Fair Debt Collection Practices Scott Daugherty, President/General Counsel A UBA Company
Introduction Wouldn t it be great if every loan we ever made was paid on time, as agreed, through maturity? Unfortunately, even though we closely scrutinize the repayment and collateral we will have loans that go into collection status. For that reason, every loan officer should at least have a basic understanding of the fair debt collection practices act, and how it could impact the collection process.
Background The Fair Debt Collections Practices Act ("FDCPA") applies only to debt collectors. Defined as any person who: uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts; or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. It includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. That is the very reason, in most instances, a bank will not be considered a debt collector.
The only kind of debt which is covered by the FDCPA is debt incurred by a consumer primarily for personal, family or household purposes. A financial institution is not a debt collector when it collects its own debts in its own name or when it collects debts that were not in default when obtained. If the institution purchases debts that were in default and it collects those debts, it may be deemed a debt collector. A financial institution will not be considered a debt collector if it collects debts regularly for other institutions that it is related to through common ownership or control.
Common Violations The use of postcards to send debt collection messages; Contacting the consumer on the job when you know the employer forbids such contact; Calling the consumer after the cut-off hour; Using vile or profane language; Contacting the consumer after you know he is represented by an attorney; Contacting the consumer after you know he has sent written notice that he wants you to stop the communication; Disclosing too much information to third parties you contact trying to find the debtor.
Limitations Who you can contact about a consumer's debt; What you can say when you make the contact; How you can make the contact; Times you can make the contact; and When you are required to cease contact
So why do we care if bank s aren t generally defined as debt collectors? Because the CFPB has said: "The FDCPA generally applies to third-party debt collectors, such as collection agencies, debt purchasers, and attorneys who are regularly engaged in debt collection. All parties covered by the FDCPA must comply with any obligations they have under the FDCPA, in addition to any obligations to refrain from UDAAPs in violation of the Dodd-Frank Act. 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 violation of the Dodd-Frank Act."
More from the CFPB "However, experience since passage of the FDCPA suggests that first-party collections are in fact a significant concern in their own right. For instance, the FTC receives tens of thousands of debt collection complaints each year concerning creditors "In addition to seeking input on whether any proposed rules should cover creditors, the Bureau seeks input on the basic premise that it should generally seek to harmonize any rules it develops for third-party collectors and first-party collectors, except to the extent that the law, facts, or policy considerations warrant different treatment. Sidebar: If for no other reason it sounds as if the CFPB will be closely scrutinizing collection practices and categorize it as UDAAP.
Explanation of prohibitions 1. Communication in Connection with Debt Collection Can't reach at any unusual time or place No calls before 8AM or after 9PM (unless there are circumstances to the contrary) If they are represented by an attorney, talk to their attorney, NOT the borrower Don't call them at their place of work MUST cease communication at request 2. Communication with Third Parties - Don't tell mom You CAN'T indicate that the borrower owes debt and that you are trying to collect You CAN ask a third party to find the location or contact info of the borrower
Prohibitions continued Harassment or Abuse Threat or use of violence Profane language Shaming - public list of debtors Advertisement of sale of debt to coerce payment Repeated calls One call a day every two days may be OK. Beeders v. Gulf Coast Collection Bureau, 796 F. Supp. 2d 1335 (M.D. Fla. 2011). But make sure you stop calling if requested by the debtor. Not disclosing Identity Partnership buys debt. Tries to collect by sending letter stating: "Read my card - I will be handling your case & this area. If you wish not to[,] call 1-800-851-4863 Scott Beatty to settle[.] My special agents will remain in our area to collect. Believe me. Call within 24 hours." Cirkot v. Diversified Fin. Sys, 839 F. Supp. 941 (D. Conn. 1993). Court deemed abusive. Don't do this
continued False or Misleading Representation Indicating that you are affiliated with the government (i.e. impersonating law enforcement) False representation of the legal status, amount or character of the debt Implying that you are an attorney Implying that they will be arrested Threat to take action that can't legally be taken Any false statements to coerce payment "Least Sophisticated Consumer" When communicating, you have to assume you are talking to the "least sophisticated consumer" - avoid using legal jargon or any other language that may be confusing
continued Unfair Practices Collection beyond what is allowed by the note Accepting or soliciting a post-dated check Charging for communication with the borrower (i.e. FedEx or courier charges) Threatening non-judicial action (unless you have the right of self possession)
Penalties for violations Civil Liability Actual Damages Additional damages up to $1,000 per individual Attorney Fees
Action Plan Ensure the bank has a written policy with procedures; Ensure FDCPA is included in the bank s training program, especially for lenders and collectors; Ensure FDCPA is included in risk assessments for UDAAP purposes; Ensure FDCPA is included in the audit scope; and Ensure reporting up the chain is a part of the overall process
Beyond the action plan, things to always remember Identify yourself when you call Make sure you are speaking directly with the debtor Don't indicate to a third party that you are collecting a debt Don't make threats Call during reasonable hours (8-9, unless told otherwise) Stop communication if requested Don't call repeatedly, every day Sidebar: You don t want to end up in the news or as an example of what not to do when collecting loans that are in default.
Thank you! For additional information, contact Scott at scott@compliancealliance.com, or give us a call @1-888-353-3933