The FTC has provided its annual update to the CFPB on the FTC’s FDCPA activities. The latest update covers the FTC’s 2020 activities. In addition to remaining an FTC focus, unlawful debt collection practices have been identified as a CFPB priority by Acting Director Dave Uejio and Director-nominee Rohit Chopra. In the letter, the FTC indicates that it will continue to work closely with the CFPB to coordinate consumer protection activities related to debt collection.
The enforcement activities highlighted by the FTC in its annual letter include the following:
- The settlement of the FTC’s first enforcement action targeting the practice of “debt parking.” This practice, also referred to as “passive debt collection,” involves the placing of purported debts on consumers’ credit reports without first attempting to communicate with consumers about the debts. In its lawsuit, the FTC alleged that since 2015, Midwest Recovery Systems reported more than $98 million in purported debts to credit reporting agencies. Such debts allegedly included debts for unauthorized or counterfeit payday loans, debts subject to unresolved fraud claims, debts in bankruptcy, debts in the process of being rebilled to consumers’ medical insurance, and debts already paid to the defendants. According to the complaint, the defendants continued to attempt to collect such debts despite various red flags about their validity, including numerous consumer complaints and disputes and an inability to validate numerous debts. The FTC alleged various FDCPA violations by the defendants as well as alleged violations of the FCRA and FCRA Furnisher Rule. The settlement included a $24.3 million judgment, which was partially suspended based on the defendants’ inability to pay. We note that the second part of the CFPB’s final Debt Collection Rule issued in December 2020 prohibits furnishing information to credit reporting agencies without first making contact (or attempting to make contact) with the consumer about the debt.
- A nationwide initiative (titled “Operation Corrupt Collector”) in partnership with the CFPB, other federal agencies, and state law enforcement authorities addressing “phantom debt collection” and abusive and threatening debt collection practices. Phantom debt collection (also known as fake debt collection) covers a range of practices, including attempts to collect on obligations that consumers never took out or received, as well as efforts to recover loans without authorization from the creditor. The FTC filed three lawsuits as part of this initiative.
Although centered on FDCPA enforcement, the update includes a discussion of a lawsuit filed by the FTC against two companies engaged in small business financing. The FTC’s complaint alleged that the defendants deceived small businesses by misrepresenting the terms of merchant cash advances, and used unfair collection practices, including confessions of judgment that the defendants used unfairly to seize personal and business assets in circumstances not expected by customers and not permitted by the financing contracts. Small business financing, particularly merchant cash advances, has been an FTC focus and, based on comments made by CFPB Director-nominee Chopra, is expected to receive increased scrutiny from the CFPB.