CFPB Uses UDAAP in FDCPA-Like $28.5M Consent Order Against Depository Institution

cfpbThe federal Consumer Financial Protection Bureau (CFPB) recently entered into a $28.5 million Consent Order with a depository institution for alleged violations of the “unfair, deceptive, or abusive” acts or practices provisions of 12 U.S.C. §§ 5531 and 5536 relating to the depository institution’s collection of its delinquent accounts.

A copy of the Consent Order is available at:  Link to Consent Order.

Among other things, the alleged “unfair, deceptive, or abusive” acts or practices included:

▪ Threatening legal action the depository institution did not intend to take.

As you may recall, it is a violation of the federal Fair Debt Collection Practices Act (FDCPA) to threaten “to take any action that cannot legally be taken or that is not intended to be taken.”  See 15 U.S.C. § 1692e(5).

Here, the CFPB charged the depository institution with sending letters to approximately 193,000 delinquent customers “creating the net impression” that the depository institution intended to sue to collect on the delinquent accounts.  However, the CFPB charged, the depository institution “filed fewer than 5,000 debt collection lawsuits” against its customers.  The CFPB asserted that this means the depository institution’s letters were inaccurate 97 percent of the time.

The CFPB alleged that the depository institution did not engage in any account-specific review prior to threatening legal action, but rather treated all delinquent accounts as “recommended for litigation.”

The CFPB asserted that these practices constituted “deceptive acts or practices” in violation of 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).

▪ Threatening wage garnishment when the depository institution did not intend and did not yet have authority to do so.

As you may recall, it is a violation of the FDCPA to represent or imply that “nonpayment of any debt will result in the arrest or imprisonment of any person or the seizure, garnishment, attachment, or sale of any property or wages of any person unless such action is lawful and the debt collector or creditor intends to take such action.”  See 15 U.S.C. § 1692e(4).

Here, the CFPB charged that many of the approximately 193,000 letters to delinquent customers threatened garnishment of wages, which the CFPB noted was not available without a court judgment.

With the allegations relating to the threats of legal action in the letters, the CFPB alleged that the depository institution “filed fewer than 5,000 debt collection lawsuits” against its customers.

The CFPB asserted that these practices constituted “deceptive acts or practices” in violation of 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).

▪ Threatening to contact commanding officers to pressure servicemembers to make payment.

As you may recall, it is a violation of the FDCPA to communicate in connection with the collection of a debt with a third party “without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy,” subject to certain limited exceptions.  See 15 U.S.C. § 1692c(b).

Here, the depository institution’s customers were military servicemembers.  The depository institution allegedly sent 115 letters threatening to contact the customer’s commanding officer if payments were not made.  The CFPB asserted that there was no evidence that the depository institution ever followed up on these threats.

In addition, the CFPB alleged that the depository institution lacked its customers’ consent to contact the third party commanding officers.  Although the depository institution’s account agreements allowed such contact, the CFPB asserted that this contract clause “was buried in fine print, non-negotiable, and not bargained for by consumers.”

The CFPB asserted that these practices constituted “deceptive acts or practices” in violation of 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).

▪ Making false statements about credit rating consequences of non-payment.

As you may recall, it is a violation of the FDCPA to use “any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.”  See 15 U.S.C. § 1692e(10).

Here, the CFPB asserted that the depository institution sent approximately 68,000 letters to delinquent customers stating, “You will find it difficult, if not impossible, to obtain additional credit because of your present unsatisfactory credit rating” with the depository institution, and that the customer could “repair” his or her “credit” or “credit reputation” by calling the depository institution.

The CFPB charged that the depository institution “did not review or analyze the recipients’ particular credit situations before sending the letters,” and had no basis to assert “that the recipients of the letters would necessarily find it difficult or impossible to obtain additional credit, or that the consumers’ credit reputation would be repaired if they contacted” the depository institution.

The CFPB also alleged that it was inaccurate for the depository institution “to imply that it could, itself, raise or lower consumers’ credit ratings or improve consumers’ access to credit.”

The CFPB asserted that these practices constituted “deceptive acts or practices” in violation of 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).

▪ Freezing electronic account services for delinquent accounts.

As you may recall, it is a violation of the FDCPA to “use unfair or unconscionable means to collect or attempt to collect any debt.”  See 15 U.S.C. §1692f.

Here, the CFPB charged that the depository institution froze delinquent customers’ access to electronic account services, including debit card services, ATM services, online access, electronic funds transfers, travel alerts, Social Security Administration verification requests, and other such services.

The CFPB alleged that the depository institution also “did not provide adequate notice to consumers of an impending electronic freeze,” and did not make exceptions for “accounts containing protected federal benefits, such as Social Security Income and veteran’s benefits.”

The CFPB asserted that these practices constituted “unfair acts or practices” in violation of 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).

As part of the Consent Order, the depository institution is required to correct its debt collection practices, stop blocking account services for delinquent customers, pay roughly $23 million to its affected customers, and pay a civil money penalty of $5.5 million.

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Ralph Wutscher's practice focuses primarily on representing consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. He represents the lending and financial services industry as a litigator, and as regulatory compliance counsel. For more information, please see: http://mauricewutscher.com/attorneys/ralph-t-wutscher/.