The calls came several times a week and sometimes even when the Howards were heading for bed. Each time, it was the same: a threatening voice with an even more intimidating message, asking the Howards to pay off their overdue credit card debt or face arrest and jail time.
Such calls are not only scary, but they are illegal. Yet many debt collection agencies engage in such practices. Fair Debt Collection Practices Act (FDCPA) and Consumer Financial Protection Bureau (CFPB) were enacted specifically to stop unfair, deceptive, and abusive debt collection practices. They prevent third-party collection agencies from harassing, threatening, and inappropriately contacting someone who owes money. Many law firms (in the area of accounts receivable collections) and collection agencies have faced the wrath of these regulating bodies of late.
As a law firm or collection agency, you need to tread with care through every step involved in the debt collection process. Even a minor error could prove costly and lead to huge fines and potential loss of credentials. To relate things better, let us take an incident that occurred a couple of years ago.
In 2018, a CFPB ruling found that the nation’s two largest debt buyers were employing deceptive practices to collect bad debts. During the investigation it was found that these two debt buyers and collectors had bought debts that were potentially inaccurate, lacking documentation, or unenforceable. The CFPB found them guilty of attempting to collect debts that they knew, or should have known, were inaccurate or could not legally be enforced based on contractual disclaimers, past practices of debt sellers, or consumer disputes. Further, in the CFPB ruling, they found that these agencies had collected payments without verifying and by pressuring consumers with false statements and churning out lawsuits using Robo-signed court documents.
Under the Dodd-Frank Act, the CFPB took severe action against these agencies. They were asked to refund millions and overhaul their practices. Taking this incident as a model let us explain some collection practices that are deemed as unfair and deceptive by the governing bodies.
Unfair and Deceptive Collection Practices that you need to avoid
While Collecting Bad debts
- Attempt to collect unsubstantiated or inaccurate debt: As a fair practice, you cannot state incorrect balances, interest rates, and payment due dates while attempting to collect debts from consumers. The portfolios of consumer debt that you buy from the sellers should reflect the correct amount owed by the consumer. They should reflect the most recent consumer payments deducted from the main balance. You should refrain from undertaking collections for accounts that lack proper documentation. As a collection agency or law firm, you should not collect any debt without first investigating to determine whether the debts were accurate and truly enforceable. Securing a proper chain of title documentation for purchased debt is strongly suggested to ensure reliable collectability.
Illegal Litigation Practices
- Misrepresentation to prove debts: Many collection agencies attempt to collect on debts by suing consumers in state courts across the country. In numerous cases, the agencies have no intention of proving these debts. They make no efforts to obtain the documents to back up their claims and instead rely on the consumers not filing a defense and winning the lawsuits by default.
- Use of Robo-signed court filings to churn out lawsuits: Agencies cannot file affidavits that contain misleading statements during debt-collection lawsuits. You should not use affidavits that misrepresent that the affiants had reviewed original account-level documentation confirming the consumers’ debts when they had not. Many agencies submit affidavits with documents attached that they claimed were the consumers’ specific account contracts or records when they are not. These shortcuts allow agencies to win lawsuits without doing the research and due diligence required to obtain a legitimate judgment, but they are unfair practices that can call upon huge penalties.
- Sue or threaten to sue consumers past the statute of limitations: It is quite evident that cases cannot be filed past the applicable statute of limitations. Yet many agencies send letters offering a time-limited opportunity to the consumer to “settle” without revealing that their debt was too old for litigation. Such proceedings are illegal and should not be practiced.
- Pressuring consumers to make payments using misrepresentations: It is a common practice for collectors to pose as representatives from the “Litigation Department”. They further threaten the consumers that litigation against them was planned, imminent, or even underway. In reality, in many cases, an attorney has not even reviewed the account and the company has not decided whether to file suit.
- Putting the burden of proof on the consumers to disprove the debt: Many a times the law firms debate with the consumers and courts that a debt should be assumed valid because the consumer has not disputed it within a certain time period. This is a deceptive practice as the burden to first prove the debt was owed and accurate lies on the law firm and collection agency, before the consumer challenges it.
Identify the risks and stay clear of deceptive collection practices
The governing bodies want to ensure fair collection practices are adopted and the consumers do not have to endure undue harassment. In many instances the compliance breaches are not intentional. They stem from the lack of proper governance and management. The need of the hour for collection agencies and law firms is to streamline processes efficiently to identify any errors that could lead to compliance breach and resulting penalties.
But, debt collection and recovery can be a complicated process which needs intervention by multiple departments and lots of documentation. Steps in the collection process are handled by different disassociated departments located at multiple locations. All the departments work with their own systems, leading to information silos and are mounting chances of compliance breaches. To tame the situation, you need an innovative technology solution that can help you manage collections and case management solution end-to-end.
Manage Compliance better with Modern, Digitally Agile Collection and Claims Management Solution
A modern collection and claims management system can offer an innovative solution to law firms and collection agencies to not just automate but better manage, govern and control industry compliance requirements. Systems today are built with sets of rules and a constantly evolving compliance engine to help organizations ensure compliance and reduce the risk of human errors and delays.
A truly modern system delivers firms and agencies with abilities to (but not limited):
- Build automation that can identify where compliance risks exist and take alternate paths.
- Track and alert on expired or expiring Statute of Limitations.
- Track, Alert and Incorporate pieces related to the Attorney Review and Approval.
- Track, manage and satisfy requests for debt validation.
- Track, manage and resolve claim disputes.
In this age and time, it is essential for law firms and collection agencies to have a well-developed plan to proactively address the aspects that could lead to unfair and deceptive collection practices.