Fair Debt Collection Practices Act

1. Fair Debt Collection Practices Act COMPLIANCE ALLIANCE

2. Scope • Relates to consumer debt – debts for personal, family, household purposes • Relates to collection of debt by a business that regularly collects or attempts to collect debts owned or due to a third party. • This also includes anyone who collects their own debt but does so under a different name • It does not however include a party collecting their own debt • This means that the FDCPA does not apply to bank’s who are attempting to collect their own debt – their debt collection requirements would fall under state law or UDAAP.

3. Definitions §803 • “The term "debt collector" means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. The term does not include -- • (A) any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor; • (B) any person while acting as a debt collector for another person, both of whom are related by common ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts; • (C) any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties; • (D) any person while serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt; • (E) any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors; and • (F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; (ii) concerns a debt which was originated by such person; (iii) concerns a debt which was not in default at the time it was obtained by such person; or (iv) concerns a debt obtained by such person as a secured party in a commercial credit transaction involving the creditor.”

4. FRB FDCPA Supervisory Manual - 2006 • “Debt Collectors That Are Covered The FDCPA defines a debt collector as any person who regularly collects, or attempts to collect, consumer debts for another person or institution or uses some name other than its own when collecting its own consumer debts. The definition includes, for example, an institution that regularly collects debts for an unrelated institution, such as an institution that, under a reciprocal service arrangement, solicits the help of another in collecting a defaulted debt from a customer who has moved”

5. FRB FDCPA Supervisory Manual - 2006 “Debt Collectors That Are Not Covered An institution is not considered a debt collector under the FDCPA when it collects • Another institution’s debts in isolated instances • Its own debts under its own name • Debts it originated and then sold but continues to service (for example, mortgage and student loans) • Debts that were not in default when they were obtained • Debts that were obtained as security for a commercial credit transaction (for example, accounts receivable financing) • Debts incidental to a bona fide fiduciary relationship or escrow arrangement (for example, a debt held in the institution’s trust department or mortgage loan escrow for taxes and insurance) • Debts, regularly, for other institutions to which it is related by common ownership or corporate control Other debt collectors that are not covered by the FDCPA include • Officers or employees of an institution who collect debts owed to the institution in the institution’s name • Legal-process servers”

6. Henson V. Santander Consumer USA Inc. • June 12, 2017 • Supreme Court Case • Bank that collects debts that it buys and holds it in portfolio isn’t a debt collector under the FDCPA • “Held: A company may collect debts that it purchased for its own account, like Santander did here, without triggering the statutory definition in dispute. By defining debt collectors to include those who regularly seek to collect debts “owed . . . another,” the statute’s plain language seems to focus on third party collection agents regularly collecting for a debt owner—not on a debt owner seeking to collect debts for itself.” • Previously, courts were split so this is an important decision • If you still can’t determine if you’re a debt collector under the FDCPA, you should consult with legal counsel and get a documented interpretation.

7. Definitions §803 • “The term "debt" means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” • “The term "communication" means the conveying of information regarding a debt directly or indirectly to any person through any medium.” • “The term "consumer" means any natural person obligated or allegedly obligated to pay any debt.” • ”The term "creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.”

8. Location Information • Location information means the consumer’s home address, phone number and place of work • Rule relates to contacting third parties when consumer debtor can’t be reached and the debt collector is trying to confirm their location • Basic premise – this is a confidential process. You can’t shame someone by contacting people they know an announcing they have a debt • Debt collector must identify themselves (individual) and if asked, must identify employer • Must state that the call is confirm the consumers address (or get correct information) • You can’t state that they owe a debt • Once you confirm or correct the information, you have to cease contacting a third party • Can’t be a postcard • If consumer is represented by an attorney, you can’t contact a third party

9. Prohibited Communications • Before 8 am or after 9 pm • Consumer is represented by attorney where name and address of attorney can be looked up or is known • If it’s known that the employer forbids collection calls at work place, can’t call them at work • If consumer notifies the debtor collector in writing and requests an end to collection communications • Must get court’s permission from the court to communicate with a third party in connection with a collection judgment

10. Harassment or Abuse • Cannot harass or abuse any person (debtor or third party) in relation to the debt. That means: • No criminal threats to harm the person, their reputation or property • Cannot use profanity • Cannot publish a list of debtors except to report debts to credit reporting agency • Similarly, cannot advertise sale of debt • Cannot call excessively or cause the phone to ring excessively and must disclose caller’s identity

11. False or Misleading Representations • Cannot indicate the debt collector is affiliated with the Federal or state government • Cannot mischaracterize the amount or legal status of debt • Cannot misrepresent services or compensation received by debt collector • Cannot falsely imply that caller is an attorney or any collection is from an attorney • Cannot imply or represent that failure to pay will result in arrest or seizure of property unless the action is allowed and the creditor intends to take that recourse • Cannot imply any action will be taken if its prohibited by law of the creditor/ debt collector has no intention of taking that action • Cannot use any false representations or deception to collect debt or gain information about the consumer

12. False or Misleading Representations • Must inform consumer that the collector is attempt to collect a debt and information that will be use for that purpose • Cannot falsely imply that accounts have been turned over to other purchasers • Cannot imply the documents are constituting legal process • Cannot use a false name • Cannot falsely imply that documents don’t constitute legal process or don’t require action if they do • Cannot falsely represent that the collector is or is employed by a consumer reporting agency.

13. Unfair or Unconscionable Practices • Collecting any amount unless it is expressly authorized by agreement or permitted by law • Accepting a check that is post dated more than five days without giving notice prior to deposit (three to 10 days notice) • Causing communication fees (e.g., calling collect) • Threatening to take non-judicial possession action if there is no intent to do so or its not lawful to do so • No postcards • Using anything other than the collector’s address on an envelope (except the name unless name indicates debt collection business)

14. Validation of Debts • After initial written communication, debt collector has to send written notice with five days that state: • The amount of the debt • Name of the creditor • That unless the consumer responds in 30 days and disputes the debt, the debt will be assumed valid • If the customer notifies the collector in writing with the stated period the debt collection will obtain verification of the debt or judgment and will mail it to the consumer • Upon written request within the 30 day period, the debt collector will provide the consumer with the name and address of the original creditor if different from the current creditor

15. Deceptive Forms • Unlawful to send a form knowing that it will cause consumer to believe any other person who is not a party to the debt collection is part of the collection process • Anyone who violates the section will be liable just as a debt collector would be

16. Legal Actions and Multiple Debts • Debt collectors that file suit/bring legal action on a debt must ensure: • That for actions related to real property, the action will be brought in district in which the real property is located • If not real property, then action will be brought in judicial district where consumer signed the contract or in which the consumer resides • If consumer owes multiple debts but makes a single payment to a debt collector, the debt has to be applied as indicated by the consumer and can’t be applied to disputed debts

17. Liability • Violating FDCPA can cause civil liability of actual damages, attorney fees, statutory damages up to $1,000 per person and $500,000 or 1% of total damages for class action suits • There are limited defenses for violations – unintentional violations due to bona fide errors despite having mitigation procedures in places or actions taken on good faith reliance on a Bureau advisory opinion • FIRREA Penalties

18. Relation to State Law • FDCPA doesn’t replace state law so, if you have similar state laws, you are subject to those requirements • In addition, while the FDCPA limits the term “debt collector” to third-party collectors, that does not mean state law does • Thus, even if you’re exempt under the FDCPA, you may still have fair debt collection rules to follow that are very similar to these rules

19. Social Media • FDCPA rules also apply to social media – there’s no exception • This means you can publicly post on their social media pages or try to use third parties to shame the person into paying • You also can’t use their social media as a means to harass the debtor – this would also include excessive communications via messenger

20. Relation to UDAAP • Similar language to UDAAP requirements (unfair/abusive) • While the FDCPA only applies to third-party collectors, UDAAP applies to banks (yes, still!) • The guidance also includes debt collection under the purview • A violation under the FDCPA could also be a UDAAP violation and state law violation • You’ll note the examples of what is considered unfair, deceptive or abusive under UDAAP’s discussion of debt collection is very similar to the FDCPA

21. CFPB Bulletin - 2013 • “The FDCPA generally applies to third-party debt collectors, such as collection agencies, debt purchasers, and attorneys who are regularly engaged in debt collection.5 All parties covered by the FDCPA must comply with any obligations they have under the FDCPA, in addition to any obligations to refrain from UDAAPs in violation of the Dodd-Frank Act. 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. “

22. CFPB Bulletin - 2013 • “C. Examples of Unfair, Deceptive and/or Abusive Acts or Practices Depending on the facts and circumstances, the following non-exhaustive list of examples of conduct related to the collection of consumer debt could constitute UDAAPs. Accordingly, the Bureau will be watching these practices closely. • Collecting or assessing a debt and/or any additional amounts in connection with a debt (including interest, fees, and charges) not expressly authorized by the agreement creating the debt or permitted by law.26 • Failing to post payments timely or properly or to credit a consumer’s account with payments that the consumer submitted on time and then charging late fees to that consumer.27 • Taking possession of property without the legal right to do so. • Revealing the consumer’s debt, without the consumer’s consent, to the consumer’s employer and/or co-workers.28 • Falsely representing the character, amount, or legal status of the debt.”

23. CFPB Bulletin - 2013 • “Misrepresenting that a debt collection communication is from an attorney. • Misrepresenting that a communication is from a government source or that the source of the communication is affiliated with the government. • Misrepresenting whether information about a payment or nonpayment would be furnished to a credit reporting agency.29 • Misrepresenting to consumers that their debts would be waived or forgiven if they accepted a settlement offer, when the company does not, in fact, forgive or waive the debt.30 • Threatening any action that is not intended or the covered person or service provider does not have the authorization to pursue, including false threats of lawsuits, arrest, prosecution, or imprisonment for non-payment of a debt. “

24. Action Plan • Review collection activities and determine if bank is an FDCPA collector • Have strong, specific FDCPA policy/procedures • Training call center/collection staff is imperative • Regular reviews and audits – if people are going off-script this would still be a serious violation • Include UDAAP/UDAP and State Law requirements in debt collection policy/procedure – If not an FDCPA debt collector, have debt collection in its own policy or under your UDAAP policy

25. Helpful Links FDCPA: https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text Commentary: https://www.fdic.gov/regulations/laws/rules/6500-1325.html CFPB Bulletin: http://files.consumerfinance.gov/f/201307_cfpb_bulletin_unfair-deceptive-abusive-practices.pdf FRB Manual: https://www.federalreserve.gov/boarddocs/supmanual/cch/fairdebt.pdf FDIC Topics: https://www.fdic.gov/consumers/assistance/protection/debtcollection.html Henson v. Santander: https://www.supremecourt.gov/opinions/16pdf/16-349_c07d.pdf

26. Questions? Thank you for your participation! We hope you found value in the presentation. If you have any additional questions, contact Compliance Alliance at hotline@compliancealliance.com or 888-353-3933.