Since the start of the Consumer Financial Protection Bureau, the debt collection industry has lived in a box of great unknowns. While some debt collection companies may have survived the examination process, rumors abound that many exams have continued for months or years and some may have not yet concluded.
The CFPB has openly admitted that they are learning, but to what extent can the industry predict where these examinations will lead?
This article will explore a few indicators, which may oftentimes viewed as "collateral attacks" on the industry, but may more arguably be "indicia" of where the CFPB is pushing the industry to examine itself as well.
The collection industry was taken a bit by surprise when the CFPB sued Georgia-based Frederick J. Hanna & Associates and its three principal partners for allegedly operating a collection lawsuit mill
The CFPB sued the debt collection law firm for allegedly intimidating consumers with deceptive court filings and misrepresenting to consumers that the suits are from attorneys as well as introducing faulty or unsubstantiated evidence.
The CFPB indicated that the "CFPB believes Hanna does so frequently because it cannot substantiate" its allegations. While the Hanna law firm has put forth a vigorous defense, the CFPB does not appear to be retreating from their positon that they have a say regarding collection litigation and the evidence filed with suits.
(Click here to see the Hanna law firm's motion to dismiss.)
CFPB enforcement actions also seemingly parallel Attorneys General investigations to a certain extent.
For example, in the last year, the Attorney General of New York has settled with four debt buyers regarding the calculation of the statute of limitation dates in the filing of collection litigation under the states deceptive trade practices statutes.
Much like the Hanna case, there is a debate whether a state regulator (other than the State Bar) can govern lawyers conduct. While there are Georgia and Florida cases holding that the practice of law is not an area an Attorney General can regulate, other states have investigated and fined law firms through its deceptive trade practices laws.
Based on the CFPB enforcement action against the Hanna firm, CFPBs examinations may have focused on numbers of collection suits, documentation, dismissal rates and counterclaims. It would appear that contested law suits and the frequency of dismissals also could be an area of focus as the CFPB has questioned as whether cases are dismissed if contested or if appearance was made by counsel for the consumer.
(Click here for a story that includes the CFPB's response to Hanna)
The CFPB focus on time-barred debt is no secret. The CFPB joined with the Federal Trade Commission in filing an amicus brief with a position that was ultimately followed by the Sixth Circuit in a case involving the collection of debts past the appropriate statute of limitations and the use of the term "settlement" in the Sixth Circuit decision in Buchanan v. Northland Group Inc.
(Click here for more on the court's ruling in the case.)
In the CFPBs brief, it discussed the lack of full and complete information, ostensibly the quality of the information, which would lead a consumer to believe that they might be sued on a time-barred account.
To avoid a misimpression and increase the quality of the information given to the consumer, the CFPB commented that "to avoid misleading consumers, sellers and debt collectors alike may be required to correct consumers misimpressions" even if they did not directly create, or only partially created, the misimpression.
While a portion of the CFPB Debt Collection Exam Manual addressed vendor oversight, it wasn't clear the extent that the CFPB would hold either debt collectors or the vendors themselves liable for conduct of the vendor.
In March, the CFPB filed suit in Georgia against debt collectors as well as payment processors and a dialer company. The dialer company was named in the CFPB action because of a message allegedly provided to the debt collector by the dialer company for outbound messaging.
It would now appear a bit clearer that the CFPB expects vendor oversight by debt collectors and expects the vendors to act responsibly or they will be held liable for its own contributions to misconduct.
While the next area of CFPB focus is anyones guess, there are indicators that the next area may be related to the collection of disputed accounts. This is merely a guess. However, guesses are what make astute debt collectors believe that that the knowledge the CFPB has gleaned from months and years of examinations is now appearing in their enforcement actions.
Barbara Sinsley: Of Counsel- Barron & Newburger PC