QUESTION
I am an associate in the compliance department of a mortgage lender. We are a nonbank lender licensed in 40 states. Our company is involved in originating and servicing loans.
I have been updating our debt collection policy. Reading through it, I found several gaps in areas covered by federal law. But I am not sure I’ve got them all!
I need help getting a list of the laws involved in debt collection. I hope you can assist.
What are the federal laws relating to debt collection?
ANSWER
Many financial institutions and other entities engage in debt collection, including originating creditors, third-party collectors, debt buyers, and collection attorneys.
Here is a non-comprehensive bullet list of the variety of such businesses:
· Originating creditors that attempt to obtain payment from the consumer, typically by sending letters and making telephone calls to convince the consumer to pay;
· Originating creditors that outsource the collection of debt to third-party collection agencies or attorneys or sell the debt to debt buyers after an account has been delinquent for a period of time;
· Third-party collection agencies that collect debt on behalf of originating creditors or other debt owners, often on a contingency fee basis;
· Debt buyers that purchase debt, either from the originating creditor or from another debt buyer, usually for a fraction of the balance owed;
· Debt buyers that sometimes use third-party collection agencies or collection attorneys to collect their debt but may also undertake their own collection efforts;
· Debt buyers that decide to sell purchased debt to another debt buyer.
The Dodd-Frank Act (Act) gave the Consumer Financial Protection Bureau (CFPB) supervisory authority over various types of institutions that may engage in debt collection, including certain depository institutions and their affiliates, and nonbank entities in the residential mortgage, payday lending, and private education lending markets, as well as their service providers. The Act also gave the CFPB supervisory authority over “larger participants” of markets for consumer debt collection, as the CFPB defines by rule, and their service providers.[i]
The CFPB issued a larger participant regulation in the consumer debt collection market.[ii] The consumer debt collection larger participant rule[iii] provides that a nonbank covered person is a larger participant in the consumer debt collection market if the person’s annual receipts from consumer debt collection – as defined in the rule – are more than $10 million.
The entities that the CFPB supervises must comply with several primary laws to the extent applicable. I will provide a brief description of each.
Fair Debt Collection Practices Act (FDCPA)
The FDCPA governs collection activities and prohibits deceptive, unfair, and abusive collection practices. The FDCPA applies to entities that constitute “debt collectors,” which generally include:
· Third parties such as collection agencies and collection attorneys collecting on behalf of lenders;
· Lenders collecting their own debts using an assumed name; and
· Collection agencies that acquire debt at a time when it is already in default.
The FDCPA applies to debts incurred or allegedly incurred primarily for the consumer’s personal, family, or household purposes.
Fair Credit Reporting Act (FCRA)
The FCRA and its implementing regulation, Regulation V, require that furnishers of information to consumer reporting agencies follow reasonable policies and procedures regarding the accuracy and integrity of data they place in the consumer reporting system. The FCRA and Regulation V require furnishers and consumer reporting agencies to handle disputes and impose other obligations on furnishers, consumer reporting agencies, and users of consumer reports.
Gramm-Leach-Bliley Act (GLBA)
The GLBA and its implementing regulation, Regulation P, impose limitations on when financial institutions can share nonpublic personal information with third parties. Also required under certain circumstances, financial institutions must disclose their privacy policies and permit customers to opt out of certain sharing practices with unaffiliated entities.
Electronic Fund Transfer Act (EFTA)
The EFTA and its implementing regulation, Regulation E, impose requirements if an institution obtains electronic payments from a consumer within the statute’s scope of coverage.
The Equal Credit Opportunity Act (ECOA)
The ECOA and its implementing regulation, Regulation B, apply to all creditors and prohibit discrimination in any aspect of a credit transaction based on race, color, religion, national origin, sex, marital status, age,[iv] receipt of public assistance income, or exercise in good faith of any right under the Consumer Credit Protection Act.[v] Credit transactions encompass “every aspect of an applicant’s dealings with a creditor regarding an application for credit or an existing extension of credit,” and include “revocation, alteration, or termination of credit” and “collection procedures.”[vi]
A word about Unfair, Deceptive, or Abusive Acts or Practices (UDAAP). There are risks to consumers that may include potentially unfair, deceptive, or abusive acts or practices. In your debt collection policy, I suggest you have risk assessment procedures regarding UDAAP and include CFPB information about the legal standards and its approach to examining for UDAAP. The particular facts and circumstances in a case are crucial to determining UDAAP. Institutions should determine whether the applicable legal standards have been met before a UDAAP violation is cited.
Chairman & Managing Director
[i] 12 USC 5514(a)(1)(B)
[ii] On October 24, 2012
[iii] 12 CFR Part 1090, effective January 2,
2013
[iv] Provided the applicant has the capacity
to contract.
[v] 12 CFR 1002.2(z), 1002.4(a)
[vi] 12 CFR 1002.2(m)
