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Agency Compliance Update 2015 Presented by Matthew Clark, Esq., Legal and Compliance Director

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Key Point: Strong creditor / collector partnerships are critical

Compliance is a two way street

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As of April 2015, FDCPA litigation has increased 12.5% from the prior year.

FCRA litigation increased by 16.6% and TCPA litigation continues to rise.

Of the lawsuits filed under consumer statutes in April 2015, there were

approximately 1,322 unique plaintiffs (including multiple plaintiffs in one

suit). Of those plaintiffs, approximately 440 (33 percent) had sued under

consumer statutes before.

Recent statistics*

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*Statistics taken from WebRecon, April, 2015 Report, available at http://dev.webrecon.com.

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AT&T Mobility - $45 million to settle violation of the Telephone Consumer

Protection Act (TCPA).

TeleCheck - $3.5 million for Fair Credit Reporting Act violations (i.e. failure

to investigate disputes, failure to maintain reasonable procedures to ensure

accurate reporting of information, and failure to promptly correct errors in

consumers’ reports).

CFPB Orders Chase and JPMorgan Chase to Pay $309 million refund to

consumers for charging for add-on credit card services not received or

requested.

CFPB orders American Express to pay $85 million refund to consumers

harmed

CFPB fines Sprint $105 million

Ignoring compliance can be costly

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Fair Debt Collection Practices Act (FDCPA)

Consumer Telephone Protection Act (TCPA)

Fair Credit Reporting Act (FCRA)

23 NYCRR 1: Regulation of Debt Collection by Third Party Debt Collectors and Debt Buyers

Laws and regulations – the major players

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Requires debt collectors to treat debtors fairly (standard used is least sophisticated consumer)

Prohibits certain methods of debt collection and identifies proper and appropriate debt collection practices and techniques

Does not extinguish legitimate consumer debts

Strict liability statute that allows for recovery of attorney’s fees

Allegations of improper and inappropriate methods of collection may lead to filing of a lawsuit

What debts are covered under the Act?

Consumer debts

Personal, family and household debts

Examples include Perkins loans, institutional loans, tuition and other education-based receivables

FDCPA Key Points

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It is unlawful to engage in any Unfair, Deceptive, or Abusive Acts or Practices

FDCPA makes it illegal for debt collectors to engage in this activity

Examples of UDAAP violations

- Falsely representing character, amount or legal status of debt

- Threatening to take legal action where there is no intention or authority to do so

- Collecting or assessing additional amounts (including fees and interest) not expressly authorized by the agreement or permitted by law

- Failing to post payments timely or properly credit the account

- Disclosing consumer’s debt, without consent, to third parties

Consumer Financial Protection Bureau

Created by Dodd-Frank Act

Has authority to protect consumers against UDAAP violations

Original creditor and debt collectors

Unfair, Deceptive or Abusive Acts or Practices (UDAAPs)

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Debt

Contractual relationship

Obligation to pay

Running of the SOL is typically does NOT discharge the debt

SOL expiration makes the obligation legally unenforceable – i.e. consumers can no longer be sued on the debt

Taking or threatening legal action on time barred debt may be a UDAAP

Calculating SOL

Time the claim accrues

Date of last payment

Date of default

Date payment became due

Charge-off is not the date of default

Statute of Limitations (SOL)

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Consumers may only be sued in their current state of residence

Best practice is to apply the SOL that is most favorable to the consumer

Payments or acknowledgment of the debt will restart the statute in most states

Running of the SOL bars collecting of the debt in Mississippi (government debts excepted), North Carolina (purchased debts), and Wisconsin

Statute of Limitations (SOL) key points

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Can collection costs legally be added to a debt?

FDCPA, Section 808(1) forbids “the collection of any amount (including any interest, fee, charge or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” This includes collection costs.

The Federal Trade Commission (FTC) Official Staff Commentary says,

“A debt collector may attempt to collect a fee or charge in addition to the debt if either (a) the charge is expressly provided for in the contract creating the debt and the charge is not prohibited by state law, or (b) the contract is silent but the charge is otherwise expressly permitted by state law.”

“Conversely, a debt collector may not collect an additional amount if either (a) state law expressly prohibits collection of the amount or (b) the contract does not provide for collection of the amount and state law is silent.”

Adding Collection Costs

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Contracts with consumers should clearly and expressly state what fees/costs/interest, if any, will be added to their accounts in the event of default and/or write-off

The agreement creating the debt should provide a specific sum or percentage that will be added to the debt and avoid language providing only for “actual,” “incurred,” or “reasonable” collection costs to be added. See Bradley v. Franklin Collection Service, Inc., 739 F. 3d 606 (11th Cir. 2014) and Kojetin v. CU Recovery, Inc., 212 F.3d 1318 (8th Cir. 2000).

It is very important that creditors maintain sufficient records to allow collectors to itemize all charges applied to an account

Avoids UDAAPs

Best practice when responding to requests for validation

Clear and express contract language

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Director Cordray said in 2012/2014:

Entities over whom CFPB exercises authority must manage risks of service providers (financial institutions; collection agencies –may be vicariously liable)

Conduct due diligence to verify service provider can comply with consumer protection laws

Review service providers policies, procedures, internal controls

Include in service provider contract expectations and consequences

Take prompt action to address service provider issues

Risk management program is key, maintenance of records of complaints, conduct onsite audits of and review marketing materials of service providers

CASE LAW: to have claim of relief against creditors under vicarious theory based on an agency relationship between the defendant and the creditors, the defendant must have worked on behalf of and under the control of the creditors.

CFPB Vicarious Liability

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TCPA prohibits using autodialer or prerecorded message to call a consumer‘s wireless phone without obtaining the prior express consent of consumer.

Okay to use autodialer if given prior consent of the cell phone subscriber to call the number (express consent)

Okay to use autodialer if the consumer knowingly released the number to the client and the client provided that number to agency (FCC/ implied consent)

Okay to manually dial cell phone number (collector can get express consent at inception of call)

Manual calls made without the use of an autodialer will not violate the TCPA.

TCPA (Telephone Consumer Protection Act)

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Automatic Telephone Dialing System defined by 47 USC 227(a)(1): “ATDS”

The term “automatic telephone dialing system” means equipment which has the capacity

- to store or produce telephone numbers to be called, using a random or sequential number generator; and

- to dial such numbers.

FCC Jan 2008 Declaratory Ruling -Predictive dialer “constitutes” an ATDS under TCPA (par. 12).

Key point per FCC –“the capacity to dial numbers without human intervention” (FCC 2008 Ruling, Par. 13).

FCC contradicts itself: “Debt collection calls . . . are not autodialer calls” (i.e., dialed using a random or sequential number generator) (par. 5 FCC 2008).

Automatic Telephone Dialer System

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Policies and Procedures should be in place to comply with the TCPA

Phone numbers provided by client upon placement are acknowledged in an identified field (implied express consent)

Phone numbers located through skip-tracing efforts are placed in a separate field (no prior express consent)

Utilize available technology (cell phone scrub) for unidentified skip-traced phone numbers

Manually dial cell numbers and request express permission at beginning of call

TCPA Policies & Procedures

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Can be verbal or in writing. (Note: TCPA Silent -Clarified by FCC in 2/15/12 Report)

YOU CAN ONLY GET CONSENT DIRECTLY FROM THE CONSUMER Examples:

- Roberts v. PayPal, Inc., 2013 U.S. Dist. LEXIS 76319 (N.D. Cal.) (Express Consent Via Website)

- Smith v. Progressive Fin. Servs., 2013 U.S. Dist. LEXIS 108744 (D. Or. Aug. 1, 2013) (placing number on loan app, Conditions of Admission form, patient intake, etc.)

Can consent be given directly to creditor or third party? Yes! Consent for one account may be consent for 2nd account-same creditor. Jones v.

Stellar Recovery, Inc., 2015 WL 2088793, at *4 (S.D. Fla. Feb. 20, 2015) Court noted FCC “knowingly release of phone number is permission to be called

at the number given absent instructions to the contrary.” Id. at 564. Plaintiff consented to the debt-collection calls regarding Comcast Account 2

when he provided his cellphone number for Comcast Account 1 and never expressed instructions to the contrary.”

TCPA- Consent

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Important –“in the absence of any contractual restriction to the contrary” can orally revoke. (3rd and 11th Circuits –Gager; Osorio)

FCC 2008 Ruling -Creditor on whose behalf the autodialed or prerecorded message call is made bears the responsibility for any violation. (FCC 2008 Ruling, par. 10)

Creditors should keep records in the normal course of business, such as purchase agreements, sales slips, and credit applications (FCC 2008 Ruling)

TCPA- consent

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Notices and customer communications: You expressly consent to be contacted at any number you provide herein, by [Creditor], its agents, assigns, debt collectors, or anyone calling on its behalf, for any and all purposes, at any telephone number, or physical or electronic address you provide or which you may be reached, including any wireless telephone number. You agree that Creditor, its agents, assigns, debt collectors, or anyone calling on its behalf may contact you in any way, including calls or text messages delivered by an automatic telephone dialing system or prerecorded or artificial voice messages, or via email.

You expressly acknowledge that this consent cannot be revoked without prior written agreement and acceptance by Creditor.

TCPA - consent - sample contract language

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Any business entity reporting consumer information to a credit reporting agency (CRA) is a data furnisher for purposes of FCRA.

A data furnisher must report accurate information and has a duty to update or correct information previously reported.

Data furnishers must establish and implement reasonable written policies and procedures regarding the accuracy and integrity of consumer information provided to a CRA.

Consumers have a right to directly dispute inaccurate information in their consumer report with the furnisher of information.

Fair Credit Reporting Act (FCRA)

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Agency is data furnisher under FCRA

Agency makes a good faith effort to determine the accuracy of all account information reported to the credit bureaus

- Agency policy-do not report if an account does not have a social security # in order to ensure proper reporting

- Agency policy-do not report skip traced data to the credit bureaus – this eliminates errors

Contacts the original creditor or other reliable source to verify accuracy and integrity of disputed information

Agency should have reasonable written policies and procedure to prevent such errors

FCRA Written Polices & Procedures

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With head and heart in finance

New Regulations for Debt Collections

New York Department of Financial Services

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The rules (23 NYCRR 1) only impact debt collectors and debt buyers.

The rules require expanded initial disclosures, including consumers’ rights under the FDCPA, protected property, an itemization of charged-off debts, and a statute of limitations disclosure.

The rules require substantiation of debts, documentation of payment arrangements, and electronic communication.

Overview

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For all debts in initial communication or within 5 days of initial communication:

Debt collectors, in accordance with the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., are prohibited from engaging in abusive, deceptive, and unfair debt collection efforts, including but not limited to:

a) the use or threat of violence;b) the use of obscene or profane language; andc) repeated phone calls made with the intent to annoy, abuse, or

harass.

Note: If initial communication is not by letter, disclosures may be provided verbally.

Letters: Initial Disclosures

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If a creditor or debt collector receives a money judgment against you in court, state and federal laws may prevent the following types of income from being taken to pay the debt:

Supplemental security income, (SSI);

Social security;

Public assistance (welfare);

Spousal support, maintenance (alimony) or child support;

Unemployment benefits;

Disability benefits;

Workers’ compensation benefits;

Public or private pensions;

Veterans’ benefits;

Federal student loans, federal student grants, and federal work study funds; and

Ninety percent of your wages or salary earned in the last sixty days.

Note: If initial communication is not by letter, disclosures may be provided verbally.

Letters: Initial Disclosures

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For charged-off debts (defined as accounts that creditor has taken off the books as a loss or expense). Only in initial communication or within five days of initial communication to following information must be provided:

(1) The name of the original creditor; and(2) An itemized accounting of the debt, including:

a) the total amount of the debt due as of charge-off;b) the total amount of interest accrued since charge-off;c) the total amount of non-interest charges or fees accrued since charge-off;d) the total amount of payments made on the debt since the charge-off.

Note: If initial communication is not by letter, disclosures may be provided verbally.

Letters: Disclosure of Account Information

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We are required by regulation of the New York State Department of Financial Services to notify you of the following information. This information is NOT legal advice:

Your creditor or debt collector believes that the legal time limit (statute of limitations) for suing you to collect this debt may have expired. It is a violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., to sue to collect on a debt for which the statute of limitations has expired. However, if the creditor sues you to collect on this debt, you may be able to prevent the creditor from obtaining a judgment against you. To do so, you must tell the court that the statute of limitations has expired.

Even if the statute of limitations has expired, you may choose to make payments on the debt. However, be aware: if you make a payment on the debt, admit to owing the debt, promise to pay the debt, or waive the statute of limitations on the debt, the time period in which the debt is enforceable in court may start again.

If you would like to learn more about your legal rights and options, you can consult an attorney or a legal assistance or legal aid organization.

Letters: Statute of Limitations Disclosure

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The new rules allow a consumer to request “substantiation” of a debt. The rules require debt collectors to take steps to inform consumers about their right to receive substantiation when a consumer disputes a debt verbally or in writing.

Substantiation of consumer debts

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If a consumer disputes orally, a debt collector must:

(1) make reasonable efforts to inform the consumer, in the conversation in which the dispute was communicated, how the consumer can make a written request for substantiation of the debt in writing; and

(2) within 14 days of the consumer disputing the debt, provide the consumer clear and conspicuous written instructions on how to request substantiation of the debt.

Notification of Right to Request Substantiation: Oral Disputes

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If the consumer disputes the debt in writing, within 21 days of the debt collector receiving that written dispute, the debt collector must provide the consumer clear and conspicuous written instructions on how to request substantiation of the debt.

These additional notice requirements are not necessary if the notice about substantiation has already been provided to the consumer (e.g., by inclusion in the initial validation notice), or if the debt collector treats disputes as a request for substantiation and provides the information required by this section.

Notification of Right to Request Substantiation: Written Disputes

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Once a debt collector receives a written request for substantiation, it must be provided within 60 days. The debt collector must cease collection of the debt until substantiation has been provided to the consumer. A debt collector must substantiate a debt pursuant to this section only once during the period that the debt collector owns or has the right to collect the debt. Unlike the 30-day validation period under the FDCPA, there is no specific time limit outlined in the regulations during which a consumer must request substantiation (i.e. it can occur any time).

Requirements for Substantiation

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Substantiation of a charged-off debt shall include:

a copy of a judgment against the consumer, or:

the signed contract or signed application that created the debt or, if no signed contract or application exists, a copy of a document provided to the alleged debtor while the account was active, demonstrating that the debt was incurred by the debtor. For a revolving credit account, the most recent monthly statement recording a purchase transaction, payment or balance transfer shall be deemed sufficient to satisfy this requirement;

the charge-off account statement, or equivalent document, issued by the original creditor to the consumer;

a statement describing the complete chain of title from the original creditor to the present creditor, including the date of each assignment, sale, and transfer; and

records reflecting the amount and date of any prior settlement agreement reached in connection with the debt pursuant to section 1.5 of this Part.

Requirements for Substantiation

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If a consumer requests substantiation of a charged-off debt, the debt collector must retain the following documentation until the debt is discharged, sold, or transferred:

evidence of the consumer’s request for substantiation; and

all documents the debt collector provided in response to the request.

Requirements for Substantiation

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Within 5 business days of agreeing to a debt payment schedule or other agreement to settle a debt, a debt collector must provide the consumer with:

(1) Written confirmation of the payment schedule or other agreement to settle the debt, which includes all material terms and conditions relating to the payments and schedule to which the consumer agreed and(2) The following notice:“If a creditor or debt collector receives a money judgment against you in court, state and federal laws prevent the following types of income from being taken to pay the debt:

1. Supplemental security income, (SSI);2. Social security;3. Public assistance (welfare);4. Spousal support, maintenance (alimony) or child support;5. Unemployment benefits;6. Disability benefits;7. Workers’ compensation benefits;8. Public or private pensions;9. Veterans’ benefits;10. Federal student loans, federal student grants, and federal work study funds; and11. Ninety percent of your wages or salary earned in the last sixty days.”

During the duration of the payment agreement, a debt collector must also provide the consumer: (1) an accounting of the debt on at least a quarterly basis while the consumer is making scheduled payments; and (2) within 20 business days of the receipt of a payment satisfying a consumer’s debt, a written confirmation of the satisfaction of the debt that identifies the original creditor and the account number.

Debt Payment Schedules and Settlement Agreements

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After mailing a consumer the required initial written disclosures, a debt collector may use email only if the consumer has:

(1) voluntarily provided an email account to the debt collector which the consumer has affirmed is not a work email; and

(2) consented in writing to receive email correspondence from the debt collector in reference to a specific debt. A consumer’s electronic signature constitutes written consent under this section.

A debt collector may communicate with a consumer via email to confirm the consumer’s consent in the event the consumer initiates contact via email.

Communication via E-mail

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All of the items discussed took effect 90 days after publication (Mar. 3, 2015), except for the initial disclosure requirements for charged off debts and the provisions related to substantiation of the debt, which are effective 270 days after publication (Aug. 30, 2015).

Effective dates

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By limiting the requirement in 23 NYCRR 1.5 to payment arrangements reached “pursuant to Section 1.5 of this Part” does this section only require debt collectors to provide written confirmation of payment arrangements entered into after the enactment of the DFS rules?

A. Yes.

FAQS

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Do debt collectors need to provide a full copy of the original payment agreement and copies of all payment statements in order to comply with the requirements of 23 NYCRR 1.4(c)(4)?

A. No. The rule requires “records reflecting the amount and date of any prior settlement agreement,” not original documents or each account statement.

FAQS

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What happens if the debt collector cannot substantiate the debt within 60 days but does so thereafter?

A. A debt collector cannot collect a debt until substantiation is provided. Once substantiation is furnished, a debt collector may begin collecting, even if substantiation is provided after the required 60-day period. While the debt collector may continue collecting, note that failure to provide the required information within 60 days of receipt of the request for substantiation is a violation of the rule separately enforceable by the Department.

FAQS

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Would providing consumers a monthly account statement fulfill the requirements of 23 NYCRR 1.5(b)?

A. Yes. Debt collectors must provide an accounting of the debt on “at least a quarterly basis while the consumer is making scheduled payments” on a payment plan. A monthly accounting would meet this requirement.

FAQS

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The Department and the New York City Department of Consumer Affairs (“NYCDCA”) both require disclosures concerning the statute of limitations. However, the notices differ in some respects. If the debt collector is subject to the NYCDCA rules, are both disclosures required?

A. 23 NYCRR 1.3 requires debt collectors to provide certain information about the statute of limitations. Debt collectors can provide a single disclosure by using language required by the NYCDCA and including any additional information required in 23 NYCRR 1.3 that is not covered by the NYCDCA language. This additional information would include that: suing on a debt for which the statute of limitations has expired is a violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq.; and that if the consumer admits, affirms, acknowledges, or promises to pay a debt for which the statute of limitations has expired, the statute of limitations may restart.

FAQS

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The Department and the NYCDCA rules both specify information to be sent to a consumer within five days of the initial communication with a consumer in connection with the collection of any debt. If the debt collector is subject to the NYCDCA rules, are both disclosures required when collecting a debt?

A. The information required by the two rules differs in some respects, but does not conflict. If a debt collector is subject to both rules, the information required by the Department and the NYCDCA rules can be provided in one combined initial disclosure.

FAQS

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If the debt collector provides the notice required in 23 NYCRR 1.3 before accepting payment on a debt where the statute of limitations has expired, must the debt collector provide this notice in every subsequent communication or before accepting every subsequent payment?

A. A debt collector only needs to provide the disclosure required in 23 NYCRR 1.3 before accepting any payment on a debt in which the statute of limitation is expired, but not in every non-collection communication. Disclosure can be provided in the communication requesting a payment or before accepting a payment. If the statute of limitations has not restarted following acceptance of a payment, then the disclosures must be made again before accepting further payment.

FAQS

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If a debt collector treats a dispute, either oral or written, as a request for substantiation, must the debt collector inform the consumer of the method by which the consumer may request substantiation?

A. No. If a debt collector is treating a dispute as a request for substantiation and stops collection, the debt collector does not need to provide the consumer instructions on how to request substantiation.

FAQS

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If a debt collector has provided a consumer with substantiation of an alleged debt, does the debt collector need to provide information about how to request substantiation after any subsequent disputes about the debt?

A. No. Once a debt collector has provided substantiation of the debt, the debt collector does not need to provide any further information about how to request substantiation of the debt. If a new debt collector obtains the debt, the new debt collector must provide and/or offer substantiation of the debt again.

FAQS

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Thank YouMatthew Clark, Esq.Legal and Compliance DirectorEOS USA781-753-4414matthew.clark@eos-usa.com