CFPB on Collections, Accounts in Default, and Consumer Reporting

A CFPB examination of any lender generally involves a review of the collection practices of that lender. However, according to the CFPB Short Term and Small Dollar examination manual, companies which collect on their own behalf are not prone to certain pieces of the review. In order to qualify under this designation, the company must:

• Collect payments for loans originally made by the company; and
• Collect payments under the original company name.

FDCPA Requirements Any company that acts as a debt collection agency does fall under additional review during a CFPB examination. For the purposes of such a review, the CFPB considers a company to be a debt collection agency if it:

• Purchases debt from other short-term lenders at a discount and attempts to collect any or all of the funds; or
• Collects funds it originally loaned, but does so under a secondary name or DBA.

In these cases, the CFPB examination will attempt to ensure that company practices comply with the Fair Debt Collections Practices Act. To avoid issues or fines during your CFPB examination, you should ensure your employees are familiar with the FDCPA and FCRA.  You should also review policies and procedures to ensure they are compliant with all regulations. A few specific items to review are listed below.

• Any access to consumer reporting or information provided to credit agencies for the purpose of debt collection activities must follow the Fair Credit Reporting Act.
• You should maintain written policies dictating the manner in which information is exchanged. The policies should provide for accurate, secure transmission of data.
• During verbal or written collection procedures, you must disclose that you are contacting the individual regarding a debt. A CFPB examination may include reviews of phone calls and correspondence.
• Your employees should be well trained regarding confidentiality of personal finance and debt information.
• You should maintain policies limiting collection activity to non-abusive procedures and ensure all employees are aware of, understand and follow those policies.

Even if you do not participate in third party debt collection activities, it is a good idea to follow the advice above. During a CFPB examination, it is always better to over comply with rules and regulations than to risk fines for gray lending practices.