CFPB Finds UDAAP and FDCPA Violations in Debt Collection Supervisory Exams

The Consumer Financial Protection Bureau (CFPB) Tuesday released its Supervisory Highlights report for Fall 2014. Among the highlights were recent examinations of larger market participant debt collectors resulting in identification of “an unfair practice and several violations of the Fair Debt Collection Practices Act.”

The Bureau began its supervision of larger participant debt collectors in January 2013. The regulator periodically releases Supervisory Highlights reports that reveal the findings in recent examinations. The reports not only note potential violations that were uncovered, but the remedies mandated by CFPB examiners to the companies in question.

In its latest report, Supervisory Highlights – Fall 2014, the Bureau highlighted four findings from exams of ARM companies that it considers to be violations of either the FDCPA or unfair practices policies:

Unlawful imposition of convenience fees – In one or more examinations of debt collectors, CFPB Examiners observed that convenience fees, which ranged from $5 to $14, were imposed if a consumer made payment using either a credit or a debit card. Due to a systems failure, fees were imposed on consumers who lived in states where state law prohibited the collection of such convenience fees. One or more collectors also imposed convenience fees on consumers who lived in states where the law was silent regarding the collection of fees without reviewing the agreements creating the consumer debts to find out if those agreements expressly authorized the collection of such fees.

Supervision directed these collectors to identify consumers who were improperly charged convenience fees, and to develop a plan for reimbursing those consumers.

False threats of litigation – In at least one examination, Supervision staff determined that a collector routinely threatened consumers with litigation even though it generally did not intend to file suit. Litigation was initiated on only a small fraction of the accounts collected.

Supervision directed the collectors to cease threatening consumers with litigation it did not intend to pursue.

Faulty training materials causing prohibited disclosures to third parties – During one or more examinations, Supervision determined that representatives regularly identified their employer to third parties without being expressly requested to do so. This collector provided faulty training materials that directed its representatives to disclose their name and the name of the collector before identifying the party with whom they were speaking.

Supervision directed the collector to conduct remedial training and update its training program, and monitor its collection agents to ensure effectiveness of the training program.

Unfair practices with respect to debt sales – In examining one or more financial institutions that sold charged-off credit card debt to debt buyers, the examination team identified unfair practices connected to those sales.

First, with respect to a substantial number of accounts that were sold to debt buyers, at least one financial institution overstated the annual percentage rates (APRs) in the account documents provided to each debt buyer. Specifically, one or more financial institutions reported APRs that exceeded the rate for which the consumer was liable pursuant to the credit agreement.

Second, in some instances, when at least one financial institution received payments from consumers on accounts post-sale, forwarding the payments to the appropriate debt buyer was significantly delayed, with delays ranging from two months to over two years.

The relevant financial institutions have undertaken remedial and corrective actions regarding these violations, which are under review by the Bureau.

The report also highlighted supervisory findings from other industries the CFPB regulates such as credit reporting, banking, mortgage, and student loans.

The CFPB’s press release on the report focuses on the work in its student loan servicing exams. Those findings included a potential debt collection violation when examiners “identified more than 5,000 calls made at inconvenient times during a 45-day period, which included 48 inconvenient calls made to one consumer” related to bad autodialer programming.