The CFPB has issued its annual Fair Debt Collection Practices Act report covering the CFPB’s debt collection activities in 2021. The report incorporates information from the FTC’s most recent annual letter to the CFPB describing its 2021 activities in the debt collection market, including information about the FTC’s enforcement actions involving collection practices directed at small businesses.
It is noteworthy that in his blog post about the CFPB report, Director Chopra highlights the FTC’s “multiple actions to combat unlawful collections practices that target small businesses.” He comments that “[i]t is critical that policymakers pay close attention to wrongdoers targeting small businesses and determine whether there should be additional debt collections rights and protections for small businesses and entrepreneurs to protect them.” The CFPB also highlights debt collection involving small businesses in a section of the report titled “Small Business Debt Collection.” In that section, the CFPB comments that the data it reviewed suggests “a level of resources and expertise for most small businesses on par with consumer borrowers rather than what may be the general perception of commercial enterprises with readily available financial resources and expertise.” According to the CFPB, “[t]he result is the potential for exploitation comparative to what is encountered by consumers, without any of the protections granted to consumers by the FDCPA.” The CFPB indicates that it “monitors legal actions of the [FTC] and state agencies regarding abusive practice of some financial institutions towards small businesses.”
- According to the report’s section on complaints, the CFPB received approximately 121,700 debt collection complaints in 2021 (which was 39,000 more than in 2020). As in all prior years since the Bureau began accepting debt collection complaints in 2013, the most common complaint in 2021 was about attempts to collect a debt that the consumer claimed was not owed. The second and third most common complaint issues were, respectively, written notifications about the debt, and taking or threatening a negative or legal action.
- In 2021, the CFPB announced one new FDCPA enforcement action. It resolved two pending lawsuits with FDCPA claims and filed an action to recover a fraudulent transfer to enforce a prior judgment based on FDCPA violations. These actions resulted in judgments for $2,260,000 in consumer redress, which were suspended due to defendants’ demonstrated inability to pay, $882,200 in civil monetary penalties, and permanent bans from the collections industry. As of the end of 2021, the CFPB had three FDCPA enforcement actions pending in federal district court. It is also conducting a number of non-public investigations of companies to determine whether they engaged in collection practices that violate the FDCPA or the CFPA.
- In a section of the report that discusses CFPB research projects, the CFPB indicates that in 2021, CFPB economists published an independent research paper that analyzes the effect of changes in state debt collection laws. Based on recent laws and regulations in four states that instituted debt collection conduct restrictions, they are reported to have found that “such restrictions reduce access to credit card accounts and raise interest rates, but that this effect is very small.”
- The CFPB concludes the report with the statement that in 2022, it “will continue its work to uphold the [FDCPA] through all the tools at its disposal. These include supervision and enforcement, regulatory and legal action, research and market monitoring activities, and consumer education.”
FTC annual update. The enforcement activities highlighted by the FTC in its annual letter (and described in the CFPB report) include the following:
- The FTC settled three lawsuits initiated as part of its “Operation Corrupt Collector” nationwide initiative 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. In all of the settlements, the defendants were permanently banned from the debt collection industry.
- The FTC filed an amended complaint in a lawsuit filed against two companies engaged in small business financing along with several of their officers and owners. The FTC’s amended complaint alleges that the defendants deceived small businesses by misrepresenting the terms of merchant cash advances, made unauthorized withdrawals from small businesses’ bank accounts, violated the Gramm-Leach-Bliley Act by making false statements to induce consumers to provide bank account information, 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.
- The FTC, joined by the Commonwealth of Pennsylvania, filed an amended complaint in a lawsuit filed against the operators of a telemarketing scheme and a debt collection operation. The FTC’s amended complaint alleges that the telemarketers billed small businesses for books and newsletter subscriptions they never ordered and sent unpaid bills to the debt collection firm that illegally threatened the businesses if they failed to pay for the unordered items.
Both the CFPB report and FTC letter discuss the FTC’s efforts to advance legislation that would amend Section 13(b) of the FTC Act to expressly give the FTC authority to seek, and a court to award, equitable monetary relief such as restitution or disgorgement. In 2021, in AMG Capital Management, the U.S. Supreme Court ruled that Section 13(b) does not provide such authority to the FTC.