Alert July 23, 2013

CFPB Issues Guidance Bulletin for Debt Collection

The CFPB issued two bulletins addressing debt collection practices in response to practices observed by the CFPB during supervisory examinations and enforcement investigations. In announcing the bulletins, Director Richard Cordray noted that "[t]hese bulletins make clear that it doesn’t matter who is collecting the debt—unfair, deceptive, or abusive practices are illegal." The first bulletin describes conduct in the collection of consumer debt that could constitute unfair, deceptive or abusive acts or practices. The bulletin provides a "non-exhaustive list" of conduct considered to be unfair, deceptive and/or abusive acts or practices that the CFPB intends to "watch closely." Such conduct includes: misrepresenting to consumers that their debts will be waived or forgiven if they accepted a settlement offer, when the company does not, in fact, forgive or waive debt; misrepresenting whether information about a payment or nonpayment would be furnished to a credit reporting agency; or falsely representing the character, amount or legal status of the debt (e.g., falsely representing who owns the debt, the amount of the debt or the legal status of the debt).

The second bulletin provides guidance to creditors, debt buyers and third-party debt collectors about compliance with the Fair Debt Collection Practices Act and the Dodd Frank Act, which among other things, contains prohibitions on unfair, deceptive, or abusive acts or practices. Of considerable concern to the CFPB were claims made by debt collectors, which the CFPB defined as creditors, debt buyers, and third-party debt collectors, when making representations about the impact that payments of debts have on credit reports and scores. The CFPB noted that debt collectors often make "material representations intended to persuade consumers" to pay debts about improvements to a consumer’s credit score, credit report, creditworthiness, or the receipt of credit or more favorable credit terms from a lender. The CFPB noted that these type of "potentially deceptive claims are a matter of significant concern to the CFPB," and as such, debt collectors should take steps to ensure that such statements are not deceptive. Finally, the CFPB noted that in the course of its supervision activities and enforcement investigations, it plans to review communication materials, scripts, training manuals and other documentation to determine whether debt collectors are engaged in such conduct.