Compliance with the Dodd-Frank federal regulation of debt collections is crucial in ensuring that a business is following the letter of the law when pursuing accounts receivable.
Debt collection practices enacted by those who are trying to collect a debt must follow the regulations outlined in the Dodd-Frank Wall Street Reform and Consumer Protection Act or risk noncompliance—a hefty charge because of newly heightened consumer protections.
The Dodd-Frank Act protects consumers from practices or acts that put them at an unfair disadvantage when faced with debt collections. Backed by the Consumer Financial Protection Bureau (CFPB), particular acts or practices are classified as being unfair, deceptive, or abusive, and are expressly prohibited.
The Dodd-Frank Act allows the CFPB to collect and retain civil penalties obtained from any person for violations of Federal consumer financial laws. They are authorized to use these funds to repay victims of activities fir which civil penalties have been imposed. They are also allowed to use the funds (in very specific circumstances) for consumer education and financial literacy programs. For 2013 the CFPB’s budget was $447.7 million USD. Transfers from the Federal Reserve System are capped at $631.7 million for the 2016 fiscal year, and the cap for 2017 will be $646.2 million.
Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of Consumer Debts (UDAAPs) has previously only applied to collection agencies. Known as third-party debt collectors, these businesses typically act on behalf of a lender or other type of creditor. The Dodd-Frank Act explicitly states that they cannot:
- Threaten, harass, or intimidate consumers to obtain payment
- Intentionally mislead the consumer by utilizing material methods or taking advantage of a consumer’s interpretation of their financial circumstances
- Block the consumer’s understanding of their situation or promise to deliver results that are not likely to be attainable
A few examples of the UDAAPs that consumers are protected against include threats of detrimental results—like imprisonment—if the debt is not cleared, promising false results and harassment including contacting the consumer late at night or on the weekend.
Third Party and First Party Confusion
Many larger businesses retain their own debt collection departments in-house that work fundamentally
with their company’s mission statement and code of conduct. These entities are known as “first party” debt collectors. An outside source like a collection agency or a debt collection attorney is a “third party” debt collector.
Previously, consumers lumped both first and third party debt collectors under the same, broad definition. First party debt collectors were still allowed more flexibility in regards to items such as the hours during which they could contact consumers and their ability to contact debtors at work.
More and more, creditors are choosing to contract their debt collections to a third party collector to preserve their reputation and customer standing. Collectors often achieve more profitable results because they use more assertive tactics. In 2013, third party collectors recovered approximately $55.2 billion from debtors, which directly benefits the businesses owed and the U.S. economy.
It is of vital importance that everyone working with a lending institution and on behalf of one understands the intricacies involved in avoiding UDAAPs. If your business has doubts about its ability to remain Dodd-Frank compliant, consider hiring an experienced debt collection attorney to pursue your accounts receivable.
For more information on how the Dodd-Frank regulation of debt collections affects your business in Arkansas, contact the McHughes Law Firm at 501.376.9131 to schedule a free legal consultation.