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Did You Run that Past Legal?

Did You Run that Past Legal?. Larry Laskey, Windham Professionals Arthur Rotatori, McGlinchey Stafford John Culhane, Ballard Spahr Dino Tsibouris, Tsibouris & Associates Shelly Repp, NCHER. Verification from the PCA’s Perspective. Larry Laskey, V.P. General Counsel

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Did You Run that Past Legal?

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  1. Did You Run that Past Legal? Larry Laskey, Windham Professionals Arthur Rotatori, McGlinchey Stafford John Culhane, Ballard Spahr Dino Tsibouris, Tsibouris & Associates Shelly Repp, NCHER

  2. Verification from the PCA’s Perspective Larry Laskey, V.P. General Counsel Windham Professionals, Inc. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  3. Historical Perspective Specific, limited, outsourced function “Verification” provided on timely, written request Confirm amount creditor claims due Reliance on information creditor provides Validity ultimately determined by a court 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  4. Looking Ahead? More information to the borrower “up front” Verification required on any request, at any time More information needed to “verify” Encourage borrowers to ask for more information 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  5. Looking Ahead? • Increasing creditor involvement • Assure collector knowledge • Monitoring collector activity • Making more documentation available sooner • A more “active” collector role • Assessing validity of creditor claims • Self-initiated verification activities • Repository for documentation • Recasting of roles/responsibilities? 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  6. Notice of Borrower Rights • “Collector must abide by fair debt rules” • “You can ask for • proof of right to collect the debt” • itemization of the debt and payment history” • “You are entitled to • copies of all documents reflecting this debt” • Historical information (e.g., date of default, original creditor/account number, borrower information)” 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  7. State Verification Requirements • New York City: upon any request, original debt documents and itemization from original creditor, describing basis of payment obligation • Chicago: upon timely written request, statement of account/itemize components of original charge off balance and each post-charge off amount; identify/describe basis for the obligation 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  8. State Verification Requirements • New York (proposed): within 30 days of any request, signed debt agreement, last itemization from creditor to borrower (with all account numbers used), chain of title (statement with dates of assignment) • California (purchased debt): within 15 days after any written request, access to all debt documents 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  9. State Requirements:Substantiate Before Collection? • Assure that • Creditor has the right to collect • All amounts sought are correct • You have access to all information the borrower has a right to request • You can provide it within 15 days 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  10. Notice of Creditor Limitations • “You cannot be sued to repay this debt” • “Your credit report can no longer reflect this debt” • Collector must know in order to notify • Date of last payment/delinquency • Law applicable to the debt • … and some “interesting” disclosures: • “You can be sued, but certain income is exempt” • “Non-payment may damage your credit” 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  11. Federal Requirements: Inform and Investigate • Borrowers don’t get adequate information • Borrower needs to assess the claim • Validation notice needs more detail • More substantial verification • Written and oral disputes, whenever raised • Proper amount and borrower • Assess relevance, reliability, accuracy and completeness (including credibility) of all information from all sources. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  12. Federal Requirements: Substantiate • “Substantiate” the debt before collection • Reasonable basis to claim borrower owes the debt • CFPB “sample” letters? • Statute of limitations? 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  13. Federal Requirements: Substantiate/Investigate • Rely on creditor absent “reasonable indication” that information is incomplete, inaccurate, unreliable or does not substantiate • Consider reliability and source of information • Not an “investigation” 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  14. Federal Requirements: Substantiate/Investigate • Verify (investigate) even absent a borrower dispute? • Similar other disputes at disproportionately high rates • Unavailability of documents • Creditor’s business methods • Repository of debt documentation 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  15. Expanding the Focus • FTC Act Section 5 • Dodd-Frank UDAAP • Attempting to collect the “wrong” amount • Third party disclosure • Threats of litigation • Creditor “oversight” 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  16. Creditor Obligations for Debt Collection and Debt Selling Arthur J. Rotatori, Esq. McGlinchey Stafford 25550 Chagrin Blvd., Suite 406 Cleveland, Ohio 44122 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  17. Creditor Obligations for Debt Collection have Expanded • Direct Debt Collection • Placement with Debt Collection Agency • Sale of Debt to Debt Buyer • Vendor Management • Documentation 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  18. Vendor Management April 2011 - OCC/ OTS/ Federal Reserve Interagency Review of Foreclosure Policies and Practices: “The reviews found critical weaknesses in servicers’ foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third-party vendors, including foreclosure attorneys.” 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  19. Vendor Management April 13, 2012 - CFPB Bulletin 2012-03, Service Providers: "A service provider that is unfamiliar with the legal requirements applicable to the products or services being offered, or that does not make efforts to implement those requirements carefully and effectively, or that exhibits weak internal controls, can harm consumers and create potential liabilities for both the service provider and the entity with which it has a business relationship. Depending on the circumstances, legal responsibility may lie with the supervised bank or nonbank as well as with the supervised service provider." 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  20. Vendor Management April 13, 2012 - CFPB Bulletin 2012-03, Service Providers: • Thorough due diligence • Review policies, procedures, internal controls, and training materials • Contractual expectations of compliance • On-going monitoring • Prompt corrective action, including termination of relationship 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  21. Vendor Management May 16, 2012 – Remarks by Thomas J. Curry, Comptroller of the Currency Before the Exchequer Club: “[W]hen a bank or thrift enters into a third-party relationship, it must understand that it does not wipe its hand of responsibility for the quality and characteristics of the products that are offered to its customers through this channel—even if those products are not marketed with the institution’s brand. Due diligence in identifying, measuring, and monitoring the risk from third-party relationships, and establishing mechanisms for controlling and continuously monitoring those risks, is thus an essential part of managing operational risk, which in turn affects its safety and soundness." 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  22. Vendor Management July 13, 2013 – OCC Statement to the Senate Subcommittee on Financial Institutions & Consumer Protection: “The OCC expects all national banks and federal savings associations to have policies and procedures in place to manage their debt collection activities effectively. This includes managing the operational and reputational risks, and complying with all relevant consumer protection laws.” 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  23. Documentation July 2010 – FTC’s Report – “Repairing a Broken System" States should require the following in a debt collection complaint: • original creditor’s name and the last 4 digits of the original account number; • the date of default and the amount due at that time; • the current owner of the debt; • the total amount currently owed on the debt, itemized by principal, interest, and fees; and • the relevant terms of the underlying credit contract, if the contract itself is not attached to the complaint. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  24. Documentation June 6, 2013 – Steve Antonakes, Deputy Director, Consumer Financial Protection Bureau; CFPB/FTC Roundtable on Data Integrity Issues in Debt Collection: “Original creditors should ensure that a sufficient amount of information about the debt is being made available. So we pay close attention to whether debt collectors have accurate information when they are collecting debts. * * * So each of us has a role to play in formulating solutions – whether they are technologies, recordkeeping practices, data standards, or designing new systems, disclosures, or rules.” 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  25. Documentation • June 4, 2013 – Sen. Brown (OH) Letter to Director Cordray • Require debt collector to hold all relevant documentation before issuing their first debt collection notice to the consumer • Require that information on prior collection attempts travel with the debt • Prohibit the sale of “unverifiable” debts 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  26. Documentation July 10, 2013 – the CFPB posted 5 sample letters on its website that it encourages consumers to use when subject to debt collection activity. • "Needs more information" letter • Consumer should ask debt collector for the original written agreement that created the obligation, and the final billing statement sent to the consumer. • If the debt collector is unable to provide such documentation, the consumer is to assume that the debt cannot be proven. • The debt collector must also be able to determine when the statute of limitations runs 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  27. Documentation July 10, 2013 – the CFPB posted 5 sample letters on its website that it encourages consumers to use when subject to debt collection activity. • “Dispute and Proof” letter • “If you have good reason to believe that I am responsible for this debt, mail me the documents that make you believe that.“ • “Contact restriction” letter • “Hired a lawyer” letter • “Stop contact” letter 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  28. Documentation July 17, 2013 –CFPB Testimony before Senate Subcommittee on Financial Institutions and Consumer Protections: At our joint roundtable, we heard strong consensus about the need for robust national documentation standards and the need to maintain the accuracy of information used to collect debts. We will keep that in mind as we move toward a rulemaking process on debt collection issues. * * * [T]here is a surprising amount of consensus across all market participants– from debt collectors, creditors, and collection attorneys, to consumer advocates, legal services providers, and state attorneys general—that we must develop clear standards for data integrity and record-keeping in the debt collection market. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  29. Debt Buying/ Selling January, 2013 – FTC Report – “The Structure and Practices of the Debt Buying Industry” • Debt buyers paid 4 cents per dollar of debt face value • Debt buyers typically received only the information required for validation notices • Debt buyers rarely received dispute history • Debt buyers received few underlying documents about debts • Accuracy of information provided about debts at time of sale not guaranteed • Limitations on debt buyers’ ability to receive documents, such as price 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  30. Debt Buying/ Selling July 13, 2013 – OCC Statement to the Senate Subcommittee on Financial Institutions & Consumer Protection: “When banks sell debt, the agency expects them to have policies, procedures, and practices that result in the third party treating customers fairly and consistently with the expectations of the banks and regulators. Even though a bank may have sold a consumer’s debt to a third party, consumers often continue to view themselves as the bank’s customers and may have other relationships with that bank. As a result, the debt collector’s behavior affects the bank’s reputation. Failure to implement proper controls and governance that effectively manage these activities represent safety and soundness and compliance concerns for the OCC.” 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  31. Debt Buying/ Selling July 13, 2013 - OCC Statement to the Senate Subcommittee on Financial Institutions & Consumer Protection/ Best Practices: • Provide Sufficient Documentation • Limit the Resale of Debt • Limit the Litigation Strategy • Maintain Quality Management Information Systems • Conduct Periodic Reviews 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  32. Debt Buying/ Selling July 13, 2013 - OCC Statement, cont’d : Debt sale oversight must include: • Each debt sale should go through a formal approval process that is similar to a product approval process. • Detail documentation requirements. • Ongoing due diligence monitoring requirements – consumer complaints, changes in control of buyers. • Are debt buyers prohibited from reselling accounts? If not, what additional controls are in place to ensure subsequent purchasers are legitimate. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  33. FDCPA applies to creditors • July 10, 2013 – CFPB Bulletin 2013-07: • “Although the FDCPA’s definition of ‘debt collector’ does not include some persons who collect consumer debt, all covered persons and service providers must refrain from committing UDAAPs in violation of the Dodd-Frank Act.” • “Original creditors and other covered persons and service providers involved in collecting debt related to any consumer financial product or service are subject to the prohibition against UDAAPs in the Dodd-Frank Act. The CFPB will continue to review closely the practices of those engaged in the collection of consumer debts for potential UDAAPs, including the practices described above.” 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  34. FDCPA applies to creditors But which sections apply to creditors? • July 10, 2013 – CFPB Bulletin 2013-07, cont’d • Collecting debt not authorized by law. • Taking property without legal authority. • Third-party disclosure of debt. • False statements to induce payment. • Threatening lawsuits (when no intent), arrest, prosecution, or imprisonment. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  35. FDCPA applies to creditors But which sections apply to creditors? July 10, 2013 – CFPB Bulletin 2013-07, cont’d “The examples described in this bulletin are not exhaustive of all potential UDAPs. The Bureau may closely review anycovered person or service provider’s consumer debt collection efforts for potential violations of Federal consumer financial laws.” 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  36. FDCPA applies to creditors July 13, 2013 - OCC Statement to the Senate Subcommittee on Financial Institutions & Consumer Protection: “Debt collection is a fundamental part of the business of lending. . . [B]anks have the responsibility to attempt to collect that debt and to recover losses associated with that bad debt. They must do this in a manner that is not only safe and sound, but fair to their customers and in compliance with applicable laws and regulations.” 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  37. Conclusion • Vendor management • Documentation • To debt collector and/ or debt buyers • Affidavits are insufficient – “Robo-signing” • Debt buying/ selling • Cradle to grave • Creditors are subject to the FDCPA • UDAP • Which section(s) is an open question 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

  38. Questions? 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

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