Bureau Update: Debt Collection NACARA October 16, 2018 - PowerPoint PPT Presentation

Bureau Update: Debt Collection NACARA October 16, 2018 Charleston, SC

This presentation is being m ade by representatives of the Bureau of Consum er Financial Protection on behalf of the Bureau. It does not constitute legal interpretation, guidance, or advice of the Bureau of Consum er Financial Protection. Any opinions or views stated by the presenter are the presenter’s own and m ay not represent the Bureau’s views. This docum ent was used in support of a live discussion. As such, it does not necessarily express the entirety of that discussion nor the relative em phasis of topics therein. 2

Bureau of Consumer Financial Protection Mission To regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws and to educate and em power consumers to make better informed financial decisions. Vision Free, innovative, competitive, and transparent consumer finance markets where the rights of all parties are protected by the rule of law and where consumers are free to choose the products and services that best fit their individual needs. 3

FY 2018-2022 Strategic Plan  Goal 1  Ensure that all consumers have access to markets for consumer financial products and services.  Goal 2  Implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent, and competitive.  Goal 3  Foster operational excellence through efficient and effective processes, governance, and security of resources and information. 4

Levels of consumer debt and delinquency rates (90 + DPD) are rising NON-H OUSING CONSUMER DEBT PERCENT OF NON-H OUSING BALANCES 9 0 + BALANCES (IN TRILLIONS), 20 0 3– 20 18 Q2 DAYS DELINQUENT, 20 0 3-20 18 Q2 16% 4.5 14% 4.0 12% 3.5 10% 3.0 8% 2.5 Other 6% Student loan 2.0 Credit card 4% 1.5 Auto loan 2% 1.0 0% 03:Q1 03:Q4 04:Q3 05:Q2 06:Q1 06:Q4 07:Q3 08:Q2 09:Q1 09:Q4 10:Q3 11:Q2 12:Q1 12:Q4 13:Q3 14:Q2 15:Q1 15:Q4 16:Q3 17:Q2 18:Q1 0.5 0.0 Auto loans Credit cards 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1 16:Q1 17:Q1 18:Q1 Student loans Other Source: FRBNY Consumer Credit Panel/ Equifax. 5

Industry-wide decrease in number of employees and collection agencies reflects market consolidation and labor efficiencies Debt collection employement (FTE) 160,000 148,162 142,377 136,127 140,000 133,619 133,335 129,262 127,715 126,010 125,746 120,000 100,000 80,000 60,000 40,000 20,000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: IBISWorld Industry Report (2018). 6

FDCPA, FCRA, and TCPA litigation FDCPA Litigation, 2001-2018 14,000 12,223 11,797 11,075 11,36510,594 12,000 10,386 9,784 9,397 10,238 9,484 (projected) 10,000 8,000 6,131 6,000 1,323 1,771 2,118 2,782 3,206 3,678 4,314 4,000 2,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 FCRA Litigation, 2001-2018 5000 4646 (projected) 4346 3807 3954 4000 2237 2376 2501 3000 1938 1512 1508 1413 1377 2000 1079 1252 1081 996 774 1000 520 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 TCPA Litigation, 2002-2018 6000 4840 4392 5000 4050 (projected) 3668 4000 3049 3000 2218 2000 1137 827 1000 351 7 14 16 44 5 4 2 3 0 7 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: WebRecon (June 2018); 2018 Projected totals are calculated by doubling the June 2018 figure to estimate for the second half of the year.

Requests for Information The Bureau had launched a Ca ll fo r Ev id ence initiative. Request fo r info rm atio n 1 Civil investigative demands (CIDs) 2 Rules of practice for adjudication proceedings 3 Enforcement 4 Supervision 5 External engagements 6 Public reporting of consumer complaint information 7 Rulem a k ing pr ocess 8 Ad o p ted r ules and new r ulem aking autho r ities 9 Inherited regulations and inherited rulem aking autho rities 10 Guidance and implementation Support 11 Consumer education 12 Consumer complaint and inquiries 8

Debt Collection Industry’s RFI Comments  Industry commenters included: ACA International, ABA, NCBA, RMA, CRC, Encore, and PRA  Comments related to debt collection:  Effective dates and retroactivity  Clear rules including clear definitions and model forms  Rules based on cost-benefit analysis  Request that practice of law be exempted  Clear guidance on the use of digital communication  More context in complaint data analysis and reporting Less “regulation by enforcement”  9

Debt Collection – Recent Exam Findings  Impermissible communications with third parties.  Deceptively implying that authorized users are responsible for a debt.  False representations regarding credit score impact of full payment vs. a settlement.  Communicating with consumers at a time known to be inconvenient.  Failure to mail debt verifications before engaging in further collections activities. 10

Student Loan Servicing Examination Issues  The Spring 2017 Supervisory Highlights noted student loan servicing issues related to:  Deceptive statements about interest capitalization during successive deferments  Failure to reverse adverse consequences of erroneous deferment terminations 11

Supervisory Highlights: Web resource  Visit our Research & Reports webpage for our Supervisory Highlights Reports.  Stay up-to-date on the SEP 6, 2018 Bureau’s exam ination activities. Sou r ce: h t t p:/ / w ww.consu merfinance.gov/ dat a-r esearch/ research -reports. 12

Recent Debt Collection Enforcement Actions  Security Na tiona l Autom otiv e Accepta nce Com pa ny , LLC: The Bureau issued a consent order against SNAAC, an auto lender specializing in loans to service members, for violating a Bureau consent order by failing to provide more than $1 million in refunds and credits, affecting more than 1,000 consumers. The consent order requires SNAAC to make good on the redress it owes to those consumers and pay an additional $1.25 million penalty. 13

Recent Debt Collection Enforcement Actions  W eltm an, W einberg & Reis Co., L.P.A. The BCFP filed a suit in April 2017 alleging WWR violated FDCPA by misrepresenting the amount of attorney involvement in letters and calls made to individuals with unpaid debts. After a trial, the Federal judge, under the specific facts of this case, ruled that the BCFP had not proven its allegations that lawyers were not meaningfully involved in the process pointing out that there is no “specific test” for what constitutes meaningful involvement by an attorney.  National Credit Adjusters- Under the consent order by the BCFP, National Credit Adjusters will pay $500,000 of a $3 million fine, and the former chief executive Hochstein will pay $300,000 of a $3 million fine. Hochstein has been permanently banned from the collection industry and National Credit Adjusters has been barred from engaging in certain collection practices including misrepresenting the amount owed, threatening to take legal actions etc. Full payment is suspended contingent on the truthfulness of NCA/ Hochstein's representations concerning their financial condition. 14

Debt Settlement 15

Debt Settlement: Estimated New Client Growth 140,00 0 120,000 10 0,000 Q4 80,00 0 Q3 Q2 60 ,000 Q1 40 ,000 20 ,000 0 2011 2012 2013 2014 2015 2016 2017 Data Source: Regan, Greg. Options for Consumers in Crisis: An Updated Economic Analysis of the Debt Settlement Industry. February 5, 2018 16

BCFP Debt Settlement Enforcement Authority Dodd-Frank Act (DFA)  Debt settlement is considered a financial product/ service under the DFA  Unfair, Deceptive, or Abusive Acts or Practices (UDAAPs) Prohibited  Scope of Covered Debt Settlement All methods of communications in offering debt settlement services  Secured and unsecured debts   Scope of Entities Covered: Debt settlement firms and their service providers  Others who knowingly or recklessly provide substantial assistance to  covered persons who engage in UDAAP violations 17

BCFP Debt Settlement Enforcement Authority Mortgage Assistant Relief Telem arketing Sales Services (MARS) Rule/ Reg. O Rule (TSR)  Main Entities/ Activities Any person that provides, offers to provide, or arranges for others to provide , any m ortgage  Main Entities/ Activities Covered assistance relief service, including activities to: Stop, prevent, or postpose foreclosure; Debt settlement firms and   companies that provide substantial Negotiate, obtain, or arrange a  assistance to them knowing or mortgage loan modification (amount of consciously avoiding knowing of interest, principal balance, monthly their law violations payments or fees); and Out-bound and in-bound  Obtain any forbearance or modification  telemarketing calls in the timing of payments from the home owner . Unsecured debts    Primary Restrictions Primary Restrictions Restriction on accepting fees prior to Advance fee ban and other fee   obtaining a modification on behalf of restrictions the consumer; Prohibition of material  Prohibition on material  misrepresentations misrepresentations or omissions; Requirement of specific disclosures  Requirement of Reg. O disclosures 18 