FTC Reports on 2016 Enforcement Activities to Counter Illegal Debt Collection Practices

On February 14, the FTC announced that it has provided the CFPB with a letter summary of the Commission’s efforts during the past year to combat unlawful debt collection practices, provide education and public outreach activities, and conduct research and policy initiatives in the debt collection area. The purpose of the letter, as explained by the Commission, is to “assist the CFPB in its annual report to Congress about its administration of the [Fair Debt Collection Practices Act]”—an act for which the Commission and the CFPB share enforcement responsibilities.

According to the summary, many of the Commission’s law enforcement actions focused on curbing illegal debt collection practices, including phantom debt collection. Specifically, during 2016, the Commission, among other things: (i) filed or resolved 12 cases against 61 defendants, and obtained nearly $70 million in judgments; (ii) permanently banned 44 companies and individuals that engaged in “serious and repeated violations of law” from working in the debt collection industry; and (iii) obtained summary judgment decisions in three litigated matters that resulted in court orders banning the pertinent defendants from the debt collection industry. The summary notes further that, during 2016, two federal appellate courts adopted interpretations of the FDCPA that it considered “favorable” to consumers in cases in which the Commission and CFPB filed joint amicus briefs.

Moreover, with respect to educational initiatives, the summary highlights the Commission’s continued efforts to educate consumers and businesses during the past year about their rights and responsibilities under the FDCPA and the FTC Act. Among other things, the Commission reported: (i) reaching consumers through approximately 16,000 community-based organizations and national groups; (ii) distributing 15.5 million print publications to libraries, police departments, schools, non-profit organizations, banks, credit unions, and other businesses and government agencies; (iii) logging more than “43 million views” on its pertinent website pages; and (iv) reaching consumers through its videos, which were viewed more than 600,000 times. The Commission also noted that it continues to monitor and evaluate the debt collection industry and its practices through public workshops, and by providing input to the CFPB regarding related “rulemaking and guidance initiatives.”

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NCUA Issues Guidance on CFPB Mortgage Servicing Rule, FDCPA Interpretive Rule

The National Credit Union Administration (NCUA) has issued a regulatory alert to federally insured credit unions regarding recent amendments to the CFPB’s 2013 Mortgage Servicing Rule, issued on August 4, 2016, and the Bureau’s FDCPA interpretive rule concerning safe harbors from FDCPA liability. The recent amendments to the Mortgage Servicing Rule clarify (i) Regulation X (RESPA) provisions regarding force-placed insurance notices, mortgage servicing policies and procedures, early intervention, and loss mitigation requirements, and (ii) Regulation Z (TILA) provisions regarding prompt payment crediting and periodic statement requirements. The FDCPA interpretive rule provides safe harbor for servicers acting in compliance with specified mortgage servicing rules set forth in  Regulations X and Z.

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CFPB Files Suit Against Nation’s Largest Student Loan Company

On January 18, the CFPB initiated an enforcement action against the nation’s largest student loan servicer based upon alleged violations of the CPA, FCRA, and FDCPA. In a complaint filed with the Middle District of Pennsylvania, the Bureau charged that the student lender “systemically and illegally” created “obstacles to repayment” and “cheated” many borrowers out of their rights to lower repayments, causing them to pay much more than they had to for their loans. The CFPB “seeks to obtain permanent injunctive relief, restitution, refunds, damages, civil money penalties, and other relief.”

Later that day, the lender issued a statement categorically rejecting the CFPB’s charges, explaining: “[T]he suit improperly seeks to impose penalties [] based on new servicing standards applied retroactively and applied only against one servicer. The regulator-asserted standards are inconsistent with Department of Education regulations, and will harm student loan borrowers, including through higher defaults.” The company also noted that “the timing of this lawsuit—midnight action filed on the eve of a new administration—reflects their political motivations.”

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CFPB Orders Medical Debt Collection Law Firms to Refund $577,135 to Consumers

On January 9, the CFPB entered into a Consent Order and Stipulation against two medical debt-collection law firms and their president for alleged violations of the FDCPA and FCRA. Based on these allegations, the CFPB ordered the Respondents to provide $577,135 in relief to affected consumers, correct their business practices, and pay a $78,800 civil money penalty. According to the allegations set forth in the consent order, between January 2012 and August 2016, debt collectors working for the firms violated the FDCPA by giving the false impression that the firm’s “Demand Letters were from an attorney or that the firm’s attorneys were meaningfully involved in reviewing the consumer’s case or had reached a professional judgment that sending a Demand Letter or making a collection call was warranted.” The Bureau also found that the firms notarized consumer affidavits for use in debt-collection lawsuits without properly verifying the truth of the signature. The CFPB also alleged that the firms violated FCRA’s Regulation V by failing to establish, implement, and periodically review and update reasonable written policies and procedures regarding the accuracy and integrity of consumer information furnished to consumer reporting agencies.

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The Ninth Circuit Holds that Enforcing a Security Interest is Not Necessarily Debt Collection

On October 19, the Ninth Circuit, in an opinion by Judge Kozinski, held that merely enforcing a security interest is not “debt collection” under the federal Fair Debt Collection Practices Act (“FDCPA”).  Ho v. ReconTrust Co., Case: 10-56884 (Oct. 20, 2016). In so holding, the Ninth Circuit disagreed with earlier decisions by the Fourth and Sixth Circuits, creating a split that might eventually be resolved by the U.S. Supreme Court.  See e.g. Piper v. Portnoff Law Associates Ltd., 396 F.3d 227, 235-36 (3d Cir. 2005); Wilson v. Draper & Goldberg PLLC, 443 F.3d 373, 378-79 (4th Cir. 2006); Glazer v. Chase Home Finance LLC, 704 F.3d 453, 461 (6th Cir. 2013).

In Ho, a borrower sued several foreclosure firms after she defaulted on her mortgage loan, alleging that the defendant-companies had violated the FDCPA by sending her default notices stating the amounts owed. The district court dismissed that claim, finding the trustee was not a debt collector engaged in debt collection under the FDCPA. On appeal, the Ninth Circuit affirmed the dismissal. The Court observed that a notice of default and a notice of sale may state the amounts due, but they do not in fact demand payment. Moreover, in California, deficiency judgments are not permitted after a non-judicial foreclosure sale, so no money can be collected from the homeowner. Notably, the notices complained of in Ho are required by California law prior to exercising the right to non-judicial foreclosure.

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