CFPB Issues Compliance Bulletins on FDCPA and Dodd-Frank

The Consumer Financial Protection Bureau this month issued two bulletins offering guidance on complying with the FDCPA and Dodd-Frank. Depositphotos_1121434_xsCFPB Bulletin 2013-07 clarifies what acts related to the collection of consumer debt fall under the category of unfair, deceptive, or abusive acts or practices (UDAAPs) prohibited by Dodd-Frank. CFPB Bulletin 2013-08 provides guidance on creditor compliance with the FDCPA and §§ 1031 and 1036 of Dodd-Frank Wall.

Bulletin 2013-07 explains that Dodd-Frank works in conjunction with the FDCPA. The Bulletin clarifies the definition of “unfair, deceptive, or abusive acts or practices” for the purposes of interpreting Dodd-Frank. Referring to the CFPB Exam Manual, the Bulletin clarifies that an act or practice is considered “unfair” at a minimum when substantial injury is likely to occur, is not reasonably avoidable, and not outweighed by countervailing benefits to consumers or competition. Moreover, an act or practice is “deceptive” when it is likely to mislead the consumer, the consumer’s interpretation is reasonable, and the misrepresentation is about material information. Finally, an act or practice is “abusive” if it materially interferes with the ability of a consumer to interpret a term or if it takes unreasonable advantage of a consumer’s uninformed position.

CFPB Bulletin 2013-08 identifies three deceptive claims that are commonly represented to consumers with respect to the effect of debt payments on consumers’ credit reports, credit scores, and overall creditworthiness. The Bulletin details two types of deceptive claims about the negative effects of obsolete and non-obsolete debt on credit reports, noting that since the FCRA imposes time limits on including information in credit reports, debt that is obsolete may not change a consumer’s credit report if it is too old (usually seven years). Even debt that is non-obsolete will not alter a consumer’s credit report if payment information is not furnished to credit reporting agencies. Misrepresentations about how debt payments will reflect on consumers’ credit reports could be the basis of a violation of the FDCPA and Dodd-Frank.

The Bulletin further clarified, with regard to credit scores, that numerous factors – not just the payment of debt – affects consumers’ credit scores. Therefore, a consumer’s credit score may not improve even though a creditor may make claims that it will after a debt payment is made. A misrepresentation about improved credit as a result of payment could also be a potential violation of the FDCPA and Dodd-Frank. The Bulletin also noted the effect of debt payments on the creditworthiness of consumers and consumers’ ability to borrow in the future.  The Bulletin emphasized that since every lender uses a variety of sources – not just creditworthiness – to evaluate potential borrowers, debt owners and third-party collections may overstate the extent of impact on a consumers’ future borrowing ability when debt payments are not made. Unless debt owners and third-party debt collectors have factual basis for making any of the above claims, this could be a violation of the FDCPA and Dodd-Frank Act.

Editor’s note: This article was co-authored by Jennifer Lien, a summer law clerk in the Firm’s San Francisco office.