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Dispute management can be burdensome on ARM companies, particularly if they are also a data furnisher. Debt collectors must manage both FDCPA dispute requirements and FCRA direct and indirect requirements, even when they overlap.
The CFPB has weighed in multiple times reminding data furnishers of their obligation to conduct a reasonable investigation and to have written policies and procedures addressing how an organization conducts such activities.
On June 8, 2023 the CFPB issued a consent order against Phoenix Financial Services, LLC. The CFPB’s consent order with Phoenix Financial Services illustrates the importance of maintaining robust policies, procedures, and controls when handling disputes. The CFPB found that Phoenix Financial Service violated the FCRA, Regulation V, the FDCPA and the CFPA (Consumer Financial Protection Act).
The CFPB stated that Phoenix violated the FCRA and Regulation V by failing to establish and implement reasonable written procedures regarding the accuracy and integrity of the consumer information they furnished to the CRAs. Their audits of their dispute investigation procedure didn’t pass the CFPB sniff test because the procedures didn’t identify practices that compromised the accuracy or integrity of the information furnished. This is a prime example of why it is so important to make sure your policies and procedures are thorough, and are audited for regulatory compliance at least annually. Equally important is the need for role-based training regarding your dispute policies and procedures.
The consent order also brought to light that Phoenix violated the FDCPA by sending collection letters during the validation period, overshadowing the consumers’ rights. Phoenix Financial Services sent letters to consumers after they received a written dispute, but before the consumer had received the verification documents. It has been an industry standard to allow at least 5 days after sending verification documents to allow the consumer an opportunity to receive the documents. Some agencies wait up to 15 days. There was also a finding that Phoenix sent letters to consumers after receiving verbal disputes about the validity or accuracy of the debt when Phoenix Financial Services hadn’t obtained substantiation of the debt sufficient to assert that the consumer owed the debt.
As a result of this consent order, Phoenix will pay a $1.675 million civil penalty and provide consumer redress by refunding all amounts paid to Phoenix on an unverified debt between January 1, 2017 and the date of the order. For some agencies, that alone would send them into bankruptcy.
So, how do we protect ourselves from having something like this happen to us? Fully understand what your requirements are as a data furnisher. Make sure you have tight, thorough policies, procedures, and controls. Ensure your workflow includes a hold period after sending verification documents. Train your staff on what constitutes a reasonable investigation. Create an internal audit that proactively looks for exceptions to your dispute resolution processes and track trends that will help you make changes to your systems, training and policies and procedures.
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Going to ACA’s Annual Convention? Join us for our RA meet-up at Kitty O’Sheas July 26, 2023 at 3:30 CT!
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