The following is an article reprinted with permission from the upcoming Spring 2009 edition of The WWR Letter:
By: Terry R. Heffernan, Partner
In February 2009, the Federal Trade Commission (FTC) issued its annual report to Congress summarizing the administrative and enforcement actions the FTC took under the Fair Debt Collection Practices Act (FDCPA) during the past year. The FTC has primary enforcement responsibility under the FDCPA, which prohibits deceptive, unfair and abusive practices by third-party collectors of consumer debt. The term “third-party debt collectors” is defined as including contingency fee collectors and attorneys who regularly collect or attempt to collect, directly or indirectly, debts asserted to be owed or due another, as well as debt buyers collecting on debts they purchased in default.
The FTC advised Congress that in 2008 it received 78,838 FDCPA complaints as compared to 71,004 complaints in 2007. The largest percentage of complaints (34.7%) alleged harassment by the debt collector. The second most common category (slightly more than 32% of complaints) alleged attempts to collect a debt the consumer did not owe at all or a debt amount larger than what the consumer actually owed. The remaining categories of complaints, in descending order by volume, were:
Failing to send consumer notices required under the FDCPA;
Threatening litigation or other action when the collector lacks the legal authority or actual intent to do so;
Impermissible calls to the consumer’s place of employment;
Revealing the alleged debt to a third party;
Failing to verify disputed debts; and, lastly,
Continuing to contact the consumer after receiving a “cease communication” notification from the debtor.
The FTC also provided Congress with the results of its 2007 public workshop, which the FTC had convened to evaluate the need for changes in the debt collection industry. The workshop led the FTC to conclude that the debt collection legal system needs to be reformed and modernized to reflect changes in consumer debt, the debt collection industry and technology. The FTC accordingly advised Congress of the principle conclusions and proposals derived from the workshop. Summarized below are each conclusion and its respective proposal.
1. “Major problems exist in the flow of information within the debt collection system.”
To address this conclusion, the FTC proposes the FDCPA be amended to require debt collectors to have more accurate and verifiable documentation regarding the debt in order to make it more likely that collection measures seek the correct amount due and from the right consumer. Additional amendment should require collectors to provide better, more detailed information in validation notices, to allow consumers to exercise their rights under the FDCPA more effectively. Specific examples of “better information” include requiring debt verification notices to contain an itemization of the debt amount as to principal, interest and any additional fees; and requiring every communication sent to a debtor to include notice the debtor has the right to demand the collector cease all further communications.
2. “Debt collection laws need to be modernized to take account of changes of technology.”
When the FDCPA was enacted in 1977, it did not limit the methods collectors could use to contact consumers other than to prohibit the use of postcards. Back then, most people also paid debts through paper checks sent by mail. In today’s world, it is common to pay through a number of different electronic payment methods. These include credit and debit card payments, remotely created paper checks, and electronic transmission through the ACH system. Modern communication options include cell phones, emails, instant messaging, and specific technological devices such as emailed collection notices, web-based collection portals and collection techniques involving interactive voice messaging.
The FTC accordingly concluded that although collectors generally should be allowed to use all communication technologies, the FDCPA must be “carefully crafted and applied” to avoid collectors using communication technologies in ways that cause consumers to incur charges, or otherwise subject them to collection abuse. The FTC also supports using newer electronic payment methods to receive payments from debtors, but it believes the FDCPA requires amendment to require collectors to obtain “express verifiable consent” from consumers before accessing their accounts, and to deter unauthorized access to consumer accounts.
3. “Certain debt collection litigation and arbitration practices appear to raise substantial consumer protection concerns.”
In the area of traditional state court collection lawsuits, those participating in the workshop felt collector/creditor plaintiffs have an overly-favorable burden of proof; that defendants are not properly informed of their rights, and are usually unable to afford counsel. Regarding arbitration, the workshop concerns were that arbitration clauses might be buried in larger consumer credit contracts causing consumers to not be aware they are agreeing to arbitration, and that arbitration proceedings are biased in favor of creditors. The FTC, however, felt additional information was needed to verify the extent of these concerns. It will accordingly convene regional round tables in 2009 with state court judges, debt collectors, collection attorneys, consumer advocates, arbitration firms, and other interested parties to verify any real problems and develop possible solutions.
4. “Debt collection law must evolve to include a regulatory process that ensures that legal requirements keep pace with changes in the marketplace.”
The main proposal of the FTC to address this concern was that the FDCPA should be amended to grant the FTC the authority to issue regulations to implement the FDCPA.
5. “Debt collection law enforcement must be pursued aggressively to deter collectors from engaging in conduct that harms consumers.”
In response to this concern from the workshop, the FTC concluded that private lawsuits, not FTC actions, were intended to be, and should continue to be, the main means of promoting industry compliance with FDCPA. The FTC further concluded statutory damage amounts available in private FDCPA actions should be increased to reflect inflation.
The foregoing is a synopsis of the FTC’s annual report to Congress. The full text of both the annual report and the FTC workshop can be found at www.ftc.gov/opa/2009/02/fdcpa.shtm.
Terry R. Heffernan is a Partner in the Columbus office and manages the Firm’s Nationwide Collateral Recovery department. He can be reached at (614) 857-4390 or email@example.com.
Filed under: Current Issues in Credit Unions | Tags: accounting, Corporate Stabilization, credit card legislation, Deborah Matz, fraudulent loan applications, MBL cap, MDIA, UBIT
This month we have an accountant on the show for the first time! Steve Lillie from Lillie and Company, Inc. joins Faith, Brian, Guy, Katherine and me. Here are the topics:
–Handling the Corporate Stabilization Plan from one accountant’s perspective.
–What the new credit card legislation means for credit unions.
–The return of Deborah Matz to NCUA.
–Mortgage Disclosure Improvement Act (MDIA)
–New Segment– The Big K Roundup:
1. Community First Credit Union’s UBIT case.
2. New kind of fraud–third party is submitting loan apps on behalf of small businesses but using false information and taking 7.9% from people to originate the loans.
3. Developments in member business lending–potential bill to be reintroduced/sponsored by Schumer in NY to take away the member business lending cap. An interesting fact re loan default for commercial loans is that from about 1998-2008 almost consistently (and overall throughout that time frame) credit unions have had significantly lower default rates as compared to banks.
Direct download: CIiCU_37_final.mp3
The following is an article reprinted with permission from the upcoming Spring 2009 edition of The WWR Letter:
By: Robert Rutkowski, Partner
The economy being what it is, any changes lenders try to make in the way they do business get magnified. Some lenders have been increasing their late fees and penalty rates. Now, penalty rates are nothing new: some financial institutions have had penalty rates for decades on credit cards. I’ll never forget the time, years ago, when I was in law school and I forgot to mail in my credit card payment one month. Accordingly, the payment was a little late. Back then, like many students, I had at least three credit cards and I used them to make ends meet while I was in school. At that time, I did not belong to four credit unions like I do now. I only belonged to one. Of course I had a credit card issued by that credit union, but that wasn’t the payment I was late on.
Imagine my surprise when the interest rate on my tardy card went to 22%. I was furious. I knew that the card company had every right to do it, but it still made me mad. It also motivated me to get out from under it. As soon as I could, I refinanced out of it and closed the account. It took months, however, to do that, and every month I had to pay the higher interest rate made me angry. I never did business with that financial institution again. Penalty rates may generate high revenue, but they also generate enmity.
Many people have experienced this scenario. Or, people have experienced some sort of other unexpected rate change on a card and have had trouble refinancing out of it. The Federal Reserve Board addressed this issue recently through the new Unfair or Deceptive Acts or Practices (“UDAP”) rule. However, there is an exception for delinquencies more than 30 days past due (there are also other exceptions and some complicated notice requirements). The UDAP rule creates a “protected balance” on which the old rate must stay in place. The financial institution can amortize this balance over (no less than) five years and it can increase the minimum payment (up to double), but it cannot raise the rate. This new rule does not go into effect until July 1, 2010.
Meanwhile, back on Capitol Hill, Congress feels that UDAP is too little too late. The New York Times has reported that some have argued for a “Credit Cardholders’ Bill of Rights” (http://www.nytimes.com/2009/05/10/opinion/10sun2.html?ref=opinion). In any event, it is clear that Congress wants to restrict the ways in which financial institutions can raise rates on existing credit card balances and it wants to put this into place sooner than the time UDAP is to take effect. (Edit: and in fact President Obama has signed such a bill into law).
Of course, few credit unions charge penalty rates and Federal Credit Unions (“FCU”) are capped at an 18% interest rate anyway. So even if an FCU charged such a rate, it would not go past 18%. For credit unions interested in marketing their credit card portfolios, this is good news. A credit union can extol its low rates and lack of penalty rates to gain market share. The big changes happening in the credit card industry might actually be a boon to credit unions that want credit card business.
Robert Rutkowski is the Managing Partner of WWR’s Credit Union department. He can be reached at (216) 739-5004 or firstname.lastname@example.org.
My friends at EverythingCU have invited me back to do a marketing compliance webinar on 5/21. There have been a lot of changes to Regulation Z and I’ll be talking about those changes as they relate to marketing compliance. Another area that seems to generate a lot of discussion is how to handle a raffle. I’ll be discussing federal sweepstakes regulations and how to stay in compliance.
Other topics include Truth in Savings as it applies to advertising, NCUA advertising rules, Equal Credit Opportunity Act advertising rules, bait and switch issues and trademark issues.
I think marketing people are generally an outgoing group so this seminar always seems to engender spirited discussion. If you’re interested in attending, head on over to EverythingCU and sign up.