The Bureau of Consumer Financial Protection (BCFP), formerly known as the CFPB, announced that it plans to issue a Notice of Proposed Rulemaking (NPRM) for the Fair Debt Collection Practices Act (FDCPA) by March 2019. The NPRM will likely have a dramatic impact on collection practices for debt collectors. But, what about first party creditors? Did the Supreme Court’s decision in Henson v. Santander Consumer USA, Inc. obviate the necessity for first party creditors to comply with the BCFP’s debt collection rules?
Impact of Henson
In mid-2017, the United States Supreme Court issued a significant decision in Henson regarding the universe of companies subject to potential liability under the FDCPA. In a unanimous decision authored by Justice Neil Gorsuch, the Supreme Court held that companies that buy defaulted debts are not “debt collectors” under the FDCPA because they are not, by definition, “collect[ing] or attempt[ing] to collect . . . debts owed or due . . . another,” under 15 U.S.C. §1692a(6).
A cursory review of Henson might suggest that first party creditors, even when buying debts in default, are not subject to the FDCPA and therefore would likely not be subject to any rulemaking under the FDCPA. The Supreme Court in Henson, however, refused to consider the plaintiffs’ arguments that Santander was a debt collector because it allegedly regularly attempts to collect debts and because it is allegedly engaged in a business “the principal purpose of which is the collection of any debts.” Since the Supreme Court’s decision in Henson in 2017, these two aspects of the definition of debt collector in the FDPCA have become the primary battleground for consumer litigation under the FDCPA. Indeed, a number of courts over the last year have held that first party creditors qualify as debt collectors under the FDCPA’s “principal purpose” prong. See, e.g., Norman v. Allied Interstate, LLC, 310 F. Supp. 3d 509, 514-15 (E.D. Pa. 2018) (“[D]ebt buyers whose principal purpose of business is debt collection . . . are debt collectors under the [FDCPA].”); Tepper v. Amos Financial, LLC, 898 F.3d 364, 370-71 (3rd Cir. 2018); but see Bank of New York Mellon Trust Co. N.A. v. Henderson, 862 F.3d 29 (D.C. Cir. 2017) (holding that Bank of New York, which regularly purchased and collected on defaulted loans, was not a debt collector under the FDCPA because there was no evidence to indicate its principal purpose was debt collection). Until the Supreme Court weighs in again on the definition of debt collectors under the FDCPA, first party creditors should not simply assume the FDCPA does not apply. Additionally, it is conceivable that the BCFP’s upcoming NPRM could provide a broad interpretation of the “principal purpose” prong that would apply the new rules to first party creditors. While this seems somewhat unlikely under the current BCFP leadership, that was presumably the BCFP’s intention under former Director Richard Cordray.
Application via Unfair, Deceptive or Abusive Acts and Practices
Even if the BCFP’s new debt collection rules do not apply directly to first party creditors under the FDCPA, first party creditors should consider the possibility of liability for unfair, deceptive or abusive acts and practices (UDAAP) before discounting the NPRM.
In the mortgage servicing space, the BCFP, under former Director Cordray’s leadership, entered into Consent Orders with one or more servicers in 2014 for conduct that violated the BCFP’s mortgage servicing rules using an exam period that predated the effective date of the servicing rules. Under a similar line of thinking, it would not take a significant logical leap for the BCFP or another regulator to interpret a violation of the standards of conduct under the FDCPA as constituting a UDAAP for a first party creditor. Indeed, portions of the FDCPA specifically define certain behaviors as abusive and unfair. See 15 U.S.C. §§ 1692d, 1692f.
While it would be easy to assume the current leadership at the BCFP would not take such a stance given the stated intention of ending “regulation by enforcement,” the BCFP’s most recent consent order sends a different message. In the BCFP’s October 2018 Consent Order with Cash Express LLC, the BCFP used its UDAAP authority to apply violations of the FDCPA to a non-debt collection company. Even if the BCFP ultimately chooses not to utilize its UDAAP authority in this manner, Section 1042 of the Dodd-Frank Wall Street Reform and Consumer Protection Act provides state attorneys general and state regulatory agencies with the ability to enforce UDAAP violations. This enforcement structure significantly complicates and expands upon the potential risks that may be present for first party creditors. As a result, first party creditors should carefully consider the potential impact of the BCFP’s upcoming NPRM to its current collection practices.
Right Consumer, Right Amount
The BCFP’s original outline of proposed debt collection rules in 2016 incorporated robust data integrity requirements for debt collectors and creditors that supply information to debt collectors. In June 2017, the BCFP, under former Director Cordray, announced that it would take a bifurcated approach to addressing the issues detailed in the outline of proposed debt collection rules. Specifically, the BCFP stated it would develop a separate rule regarding the “right consumer, right amount” aspect of the outline. Given the large percentage of complaints categorized as “attempts to collect debts not owed” in the BCFP’s recent 50-State Complaint Snapshot, the BCFP may opt to change course and address the “right consumer, right amount” aspect of the proposed rule at the same time as the other components set forth in the 2016 outline. If so, the data integrity standards would obviously carry significant importance to first party creditors that engage in debt sales.
Debt collectors, debt sellers, and creditors will have an opportunity to impact the BCFP’s debt collection rules by commenting on the draft rules when they are released in 2019.
By Lee Gilley, J. Riley Key and Jonathan R. Kolodziej