The Dodd-Frank Act gave the Consumer Financial Protection Bureau (CFPB) sweeping authority to prohibit the use of “unfair, deceptive or abusive” acts or practices (UDAAPs) in connection with the collection of consumer debts. These terms are broadly defined to provide the CFPB with maximum flexibility when carrying out its consumer protection mission. But how can a collector know exactly what the CFPB will consider to be an “unfair” or “deceptive” or “abusive” collection practice?
The CFPB has provided some guidance on UDAAPs in the bulletin it released in July 2013 and in the Examination Manual that it published in 2012. Beyond this, debt buyers and other collectors can read the UDAAP tea leaves by examining the recent enforcement activity of the CFPB and other regulators.
First, we should start with the UDAAP definitions. An act or practice will be considered “unfair” if the CFPB finds that it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers” and “such substantial injury is not outweighed by countervailing benefits to consumers or to competition.” See 12 U.S.C. § 5531(c)(1). To determine if an act or practice is “unfair” the CFPB “may consider established public policies” but they “may not serve as a primary basis for such determination.” Id. at § 5531(c)(2).
An act or practice will be considered “abusive” if the CFPB finds that it “materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service” or it “takes unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service” or “the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service” or “the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.” Id. at § 5531(d).
An act or practice will be deemed “deceptive” if the CFPB find that it “(1) misleads or is likely to mislead the consumer; (2) the consumer’s interpretation is reasonable under the circumstances; and (3) the misleading act or practice is material.” See CFPB Bulletin 2013-07, July 10, 2013, Prohibition of Unfair, Deceptive, or Abusive Acts or Practices In The Collection Of Consumer Debts, at p. 3. The CFBP will consider “the totality of the circumstances” when determining if an act or practice has actually misled or is likely to mislead a consumer, and it will look at implied representations as well as omissions. Id. The standard for “deceptive” used by the CFPB under the Dodd-Frank Act will be “informed by the standards for the same terms under Section 5 of the FTC Act.” Id. at n.16. If a representation conveys more than one reasonable meaning to consumers, one of which is false, then it may be misleading. Id. at p. 4. “Material” information is that which is “likely important to consumers” and that “is likely to affect a consumer’s choice of, or conduct regarding, the product or service.” Id.
With definitions this broad, it can be difficult for collectors to anticipate what conduct might be considered to be a UDAAP. One method for identifying areas of potential concern, however, is to analyze the recent enforcement actions by the CFPB and other regulators filed against debt buyers and original creditors.
The most comprehensive enforcement action against a debt buyer in recent years was brought by the FTC, not the CFPB. On January 30, 2012, the FTC entered into a Consent Decree with Asset Acceptance, LLC (“Asset”) relating to its allegedly false, deceptive and misleading debt collection and credit reporting practices.
A major focus of the Asset Consent Decree was the concern over the accuracy and reliability of the data underlying Asset’s accounts. Asset agreed that it would not to make any material representation that a consumer owed any debt unless it had a reasonable basis for making the representation. Asset agreed that it could reasonably rely on the information provided by original creditors, unless there was a “reasonable indication” – after taking into account the reliability and source of the information – that the information is incomplete, inaccurate, unreliable or that it does not substantiate the claim. Should Asset discover that the information regarding a specific portfolio of accounts may be unreliable or inaccurate or missing material information, it agreed to terminate collection efforts on the entire portfolio until it conducts a reasonable investigation. Factors that may call into question the accuracy of a portfolio of accounts include a disproportionately high rate of consumer disputes, lack of availability of documentation, a disproportionately high rate of missing data relating to the accounts in the portfolio, or any other information learned about the credit originator or its methods of doing business that calls into question the accuracy or completeness of the account data.
Consumer complaints were also a major focus of the Asset Consent Decree. If a consumer, at any time, questions, disputes or challenges the accuracy or completeness of the information that Asset is relying on, Asset agreed either to close the account permanently and request deletion of the tradeline, or to report the account as disputed and conduct a complete and reasonable investigation into the dispute.
The Asset Consent Decree also reflects the FTC’s hostility to collecting time-barred debts. If Asset knows or should know the debt has passed the applicable statute of limitations for litigation, it agreed to provide the consumer with a new notice stating: “The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, we may continue to report it to the credit reporting agencies as unpaid.” If the obsolescence period for reporting the debt to consumer reporting agencies has also expired, Asset will provide a notice stating: “The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency.” In addition to these notices, Asset agreed to provide consumers with a lengthy new notice on each written communication that summarizes their rights under the FDCPA. Finally, the Consent Decree provides that Asset will pay a civil penalty of $2.5 million to the FTC.