Consumer Law & Policy Blog

SCOTUS Also Decides FDCPA Case, Sheriff v. Gillie

Here. SCOTUSBlog coverage by Ronald Mann here. And for more commentary on Spokeo, see Paul Bland's thoughts here.

Bloomberg BNA: FCC to Vote on TCPA Exemption for Federal Debt Collection Robocalls

The vote was supposedly to take place on May 4--two days ago--but I can't find a record of it on the FCC web site.  (HT: Norm Silber).

Center for Responsible Lending Study Finds MD and NC Collection Reforms Didn't Impair Consumer Credit

Here.  Here is the Executive Summary:

Debt buyers, specialized debt-collection companies, purchase defaulted consumer debt from creditors such as credit card companies for pennies on the dollar. Debt buyers then attempt to collect the debt, often by suing borrowers in court. Unfortunately, because debts are typically sold to debt buyers without fully verifying the accuracy of the borrower’s identity, amount of the debt, or status of repayment, the information used as a basis to collect from consumers may be faulty. As a consequence, borrowers can find themselves facing a default judgment from court on a debt that they do not in fact owe.

Two states—North Carolina and Maryland—have tried to address these issues through substantive reforms to debt-collection processes in their respective courts. At the time these reforms were being debated, the debt-buying industry claimed that these regulations would result in less credit being made available in those states. However, our analysis of the change in new credit card extensions in North Carolina and Maryland after reforms took effect does not show any negative impact to consumer credit. Specifically, we find that:

• Credit availability in North Carolina and Maryland appears to follow national trends rather than being impacted by regulatory changes.

• North Carolina and Maryland consumers seeking new credit cards generally fared better than consumers in peer states.

• Sub- and near-prime consumers in North Carolina and Maryland fared at least as well as those nationally and in peer states regardless of debt-buying reforms.

State and federal officials should continue to strengthen the rules and laws for debt collection and debt buying to better protect consumers. Debt collectors should be required to possess and review full documentation about a borrower and the borrower’s obligations before pursuing collections or a lawsuit. In addition, court rules should be strengthened to ensure adequate evidence is presented for a debt collector to prevail in court.

 

CFPB Director Richard Cordray's Near-Term Goals

In a speech February 25 at the CFPB's Consumer Advisory Board meeting, CFPB Director Richard Cordray identified nine "key areas where we hope to make substantial progress over the next two years."  He also noted, however, that "these goals do not capture all of the important work we are doing." The nine goals are:

First, we envision a mortgage market where lenders serve the entire array of credit-worthy borrowers fairly, and where servicers have processes in place that result in fair and efficient outcomes for consumers.

Second, we envision a student loan market where student loans are serviced in a way that is transparent and fair to help students repay their debts.

Third, we envision a consumer reporting market with better data that is more accurate and inclusive of more consumers.

Fourth, we envision a market free from discrimination and where consumers have equal access to small business lending.

Fifth, we envision a market where consumers are savvy about their own finances, and they have reliable places to turn to for the tools and skill building to increase their own financial capability.

Sixth, we envision a market where consumer education and policy decisions about household finances are based on a deep understanding of how households use financial products and make choices about money and the effects on their lives.

Seventh, we envision an open-use credit market where payday and installment lenders rely on business models that succeed when consumers use credit as needed and are able to repay their debts when they come due.

Eighth, we envision a debt collection market where everyone who collects debts substantiates the debts they are collecting and communicates with debtors about their debts in a respectful, lawful, consumer-oriented manner.

Ninth, and finally, we envision an entire consumer financial marketplace where consumers will have the ability to effectuate their rights and hold institutions accountable for unlawful conduct.

It will be interesting to see how the Bureau interprets and implements those goals, including the eighth goal that would require debt collectors to substantiate the debts they collect, the fifth goal that seeks to insure that consumers are savvy about their own finances, and the ninth, which wants consumers to have the ability to effectuate their rights and hold institutions accountable.

 

ABA Journal In-Depth Report: Debt-buying industry and lax court review are burying defendants in defaults

Here.

Budget Agreement Bill Expected to Allow Robocalls to Collect Government-Owned and -Guaranteed Debts

So says the American Banker here. In particular, the bill would apply to student debt owned or guaranteed by the government.

Looking for Help on FDCPA Survey

by Jeff Sovern

I am working on a survey designed to determine consumer awareness of the Fair Debt Collection Practices Act validation notice.  The plan is to show respondents a debt collection letter that includes a standard validation notice, and then ask questions to see how aware they are of the notice and how they understand it.  I would love to run the questions past people who litigate FDCPA cases or are otherwise knowledgeable about the validation provision. If you are willing to take a look at the survey and comment, please email me at sovernj @ stjohns dot edu.

Thanks!

Jeff Gelles Column: Lawsuits were stymied, but CFPB finally puts halt to rent-a-D.A. scheme

Here. Excerpt:

The ominous letter from the prosecutor's office was addressed to her grandfather, Albert Lachowicz, but it came to Jennifer Paczan because she was handling his finances.* * *

The letter was signed by Beaver County District Attorney Anthony J. Berosh, and was on the D.A.'s letterhead. It said Berosh's office had received reports alleging that Lachowicz had engaged in "criminal activity" by "issuing a fraudulent check."

Paczan, then a student at the University of Pittsburgh, knew that hadn't happened.* * *

So why was she getting a threat from the D.A. - followed several weeks later by another letter from Berosh topped even more ominously, "Warning of Criminal Charges"?

It turned out she wasn't. Instead, both came from a California company, National Corrective Group, that was behind an elaborate scheme to profit from simple mistakes made by people like Paczan.

* * *

The worst part of this story? That the scheme worked only thanks to the complicity of hundreds of local prosecutors around the country, who were invited to join in profiting from the deceptions. You might even call it "rent a D.A."

A Proposal to Ban the Sale of Junk Debt

By guest blogger Peter A. Holland

 I have covered the NCLC's excellent proposal to ban the sale of time-barred debt here.

The NCLC recommendations point to the larger problem that some banks sell off their worst, most unreliable, least collectible, most dubious accounts for literally pennies on the dollar (sometimes less), pursuant to broad disclaimers of accuracy and reliability.  I have written about this here.  The problem, in the words of Jeff Horwitz in an American Banker article is that, "Bank of America Sold Card Debts to Collectors Despite Faulty Records."  You can read what some of the typical disclaimers of accuracy in Forward Flow Agreements are here, including the revelations that the accounts being sold may not be legally enforceable (see page 4), and that (page 26, Schedule 1), the balance of each account is only "approximate." 

Banks should not be allowed to sell their worst, most unreliable accounts as junk debt for junk prices to junk purchasers who will then file junk lawsuits.  If one reads the broad disclaimers of warranty in any of the Forward Flow Agreements, one has to wonder, why is this not already explicitly banned?  In her excellent article, "Dirty Debts Sold Dirt Cheap" UConn Law Professor (and former CFPB staffer) Dalie Jimenez has rightly called for the CFPB to declare that the selling such accounts under such circumstances is an unfair or deceptive trade practice.  (A sampling of over 80 Forward Flow Agreements is available from Dalie Jimenez, here ).  I have written about the lack of proof in these junk lawsuits here, and about the "junk justice" effect of these lawsuits here.

While banning the sale of time-barred debt as recommended by the NCLC, and declaring the sale of junk debt to be a UDAP violation as recommended by Dalie Jimenez are both excellent and realistic proposals, the CFPB should also consider going further and calling for an outright ban on the sale of any debt which is not accompanied by affirmative representations and warranties of completeness, accuracy, reliability and enforceability.  Further, the Forward Flow Agreements should be made publicly available on a website, so that consumers, consumer attorneys and judges can decide for themselves just how reliable accurate and reliable are the claims of the debt buyers. 

Currently, we are living under a system where banks are knowingly selling inaccurate, unreliable junk accounts which are then used to extract money from consumers, some of whom do not owe any amount at all, and many of whom owe considerably less than the "approximate" amount being sued on.  We need to move from a business model where it is perfectly acceptable to sell false, incomplete and unreliable accounts, to a model where the only accounts which may legally be sold are those accounts which are true, complete and accurate.  Banning the sale of time-barred debt is an excellent start, as is declaring the sale of such junk debt to be a UDAP.  Perhaps in the current political climate, that is all we can hope for.  But the only way to stop these practices altogether is to invert the current model: mandate that banks sell only legitimate accounts, and institute an outright ban on the sale of the bogus, "dirty" accounts.

FDCPA Surveys

by Jeff Sovern

I'm looking into survey evidence to establish or defend against a claimed violation of the Fair Debt Collection Practices Act for a possible article.  If you have conducted such a survey in one of your cases or know someone who has, please email me at sovernj at stjohns dot edu.

 

Thanks!