October 30, 2014
CFPB Outlines Debt Collection Violations in Latest Supervisory Highlights Report
The report also identifies violations in the student loan and mortgage servicing markets and serves as a source for collection agencies to evaluate their operations with the CFPB’s guidelines.
The Consumer Financial Protection Bureau has issued its latest Supervisory Highlights report, which focuses on examination findings in the debt collection market, as well in the consumer reporting, deposits, student loan servicing and mortgage servicing market.
The report generally covers supervisory activities between March and June 2014.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the CFPB has authority to supervise banks with more than $10 billion in assets and certain nonbanks. Those nonbanks include mortgage companies, private student loan lenders and payday lenders, as well as nonbanks the bureau defines through rulemaking as “larger participants.”
To date, the bureau has issued four rules defining larger participants in the following markets: consumer reporting (effective September 2012), consumer debt collection (effective January 2013), student loan servicing (effective March 2014), and most recently, international money transfers (effective December 2014).
Overall, the report noted increased efforts by supervised entities, especially in the nonbank sector, to develop more robust compliance management systems. Examiners specifically noted increases in resources dedicated to compliance resources, changes in reporting structures to ensure compliance issues are heard and addressed by the Board of Directors, and instances of self-identified issues.
Debt Collection Market
In its recent report, the bureau found that some debt collectors engaged in the following practices, which it found to be an unfair practice or violation of the FDCPA:
Unlawful imposition of convenience fees. In one or more examinations of debt collectors, examiners observed the convenience fees, which ranged from $5 to $14, were imposed if a consumer made payment using either a credit or debit card, according to the CFPB. The fees were imposed, due to a systems failure, on consumers who lived in states where the law prohibited the collection of such convenience fees. One or more collectors also imposed convenience fees on consumers who lived in states where the law was silent regarding the collection of fees without reviewing the agreements creating the consumer debts to find out if those agreements expressly authorized the collection of such fees. The CFPB directed these collectors to identify consumers who were improperly charged convenience fees, and to develop a plan for reimbursing those consumers.
False threats of litigation. The FDCPA prohibits a debt collector from threatening a consumer with any action it does not intend to undertake. Accordingly, a debt collector violates the FDCPA when it threatens a consumer with litigation it does not intend to pursue. In at least one examination, supervision staff determined that a collector routinely threatened consumers with litigation even though it generally did not intend to file suit. Litigation was initiated on only a small fraction of the accounts collected. Supervision directed one or more collectors to cease threatening consumers with litigation it did not intend to pursue.
Prohibited disclosures to third parties. The FDCPA prohibits a debt collector’s representatives from identifying their employer when communicating with a third party for the purpose of acquiring location information, unless expressly requested to do so. During one or more examinations, supervision determined that representatives regularly identified their employer to third parties without being expressly requested to do so. This collector provided faulty training materials that directed its representatives to disclose their name and the name of the collector before identifying the party with whom they were speaking. Supervision directed the collector to conduct remedial training and update its training program, and monitor its collection agents to ensure effectiveness of the training program
Unfair practices with respect to debt sales. In examining one or more financial institutions that sold charged-off credit card debt to debt buyers, supervision’s examination team identified unfair practices connected to those sales. First, with respect to a substantial number of accounts that were sold to debt buyers, at least one financial institution overstated the annual percentage rates in the account documents provided to each debt buyer. Specifically, one or more financial institutions reported APRs that exceeded the rate for which the consumer was liable pursuant to the credit agreement. Second, in some instances, when at least one financial institution received payments from consumers on accounts post-sale, forwarding the payments to the appropriate debt buyer was significantly delayed, with delays ranging from two months to over two years. The relevant financial institutions have undertaken remedial and corrective actions regarding these violations, which are under review by the bureau.
Student Loan Servicing
The recent report, as well as the CFPB’s press release, also emphasized findings from student loan serving examinations. According to the CFPB, examiners found that companies in the student loan servicing market engaged in alleged illegal practices such as charging unfair late fees and making harassing debt collection calls. Bureau examiners also found that some mortgage servicers failed to provide critical consumer protections required by the new CFPB servicing rules that took effect earlier this year.
More than 40 million Americans with student debt depend on student loan servicers to serve as their primary point of contact about their loans, according to the CFPB. While supervising for compliance with federal consumer financial laws, bureau examiners found that one or more student loan servicers were allocating payments to maximize late fees, misrepresenting minimum payments, charging illegal late fees, failing to provide accurate tax information and misleading consumers about bankruptcy protections.
The examiners also found that some student loan servicers were making illegal debt collection calls to consumers at inconvenient times. For example, according to the CFPB, examiners identified more than 5,000 calls made at inconvenient times during a 45-day period, which included 48 calls made to one consumer. Supervision found these phone calls to be unfair under the Dodd-Frank Act.
The CFPB’s report aims to share information that all industry participants can use to ensure their operations remain in compliance with federal consumer financial law. In all cases where CFPB examiners find problems, they alert the company to their concerns and outline necessary remedial measures. When appropriate, the CFPB opens investigations for potential enforcement actions.
It should be kept in mind that most of the findings in the CFPB’s report seem to be based on the practices of one individual debt collector or sometimes a few individuals and are not necessarily indicative of the practices of the majority, or even a significant portion, of the market. However, ACA members can use the information in the report to determine whether their current operations raise similar concerns that require necessary changes to prevent violations of the law or meet the CFPB’s expectations.
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