UDAAP and FDCPA Verification of Debt

Issue/Inquiry

From a UDAAP standpoint, should the Bank provide a validation of debt notice in its collection efforts?

Response Summary

The Bank is not covered by the Fair Debt Collection Practices Act (“FDCPA”) since it collects its own debts, so it would not be required to provide a verification of debt (“VOD”). However, due to the risk that acts and practices considered deceptive or abusive under the FDCPA may also be considered such under UDAAP, the prudent practice would be to provide the VOD notice.

Response Detail

While the collection of debt involves legal requirements that are not applicable to the Bank, the more practical approach would be to provide the VOD.

Section 809(a) of the FDCPA provides as follows:

“Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing:

(1)  the amount of the debt;

(2)  the name of the creditor to whom the debt is owed;

(3)  a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

(4)  a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and

(5)  a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.”

As the FDCPA excludes from its coverage lenders collecting their own debts, the Bank is not covered by these requirements.

With regards to UDAAP, the Consumer Financial Protection Bureau (“CFPB”) indicated in a Notice of Proposed Rulemaking, which was published in May 2019, that it was not taking a position at that time on whether collection practices identified as abusive or deceptive under the FDCPA would also be considered as such under Section 1031 of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). 84 Federal Register 23274, foot note 69.

However, even if the CFPB ultimately chose not to utilize its UDAAP authority in this manner, Section 1042 of the Dodd-Frank Act provides state attorneys general and state regulatory agencies with the ability to enforce UDAAP violations. It would not take a significant logical leap for the CFPB or another regulator to interpret a violation of the standards of conduct under the FDCPA as constituting a UDAAP violation for a first-party creditor.

Since the FDCPA sets forth best practices, it provides a wise set of guidelines for the Bank to voluntarily follow.

This entry was posted on Monday, July 1st, 2019 at 6:00 am.