Yesterday, the FDIC announced a settlement with Umpqua Bank that involved collection practices connected with commercial equipment financing offered by the bank’s wholly-owned subsidiary.  The stipulated Order to Pay Civil Money Penalty requires the bank to pay a $1.8 million CMP.

The practices that the FDIC found to violate Section 5 of the FTC Act consisted of:

  • Charging various undisclosed collection fees to borrowers whose accounts were past due, such as collection call and letter fees and third-party collection fees.
  • Engaging in excessive and sequential collection calls to customers, even when customers requested the subsidiary to stop these calls.
  • Disclosing information about the customers’ debts to third parties.
  • Advising borrowers that the subsidiary would report delinquencies on commercial debt to consumer reporting agencies, when its policy and practice was not to report such delinquencies to consumer reporting agencies.

The bank also voluntarily paid approximately $1,628,000 in restitution to the 16,902 customers who were charged the undisclosed collection fees.

We believe this settlement is significant for two reasons.  First, it is an example of the FDIC taking a UDAP enforcement action based on collection practices, which has not been a common theme of FDIC actions in the past.  But more importantly, the enforcement action took concepts applicable in consumer debt collection and applied them to commercial loan accounts, which we view as another sign that regulators are viewing commercial borrowers through an increasingly consumer-like lens.  We will definitely be watching to see if the FDIC, or other regulators, continue to import consumer protection concepts into commercial lending, but we believe that this is a trend that will likely continue.

On May 25, 2021, from 1:00 p.m. to 2:00 p.m. EDT, Ballard Spahr attorneys will hold a webinar, “The Consumerization of Small Business Lending: Significant Developments and Trends.”  For more information and to register, click here.