Filed under: Consumer Financial Protection Bureau, Dodd-Frank Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, HOEPA, Truth in Lending Act | Tags: CFPB, FTC, unfair and deceptive acts and practices
by Jennifer Monty Rieker, Esq.
On July 21, 2011 the Consumer Financial Protection Bureau (CFPB) officially launched. Signed into law in July 2010, the CFPB is a division of the Federal Reserve, but is completely independent of the Federal Reserve’s Board of Governors.
The CFPB is tasked with enforcement of the Fair Debt Collection Practices Act, Truth in Lending Act, Fair Credit Reporting Act, and Home Owner’s Equity Protection Act. Previously separate government agencies enforced these acts, but now there will be one centralized bureau to enforce consumer regulations.
Dodd Frank also granted CFPB the ability to prohibit unfair, deceptive or ”abusive” acts or practices. Previously, federally regulated financial institutions were subject to the FTC Act which prohibited unfair and deceptive acts and practices (“UDAP”). This has now been expanded by Dodd Frank, adding the word “abusive” to the UDAP doctrine. Abusive is defined in § 1031(d) of the Dodd Frank Act as any act that:
(1) Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or
(2) Takes unreasonable advantage of –
- (A) A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
- (B) The inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or
- (C) The reasonable reliance by the consumer on a covered person to act in the interests of the consumer
Based on this definition, the UDAP doctrine may be widely expanded and may be the cause for new enforcement actions. Defining how an institution can take “unreasonable advantage” of a consumer can be widely litigated. Additionally, showing how a consumer had “reasonable reliance” will undoubtedly become a battle ground for all financial institutions. Because the CFPB has the ability to both regulate and bring enforcement actions, it has a wide latitude of power. This new addition of “abusive” will have a large impact on financial institutions on both the state and national level. Furthermore, state regulations of financial institutions may follow by also adding the new “abusive” standard.
As the next few months progress, it will be interesting to watch the actions of the CFPB, and to see the extent of enforcement and regulation that may occur, as well as whether state governments follow the same regulatory path.
Filed under: Fair Debt Collection Practices Act, foreclosure, loss mitigation | Tags: consumer protection, door-knocking, FDCPA, foreclosure, loss mitigation
By: Jennifer M. Monty, Esq.
Statistics show that over 40% of homeowners in foreclosure never speak with their servicer prior to the filing of a foreclosure action. Door-knocking, the practice of sending out a person to the homeowner’s residence to deliver a loss mitigation package, is one way servicers attempt to reach out to borrowers. A recent decision by the United States Court of Appeals for the Seventh Circuit may change servicer’s use of door-knocking or set new standards.
Camille Gburek filed suit against her servicer and a door-knocking company, alleging that both the servicer and door-knocking company violated the Fair Debt Collection Practices Act (“FDCPA”). The FDCPA is a consumer protection statute enacted to protect consumers from abusive, deceptive or unfair debt-collection practices.
At issue in the case were three communications:
1. A letter from the servicer to Gburek offering loss mitigation options and requesting financial information. The letter contained the FDCPA warning language that the letter was an attempt to collect a debt.
2. A letter from the door-knocking company offering loss mitigation options and attempting to open communications between Gburek and the servicer. In the letter, the door-knocking company stated that it was not a debt collector. The door-knocking company provided its phone number to answer any questions.
3. The communication from the servicer to the door-knocking company to enlist their services.
Grubek, through her lawsuit, claimed that all three communications violated the FDCPA. The lawsuit alleged violations for using deceptive means to obtain personal information, communicating directly with Grubek even though she had an attorney, and communicating with the door-knocking company without Grubek’s consent.
The servicer filed a motion to the court that the case be dismissed, claiming that the communications were not attempts to collect a debt, and therefore not subject to the FDCPA. The trial court granted the motion to dismiss, and Grubek appealed. The appellate court overruled the trial court finding that Grubek made sufficient allegations for violations of the FDPCA.
The appellate court focused on several factors. Even though the letters did not include a demand for payment, the court noted that Gburek’s mortgage loan was in default and the servicer’s letter offered to discuss foreclosure alternatives, once she provided financial information. The court held that such a communication was in connection with an attempt to collect a debt. The court viewed the door-knocking company’s letter under the same light—a communication made to induce the debtor to settle a debt. Finally, the court held that the communications between the servicer and the door-knocking company was a communication in connection with the collection of a debt.
The case will now be remanded to the trial court to hear the issues regarding the alleged FDCPA violations.
The use of door knocking companies or programs continues to improve the chances of speaking with a borrower before foreclosure. However, a servicer must be careful when using a door-knocking company. All communications with a homeowner must follow the requirements of the FDPCA. When a homeowner has an attorney, all communications must go through the attorney and not directly with the homeowner. When using an outside company or vendor, particular caution must be taken and any information about the homeowner should not be shared with any third party, without the homeowner’s permission.
If the proper program is developed, door-knocking can be an effective way to reach borrowers. However, if the program violates the FDPCA, the benefits of communicating with the borrower may be overshadowed by litigation.
If you have any questions on this information, please contact Jennifer M. Monty, Esq., an associate focused on litigation & defense within the Real Estate Default Group located in the Cleveland office of Weltman, Weinberg & Reis Co., LPA. Jennifer can be reached at 216.685.1136 or via email at firstname.lastname@example.org.
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.