Some Takeaways from the CFPB's Recent Report to Congress on the FDCPA

Alan Kaplinsky

The clear takeaway from the Consumer Financial Protection Bureau’s first annual report to Congress on enforcement of the Fair Debt Collection Practices Act is that debt collection will be a major focus of both the CFPB and the Federal Trade Commission in 2012.

In addition to giving FDCPA enforcement and rulemaking authority to the CFPB, the Dodd-Frank Act transferred from the FTC to the CFPB responsibility for preparing the annual FDCPA report. Submitted to Congress on March 20, 2012, the CFPB’s report incorporates information from (and includes as an appendix) a letter dated March 13, 2012, sent by the FTC to the CFPB summarizing the FTC’s debt collection activities in 2011 and early 2012.

Highlights of the CFPB report and FTC letter include the following items:

• Debt collection continues to be a leading subject of the consumer complaints submitted to the FTC, with the FTC receiving more complaints about the debt collection industry than any other specific industry. Of the FDCPA complaints received by the FTC in 2011, complaints about third-party debt collectors increased in absolute numbers and as a percentage of all complaints.

• Before the end of 2012, the CFPB plans to add debt collection to the nonbank products and services covered by its complaint system.

• The CFPB’s reach into the debt collection industry will extend much further than the debt collectors with more than $10 million in annual receipts that the CFPB has proposed to define as “larger participants.” (We summarized the CFPB’s proposal in a recent legal alert.) The CFPB report observes that Dodd-Frank gives the CFPB supervisory authority over service providers to large insured depository institutions as well as service providers to mortgage originators, payday lenders, and student lenders. Some service providers to smaller depository institutions are also subject to CFPB supervisory authority. Those service providers can include third-party debt collectors regardless of the collector’s size.

• The CFPB is currently conducting “non-public investigations of debt collection practices to determine whether they violate the FDCPA or the Dodd-Frank Act.”

• The FTC expects to issue a report in 2012 with findings and recommendations, if appropriate, on the debt-buying industry. Presumably this report will use information obtained by the FTC pursuant to the order it issued in 2009 to nine of the nation’s largest debt buying companies requiring them to produce “extensive and detailed information about their practices in buying and selling consumer debt.” The FTC also expects to issue a report in 2012 relating to debt collection technologies.

• The FTC noted in its letter that, to improve deterrence, it has focused in recent years “on bringing a greater number of cases and obtaining stronger monetary and injunctive remedies against debt collectors that violate the law.” According to the FTC, the seven debt collection cases it brought or resolved in the past year represent the highest number of debt collection cases it has brought or resolved in any single year. The FTC also highlighted its willingness in five of these cases to use its authority under Section 13(b) of the FTC Act to obtain preliminary or permanent injunctive relief, with the preliminary relief in several of these cases including ex parte temporary restraining orders with asset freezes, immediate FTC access to business premises, and the appointment of receivers to run the collection business.

• Both the CFPB report and the FTC letter describe recent FTC enforcement actions that “represent an extensive and concerted effort by the FTC to target debt collection practices that pose substantial risks to consumers.” The practices identified include collection activity undertaken by debt collectors based on information that is deficient in quantity and quality, collection of time-barred debts, and improper tactics used in the collection of payday loans. The FTC letter also references the FTC’s continued concerns about certain aspects of collection litigation and requirements for consumers to resolve debt collection through binding arbitration.

Alan S. Kaplinsky is a senior partner in the Business and Finance Department at Ballard Spahr LLP and Chair of the Consumer Financial Services Group. He is also a member of the Higher Education, Mortgage Banking, and Bank Regulation and Supervision Groups.

The debt collection industry, and creditors attempting to collect their own debts, are currently facing a rash of documentation-related challenges that have spread from mortgage foreclosures to encompass all manner of collection actions, including those involving credit card, student loan, and other types of non-mortgage debt. To assist clients in responding proactively to such challenges, Ballard Spahr’s Consumer Financial Services Group’s recently formed Collection Documentation Task Force conducts extensive reviews of collection procedures and counsels on best documentation practices. The task force brings together litigators in the group with experience defending mortgage lenders and other consumer lenders in documentation-related lawsuits nationwide and regulatory lawyers in the group with deep knowledge of the Office of the Comptroller of the Currency’s national bank foreclosure review process and federal and state debt collection laws.

The group also produces the CFPB Monitor, a blog that focuses exclusively on important CFPB developments.