Debt collectors & collection agencies

Debt collection has become a $13 billion industry with more than 40,000 employees chasing down those who have fallen behind on bills…or not. According to the Consumer Finance Protection Bureau (CFPB), one out of three American adults – about 77 million people — have credit files with debts in collection. It only takes a few missed payments before debt collectors start to call to demanding money.

Debt collectors generally can’t call before 8 AM or after 9 PM. If your first contact with a collector is by telephone, you may want to tell the caller that you want all future contact in writing rather than by phone. You can also instruct the collection agency not to call you at work. Follow up on any requests in writing right away. Your letter should include requests about contacting you and other matters discussed in your first contact. All correspondence, including disputes, should be sent to both the collection agency and the creditor by Certified Mail, Return Receipt Requested. If you notify collection agencies not to contact you at all, they are entitled to contact you one more time to explain how they intend to proceed. We provide sample letters below.

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Drawbacks to debt consolidation

Most Americans carry some form of debt. It can be student loans, credit cards, mortgages, auto loans or business loans. Because they can be overwhelming, especially after a setback that reduces income, soome consumers turn to debt consolidation loans to simplify or improve the terms on their borrowing obligations. But be warned, consolidation loans can sometimes turn out to be a disadvantage in the long run.

Debt consolidation loans work by turning multiple debts into a single loan through one lender. This means that you are paying down one large loan rather than holding an assortment of smaller loans with multiple payments. Debt consolidation loans loans are usually offered by many financial institutions, such as banks and credit unions, but there are also consolidation services through more specialized companies.

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The debt settlement process

In debt settlement, a legal process, debtors have the opportunity to relieve, adjust, or restructure their debt through various measures and efforts. The goal is reach an agreement on an acceptable settlement on behalf of both the debtor, as well as on behalf of the institution in ownership of the defaulted loan. Most settlements take place through negotiation between the financial institution in ownership of the outstanding debt and the person with a loan.

The debtor can range from a private citizen to a business enterprise who has incurred debt through the inability or failure to repay an outstanding loan furnished by a lender or lending institution.

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CFPB Fall 2016 rulemaking agenda published

Barbara S. Mishkin

The CFPB’s Fall 2016 rulemaking agenda has been published as part of the Fall 2016 Unified Agenda of Federal Regulatory and Deregulatory Actions.  The preamble indicates that the information in the agenda is current as of October 19, 2016.  Accordingly, given the results of the Presidential election, including its potential impact on the CFPB’s leadership, there is likely to be a post-election reevaluation by the CFPB of its agenda.  The agenda sets the following timetables for key rulemaking initiatives:

Arbitration.  The CFPB released its proposed arbitration rule in May 2016 and the comment period ended on August 22, 2016.  The Fall 2016 agenda indicates that the CFPB “is reviewing and considering comments on the proposed rule” as it “considers development of a final rule for early 2017.”  The agenda gives a February 2017 estimated date for a final rule.  In recent days, we have heard speculation that the CFPB will issue a final rule before Donald Trump’s inauguration as President on January 20.  As we discussed in a recent blog post, a final arbitration rule or other new final rules issued by the CFPB (and potentially any final rules issued since late May 2016) could be nullified by Congress under the Congressional Review Act (CRA).  The CRA establishes a special set of procedures that allow Congress to pass a joint resolution disapproving a rule which cannot be filibustered in the Senate and can be passed by only a simple majority vote.

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CFPB November 2016 complaint report highlights other financial services complaints, complaints from Oklahoma consumers

Barbara S. Mishkin

The CFPB has issued its November 2016 complaint report which highlights complaints about “other financial services,” a category that includes debt settlement, credit repair, check cashing, and money orders.  The report also highlights complaints from consumers in Oklahoma and the Oklahoma City metro area.

General findings include the following:

  • As of November 1, 2016, the CFPB handled approximately 1,035,200 complaints nationally, including approximately 27,000 complaints in October 2016.
  • Debt collection continued to be the most-complained-about financial product or service in October 2016, representing about 29 percent of complaints submitted.  Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 65 percent of the complaints submitted in October 2016.
  • Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 108 percent from the same time last year (August to October 2015 compared with August to October 2016).  In February 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education.  As we have noted in blog posts about prior complaint reports issued beginning in April 2016, rather than reflecting an increase in the number of borrowers making student loan complaints, the increase most likely reflects the change in where such complaints are sent.
  • Prepaid card complaints showed the greatest percentage decrease based on a three-month average, decreasing about 51 percent from the same time last year (August to October 2015 compared with August to October 2016).  Complaints during those periods decreased from 417 complaints in 2015 to 205 complaints in 2016.
  • Alaska, New Mexico, and Missouri experienced the greatest complaint volume increases from the same time last year (August to October 2015 compared with August to October 2016) with increases of, respectively, 53, 33, and 31 percent.
  • Maine, Rhode Island, and Idaho experienced the greatest complaint volume decreases from the same time last year (August to October 2015 compared with August to October 2016) with decreases of, respectively, 19, 18, and 15 percent.

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Application of FDCPA to Social Security benefits at issue in CFPB Second Circuit amicus brief

John L. Culhane, Jr. and Christopher J. Willis

The CFPB has filed an amicus brief in support of the plaintiff in Arias v. Gutman, Mintz, Baker & Sonnenfeldt, PC and 1700 Development Co., a FDCPA case on appeal to the U. S. Court of Appeals for the Second Circuit.  In its brief, the CFPB states that its interest in the case stems from its FDCPA enforcement authority and its special mandate to protect older Americans from unfair, deceptive or abusive practices.

The defendants in the case are a landlord and a debt collection law firm seeking to collect a default judgment against the plaintiff for unpaid rent obtained by the landlord.  The law firm issued a restraining notice to the plaintiff’s bank  which restrained a portion of the plaintiff’s funds on deposit after establishing that the remaining funds were automatically protected as deposits of Social Security benefits.  The plaintiff subsequently claimed an exemption for all of the funds in his account on the basis that  the only deposits to the account were monthly Social Security benefits.  The law firm objected to the exemption claim by commencing a special proceeding in state court supported by an affirmation.   In its supporting affirmation, the law firm claimed that (1) it was not possible to determine the amount of exempt funds because the plaintiff did not provide any records starting from a zero balance, and (2) the Social Security benefits would lose their exempt status if commingled with non-exempt funds and the plaintiff failed to provide documents showing there had been no commingling.  The law firm eventually stipulated to the release of the restrained funds.

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Election results portend significant changes for CFPB; Ballard Spahr to conduct Nov. 30 webinar

Alan S. Kaplinsky

As a result of Donald J. Trump’s election as President, coupled with the Democrats’ failure to wrest control of the House or Senate from the Republicans, the CFPB can be expected to undergo significant changes that are likely to have the effect of reducing the agency’s impact.

On November 30, 2016, from 2 p.m. to 3 p.m. ET, Ballard Spahr attorneys will hold a webinar, “Election Post-Mortem: What It Means for the CFPB, the Industry, and Consumers.”  The webinar registration form is available here.

The most visible expected change is Mr. Trump’s replacement of Director Richard Cordray.  How soon that occurs post-inauguration may depend on whether the CFPB seeks further judicial review of the D.C. Circuit’s decision in CFPB v. PHH Corporation and, if so, the outcome of such review.  In its decision, the D.C. Circuit ruled that the CFPB’s single-director-removable-only-for-cause structure was unconstitutional.  To remedy the constitutional defect, the court severed the removal-only-for-cause provision from the Dodd-Frank Act so that the President can now “remove the Director at will at any time.”  Unless and until the PHH decision takes effect (or Congress amends the Dodd-Frank Act), Mr. Trump could only remove Director Cordray “for cause” before the Director’s term ends in 2018.

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CFPB issues Fall 2016 Supervisory Highlights; Ballard to hold Dec. 2 webinar

John L. Culhane, Jr.

In its Fall 2016 Supervisory Highlights, which covers supervision work generally completed between May and August 2016, the CFPB highlights violations found by its examiners involving origination and servicing of auto financing, debt collection, mortgage origination and servicing, student loan servicing, and fair lending.

On December 2, 2016, from 12 p.m. to 1 p.m ET, Ballard Spahr attorneys will hold a webinar, “The CFPB’s Fall 2016 Supervisory Highlights: Looking Beyond the Headlines.”  A link to register is available here.

The report states that recent non-public supervisory actions have resulted in restitution of approximately $ 11.3 million to more than 225,000 consumers.  The report also indicates that the CFPB’s supervisory activities “have either led to or supported” two recent public enforcement action described in the report that resulted in over $ 28 million in consumer remediation and $ 8 million in civil money penalties.

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