Sunday, June 17, 2018

FYI: BCFP Consent Order With Lenders Uses UDAAP to Address FDCPA-Like Allegations

The Bureau of Consumer Financial Protection recently issued a consent order with a holding company and its affiliated operating entities engaged in consumer lending.


The consent order reflects the parties' settlement of an administrative enforcement action that focused on the lenders' debt collection and credit reporting practices that supposedly violated the Dodd-Frank Act's UDAAP provisions. More specifically, and among those practices declared to be UDAAPs, were in-person collection visits supposedly utilized by the lenders in public places that supposedly placed the consumers at risk of having their delinquency revealed to third parties.


Specifically, the Bureau alleged that the lenders discussed debts and demanded and took payments in public places, including at restaurants, grocery stores, and big-box retailers, where third parties could see or hear the exchange.


The lenders neither admitted nor denied the Bureaus' findings or conclusions, but as part of the settlement they are required, among other things, to pay a civil money penalty of $5 million and to refrain from making in-person visits for collection purposes.


This is the second consent order entered by the Bureau under Acting Director Mick Mulvaney.


The full consent order is available here:  Link to Consent Order


Debt Collection


The lenders were collecting their own debt, and their principal purpose is consumer lending and not debt collection, thus their collection activities were not governed by the federal Fair Debt Collection Practices Act (FDCPA). 


Instead, the Bureau used its authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act to find a that number of the lenders' collection activities were "unfair, deceptive, or abusive acts or practices" (UDAAP).


Among those practices declared to be UDAAPs were in-person collection visits utilized by the lenders. According to the Bureau, those in-person collection attempts were conducted in such a way that the consumers were at risk of having their delinquency revealed to third parties.


Specifically, the Bureau alleged that the lenders discussed debts and demanded and took payments in public places, including at restaurants, grocery stores, and big-box retailers, where third parties could see or hear the exchange.


The Bureau also alleged that the lenders' representatives threatened consumers with jail, shoved consumers or physically prevented them from leaving, visited consumers' places of employment despite knowing that the employer prohibited personal visits or that the visit could jeopardize the consumer's employment, made multiple visits in a manner that would reveal that the contact was for debt collection, visited the homes of consumers' neighbors, and directly told third parties about consumers' delinquency.


The Bureau also took issue with collection calls that the lenders made to consumers' places of employment, alleging that the lenders routinely called consumers at work in a manner that risked disclosing the consumers' delinquency to co-workers and employers.


In addition, the Bureau claimed that the lenders made calls to third parties who were listed as references in a consumer's loan application and to other third parties who had a relationship with the consumer.


According to the Bureau, the lenders would make these calls to places of employment and to third parties despite prior requests to stop calling.


Credit Reporting


With respect to credit reporting, the Bureau alleged that the lenders regularly furnished consumer information to the national credit reporting agencies even when they did not have written policies or procedures as required by Regulation V.


The Bureau also asserted that the lenders made furnishing errors that were systematic and pervasive, that the lenders were slow to update or correct information, and that they reported information that they knew to be inaccurate due to a failure to coordinate their furnishing system with their consumer dispute process.


Fine and Conduct Provisions


The consent order provides for a civil money penalty in the amount of $5 million. In addition, the order prohibits the lenders from (1) making in-person visits for collection purposes, (2) calling third parties after receiving an oral or written request to cease communication, (3) calling consumers' workplaces if the lenders know or should know that the calls are inconvenient to the consumer or prohibited by the employer, and (4) disclosing the existence of a consumer's delinquent debt to a third party without the consumer's written, voluntary, affirmative, specific, and (importantly) post-default permission.


The lenders are also required to implement and maintain reasonable written policies and procedures relating to information they furnish to CRAs, to take specific steps to correct inaccurate or incomplete information furnished to CRAs, and to assist consumers who were affected by the lenders' inaccurate or incomplete information.




Although it appears that the pace of enforcement actions has slowed since the departure of former director Richard Cordray, this consent order serves as a reminder that the Bureau continues to investigate and punish what it views to be egregious and systemic violations of consumer protection laws.


Also noteworthy is that the Bureau under Acting Director Mulvaney continues to use its UDAAP authority to apply the FDCPA's conduct provisions to creditors collecting their own debt.


In fact, the consent order neatly aligns with two Compliance Bulletins issued by the Bureau.  The first bulletin, issued in 2013, explained that creditors can commit UDAAPs if they engage in conduct similar to that prohibited by the FDCPA, providing specific examples.  The second bulletin, issued in 2015, warned creditors and debt collectors of the risks of engaging in in-person collection, including heightened risk of third-party disclosure, negative employment consequences, and harassment.


A 2015 consent order required another lender to refund payments received within 90 days of an in-person visit, a requirement that is absent from this recent consent order.


However, perhaps the biggest difference between this order and consent orders entered during former Director Cordray's tenure is not in the order itself, but in the Bureau's accompanying press release. For years, businesses and trade associations complained that the Bureau's press releases tended toward hyperbole, exaggerating and mischaracterizing the underlying facts of the investigation and order. By contrast, the June 13 press release is a relatively short, plain-language summary of the consent order itself.


Finally, while the FDCPA doesn't directly apply to creditor collections, except in specific circumstances, the majority of states have adopted their own debt collection practices acts.  Many use definitions that include creditor collections and impose restrictions comparable to those that apply to third-party debt collectors.  Some states' trade practices acts similarly restrict creditor collection practices.


Accordingly, any business plan and compliance management system should include a thorough analysis of the applicability of theses state laws.




Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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