While it is not news that debt collection continues to be a major CFPB focus, according to a review of the two new bulletins and five CFPB designed action letters consumers can use when responding to debt collectors conducted by the Ballard Spahr's consumer financial services group, “most significantly” the bulletins not only address the conduct of debt collectors and debt buyers, but also is directed at creditors and servicers.
The bulletin adds a new twist to the Dodd-Frank Act prohibition of “unfair, deceptive or abusive” debt collection practices, they wrote, because it does not focus on debt collectors and debt buyers subject to the Fair Debt Collection Practices Act.
Instead, it is “primarily intended as a warning to persons collecting debts who are not subject to FDCPA” such as first-party creditors collecting their own debts or to servicers, including mortgage servicers, “when collecting debts that were current when servicing began.” It means the CFPB can also supervise mortgage servicers and servicing by large banks.
The bulletin reviews CFPB standards and provides a “non-exhaustive list” of examples of conduct that would likely be covered by the general FDCPA prohibitions on harassment or abuse that according to Ballard Spahr's experts indicate the CFPB “would likely consider other acts or practices specifically identified in the FDCPA to be UDAAPs.”
Hence, servicers and creditors who collect their own debts are advised to review their collection practices with their counsel.
In addition, the CFPB has included in the bulletins five action letter templates that address various situations to make it easy for consumers to correspond with debt collectors.
CFPB also announced its consumer complaint system is now taking debt collection complaints “related to any consumer debt,” including mortgages, credit card debt and medical bills that open the door to complaints that may not involve any extension of credit.
Furthermore, the CFPB's website portal allows a consumer to file a complaint against a collector who is not the original creditor, and to send a separate complaint to the original creditor, which means “creditors might be required to respond to complaints about debt buyers, who do not act as service providers and for whom creditors should not be responsible.”
Such action, these insiders warn, “reflects a misguided view by the CFPB that there is no difference between debt buyers and debt collectors,” that holds creditors responsible for violations of law committed by both types of entities, and underscores the need for creditors, including mortgage lenders, “to review and potentially revise their debt sales agreements and conduct heightened due diligence on debt buyers.”
The bulletins show the expansive reach of the CFPB’s supervisory authority in the debt collection space. If CFPB’s “larger participant” rule enables the CFPB to supervise debt collectors and debt buyers with more than $10 million in annual receipts, Dodd-Frank gave the CFPB authority over “service providers to large insured depository institutions as well as service providers to nonbank mortgage originators,” and can include third-party debt collectors, regardless of the collector’s size.
Consumer advocacy groups do not share those concerns.
The Consumer Federation of America sees CFPB’s actions to protect consumers from harmful debt collection practices as an effective way to enhance communication. CFA's senior financial services advocate Laura Udis praised CFPB’s efforts to put both creditors and collectors on notice of their obligations under the law.
“These bulletins, together with appropriate enforcement and legal actions, will help reign in the worst abuses with falsified robo-affidavits involving sworn statements of amounts due made without personal knowledge of the debt, or worse,” she said.
CFPB’s “self-help” letters may resolve many collection issues for customers through a simple and effective method to exercise their FDCPA rights, she added. These alternatives “provide a number of options for communication between debt collectors and consumers,” without relieving consumers from “the legal obligation to pay valid debts, unless settled or discharged in bankruptcy.”