Podcast - The CFPB Highlights Alleged Deceptive Debt Collection Practices

Welcome to another podcast of Clearly Conspicuous. As we noted in previous sessions, our goal in these podcasts is to make you succeed in this environment that's quite aggressive, make you aware of what's going on with the federal and state consumer protection agencies and give you practical tips for success. It's a privilege to be with you today.

Today, we discuss the July 2 summer edition of the Consumer Financial Protection Bureau Supervisory Highlights that focused on examinations of auto and student loan servicing and debt collectors that were completed between April 1 of 2023 and December 31, 2023. The report also highlights consumer complaints about medical payment products and identifies concerns with financial institutions freezing deposit accounts.

CFPB Allegations Against Auto and Student Loan Servicing Providers

So let's start with student and auto loan servicing. With respect to other loan servicing, the examiners detailed instances of alleged unfair, deceptive or abusive acts or practices where certain auto loan servicers failed to provide adequate notification to borrowers enrolled in auto pay that they must make their final payments manually. According to the CFPB, this led to late fees being charged when the final payments were not made on time, purportedly violating the unfair prong of UDAAP. In response, the servicers agreed to revise their procedures to ensure that they either include the final payment in autopay withdrawals or adequately notify consumers enrolled in autopay if and when a payment is required to be submitted manually.

Now, with respect to student loan servicing, examiners found instances of alleged UDAAP violations such as excessive barriers to assistance, long hold times and understaffed call centers. Additionally, certain servicers purportedly provided inaccurate information about the forms required for forbearance programs and failed to notify consumers about preauthorized electronic fund transfers that exceeded previous amounts. In response, servicers agreed to develop and implement plans to reduce hold times and drop rates, improved employee training and, in certain instances, provided remediation to consumers who were adversely impacted by inadequate customer support.

CFPB Examines Debt Collectors' Disclosure Violations

Now looking at debt collectors, there were disclosure violations. The CFPB examiners detail certain instances of alleged Fair Debt Collection Practices Act (FDCPA) violations, where some debt collectors, including those handling student loans, failed to provide validation notices within five days of initial communication with borrowers. Some collectors also alleged violations on the use of false or misleading representations, such as misleading borrowers about the right to dispute the debts. In response, the debt collectors were required to update the written communications with borrowers to provide the validation information and enhance employee training.

There was also concerns about harassment and inconvenient communications. Examiners detailed instances of debt collectors purportedly using aggressive or verbally abusive language, communicating at inconvenient times or places making over 100 calls despite requests to stop, and failing to cease communications through specific mediums as requested by consumers. In response, debt collectors were required to enhance their training and oversight efforts to prevent harassment.

With respect to medical payment products, there are consumer complaints concerns. The CFPB examiners identified complaints about how dentists and other healthcare providers promoted, offered and sold medical credit cards to consumers. According to the report, consumers complained about healthcare providers misrepresenting the specifics of "deferred interest" promotions and pressuring patients to open a credit card while receiving treatment. The CFPB stated that it expects supervised entities to have effective processes for managing the risks of service provider relationships, including relationships with medical payment product providers.

Alleged Practices Involving Account Freezes

Now with respect to practices preventing access to funds or account information, account freezes, examiners detail certain alleged FDCPA violations where institutions fail to notify consumers when their accounts were frozen due to suspected fraud or other suspicious activity and did not provide clear guidance on how to unfreeze these accounts. In particular, according to the report, customer service representatives were often unavailable to assist consumers with frozen accounts. In response, the institutions agreed to enhance their processes to provide automatic notice of account freezes and to describe in the notices the process by which consumers can unfreeze their accounts. Institutions also changed their processes to allow consumers to communicate directly with customer service representatives and challenge account freezes over the telephone.

Concluding Thoughts

So here's the key takeaway: Overall, the CFPB's observations appear consistent with the types of issues we have seen the CFPB flag in prior supervisory highlights, interpretive guidance and advisory circulars, and that we are seeking in a supervision and examination context. In addition, industry members should note the recent uptick of concerns expressed by the CFPB in two areas in particular: customer service levels and medical debt financing products.

So please stay tuned for further programs as we identify and address the key issues and developments and provide strategies for success. I wish you continued success and a meaningful day. Thank you.