The Federal Trade Commission last week announced an unprecedented coordinated federal-state enforcement effort targeting deceptive and abusive debt collection. This sweeping initiative, termed “Operation Collection Protection,” coordinates federal, state, and local actions under the FTC, the CFPB, 47 state attorneys general, and other enforcement officers and agencies.
As the top source of complaints to the FTC and the Consumer Financial Protection Bureau, illegal debt collection practices have long been in the agencies’ crosshairs. “Operation Collection Protection” began with 30 new coordinated law enforcement actions targeting debt collectors using illegal methods such as harassing phone calls and false threats of litigation, arrest, and wage garnishment. With the involvement of state attorneys general and variations on state laws, banks and other creditors should have the new initiative on their radars as well.
Although the FTC does not have jurisdiction over banks, they should pay close attention to the initiative because of the involvement of the CFPB and state attorneys general, and variations on state laws under which attorneys general may investigate banks and other financial institutions.
FTC Guidance in the Area
The FTC has long emphasized the importance of bringing together federal, state, and local regulators to address the problem of illegal debt collection practices. As Commissioner Julie Brill discussed at a roundtable held in conjunction with the CFPB in June 2013, debt collectors file their lawsuits in state court, and the FTC urged states in 2010 to educate consumers and enact requirements about information that debt collectors must provide when bringing suit. The 2010 report also encouraged criminal and civil law enforcement authorities to discourage collectors engaged in illegal practices by taking action against them.
Although the CFPB and FTC were already coordinating their work in the debt collection space through regular meetings pursuant to their 2012 Memorandum of Understanding, the official partnership now formed with this initiative will strengthen the ties between the FTC, the CFPB, and state and local actors in the push to put the heat on the industry.
Financial Institutions, Take Heed
Significantly, the coordination between federal and state efforts brings more companies into the scope of Operation Collection Protection than a federal effort alone would entail. The federal Fair Debt Collection Practices Act, subject to certain conditions, does not apply to creditors collecting their own debts. But the inclusion of state attorneys general in the initiative introduces the likelihood that states with laws that include creditors such as banks within the definition of “debt collector” will also be part of the crackdown.
The CFPB has also signaled its intentions to bring enforcement actions against creditors and not just third-party debt collectors. In two recent actions, the CFPB challenged allegedly unlawful practices by retailers and lenders, using its unfair, deceptive, and abusive practices (UDAAP) authority under the Dodd-Frank Wall Street Reform and Consumer Protection of 2010. The CFPB is expected to issue an outline of a rule targeting creditors in the first quarter of 2016.
The FTC kicked off the initiative by announcing five new enforcement actions it is bringing against debt collectors for, among other offenses, extracting payment through intimidation and lies; attempting to collect on debts the company knew were bogus; and failing to identify themselves as debt collectors. The seven judgments the FTC has secured to date this year have netted over $88 million and imposed strong injunctive relief that includes banning 24 defendants from working in debt collection.