On April 15, the Consumer Financial Protection Bureau issued its annual report on the Fair Debt Collection Practices Act.
The report not only looks back at the number and type of debt collection complaints the bureau received in 2021, but also identifies specific debt collection activities that the bureau targeted in the past year.
It is clear moving forward that the agency intends to monitor debt collectors and nonbank entities subject to CFPB supervision closely, and these entities should be aware of a potentially seismic shift in the type of debt covered by the FDCPA.
The CFPB's report highlighted some interesting trends in the debt collection industry and consumer debt in general. The CFPB noted that consumer debt rose rapidly throughout 2021, from $14.33 trillion to over $15.5 trillion, with much of the increase due to a rise in credit card debt.
This rapid rise was still much lower than before the COVID-19 pandemic began. Despite this rapid rise in consumer debt, the CFPB noted that the consumer debt service ratio remained well below prepandemic levels, finishing out 2021 at 5.4%, presumably due to stimulus funds and other COVID-19 pandemic relief measures. This also led to an overall decrease in delinquent consumer accounts in nearly all nonhousing consumer debt.
The report also looked at the state of the debt collection industry, noting, among other things, that more than one in four consumers with a credit report had at least one collections tradeline on their reports in 2018. It noted that in a recent survey, about every one in three consumers — or over 70 million people — had been contacted by a debt collector in the year prior to the survey. The bureau also highlighted the growing role of third-party debt buyers in the debt collection industry.
The CFPB received over 121,000 debt collection complaints in 2021: Credit card debt had the most complaints, followed by medical and auto debt. Interestingly, complaints concerning mortgage debt made up only 1% of the total complaints received by the CFPB in 2021. More than 50% of the complaints received by the bureau related to attempts to collect a debt that a consumer felt he or she did not owe.
In 2021, the CFPB only brought one new enforcement action under the FDCPA. It also resolved two FDCPA lawsuits in 2021. These actions resulted in judgments worth more than $2.2 million — suspended due to the debt collectors' inability to pay — along with civil monetary penalties in the amount of $882,200 and permanent bans from the debt collection industry. As of the filing of the report, the CFPB had three FDCPA enforcement actions pending in federal court.
While there are numerous rules and regulations that debt collectors must adhere to, the FDCPA remains the primary federal law that governs debt collection activity and conduct.
As I previously highlighted, the CFPB recently enacted a new regulation that creates obligations and limitations for collectors that are subject to the FDCPA. Given its infancy, there has been little reported case law on interpreting the new Regulation F requirements thus far.
Ongoing and Future Areas of Enforcement
The report highlighted several areas of debt collection activity that the bureau is monitoring through supervisory and examination authority and its enforcement and rulemaking powers.
The following details key areas that may pose policy shifts for debt collectors and any other nonbank entities subject to CFPB regulations.
Small Business Debt Collection Activity
While outside the scope of the FDCPA as currently drafted, the CFPB nonetheless went out of its way to mention small business debt collection in its report. Practitioners should watch this area closely as it appears this new interest in small business debt collection may result in wholesale changes to how debt collectors collect on commercial debt.
As the bureau noted:
Although the FDCPA generally does not cover the collection of
small business debt, the CFPB is concerned about abuses pertaining
to collections and servicing practices associated with financing
for small business. It is in the public interest, especially in
light of the increased vulnerabilities of small business owners
during the pandemic,
that they receive adequate protections.
While the bureau acknowledged such activity is currently beyond the scope of the FDCPA, it indicated that it was monitoring complaints and legal actions of both the Federal Trade Commission and state agencies regarding abusive debt collection practices toward small businesses.
CFPB Director Rohit Chopra made this even more explicit in a blog post accompanying the report, noting:
It is critical that policymakers pay close attention to wrongdoers targeting small businesses and determine whether there should be additional debt collections rights and protections for small businesses and entrepreneurs to protect them.
Given the significant rulemaking authority afforded to the CFPB and the jurisdiction and enforcement authority of the FTC to regulate small business debt collection activity, this is an area that must be monitored.
Such a major policy shift, hinted at by these public statements, could have profound implications on the collection of commercial debt. It could also require a significant allocation of money and personnel resources to ensure collection of commercial debt, once explicitly exempt from the FDCPA, is FDCPA compliant.
The report highlighted several examinations and enforcement activities undertaken by the CFPB in 2021 related to prohibited communications with a consumer, including the new Regulation F standards governing consumer communications.
Now is the time for debt collectors and nonbank entities subject to the CFPB's supervisory and enforcement authority to review compliance management systems regarding communications with consumers when attempting to collect a debt.
The report also highlighted bureau-led examinations where it found a debt collector had improperly contacted a consumer at his or her workplace when the debt collector knew the employer prohibited such communications, or contacting a consumer during inconvenient hours. This also included communications with third parties resulting from inadequate compliance controls to verify and ensure right-party contact.
With this trend of renewed interest in bureau-led examinations, practitioners may want to discuss best practices with consumer collections clients to avoid unwanted, extra scrutiny.
Harassment and Threats When Collecting a Debt
Perhaps the quintessential FDCPA violation, the bureau identified a number of acts that it found constituted improper threats or harassment in violation of the FDCPA.
For example, the bureau found that when a consumer indicated he or she was unable to make payment, but the debt collector notated the file as a refusal to pay, the "natural consequence of these inaccurate statements was to harass or oppress the consumers."
During another examination in 2021, the bureau found that a debt collector's threat to report a debt to the consumer reporting agencies when the consumer had been subject to identity theft violated the FDCPA's prohibitions against false, deceptive or misleading representations in connection with the collection of a debt.
The CFPB also identified several examinations where debt collectors falsely represented to consumers the impact paying off their debts would have on their credit profiles. In one instance, a debt collector told a consumer the debt would no longer affect her credit profile once paid, which was false.
During another examination, "[e]xaminers also found that debt collectors discussed restarting a payment plan with consumers and represented that improvements to the consumers' creditworthiness would occur upon final payment under the plan and deletion of the tradeline," despite the fact that numerous factors influence a consumer's creditworthiness.
As with prohibited communications, now is the time to review policies and procedures on collecting consumer debt. In consideration of these recent examinations and enforcement actions, debt collectors and other entities subject to the FDCPA, as well as their counsel, are on notice that additional scrutiny and enforcement are on the horizon for 2022.
Improper Charges and Fees Assessed to Consumers
The CFPB report makes clear that the bureau is closely monitoring debt collectors for assessing improper fees and charges to consumers.
For instance, the report highlighted various amicus briefs filed by the bureau in lawsuits throughout the country. This included taking the position that pay-to-pay or convenience fees are prohibited by the FDCPA absent an underlying agreement expressly authorizing such fees.
The bureau also identified numerous instances where debt collectors entered inaccurate information regarding state interest rate caps into their systems. This led to situations where consumers were unlawfully charged more than permitted by law and constituted a violation of the FDCPA's prohibition on attempting to collect any amount "unless such amount is expressly authorized by the agreement creating the debt or permitted by law."
If they have not already, entities subject to the FDCPA should examine their consumer contracts for language pertaining to the handling of fees. From an enforcement perspective, any charge or fee assessed to a consumer, not stemming from the underlying contract itself, may draw unwanted regulatory attention. Additionally, entities may wish to implement clear policies to quickly and easily reverse any improper assessed charges and fees.
The bureau has made enforcement of the FDCPA a priority in recent months, especially since the effective date of Regulation F. Debt collectors and other nonbank entities subject to the CFPB's enforcement, rulemaking and supervisory authority should consider the areas highlighted in this article.
Practitioners should be well versed in the content of the report and explore mitigation measures undertaken by those in the industry to ensure fully compliant FDCPA policies and procedures when collecting consumer debts.
This article was originally published in "Expert Analysis" on May 12, 2022, by Law360. The original publication is available here with a subscription.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.