In-person debt collection raises the collector’s risk of being in violation of relevant sections of financial law, including the Dodd-Frank Act and the Fair Debt Collection Practices Act. The risk is becoming reality for several businesses, as the Consumer Financial Protection Bureau (CFPB) steps up enforcement activities against debt collection companies. CFPB is focused on first-party and third-party debt collectors and has recently imposed significant penalties on companies found in violation of consumer protection measures in the statutes. In December 2015, CFPB released a Compliance Bulletin about in-person debt collection to offer guidance about its expectations to creditors, debt buyers and third-party collectors.
In-Person Debt Collection and the Law
Sections 1031 and 1036 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 deal with “unfair, deceptive, and abusive acts and practices” — UDAAPs — conducted during a transaction with a consumer for a financial product or service, or offering a financial product or service. According to Section 1031, an act or practice is unfair “when it causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and is not outweighed by… benefits to consumers or competition.” The prohibition against UDAAPs extends to first-party creditors and other persons and service providers covered by the Act who are collecting debt related to consumer financial products or services.
Debt collection practices of third parties are regulated by the Fair Debt Collection Practices Act (FDCPA). Under the FDCPA, which was passed in 1977, it’s illegal to engage in abusive debt collection practices. The act regulates numerous aspects of communication, such as limiting hours for phone calls, prohibiting discussion about a debt with third parties, prohibiting debt collectors from visits to a consumer’s place of employment, and making deceitful or threatening statements. The FDCPA governs debt recovery from personal, family or household transactions, but not debts incurred by businesses, or individuals who borrowed for business purposes.
CFPB is given the authority in the Dodd-Frank Act to prevent any person or service provider from “conducting or engaging” in UDAAPs, and that’s the legislation that it uses for enforcement actions against first-party debt collectors — those collecting their own debt. For third-party collectors, provisions in FDCPA are applied.
Compliance Risks with In-Person Debt Collection
As the Bureau notes in the Compliance Bulletin, CFPB will bring enforcement or supervisory action against a company it determines is in violation of the Dodd-Frank Act, FDCPA, “or other Federal consumer financial law.” Recent enforcement actions brought against some companies have also named individuals within the companies.
The bulletin elaborates on the definition of “substantial injury,” which is not confined to harmful monetary effects but also includes harm to reputation and negative consequences to other facets of the consumer’s life, such as employment. CFPB cautions that debt collectors who conduct in-person visits, which often means visiting a person’s home or place of work, have an enhanced risk for being in violation of the acts, especially the FDCPA, which prohibits debt collectors “engaging in any conduct the natural consequence of which is to harass, oppress, or abuse any person, and from using unfair or unconscionable means to collect or attempt to collect any debt.” The bulletin is specific about several in-person debt collection activities that heighten the risk of an in-person debt collector to be non-compliant, and have been found by CFPB examiners to be unfair in violation of the Dodd-Frank Act.
First-party and third-party debt collectors should become familiar with the Compliance Bulletin and review the in-person debt collection practices of their own operation and employees. It might be helpful to also review recent consent orders released by CFPB with an eye to avoiding the practices that the Bureau highlighted as violations.
Key Takeaways
First-party debt collectors may be subject to the UDAAP provisions — unfair, deceptive and abusive acts and practices that may cause substantial injury to a consumer — of the Dodd-Frank Act.
Third-party debt collection activities are covered by the Fair Debt Collections Practices Act
In-person debt collection visits can cause “substantial injury” to the consumer’s reputation and employment, as well as monetary harm.
In-person debt collection activities heighten the risk of first- and third-party collectors to be in violation of FDCPA’s provisions against conduct that may have a harassing effect on the consumer.
Where possible, other methods of contact should be used instead of in-person visits.
Avoid practices that have the potential of alerting a third party that a debt is being collected from the consumer, such as:
- Identifying the company
- Wearing a name tag
- Leaving a business card with a third party or in a place visible to the public
- Leaving a letter with a third party
- Discussing a debt with a third party, or with the consumer where a third party can overhear any of the conversation
- Discussing a debt with a third party, or with the consumer where a third party can overhear any of the conversation
Consumers shouldn’t be threatened with an in-person visit.
Collectors shouldn’t visit a consumer’s place of employment or home when:
- They may know, or have reason to know, that personal visitors aren’t permitted at the place of employment
- They may know, or have reason to know, it’s a time and place that’s inconvenient for the consumer
- The collector knows that the consumer has requested not to be contacted at work
