A recent $3.2 million civil penalty case settlement that also orders mortgage debt collection procedure changes may give another boost to already intense federal efforts to prevent unlawful practices and change the industry.
At least one insider is deeming the Texas Federal District Court settlement obtained by the Federal Trade Commission against a third-party debt collector as precedent bound to affect collections and mortgage servicers.
The civil penalty case settlement, which according to
Defendants must pay $3.2 million in civil penalties to compensate for violations, she said, ranging from “making unsubstantiated” telephone representations that falsely claimed consumers owed debts, to harassing debtors by calling three or more times per day at inconvenient times or at their workplaces even after being asked in writing to stop communications, or “leaving recorded messages that disclosed the debtor's name” the debt on random answering machines and making deceptive representations about stopping future calls.
In 2012 Expert Global Solutions of Plano, Texas, was also fined hundreds of thousands of dollars by the Minnesota Department of Commerce for illegally hiring and then failing to report to state regulators that NCO Financial Systems Inc., one of its major subsidiaries, had employed felons who engaged in borrower harassment practices d borrowers.
Mishkin notes, however, that when considering two recent bulletins issued by the CFPB “which shares FDCPA enforcement jurisdiction” with the FTC on nonbanks, the Texas settlement matters to the industry.
The bulletins warn “creditors and mortgage servicers that are not covered by the FDCPA” but their collection practices are subject to the CFPB's authority under Section 1031 of the Dodd-Frank Act, which prohibits "unfair, deceptive, or abusive" acts or practices, she explained.
While the FTC does not have supervisory and examination authority and only has authority to investigate and bring enforcement actions against nonbank third-party debt collectors and debt buyers, she said, “by contrast the CFPB has authority to supervise and examine certain nonbank debt collectors and debt buyers,” including larger entities that pose significant risks to consumers, and those that act as service providers to other entities supervised by the CFPB,” to ensure they comply with the FDCPA and Section 1031 of the Dodd-Frank Act.
In addition, the CFPB “can investigate and bring enforcement actions” for violations of those same laws against nonbank debt collectors and debt buyers, “regardless of their size.”
In other words, existing regulation combined with legal action can lead to additional debt collection and servicing operation changes.
The settlement sets an example because in addition to payments the FTC required they follow “specific procedures” if the borrower disputes the debt, she explained.
For example, in the next six years the defendants are required to tape-record at least 75% of calls with anyone contacted in collecting a debt and maintain the recordings for 90 days; for five years defendants must include written specified debt collection contact advisory in all customer communications; and for 10 years defendants must follow certain recordkeeping requirements on all employees involved in debt collection and all consumer complaints and retain such records for five years.
