Federal Regulators Enhance Scrutiny of Debt Collectors; Update to FDCPA in the Works

The Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) will begin increased scrutiny of collection practices of financial institutions and debt collectors like Dynamic Recovery Solutions against consumers.Financial institutions and banks collect overdue debts regularly, and may collect the debts themselves, hire a third party debt collector or lawyer to collect debts on their behalf or sell the debts to third parties. According to new regulatory guidance, financial institutions must ensure consumers are treated fairly and debt collection is in compliance with laws, regardless of which option it chooses.The most important federal law governing debt collection is the Fair Debt Collection Practices Act (FDCPA). This law makes it illegal for parties collecting a debt on behalf of others to oppress, abuse or harass borrowers, use unfair means to collect a debt or use false, misleading or deceptive representation during the process. In general, the FDCPA does not apply to parties collecting their own debts.In July, the CFPB indicated financial institutions collecting their own debts are still expected to adhere to most of the guidelines of the FDCPA, as failure to do so may constitute an unfair, deceptive or abusive act or practice (UDAAP) violation under the Dodd-Frank Act.In the bulletin, the CFPB gave several examples of practices that may constitute an UDAAP violation, including:• Collecting amounts not expressly authorized by the agreement that created the debt or permitted by law,• Repossessing property without the legal right to do so, and• Misrepresenting whether information about nonpayment or payment will be given to a credit reporting agency.The CFPB was created in the wake of the financial collapse as part of the Dodd-Frank Act of 2010. The agency is asking for public input from consumers who have been harassed by debt collectors.Debt collectors and consumers are still playing by outdated rules of the FDCPA of 1977. When the law went into effect, it was impossible to foresee the rise of social media, robo-dialing, e-loans, the internet, mobile phones and many other technologies. While the FDCPA was amended in 1996, many of these advancements are still not addressed.The CFPB wants to implement new protections for consumers without “hamstringing legitimate debt collection practices,” welcoming input from both consumers and the debt collection industry.Unlike many federal agencies like the FTC, the CFPB does not need to wait for Congress to approve new regulations, as the Dodd-Frank Act granted it this power. Consumers have volunteered many suggestions, including telling consumers what is happening with their debts with notices when a debt has been sold or turned over to a collector.The agency is expected to begin writing new rules in the beginning of the new year, beginning with creditors’ responsibilities under the FDCPA and communication technology updates.