Debt Collection Practices and Operation Collection Protection

Written by Benjamin M. Litchfield, Regulatory Compliance Counsel

Greetings compliance fans! My name is Ben Litchfield and I recently joined NAFCU as a Regulatory Compliance Counsel. Prior to joining NAFCU, I worked in the Office of General Counsel at NCUA on various issues related to federally-insured credit unions. I look forward to working with you in the future and blogging about topics that are relevant to our members. This blog post covers some recent developments in an important, albeit unfortunate and sometimes overlooked, part of the lending lifecycle – debt collection.

FTC's Operation Collection Protection

On November 4, 2015, the FTC and other law enforcement authorities around the United States announced the first coordinated federal-state enforcement initiative targeting deceptive and abusive debt collection practices. They are calling this initiative “Operation Collection Protection.” (Sounds scary, doesn’t it?). Some of the practices being targeted by the FTC and its federal (including CFPB), state and local partners include:

• Harassing phone calls;

• False threats of litigation, arrest, and wage garnishment;

• Collection of phantom debts;

• Failure to provide consumers legally required disclosures and notices; and

• Failure to follow state and local licensing requirements.

In addition to its involvement in Operation Collection Protection, the CFPB has been very active in this area. In September, the Bureau took an administrative enforcement action against two of the nation’s largest buyers of defaulted loans, credit card accounts, car loans, and other debt. Some of the violations the CFPB alleged included:

• Failure to monitor portfolios of debt for accuracy;

• Calling consumers at unusual or odd hours;

• Calling consumers without prior express consent;

• False threats of litigation;

• Failure to require collections attorneys to provide account level review; and

• Using misleading collection affidavits.

While the Fair Debt Collection Practices Act (FDCPA) provides an exemption for creditors seeking to collect debts on their own behalf, NCUA “recommends” that federal credit unions (FCU) avoid the kinds of practices prohibited under the Act. See, NCUA Consumer Compliance Handbook, p. 98.  Additionally, the Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB), and NCUA have the authority to take enforcement actions to prevent unfair, deceptive, or abusive (UDAAP) debt collection practices committed by entities within their respective jurisdictions. Note though that to date, NCUA has not taken UDAAP enforcement action against an FCU, but many FCUs use third-party debt collectors who may be within the jurisdiction of the FTC or the CFPB.

Also, for state-chartered credit unions, things get a little more complicated because of specific language in the FDCPA and the Federal Trade Commission Act (FTC Act), which grant the FTC enforcement authority over state-chartered credit unions. As a result, the FTC has the ability to utilize its general enforcement authority under the FTC Act for debt-collection UDAAPs even where a party is collecting on its own debt.

The CFPB has signaled in previous guidance that it intends on using its UDAAP authority to prevent such acts or practices against creditors who commit the kinds of abusive acts prohibited by the FDCPA. Keep in mind though that the CFPB has primary enforcement authority over credit unions with assets over $10 billion.  

As a reminder, specific conduct prohibited by the FDCPA includes, but is not limited to:

• The use or threat of violence or other criminal means to harm the physical person, reputation, or property of any person;

• The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency;

• Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number;

• The use of false, deceptive, or misleading representations or means in connection with the collection of a debt;

• The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law; or

• Accepting, depositing or threatening to deposit any postdated check or postdated payment instrument unless certain circumstances are met.

The FDCPA lists many other prohibited acts and practices and requires specific disclosures when communicating with a consumer about a delinquent debt. It is important to keep in mind, however, that these lists are not exhaustive. The FTC and CFPB could always identify additional conduct that they feel constitute unfair, deceptive, or abusive debt collection practices.

So Why Does This All Matter?

Operation Collection Protection and recent CFPB enforcement actions signal that federal regulators are likely to remain laser-focused on unfair, deceptive, or abusive debt collection practices. Some of these collection cases have even resulted in criminal charges for individual debt collectors. Given the high volume of consumer complaints involving debt collection, observance of proper debt collection procedures by credit unions and their vendors will likely remain a top priority for compliance officers.

I have included some compliance resources below that may be useful to you as well as some interesting reading material for when you just feel like curling up by the fire with a nice FTC or CFPB Consent Order. I hope this blog has been useful and that you have a great rest of your week.

Federal Laws and Guidance Documents

• Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq.

• CFPB Supervision and Examination Manual, pp. 667-676.

• Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of Consumer Debts, CFPB Bulletin 2013-07 (July 10, 2013).

• Service Providers, CFPB Bulletin 2012-03 (Apr. 13, 2012).

• Evaluating Third Party Relationships, NCUA Supervisory Letter No. 07-01 (Oct. 2007)

• FFIEC Social Media Guidance

News Articles

• FTC and Federal, State and Local Law Enforcement Partners Announce Nationwide Crackdown Against Abusive Debt Collectors, FTC Press Release (Nov. 4, 2015) (available at https://www.ftc.gov/news-events/press-releases/2015/11/ftc-federal-state-local-law-enforcement-partners-announce)

• CFPB Takes Action Against the Two Largest Debt Buyers for Using Deceptive Tactics to Collect Bad Debts, CFPB Press Release (Sept. 9, 2015) (available at http://www.consumerfinance.gov/newsroom/cfpb-takes-action-against-the-two-largest-debt-buyers-for-using-deceptive-tactics-to-collect-bad-debts/)

Recent Agency Enforcement Actions

• FTC v. BAM Financial, LLC (FTC Complaint for Permanent Injunction)

• FTC v. Kelly Brace, et al. (FTC Complaint for Permanent Injunction)

• FTC v. National Check Registry, LLC (Stipulation to Enter into a Final Order)

• FTC & CFPB v. Green Tree Servicing, LLC (Stipulated Order for Permanent Injunction)

• In re Encore Capital Group, Inc., 2015-CFPB-0022 (Consent Order)

• In re Portfolio Recovery Associates, LLC, 2015-CFPB-0023 (Consent Order)

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Programming Note:  NAFCU’s offices will be closing at 12:00pm EST on Wednesday, November 25th and remain closed until Monday, November 30th, in celebration of the Thanksgiving Holiday.