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A year in debt collection

posted on 2016-02-18 by Chris Koegel Assistant Director, Division of Financial Practices, FTC

Making a plan is one thing. Sticking to it: quite another. During 2015, the FTC made a plan to address some new and troubling issues in debt collection. Throughout the course of the year, we stuck to that plan – bringing a record number of new cases, banning bad debt collectors, talking with industry, and finding new ways to do outreach.

The FTC gets more complaints against debt collectors than against any other industry. But this year, we hope, we put a dent in the bad practices we hear so much about. During 2015, we not only coordinated the first federal-state-local enforcement initiative against debt collectors – including actions by more than 70 different partners – we also filed 12 new cases against 52 different defendants. And we resolved 9 cases, getting nearly $94 million in judgments.

We added to our list of banned debt collectors in 2015 – and published the list. These are people and companies that – because of serious and repeated violations of the law – have been banned by federal court orders from ever doing business in debt collection again. This has the result of putting these folks out of business, but it’s also a message to law-abiding debt collectors everywhere: don’t do debt collection business with these folks or you may find yourself in hot water.

One of the really important things we did this year was talk with the debt collection industry. The Debt Collection Dialogues kicked off in Buffalo, and then continued in Dallas and Atlanta. At all three, to sold-out houses, we brought together the debt collection industry with the state and federal agencies that regulate them – allowing all perspectives to be heard.

In consumer education, 2015 saw the release of a Spanish-language graphic novel – or fotonovela – about debt collection. It shows how you can deal with questionable debt collection tactics – and people ordered more than 113,000 copies of the publication last year.

But 2016 is another year – and we have more plans. So watch this space to see what else is coming – and to learn how to spot and avoid bad debt collection practices.

Toyota Resolves CFPB/DOJ Joint Action Alleging Discriminatory Loan Practices


On February 2, following a joint investigation of the Consumer Financial Protection Bureau and the Civil Rights Division of the Department of Justice, Toyota Motor Credit Corporation, the financing arm and subsidiary of the Japanese auto giant, agreed to pay up to $21.9 million in restitution to thousands of minority borrowers who allegedly were charged higher interest rates than white borrowers for auto loans without regard to their creditworthiness.

The administrative actionIn the Matter of Toyota Motor Credit Corporation, and a civil lawsuit filed the same day in the United States District Court for the Central District of California, resulted in a Consent Order between the CFPB, DOJ, and Toyota.  The CFPB and DOJ charged Toyota with violating the Equal Credit Opportunity Act and its implementing regulation “by permitting dealers to charge higher interest rates to consumer auto loan borrowers on the basis of race and national origin.”

The CFPB and DOJ alleged that, in comparison to the average borrower over the course of the loan, affected African-American borrowers paid at least $200 more and were charged approximately 27 basis points higher, and Asian and Pacific Islander borrowers paid $100 more and were charged approximately 18 basis points higher.

Notably, a CFPB statement released concurrently with the Consent Order said that “the investigation did not find that Toyota Motor Credit intentionally discriminated against its customers, but rather that its discretionary pricing and compensation policies resulted in discriminatory outcomes.”  No civil money penalties were assessed, and in a press release, Toyota denied any wrongdoing.

As part of the settlement, Toyota will pay $19.9 million to compensate affected borrowers whose auto loans Toyota financed between January 2011 and the entry of the Consent Order on February 2, 2016.  Toyota is also responsible for up to $2 million to compensate any similarly affected borrowers in the interim period until Toyota “implements its new pricing and compensation structure.”  This structure includes, alongside other restrictions, a substantial reduction in its dealers’ discretion to mark up interest rates.  The DOJ’s statementnoted that these new policies must be in place by August 2016.

Troutman Sanders LLP has extensive experience representing lenders in the auto finance industry, and will continue to monitor CFPB and other regulatory activity in this area.

Coalition of State Attorneys General Urges Passage of the HANGUP Act


As we previously reported, on November 4, 2015, U. S. Senator Edward Markey (D-Mass.) introduced the Help Americans Never Get Unwanted Phone calls Act of 2015—or HANGUP Act for short.  The legislation, which has 14 Democratic co-sponsors, would repeal section 301(b) of the Bipartisan Budget Act of 2015, which permitted an exception to the Telephone Consumer Protection Act of 1991 (“TCPA”) for calls and text messages “made solely to collect a debt owed to or guaranteed by the United States.”

Section 301(b) is scheduled to take effect by August 2016 following guidance from the Federal Communications Commission.  The amendment to the TCPA was applauded by trade groups, including ACA International, which stated that “it shows an understanding in government that limiting dialing technology for legitimate debt collection doesn’t make sense.”

On February 10, a coalition of state attorneys general, spearheaded by Indiana Attorney General Greg Zoeller, a Republican, and Missouri Attorney General Chris Koster, a Democrat, sent a letter urging passage of the HANGUP Act to Senators John Thune (R-S.D.) and Bill Nelson (D-Fla.), the chairman and ranking member, respectively, of the U.S. Senate Committee on Commerce, Science, and Transportation.  The letter is signed by 25 state attorneys general in total, including 19 Democrats and six Republicans.  It claims that the recent enactment of section 301(b) “is a step backward in our law enforcement efforts” and is an inappropriate distinction permitted “simply because the debt has a nexus to the federal government.”

With Republicans in the majority in the Senate and election season heating up, the bill is unlikely to gain traction in the current legislative session.  However, in the 2016 election, Republicans will be defending 24 Senate seats, including many in traditionally blue states, compared to just 10 for Democrats.  If Democrats retake the Senate, one can reasonably expect the same or similar legislation to be reintroduced in the next Congress.  Holders of government-backed debt should continue to monitor this situation and stay tuned for relevant guidelines from the FCC later this year regarding implementation of the new exception.

Troutman Sanders LLP has unique industry-leading expertise with the TCPA, with experience gained trying TCPA cases to verdict and advising Fortune 50 companies regarding their compliance strategies.  We will continue to monitor legislative developments and regulatory implementation of the TCPA in order to identify and advise on potential risks.