Earlier this month, the Consumer Financial Protection Bureau issued a consent order against a New Jersey debt buyer accused of threatening and suing consumers to collect debts in states where it did not have a legally required license.
Specifically, the Bureau alleged that RAB Performance Recoveries, LLC’s (RAB) purchased consumer debt accounts from debt brokers and placed the accounts for collection with collections law firms in the states where the consumers were located. The collections law firms then sent the consumers letters demanding payment of the full past-due amounts and referencing the fact that the firm had been “retained” for the “collection of this debt.” According to the Bureau’s allegations, RAB sued on a majority of the accounts that did not settle in response to the demand letters and the vast majority of these lawsuits resulted in default judgments. After obtaining the default judgments, RAB used judgment-enforcement mechanisms to collect on the judgments.
According to the Bureau, RAB threatened to sue, sued, and demanded payment from consumers in Connecticut, New Jersey, and Rhode Island even though RAB did not hold the licenses that those states required to sue to collect debts. The Bureau concluded that RAB had falsely implied that it had a legally enforceable claim for payment and threatened to take action that could not legally be taken by threatening litigation in the demand letters and filing debt-collection lawsuits without the required licenses in violation of the Fair Debt Collection Practices Act and Consumer Financial Protection Act.
The consent order requires RAB to pay a civil money penalty of $204,000. With respect to judgments RAB obtained without the proper license, the consent order requires RAB to: (1) suspend current and future collection activities; (2) vacate those judgments; and (3) notify consumers with payment agreements that the debts have been satisfied.
It is notable that the Bureau took action on a state licensing issue because state licensing compliance has rarely found its way into CFPB enforcement. Historically, compliance with specific state laws and licensing regulations has not been an area of significant focus by the Bureau during its investigatory and supervisory activities. Further, the issue of whether passive debt purchasers are required to be licensed as collectors varies by state and often is the subject of litigation, depending on the specific language of the applicable state regulation. As we enter 2021, the Bureau is signaling a willingness to provide additional resources to support the compliance efforts of its regulatory colleagues at the state level and there is no reason to believe the Bureau will limit such actions to just the collections industry.