Highlights from Seminar on Governmental Investigations Involving the Debt Collection Industry
Holland & Knight and the Association of Credit and Collection Professionals (ACA) hosted a half-day seminar that featured government officials discussing trends and current issues in law enforcement investigations and other enforcement actions related to debt collection. Speakers at the Sept. 7 event, titled "Governmental Investigations Involving the Debt Collection Industry: Ignorance is Not Bliss," included Anthony Alexis, Assistant Director for Enforcement at the Consumer Financial Protection Bureau (CFPB); Greg Nodler, Senior Counsel for Enforcement Policy and Strategy at the CFPB; Heather Allen, Acting Assistant Director of the Federal Trade Commission's (FTC) Division of Financial Practices; and Daniel Dwyer, an enforcement attorney in the FTC's Division of Financial Practices. In addition, Cory W. Eichhorn and Philip E. "Phil" Rothschild of Holland & Knight presented on Hot Topics in Telephone Consumer Protection Act (TCPA) Litigation.
Members of the debt collection industry also presented questions to regulators speaking at the event regarding past enforcement actions, as well as various aspects of supervisory examinations. The speakers addressed several key topics, including how and why agencies decide to open investigations or pursue enforcement actions; the mechanics of investigations and enforcement; the represented agencies' priorities and focus areas; as well as business practices in the debt collection industry that give government officials concern, best practices and proactive remediation.
Guest Speaker Highlights
Anthony Alexis, CFPB Assistant Director for Enforcement
Mr. Alexis spoke about how the CFPB works to prevent violations of consumer protection laws, foster consumer education and create a market response in varied business communities within its jurisdiction. Key takeaways include:
- The debt collection industry has been a major source of consumer complaints, and CFPB Director Richard Cordray says debt collection will continue to be a focus area for the agency.
- Mr. Alexis provided insight into how the CFPB initiates enforcement actions. An issue may be brought to the CFPB enforcement team's attention in a variety of different ways. Examinations of institutions within the supervisory jurisdiction of the CFPB can reveal violations warranting enforcement actions. Other federal agencies may reach out to the CFPB to partner in an action or refer a matter to the CFPB if the referring agency lacks jurisdiction. Similarly, state regulators frequently meet with the CFPB and may provide the impetus behind an enforcement action. The attorneys general community communicates with the CFPB regularly and may make direct referrals of matters, seek input on issues that lead to enforcement actions or ask that the CFPB take a role in an action. Finally, consumer complaints are often a catalyst for enforcement action. CFPB Director Cordray has made clear that if a company ignores complaints, the company is ignoring problems. The CFPB monitors complaints submitted to the Better Business Bureau, the FTC's Consumer Sentinel, as well as the CFPB's consumer complaint portal.
- Mr. Alexis also spoke about what factors the CFPB considers when deciding to pursue an enforcement action. According to Mr. Alexis, the CFPB considers the legality of the business practice, the size of the institution, the number of consumers harmed, the severity and duration of the harm, whether other institutions similarly situated should be aware that this type of conduct should be changed or discontinued, and the track record of an institution – e.g., whether there have been problems complying with a prior Memorandum of Understanding (MOU).
- In addition, Mr. Alexis spent time discussing how companies should react and respond to receiving a Civil Investigative Demand (CID). Upon receiving a CID, an institution should read it closely, including the instructions, definitions, time schedules and statement of purpose (which defines the scope of the investigation and potential legal violations). Mr. Alexis cautioned that companies should not be casual in their approach to the required meet and confer, but instead take it seriously as an opportunity to discuss the requests in the CID and as a time when the company must make commitments to respond and comply with the CID. Specifically, Mr. Alexis stressed that the company should bring the right individuals to the meeting, including those in IT or with a technical understanding of the company's ability to schedule compliance with the production of records and information, as well as someone who understands and can speak to the issues raised in the CID.
Greg Nodler, CFBP Senior Counsel for Enforcement, Policy and Strategy
Mr. Nodler spoke about the CFPB's enforcement actions in the debt collection industry and the concerns motivating those actions. Takeaways from his speech include:
- The CFPB is concerned with what it refers to as the "4 Ds": Deception (where the cost/risk of a financial decision is unclear), Debt Traps, Dead Ends (situations from which consumers can't walk away when treated unfairly) and Discrimination.
- Debt collectors should make sure a debt is legitimate. Specifically, Mr. Nodler stated that debt collectors should substantiate and validate debts prior to collection.
- To ensure compliance with CFPB regulations, debt collectors should be familiar with and follow the guidance contained in the CFPB Responsible Conduct Bulletin, the CFPB Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) Bulletin, the CFPB Credit Reporting Bulletin and the CFPB Service Providers Bulletin. In addition to bulletins, Mr. Nodler indicated that the CFPB reveals its thinking through amicus briefs that it files in various cases involving consumer protection laws and regulations and in consent decrees.
- According to Mr. Nodler, debt collectors should: 1) be careful about the type of debt that is being collected; 2) make sure someone in the company has reviewed the documentation about the debt; 3) make sure the debt is legitimate; 4) make sure the debt is enforceable under applicable state law and not time-barred; and 5) not mislead consumers about the debt or its enforceability.
Heather Allen, Acting Assistant Director for the FTC Division of Financial Practices
Daniel Dwyer, Attorney for the FTC Division of Financial Practices
Ms. Allen and Mr. Dwyer discussed the FTC's efforts to address certain priority issues in the debt collection industry. Takeaways from their panel presentation include:
- Data integrity cases are a priority for the FTC regarding the debt collection industry. Debt collectors should heed any warning signs regarding purchased debts, including by paying attention to consumer complaints. Further, debt sellers must not sell data that lacks integrity. Selling debt portfolios can trigger liability if the debts sold do not exist or are falsely represented.
- Those in the debt collection industry should monitor the FTC's list of banned debt collectors, as companies can neither buy debts from, nor sell debts to, those on the list.
- The FTC expects that companies substantiate debts prior to collection. According to the FTC, a collector should not make unsubstantiated claims to a consumer because, if the claims are untrue, the collector may have deceived the consumer.
- Regarding credit reporting by debt collectors, the FTC maintains that simply removing a disputed debt is an insufficient practice. Rather, the collector must inform the consumer of the results of the investigation into the debt and be accurate going forward in furnishing credit information. Furnishers should develop adequate written policies regarding disputes, train employees regarding the policies and report the results of disputes.
- Egregious practices of "phantom" debt collection (i.e., a debt that the consumer no longer owes) and abusive tactics remain a concern for the FTC.
- The FTC opens an investigation into a company based on a variety of sources: consumer complaints, referrals of misconduct from trade groups, former employees reporting prohibited business practices to the FTC and as a result of other companies in the industry alerting the FTC of a company's practices. Once a company has been brought to the FTC's attention, the FTC staff begins an informal investigation, considering, among other things, the number of complaints, the relative size of the company and how the company has responded to prior state action.
- Ms. Allen and Mr. Dwyer similarly advised that companies receiving CIDs from the FTC should ensure that appropriate personnel from the company attend, including those IT or technical staff who can ensure compliance with the requests for documents and information. If a company needs a modification of the CID, it should be specific about its request for modification and explain the basis for the request. Ms. Allen and Mr. Dwyer stressed that the FTC individually tailors its CIDs, and each request has a reason for it. If an extension is needed, the responding entity should pinpoint the specific requests for which more time is necessary and start a rolling production of information that is responsive to the remaining requests.
- Finally, the FTC takes its coordination efforts with the CFPB seriously. The FTC wants to avoid duplication of efforts and resources while maximizing the benefits of the agencies' efforts for consumers. The agencies have regular meetings in which they share details of what investigations they have underway in order to work as a partnership while avoiding double-teaming targets.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.