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This week, a Research Assistant member inquired about whether third-party collection agencies include indemnification language in their client contracts to cover consumer litigation resulting directly from client errors. Additionally, they sought advice on how organizations can effectively invoke their indemnification clauses without causing significant disruption to the client relationship. 

It is important to note that while indemnification language is important to financially protect your company in litigation, this language does little to protect your organization in a regulatory context. The CFPB does not care about your indemnification language because their stance is that everyone should be holding all their affiliated clients, service providers, and partners accountable for compliance with consumer financial laws.  

Regardless, indemnification language still exists and oftentimes it puts a heavy burden on the debt collector and not the client themselves. Most of our members stated that they have some version of mutual indemnification clauses within their client agreements. This became a much easier conversation after the message from the CFPB became clear that creditors hold equal burden regarding compliance expectations.  

As for how to enforce these clauses, our members had some great feedback on this topic. Here is an overview of how some of our members determine if they want to enforce their client indemnification clause:  

• This is a decision made between the Chief Compliance Officer, Chief Operations Officer, and General Counsel. The decision will be based on the nature of the issue, how much it will cost the debt collector, and/or if it is a repetitive issue. 
   

• Other members said it was dependent on if they had proof of causation. If they can prove that the client’s actions or inactions directly caused the legal claim, then they would outline that in their formal notification to the client. 
   

• Sometimes debt collectors may consider splitting the cost of the claim. This can be a powerful negotiation tool that shows your client good faith if they remediate the issue that caused the lawsuit.  

Remember that any communication invoking the terms of your contract with the client should be formally delivered in writing. You may choose to place a call to the client first to let them know it is coming but do not let that be your formal communication.

Documents and Crowdsourced Materials: 

• Member Questions: Indemnification, Offshore Collections, North Carolina WFH, the Minnesota Debt Fairness Act, and MORE! 

Top Reads: 

• Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders 

• CFPB Bites of the Month – May 2024 – CFPB: Light My Way, Virginia May 

• Opting Out of Letters? Not So Fast Says Texas Court

Upcoming Webinars/ Other Announcements: 

• RA Compliance Corner: Internal Controls- When and How to Effectively Use Them, June 12, 2024, at 2:00 ET. Register for the webinar here! 

• Please make a note of our updated email addresses:  

• Sara Woggerman, sara_consultant@roundtables.us  

• Missy Meggison, mmeggison@roundtables.us   

• Have topics you want to discuss during the peer call? Please send them to: Sara_Consultant@roundtables.us by Thursday to ensure it makes it on our agenda!