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Regulatory Litigation and Operational Lessons

The CFPB recently issued its annual report on the Fair Debt Collection Practices Act. This report contains the thoughts  of the CFPB and FTC enforcement actions which point to legal and operational issues in need of resolution by industry players who wish to stay ahead of the enforcement trends of the industries regulators.

Reviewing the Enforcement Actions in this environment is critical because the CFPB is conducting its primary regulatory communication not through rule making but instead through enforcement actions. The report disclosed 22 enforcement actions brought by the CFPB or FTC alleging various violations of law.

Enforcement actions which have been brought until now generally are resolved through consent decrees. As the regulators tend to expand their focus into areas such as law firms and vendors, this historical observation may become less automatic.

While the actions cover a broad range of issues, there are some operational points that can be gleaned from the report:

  • No type of entity is safe from enforcement action. Law firms, collection agencies, debt buyers and vendors — all faced enforcement actions for conduct that was deemed sufficiently egregious to warrant regulatory action. While there are limits on the jurisdiction of the Bureau, the cases make it clear that if the regulators deem conduct wrongful, then neither the corporate structure nor industry sector of the perceived wrongdoer will immunize the conduct.
  • Blatant and systematic violations of the law are low hanging fruit for the regulators. Conduct such as threatening imprisonment and willfully misrepresenting the debt will always be a target of any regulator in any environment. If such conduct occurs without the knowledge of the management of a targeted entity, then this is a clear indication that there needs to be an increase in management oversight and operational control.
  • The best defense to claims of misconduct is proper documentation of policies and procedures. In a number of the enforcement actions, the problems arose from inadequate policies and procedures and inadequate management oversight of these policies. Similar to the historical means of establishing a bona fide error defense under Section 813(c) of the FDCPA, a set of policies, procedures and controls is essential to dissuading the regulators from pursuing enforcement actions.
  •  New technologies are not endorsed nor frankly forbidden in the enforcement actions. Instead, what is clear is that the use of technology in a manner which would constitute harassment or abuse or which contains false or misleading statements lead to a strong possibility of enforcement activity just as if this activity had occurred in the traditional collection techniques.

Engaging in battle with the regulators in an enforcement action truly can be a “bet the company” experience. While sometimes this is unavoidable as the regulators attempt to expand their scope, other such skirmishes are clearly avoidable through following the law and tightly managing the consumer facing processes on which creditors, collection agencies, law firms and debt purchasers rely.