By James J. Todd, Attorney
The Consumer Financial Protection Bureau (CFPB) arose out of the national foreclosure crisis in July 2010 by way of the Dodd–Frank Wall Street Reform and Consumer Protection Act (the “Act”). The Act established the CFPB as a subsidiary agency of the Federal Reserve, and the associated regulations provided the CFPB with broad powers to enforce nearly all of the various federal consumer protection statutes. Until recently, the CFPB had rarely ventured into enforcement of the Fair Debt Collection Practices Act (FDCPA), instead focusing on mortgage and general loan origination practices. More importantly, loan originators, lenders, and 1st party collectors remained insulated from liability under the FDCPA.
On July 10, 2013, however, the CFPB issued a guidance bulletin stating it intends to begin applying the FDCPA provisions to businesses collecting their own debts. Despite the fact that the FDCPA expressly excludes parties collecting their own debts, the CFPB stated that, by virtue of the 2010 amendment to FDCPA §1692l, it had the power to define unfair or deceptive practices. This would couple with its regulatory enforcement powers over all financial institutions providing consumer financial products or services. The bulletin expressly stated that it would be including companies who collect their own debt (including their service providers) in its enforcement monitoring, and provided a non-exhaustive list of practices it would enforce against those first-party collectors:
i. Collecting or assessing a debt and/or any additional amounts in connection with a debt (including interest, fees, and charges) not expressly authorized by the agreement creating the debt or permitted by law.
ii. Failing to post payments timely or properly or to credit a consumer’s account with payments that the consumer submitted on time and then charging late fees to that consumer.
iii. Taking possession of property without the legal right to do so.
iv. Revealing the consumer’s debt, without the consumer’s consent, to the consumer’s employer and/or co-workers.
v. Falsely representing the character, amount, or legal status of the debt.
vi. Misrepresenting that a debt collection communication is from an attorney.
vii. Misrepresenting that a communication is from a government source or that the source of the communication is affiliated with the government.
viii. Misrepresenting whether information about a payment or nonpayment would be furnished to a credit reporting agency.
ix. Misrepresenting to consumers that their debts would be waived or forgiven if they accepted a settlement offer, when the company does not, in fact, forgive or waive the debt.
x. Threatening any action that is not intended or the covered person or service provider does not have the authorization to pursue, including false threats of lawsuits, arrest, prosecution, or imprisonment for non-payment of a debt.
It is also important to note that the CFPB has the power to enforce civil penalties (either via administrative adjudication or a civil action) against violative lenders along the following guidelines:
(A) First tier. For any violation of a law, rule, or final order or condition imposed in writing by the Bureau, a civil penalty may not exceed $5,000 for each day during which such violation or failure to pay continues.
(B) Second tier. Notwithstanding paragraph (A), for any person that recklessly engages in a violation of a Federal consumer financial law, a civil penalty may not exceed $25,000 for each day during which such violation continues.
(C) Third tier. Notwithstanding subparagraphs (A) and (B), for any person that knowingly violates a Federal consumer financial law, a civil penalty may not exceed $1,000,000 for each day during which such violation continues.
These penalty amounts are very significant, indeed far and away harsher than the prospective civil liability a debt collector faces from a debtor’s private action under the FDCPA. Furthermore, the CFPB has established and maintained a penalty fund, whereby any eligible victim of an institution’s unfair or deceptive practices may apply for, and receive, compensatory redress with the CFPB itself. This bulletin constitutes, in essence, a procedural circumvention of the historical exemptions from the FDCPA that first-party collectors have enjoyed for decades. Even more, this circumvention results in an entirely new realm of possible exposure for financial institutions.
Additionally, on October 15, 2013, the CFPB issued an interim final rule stating, in essence, that the FDCPA’s bar on communication with a debtor after a mortgage servicer/collector’s receipt of a cease-and-desist request would not excuse the requirements on the servicer to (1) investigate borrower-reported errors; (2) respond to information requests from the borrower; and (3) consider loss mitigation attempts. The CFPB did soften the blow somewhat by advising that communicative responses to the above communications, as well as required notices (such as force-placed insurance, tax information) would not be considered violative of the CFPB’s regulations or the FDCPA.
If you have any questions regarding civil and/or administrative liability under these topics, or are simply proactively seeking advice on best practices for your business’s protection, WWR will be happy to assist in whatever way we can.
 12 USCS §5301, et seq.
 12 USCS §5565 (c)(2)
 12 CFR §1075.103-104