Fair Collection Practices Act

Background • , regularly, for other institutions to which it is related by common ownership or corporate The Fair Debt Collection Practices Act (FDCPA) control (15 USC 1692 et seq.), which became effective in Other debt collectors that are not covered by the March 1978, was designed to eliminate abusive, FDCPA include deceptive, and unfair debt collection practices. It also protects reputable debt collectors from unfair • Officers or employees of an institution who competition and encourages consistent state action collect debts owed to the institution in the to protect consumers from abuses in debt institution’s name collection. • Legal-process servers

Coverage Communications in Connection with Debt That Is Covered Debt Collection The FDCPA applies only to the collection of debt Definition of Consumer incurred by a consumer primarily for personal, family, or household purposes. It does not apply to For communications with a consumer or third party the collection of corporate debt or debt owed for in connection with the collection of a debt, the term business or agricultural purposes. consumer is defined to include the borrower’s spouse, parent (if the borrower is a minor), guardian, executor, or administrator. Debt Collectors That Are Covered

The FDCPA defines a debt collector as any person When, Where, and with Whom who regularly collects, or attempts to collect, Communication Is Permitted consumer debts for another person or institution or uses some name other than its own when collecting Communicating with Consumers its own consumer debts. The definition includes, for example, an institution that regularly collects debts A debt collector may not communicate with a for an unrelated institution, such as an institution consumer at any unusual time (generally before that, under a reciprocal service arrangement, 8:00 a.m. or after 9:00 p.m. in the consumer’s time solicits the help of another in collecting a defaulted zone) or at any place that is inconvenient to the debt from a customer who has moved. consumer, unless the consumer or a court of competent jurisdiction has given permission for such contacts. A debt collector may not contact the Debt Collectors That Are Not Covered consumer at his or her place of employment if the collector has reason to believe the employer An institution is not considered a debt collector prohibits such communications. under the FDCPA when it collects If the debt collector knows that the consumer has • Another institution’s debts in isolated instances retained an attorney to handle the debt and can • Its own debts under its own name easily ascertain the attorney’s name and address, • Debts it originated and then sold but continues to all contacts must be with that attorney, unless the service (for example, mortgage and student attorney is unresponsive or agrees to allow direct ) communication with the consumer. • Debts that were not in when they were obtained Ceasing Communication with Consumers • Debts that were obtained as security for a commercial transaction (for example, When a consumer refuses, in writing, to pay a debt financing) or requests that the debt collector cease further communication, the collector must cease all further • Debts incidental to a bona fide fiduciary relation­ communication, except to advise the consumer ship or escrow arrangement (for example, a debt that held in the institution’s trust department or mortgage escrow for taxes and insurance) • The collection effort is being stopped

Consumer Compliance Handbook FDCPA•1(1/06) Fair Debt Collection Practices Act

• Certain specified remedies ordinarily invoked • Notice that upon such written dispute, the debt may be pursued or, if appropriate, that a specific collector will send the consumer a verification of remedy will be pursued the debt or a copy of any judgment • Mailed notices from the consumer are official • If the original is different from the current when they are received by the debt collector creditor, notice that if the consumer makes a written request for the name and address of the original creditor within the thirty-day period, the Communicating with Third Parties debt collector will provide that information The only third parties that a debt collector may If, within the thirty-day period, the consumer contact when trying to collect a debt are disputes in writing any portion of the debt or • The consumer requests the name and address of the original creditor, the collector must stop all collection efforts • The consumer’s attorney until he or she mails the consumer a copy of a • A consumer reporting agency (if permitted by judgment or verification of the debt, or the name local law) and address of the original creditor, as applicable. • The creditor • The creditor’s attorney Prohibited Practices • The debt collector’s attorney Harassing or Abusive Practices The consumer or a court of competent jurisdiction may, however, give the debt collector specific A debt collector, in collecting a debt, may not permission to contact other third parties. In addi­ harass, oppress, or abuse any person. Specifically, tion, a debt collector who is unable to locate a a debt collector may not consumer may ask a third party for the consumer’s • Use or threaten to use violence or other criminal home address, telephone number, and place of means to harm the physical person, reputation, employment (location information). The debt collec­ or property of any person tor must give his or her name and must state that he • Use obscene, profane, or other language that or she is confirming or correcting information about abuses the hearer or reader the consumer’s location. Unless specifically asked, the debt collector may not name the collection firm • Publish a list of consumers who allegedly refuse or agency or reveal that the consumer owes any to pay debts, except to a consumer reporting debt. agency or to persons meeting the requirements of section 603(f) or 604(3) of the FDCPA No third party may be contacted more than once unless the collector believes that the information • Advertise a debt for sale to coerce payment from the first contact was wrong or incomplete and • Annoy, abuse, or harass persons by repeatedly that the third party has since received better calling their telephone number or allowing their information, or unless the third party specifically telephone to ring continually requests additional contact. • Make telephone calls without properly identifying Contact with any third party by postcard, letter, or himself or herself, except as allowed to obtain telegram is allowed only if the envelope or content location information of the communication does not indicate the nature of the collector’s business. False or Misleading Representations A debt collector, in collecting a debt, may not use Validation of Debts any false, deceptive, or misleading representation. Specifically, a debt collector may not A debt collector must provide the consumer with • Falsely represent or imply that he or she is certain basic information. If that information was not vouched for, bonded by, or affiliated with the in the initial communication and if the consumer or any state, including the use of has not paid the debt five days after the initial any badge, uniform, or similar identification communication, all of the following information must be sent to the consumer in written form: • Falsely represent the character, amount, or legal status of the debt, or of any services rendered, or • The amount of the debt compensation he or she may receive for collect­ • The name of the creditor to whom the debt is ing the debt owed • Falsely represent or imply that he or she is an • Notice that the consumer has thirty days to attorney or that communications are from an dispute the debt before it is assumed to be valid attorney

2 (1/06) • FDCPA Consumer Compliance Handbook Fair Debt Collection Practices Act

• Threaten to take any action that is not legal or Unfair Practices intended A debt collector may not use unfair or unconscion­ • Falsely represent or imply that nonpayment of able means to collect or attempt to collect a debt. any debt will result in the arrest or imprisonment Specifically, a debt collector may not of any person or the seizure, , attachment, or sale of any property or wages of • Collect any , fee, charge, or expense any person, unless such action is lawful and incidental to the principal obligation unless it was intended by the debt collector or creditor authorized by the original debt agreement or is otherwise permitted by law • Falsely represent or imply that the sale, referral, • Accept a check or other instrument postdated by or other transfer of the debt will cause the more than five days, unless he or she notifies the consumer to lose a claim or a defense to consumer, in writing, of any intention to deposit payment, or become subject to any practice the check or instrument; the notice must be prohibited by the FDCPA made no more than ten nor less than three • Falsely represent or imply that the consumer business days before the date of deposit committed a crime or other conduct to disgrace • Solicit a postdated check or other postdated the consumer payment instrument to use as a threat or to • Communicate, or threaten to communicate, false institute criminal prosecution credit information or information that should be • Deposit or threaten to deposit a postdated check known to be false, including not identifying or other postdated payment instrument before disputed debts as such the date on the check or instrument • Use or distribute written communications made • Cause communication charges, such as charges to look like or falsely represent documents for collect telephone calls and telegrams, to be authorized, issued, or approved by any court, made to any person by concealing the true official, or agency of the United States or any purpose of the communication state if the appearance or wording would give a • Take or threaten to repossess or disable property false impression of the document’s source, when the creditor has no enforceable right to the authorization, or approval property or does not intend to do so, or if, under • Use any false representation or deceptive means law, the property may not be taken, repos­ to collect or attempt to collect a debt or to obtain sessed, or disabled information about a consumer • Use a postcard to contact a consumer about a debt • Fail to disclose in the initial written communica­ tion with the consumer, and the initial oral communication if it precedes the initial written Multiple Debts communication, that the debt collector is attempt­ ing to collect a debt and that any information If a consumer owes several debts that are being obtained will be used for that purpose. In collected by the same debt collector, payments addition, the debt collector must disclose in must be applied according to the consumer’s subsequent communications that the communi­ instructions. No payment may be applied to a cation is from a debt collector. (These disclo­ disputed debt. sures do not apply to a formal pleading made in connection with a legal action.) • Falsely represent or imply that accounts have Legal Actions by Debt Collectors been sold to innocent purchasers for value A debt collector may file a lawsuit to enforce a • Falsely represent or imply that documents are security interest in real property only in the judicial legal process district in which the real property is located. Other legal actions may be brought only in the judicial • Use any name other than the true name of the district in which the consumer lives or in which the debt collector’s business, company, or organiza­ original contract creating the debt was signed. tion • Falsely represent or imply that documents are not legal-process forms or do not require action Furnishing Certain Deceptive Forms by the consumer No one may design, compile, or furnish any form • Falsely represent or imply that the debt collector that creates the false impression that someone operates or is employed by a consumer report­ other than the creditor (for example, a debt ing agency collector) is participating in the collection of a debt.

Consumer Compliance Handbook FDCPA•3(1/06) Fair Debt Collection Practices Act

Civil Liability Jurisdiction and Statute of Limitations A debt collector who fails to comply with any Action against debt collectors for violations of the provision of the FDCPA is liable for FDCPA may be brought in any appropriate U.S. district court or other court of competent jurisdic­ • Any actual damages sustained as a result of that tion. The consumer has one year from the date on failure which the violation occurred to start such an action. • Punitive damages as allowed by the court: – In an individual action, up to $1,000 Administrative Enforcement – In a class action, up to $1,000 for each named plaintiff and an award to be divided among all The Federal Trade Commission (FTC) is the primary members of the class of an amount up to enforcement agency for the FDCPA. The various $500,000 or 1 percent of the debt collector’s financial regulatory agencies enforce the FDCPA net worth, whichever is less for the institutions they supervise. Neither the FTC • Costs and a reasonable attorney’s fee in any nor any other agency may issue regulations such action governing the collection of consumer debts by debt collectors. The FTC may, however, issue In determining punitive damages, the court must advisory opinions under the Federal Trade Com­ consider the nature, frequency, and persistency of mission Act on the meaning and application of the the violations and the extent to which they were FDCPA. intentional. In a class action, the court must also consider the resources of the debt collector and the number of persons adversely affected. Relation to State Law The FDCPA preempts state law only to the extent Defenses that a state law is inconsistent with the FDCPA. A state law that is more protective of the consumer is A debt collector is not liable for a violation if a not considered inconsistent with the FDCPA. preponderance of the evidence shows that the violation was not intentional and was the result of a bona fide error that arose despite procedures Exemption for State Regulation reasonably designed to avoid any such error. The collector is also not liable if he or she, in good faith, The FTC may exempt certain classes of debt relied on an advisory opinion of the Federal Trade collection practices from the requirements of the Commission, even if the ruling is later amended, FDCPA if the FTC has determined that state laws rescinded, or determined to be invalid for any impose substantially similar requirements and that reason. there is adequate provision for enforcement.

4 (1/06) • FDCPA Consumer Compliance Handbook Fair Debt Collection Practices Act Examination Objectives and Procedures

EXAMINATION OBJECTIVES 2. Determine if the institution has established internal procedures and controls to ensure 1. To determine the adequacy of the institution’s compliance with the FDCPA. internal procedures and controls to ensure 3. If the institution has acted or is acting as a debt consistent compliance with the FDCPA collector under the FDCPA, determine if the 2. To determine if the institution complies with institution has the requirements of the FDCPA in collecting a. Communicated with the consumer or third or attempting to collect third-party consumer parties in any prohibited manner debts b. Furnished the written validation notice within the required time period and otherwise complied with applicable validation require­ EXAMINATION PROCEDURES ments The following procedures are to be completed c. Used any harassing, abusive, unfair, or through interviews with personnel knowledgeable deceptive collection practice prohibited by about and directly engaged in the institution’s the FDCPA collection activities and through reviews of any d. Collected any amount not expressly autho­ written collection procedures, reciprocal collection rized by the agreement creating the debt or agreements, collection letters, dunning notices, by state law envelopes, scripts used by collection personnel, e. Applied all payments received as instructed validation notices, individual collection files, com­ and, where no instruction was given, applied plaint files, and other relevant records. payments only to undisputed debts 1. Determine if the institution is a debt collector f. Filed suit in an authorized forum if the under the FDCPA. institution sued to collect the debt

Consumer Compliance Handbook FDCPA•5(1/06)

Fair Debt Collection Practices Act Examination Checklist

1. Is the institution aware of the circumstances in which the FDCPA applies, and, as appropriate, has it established internal procedures and controls to ensure compliance with the FDCPA? Yes No 2. Has the institution acted as a ‘‘debt collector’’ under the FDCPA by either a. Regularly attempting to collect defaulted consumer debts owed to others or Yes No b. Attempting to collect its own consumer debts in a name other than its own Yes No If the answers to questions 2a and 2b are ‘‘no,’’ the institution has not acted as a debt collector under the FDCPA and the examiner should not complete the remainder of the checklist. 3. In attempting to collect consumer debts as a ‘‘debt collector’’ under the FDCPA, did the institution a. Communicate with the consumer or any third party in a prohibited manner Yes No b. Adhere to the required debt-validation procedure Yes No c. Use any harassing, abusive, unfair, or deceptive practice or means Yes No d. Collect any more than authorized by the debt instrument or state law Yes No e. Properly apply any payment received in the case of multiple debts owed by the same consumer Yes No f. Bring legal action only in a judicial district permitted under the FDCPA Yes No

Consumer Compliance Handbook FDCPA•7(1/06)