In its most recent settlement of an enforcement action alleging unfair, deceptive, and abusive practices, the Consumer Financial Protection Bureau (“CFPB”) offered additional insight into what constitutes “abusive” practices. The Consent Order relates to the debt collection attempts of payday lender ACE Cash Express, which were alleged to include excessive telephone calls, disclosing the existence of consumer debt to third parties (employers, etc.), contacts after notice of attorney representation, and continued contacts to consumers’ employers. The CFPB also asserts various deceptive acts, which included threats to prosecute or sue, report debts to credit reporting bureaus, and/or compounding fees.
The CFPB found that “abusive” acts were apparent because ACE acted in a manner that created a “false sense of urgency” for consumers to take out more loans from ACE. The CFPB alleged that ACE would encourage consumers to temporarily pay off their loans and then quickly re-borrow from ACE. ACE’s training manual allegedly contained a graphic that illustrated the cycle of debt and encouraged customers to take out more loans.
Although there has been no formal guidance on “abusive” acts, the standard continues to develop, and financial institutions need to ensure they avoid conduct the CFPB has designated “abusive.” This decision focuses on ACE’s cycle of allegedly encouraging loan renewals, including specific comments within the ACE training manual about the operation of this cycle. Financial institutions need to be mindful about how their training materials could give rise to liability.
Should your organization have questions about specific collection practices, please contact Spilman.