The CFPB has been very active this week, so I will cut to the chase and only write about what I find to be the most interesting activity this week. The CFPB issued two bulletins on July 10, 2013 concerning the same general subject—UDAAP in the context of debt collection practices. Although the CFPB provided an overview of what UDAAP means in the context of debt collection and in general, I will not stop complaining that UDAAP is a vague and ambiguous catchall if the CFPB cannot establish the elements of a substantive claim. In any event, this is what the CFPB said about the circumstances under which something is unfair:
(a) It causes or is likely to cause substantial injury to consumers;
This is typically monetary harm, but can also be non-monetary harm.
(b) The injury is not reasonably avoidable by consumers;
If you answer “yes” to any of these questions, then the injury is not reasonably avoidable:
Does the act or practice interfere with or hinder a consumer’s ability to make informed decisions?
Did the transaction occur without a consumer’s knowledge or consent?
Can the injury only be avoided by spending large amounts of money or other significant resources?
(c) The injury is not outweighed by countervailing benefits to consumers or to competition.
In general, an act or practice is deceptive when:
(a) The act or practice misleads or is likely to mislead the consumer;
(b) The consumer’s interpretation is reasonable under the circumstances;
(c) The misleading act or practice is material.
Deceptive acts or practices can be a statement or omission.
Make sure there is support for the statements made.
The communication will be considered from the perspective of a reasonable member of the target audience
A statement that conveys multiple meanings may be deceptive if one of those meanings is false.
Anything that affects the consumer’s decision making process is material
With respect to disclosures, ask yourself the following questions:
Is the disclosure prominent enough for a consumer to notice?
Is the information presented in a clear and easy to understand format?
Is the information prominently placed near the information related to the other claims it qualifies?
In the world of debt collection, the CFPB bulletin implies that debt collectors and other types of creditors have been making deceptive statements to consumers. These deceptive statements fall within one of four categories:
1. Paying debts in collection will positively affect the information in a consumer’s credit report.
The CFPB states that such a statement can be deceptive if the debt is older than seven years in light of the fact that the credit reporting agencies do not generally disclose information about debts older than seven years.
The CFPB states that such a statement can also be deceptive if the creditor or debt collector makes such a statement, but fails to inform the credit reporting agencies that the consumer is paying down the debt.
2. Paying debts in collection will improve a consumer’s credit score.
The CFPB states that such a statement can be deceptive because numerous factors affect a person’s credit score and paying down a certain debt or debts may not affect the credit score.
3. Paying debts in collection and improvements in a consumer’s creditworthiness.
The CFPB states that such a statement can be deceptive because lenders make their own unique decisions with respect to the credit worthiness of a potential borrower.
4. Paying debts in collection will increase the likelihood of a consumer receiving credit or more favorable credit terms from a lender.
Finally, the CFPB reiterated the elements for “abusive” that were already on its website:
(1) Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or
(2) Takes unreasonable advantage of –
(A) a consumer’s lack of understanding of the material risks, costs, or conditions of the product or service;
(B) a consumer’s inability to protect his or her interests in selecting or using a consumer financial product or service; or
(C) a consumer’s reasonable reliance on a covered person to act in his or her interests.”
Links to the bulletins can be found here http://www.cfpaguide.com/RegulatoryGuidance/#Misc.
Given that this update was so long, I will include the other happenings of the week in next week’s update. Have a great weekend!