RSSOver the past year, the Consumer Financial Protection Bureau has entered into several consent orders with major players in the financial services industry. Though the targeted entities admitted no wrongdoing, all agreed to abide by the terms of the consent order presented by the bureau. Those terms impose significant new requirements on those entities, many of which could substantially raise the cost of doing business.
The orders are not formal rules from the CFPB, nor are they in any way binding on anyone, other than those identified in the orders. However, in a speech given earlier this year, CFPB Director Richard Cordray stated that it would be “compliance malpractice” for companies in the industry not to take “careful bearings” from the consent orders when assessing how to comply with the consumer protection laws. The consent orders touch upon many aspects of the financial services industry, such as data integrity, dispute handling, debt substantiation, debt sales, affidavit practices, and litigation practices. Given the scope of the consent orders and the warning from Director Cordray, many in the industry are trying to discern what amounts to the new rules they will be expected to follow.
One theme that emerges is that the CFPB expects accurate and complete data, and that all collection of data will be done in compliance with consumer protection laws. To address concerns, the CFPB consent orders this year suggest new or expanded rules for all participants in the collection space: creditors, debt buyers, and attorneys.
Creditors agreed to adopt procedures to ensure that they sell accurate documents and account information to debt buyers, and that sale contracts prohibit the buyers from collecting unless sufficient documentation had been provided. Accounts with unresolved disputes should not be sold, and information about recent disputes and how those disputes were resolved must be provided to the buyer.
Debt buyers agreed to conduct a heightened review of account documentation with respect to accounts that have been disputed, accounts purchased as part of a portfolio, or accounts purchased pursuant to an agreement that lacks “meaningful and effective” documentation. The review must provide much higher scrutiny of original documents and, where the debt amount is inconsistent, the debt buyer must also review how the amount was calculated and why it is justified.
Attorneys agreed not to threaten suit or initiate suit for a debt buyer without having accurate data on hand, all properly authenticated. This data must include the customer’s name, last four digits of the account number at charge off, the claimed amount (excluding post charge off payments), and, if suing under a breach of contract theory, the terms and conditions relating to the account.
