Bank Regulators Warn Against Unfair Collection Practices

The Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) have fired across the bow of financial institutions warning that they will soon face increased scrutiny regarding collection practices related to consumer debts. In July, the CFPB released two bulletins stating that financial institutions collecting their own debts are expected to adhere to many of the standards set forth in the Fair Debt Collections Practice Act, or FDCPA. This is because failure to do so may constitute an unfair, deceptive or abusive act or practice violation under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The FDCPA is a federal law which applies only to third parties (such as debt collectors and attorneys) during the collection process. The FDCPA makes it illegal for third parties to harass abuse, lie to, deceive, or mislead debtors when collecting a debt.

CFPB Bulletin 2013-07 cites examples of debt collection practices that may constitute violations under Dodd-Frank, such as collecting fees not expressly authorized by the debt agreement, seizing property without legal authority, misrepresenting the effect of a debt on a credit report, and threatening an action that is not intended or authorized (such as a lawsuit or criminal complaint). CFPB Bulletin 2013-08 gives specific examples of Dodd-Frank violations for misrepresentations regarding the effect of debt payments on credit reports, credit scores and creditworthiness. For example, it is a violation to tell a person that making a payment will result in a credit report correction when the debt is too old to be included on a credit report. The CFPB is developing proposed rules for debt collection, and is currently seeking comments from the public about debt collection practices.

The Office of the Comptroller of the Currency (OCC) also released a Statement in July entitled “Shining a Light on the Consumer Debt Industry” in which it encouraged national banks and federal savings banks to collect debts in a safe, responsible and fair manner. In this Statement, the OCC wrote, “The OCC expects all national banks and federal savings associations to have policies and procedures in place to manage their debt collection activities effectively.” Clearly the OCC and the CFPB are taking a closer look at how financial institutions treat consumers when collecting past due debts.

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