Fair Debt Collection Practices Act (FDCPA) – No Longer Just a Third Party Concern

1. Fair Debt Collection Practices Act (FDCPA) – No Longer Just a Third Party Concern Bob Frick, Vice President Education Services, NCO Group David Stocker, General Counsel, Automated Collection Services, Inc. Tom Wantuck, Chief Operating Officer, Core Recoveries, LLC

2. An Overview of the CFPB Presenter: David Stocker, General Counsel Automated Collection Services, Inc. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

3. A beginning point should be what is the Consumer Financial Protection Bureau (CFPB)? It is a consumer protection agency created by the Dodd-Frank legislation and it officially began its supervisory and enforcement activities July 1, 2012. The enabling legislation was passed prior to that date, and while the agency was being organized and awaiting opening actions, it was already involved in the activity it has become best known for, gathering industry data. Dodd-Frank was supported by testimony and media reports that the FTC had not been successful in reducing the number of consumer complaints they were receiving and not being aggressive enough in their enforcement actions. There was also a backlash effect from the mortgage market failure and credit card problems. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

4. The legislation in its final form comprised 2,319 pages. For comparison, the Federal Reserve Act was only 31 pages and the Sarbanes-Oxley Act, 61 pages. The bill was two years getting through Congress and it created 29 new offices and agencies. The law requires 55 studies and reports and has an estimated cost for the first ten years of nearly 27 billion dollars. The legislation gave the CFPB concurrent jurisdiction with nearly all federal “alphabet soup” agencies that control the consumer credit industry. The CFPB is charged with writing and enforcing rules to target “abusive” practices in those markets. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

5. CFPB’s functions • There are eight units that function as follows: • To research consumer financial products and develop consumer educational programs; • To provide information and guidance to traditionally underserved consumers and communities; • Tracking consumer complaints and route those to proper federal or state agencies; • Office of financial education; 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

6. CFPB’s functions continued: 5. Office of fair lending and equal credit opportunity to oversee fair lending laws; 6. Consumer advisory board to advise the CFPB and provide information on the consumer industry and emerging practices; 7. Office of service member (military) affairs to provide financial services to service members and their families, including the National Guard; 8. Office of financial protection and education for older Americans; those over 62 years old. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

7. The authority granted to the CFPB in the legislation includes rulemaking (perhaps the most important), supervisory and enforcement. A key to this authority is that a significant amount of all consumer protection rulemaking, supervision and enforcement is taken from the bank regulators, although the FTC does retain its authority. The CFPB has authority over service providers, covered persons (any person that is engaged in offering or providing a consumer financial product or service or any affiliate of such person if acting as a service provider) and related persons. This is one of many omnibus provisions that are included in the CFPB authority, and it is unlikely that any credit transaction in the U.S. is not covered in one of them. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

8. The CFPB website contains examples of those entities and services covered and it is important to visit the site at www.consumerfinance.gov, to review those examples. The site also provides an opportunity to keep up with their frequent communications about CFPB activities. It is important to note for the student aid community the clear statements from the CFPB that student loans and those who service them are covered. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

9. The authority of the CFPB extends to defining and enforcing rules which cover “unfair, deceptive and abusive acts and practices”, consumer disclosures, credit reporting and consumer complaints. Dodd-Frank says an act is abusive if it “materially interferes with the ability of a consumer to understand a term or condition of a product or takes unreasonable advantage of the ability of a consumer to understand it.” The legislation includes significant oversight duties for private educational loans. A study into issues and functions of the private loan market place was ordered in the original legislation and a report of findings was to be made by July 2012. That report which has been issued, studied many aspects of the private loan market and produced several recommendations for change. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

10. An important date for the education industry is April 13, 2012. That is when the CFPB released a bulletin that set out the requirements that creditors who hire third parties to do work for them, must oversee their compliance with consumer laws. It has become clear that collection agencies and servicers who employ vendors, are responsible for the actions of their vendors. Included in that April 13 Bulletin was a specific list of duties the employing entity must follow in its oversight, including monitoring compliance activities, reviewing policies and procedures, training materials and the total compliance management system. The CFPB has made clear that they will not only examine a covered entity, but their vendors as well when doing a full review. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

11. This duty is set out in the Third Party Servicer Rules on the CFPB web site. Several findings by the CFPB against banks have been based in large part on the bank’s failure to oversee the actions of their third party service providers. It therefore seems likely that collection agencies will be held accountable for violations of their service providers. Thus, part of a compliance initiative for a collector or creditor, must include active due diligence in overseeing their service providers/vendors. It seems prudent to review current contracts between these entities. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

12. The CFPB has been active in recent months with many of their initiatives directed at the collection industry and student aid issues. This attention to student aid was included in the originating legislation which required a study and report on private educational loans, as mentioned above. The CFPB gathered data from student borrowers, servicers and participating lenders. That report, released one year after the CFPB began operation, also recommended revisiting student loan discharge in bankruptcy. That focus on student aid was recently revisited by an announcement and release of proposed rules in the Federal Register, that the CFPB would be issuing final regulations to establish a process to oversee student loan billing servicers. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

13. May 2013, CFPB employees join the National Treasury Employees Union; A significant part of the CFPB operational model is gathering data, especially about consumer complaints. As noted above, they have reached out to state attorneys general, state and local banking and consumer protection agencies, borrower advocates and legal aid, complaint resolution departments of lenders and servicers, local city governments and institutions of higher education; July 2013, exchange between Senators from Banking Committee and Dir. Cordray about scope of data gathering continues; July 2013, CFPB testifies before House subcommittee on the scope of their data gathering and use; 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

14. August, 2013, the CFPB seeks OMB approval of new “generic information gathering clearance” which will enable the Bureau to test and improve information gathering techniques; August 2013, the CFPB proposes new information gathering titled “Development of Metrics to Measure Financial Well Being of Working Age and Older American Consumers”. The discussion indicated that this would assist in upgrading the financial literacy of consumers; 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

15. August 2013, the CFPB, in a continuing course in this area, announces a program of outreach to teachers and other public servants to assist in providing information about their ability to reduce or cancel their student loan debt. • In addressing the latest CFPB actions, a Deputy Assistant Director of the CFPB spoke at the ACA conference in California July 15, 2013. A brief overview of those comments follows. That spokesperson identified three themes of CFPB focus in the debt collection arena: • Accuracy and integrity of data used to collect debts; • Debt verification, consumer complaints and disputes and their impact upon consumer reporting agencies; • Understanding industry practices. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

16. She then described the organization of the CFPB in the Office of Supervision, which has two sections, Office of Supervision of Policy and Office of Supervision of Examinations. She also stated the expectations of the CFPB for collection agencies were that each agency would have an internal compliance department that manages compliance with consumer laws. The goals of this internal compliance should be to prevent violations, monitor for and correct violations and track corrections made. In addition, to manage relationships with third party vendors to ensure they are complying with the CFPB rules and consumer laws. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

17. The CFPB released on October 2012 and have since amended, their Examination Procedures, a 900 page guide. The goal of these examinations is to identify risks to consumers and review the internal policies and processes used to ensure overall compliance with consumer laws. The spokesperson then gave an overview of the examination process. There will likely be an initial conference with the agency, followed by a request for documents, including training, process and policy documents, as well as complaint history. After review of those records, there will be an onsite visit by several examiners who will need unlimited access to your computer, staff and internal documents. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

18. CFPB’s Complaint Portal On July 10, 2013, the CFPB announced several new actions that address consumer complaints. This continues a process that the Bureau has been active in since the beginning in gathering complaint data from several sources, including an early web driven complaint process. They have since entered into agreements with the state attorneys general, the FTC and other federal agencies to have their data sent to the CFPB as well as other state and local government entities as set out above. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

19. The July 10, 2013 announcement included two bulletins on illegal conduct, published “action letters” for consumers and information about opening their consumer complaint resolution process, commonly referred to as the “portal”. Each agency is encouraged to register their company with the CFPB portal to receive notice of complaints that consumers will be filing through the portal. The consumer initiates the process by submitting a complaint. This is then reviewed by the CFPB and routed to the portal. The next step is for the agency to respond, presumably after making their investigation into the complaint. This response is sent to the consumer for review and their counter response. If they elect to do so, they have up to sixty days to provide this information. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

20. The CFPB routes the complaint to the company within 48 hours through a secure web portal that the company has established. The information is sent to the company’s portal. While there is not an independent notice of a new complaint, the CFPB provides a status report of all “open” complaints, and by reviewing that status report you can determine the new complaints. Each company is responsible to monitor their site to determine if they have had a complaint filed against them. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

21. Monitoring should be performed daily as the response time is 15 days. During her ACA presentation in San Diego, the Asst. Director stated that it is better to make a response sooner than later and that those who do not respond at all can trigger an investigation into that situation. This suggests to those who have expressed a reluctance or refusal to register, such inaction could be a serious problem. The CFPB will investigate individual complaints based upon a set of criterion. Examples include an analysis of the company’s response, the consumer’s input, the severity of the complaint and timeliness of the company’s response. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

22. The resolution response categories are set out in the rules and include; closed with monetary relief, closed with non-monetary relief, closed with explanation and closed. Each category has particular consequences and the discussion is beyond the scope of this paper. • Included in the July 10 2013 compliance alert were five “consumer action letters,” including: • Needs to know more information on debt collection (additional verification); • Wants to dispute the debt (interesting to see how this interplays with FCRA issues); • Wants to restrict a debt collector’s contact with them (impact on cease and desist?); • Has hired a lawyer; • Wants the debt collector to stop all communication (likely to drive up litigation as this has the potential to drive up all cease and desist demands). 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

23. Fair Debt Collection Practices Act 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

24. FDCPA Fair Debt Collection Practices Act (FDCPA) governs the communications, actions and acquisition of information, the actions of the debt collector and agency. Enforced by Federal Trade Commission and the CFPB Laws are to protect consumers from harassment, fraud and other issues under Title VIII of the Consumer Credit Protection Act Enacted on March 20,1978 Enacted to eliminate abusive, deceptive and unfair practices of debt collectors. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

25. Definitions Commission is the Federal Trade Commission Communications includes but is not limited to letters,phone communication, fax, email and in person communications. Consumer is the person allegedly obligated to pay any debt Debt is any obligation to pay money Location Information is a consumer’s home phone number, home address and place of employment ONLY Debt Collectoris any person that has the primary purpose of collecting a debt 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

26. What Debt Is Covered? Debt incurred primarily for personal, family or household purposes It DOES NOT apply to corporate debt or debt owed for business or agricultural purposes 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

27. Who Is Covered? Any person who regularly collects debts for another person or institution Anyone who uses a name other than its own when collecting its own consumer debts EXAMPLE: If you have an unpaid credit card and the bank is trying to collect the debt, they are considered 1st party. If they hired a collection agency, that agency would be the 3rd party and FDCPA would apply to the collection agency. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

28. Who Can We Talk To About The Account? Consumer Executor Parent (if the borrower is a minor) Guardian Spouse, in authorized states Consumer’s Attorney upon verification of representation Consumer Reporting Agency Creditor Creditor’s attorney Third Parties expressly authorized by the consumer or the court 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

29. Unauthorized Third Parties An unauthorized third party is someone we do not have permission to speak with regarding the debt. Here are some examples: Employer, Case worker, Financial Aid Officer, Mortgage company. We must have PERMISSION and it must be DOCUMENTED to speak with a 3RD PARTY. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

30. When and Where we talk to the consumer Between the hours of 8:00 a.m. and 9:00 p.m. in the consumer’s time zone. Inconvenient times and places are determined by the consumer. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

31. Contacting the consumer at work If we have knowledge that the consumer cannot have calls at work, we cannot call the consumer at work. If the consumer requests no calls at work, we must honor their request. If the receptionist at the job says no personal calls, we cannot call the consumer at work. (it must also be documented in the notes) 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

32. Mini-Miranda The mini-Miranda must be stated in every communication. “Federal law requires me to inform you that this is an attempt to collect a debt by a debt collector and any information obtained will be used for that purpose.” 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

33. Attorney Representation Once we receive knowledge the consumer has an attorney, all communication must be with the attorney. If we are unable to speak with the attorney, we will not call the consumer back. ACSI POLICY: the collector should attempt to contact the attorney three (3) times over a seven (7) day period. If the collector is not successful in reaching the attorney, the collector should request the approved Attorney Representation Verification letter to be mailed to the attorney. If the collector doesn’t receive a communication back from the attorney within 14 days after the mailing of the letter, the collection manager may transfer the account back to a collector to resume collection efforts. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

34. Cease and Desist May be in writing or verbal One final contact after written request is received to notify the consumer that: 1. Collection efforts are being stopped 2. Certain specific remedies ordinarily invoked may be pursued. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

35. Required Disclosures Every contact with a consumer or an authorized third party must include: KEY WORD IS AUTHORIZED 3RD PARTY Mini Miranda and Recording Disclosure Collector name Company name Client’s name 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

36. Validation of Debts The validation period is the 30 day period after the initial communication with the consumer. The initial communication includes: The amount of the debt Name of the original creditor Notice that the consumer has 30 days to dispute the debt *IMPORTANT – We don’t overshadow, do not say “due in full” with a deadline that falls within the above 30 day period. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

37. Disputes If the consumer disputes the debt verbally or in writing, the debt collector must: Stop all collection efforts 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

38. Harassing or Abusive Practices Debt collectors may not harass or oppress any person while collecting a debt. Threaten violence Use obscene or profane language Publish a public list of consumers who refuse to pay Annoy, abuse, or harass by calling repeatedly or causing the phone to ring repeatedly Make phone calls without meaningful disclosure 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

39. False and Misleading Representation False or misleading information is information known to be untrue, such as: Implying you are an attorney Threaten action that is not legal or you do not intend to take Imply non-payment will result in arrest Use post cards Use other names to identify yourself Use government seals or logos 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

40. Unfair Practices Adding interest, fees or collection costs to the principle unless it was authorized by the original agreement or permitted by law. Deposit or threaten to deposit a postdated check prior to the date on the check Cause communication charges such as collect calls 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

41. Civil Liability A collector can be held personally liable for FDCPA violations. Consumer has one year from the date the violation occurred to start such action. Statutory damages are determined by the court based on the nature, frequency and persistency of the violation. Any actual damages sustained Damages up to $1000 for an individual case and up to $1000 in a class action case for each named plaintiff up to $500,000 or 1% of the net worth of the collector Reasonable attorney fees Some state laws supersede the FDCPA when the state law provides the consumer with greater protection. 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida

42. Thank you! David Stocker dstocker@acsi.net 2013 Knowledge Symposium November 5-7, 2013 ● St. Pete, Florida