Compliance Blog

Written by Michael Coleman, Regulatory Compliance Counsel

On July 10^th, the Consumer Financial Protection Bureau (CFPB) released two bulletins on debt collection practices, we blogged about their release here. Today we would like to take a closer look at CFPB Bulletin 2013-08, which concerns representations from creditors and third party debt collectors about the effects of debt payments on credit reports and scores.

The Bulletin explains the CFPB’s concern that these representations could amount to violations of provisions of the Fair Debt Collection Practices Act (FDCPA) and the Dodd-Frank Act, which when taken together “prohibit covered persons or service providers, including debt collectors, from engaging in deception while collecting or attempting to collect on consumer debts.”

The CFPB notes that creditors and third party debt collectors often make material representations to consumers when communicating with them regarding the payment of their debts in collection. The CFPB gives several examples of these representations (which it notes is not an exclusive list) such as the relationship between:  

• Paying debts in collection and improvements in a consumer’s credit report;
• Paying debts in collection and improvements in a consumer’s credit score;
• Paying debts in collection and improvements in a consumer’s creditworthiness; or
• Paying debts in collection and the increased likelihood of a consumer receiving credit or more favorable credit terms from a lender.

The Bulletin gives examples of how the payment of a debt in collection might not actually improve a consumer’s credit report, credit score, or creditworthiness.

So what should credit unions take away from this? Be careful what you are telling your members when attempting to collect debts. Here is an excerpt from the Bulletin outlining the CFPB’s expectations from creditors and third party debt collectors:

“C. CFPB Expectations

The examples of potentially deceptive claims concerning the effect of paying debts in collection on credit reports, credit scores, and creditworthiness set forth in this bulletin are illustrative and nonexhaustive. The prevalence of these types of potentially deceptive claims is a matter of significant concern to the CFPB.

Debt owners and third-party debt collectors should take steps to ensure that any claims that they make about the effect of paying debts in collection on consumers’ credit reports, credit scores, and creditworthiness are not deceptive. In the course of supervision activities or enforcement investigations, the CFPB may review communication materials, scripts, and training manuals and related documentation to assess whether owners of debts and third-party debt collectors are making these types of claims and the factual basis for them. In addition, the CFPB will assess whether additional supervisory, enforcement, or other actions may be necessary to ensure that the debt collection market functions in a fair, transparent, and competitive manner.” (Emphasis added.)

Even if your credit union is not under the CFPB’s direct supervisory authority (those credit unions with less than $10B in assets), this is something that you will want to train your staff on to avoid making any material misrepresentations during your collection efforts.  

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Take me out to the ball game. NAFCU offices are closing early this afternoon at 12pm. The NAFCU staff will be heading out to Nationals Park watch the Washington Nationals take on the Pittsburgh Pirates. The Nats might be in a bit of a slump right now (to put it mildly compared with preseason expectations), but you can bet this compliance guy will be rooting for the home team!