Most debtor-creditor law exists on the state level as contract or tort law and is under state jurisdiction. But the federal government has also stepped into this area and created laws and enforcement agencies to deal with large consumer debt problems like credit card or mortgage fraud, banking fraud, credit reporting and regulating huge national companies that are impossible for individual consumers to control.
These regulations are partially designed to “fight for the little guy” against large companies like credit reporting agencies and lenders that have huge legal staffs designed to make it impossible for an individual consumer to fight them and partially to force transparency and disclosure in the credit and lending processes.
This module will cover two federal consumer protection statutes: The Fair Debt Collections Practices Act and the Fair Credit Reporting Act. We will also cover the two federal agencies that are responsible for assessing violations of federal consumer protection laws and enforcing those laws: The Federal Trade Commission and the Consumer Financial Protection Bureau.
Most federal rules regarding potential deceptive practices of creditors are overseen by the Federal Trade Commission.[1] The FTC was established by Congress in 1914. Its mission is to “prevent fraudulent, deceptive, and unfair business practices” and to “provide information to help consumers spot, stop, and avoid scams and fraud.”[2]
The FTC has the power to conduct investigations, sue companies and people that violate the law and educate consumers and businesses about their rights and responsibilities. They also collect complaints on? regarding? data security, deceptive advertising, identity theft and Do Not Call violations and make them available to law enforcement agencies for follow-up.
The FTC has investigated and brought civil suits and criminal referrals against numerous companies in various financial sectors, including payday lenders, mortgage relief companies, debt relief providers and credit repairers.[3] One of the most common ways that the FTC settles consumer claims is through the awarding of refunds.[4] The agency imposes millions of dollars per year in refunds and civil penalties.[5] It also presents many consumer finance seminars annually.
The Fair Credit Reporting Act
The Fair Credit Reporting Act[6] is a federal law passed in 1970 that governs how a credit reporting agency handles consumer’s credit information. It is administered by the FTC and the Consumer Financial Protection Agency and it allows private victims to enforce it by bringing lawsuits. It controls what creditors and credit reporting agencies can and cannot do with consumer credit information.
The Act was designed to protect the integrity and privacy of credit information. It requires credit reporting agencies and any entities that report credit information to them and others to ensure that the reported information is fair, accurate and is kept private. It protects consumers’ rights to access and corrects inaccuracies in their credit reports and provides remedies if a credit reporting agency or information furnisher violates those rights.
A creditor is a company that provides information to credit reporting agencies. They can also be called “information suppliers.” Typical creditors include landlords, credit card companies, mortgage companies and automobile finance companies. Other organizations that furnish information to credit reporting agencies outside of an agreement, such as employers and even courts, are also covered.
All creditors have the duty to report a consumer’s information accurately or suffer legal consequences. The FTC, the Consumer Financial Protection Agency and the various banking regulators have all published regulations regarding the behavior of information suppliers. We will cover the Fair Credit Reporting Act regulations.[7]
- Under the Act, information suppliers must: Provide complete and accurate information to the credit reporting agencies;
- Investigate consumer disputes received from credit reporting agencies;
- Correct, delete or verify information within 30 days of receipt of a dispute; and,
- Inform consumers about negative information which is in the process of or has already been placed on the consumer’s credit report, within one month.[8]
Information suppliers are not allowed to provide knowingly false credit information.[9] They also must establish internal policies to make sure that the federal regulations are followed.[10]
A credit reporting agency is “a business that maintains historical credit information on individuals and businesses. They receive reports from lenders and various other sources which are compiled in a credit report that includes a credit score when issued. They may also be referred to as a credit reporting bureau.”[11]
These include the “Big 3” agencies– Equifax, Experian and TransUnion– as well as companies that track medical payments, rental payments, check writing history, employment history or insurance claims.
First, these companies must provide the consumer, upon request, a copy of the credit report and all information that the agency has on the consumer. Second, they must maintain reasonable procedures to ensure the accuracy of information contained in the consumer’s credit report. This includes a means of dispute resolution – if there is a dispute, they must take steps to verify the information provided. Third, if the consumer wins the dispute, the negative information must be removed from the credit report and cannot be placed back on the report unless the consumer is notified in writing within five days. Fourth, most negative credit information must be removed seven years after the date of the first delinquency.[12] The only exceptions are that bankruptcies are removed after 10 years and tax liens are removed seven years after the lien is paid off.
The Consumer Financial Protection Bureau has jurisdiction over any credit reporting agencies that make more than $7 million per year in annual receipts from consumer reporting. We’ll cover the CFPB at the end of this module.
The Fair Debt Collections Practices Act
Congress passed the Fair Debt Collections Practices Act[13] in 1977 to give debtors recourse against debt collectors who harass them or otherwise go beyond the bounds of fairness in their attempts to collect debts. The Act only covers personal consumer debt only.[14] It does not affect commercial debtors. A “consumer” under the Act is “any natural person obligated or allegedly obligated to pay any debt.”[15]
This Act restricts the behavior of a debt collector, who is defined as a person or company that regularly collects debts owed to others.[16] Debt collectors include collection agencies or lawyers who do this as part of their businesses. Also included are debt collections companies or “debt buyers,” which are companies that buy past-due debts and try to collect on them.
Debt collectors contact consumers in an attempt to get them to pay debts. They then collect fees for every debt that is paid, typically as a percentage of monies collected.
Under the Act, debt collectors are allowed to directly contact debtors.[17] A debt collector can contact any person, including an employer, to ask about the location, address or phone number of the debtor.[18] However, collectors may not:
– Contact another person, including the debtor’s employer, more than once, unless that person gives the collector permission to call again;
– Tell anyone they contact other than the debtor that they are from a debt collection business or that the debtor owes a debt
– Send a postcard or any type of document to anyone associated with the debtor with any information or marks on the envelope that may communicate that the collector’s purpose is to collect a debt;
– Contact the debtor’s employer or co-workers for personal information about the debtor beyond contact information; or
– Contact the debtor at work, if the debtor tells the collector not to do so.
A debt collector may contact the debtor in person, by phone, fax, mail, email or text, within certain limits. Debt collectors may not call at unusual hours of the day, defined as between the hours of 9 PM and 8 AM, unless the debtor gives permission to do so. This consent can be revoked by the debtor. Collectors may not contact debtors who have retained attorneys for representation in the debt issue and informed the collectors of the representations.[19]
In addition, in any communication, debt collectors must tell debtors that they are debt collectors and that they are attempting to collect debts. Collectors may not harass or abuse the debtor[20] or make false claims or misrepresentations,[21] including:
– Giving a false name or false contact information;
– Telling the debtor that he owes more than he actually owes;
– Saying the debtor is guilty of a crime or threaten arrest;
– Threatening to sue if they don’t intend to, or don’t expect the creditor to;
– Falsely telling the debtor the collector is an attorney or represents an attorney;
– Sending the debtor a document that looks like an official court document or legal forms when it is not or implying documents are not legal documents when they are;
– Giving false information to anyone about the debtor or tell or threaten to tell others about the debt;
– Threatening violence or harm to the debtor or anyone associated with the debtor;
– Using obscene language;
– Continuing to contact the debtor after being told in writing not to or being informed of the debtor’s legal representation;
– Depositing a post-dated check prematurely;
– Threatening to take the debtor’s property in a manner not supported by law; and
– Collecting an amount greater than the amount of the debt, except for additional collection fees as allowed by state law.
The creditor is required to give the debtor details of the debt within five days after the initial contact.[22] Unless the original contact contains the information already, the creditor must inform the debtor in writing that the debtor owes the creditor money, the amount of the debt and that the debtor has the right to dispute the amount or existence of the debt, in writing, within 30 days of the date of the letter. The creditor may continue the collection until it receives the debtor’s notice. If the collector is collecting debts for multiple creditors, the debtor can determine which of those creditors receives payment[23].
Debtors have administrative and civil litigation recourses against creditors who violate the Act. People who have been affected by a creditor’s violations may file complaints with the Federal Trade Commission.[24] Violations of the Act are considered unfair or deceptive trade practices, with attendant penalties under federal law.[25] Aggrieved debtors may also file civil lawsuits in state or federal court.[26]. There is a one-year statute of limitations on such cases. Damages are limited to actual damages plus $1000, costs and attorney fees. Class actions are allowed, but damages are also limited in those cases.
Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau was created by the Dodd-Frank bill in 2010, in response to the 2008 financial crisis. The Bureau opened its doors in the summer of 2011. It is an independent agency,[27] located inside of and funded by the Federal Reserve. The Bureau is responsible for consumer protection in the financial sector, including protection from the wrongdoings of banks, credit card companies, consumer reporting agencies, mortgage companies and credit bureaus, among other institutions.
The first director of the Bureau, Richard Cordray, was quoted as saying that his understanding of the mission of the Bureau was to prioritize debts from credit cards, mortgages and student loans.[28] It has enforcement power over consumer financial cases, as well as the power to write and enforce consumer protection rules and to create and maintain a database of consumer complaints. The Bureau, being relatively new, is in a constant state of flux, as new regulations and congressional restrictions are promulgated continuously and the Bureau is a well-publicized political target for various political interests.
The Bureau maintains a public database of consumer complaints, which totaled over 1.5 million as of 2019. The FTC also maintains such a database, but it is not public. Also, as of 2019, the agency has collected over $12 billion from companies in consumer refunds and cancelled debts for nearly 30 million consumers since its inception.[29]
Consumers can file complaints against debt collectors and credit reporting agencies on the Bureau’s website.[30] The complaint is logged and the consumer can track its progress. The Bureau tries to get the process going within about two weeks of the complaint. The complaint is also published on a consumer complaint database, which is open to the public.[31]
The first step the Bureau takes is to contact the party against whom the complaint is filed to attempt to resolve the issue. Ninety-seven percent of companies contacted respond to the complaint. After the company responds, the consumer then has 60 days to review and comment on the response. If the complaint is not resolved at that point, the Bureau can take the next steps.
The Bureau has broad enforcement powers. Depending on the nature of the complaint, the Bureau may simply send a warning letter to the company telling it that it may be in violation of the law,[32] or the agency may take further legal action. That further legal action may consist of filing a lawsuit against the company in federal court for violating the law or in filing an administrative law action for violating a regulation. Those lawsuits are posted on the Bureau website.
The Bureau may also impose its own penalties. The primary penalties available to the Bureau by either a court action or by order of the Bureau itself are financial penalties assessed against the violating company in favor of the complaining consumer. Those payments are calculated by assessing the financial harm to the consumer by the actions of the violator. The payments can be made through the Bureau,[33] directly by the violator, or through a third-party administrator.
Any civil penalties or fines that are assessed against violators are put into a civil penalty fund. The fund also can act as a clearinghouse, or trust account, for monies generated through lawsuits. Extra monies in that fund can be used to compensate victims, especially in cases of insolvent violators. Any extra monies can also be used as an educational fund.
As of 2019, the largest penalty ever assessed by the Bureau was the $2.125 billion fine assessed against Ocwen Financial Corporation in 2013 for putting thousands of people at risk for losing their homes.[34] The second-highest fine was $1 billion against Wells Fargo Bank in 2018 for incessant consumer fraud. That bank had already been previously fined $100 million. Sun Trust Mortgage, Citibank N.A. and Bank of America have all been fined over $500 million.
In our next module, we will focus on common collection methods that can be initiated or even completed before any judgment is secured against the debtor. We’ll follow that up in module 5 with a discussion of post-judgment collection actions.
[1] https://www.ftc.gov/
[2] https://www.usa.gov/federal-agencies/federal-trade-commission
[3] https://www.ftc.gov/news-events/media-resources/consumer-finance
[4] https://www.ftc.gov/enforcement/cases-proceedings/refunds; https://www.ftc.gov/enforcement/cases-proceedings/refunds/annual-report-refunds-consumers
[5] https://www.ftc.gov/news-events/press-releases
[6] 15 U.S.C. § 1681; https://www.consumer.ftc.gov/articles/pdf-0111-fair-credit-reporting-act.pdf
[8] FCRA Sec. 623(a)(7)(B).
[9] FCRA Sec. 623(a)(1)(A) and 623(a)(1)(B)(ii)
[10] CFR Title 16, Chapter 1, Subchapter F, Part 660.
[11] https://www.investopedia.com/terms/c/credit-reporting-agency.asp
[12] 15 U.S.C. §1681(a)(4)
[13] 15 U.S.C. §1692
[14] 15 USC §1692a.(5).
[15] 15 USC §1692a.(3).
[16] 15 USC §1692a.(6).
[17] 15 USC 1692c.
[18] 15 USC 1692b.
[19] 15 USC 1692b.(6); 1692c.(2).
[20] 15 USC 1692d.
[21] 15 USC 1692e.
[22] 15 USC 1692g
[23] 15 USC 1692h
[24] 15 USC 1692l
[25] 15 USCS § § 41 et seq.
[26] 15 USC 1692k
[27] The constitutionality of the CFPB as an independent agency was upheld in PHHCorp. v. CFPB, United States Court of Appeals for the D.C. Circuit, CaseNo. 15-1177 (2018). PHH Corp. v.Consumer Fin. Prot. Bureau, 881 F.3d 75 (D.C. Cir. 2018)
[28] Wall Street Journal, Feb. 9, 2011.; https://www.wsj.com/articles/SB10001424052748703507804576130370862263258
[29] https://www.consumerfinance.gov/
[30] https://www.consumerfinance.gov/complaint/
[31] https://www.consumerfinance.gov/data-research/consumer-complaints/
[32] https://www.consumerfinance.gov/policy-compliance/enforcement/warning-letters/
[33] This is called “Bureau-Administered Redress.”
[34] https://www.marketwatch.com/story/mulvaneys-first-fine-at-cfpb-is-second-largest-in-history-of-agency-2018-04-20