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Washington amends and extends proclamations regarding state of emergency, garnishments, and accrual of interest
On October 2, the Washington governor issued Proclamation 20-49.9, which amends and extends proclamations 20-49.5, (which amends and extends garnishment proclamations) 20-05 (declaring a state of emergency) 20-49, 20-49.1, 20-49.2, 20-49.3, and 20-49.4 (regarding garnishments and accrual of interest). These proclamations were previously covered here, here, and here. The referenced proclamations are amended to (1) recognize the extension of statutory waivers and suspensions by the Washington legislature until the termination of the Covid-19 state of emergency or 11:59 p.m. on November 9, 2020, whichever is first, and (2) similarly extend the prohibitions therein until the termination of the Covid-19 state of emergency or 11:59 p.m. on November 9, 2020, whichever is first.
CFPB, FTC, and states announce debt collection enforcement operation
On September 29, the CFPB, FTC, and more than 50 federal and state law enforcement partners announced a nationwide enforcement and outreach effort titled “Operation Corrupt Collector” to address illegal debt collection practices. As of the date of the announcement, according to the CFPB, the operation includes five cases by the FTC, two cases by the CFPB, and three criminal cases by the DOJ and the U.S. Postal Inspection Service. Moreover, 16 states have also reported actions as part of the operation. Among the five cases brought by the FTC, two were announced in conjunction with the operation. In the first, the FTC brought charges in the U.S. District Court for the District of South Carolina alleging that a debt collection operation (consisting of five entities and three persons) used deceptive tactics to threaten false legal action through the use of robocalls in order to collect debts consumers did not owe or the operation did not have the legal right to collect. In the second, filed with the same district court, FTC alleges a company and its operators, with the assistance of the defendants in the first action, falsely claimed to represent a law firm and threatened consumers with arrest if the debts were not paid. According to the FTC, the district court granted temporary restraining orders against the defendants in both actions.
New York AG takes action against debt collection operation
On September 25, the New York attorney general announced a temporary restraining order was granted against a debt collection operation (consisting of a leader and at least six other individuals and entities) for allegedly contacting consumers using deceptive and abusive collection tactics. According to the press release, the operation allegedly contacted consumers by spoofing phone numbers to appear associated with the local court house or sheriff’s office in order to impersonate government officials and threaten the consumers with false legal action in order to collect debts, in violation of the state laws, the FDCPA, and the Truth in Caller ID Act of 2009. The temporary restraining order prohibits the operation from engaging in debt collection practices and freezes the corporate defendants’ assets. The operations’ leader is also allegedly in breach of a 2014 Assurance of Discontinuance with the AG for previous violations of the FDCPA.
The AG is seeking a permanent injunction, disgorgement, restitution, and civil penalties.
NYDFS enforces its debt collection regulation for the first time
On September 16, NYDFS filed a statement of charges against a debt collector for allegedly failing to honor consumers’ requests for substantiation of debt. This is the first enforcement action alleging violations of New York’s Debt Collection Regulation, 23 NYCRR Part 1, which was promulgated in 2015. New York law dictates that substantiation must be provided within 60 days after receiving a request, and specifies what documentation must be provided to substantiate the debt. Charges filed against the company allege that requests made by consumers for information proving the validity of the debt and the company’s right to collect the debt were not honored in several ways, such as failing to provide (i) any substantiation to dozens of consumers; (ii) sufficient substantiation to hundreds of consumers, for example, by omitting a complete chain of title or underlying transaction documents; and (iii) substantiation within the required timeframes. NYDFS maintains that the company’s actions violate 23 NYCRR Part 1, Section 1.4, and that such violation carries civil penalties of up to $1,000 per offense under state law. Additionally, NYDFS claims that “each failure to provide any substantiation, timely substantiation, or sufficient substantiation of debt constitutes an independent offense.” A hearing is scheduled for January 12, 2021 before a hearing officer to be appointed by the Superintendent of Financial Services.
New York AG settles with student loan debt collector for $600k
On September 11, the New York attorney general announced one of the nation’s largest debt collectors will pay $600,000 in restitution to student loan borrowers and will make significant changes to its debt collection practices in order to resolve allegations that it made false, misleading, and deceptive statements in lawsuits and in communications with borrowers. According to the AG, the debt collector, among other things, (i) filed complaints that falsely identified trusts, which hold the defaulted loans, as the borrower’s “original creditor,” when in fact, the trusts are the assignees of the original financial institutions that originated the loans; (ii) filed various misleading sworn affidavits; (iii) filed complaints that represented borrowers applied for loans from a “servicing agent” when, in fact, borrowers never dealt with the entity; (iv) filed lawsuits beyond the applicable three-year statute of limitations; and (v) threatened legal action against borrowers even though the trusts “could not or would not sue because the statute of limitations for suing on the debt had expired.”
The assurance of discontinuance requires the debt collector to stop identifying the trusts as the original creditor and to cease using misleading language in communications with borrowers. In addition, the debt collector must (i) provide enhanced staff training; (ii) stop filing lawsuits beyond the statute of limitations, and voluntarily dismiss all wrongfully-filed lawsuits; (iii) voluntarily release “all pending garnishments, levies, liens, restraining notices, attachments, or any other judgment enforcement mechanism” obtained as a result of judgments obtained in wrongfully-filed lawsuits where the statute of limitations has expired; (v) take steps to vacate any judgment obtained in any of these wrongfully-filed lawsuits; and (vi) pay restitution to certain borrowers or to the state to be disbursed as appropriate.
2nd Circuit: No bona fide error defense without written policies to avoid the error
On September 4, the U.S. Court of Appeals for the Second Circuit affirmed in part and vacated in part a summary judgment ruling in favor of a debt collector, concluding that the debt collector was not entitled to the FDCPA’s bona fide error defense as a matter of law when it erroneously sent communications to a consumer with the same name as the actual debtor. According to the opinion, a debt collector sent collection notices to a consumer with the same first name, middle initial, and last name as the actual debtor. The consumer informed the debt collector that he was not the debtor and provided the last two digits of his social security number, which were different than the debtor’s social security number on file with the debt collector. The debt collector continued to send communications, including a subpoena duces tecum, to the consumer and the consumer filed suit, alleging various violations of the FDCPA. The district court granted summary judgment in favor of the debt collector, concluding that the debt collector did not violate certain provisions of the FDCPA and noting that while it violated others, the FDCPA’s bona fide error defense applied making the debt collector not liable for the violations.
On appeal, the 2nd Circuit agreed with the district court that the debt collector did not violate Section 1692e(5) or Section 1692f of the FDCPA because it did not intend to send the communications to a non-debtor, nor did the debt collector’s actions constitute “unfair or unconscionable means” of collection because the consumer was not forced to respond to the information subpoena or attend a debtor’s examination. However, the appellate court determined that the district court erred in granting summary judgment on the bona fide error defense because a reasonable jury could conclude that the debt collector “did not maintain procedures reasonably adapted to avoid its error.” The appellate court also noted that the debt collector was “in possession of more than enough evidence” that the consumer was not the debtor, including different social security numbers and birth years, and a reasonable jury could conclude the mistake “was not made in good faith.” Additionally, the appellate court emphasized that the debt collector had “no written policies” to address situations in which employees are uncertain about whether a debtor may live at a particular address. Thus, the debt collector was not entitled to summary judgment on the outstanding FDCPA claims, and the appellate court remanded the case to the district court.
CFPB alleges debt collection, debt buying companies violated 2015 consent order
On September 8, the CFPB filed a complaint against the largest U.S. debt collector and debt buyer and its subsidiaries (collectively, “defendants”) for allegedly violating the terms of a 2015 consent order related to their debt collection practices. As previously covered by InfoBytes, the defendants allegedly engaged in robo-signing, sued (or threatened to sue) on stale debt, made inaccurate statements to consumers, and engaged in other illegal collection practices in violation of the Consumer Financial Protection Act (CFPA), FDCPA, and FCRA. According to the complaint, filed in the U.S. District Court for the Southern District of California, the defendants have collected more than $300 million from consumers using practices that did not comply with the 2015 consent order. Among other things, the complaint alleges that the defendants violated the terms of the consent order—and again violated the FDCPA and CFPA—by (i) filing lawsuits without possessing certain original account-level documentation (OALD) or first providing required disclosures; (ii) failing to provide consumers with OALD within 30 days of the consumer’s request; (iii) filing lawsuits to collect on time-barred debt; and (iv) failing to disclose that consumers may incur international-transaction fees when making payments to foreign countries, which “effectively den[ied] consumers the opportunity to make informed choices of their preferred payment methods.” The Bureau seeks injunctive relief, damages, consumer redress, disgorgement, and civil money penalties. In addition, the Bureau asks the court to permanently enjoin the defendants from committing future violations of the CFPA or FDCPA.
CFPB and New York AG take action against debt collection operation
On September 8, the CFPB and the New York attorney general jointly filed a lawsuit against a debt collection operation based near Buffalo, New York. The defendants include five companies, two of their owners, and two of their managers (collectively, “defendants”). According to the complaint, filed in the U.S. District Court for the Western District of New York, the defendants violated the Consumer Financial Protection Act, FDCPA, and various New York laws by using illegal tactics to induce consumer payments, such as (i) threatening arrest and imprisonment; (ii) claiming consumers owed more debt than they actually did; (iii) threatening to contact employers about the existence of the debt; (iv) harassing consumers and third parties by using “intimidating, menacing, or belittling language”; and (v) failing to provide debt verification notices.
The lawsuit seeks consumer redress, disgorgement, civil money penalties, and injunctive relief against the defendants.
CFPB issues Summer 2020 Supervisory Highlights
On September 4, the CFPB released its summer 2020 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of consumer reporting, debt collection, deposits, fair lending, mortgage servicing, and payday lending. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between September and December of 2019. Highlights of the examination findings include:
- Consumer Reporting. The Bureau cited violations of the FCRA’s requirement that lenders first establish a permissible purpose before they obtain a consumer credit report. Additionally, the report notes instances where furnishers failed to review account information and other documentation provided by consumers during direct and indirect disputes. The Bureau notes that “[i]nadequate staffing and high daily dispute resolution requirements contributed to the furnishers’ failure to conduct reasonable investigations.”
- Debt Collection. The report states that examiners found one or more debt collectors (i) falsely threatened consumers with illegal lawsuits; (ii) falsely implied that debts would be reported to credit reporting agencies (CRA); and (iii) falsely represented that they operated or were employed by a CRA.
- Deposits. The Bureau discusses violations related to Regulation E and Regulation DD, including requiring waivers of consumers’ error resolution and stop payment rights and failing to fulfill advertised bonus offers.
- Fair Lending. The report notes instances where examiners cited violations of ECOA, including intentionally redlining majority-minority neighborhoods and failing to consider public assistance income when determining a borrower’s eligibility for mortgage modification programs.
- Mortgage Servicing. The Bureau cited violations of Regulation Z and Regulation X, including (i) failing to provide periodic statements to consumers in bankruptcy; (ii) charging forced-placed insurance without a reasonable basis; and (iii) various errors after servicing transfers.
- Payday Lending. The report discusses violations of the Consumer Financial Protection Act for payday lenders, including (i) falsely representing that they would not run a credit check; (ii) falsely threatening lien placement or asset seizure; and (iii) failing to provide required advertising disclosures.
The report also highlights the Bureau’s recently issued rules and guidance, including the various responses to the CARES Act and the Covid-19 pandemic.
Massachusetts AG sues auto lender for deceptive loans
On August 31, the Massachusetts attorney general announced an action against a national auto lender for allegedly making unfair and deceptive auto loans and engaging in unfair debt collection practices. According to the complaint, since 2013, the auto lender allegedly made “high-risk high-interest subprime” loans to Massachusetts borrowers who the lender “knew or should have known were unable to repay their loans,” in violation of the Massachusetts Consumer Protection Act. Additionally, the attorney general asserts that consumers were subject to “hidden finance charges,” which resulted in consumers’ actual interest rates being higher than the state’s usury ceiling of 21 percent. Moreover, the lender’s collection employees allegedly “harassed” consumers in default by calling them “as often as eight times a day,” when state law limits collection calls to no more than two calls per week, sent improper repossession notices, and failed to use the correct fair market value when calculating deficiency amounts. Lastly, the attorney general argues that the lender used “false or misleading statements” concerning the characteristics of the loans packaged and securitized to investors.
The attorney general is seeking a permanent injunction, restitution, and civil penalties.