Filing the Suspicious Activity Report

QUESTION 

Recently, we had training in our anti-money laundering program. I have to say, it wasn't very good. We went to our compliance officer to request another training because the trainer kept skirting our questions. He listened to the recording and agreed with us. So, now he's looking for a new trainer for the anti-money laundering training.

In the meantime, we still don't have clear answers to several questions. We want to know more about SAR filings, like when they're required and the timing to file. My teammate wants to see if we can discuss the filing of a SAR with the person we're reporting on. You would think these are obvious questions, but our trainer did not know the answers! So, we hope you can provide answers for us. By the way, we love your weekly newsletter! 

When is a SAR required? 

Can we question the individual we're reporting the SAR on? 

What goes into SAR decision-making? 

What is the timing to file the SAR? 

ANSWER 

Thank you for your kind words. We are grateful! 

We provide Anti-Money Laundering (AML) testing and training. In fact, we were the first compliance firm in the country to offer testing, training, and a highly esteemed, written AML Program. If you want information about our AML compliance support, contact us here. 

Because money is the basis for criminal activity or, in the case of terrorism, is an integral part of the activity, the United States government has prioritized pursuing the funds generated or used in these activities. Since financial institutions occupy a critical position in the U. S. financial system, the government not only requires financial institutions to report information, it requires them to be proactive in looking for transactions that may be part of a criminal activity. 

In particular, this responsibility takes the form of the Suspicious Activity Report (SAR). This report is required as part of the Bank Secrecy Act (BSA).[i] The banking regulatory agencies and the NCUA have adopted identical regulations to implement this requirement.[ii] 

The law and regulations make it clear that an effective BSA compliance program includes controls and measures to identify and report suspicious transactions in a timely manner. A financial institution must apply due diligence to make an informed decision about the suspicious nature of a particular transaction and whether to file a suspicious SAR. 

I will provide some guidelines to consider in response to your questions. The applicable statutes are quite complicated, and there's plenty of case law. However, I think a general answer is certainly important for you to consider. 

I will take your questions in order. 

When is a SAR required? 

The SAR is the primary method by which financial institutions are to report suspected criminal activity. However, it is not the only means. There are instances requiring more immediate attention, such as when a reportable violation occurs, the financial institution must immediately notify, by telephone, appropriate law enforcement and financial institution supervisory authorities. 

One area that is not specifically addressed in the regulation but – which has become extremely important since September 11, 2001 – is terrorism. To facilitate the reporting of suspected terrorist activities, the Financial Crimes Enforcement Network (FinCEN) established a Financial Institutions Hotline, (866) 556-3974, for financial institutions to voluntarily report to law enforcement suspicious transactions that may relate to terrorist activity against the United States. This hotline is operational seven days a week, 24 hours a day. 

However, financial institutions must be aware that contacting law enforcement directly, whether about terrorism or anything else, does not eliminate the need to file a SAR. A SAR must be filed when required, even if law enforcement was contacted by telephone. 

The agencies' SAR regulations mandate that a SAR must be filed for: 

·       Insider abuse involving any amount. 

·       Violations of federal law aggregating $5,000 or more when a suspect can be identified. 

·       Violations of federal law aggregate $25,000 or more regardless of a potential suspect. 

·       Transactions aggregating $5,000 or more that involve potential money laundering or violations of the BSA if the institution knows, suspects, or has reason to suspect that the transaction: 

o   Involves funds from illegal activities or is intended or conducted to hide or disguise illicit funds or assets as part of a plan to violate or evade any law or regulation or to avoid any transaction reporting requirement under federal law; 

o   Is designed to evade any of the BSA regulations; or 

o   Has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction. 

Can we question the individual we're reporting the SAR on? 

Questioning individuals about potentially suspicious activity requires considerable discretion. When determining suspicious activity, institutions are responsible for "examining all the facts, including the background and possible purpose of the transaction." 

Thus, as part of an institution's due diligence to determine whether suspicious activity has occurred, a reasonable investigation into the nature and purpose of the activity may be necessary. Institutions have expressed concern over the perceived tension between questioning a customer about potentially suspicious activity and the institution's responsibility to maintain the confidentiality of SARs. 

FinCEN recognizes that under certain circumstances, institutions may discreetly question a customer about the nature and purpose of a transaction without revealing their intention to file a SAR. For example, to determine whether a customer's transactions are "designed to evade any [reporting] requirements," an institution may wish to ask a customer why they are making frequent cash deposits slightly below a certain reporting or recordkeeping threshold. If the customer provides an answer that reasonably satisfies the institution that the transaction is not designed to evade reporting requirements (i.e., their business has a verifiable insurance policy that covers up to $10,000 in currency in the event of a burglary), no SAR would be required. 

However, it is important to keep in mind that any questioning should not risk "tipping off" the customer or otherwise disclose that a SAR is being filed. In short, institutions will need to exercise discretion and judgment when determining how and when to inquire of customers about unusual activity. 

What goes into SAR decision-making? 

Our auditors and reviewers get this question often. Sometimes, many variables and nuances go into deciding to file a SAR. The financial institution should have policies, procedures, and processes for referring unusual activity from all business lines to the personnel or department responsible for evaluating unusual activity. The process should effectively evaluate all applicable information (i.e., criminal subpoenas, NSLs, or section 314(a) requests). 

You should document SAR decisions, including final decisions not to file a SAR. Thorough documentation provides an essential record of the SAR decision-making process (viz., what determines whether or not a SAR would be filed). The decision to file a SAR is an inherently subjective judgment. 

Examiners usually focus on whether the institution has an effective SAR decision-making process, not individual SAR decisions. Examiners also may review individual SAR decisions to test the effectiveness of the SAR monitoring, reporting, and decision-making process. If the financial institution has an established SAR decision-making process, followed existing policies, procedures, and processes, and determined not to file a SAR, it should not be criticized for failing to file the SAR unless the failure is significant or accompanied by evidence of bad faith. 

What is the timing to file the SAR? 

A financial institution must file a SAR within 30 calendar days after the date of the initial detection of facts that may constitute a basis for filing a SAR. If no suspect was identified on the date of detection of the incident requiring the filing, the financial institution could delay filing a SAR for an additional 30 calendar days to identify a suspect. However, that is the maximum length of time the institution can delay the reporting. In no case can the reporting be delayed more than 60 calendar days after the date of initial detection of a reportable transaction. If no suspect can be identified by the end of the 60 days, a SAR must be filed without the identity information. 

The phrase "initial detection" should not be interpreted as meaning the moment a transaction is highlighted for review. Various legitimate transactions could raise a red flag simply because they are inconsistent with an account holder's normal account activity. For instance, a real estate investment (purchase or sale), the receipt of an inheritance, or a gift may cause an account to have a significant credit or debit inconsistent with typical account activity. The institution's automated account monitoring system or initial discovery of information, such as system-generated reports, may flag the transaction; however, this should not be considered initial detection of potential suspicious activity. 

The 30-day (or 60-day) period does not begin until an appropriate review is conducted and a determination is made that the transaction under review is "suspicious" within the meaning of the SAR regulations. 

You should promptly initiate a review upon identifying unusual activity that warrants investigation. The timeframe required for completing the review of the identified activity, however, may vary given the situation but should be completed in a reasonable period of time. 

Naturally, you’ll want to know what constitutes a reasonable period of time. The timeframe will vary according to the facts and circumstances of the particular matter being reviewed and the effectiveness of each institution's SAR monitoring, reporting, and decision-making process. The key factor is that an institution has established adequate procedures for reviewing and assessing facts and circumstances identified as potentially suspicious and that those procedures are documented and followed. 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

---

[i] 31 USC § 5318(g)

[ii] The regulations can be found at: OCC (national banks; federal savings associations): 12 CFR 21, 12 CFR 163.180; Federal Reserve (state member banks): 12 CFR 208.62; FDIC (state nonmember banks and savings banks; state savings associations) 12 CFR 353, 12 CFR 390.355; NCUA (credit unions) 12 CFR 748.1(c).

Artificial Intelligence: Adverse Action Notice

QUESTION 

We have used the model adverse action form for years. It is in our LOS. A question arose when our system put in a reason other than the model not accurately reflecting the basis for the adverse action. 

This happened because we are using artificial intelligence in our credit models. I head underwriting and credit operations and serve on the AI committee. Our decision to use AI did not contemplate that AI would produce an adverse action other than the model form’s requirements. 

Before making changes to our LOS or revising our policies, we want to find out if we must rely on the checklist of reasons for adverse action in Regulation B. 

Is it acceptable not to use an adverse action reason not available in the adverse action notice? 

How does artificial intelligence affect the accuracy required by Regulation B’s adverse action notice? 

ANSWER 

Creditors may not rely on the checklist of reasons provided in the sample forms (codified in Regulation B) to satisfy their obligations under the Equal Credit Opportunity Act (ECOA) if those reasons do not specifically and accurately indicate the principal reason(s) for the adverse action. Indeed, as a general matter, creditors should not rely on overly broad reasons to the extent that they obscure the specific and accurate reasons relied upon. 

The ECOA, implemented by Regulation B, makes it unlawful for any creditor to discriminate against any applicant with respect to any aspect of a credit transaction based on race, color, religion, national origin, sex (including sexual orientation and gender identity), marital status, age (provided the applicant has the capacity to contract) or because all or part of the applicant’s income derives from any public assistance program, or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.[i]  

When taking adverse action against an applicant, ECOA and Regulation B require that a creditor provide the applicant with a statement of reasons for the action.[ii] This statement of reasons must be “specific” and indicate the “principal reason(s) for the adverse action.”[iii] Furthermore, the specific reasons disclosed must “relate to and accurately describe the factors actually considered or scored by a creditor.”[iv]  

Adverse action notice requirements promote fairness and equal opportunity for consumers engaged in credit transactions by serving as a tool to prevent and identify discrimination by requiring creditors to explain their decisions affirmatively. 

Additionally, adverse action notices are supposed to provide consumers with an educational tool that allows them to understand the reasons for a creditor’s action and take steps to improve their credit status or rectify mistakes made by creditors. 

Indeed, the CFPB does provide sample forms that creditors may use to satisfy their adverse action notification requirements, if appropriate. And these forms include a “checklist” of sample reasons for adverse action, which “creditors most commonly consider.”[v] But, note, there are open-ended fields for creditors to provide other reasons not listed. 

Creditors use the sample forms to satisfy certain adverse action notice requirements under ECOA and the Fair Credit Reporting Act (FCRA),[vi] though the statutory obligations under each remain distinct.[vii] While the sample forms provide examples of commonly considered reasons for taking adverse action, “[t]he sample forms are illustrative and may not be appropriate for all creditors.”[viii]  

So, be aware, reliance on the checklist of reasons provided in the sample forms will satisfy a creditor’s adverse action notification requirements only if the reasons disclosed are specific and indicate the principal reason(s) for the adverse action taken. 

Now, concerning your question about artificial intelligence. 

Some creditors use complex algorithms involving “artificial intelligence” and other predictive decision-making technologies in their underwriting models. The CFPB has previously issued guidance affirming that creditors are not excused from their adverse action notice obligations under ECOA simply because they rely on complex algorithmic underwriting models in making credit decisions.[ix] 

These complex algorithms sometimes rely on data harvested from consumer surveillance or data not typically found in a consumer’s credit file or application. The CFPB has underscored the harm that can result from consumer surveillance and the risk these data may pose to consumers.[x] 

Some of these data may not intuitively relate to the likelihood that a consumer will repay a loan. Consequently, the Bureau and the prudential regulators have previously noted that these data may create additional consumer protection risks.[xi] For instance, adverse action notice requirements under ECOA and Regulation B ensure that financial institutions use the data and advanced technologies in a way that fully complies with other legal requirements, such as the prohibition against illegal discrimination.[xii] 

So, it is essential to understand that the CFPB, the Department of Justice, and other enforcement agencies have pledged to use their collective authorities to protect individual rights regardless of whether legal violations occur through traditional means or advanced technologies.[xiii] 

Under ECOA and Regulation B, a creditor must provide an applicant with a statement of specific reason(s) for an adverse action. These reasons must “relate to and accurately describe the factors actually considered or scored by a creditor.”[xiv] Thus, a creditor may not rely solely on the unmodified checklist of reasons in the sample forms provided by the CFPB if the reasons provided on the sample forms do not reflect the principal reason(s) for the adverse action. As explained in Regulation B,

 

“[i]f the reasons listed on the forms are not the factors actually used, a creditor will not satisfy the notice requirement by simply checking the closest identifiable factor listed.”[xv]  

Rather, the sample forms merely provide an illustrative and non-exclusive list.[xvi] If the principal reason(s) a creditor actually relies on is not accurately reflected in the checklist of reasons in the sample forms, it is the creditor’s responsibility – if it chooses to use the sample forms – either to modify the form or check “other” and include the appropriate explanation, thereby ensuring that the applicant against whom adverse action is taken receives a statement of reasons that is specific and indicates the principal reason(s) for the action taken. 

Let me be clear: creditors that simply select the closest, but nevertheless inaccurate, identifiable factors from the checklist of sample reasons are not complying with the law. Creditors may not evade this requirement, even if the factors considered or scored by the creditor may surprise consumers – as certainly can happen when a creditor relies on complex algorithms using data not typically found in a consumer’s credit file or credit application. 

Because it is unlawful for a creditor to fail to provide a statement of specific reasons for the action taken,[xvii] a creditor will not be complying with the law by disclosing reasons that are overly broad, vague, or otherwise fail to inform the applicant of the specific and principal reason(s) for an adverse action. Just as an accurate description of the factors actually considered or scored by a creditor is critical to ensuring compliant adverse action notifications, sufficient specificity is also required. Such specificity is necessary to ensure consumer understanding is not hindered by explanations that obfuscate the principal reason(s) for the adverse action taken. 

Specificity with respect to artificial intelligence is a critical regulatory concern. To be sure, specificity is particularly important when creditors utilize complex algorithms. Consumers may not anticipate that certain data gathered outside their application or credit file and fed into an algorithmic decision-making model may be a principal reason for reaching a credit decision, particularly if the data are not intuitively related to their finances or financial capacity. 

A creditor must “disclose the actual reasons for denial . . . even if the relationship of that factor to predicting creditworthiness may not be clear to the applicant.”[xviii] So, for instance, if a complex algorithm results in a denial of a credit application due to an applicant’s chosen profession, a statement that the applicant had “insufficient projected income” or “income insufficient for amount of credit requested” would likely fail to meet the creditor’s legal obligations. That would be the case even if the creditor believed that the reason for the adverse action was broadly related to future income or earning potential, providing such a reason likely would not satisfy its duty to provide the specific reason(s) for adverse action. 

I hope you are now getting a sense of how artificial intelligence impacts your credit decisioning and, by extension, the specificity required by the adverse action notice. Concerns regarding specificity may also arise when creditors take adverse action against consumers with existing credit lines. 

An example can be elucidated in an FTC complaint,[xix] where a creditor decides to lower the limit on, or close altogether, a consumer’s credit line based on behavioral data, such as the type of establishment at which a consumer shops or the type of goods purchased. In this instance, it would likely be insufficient for the creditor to simply state “purchasing history” or “disfavored business patronage” as the principal reason for the adverse action. Instead, the creditor would likely need to disclose more specific details about the consumer’s purchasing history or patronage that led to the reduction or closure, such as the type of establishment, the location of the business, the type of goods purchased, or other relevant considerations, as appropriate.[xx]

 The CFPB has determined[xxi] that the requirements under ECOA extend to adverse actions taken in connection with existing credit accounts (i.e., an account termination or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts), as well as new credit applications. However, such factors in a credit model may be improper for other reasons, including that using such factors may violate ECOA or other laws if they constitute unlawful discrimination on a prohibited basis. 

The Bureau has also clarified that adverse action notice requirements apply equally to all credit decisions, regardless of whether the technology used to make them involves complex or “black-box” algorithmic models or other technology that creditors may not understand sufficiently to meet their legal obligations.[xxii] As data use and credit models continue to evolve, creditors must ensure that these models comply with existing consumer protection laws. 

Jonathan Foxx, PhD., MBA

Chairman & Managing Director 

Lenders Compliance Group

---

[i] 15 USC 1691(a)

[ii] 15 USC 1691(d)(2); 12 CFR 1002.9(a)(2)(i); see also 12 CFR 1002.9(a)(2)(ii), which allows creditors the option of providing notice or, following certain requirements, to inform consumers of how to obtain such notice.

[iii] 15 USC 1691(d)(3); 12 CFR 1002.9(b)(2). See also Adverse action notification requirements and the proper use of the CFPB’s sample forms provided in Regulation B, Circular 2023-03, September 19, 2023, Consumer Financial Protection Bureau 

[iv] 12 CFR Part 1002 (Supp. I), § 1002.9, para. 9(b)(2)-2

[v] 12 CFR Part 1002, (App. C), Comment 3

[vi] Like ECOA, FCRA also includes adverse action notification requirements. See 15 USC 1681m(a)(2). 15 USC 1681g(f)(1)(C); see also 1681g(f)(2)(B). 

[vii] See 12 CFR Part 1002 (Supp. I), § 1002.9, para. 9(b)(2)-9

[viii] 12 CFR Part 1002 (App. C), Comment 3

[ix] Adverse action notification requirements in connection with credit decisions based on complex algorithms, Circular 2022-03, May 26, 2022, Consumer Financial Protection Bureau

[x] Idem

[xi] Interagency Statement on the Use of Alternative Data in Credit Underwriting, at 2 , Board of Governors of the Federal Reserve System, Consumer Financial Protection Bureau, Federal Deposit Insurance Corp, National Credit Union Administration, and Office of the Comptroller of the Currency.

[xii] Joint Statement on Enforcement Efforts Against Discrimination and Bias in Automated Systems, at 3 (April 23, 2023), Consumer Financial Protection Bureau, Department of Justice, Equal Employment Opportunity Commission, and the Federal Trade Commission.

[xiii] Ibid. at 3

[xiv] Op. cit. iv

[xv] 12 CFR Part 1002 (App. C), Comment 4

[xvi] Op. cit. viii

[xvii] Op. cit. ii

[xviii] 12 CFR Part 1002 (Supp. I), § 1002.9, para. 9(b)(2)-4

[xix] FTC v. CompuCredit, Complaint, No. 1:08-cv-1976-BBM-RGV, 34-35 (N.D. Ga. filed June 10, 2008)

[xx] 12 CFR 1002.2(c)

[xxi] Revocations or Unfavorable Changes to the Terms of Existing Credit Arrangements, 87 FR 30097 (May 18, 2022), Consumer Financial Protection Bureau. See also Credit Card Line Decreases, (June 29, 2022), Consumer Financial Protection Bureau.

[xxii] Op.cit. ix

Debt Collection: Notice to Cease Communications

QUESTION 

We are facing a potential class action suit for violating the Fair Debt Collection Practices Act. Our company originates and services residential loans. I am the company’s General Counsel. My colleague is Of Counsel. Together, we are writing for some guidance. We already have retained outside counsel to fight the suit; however, we seek some understanding for revising our policies and procedures by outlining the written notice requirements to cease communications. 

Here’s what happened, in part. For a period of approximately six months, we did not cease communications upon receiving the borrowers’ written requests to terminate communications with them. We learned about it due to a servicing quality control review. The servicing quality control reviews should never have been stopped. These audits were only reactivated after receiving consumer complaints, which thereafter led to the lawsuit. 

What are the salient guidelines for a debt collector to cease communications with a debtor upon a written request? 

ANSWER 

I have written and spoken at length about the importance of implementing servicing quality control. Here are just a few of the articles on this subject. For some reason, some servicers – and lenders who use subservicers! – do not conduct servicing quality control. Then lawsuits or regulators come knocking on their door, and they suddenly scramble to do it. 

Our highly credentialed experts provide the servicing quality control audit if you (or anyone else) want it. Regulators and investors know the excellent reliability of our work. So contact us, and we’ll send you information about our servicing quality control. 

It seems like your firm understands the importance of servicing quality control, but somewhere along the line, let the ball drop. Benjamin Franklin’s warning applies: “A little neglect may breed great mischief.” Missing one servicing QC period is a red flag; miss six of them, as in your case, and get ready for a lawsuit! 

Now, let’s zero in on your question. 

The Fair Debt Collection Practices Act (FDCPA)[i] provides that debt collectors must cease to send communications to the consumer upon the consumer’s written request. The term “consumer” is defined under FDCPA[ii]  to include both

(1) the “natural person obligated to pay the subject debt” and

 

(2) certain persons “close to the consumer-debtor,” specifically the consumer’s spouse, parent (if the debtor is a minor under applicable state law), guardian, executor, and administrator. However, other relatives, such as the consumer’s children, parents (if the consumer is not a minor), grandparents, and relatives not included in the special FDCPA definition do not constitute “consumers” under FDCPA.[iii] 

Taking into account this expanded FDCPA[iv] definition of consumer, the FDCPA decrees[v] that whenever a Debtor, et al., (“Debtor”) notifies a debt collector in writing that the consumer

 

(1) refuses to pay the debt sought to be collected or

 

(2) wishes the debt collector to cease further communication with the Debtor, the debt collector must not communicate further with the Debtor regarding the subject debt, except for the following purposes:

 

·       To advise the Debtor that the debt collector’s further collection efforts are being terminated.

 

·       To notify the Debtor that the debt collector or the creditor may invoke specified remedies that are ordinarily invoked by the debt collector or the creditor.

 

·       Where applicable, notify the Debtor that the debt collector or the creditor intends to invoke a specified remedy. 

Furthermore, the FDCPA further provides[vi] that if the notice to the debt collector to cease communications with the Debtor is sent by mail, the notification is complete upon receipt by the debt collector. 

The term “communication” is defined as the conveying of information regarding a debt, orally or in writing, either directly or indirectly, and through any medium. This term includes both oral and written transmissions of messages that refer to a debt.[vii] 

Indeed, the FDCPA expands the definition of “communication,” by stating that “the term ‘communicate’ is given its commonly accepted meaning.”[viii] Thus, “communication” means any contact with the consumer related to the collection of the debt, whether or not the debt is specifically mentioned.”[ix]  

Taking this into account, upon receipt of the notification to cease further communications, debt collectors must cease all oral and written contact with the consumer, their spouse, parent (if a minor), guardian, executor, or administrator, except for the three express exceptions previously discussed. 

________________________________________________

FEATURED SOLUTION

SERVICING QUALITY CONTROL

______________________________________________________

In effect, the FDCPA requires that the debt collection show some good manners. Most of our servicing clients adopt the Golden Rule. That principle encourages us to ‘do unto others as you want them to do unto you.’ Of course, the negative reciprocal is not doing unto others as you do not want them to do unto you. Good manners are just a way of being courteous, respectful, and polite. The FDCPA enacts requirements that effectively ensure that the Golden Rule will be enforced, like it or not! 

Put simply, there is a time when further communications between a debt collector and the Debtor should halt. According to the statute establishing legal protection from abusive debt collection practices, published all the way back in 1977, consumer witnesses who related their personal experiences at the congressional hearings testified that they had been innocent third parties wrongly assumed to be the consumer merely because of a slight similarity of names. Also, stories reportedly were presented of abnormally rude and persistent collectors who refused to listen to the consumers’ valid reasons for nonpayment.[x] 

The FDCPA is intended to give relief to consumers being ‘harassed cruelly and relentlessly’ by a few independent debt collectors; it does not, however, enable consumers to avoid payment of just and honest debts. 

Thus, the mandate to debt collectors could not be more clear. 

To draft your policy, I suggest you include a section given to your employees involved in debt collection. Importantly, you must monitor their actions regularly. The section should be in the form of written instructions on implementing the FDCPA requirements. You may want them to sign a receipt for it and require periodic training. 

We are now ready to discuss the salient guidelines to cease communications with a debtor upon a written request. 

Collection procedures manuals should emphasize the following salient points:

 

·       Written Notice Required

In order for the notice requiring the debt collector to cease communications with the Debtor to be enforceable, it must be furnished to the debt collector in writing. Thus, an oral request made by a Debtor in person or over the telephone does not trigger the requirement to terminate all communications.

 

·       No Formal Notice Required

The FDCPA does not require that the written notice be signed. Since the FDCPA does not indicate how formal the notice must be, debt collection employees should be alerted to watch for written notations on returned dunning letters, envelopes, bills, and scraps of paper stating that

 

(1) The consumer refuses to pay the debt, or

 

(2) The consumer wants the debt collector to cease making any further contacts. Upon receipt of any such written messages, a proper cease communications notice is deemed to have been received by the debt collector.

 

·       Notices Permissible from Multiple Persons

The notice to cease communications may be sent to the debt collector not only by the individual who actually or allegedly owes the debt but also by the consumer’s spouse; parent if the consumer is a minor under applicable state law (viz., each state law must be examined on point); legal guardian; and the executor or administrator if the consumer is deceased.

 

·       Effective Date of Notices

Whether the notice to cease communications is delivered by hand or by mail to the collector, it becomes binding on the debt collector and all of the collector’s employees upon receipt in the collection agency’s office.

 

·       All Contact Halted

Upon receipt of the notice to cease communications, the debt collector must cease all contact with the individual consumer and the consumer’s spouse, parent (if the consumer is a minor), or legal guardian. If the notice is received from the executor or the administrator of a deceased consumer’s estate, no further communications may be sent to those officials or the family members of the deceased consumer.

 

·       Some Disputes Not “Notices” 

Debt collectors are not required to cease communicating with the Debtor simply because the consumer disputes the amount or character of the debt or the quality of goods purchased or financed. A cease communications notice is received only when the Debtor writes a note to the debt collector stating either that the consumer

 

(1) refuses to pay the subject bill or

 

(2) wishes the debt collector to cease all further communications. Written statements such as (a) “I won’t pay your bill” or (b) “I don’t want you to call or write me any more letters” would each serve as the requisite cease communications notice.

 

·       Notice as to Multiple Accounts

Debt collectors who handle multiple claims against an individual must cease their communications with the Debtor solely regarding the particular debts or accounts referred to in the notice to cease communications. If the notice relates exclusively to one particular delinquent account, the debt collector may continue debt collection efforts on the other claims. However, if the notice states that the Debtor wants the debt collector to cease future communications concerning all claims the collector is handling or that the consumer refuses to pay all of the debts that the debt collector is seeking to collect, all contacts should be terminated concerning all claims being handled.

I have not discussed here the actions the debt collector should take in response to a cease communications notice; however, the FDCPA allows but does not require the collector to send one final letter or notice that advises the consumer of the following:

·       The debt collector is terminating further efforts to collect the debt from the consumer;

 

·       The debt collector or the creditor may invoke certain clearly specified remedies that are ordinarily invoked by either the debt collector or the creditor; and/or

 

·       Where a clearly specified remedy is available to the debt collector or the creditor and applicable to the debt and the consumer, the debt collector or the creditor actually intends to invoke this remedy. 

The FDCPA states that the debt collector’s response to a written notice to cease communication from a consumer is limited to the three statutory exemptions, as noted above. The response specifically may not contain a demand for payment. 

Jonathan Foxx, Ph.D., MBA

Chairman & Managing Director 

Lenders Compliance Group

---

[i] Fair Debt Collection Practices Act (FDCPA) § 805(c), 15 USC § 1692c(c)

[ii] § 805(d),15 USC § 1692c(d); for all portions of FDCPA § 805

[iii]  See § 805(d)

[iv] Idem

[v] § 805(c), 15 USC § 1692c(c)

[vi] Idem

[vii] Comment 803(2)-1

[viii] Comment 805(c)-1, for purposes of implementing § 805(c)

[ix] Op. cit. i

[x] Public Law 95-109, 91 Stat. 874, approved September 20, 1977, and subsequently amended, the statute is a consumer protection amendment that establishes legal protection from abusive debt collection practices; it is in the Consumer Credit Protection Act, as Title VIII thereof.