The Consumer Financial Protection Bureau released two bulletins last week that may affect your Buy Here – Pay Here dealership and the way you collect your money. Debt collection is one of the most active areas at the CFPB right now. As of July 10, 2013, they are now accepting complaints from consumers regarding debt collection. They have also published a series of 5 letters that consumers are encouraged to use to communicate with their lenders. These letters address the following situations when a consumer:
- Needs more information about the debt;
- Wants to dispute the debt and for the debt collector to prove responsibility or stop communication;
- Wants to restrict how and when a debt collector can contact them;
- Has hired a lawyer, or;
- Wants the debt collector to stop any and all contact.
You can access these letter on the CFPB website at http://www.consumerfinance.gov/blog/debtcollection/
The first bulletin, CF 2013-07, is titled Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of Consumer Debts. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), all covered persons or service providers are legally required to refrain from committing unfair, deceptive, or abusive acts or practices (collectively, UDAAPs) in violation of the Act. Dodd-Frank gives the CFPB the authority to monitor and regulate debt collection activities that might be considered unfair or deceptive practices.
In this bulletin, the CFPB is stating its position the most violations of the Fair Debt Collection Practices Act would be considered unfair and deceptive and that, therefore, violators of the FDCPA could also be prosecuted under various UDAAP statutes. The bulletin outlines what the CFPB considers unfair and/or deceptive.
An act or practice is unfair when:
(1) It causes or is likely to cause substantial injury to consumers;
(2) The injury is not reasonably avoidable by consumers; and
(3) The injury is not outweighed by countervailing benefits to consumers or to competition
An act or practice is deceptive when:
(1) The act or practice misleads or is likely to mislead the consumer;
(2) The consumer’s interpretation is reasonable under the circumstances; and
(3) The misleading act or practice is material.
The Bureau states that they will be watching these practices closely among others:
- Collecting or assessing a debt and/or any additional amounts in connection with a debt (including interest, fees, and charges) not expressly authorized by the agreement creating the debt or permitted by law.
- Failing to post payments timely or properly or to credit a consumer’s account with payments that the consumer submitted on time and then charging late fees to that consumer.
- Taking possession of property without the legal right to do so.
- Revealing the consumer’s debt, without the consumer’s consent, to the consumer’s employer and/or co-workers.
- Falsely representing the character, amount, or legal status of the debt.
- Misrepresenting that a debt collection communication is from an attorney.
- Misrepresenting that a communication is from a government source or that the source of the communication is affiliated with the government.
- Misrepresenting whether information about a payment or nonpayment would be furnished to a credit reporting agency.
- Misrepresenting to consumers that their debts would be waived or forgiven if they accepted a settlement offer, when the company does not, in fact, forgive or waive the debt.
- Threatening any action that is not intended or the covered person or service provider does not have the authorization to pursue, including false threats of lawsuits, arrest, prosecution, or imprisonment for non-payment of a debt.
You can read the bulletin in its entirety at: http://files.consumerfinance.gov/f/201307_cfpb_bulletin_unfair-deceptive-abusive-practices.pdf
The second bulletin concerns debt collection and what collectors may say concerning the effects paying the debt will have on a debtor’s credit report. The CFPB’s contention is that many debt collectors are making false or misleading statements in order to get debtors to make a payment. In particular, they note 4 areas of concern:
- Paying debts in collection and improvements in a consumer’s credit report;
- Paying debts in collection and improvements in a consumer’s credit score;
- Paying debts in collection and improvements in a consumer’s creditworthiness; or
- Paying debts in collection and the increased likelihood of a consumer receiving credit or more favorable credit terms from a lender.
They cite several examples of deceptive claims in these areas. For example, the Fair Credit Reporting Act imposes time limits (usually seven years) on including information about debts in certain credit reports. Claiming payment on any of these obsolete debts would obviously have no effect on a debtor’s credit in any way. Another fairly obvious deceptive practice would be to claim the payment would affect the debtor’s credit if the debt holder does not report payments to the credit bureau.
It may well be deceptive to claim a payment would affect a debtor’s credit score or increase their likelihood of obtaining future financing in any way. There are so many different components to both a credit score or a lender’s decision to extend financing that payment of a single date or even paying off a single delinquent account may have no effect.
The CFPB recommends: “Debt owners and third-party debt collectors should take steps to ensure that any claims that they make about the effect of paying debts in collection on consumers’ credit reports, credit scores, and creditworthiness are not deceptive.”
This bulletin can be found at:
Dealers should read these bulletins and include them in their training, particularly for their collectors. The CFPB continues to become more and more active and it is critical for dealers to monitor the Bureau’s activities to ensure that their dealership stays compliant.