New Name, Same Initiative? Federal and State Regulators Partner (again) to Limit Abusive Debt Collection Practices
On September 29, 2020, the CFPB, FTC, and state and federal law enforcement agencies announced a new initiative, called Operation Corrupt Collector, to address certain abusive and threatening debt collection practices, including “phantom” debt collection. If the partnership sounds familiar, it is. Operation Corrupt Collector was essentially announced almost exactly five years after the FTC announced Operation Collection Protection. Though the programs have different names, the goals appear to be the same: bring cases against debt collectors who engage in abusive debt collection practices.
The initiative continues a history of active enforcement against unlawful collection practices by the CFPB and federal and state agencies, including actions alleging violations of the Fair Debt Collection Practices Act (FDCPA) and prohibitions on unfair, deceptive, and abusive acts or practices (UDAAP). It follows a recent CFPB and New York Attorney General complaint against a number of debt buyers alleging that the respondents collected on “phantom” debts, threatened legal actions that they could not take, claimed that consumers owed more than they did, made illegal third party contacts, harassed consumers, and failed to provide required notices. In announcing the initiative, CFPB Director Kathy Kraninger said the CFPB is monitoring consumer complaints to help identify potential issues—again, consistent with the CFPB’s historic practices—and reminded consumers to submit consumer complaints about debt collectors through the Bureau’s complaint portal.
The FTC also announced two new cases as part of the initiative. In those cases, the FTC took issue with the alleged use of deceptive robocalls to engage consumers followed by misrepresentations that the respondents were representatives of law firms or mediation companies, among other allegations.
Collectively, these actions signal continued focus on collection practices that harm or could harm consumers. Current economic conditions and the state of consumer credit markets suggest that collection activity could spike in the near future, providing opportunity to bad actors in the consumer collections space.
The actions do not necessarily signal substantive movement in the types of claims federal or state regulators may pursue, but movement nevertheless is possible. The CFPB continues to consider collections-related rulemakings under its FDCPA and UDAAP authority (the latter of which is in a substantially earlier stage of development), though it has not finalized new rules to date. In addition, Operation Corrupt Collector also comes at a time of legislative tension over collections-related requirements, as the Senate has yet to take action on the Heroes Act, a House bill passed in May that would have established pandemic-related protections under the FDCPA, or a “slimmed down” version of the Heroes Act that passed the House on October 1 and also included such protections. It remains to be seen whether Operation Corrupt Collector will impact pandemic-related debt collection practices or protections specifically related to pandemic-related collections. Indeed, such “operations” are often just fancy marketing tags applied to already-completed agency actions. Any gaps in enforcement may, however, generate further pressure for substantive reform of consumer (and/or small business) collection protections going forward.