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  • CFPB, 47 State AGs, and District of Columbia Announce $216 Million Settlement to Resolve Credit Card Debt-Buying Investigation

    Consumer Finance

    On July 8, the CFPB along with 47 state attorneys general and DC announced an agreement with a major bank to resolve allegations that it sold faulty credit card “zombie debts” to third-party debt buyers, which included accounts with unlawfully obtained judgments, inaccurate or paid-off balances,  and debts owed by deceased borrowers. The federal and state investigators also claimed that the bank filed deceptive debt-collection lawsuits against borrowers using robo-signed or illegally sworn affidavits to obtain false or inaccurate judgments for unverified debts. Under terms of the consent order, the bank agreed to, among other things, pay (i) $106 million to 47 state attorneys general, (ii) a $30 million civil money penalty to the CFPB, and (iii) provide at least $50 million in restitution to affected borrowers. The bank also agreed to cease collections on more than 528,000 accounts, and require that third-party debt buyers be prohibited from reselling debts purchased from the bank, unless they are sold back to the bank.

    In a related announcement, the OCC imposed a $30 million civil money penalty over allegedly illegal non-home debt collection litigation practices and Servicemembers Civil Relief Act (SCRA) compliance practices. The OCC’s action stems from the bank’s practices related to the preparation and notarization of sworn documents used in debt litigation proceedings, and inadequate policies and procedures to ensure compliance with the SCRA.

    Credit Cards CFPB OCC Enforcement Debt Buying

  • OCC Issues New Debt Sale Guidance

    Consumer Finance

    On August 4, the OCC issued Bulletin 2014-37, which provides new guidance on the application of consumer protection requirements and safe and sound banking practices to consumer debt-sale arrangements with third parties—e.g. debt buyers—that intend to pursue collection of the underlying obligations. The guidance goes well beyond the set of “best practices” the OCC provided last summer as an attachment to written testimony submitted to a U.S. Senate committee. For example, the new guidance establishes requirements to: (i) notify the consumer that a debt has been sold, the dollar amount of the debt transferred, and the name and address of the debt buyer; (ii) perform due diligence on the debt buyer down to the consumer complaint level; and (iii) provide the debt buyer with the signed debt contract and a detailed payment history. The bulletin also requires sale contracts to include limitations on the debt buyer’s ability to litigate on an account and “minimum-service-level agreements” that apply whether or not debt buyers conduct the collection activities or employ other collection agents. The Bulletin specifies that certain types of debt are “not appropriate for sale,” such as: (i) debt of borrowers who have sought or are seeking bankruptcy protection; (ii) accounts eligible for Servicemembers Civil Relief Act protections; (iii) accounts in disaster areas; and (iv) accounts close to the statute of limitations.

    OCC Debt Collection Debt Buying

  • New York AG Bars Collection Of Time Barred Debt By Debt Buyers

    Consumer Finance

    On May 8, New York Attorney General (AG) Eric Schneiderman announced that two debt buyers agreed to resolve allegations that they engaged in improper collection of untimely debt against New York consumers. The AG claims that the companies purchased unpaid consumer debt—largely credit card debt—from original creditors and then sought to collect on that debt by suing debtors and obtaining uncontested default judgments against those who failed to respond to lawsuits, even though the underlying claims were outside of the applicable statute of limitations. The applicable statute of limitations is determined based on the state of the original creditor’s residence and may be shorter than New York’s six-year statute of limitations.  According to the AG, obtaining or collecting on a judgment based on such untimely claims is unlawful under New York law. Together, the companies allegedly obtained nearly three thousand improper judgments, totaling approximately $16 million. The companies will pay civil penalties and costs of $300,000 and $175,000 and agreed to vacate the allegedly improper judgments and cease any further collection activities on the judgments. The companies also agreed to adjust their debt collection practices by (i) disclosing in any written or oral communication with a consumer about a time-barred debt that the company will not sue to collect on the debt; (ii) disclosing in any written or oral communication with a consumer about a debt that is outside the date for reporting the debt provided for by FCRA that, because of the age of the debt, the company will not report the debt to any credit reporting agency; (iii) alleging certain information relevant to the statute of limitations in any debt collection complaint, “including the name of the original creditor of the debt, the complete chain of title of the debt, and the date of the consumer’s last payment on the debt”; and (iv) submitting an affidavit with any application for a default judgment that "attests that after reasonable inquiry, the company or its counsel has reason to believe that the applicable statute of limitations has not expired.”

    State Attorney General Debt Collection Enforcement Debt Buying

  • New Jersey Appellate Court Clarifies Debt Buyers' Burden Of Proof

    Consumer Finance

    On March 5, the Superior Court of New Jersey, Appellate Division issued an opinion clarifying the proof necessary for debt buyers to prevail on efforts to collect an assigned debt on a closed and charged-off credit card account. New Century Fin. Servs. Inc. v. Oughla, Nos. A-6078-11T4, A-6370-11T1, 2014 WL 839180 (N.J. Sup. Ct. App. Div. Mar. 5, 2014). In a consolidated appeal of two trial court decisions, debtors sought to reverse the trial court’s orders granting summary judgment to two debt buyers seeking to collect on charged-off credit card debt they had purchased from sellers who derived their ownership from credit card issuers. The appeals court explained that to collect such debt, debtors must prove (i) ownership of the charged-off debt, which it can do through business records documenting its ownership, and (ii) the amount due at the time the card issuer charged off the debt. The court also determined that (i) an electronic copy of the last billing statement is sufficient to demonstrate the amount due at charge-off; (ii) the validity of a debt assignment is not undermined by a failure to provide notice of the assignment to the debtor, and (iii) that a debt can be assigned without specifically referencing the debtor’s name or account number. The court held in these companion cases that one of the debt buyers established ownership through proper authentication and certification of business records, while the other debt buyer failed to provide sufficient proof of the full chain of ownership of its claim to meet its burden. The court affirmed summary judgment for one buyer and reversed and remanded the other buyer’s case accordingly.

    Debt Collection Debt Buying

  • New York Financial Services Regulator Uses New Authority to Propose Debt Collection Regulations

    Consumer Finance

    On July 25, the New York Department of Financial Services (DFS) proposed new regulations related to third-party debt collection in that state. The proposal is the DFS’ first use of the statutory “gap authority” that allows it to regulate and enforce rules against previously unregulated providers of financial products and services. The proposed regulations (i) establish initial disclosures that incorporate federal requirements and require collectors to provide details about the nature of the debt; (ii) set new disclosure requirements for time-barred debt; (iii) require collectors to provide specified verification of disputed debts; (iv) require collectors to provide written confirmation of a debt settlement; and (v) allow consumers to communicate with collectors via email. The DFS will accept comments on the proposal for 45 day following publication in the state register.

    Debt Collection Debt Buying

  • California Enacts Fair Debt Buying Bill

    Consumer Finance

    On July 11, California Governor Jerry Brown signed into law SB 233, the Fair Debt Buyers Practices Act, which establishes numerous new rules related to the purchase and collection of consumer debts, including five key protections for debtors. First, the Act prohibits a debt buyer from making any written statement in an attempt to collect a consumer debt unless the debt buyer can verify certain information, such as the amount of the debt balance at charge off, the date of default or last payment, and the name and address of the charge-off creditor at the time of charge off. Second, the Act prohibits a debt buyer from making any written statement to a debtor in an attempt to collect a consumer debt unless the debt buyer has access to a copy of a contract or other document evidencing the debtor's agreement to the debt. In instances where no signed debt contract exists, the debtor must obtain sufficient evidence to demonstrate that the debt was incurred by the debtor. Third, the Act requires a debt buyer to provide a written notice with its initial written communication to the debtor that, among other things, informs the debtor of his or her right to request certain records from the debt buyer. Fourth, the Act prohibits a debt buyer from bringing suit, initiating another proceeding, or taking any other action to collect a consumer debt if the applicable statute of limitations on the cause of action to enforce the debt has expired. Finally, the Act establishes new requirements for default judgments, such as a requirement that a debt buyer submit business records to confirm a debt prior to seeking a default judgment against a debtor. Additionally, the debt buyer must authenticate the records it submits via a sworn declaration to the court. The new rules will apply to debt buyers with respect to all consumer debt sold or resold on or after January 1, 2014.

    Debt Collection Debt Buying

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