did you run that past legal?

Did You Run that Past Legal?

Larry Laskey, Windham ProfessionalsArthur Rotatori, McGlinchey Stafford

John Culhane, Ballard SpahrDino Tsibouris, Tsibouris & Associates

Shelly Repp, NCHER

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Verification from the PCA’s Perspective

Larry Laskey, V.P. General Counsel

Windham Professionals, Inc.

2013 Knowledge Symposium

November 5-7, 2013 ● St. Pete, Florida

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Historical Perspective

• Specific, limited, outsourced function• “Verification” provided on timely,

written request • Confirm amount creditor claims due• Reliance on information creditor

provides• Validity ultimately determined by a

court



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Looking Ahead?

• More information to the borrower “up front”

• Verification required on any request, at any time

• More information needed to “verify”• Encourage borrowers to ask for

more information



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Looking Ahead?• Increasing creditor involvement– Assure collector knowledge–Monitoring collector activity–Making more documentation available

sooner• A more “active” collector role– Assessing validity of creditor claims– Self-initiated verification activities– Repository for documentation

• Recasting of roles/responsibilities?



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Notice of Borrower Rights• “Collector must abide by fair debt

rules”• “You can ask for– proof of right to collect the debt”– itemization of the debt and payment history”

• “You are entitled to – copies of all documents reflecting this debt”– Historical information (e.g., date of default,

original creditor/account number, borrower information)”



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State Verification Requirements• New York City: upon any request, original

debt documents and itemization from original creditor, describing basis of payment obligation

• Chicago: upon timely written request, statement of account/itemize components of original charge off balance and each post-charge off amount; identify/describe basis for the obligation



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State Verification Requirements• New York (proposed): within 30 days of any

request, signed debt agreement, last itemization from creditor to borrower (with all account numbers used), chain of title (statement with dates of assignment)

• California (purchased debt): within 15 days after any written request, access to all debt documents



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State Requirements:Substantiate Before Collection?• Assure that – Creditor has the right to collect– All amounts sought are correct– You have access to all information the

borrower has a right to request – You can provide it within 15 days



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Notice of Creditor Limitations• “You cannot be sued to repay this debt”• “Your credit report can no longer reflect

this debt”• Collector must know in order to notify– Date of last payment/delinquency– Law applicable to the debt– … and some “interesting” disclosures:• “You can be sued, but certain income is

exempt”• “Non-payment may damage your credit”



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Federal Requirements: Inform and Investigate

• Borrowers don’t get adequate information– Borrower needs to assess the claim– Validation notice needs more detail

• More substantial verification – Written and oral disputes, whenever raised– Proper amount and borrower– Assess relevance, reliability, accuracy and

completeness (including credibility) of all information from all sources.



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Federal Requirements: Substantiate

• “Substantiate” the debt before collection– Reasonable basis to claim borrower owes

the debt– CFPB “sample” letters?– Statute of limitations?



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Federal Requirements: Substantiate/Investigate

–Rely on creditor absent “reasonable indication” that information is incomplete, inaccurate, unreliable or does not substantiate–Consider reliability and source of

information–Not an “investigation”



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Federal Requirements: Substantiate/Investigate

• Verify (investigate) even absent a borrower dispute?– Similar other disputes at

disproportionately high rates– Unavailability of documents– Creditor’s business methods

• Repository of debt documentation



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Expanding the Focus

• FTC Act Section 5• Dodd-Frank UDAAP– Attempting to collect the “wrong”

amount– Third party disclosure– Threats of litigation

• Creditor “oversight”



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Creditor Obligations for Debt Collection and Debt Selling

Arthur J. Rotatori, Esq.

McGlinchey Stafford

25550 Chagrin Blvd., Suite 406

Cleveland, Ohio 44122



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Creditor Obligations for Debt Collection have Expanded

• Direct Debt Collection• Placement with Debt Collection

Agency• Sale of Debt to Debt Buyer• Vendor Management• Documentation



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Vendor ManagementApril 2011 - OCC/ OTS/ Federal Reserve Interagency Review of Foreclosure Policies and Practices:“The reviews found critical weaknesses in servicers’ foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third-party vendors, including foreclosure attorneys.”



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April 13, 2012 - CFPB Bulletin 2012-03, Service Providers:"A service provider that is unfamiliar with the legal requirements applicable to the products or services being offered, or that does not make efforts to implement those requirements carefully and effectively, or that exhibits weak internal controls, can harm consumers and create potential liabilities for both the service provider and the entity with which it has a business relationship. Depending on the circumstances, legal responsibility may lie with the supervised bank or nonbank as well as with the supervised service provider."

Vendor Management



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April 13, 2012 - CFPB Bulletin 2012-03, Service Providers:• Thorough due diligence• Review policies, procedures, internal

controls, and training materials• Contractual expectations of compliance• On-going monitoring• Prompt corrective action, including

termination of relationship

Vendor Management



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May 16, 2012 – Remarks by Thomas J. Curry, Comptroller of the Currency Before the Exchequer Club:“[W]hen a bank or thrift enters into a third-party relationship, it must understand that it does not wipe its hand of responsibility for the quality and characteristics of the products that are offered to its customers through this channel—even if those products are not marketed with the institution’s brand. Due diligence in identifying, measuring, and monitoring the risk from third-party relationships, and establishing mechanisms for controlling and continuously monitoring those risks, is thus an essential part of managing operational risk, which in turn affects its safety and soundness."

Vendor Management



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July 13, 2013 – OCC Statement to the Senate Subcommittee on Financial Institutions & Consumer Protection:

“The OCC expects all national banks and federal savings associations to have policies and procedures in place to manage their debt collection activities effectively. This includes managing the operational and reputational risks, and complying with all relevant consumer protection laws.”

Vendor Management



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DocumentationJuly 2010 – FTC’s Report – “Repairing a Broken System"States should require the following in a debt collection complaint: original creditor’s name and the last 4 digits of the

original account number; the date of default and the amount due at that time; the current owner of the debt; the total amount currently owed on the debt, itemized

by principal, interest, and fees; and the relevant terms of the underlying credit contract, if

the contract itself is not attached to the complaint.



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DocumentationJune 6, 2013 – Steve Antonakes, Deputy Director, Consumer Financial Protection Bureau; CFPB/FTC Roundtable on Data Integrity Issues in Debt Collection:

“Original creditors should ensure that a sufficient amount of information about the debt is being made available. So we pay close attention to whether debt collectors have accurate information when they are collecting debts.* * * So each of us has a role to play in formulating solutions – whether they are technologies, recordkeeping practices, data standards, or designing new systems, disclosures, or rules.”



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Documentation

June 4, 2013 – Sen. Brown (OH) Letter to Director Cordray

Require debt collector to hold all relevant documentation before issuing their first debt collection notice to the consumer

Require that information on prior collection attempts travel with the debt

Prohibit the sale of “unverifiable” debts



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DocumentationJuly 10, 2013 – the CFPB posted 5 sample letters on its website that it encourages consumers to use when subject to debt collection activity."Needs more information" letter

Consumer should ask debt collector for the original written agreement that created the obligation, and the final billing statement sent to the consumer.

If the debt collector is unable to provide such documentation, the consumer is to assume that the debt cannot be proven.

The debt collector must also be able to determine when the statute of limitations runs



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DocumentationJuly 10, 2013 – the CFPB posted 5 sample letters on its website that it encourages consumers to use when subject to debt collection activity. “Dispute and Proof” letter

“If you have good reason to believe that I am responsible for this debt, mail me the documents that make you believe that.“

“Contact restriction” letter “Hired a lawyer” letter “Stop contact” letter



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DocumentationJuly 17, 2013 –CFPB Testimony before Senate Subcommittee on Financial Institutions and Consumer Protections:

At our joint roundtable, we heard strong consensus about the need for robust national documentation standards and the need to maintain the accuracy of information used to collect debts. We will keep that in mind as we move toward a rulemaking process on debt collection issues.* * * [T]here is a surprising amount of consensus across all market participants – from debt collectors, creditors, and collection attorneys, to consumer advocates, legal services providers, and state attorneys general—that we must develop clear standards for data integrity and record-keeping in the debt collection market.



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Debt Buying/ SellingJanuary, 2013 – FTC Report – “The Structure and Practices of the Debt Buying Industry” Debt buyers paid 4 cents per dollar of debt face value Debt buyers typically received only the information

required for validation notices Debt buyers rarely received dispute history Debt buyers received few underlying documents about

debts Accuracy of information provided about debts at time of

sale not guaranteed Limitations on debt buyers’ ability to receive documents,

such as price



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Debt Buying/ SellingJuly 13, 2013 – OCC Statement to the Senate Subcommittee on Financial Institutions & Consumer Protection:“When banks sell debt, the agency expects them to have policies, procedures, and practices that result in the third party treating customers fairly and consistently with the expectations of the banks and regulators. Even though a bank may have sold a consumer’s debt to a third party, consumers often continue to view themselves as the bank’s customers and may have other relationships with that bank. As a result, the debt collector’s behavior affects the bank’s reputation. Failure to implement proper controls and governance that effectively manage these activities represent safety and soundness and compliance concerns for the OCC.” 2013 Knowledge

SymposiumNovember 5-7, 2013 ● St. Pete,

Florida

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Debt Buying/ Selling July 13, 2013 - OCC Statement to the Senate Subcommittee on Financial Institutions & Consumer Protection/ Best Practices:Provide Sufficient DocumentationLimit the Resale of DebtLimit the Litigation StrategyMaintain Quality Management Information

SystemsConduct Periodic Reviews



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Debt Buying/ Selling July 13, 2013 - OCC Statement, cont’d :Debt sale oversight must include: Each debt sale should go through a formal

approval process that is similar to a product approval process.

Detail documentation requirements. Ongoing due diligence monitoring requirements –

consumer complaints, changes in control of buyers.

Are debt buyers prohibited from reselling accounts? If not, what additional controls are in place to ensure subsequent purchasers are legitimate.



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FDCPA applies to creditorsJuly 10, 2013 – CFPB Bulletin 2013-07: “Although the FDCPA’s definition of ‘debt collector’

does not include some persons who collect consumer debt, all covered persons and service providers must refrain from committing UDAAPs in violation of the Dodd-Frank Act.”

“Original creditors and other covered persons and service providers involved in collecting debt related to any consumer financial product or service are subject to the prohibition against UDAAPs in the Dodd-Frank Act. The CFPB will continue to review closely the practices of those engaged in the collection of consumer debts for potential UDAAPs, including the practices described above.”2013 Knowledge

SymposiumNovember 5-7, 2013 ● St. Pete,

Florida

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July 10, 2013 – CFPB Bulletin 2013-07, cont’d Collecting debt not authorized by law. Taking property without legal authority. Third-party disclosure of debt. False statements to induce payment. Threatening lawsuits (when no intent),

arrest, prosecution, or imprisonment.

FDCPA applies to creditorsBut which sections apply to creditors?



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July 10, 2013 – CFPB Bulletin 2013-07, cont’d

“The examples described in this bulletin are not exhaustive of all potential UDAPs. The Bureau may closely review any covered person or service provider’s consumer debt collection efforts for potential violations of Federal consumer financial laws.”

FDCPA applies to creditorsBut which sections apply to creditors?



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FDCPA applies to creditors

July 13, 2013 - OCC Statement to the Senate Subcommittee on Financial Institutions & Consumer Protection:“Debt collection is a fundamental part of the business of lending. . . [B]anks have the responsibility to attempt to collect that debt and to recover losses associated with that bad debt. They must do this in a manner that is not only safe and sound, but fair to their customers and in compliance with applicable laws and regulations.”



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ConclusionVendor management Documentation

To debt collector and/ or debt buyersAffidavits are insufficient – “Robo-signing”

Debt buying/ sellingCradle to grave

Creditors are subject to the FDCPAUDAPWhich section(s) is an open question



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Questions?



did you run that past legal?

Documents

borrower information

original debt documents

timely written request

debthistorical information

timemore information

creditor claims duereliance

fair debt rulesyou

signed debt agreement