Earlier this week, the CFPB announced a $25 million in fines and restitution with the nation's largest debt-settlement services provider. This recent CMP highlights the potential changes to the Fair Debt Collection Practices Act, one of the centerpieces of Fair Lending compliance. Learn more about the CMP - and what it means for your debt collection practices - today!
Yesterday, the Consumer Financial Protection Bureau announced a $5M civil money penalty and $20M restitution agreement with the nation's largest debt-settlement services provider. These allegations have clear Fair Lending and UDAAP implications.
This enforcement activity comes amid proposed changes to the Fair Debt Collection Practices Act, or FDCPA.
Learn the facts about this $5M civil money penalty, plus get an update on the proposed changes to the Fair Debt Collection Practices Act.
First, we'll provide an overview of this civil money penalty. Then, we'll share a few updates about the potential changes to the FDCPA. Let's jump right in.
1. Fast Facts about the Recent $5M Debt Collection Civil Money Penalty
Yesterday's press release announced a large civil money penalty, plus an even bigger restitution order. Here are a few fast facts about the recent action:
- The CFPB announced that it settled its lawsuit with Freedom Debt Relief, the nation's largest debt-settlement services provider. (It is described in the complaint as a consumer debt settlement company.)
- The result of the settlement? A $5M civil money penalty.
- The company also agreed to pay $20M in restitution to the impacted consumers.
- Approximately $500,000 of the CMP will be remitted to the FDIC as part of the related settlement with that agency.
- The co-founder and co-CEO of Freedom Debt Relief has been help personally responsible for these alleged violations.
- The CFPB is alleging Fair Lending and UDAAP violations associated with the Consumer Financial Protection Act, in addition to violating the Telemarketing Sales Rule. More details on that are below.
According to the CFPB, Freedom Debt Relief engaged in the following practices that sparked the lawsuit:
- Allegedly violating the "Telemarketing Sales Rule by charging advance fees and failing to inform consumers of their rights to funds they deposited with the company."
- Allegedly violating the "Consumer Financial Protection Act of 2010 by:
- Charging consumers without settling their debts as promised,
- Charging consumers after having them negotiate their own settlements with creditors, and
- Misleading consumers about the company’s fees and its ability to negotiate directly with all of a consumer’s creditors."
- For example, Freedom advertised that it would negotiate directly with creditors on behalf of the consumer, despite knowing that certain creditors (such as Chase and Discover) refused to negotiate with debt-settlement companies.
- Many of these allegations have UDAAP implications.
- According to the complaint: "Freedom’s statements were false or misleading, were material to consumers’ decisions to enroll in Freedom’s debt-settlement program, and constituted deceptive acts and practices."
What does this mean for you?
We've known for years that the CFPB is focused on debt collection and debt-related services, and that Fair Lending and UDAAP compliance are really hot areas of potential risk.
Remember, this kind of settlement presents both business risks and reputation risks.
If you're a financial institution or services provider who is involved in debt collection or settlement-related activities, make sure that you understand your risk and are managing it seriously.
In particular, make sure that you're evaluating your policies and procedures with UDAAP risk in mind.
Finally, note that the regulators will evaluate your third-party vendors' risks as your own. Make sure that you have a good sense of their risks, too.
A Quick Update on the FDCPA Changes Proposal
Even though this $25M settlement isn't directly related to the Fair Debt Collection Practices Act, it does highlight that there are potential changes to this unique area of compliance risk.
As you probably know by now, the CFPB has proposed changes to the Fair Debt Collection Practices Act. The FDCPA was passed in 1977 by Congress, and it's important to note that first-party creditors are specifically exempted. The CFPB has rulewriting authority for the FDCPA.
In general, those proposed changes relate to communication practices, including social media, phone, text, and email; approaches to different types of debt and their collection; and disclosures. The following specific proposals seem to be attracting the most attention:
- Limits On Number of Calls: The proposed rule says that there can be no more than 7 calls per week, and no calls for a week if a telephone conversation does take place.
- Leaving Messages: Debt collectors would be able to leave messages for consumers.
- Option to Unsubscribe: In electronic communications, debt collectors would be required to include an option to unsubscribe.
- Prohibitions on Certain Methods of Communication: Under the new rule, debt collectors would not be able to contact consumers via a work email address, if it is clearly provided by an employer. In addition, collectors would be prohibited from using social media for collections.
- Time-Barred Debt: The proposed rule would also prevent debt collectors from filing suit (or threatening to file suit) for debt that is outside of the statute of limitations, or time-barred debt.
FYI You can learn more about all the different proposed changes in this "Fast Facts" sheet provided by the CFPB.
The comments period is now open, and the comments are flooding in. Some news outlets have reported that more than 1,100 comments have already been received.
The comment period closes on August 19. If you'd like to prepare a comment, do it soon!
Know that we're here to help you manage your Fair Lending and UDAAP compliance, through software and consulting services.
In the meantime, be sure to check out our guide on building your own lending compliance management system.
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