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From Banking and Finance Law Daily, July 10, 2013

CFPB targets unlawful debt collection practices

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau is warning companies that they will be held accountable for harmful debt collection practices. The bureau announced in a July 10, 2013, release that it has published two bulletins on the subject and has begun accepting debt collection complaints.

The bureau notes that it is estimated that there are more than 4,500 debt collection firms in the United States. The Federal Reserve Bank of New York said that as of the first quarter of 2013, nearly 15 percent of all credit reports, affecting an estimated 30 million consumers, show collection items from debt collection. These consumers had at least one debt in collections for amounts that averaged approximately $1,400.

First bulletin. The CFPB issued the two bulletins on July 10, 2013. The first bulletin warns that any entity subject to the Consumer Financial Protection Act of 2010, whether a third-party collector or a creditor collecting its own debts, can be held accountable for any unfair, deceptive, or abusive acts or practices (collectively, UDAAP) in collecting a consumer’s debts.

In addition to the prohibition of UDAAPs under the Dodd-Frank Act, the Fair Debt Collection Practices Act (FDCPA) also makes it illegal for a person defined as a “debt collector” from engaging in conduct, “the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt,” to “use any false, deceptive, or misleading representation or means in connection with the collection of any debt,” or to “use any unfair or unconscionable means to collect or attempt to collect any debt.” Although the FDCPA’s definition of “debt collector” does not include some persons who collect consumer debt, all covered persons and service providers must refrain from committing UDAAPs in violation of Dodd-Frank, according to the bulletin.

The bulletin notes some practices that, among others, may be illegal:

  • threatening action that the debt collector does not have the authority to pursue;
  • falsely representing the character, amount, or legal status of the debt;
  • misrepresenting that a consumer’s debt would be waived or forgiven; and
  • failing to properly post payments or credit to a consumer’s account with payments.

Second bulletin. The second bulletin issued by the bureau provides guidance to companies about statements they make about how paying a debt will affect a consumer’s credit score, credit report, or creditworthiness. Under the FDCPA, it is illegal for a debt collector to “use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” In addition, it is illegal for any covered person or service provider of consumer financial products or services to engage in any deceptive act or practice in violation of Dodd-Frank. The FDCPA and Dodd-Frank prohibit covered persons or service providers, including debt collectors, from engaging in deception while collecting or attempting to collect on consumer debts.

Action letters. The CFPB has published five sample action letters that consumers may use when corresponding with debt collectors. The letters are intended to help consumers obtain information about claims being made against them or protect themselves from inappropriate or unwanted collection activities.

The letters address situations in which a consumer:

Complaints. The bureau began taking debt collection complaints on July 10, 2013. Consumers can submit a complaint to the CFPB against any company collecting a consumer debt from them and may also file a second, separate complaint against the company with which they had the original account.

MainStory: TopStory CFPB DebtCollection DoddFrankAct FederalReserveSystem UDAAP

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