Three consent orders issued over the past few months present clear challenges for the debt buying industry, creditors and for those that provide services to them both.
When read together, the three consent orders have going forward implications for originators, servicers, and debt buyers. The agreements likely contain expectations the Consumer Financial Protection Bureau has for mortgage loans, motor vehicle, student loan and other types of consumer debt.
The first, between the CFPB (along with 47 states and the District of Columbia) and Chase Bank USA, N.A., significantly altered the bank's debt collection activities.
More specifically, and among other things, the Chase Bank Consent Order (copy available here) requires Chase to do the following:
- Stop selling loans and other debts that: (1) were discharged in Chapter 7 bankruptcy; (2) are subject to a pending ID theft claim by the consumer; (3) are owed by a deceased consumer; (4) were settled; (5) for which Chase does not have significant and specific types of documentation; (6) subject to a pending dispute or litigation with the consumer; (7) are subject to a performing loan modification; (8) for which the consumer is a Servicemember; (9) are more than 3 years in default; and/or (10) for which Chase determined the consumer was a minor when the loan was extended.
- Provide extensive information and information to the consumer, before selling any loans or other debts
- Following any sale, make specific documentation regarding the loans or other debts available – without charge - to the consumer
- Include specific terms in its purchase and sale agreements prohibiting collection, unless Chase provided specific documentation regarding the loan or other debt
- Include specific terms in its purchase and sale agreements: (1) prohibiting resale of the loan or other debt; and (2) prohibiting the buyer from attesting to Chase's records, except as to proofs of claim in bankruptcy
- Make specific documentation regarding the loans or other debts available to all purchasers for at least 3 years following the sale
- Provide specific content in Chase's affidavits regarding loans and other debts, and engage in extensive training of its affiants
- Provide specific content in Chase's collection lawsuit complaints, correction of any incorrect statements in those lawsuits, and extensive documentation when obtaining judgments
Then in September, the CFPB obtained two more consent orders with debt buying companies Encore Capital (copy available here) and PRA Group (copy available here). Like the Chase consent order, these consent order contained agreements to change certain of the companies' debt collection practices.
More specifically, the Encore Capital and PRA Group consent orders require that the companies:
- Stop collecting any loan or other debt, under various circumstances including when the consumer disputes the debt orally or in writing, unless the company can provide extensive and specific substantiation of the debt and the amount owed
- Stop reselling loans and other debts, except to the entity that sold the debt to the companies, and in other specific circumstances
- Provide specific content and documentation in connection with their affidavits
- Inform consumers, all of its attorneys and other collectors, and other third parties of the fact that the loan or other debt is disputed
At a November 12, 2015 Symposium in Burbank, CA, representatives from PRA Group, Encore Capital and DBA International will share their thoughts on the CFPB supervisory and enforcement processes and give their thoughts on what others should be looking at right now.
In addition, representatives from the California Bankers Association and the California Collectors Association will also be there to discuss recent developments in California state law impacting originators, purchasers and debt collectors. While the bill to increase the maximum homestead exemption did not pass, the wage garnishment (SB 501) and default judgment (SB 641) bills passed by the legislature were signed into law.
The Symposium will be held as follows:
November 12, 2015
10 am-4:30 p.m.
Among the topics to be examined are:
• Purchase terms and conditions
• Data accuracy in both purchases and post-purchase operations
• Document requirements, pre-litigation
• Addressing oral disputes
• Practices for telephone communications and, in particular, calls to cellular phones
• Civil lawsuits for debt collection
• Handling outside collectors and debt collection law firms
• Affidavits used in collection lawsuits
• Collecting debt potentially subject to an expired limitations period
We will also examine new laws in Maine and Illinois impacting debt purchasing and those who provide debt collection services. Finally, we will turn our attention to pending legislation, some of it very significant, and the trends we've seen in state legislation over the past few months.
This is a rare opportunity to discuss what is likely a supervision and enforcement framework we expect to see repeated throughout the consumer financial services industry.
Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
Fax: (312) 284-4751
Admitted to practice law in Illinois
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