Understanding how the FDCPA applies to first party creditors.
For decades, the Fair Debt Collection Practices Act has been largely viewed as the domain of third-party debt collectors. Today, however, smart companies know otherwise.
Both the Federal Trade Commission and the Consumer Financial Protection Bureau have made it clear—through guidance, enforcement actions and lawsuits—that in certain situations, first-party creditors fall under the FDCPA’s jurisdiction directly or will be held to standards similar to the FDCPA, Collector magazine editor Anne Rosso May reports in the April edition.
First, if a creditor collects its own debts but used a different company name to do so, it must adhere to the FDCPA.
In a blog post last year, Christopher Koegel, assistant director in the FTC’s Division of Financial Practices, cited a 2011 case in which a payday loan company offered loans under the names Ecash and GeteCash, but collected debt under the name LoanPointe.
The payday lender contended that both company names were related by common ownership, which exempted it under FDCPA Section 803(6)(B), Rosso May reports. However, the FTC maintained the provision only applies if the principal business of [the person collecting the debt] is not the collection of debts.”
In some cases, a creditor can easily become a debt collector, and have to adhere to the FDCPA, depending on the status of the account it’s working, Rosso May reports.
If a debt is in default when the creditor obtains it, the company’s activities to collect that debt are covered by the FDCPA.
Creditors who may not be directly subject to the FDCPA could also be subject to enforcement by the CFPB.
The Consumer Financial Protection Act, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, prohibits certain actions and practices that are unlawful, deceptive and abusive, commonly known as UDAAPs, Rosso May reports.
The CFPB has made it clear that if a creditor’s debt collection practice would violate the FDCPA, it may constitute a UDAAP.
Creditors who outsource services should also be careful about setting up those programs to avoid FDCPA violations.
If you or your collection agency partner is sending collection letters under the debt collector’s name, the debt collector should have substantial input and decision-making ability, Rosso May reports. The debt collector should also have the ability to perform additional collection efforts above and beyond merely sending a letter.
Finally, creditors should also be aware of state laws that regulate first-party collection activities. Notably some states, such as Iowa, require creditors who collect their own debts to adhere to the same debt collection laws that apply to third-party collectors, Rosso May reports.
Across the board, creditors should review and update their policies and procedures to consider conduct prohibited by the FDCPA, even if they think the act doesn’t apply.
ACA members can find more information about first-party collections and the FDCPA through ACA SearchPoint. Visit the ACA SearchPoint website and click on “First Party.” ACA members must be logged in to access ACA SearchPoint documents.