By Laura J. Lowenstein, Esq.
One of the main regulatory laws governing collections is called the Fair Debt Collection Practices Act, known industry-wide as the FDCPA. It is well-accepted that third-party debt collectors, such as CRM, are covered by the FDCPA but it may surprise some companies to know that some of their own internal activities could bring them under the FDCPA’s compliance umbrella as well. For example, if your company attempts to collect on its own debts using a different name that could reasonably be construed by a consumer to be a separate entity collecting or attempting to collect on that debt, then – surprise! – your company just became a debt collector subject to the FDCPA.
In addition to the straight language of the FDCPA that can cover creditors collecting on their own accounts, additional exposure to collection regulations can be gleaned from recent actions of the Consumer Financial Protection Bureau (CFPB) whereby service providers to a collector have been targeted for liability due to the collector’s unscrupulous and illegal actions. For example, in a case this past year the CFPB named a telemarketer and four merchant payment processors for a collection agency as defendants in a lawsuit premised on the illegal debt collection practices of the agency. The CFPB’s theory being that without the assistance of these service providers, the collection agency could not have carried out its scheme to defraud and these service providers should have recognized and acted upon “red flags” displayed by their collection agency-client. Again, these telemarketers and merchant payment processors were exposed to liability for illegal collection activity even though they themselves were not debt collectors.
And, finally, regardless of whether a company is subject to the FDCPA, it must be aware that its collection activities are always covered by Section 5 of the Federal Trade Commission Act (FTC’s Act). Similar to the principles of “unfair” and “deceptive” practices under the Dodd-Frank Act, Section 5 of the FTC’s Act prohibits any practices that would be considered false and misleading. Thus, if you were engaging in activities that would be deemed unfair or deceptive practices under the FDCPA if you were a third-party debt collector, chances are you are violating Section 5 of the FTC’s Act and the FTC is known to have gone after first-party creditors for such practices.
So, what is the takeaway from this regulatory morass? If you engage in collecting on your own accounts, ensure you are regularly monitoring what your employees both say and write to consumers to avoid exposing yourself and your business to liability for debt collection practices you thought were only applicable to third-party collectors.
For more information on Capital Resource Management, Inc. and how we help individuals and businesses generate revenue through better financial practices and compliant collections, please contact us at 1-844-277-3277.