Recently, I found myself musing about the collections process and how it is regulated. A brief walk through the regulatory thicket will illustrate my thought process.
I first considered federal law, and specifically the Fair Debt Collection Practices Act (FDCPA). That law, by its terms, doesn’t apply to the collection efforts of a buy-here, pay-here (BHPH) dealer’s related finance company — provided that the finance company has acquired the consumer’s contract at a time when the contract is not in default. That said, we regularly tell our clients that compliance with the substantive parts of the FDCPA is a “best practice.” It’s also a good way to keep the Consumer Financial Protection Bureau (CFPB) from asserting that your debt collection practices are unfair, deceptive or even (egad!) “abusive.”
Speaking of “abusive,” in July, the CFPB published two bulletins advising companies about unlawful conduct in collecting a consumer’s debt. The first describes certain acts or practices related to the collection of consumer debt that could, depending on the facts and circumstances, be considered unfair, deceptive or abusive practices (a.k.a. “UDAAPs”) under the Dodd-Frank Act. The bulletin provides examples of such UDAAPs, but notes that the examples are not exhaustive. They include:
• Collecting or assessing a debt and/or any additional amounts in connection with a debt (including interest, fees and charges) not expressly authorized by the agreement creating the debt or permitted by law
• Failing to post payments in a timely or proper manner, or to credit a consumer’s account with payments that the consumer submitted on time and then charge late fees to that consumer
• Taking possession of property without the legal right to do so
• Revealing the consumer’s debt, without the consumer’s consent, to the consumer’s employer and/or co-workers
• Falsely representing the character, amount or legal status of the debt
• Misrepresenting that a debt collection communication is from an attorney
• Misrepresenting whether information about a payment or nonpayment would be furnished to a credit reporting agency
Some retail installment sales contracts slow the repossession process by requiring dealers to offer customers a chance to cure a default — even though that provision may not be required by state law.
The CFPB’s second bulletin warns companies to avoid deceptive statements concerning the impact of paying a debt on a consumer’s credit score, credit report or creditworthiness, and highlights examples of potentially deceptive claims debt collectors may be making to consumers about their credit reports and credit scores.
Another federal law that wouldn’t necessarily be top-of-mind is the Equal Credit Opportunity Act (ECOA), which prohibits discrimination in any aspect of a credit transaction. “Any aspect” includes collections. So, for example, if your collectors make accommodations for Hispanics less frequently than for other customers, you’ve got an ECOA problem.
Next, I considered state law. It’s hard to discuss state laws dealing with collections in an article like this, because the states come at the regulation of collections differently.
Some states actually require companies collecting their own obligations to obtain a collection agency license. A few states require an additional servicing license. Some states have laws that, in addition to licensing, regulate the activities of collectors in a way that is similar to the FDCPA’s approach.
All states have enacted some version of the Uniform Commercial Code (UCC). Article 9 of the UCC sets forth the rules that govern the activities of secured creditors who are trying to “realize upon” (repossess) their security interests in collateral. Some of these rules deal with the sorts of notices that creditors are required to send to their delinquent debtors and the consequences for not sending notices, or sending notices that don’t comply with the rules.
Many states have a law governing the credit sale of goods, including vehicles, or of vehicles specifically. Typically, these are called “retail installment sales acts” (RISAs) or some variant on that name. Some RISAs set forth limitations on events of default, other consumer protections and repossession, and notice requirements that are in addition to, or that completely displace, similar provisions in the state’s version of Article 9 of the UCC.
Even with all of these laws to worry about, you aren’t done yet. The retail installment contract that you are using can limit your collection activities.
We have seen retail installment sales contracts, for instance, that offer the consumer the right to cure a default, even when such a right does not appear in the state’s law. We’ve also seen contracts that provide that the notice of the sale of collateral must be sent within 10 days, when the state law permits the sending of such a notice up to 15 days after a sale. The failure of the creditor to comply with these contractual requirements can expose the creditor to a breach of contract claim.
So, have you given your collections operation, including all your letters and notices a good legal scrubbing lately? If not, maybe it’s time to take your friendly compliance lawyer to lunch.