NAFCU Compliance Blog

CFPB's Latest Monthly Complaint Report Demonstrates CFPB's Continued (and Growing) Focus on Debt Collection

Written by Shereefat Balogun, Regulatory Compliance Counsel

Yesterday, the CFPB released its latest Monthly Complaint Report, which provides a high-level snapshot of trends in consumer complaints. It is important to keep in mind that credit unions under $10 billion are not included in the Consumer Complaint Database, which forms the basis of the monthly reports. Notwithstanding, the reports can be a useful tool, as they can help credit unions evaluate which products and services are more problematic and thus, should be addressed in order to avoid or mitigate regulatory risks. Moreover, in light of the increased scrutiny of debt collection practices, credit unions are generally advised to monitor the various regulatory bulletins, reports and enforcement actions in this area in order to properly assess whether they are in compliance with FDCPA and Dodd-Frank.

As of March 1, 2016, the CFPB has handled about 834,000 consumer complaints; approximately 219, 200 of those complaints were related to debt collection. Some of the findings in the snapshot include:

• Debt collection represented 26% of total cumulative complaints, beating mortgage as the most-complained about product;

• The biggest debt collection complaint concerned attempts to collect on a debt that is not owed. This complaint accounted for 38% of debt collection complaints received.

• The second biggest complaint touched on communication tactics used by debt collectors. Specifically, consumers complained about frequent or repeated calls from debt collectors, reporting that they receive multiple calls weekly or daily. Additionally, consumers complained about receiving debt collection calls at work. Some consumers reported that their debt was disclosed to a supervisor or other third-party; while others reported that collectors made in person visits to their workplace. Also, consumers reported that requests to cease communications were not honored. This category of complaints represented 19% of debt collection complaints submitted.

• Consumers complained that they were not given enough information to verify whether or not they owed the debt in question.

For a few years now, debt collection has been the source of most complaints submitted to the bureau, and this report highlights that. It is clear that debt collection continues to be one of CFPB’s top priorities, and it does not appear that efforts in this area will slow down. Indeed, last week, the bureau issued its 2016 Fair Debt Collection Practices Act Report, which in addition to citing the general complaints reported in the Monthly Complaint Report, also: (i) summarizes the CFPB’s supervisory activities in the debt collection market; (ii) describes the bureau’s enforcement actions; and (iii) discusses developments in the CFPB’s rulemaking initiatives. In the report’s section on supervisory activities, the CFPB describes the following FDCPA violations found by its examiners:

• Failing to state in subsequent phone calls that the call was from a debt collector. The FDCPA requires debt collectors to state in subsequent communications that the communication is from a debt collector. (15 U.S.C. §1692e(11))
• Failing to implement consumer requests regarding communications, such as honoring a request to not be contacted at work. Generally, the FDCPA sets limits on a debt collector’s ability to communicate with members. For example, a debt collector, without prior consent of the consumer, is prohibited from communicating with a consumer in an attempt to collect a debt, at the consumer’s place of employment if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication. (15 U.S.C. §1692c(a)(2)). Also under the FDCPA, when consumers notify a debt collector that they wish the debt collector to cease communication with them, the debt collector must generally honor that request.  (15 U.S.C. §1692c(c)).
• Use of false, deceptive or misleading representations regarding credit reporting. The FDCPA prohibits a debt collector from using any false, deceptive, or misleading representation in connection with the collection of any debt. For example, a debt collector may not make false statements about the amount of any debt; or make a representation that nonpayment of any debt will result in the arrest or imprisonment of any person or the seizure or garnishment of any property or wages of unless such action is lawful and the debt collector or creditor intends to take such action. (15 U.S.C. §1692e).

The report also describes fifteen debt collection enforcement actions filed by the CFPB in 2015. With respect to rulemaking, Director Cordray stated that the bureau “continues its effort to develop the first comprehensive federal regulations covering debt collection.  We are considering provisions to ensure that debt collectors have sufficient information to collect the debt, prevent unfair, deceptive and abusive acts and practices, inform consumers of their rights, and provide interpretation of some sections of the FDCPA.”  While Director Cordray did not offer a specific timeframe for rulemaking, he did indicate that the CFPB “is preparing to convene one or more Small Business Regulatory Enforcement Fairness Act panels before issuing a notice of proposed rulemaking.”

In short, these recent developments demonstrate that debt collection is still at the top of the CFPB's list. Accordingly, credit unions, particularly those with more assets of $10 billion or more, need to pay attention to its debt collection practices.

The CFPB’s Monthly Complaint Report can be found here.

You can view the CFPB’s Consumer Complaint Database here.

Garnishment Fees and Negative Balances

Written by JiJi Bahhur, Regulatory Compliance Counsel

Today, I’d like to share a real question we’ve seen a number of times and then provide an answer. The question stems from the final rule on Garnishment of Accounts Containing Federal Benefit Payments (final rule). 

Question:  In a garnishment situation where a protected amount exists, is it prohibited to assess a garnishment fee if it takes the account into a negative balance?

Answer:    Although you may assess a garnishment fee where non-benefit deposited funds exist, it is prohibited to assess such a fee if it takes the account into a negative balance.

Section 212.6(h) states that a financial institution may not charge or collect a garnishment fee against a protected amount.  The financial institution may charge or collect a garnishment fee up to five business days after the account review if funds other than a benefit payment are deposited to the account within this period, provided that the fee may not exceed the amount of the non-benefit deposited funds. 

The same question was presented to the Agencies during the comment period.  From the Preamble of the Final Rule: 

“The commenter also asked if a financial institution could collect a garnishment fee from an account that is not subject to the regulation after the account review by taking that account balance negative.” (Emphasis added.)

In response, the Agencies provide language in the Preamble that implies that taking the account into a negative balance does not support the imposition of a garnishment fee.  The Agencies state that the fee can be collected from the additional unprotected funds that are already there or deposited within that 5-day window. 

“In light of the comments received from financial institutions, the Agencies have decided to establish a procedure that financial institutions may follow, if they choose, for a limited time following the account review to determine whether nonprotected funds are available to support the imposition of a garnishment fee. If funds other than a benefit payment are deposited to an account during the 5 business days following the date of the account review, the financial institution may charge or collect a fee from the additional funds. In order to impose such a fee, a financial institution could choose to check the account at any time during the 5 days after the account review to determine if funds other than benefit payments were deposited.” (Emphasis added.)

Also, the Department of Treasury provides further clarification in its FAQs:

“After establishing a protected amount, can a financial institution deduct a garnishment fee from nonprotected funds?

Yes. The Agencies amended section 212.6(h) of the Final Rule to provide financial institutions with an opportunity for up to five business days after the account review is performed to impose a garnishment fee if non-benefit funds are deposited. Before charging a garnishment fee, financial institutions are required to determine that the garnishment fee does not exceed the amount of the non-benefit deposited funds.

The Agencies believe that financial institutions should not be permitted to collect a fee from the protected amount and, therefore, have not amended that provision of the Final Rule.” (Emphasis added.)

And last, NCUA’s Regulatory Alert (13-RA-04) provides even further clarification:

“Garnishment Fee. You may not charge or collect a garnishment fee from the protected amount. You may charge or collect a garnishment fee up to five business days after the account review, in the event that non-benefit funds become available. The fee may not exceed the amount of non-benefit deposited funds.” (Emphasis added).

In conclusion, the Agencies do not support the taking of an account into a negative balance to collect a garnishment fee.  Therefore, a financial institution may only assess a garnishment fee up to the non-benefit deposited funds that exist within that 5-day window.   

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There is additional information and guidance in NCUA’s Regulatory Alert so be sure to take a look. 

 

Agencies Issue Final Garnishment Rule

Written by Bernadette Clair, Regulatory Compliance Counsel

Recently, the Treasury Department, Social Security Administration, Department of Veterans Affairs, Railroad Retirement Board, and the Office of Personnel Management (the Agencies) issued a final rule on the garnishment of accounts containing federal benefit payments.  An interim final rule which established procedures that financial institutions must follow when they receive a garnishment order for an account holder has been in effect since May 1, 2011.

The final rule makes several revisions of interest.  For example, the definition of “garnishment order” has been revised to include orders or levies issued by a State or State agency or municipality.  This revision will bring levies issued directly by a State agency, such as a State revenue department, under the scope of the rule.

Another issue of particular interest to credit unions is how the rule applies to “master” and “sub” accounts.  The preamble to the final rule discusses the application of the rule: 

“The requirement to perform an account review applies to the deposit account to which a Federal payment is routed and credited. In cases where a payment recipient is assigned a member number that doesn’t represent an account per se, but that serves as a ‘‘prefix’’ for individual sub accounts, it is the individual sub account (and not the ‘‘master account’’) that is subject to the account review and lookback.”

Other revisions include amendments regarding the identification of federal benefit payments, the ability to collect a garnishment fee for 5 days following the account review if nonprotected funds subsequently become available, and a revision to the notice requirements to only require notice in cases where there are funds in the account in excess of the protected amount.

The final rule is effective June 28, 2013.

 

NCUA Reg Alert on Garnishment Rule; CARD Act Webcast

Written by Steve Van Beek

In July, NCUA issued a Regulatory Alert to credit unions discussing the recent Interim Final Rule on garnishments.  The Interim Final Rule became effective May 1, 2011 but the Reg Alert provides a general summary of the requirements.

We discussed the garnishment issue previously here - which included a link to FAQs from Treasury.

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If you missed NAFCU's August 10 webcast on the Clarifications to the Credit CARD Act, you can still purchase the on-demand version.  

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I'm off to Michigan for additional wedding planning activities this weekend.  Given the weather report and flight cancellations, our return trip back to the DC area might be interesting.

Have a great weekend and stay stafe!

Garnishment FAQ

Posted by Sarah Loats Zimmermann

Happy Monday - hopefully you all enjoyed your weekend! I think Steve and I bombarded you with enough sports rivalry banter last week so I'll just dive into it on Monday morning...

The garnishment interim final rule has been in place for a couple of weeks now and in light of some of the questions that have come up, the Treasury Dept. has issued a set of FAQs. As a refresher, this rule provides procedures credit unions must take when they receive a garnishment order against a member who receives certain Federal benefit payments by direct deposit.

It is a short document but it does address one of the more common questions we've received. Below is Q&A #2 from the document.

2.Are tax levies subject to the rule? Currently, the requirements of the rule are
triggered by the receipt of a “garnishment order,” which is defined as an order
issued by a court or a state child support enforcement agency.  Accordingly,
Federal or State tax levies issued directly by a taxing authority are not
subject to the rule. Treasury is seeking public comment on all aspects of
the rule, including whether levies should be included in the definition of
"garnishment order.”  The comment period for the rule extends through
May 24, 2011. 

As part of the Greenbook the Treasury Dept. has also issued Guidelines and a Quick Reference Guide.


If you are wondering what this Greenbook thing is, it is a guide for Federal ACH Payments and Collections. It is a useful guide if you receive payments from, and send payments to, the Federal government (it even devotes and entire chapter to reclamations, a topic which can cause confusion).