calls and telegram fees) Threaten unlawful or unintended repossession, seizure,

garnishment, attachment, etc Send postcards about a debt Suggest debt collection on envelopes 

Is it that easy?

No There are some difficult situations too. For

example: Repetitive rings and repeated or continuous

conversations Postdated checks Third parties The FDCPA “Mini-Miranda” and “Miranda” verbiage Answering machines Workplaces

What is the issue with repetitive rings, repeated, and continuous conversations?

The FDCPA prohibits: Causing a telephone to ring repeatedly or

continuously with intent to annoy, abuse, or harass any person

Engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person

What do “continuously” and “repeatedly” mean here?

Continuously means making a series of telephone calls, one right after the other

“Repeatedly” means calling with excessive frequency under the circumstances

If you can’t reach someone, how often can you call?

Don’t ignore requests to stop calling. Immediately calling back a debtor that has hung up on a debt collector has been considered a violation. Bingham v. Collection Bureau, Inc., 505 F.Supp. 864, 873 (D.N.D. 1981). See also: . Joseph v. J.J. MacIntyre Companies, LLC, 238 F.Supp.2d 1158 (N.D. Cal. 2002).

Before establishing contact, 7 calls MAY arguably be alright. 7 or more calls to a debtor in one day was not a violation, as a matter of law, where the collector was still attempting to establish contact. Tucker v. CBE Group, 710 F.Supp.2d 1301 (M.D. Fla. 2010). Some cases suggest less.

2- 3 Calls Before Contact = Safer Approach

What is the issue with postdated checks?

Give 3-10 Days Warning Before Depositing. The FDCPA prohibits debt collectors from taking and depositing a postdated instrument, unless you notify the consumer of an intent to deposit 3-10 days before depositing.

No CFPB Guidance. No guidance from the CFPB on whether this applies to

first party creditors now Do you want to be the test case on this issue?

What are the rules governing calls with third-parties?

Only Contact 3rd Parties to Learn about the Consumer’s Location. If you know where the consumer resides, you shouldn’t call references during collections

The Company's caller must: identify herself/himself state that she/he is confirming or correcting location information

concerning the consumer, and only if expressly requested, identify his employer 

Do NOT: State that such consumer owes any debt  Communicate with the third party more than once (with few

exceptions)

What is the issue with the “Mini-Miranda” and “Miranda” notice?

FDCPA requires debt collectors to provide very specific information about the debt

No guidance from the CFPB on whether creditors should do this now

This could confuse consumers Could be deceptive to do it – suggests the debt

collection status has elevated beyond the original creditor, to a 3rd party debt collector

What is the issue with answering machines?

FDCPA prohibits communicating with 3rd parties about the debt, except for location information, without the consumer’s consent

FDCPA requires disclosing the caller’s identity to the consumer

If a third party hears a message from a debt collector, this can inadvertently violate the FDCPA

What is the issue with the consumer’s workplace?

FDCPA prohibits communicating with the consumer at the consumer's place of employment if the debt collector knows or has reason to know that the consumer's employer prohibits the consumer from receiving such communication

Field visits to places of employment = a problem on CFPB examinations, noted as a deceptive practice in recent CFPB Supervisory Highlights

Are there collection considerations beyond the text of the FDCPA?

CFPB Bulletins CFPB Supervisory Highlights CFPB Actions Also consider: Case law, older FTC

pronouncements, etc

What are the CFPB Bulletins about?

July 10, 2013 – Bulletin on prohibition of unfair, deceptive, or abusive acts or practices in the collection of consumer debts http://www.consumerfinance.gov/f/201307_cfpb_bulletin_unfair-deceptive-abusive-practices.pdf

No UDAAP allowed in collections for covered persons (includes payday lenders). “Although the FDCPA’s definition of “debt collector” does not include some persons who collect consumer debt, all covered persons and service providers must refrain from committing UDAAPs in violation of the Dodd-Frank Act”

Restates general definitions for unfair, deceptive, and abusive

Provides Examples

What are the examples?

Fake charges Fake late fees Unlawful repossession Revealing the debt to others Falsely representing the debt Misrepresenting communication is from an attorney or

government Misrepresenting credit reporting practices Misrepresenting debt waiver policies Threatening unintended activity

What about other CFPB Bulletins and Other Information?

Bulletin on debt collectors discussing consumers’ credit is available at: http://files.consumerfinance.gov/f/201307_cfpb_bulletin_collections-consumer-credit.pdf

Service Providers – Do Your Due Diligence, Train, Supervise, and Audit Your Service Providers, including Debt Collectors. Bulletin: http://www.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf

Debt collection examination procedures: http://www.consumerfinance.gov/f/201210_cfpb_debt-collection-examination-procedures.pdf

CFPB Small Dollar Exam Manual: http://files.consumerfinance.gov/f/201309_cfpb_payday_manual_revisions.pdf

What do the most recent CFPB Supervisory Highlights cite?

Failure of debt collectors (and others) who furnish information to CRAs to investigate disputes regarding that information

Failure to obtain appropriate authorization prior to initiating a recurring electronic transfer of funds from a consumer’s account

Failure of debt collectors to comply with the Fair Debt Collection Practices Act’s limitations on the use of phone calls and its prohibition on false and misleading statements

Inadequate written CMS policies and procedures Lacked sufficient board and management oversight Lenders did not adequately monitor collections calls

What else do the most recent supervisory highlights cite?

Repeatedly making unnecessary calls to third parties

Improperly disclosing personal debt information Calling borrowers in violation of do-not-call

requests Making false claims during collections calls Lenders did not attempt to understand the root

causes of complaints arising from collections practices

Called third parties even after the employees had already made contact with consumers.

More from the most recent supervisory highlights? Lenders did not provide training for collectors Lenders did not properly oversee third-party service providers Continued to call customers and references after consumers had made

verbal and written requests that they stop doing so Contacted references and improperly disclosed personal debt information to

these third parties Lacked sufficient procedures to verify that these in-house collection calls first

confirmed the identity of the borrower before sharing personal debt information

Common practice of calling a borrower multiple times per day Failed to properly log calls, leading borrowers to receive more calls than

documented Practices and weaknesses in the monitoring and corrective action functions

at other lenders that could lead to excessive daily calls False threats to add additional fees

Even more from the recent supervisory highlights?

False threats to report to consumer reporting agencies (CRAs)

False threats of legal action or referral to a non-existent in-house “legal department”

False claims that the lender will debit the borrower’s account at any time

Deceptive messages regarding non-existent special promotions to induce borrowers to return calls

Workplace collections visits

What enforcement actions has the CFPB taken, that relate to payday collection practices?

ACE Cash America Examples of some other matters addressing debt

collection: Hydra Corinthian Colleges Colfax American Express Travel American Express FSB American Express Centurion Bank

What happened with ACE’s collections according to the CFPB?

Didn’t prevent third party debt collector violations Kept calling the wrong number Trained employees to create a sense of urgency. Made excessive calls Disclosed the debt to 3rd parties Made prohibited calls. Falsely threatened collection fees Falsely threatened reporting to national credit bureaus Threatened “hassling” and unlimited collection action by 3rd party debt

collection Threatened to send consumers to non-existent “FDCPA Department” Falsely threatened or implied “legal activities”

Wasn’t something deemed abusive?

Encouraged delinquent borrowers (those without an ability to repay) to take out new loans

An act or practice is “abusive” if it takes “unreasonable advantage of … the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service”

Leveraged an artificial sense of urgency to induce delinquent borrowers with a demonstrated inability to repay their existing loan to take out a new loan with accompanying fees

These acts or practices took unreasonable advantage of the inability of consumers to protect their own interests in selecting or using a consumer financial product or service

What happened with Cash America’s collections, according to the CFPB?

Consumers paid money as a result of debt collection litigation which may have involved reliance on improper court filings

The Company withheld an internal audit report related to collection practices

Other alleged practices beyond collections too

Closing Collection Story

http://www.cbsnews.com/news/debt-collector-thrives-with-simple-strategy-kindness/

Contact InformationJustin B. Hosie

Hudson Cook, LLP

6005 Century Oaks Drive

Suite 500

Chattanooga, TN 37416

(423) 490-7564

jhosie@hudco.com