Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: FTC, CFPB testify before Senate Banking subcommittee about unlawful debt collection practices, (Jul 17, 2013)

By Thomas G. Wolfe, J.D.

The FTC and the Consumer Financial Protection Bureau presented testimony before the Senate Committee on Banking, Housing, and Urban Affairs’ Subcommittee on Financial Institutions and Consumer Protection about their respective efforts to combat unlawful debt collection practices on several fronts—including law enforcement, supervision, education and public outreach, and research and policy initiatives.

FTC’s testimony. On behalf of the FTC, James Reilly Dolan, Acting Associate Director for the FTC’s Division of Financial Practices, asserted that addressing unlawful debt collection practices continues to be one of the FTC’s highest priorities, particularly since the FTC receives more complaints about debt collection than any other single industry. While recognizing that lawful debt collection “helps keep credit more readily available and affordable,” Dolan emphasized that unlawful debt collection practices “cause serious harm to consumers … and place law-abiding debt collectors at a competitive disadvantage.”

According to the FTC’s testimony, since January 1, 2010, the FTC has brought 15 enforcement actions against debt collectors and has obtained more than $56 million in judgments. According to the FTC’s press release, the FTC recently entered into a settlement in which the defendants agreed to pay a $3.2 million civil penalty, the largest civil penalty the FTC has obtained in a case alleging violations of the federal Fair Debt Collection Practices Act.

The FTC continues to halt companies’ “exceptionally egregious” debt collection tactics by obtaining temporary restraining orders, asset freezes, and appointment of receivers. At the same time, the FTC’s testimony indicates that, in recent times, the FTC has additionally focused on shutting down so-called “phantom” debt collectors; generally, phantom debt collectors engage in the fraudulent practice of attempting to collect debts that either do not exist or are not owed to the phantom debt collector.

In keeping with its education and public outreach initiative, the FTC’s testimony underscored its work to “educate consumers and businesses about their rights and obligations under the FDCPA” by providing written materials, one-on-one guidance, and speeches and presentations. In addition, FTC staff members have collaborated with legal service providers to discuss debt collection issues. Similarly, through its workshops, reports, and policy statements, the agency continues to monitor and examine the debt collection industry and its practices.

In his testimony before the subcommittee, Dolan commented that the FTC has worked closely with the CFPB to coordinate efforts to contend with unlawful debt collection practices. He noted that this coordination not only is directed by the Dodd-Frank Act itself, it is also part and parcel of the “Memorandum of Understanding” between the two federal agencies.

CFPB’s testimony. On behalf of the CFPB, Corey Stone, Assistant Director of the CFPB’s Office of Deposits, Cash, Collections, and Reporting Markets, stated that, based on information available to the CFPB, it is estimated that about 30 million people—or nearly one out of every ten Americans—“came out of the financial crisis with one or more debts in collection, for amounts that average about $1,400 per person.”

Stone noted that there are over 4,000 debt collection and debt purchasing companies in the U.S., representing a wide spectrum of firms. Since the CFPB has authority to supervise firms that have more than $10 million in annual receipts from consumer debt collection activities, Stone indicated that this translates to supervision authority by the CFPB over approximately 175 debt collectors and debt buyers—over 60 percent of the consumer debt collection industry.

According to the CFPB’s testimony, a recent roundtable discussion revealed 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.” In connection with the CFPB’s Office of Consumer Response, which receives consumer complaints about debt collection practices, Stone said, “We will be able to identify entities whose practices generate high levels of complaints and target our supervision and enforcement efforts where they are most needed. Likewise, we will be able to identify criminals who are posing as collectors and report them to the proper law enforcement authorities.”

Among other things, the CFPB’s testimony highlighted three important challenges concerning debt collection practices: (i) significant growth of medical debt and student loan debt requires improved practices and protections in the marketplace for collections; (ii) clear standards for data integrity and recordkeeping in the debt collection industry must be developed to ensure that information about the debt is retained, especially if and when the debt is purchased by a debt buyer; and (iii) given the modern usage of faxes, cell phones, text messaging, email, voicemail, and so forth, the CFPB intends to “consult with the FTC and the FCC, each of which have relevant and unique jurisdictions that pertain to these practices, to establish clearer guidelines for how collectors may use some of these new communication technologies to reach consumers who owe debts, while protecting consumers’ privacy and dignity.”

Companies: Asset Acceptance, LLC; Expert Global Solutions, Inc.; Forensic Case Management Services, Inc.; LoanPointe, LLC; Payday Financial LLC; West Asset Management, Inc.

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