It couldn’t be clearer that the CFPB has put a bullseye on debt collection. Yesterday, it issued two new bulletins and five action letters for consumers to use when responding to debt collectors, and announced that its complaint system had begun taking debt collection complaints. Most significantly, the bulletins not only address the conduct of debt collectors and debt buyers, but they are also directed at creditors and servicers.
One bulletin (Bulletin 2013-07) is primarily intended as a warning to persons collecting debts who are generally not subject to the Fair Debt Collection Practices Act, meaning first-party creditors collecting their own debts and servicers when collecting debts that were current when servicing began. The bulletin reviews the standards the CFPB uses to determine whether conduct constitutes an “unfair, deceptive or abusive” act or practice (UDAAP) prohibited by the Dodd-Frank Act and provides examples of conduct “related to the collection of consumer debt that could, depending on the facts and circumstances” constitute UDAAPs.
Despite Congress’ decision to exclude creditors and servicers from FDCPA coverage. the examples represent an attempt to make such entities subject to certain FDCPA prohibitions. Under these circumstances, the CFPB’s decision to issue guidance rather than engage in notice and comment rulemaking under the Administrative Procedure Act seems particularly inappropriate.
The second bulletin (Bulletin 2013-08) targets deceptive representations made by creditors, debt buyers, and debt collectors when collecting consumer debts. (While not specifically mentioned, the bulletin would also cover representations made by servicers.) The bulletin highlights potentially deceptive representations about how paying debts can affect credit reports, credit scores, and creditworthiness.
The CFPB’s issuance of the bulletins was accompanied by its publication of five action letter templates that consumers can use when corresponding with debt collectors. The letters address various situations such as when a consumer wants to dispute a debt, restrict or stop all communications by the collector, or has hired a lawyer. (It appears that the CFPB’s template for consumers to use to request more information about a debt that they are disputing may have been based on a template used by a plaintiffs’ class action law firm.)
Also accompanying the bulletins’ issuance was the CFPB’s announcement that its consumer complaint system is now taking debt collection complaints “related to any consumer debt, including credit card debt, mortgages, auto loans, medical bills and student loans.” By inviting consumers to submit complaints about medical bills, the CFPB is likely to receive complaints about such bills regardless of whether they involve any extension of credit. (In the preamble to its debt collection “larger participant” rule, the CFPB acknowledged that the collection of medical debt is not a “consumer financial product or service” under the Dodd-Frank Act unless it involves an extension of credit.)
When a consumer files a complaint against a collector who is not the original creditor, the CFPB’s website portal also allows the consumer to send a separate complaint to the original creditor. This means creditors might be required to respond to complaints about debt buyers, who do not act as service providers and for whom creditors should not be responsible. This reflects a misguided view by the CFPB that there is no difference between debt buyers and debt collectors, and creditors can be responsible for violations of law committed by both types of entities. This underscores the need for creditors to review and potentially revise their debt sales agreements and conduct heightened due diligence on debt buyers.
For more information on the CFPB’s actions, see our legal alert.