While debt collectors were preparing for compliance with new Regulation F, this past fall the CFPB was busy examining larger debt collectors for compliance with the Fair Debt Collections Practices Act (FDCPA). Examiners zeroed in on representations made to consumers about the connection between repayment of debts and consumers' creditworthiness.
What did examiners find? The CFPB's Fall 2021 Supervisory Highlights, published earlier this month, describe findings that "debt collectors discussed restarting a payment plan with consumers and represented that improvements to the consumers' creditworthiness would occur upon final payment under the plan and deletion of the tradeline." Examiners concluded that such statements could be deceptive, in violation of Section 807(10) of the FDCPA.
Details: The CFPB contends that claims of improved creditworthiness in debt collection could create the risk of a false representation, because an individual consumer's creditworthiness is based on numerous factors and deletion of the collection tradeline may not, in and of itself, improve the credit score of the consumer to whom the representation is made.
How did the examined debt collector come into compliance? In response to the exam findings, the collector under examination (1) revised its FDCPA policies and procedures and (2) enhanced its training and monitoring systems to prevent, identify, and address risks to consumers that may arise from deceptive statements by collection agents and third-party service providers about the effects of payment or nonpayment on consumer credit, credit reporting, or credit scoring.
Compliance takeaways: Although the latest Supervisory Highlights are thin on exactly what was said to consumers and are missing key context regarding the debt collector's furnishing practices, the CFPB has issued specific guidance on this topic. In 2013, the CPFB published Bulletin 2013-08, which specifically addressed compliance with the law when making representations about the impact of repaying debts on credit reports and credit scores. In the Bulletin, the CFPB identified examples of potentially deceptive claims, such as (1) representing that repayment of obsolete debt (i.e., debt that is no longer appearing on one's credit report) can change what appears on a credit report; (2) representing that repayment will result in a deleted tradeline when the debt collector does not furnish information to the credit reporting agencies; and (3) representing that repayment will improve one's credit score or ability to get more favorable credit terms.
In each of these examples, an objectively false representation was made to the consumer. In the first example, the consumer was led to believe that the debt she was to repay appeared on her credit report and repayment would result in removal. However, because the debt was obsolete, that was not the case. In the second example, the debt collector either expressly stated or implied that the negative tradeline would be removed upon payment but in fact had no basis for saying that (or knew that was not true). Finally, in the third example, it is almost impossible to predict the impact any action will have on one's credit score, and therefore any such representations are baseless.
It is inevitable that some consumers will ask about the impact of repayment on credit scores, credit reports, and creditworthiness. These can be important conversations to have with consumers and not having them can be just as harmful. The key is for collectors to prepare their collection staff. In sum, if credit reporting is a topic that will come up in consumer contacts, front-line collectors will need general training on credit furnishing and the Fair Credit Reporting Act (FCRA), so that each has a basic understanding of how it works. Collectors may also use specific pre-approved talking points that align with the actual furnishing practices of debt owners and train them, perhaps through role playing, to answer questions in line with the talking points and each consumer's fact situation. Moreover, it is wise to stay clear of any affirmative representations regarding credit scores, because they are difficult to make without extensive caveats and disclaimers.