A report released Thursday by the Consumer Financial Protection Bureau highlights illegal actions the agency has uncovered from overseeing the collections, consumer reporting and payday lending markets.

The report covers supervisory activities between November 2013 and February 2014. In the three nonbank markets featured, examiners found that many companies had flaws in their compliance management systems such as consistently failing to properly track and resolve consumer complaints.

Debt collection practices have generated a large volume of consumer complaints at all levels of government, including at the CFPB. The problems that CFPB examiners found include:

  • Debt collectors intentionally and illegally misleading consumers about litigation: Examiners found that collectors violated the Fair Debt Collection Practices Act by filing lawsuits, which implied that they intended to prove their claims, when they had no such plans. The collectors regularly dismissed the suits if consumers answered them because they were then unable to produce the documents to support their claims.
  • Debt collectors making excessive, illegal calls to consumers: Examiners found that one debt collector had made approximately 17,000 calls to consumers outside of the appropriate times established by the FDCPA. That company further violated the law by repeatedly contacting more than 1,000 consumers as often as 20 times within two days. The name of the company was not immediately available.
  • Debt collectors failing to investigate consumer credit report disputes: Collectors often furnish information to consumer reporting agencies, which use it when compiling consumers’ credit reports. Debt collectors generally must investigate when a consumer disputes information they have sent to a consumer reporting agency. Examiners found evidence that a debt collector was deleting disputed accounts rather than investigating such disputes, and examiners directed this collector to investigate disputes it receives regarding information it furnished.

The CFPB also discovered problems at credit reporting firms and credit bureaus. CFPB examiners found that certain agencies were not properly handling consumer credit report dispute documents.
These agencies are generally required to forward relevant dispute documents to data furnishers.

Examiners also found that some agencies were encouraging consumers to file disputes online or by telephone, but then refused to accept such disputes from some consumers.

In the small-dollar payday lending market, the problems that CFPB examiners found include:

  • Lenders hiring third-party collectors that illegally deceive and harass consumers:Many payday lenders hire third parties to collect their debts.

    Examiners found that third-party debt collectors misled borrowers in a variety of ways, including falsely claiming to be an attorney and making false threats of criminal prosecution. Third-party collectors also harassed borrowers by calling at unusual times.

    The CFPB said it expects payday lenders – and all institutions subject to its supervision – to oversee their service providers to ensure they are complying with federal law.

  • Lenders deceiving consumers to collect debt: When payday lenders called borrowers to collect debt, they sometimes threatened to take legal actions they did not actually intend to pursue.

    Examiners cited these threats as unlawful deceptive practices. Other lenders threatened to impose additional fees or to debit borrowers’ accounts at any time, when this was not allowed by their contract. Examiners also found lenders lied about non-existent promotions to induce borrowers to call back about their debt.

  • Lenders illegally harassing borrowers and visiting consumers at work: CFPB examiners found that payday lenders called borrowers multiple times per day. When lenders failed to accurately track how many times they had called a borrower, it increased the risk of a borrower receiving excessive calls.

    Examiners also found that employees of payday lenders would sometimes visit borrowers’ workplaces in attempts to collect debt. Such practices by lenders can violate the Dodd-Frank Act’s prohibition on unfair practices.

The CFPB outlined in the report that it expects companies to respond to customer complaints and identify major issues and trends that may pose larger risks to customers. 
Debt collection, consumer reporting and payday lending are being federally supervised for the first time.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB has authority to supervise certain nonbanks - including mortgage companies, private student lenders and payday lenders, as well as nonbanks the CFPB defines through rulemaking as "larger participants."

To date, the CFPB has issued rules to supervise the larger participants in the debt collection, consumer reporting and student loan servicing markets.

The report notes that recent non-public CFPB supervisory activities have resulted in more than $70 million in remediation to approximately 775,000 consumers.

CFPB Director Richard Cordray said, "The CFPB’s oversight of banks and nonbanks alike is exposing risky practices and getting results for consumers. We are pleased that our supervision program has been able to return more than $70 million to consumers in recent months.”

The full report is available here

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