On April 12, 2017, the Federal Trade Commission (FTC) announced that it had secured a $2 million civil penalty against the president of a debt collection company for violating the Fair Debt Collection Practices Act (FDCPA) in United States v. Commercial Recovery Systems, Inc.—one of over a hundred cases brought in connection with the coordinated effort by the FTC and other enforcement agencies to crack down on abusive debt collectors known as “Operation Collection Protection.
As LenderLaw Watch has previously reported here, Operation Collection Protection was announced back in November 2015, when the FTC, the Consumer Financial Protection Bureau (CFPB), and other law enforcement authorities around the country stated their intent to implement the first coordinated federal-state enforcement initiative targeting deceptive and abusive debt collection practices. According to the November press release, among the practices targeted by Operation Collection Protection include “illegal tactics such as harassing phone calls and false threats of litigation, arrest, and wage garnishment.”
In its Memorandum Opinion and Order on the United States’ motion for summary judgment in Commercial Recovery Systems, Inc., the court observed that the defendant debt collection company—Commercial Recovery Systems, Inc. (CRS)—was a third-party debt collector that primarily collected consumer debt, including auto loans and credit card debts, on behalf of the original creditors. CRS employees were incentivized to maximize their debt collection through rewards that included commissions, access to the company’s luxury suite at AT&T Stadium, and expensive dinners and lunches. Despite CRS’s assertions that it provided new employees with an FDCPA compliance test and had a full-time employee to monitor calls for FDCPA compliance, former employees reported that “FDCPA training at CRS was virtually nonexistent,” “newly hired employees were on the floor collecting the day they were hired,” “no formal disciplinary system for FDCPA violations existed at the company,” and employees were only terminated for FDCPA violations when their actions resulted in a lawsuit against the company.
The court found that CRS’s collection practices generated a large number of complaints, including reports that CRS collectors were falsely representing or implying:
- the character or legal status of a debt;
- that Defendants’ collectors were attorneys or that a communication was on behalf of an attorney;
- that nonpayment of a debt would result in the filing of a lawsuit or other legal action against the consumer; and
- that nonpayment of a debt would result in the seizure, garnishment, or attachment of a person’s property or wages.
After reviewing samplings from CRS’s production of audio logs demonstrating that CRS engaged in these practices, the court noted that each of these four practices were explicitly barred by the FDCPA, and therefore held that CRS’s actions were in violation of the FDCPA. In holding CRS’s president personally liable for these actions, the court found that he “not only played a role in formulating the policies and practices that resulted in the violative acts, but in fact actually set the policies of [the] company.” The court held that civil penalties under the FDCPA were especially warranted against the president because the summary judgment record supported that he had actual or constructive knowledge of the violations.
Companies that engage in debt collection—and their officers—should stay apprised of Operation Collection Protection and developments like the $2 million civil penalty in Commercial Recovery Systems, Inc. These industry participants should review their policies and procedures and ensure that they do not permit practices like the ones described in the Commercial Recovery Systems, Inc. case. , Companies might consider, in particular, evaluating their incentive structures and internal FDCPA training with an eye towards preventing the onset of unlawful debt collection practices.
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