Jonathan L. Pompan, partner and co-chair of the Consumer Financial Services Practice Group, and Makalia Griffith, associate, authored "CFPB and FTC Debt Collection Update" in the spring issue of RMAI Insights Magazine, the official magazine of the Receivables Management Association International. Here's an excerpt:
Given the historic nature of the Consumer Financial Protection Bureau’s (CFPB) notice of proposed rulemaking interpreting the Fair Debt Collection Practices Act (FDCPA), there was not as much attention at the end of 2019 to other areas of federal regulatory activity. Yet, in 2019, the CFPB and the Federal Trade Commission (FTC) continued their use of enforcement to regulate debt buyers and debt collectors. And, the CFPB continued to supervise and examine debt collectors and furnishers, and publish research on topics of relevance to debt buyers.
For the complete article see below, click here, or see RMAI Insights Magazine – Spring 2020. For more information, visit RMAI.
Given the historic nature of the Consumer Financial Protection Bureau's (CFPB) notice of proposed rulemaking interpreting the Fair Debt Collection Practices Act (FDCPA), there was not as much attention at the end of 2019 to other areas of federal regulatory activity. Yet, in 2019, the CFPB and the Federal Trade Commission (FTC) continued their use of enforcement to regulate debt buyers and debt collectors. And, the CFPB continued to supervise and examine debt collectors and furnishers, and publish research on topics of relevance to debt buyers.
CFPB Enforcement and Litigation Highlights
The CFPB brought several new public enforcement actions involving debt collection and continued litigation in other cases that were filed previously.
CFPB v. Seila Law LLC
In May 2019, the Ninth Circuit affirmed a district court decision holding that the for-cause removal provision of the CFPA was constitutionally permissible. Seila argued that because the CFPB was unconstitutional, the agency lacked statutory authority to issue the CIDs. The CID requested information pertaining to whether Seila Law violated the Telemarketing Sales Rule, and whether debt relief providers or lead generators were engaging in unlawful acts or practices. The U.S. Supreme Court granted certiorari in October 2019 and added the question: if the CFPB is found unconstitutional on the basis of the separation of powers, can the President's authority to remove the CFPB Director "for cause" be severed from the Dodd-Frank Act? The parties will argue the case on March 3, 2020.
CFPB v. FCO Holding, Inc., et al.
On September 25, 2019, the CFPB filed suit against FCO Holding, Inc., its subsidiaries and owner. The complaint alleged that the entities failed to maintain reasonable policies and procedures regarding the accuracy and integrity of the information furnished to consumer reporting agencies, failed to conduct reasonable investigations or any investigation of certain consumer disputes, and furnished disputed information without investigating the accuracy of the information. The CFPB sought remedies including an injunction, a civil monetary penalty, damages, redress to injured consumers, and disgorgement for unjust compensation. The court has yet to rule on the defendants' motion to dismiss or stay the proceedings pending the outcome of Seila Law.
CFPB v. Forster & Garbus, LLP
On May 17, 2019, the CFPB filed suit against Forster & Garbus, LLP, a New York debt collection law firm, alleging that it filed collection lawsuits without investigating the alleged facts and that the lawsuits included the names and signatures of attorneys although those attorneys were not "meaningfully" involved in preparing, reviewing, or filing the suits. The CFPB sought an injunction, damages, a civil monetary penalty, redress to injured consumers, and disgorgement for unjust compensation. In October, the court stayed the case pending the outcome of Seila Law.
CFPB and the N.Y. Attorney General Settle with Debt Collection Group
On July 25, 2019, the CFPB and the New York Attorney General filed proposed settlements with a New York-based group of debt collectors and individuals. The settlements stem from a 2016 civil action, which alleged that the defendants purchased millions of dollars of consumer debt, misrepresented to consumers that they owed sums they did not owe or had no legal collection rights, threatened consumers with legal action, and impersonated various government agencies and enforcement officers. Under the proposed settlement, all parties will be banned from the debt collection industry and will be required to pay penalties ranging from $6 million to $60 million. However, full payment would be suspended subject to a $1 civil money penalty to the CFPB and $10,000 for consumer redress.
In the Matter of Financial Credit Service, Inc. d/b/a Asset Recovery Associates
On August 28, 2019, the CFPB announced a consent order with Asset Recovery Associates, Inc. (ARA). As described in the consent order, the CFPB found that ARA allegedly violated the FDCPA by threatening consumers with arrests, liens, and garnishments; representing that non-attorney company employees were attorneys; and representing that consumers' credit reports would be negatively affected if they did not pay the debts although ARA does not report consumer debts to credit-reporting agencies. The consent order requires ARA to institute a Compliance Plan, provide at least $36,800 in restitution to affected consumers, pay a $200,000 civil money penalty to the CFPB, and record all consumer calls.
CFPB v. Mortgage Law Group
In November 2019, a United States district court entered final judgment against two former mortgage relief services providers, the Mortgage Group and Consumer First Legal Group, and their principals. The defendants were found liable under the CFPA for misrepresenting their services to consumers, failing to make required disclosures, and illegally collecting advance fees. The judgment included restitution, civil penalties, and a permanent injunction banning the parties from any actions related to mortgage assistance relief or debt relief. The defendants filed a motion to vacate the judgment pending the outcome of Seila Law.
CFPB v. Universal Debt Payment Solutions, et al.
In May 2019, a district court granted in part and denied in part a motion by the CFPB for summary judgment in a suit against defendants that were accused of violating the FDCPA and the CFPA by creating limited liability companies to collect nonexistent consumer debts, and debts that the defendants were not entitled to collect. The litigation is ongoing.
In the Matter of Wall & Associates, Inc.
In May 2019, the CFPB granted in part a petition by Wall & Associates (W&A) to set aside or modify a CID and modified the CID's notification of purpose. W&A argued that the CFPB lacked statutory authority to investigate its business because it does not provide any financial service or product and is therefore not a covered person, subject to the CFPB's authority. The CFPB found that W&A did not show that the investigation was "patently outside" the CFPB's enforcement authority but modified the CID's notification of purpose based on W&A's assertion that the notification of purpose was inadequate. The notification of purpose stated that the CID was issued to "determine whether providers of tax debt relief products or services are offering or providing financial advisory services to consumers on individual financial matters." W&A was ordered to produce all responsive items within 45 days.
In re Fair Collections and Outsourcing, Inc. et al.
The CFPB granted in part and denied in part an April 2019 petition by Fair Collections and Outsourcing, Inc. and Fair Collections and Outsourcing of New England, Inc. (FCO) to set aside or modify a CID. Since November 2018, the CFPB has issued CIDs seeking information related to FCO's debt collection and credit reporting activities. FCO argued that the CID should be set aside because the CFPB's statutory structure is unconstitutional, the notification of purpose is insufficient, and the CFPB's investigation into its conduct was unfair. The CFPB modified the CID but rejected FCO's arguments that the CID should be set aside on constitutional grounds and that the CID was issued in bad faith. FCO was given 10 days to comply with the order.
CFPB AMICUS BRIEFS
In 2019, the CFPB filed amicus curiae (friend of the court) briefs in the following cases involving debt collection topics:
Bender v. Elmore & Throop, P.C. (4th Cir.): Consumer debt collection practices
The issue presented was whether the one-year limitations period for a private FDCPA claim begins from the date the first violation occurs or whether subsequent violations of the same type restart the limitations period. The CFPB took the position that an action to enforce liability under the FDCPA may be brought within one year of when "the violation" occurs rather than one year of when the first violation occurs, and that the statute of limitations runs separately for violation of the act. While the court's holding agreed with this interpretation, this case is under appeal.
Rotkiske v. Klemm (S. Ct): Consumer debt collection practices
The issue presented was whether the "discovery rule" applies to the one-year statute of limitations under the FDCPA. The CFPB took the position that the "discovery rule" does not apply and that the one-year limitations period begins to run when the violation occurs rather than when the plaintiff discovers the violation or should discover the violation. The Court's holding agreed with this interpretation.
Wiley v. Notte & Kreyling, P.C. (11th Cir.): Consumer debt collection practices
The issue presented was whether a debt collector engages in a deceptive practice under the FDCPA when it tells consumers that they must notify the creditor rather than the debt collector that the debt is disputed. The CFPB took the position that under the FDCPA, validation notices must instruct consumers to notify the debt collector, not the creditor, to properly dispute a debt. Because any other instruction might mislead consumers, it is deceptive under the FDCPA. The litigation is ongoing.
Preston v. Midland Credit Management (7th Cir.): Consumer debt collection practices
In this case, the court invited the CFPB to file an amicus brief addressing whether a benign language exception exists to the FDCPA's prohibition against debt collectors' use of any language or symbol other than the debt collector's address on an envelope when communicating with a consumer. And if the prohibition does exist, does the phrase "TIME SENSITIVE DOCUMENT" fall within that exception? The CFPB took the position that a benign language exception does not exist and that in addition to the debt collector's address, a debt collector may use the business name on the envelope if the name does not reveal it is from a debt collection business. The CFPB also emphasized that if the court were to carve out a benign language exemption, then whether the phrase "TIME SENSITIVE DOCUMENT" would fall within that exception would be a question of fact. The litigation is ongoing.
Supervisory Highlights and Market Snapshot
The CFPB also continued its practice of issuing reports on the debt collection market. In 2019, the CFPB published Supervisory Highlights, a report on key findings in supervisory examinations, and a Market Snapshot update that provided an overview of two types of third-party debt collections tradelines reflected on consumer credit reports.
Supervisory Highlights
The Fall 2019 Supervisory Highlights covered examinations focusing on consumer reporting and furnishing information to consumer reporting companies. In a review of debt collection furnishers, examiners found that the furnishers did not maintain policies and procedures that differentiated among FCRA disputes, FDCPA disputes, or validation requests. This absence meant that the disputes were handled in the same manner without regard to regulatory requirements. Investigators also found that the policies and procedures did not address regulatory timeframes for conducting investigations of disputed accounts, or contain "substantive" instructions on how to conduct investigations of disputed accounts. In response to these findings, the furnishers are implementing "reasonable policies and procedures" to conduct timely investigations.
The Summer 2019 Supervisory Highlights covered examinations completed between December 2018 and March 2019 and focused on automobile loan origination, credit card account management, debt collection, furnishing, and mortgage origination. Examiners found that debt collectors misrepresented to consumers amounts due by claiming and collecting interest not authorized by the underlying contracts. In response to these findings, the debt collectors are providing remediation for affected consumer accounts. Examiners also found that furnishers of consumer information to consumer reporting companies were failing to meet regulatory requirements under the Fair Credit Reporting Act (FCRA) and Regulation V.
Market Snapshot: Third-Party Debt Collections Tradeline Reporting
Using data collected from 2004 to 2018, the Market Snapshot report found that 78% of total third-party debt collections tradelines were for non-financial debt, such as medical, telecommunications, or utilities debt, and that as of the second quarter of 2018, more than one in four consumers included in the sample had at least one debt in collections by third-party debt collectors.
FTC Enforcement Actions
The FTC continued to file claims against unlawful debt collection practices, including attempts to collect debts that do not exist or are not owed to the debt collector, and claims against the use of aggressive debt collection tactics.
FTC v. GAFS Group, LLC, et al.
The FTC entered into a stipulated consent order with four remaining defendants and nine companies controlled by the defendants. As described in the consent order, the FTC found that defendants violated the FTC Act and the FDCPA Act by engaging in deceptive, abusive, and unfair debt collection practices. Under the proposed settlements, all parties are banned from the debt collection industry, and from misleading customers and misrepresenting to customers that they are attorneys. The settlement requires the defendants to pay $25.5 million, most of which was suspended due to the defendants' inability to pay. In May 2019, four other defendants agreed to settle charges arising from the same claims.
FTC v. Global Processing Solutions, LLC, et al.
In 2019, the FTC resolved all claims against a group of 13 corporate and individual defendants and mailed refund checks in September 2019 totaling more than $516,000 to 3,977 consumers affected by the defendants' conduct. The 2017 complaint alleged that the businesses engaged in false claims that consumers owed debts, committed a crime by owing said debts, threatened legal action or threatened to garnish their wages, collected on debts already paid or that the defendants had no authority to collect, contacted third parties including consumers' families and employers, and failed to provide consumers with required notices and disclaimers. The parties are now banned from the debt collection business, buying or selling debt; prohibited from misrepresentations regarding any financial products and services; and must properly dispose of consumers' personal financial information. In total, the settlements required the defendants to pay a $3,462,664 judgment that will be partially suspended, due to the defendants' inability to pay.
Hylan Asset Management, LLC et al.
The FTC and the New York Attorney General entered into a settlement with Hylan Asset Management, LLC, and its owners. In 2018, the FTC and the New York Attorney General brought a complaint against the defendants alleging that the defendants profited from collecting on "phantom debt," including debts that were either fabricated by the defendants or disputed by consumers. The complaint further alleged that the defendants purchased, sold, or referred the phantom debt for collection to several collection agencies, including Worldwide Processing Group, LLC, although Hylan was aware the debt was disputed. Worldwide Processing Group then illegally collected on the debt. The order against Hylan and its owners banned the defendants from the debt collection industry and imposed a judgment of $6.75 million, most of which was suspended due to the defendants' inability to pay. The order against Worldwide Processing and owner prohibits unlawful collection practices and imposes a judgment of $4.94 million, most of which was suspended due to the defendants' inability to pay.
AMG Services, Inc.
On April 24, 2019, the FTC filed an opposition to AMG Capital Management's petition for rehearing en banc. In 2012, the FTC alleged that AMG, nine other corporate defendants and six individual defendants, including owner Scott Tucker and his attorney violated the FTC Act and the Truth in Lending Act by deceiving consumers about the cost of their loans through actions including imposing undisclosed charges and inflated fees and threatening borrowers with legal action. The FTC reached partial settlements with the defendants in 2013, 2015, and 2016. In 2017, the U.S. Attorney's Office for the Southern District of New York obtained a criminal conviction against Tucker and his attorney on charges of conspiracy, racketeering, wire fraud, and money laundering for their roles in the AMG fraud. Under settlements in the case, the FTC refunded $505 million to victims of Tucker's fraud from settlement funds of $1.3 billion from parties involved. In June 2019, the Ninth Circuit denied AMG's petition.
Enforcement Against Fintech Lenders, Debt Relief, and Credit Repair Providers
In recent years, online marketplace consumer and small business lending have blossomed, and the FTC has brought some notable cases involving allegations of violations of federal consumer protection law in these areas of relevance to debt collection. In 2019, the FTC brought an action against Avant, Inc. involving a settlement of charges that the lender engaged in deceptive and unfair servicing practices, unauthorized bank charges on consumer accounts and unlawfully requiring consumers to consent to automatic payments from their bank accounts. In addition, the FTC approved a final consent order with SoFi, resolving allegations that it misrepresented how much money student loan borrowers have saved or will save from refinancing their loans with the company. The FTC also charged LendingClub with falsely promising consumers they would receive a loan with "no hidden fees," when, in actuality, the company deducted hundreds or even thousands of dollars in hidden up-front fees from the loans. The litigation is pending.
In addition, the FTC and CFPB brought several cases against debt relief providers alleging violations of the Telemarketing Sales Rule (TSR) and UDA(A)P. The FTC and CFPB also brought enforcement actions against credit repair companies for alleged violations of consumer protection law, including related to the collection of fees in advance of services being provided.
CFPB and FTC Workshop on Credit Reporting
The CFPB and the FTC hosted a public workshop in December 2019 to discuss the accuracy of traditional consumer credit reporting. Workshop attendees included industry members and regulators. The workshop featured four panels and included topics such as current practices for information furnishers and compliance with accuracy requirements, current accuracy topics for traditional credit reporting agencies, accuracy considerations for background screening, and navigating the dispute process.
Proposed Rule With Request for Public Comment Debt Collection Practices (Regulation F)
In 2019, the CFPB continued rulemaking activities with a request for comment on a Notice of Proposed Rulemaking to amend Regulation F, which implements the FDCPA. The CFPB is currently reviewing comments to the proposed rulemaking. In 2020, the CFPB plans to issue a Supplemental Notice of Proposed Rulemaking on time-barred consumer debt disclosures, and its "Final Rule" addressing third party debt collection practices.
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By necessity, this article provides only general summaries based on CFPB and FTC materials, but not exhaustive treatments of the agencies' activities related to debt collection in 2019.
Jonathan L. Pompan is a partner and co-chair of the Consumer Financial Services Practice Group at Venable LLP. Makalia A. Griffith is an associate in the Consumer Financial Services Practice Group at Venable LLP.
The opinions expressed are those of the authors and are not intended to represent the views of his or their firm or clients.