BCFP’s Supervisory Highlights About Verification of Debt Potentially Conflict with 7th Cir. Guidance and Raise Questions of Practicality

On August 6, 2018, the Bureau of Consumer Financial Protection (BCFP or Bureau) released its Supervisory Highlights (Highlights) addressing its observations from December 2017 through May 2018. This Highlights issue is the first issued under Acting Director Mulvaney, and contains a very brief section on debt collection.  

The comments about debt collection relate to verification of debts. The Bureau observed that one or more debt collectors:

• Forwarded verification requests to creditors for the creditor to review and send a response to the consumer;
• Accepted the creditor's determinations that the debt was owed without receiving verification or sending such verification to the consumer; and
• Continued debt collection on accounts in violation of 809(b) of the Fair Debt Collection Practices Act (FDCPA).

The Bureau noted that in response to its examination findings, one or more debt collectors are modifying their policies and procedures related to verification of debt.

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insideARM Perspective

Albeit brief, the debt collection portion of the Highlights is loaded with questions and items for consideration.

Verification by Creditor

While the text of the FDCPA states that verification of debt must be sent to the consumer by the debt collector, there is some question about whether this is the most beneficial avenue for consumers. An issue faced by consumers and debt collectors alike is the desire -- and requirement on the debt collector’s end -- to ensure they are speaking to the correct party. Consumers are familiar with and can identify the creditors with whom they opened a line of credit; they are less familiar with the collection agencies working on behalf of such creditors. The proliferation of robocalls and other harmful actions by third parties cause consumers to question whether the person or entity they are communicating with is a legitimate debt collector or just another wrongdoer trying to scam them. Receiving verification of debt directly from the creditor can help bridge the trust gap and confirm for the consumer that the debt collector is indeed working on behalf of the creditor.

Additionally, the creditor, as the entity that extended credit to the consumer and the entity that owns the debt, is the party better suited to respond to verification requests if they choose to do so. Creditors are the holders of all account documents and information. Any response from a debt collector to a verification request will contain information received from the creditor, so practically speaking there is little difference between the verification coming from the creditor or the debt collector.

Verification Procedure

The Highlights leave open the question of what exact investigative procedure is triggered by a request for verification of debt. Back in March, insideARM published an article about a Seventh Circuit decision that found section 809(b) of the FDCPA requires verification of the debt collector’s records, not the creditor’s records. The Seventh Circuit, which is one of the more consumer-friendly jurisdictions in the United States, stated that requiring a debt collector to investigate the validity of the amount owed would be “burdensome and significantly beyond the [FDCPA’s] purpose.”

With the limited information provided in the Highlights, it is difficult to determine specifically what the Bureau took issue with regarding the verification process. Was it the failure to send the verification to the consumer? Was it the level of investigation conducted by the debt collector? If the latter, is the Bureau requiring a debt collector to do a more thorough investigation than the Seventh Circuit found was necessary under the FDCPA? With the Highlight’s brevity regarding this issue, debt collectors are left with vague -- and, quite possibly, conflicting -- guidance on how to proceed with verifying debts.