The
CFPB has entered into consent orders with major creditors, debt buyers and law
firms during the past year relating to key areas of their collection
practices.  The consent orders impose
significant new requirements relating to data integrity, dispute handling, debt
substantiation, debt sales, affidavit practices, and litigation practices.  The orders are not formal “rules” from the
CFPB, nor are they “binding” on anyone, other than those identified in the
orders.  In a speech
given on March 9, 2016 to the Consumer Bankers Association
, however, the
CFPB Director, Richard Cordray, stated it would be “compliance
malpractice
” for other companies not to take “careful bearings” from the
consent orders when assessing how to comply with the consumer protection laws.
          What
unwritten “rules” can we glean from the string of consent orders that began in
July 2015, with an order between the CFPB and Chase
Bank USA, N.A
., continued in September 2015, with orders against Encore
Capital Group
and Portfolio
Recovery Associates
, and culminated in orders with Frederick
J. Hanna & Associates
, Citibank,
N.A.,
and Pressler
& Pressler
in January, February and April, 2016, respectively?  One theme that emerges is that the CFPB
expects all participants in the collection space – creditors, debt buyers, and
attorneys – to ensure that all other companies they deal with are using
accurate and complete data, and are collecting in compliance with the consumer
protection laws.
          Data
Integrity, Debt Substantiation and Dispute Handling
– The allegations in
the consent orders reflect the CFPB’s deep skepticism with the way consumer
disputes are handled, and the accuracy and integrity of the data creditors and
collectors have used.  Although none of
the allegations were proven to be true, and every one of the companies denied
the allegations made by the CFPB when agreeing to the orders, the CFPB claimed
the following:
                     •         Creditors allegedly failed to maintain accurate data about
their own accounts or the accounts they acquired from other entities, and
failed to properly investigate consumer disputes. This allegedly led to the
sale of accounts with inaccurate balance or APR data, and the sale of accounts
that were not owed, because they were opened as a result of fraud, the account
holder was deceased or in bankruptcy, or the account had been settled or paid
in full.
•         Debt buyers allegedly purchased
accounts with inaccurate or unreliable balance information.  They allegedly signed purchase and sale
agreements that disclaimed the accuracy of data sold, and limited the
availability of media they could obtain from the sellers.  When media was obtained, debt buyers
allegedly did not review it to compare it with the electronic data they had been
provided, nor did they require their law firms to do so before filing
suit.  Debt buyers allegedly continued to
buy from sellers who had previously provided them with bad data, or who had
promised to supply account documents but had been unable to do so.  When consumers disputed debts outside of the
30-day validation period, debt buyers allegedly made consumers prove they did
not owe the debts, and did not obtain or review account documentation to
investigate the disputes.  Nor did debt
buyers inform their attorneys if accounts had been disputed.
          To
address these concerns, the CFPB consent orders imposed the following “rules”
relating to data integrity, debt substantiation and dispute handling:
•         Creditors agreed to adopt procedures to
ensure that they sell accurate documents and account information to debt
buyers, and that sale contracts prohibit the buyers from collecting unless
sufficient account level documentation had been provided.  Future debt sales must include twelve to
eighteen months of account statements as well as a copy of the terms and
conditions that apply to the accounts sold. 
Accounts with unresolved disputes should not be sold, and information
about recent disputes and how those disputes were resolved must be provided to
the buyer.
•         Debt buyers agreed to conduct a heightened
review of account documentation with respect to 1) any accounts that have been
disputed verbally or in writing, 2) any accounts purchased as part of a
portfolio that contains “unsupportable or materially inaccurate information,”
or 3) any accounts purchased pursuant to an agreement that lacks “meaningful
and effective” representations regarding the accuracy and validity of the
accounts, or the availability of media. 
The review must be of “Original Account Level Documentation” (“OALD”)
reflecting the charge-off or judgment balance, and OALD is defined as “(a) any
documentation that a Creditor or that Creditor’s agent (such as a servicer)
provided to a Consumer about a Debt; (b) a complete transactional history of a
Debt, created by a Creditor or that Creditor’s agent (such as a servicer); or
(c) a copy of a judgment, awarded to a Creditor or entered on or before the
Effective Date.” If the claimed amount the debt buyer seeks to collect is
higher than the charge off balance, the debt buyer must also review an
explanation of how the amount was calculated and why it is authorized by the
agreement or law.
                     •         Attorneys agreed not to threaten suit or initiate suit for a
debt buyer without possessing of OALD reflecting the customer’s name, last four
digits of the account number at charge off, the claimed amount (excluding post
charge off payments), and, if suing under a breach of contract theory, the
terms and conditions relating to the account. 
In addition, attorneys must possess a certified or otherwise properly
authenticated bill of sale or other document evidencing transfer of the debt to
each owner, which must include a “specific reference to the debt being
collected” and any one of the following: 
1) a document signed by the consumer evidencing the opening of the
account; or 2) OALD reflecting a purchase, payment, or other actual use by the
consumer.
          Affidavit
And Litigation Practices
– The allegations of the consent orders also
reflected the CFPB’s criticisms of the affidavit and litigation practices employed
by creditors, debt buyers and attorneys. 
Again, although none of these allegations were proven true, the CFPB
claimed the following:
•         Creditors were accused of using
affidavits signed by individuals who lacked personal knowledge of the
record-keeping practices they described, or who had not actually reviewed the
business records they referenced. Affidavits were allegedly notarized without
properly administering an oath or witnessing the signature.  Dates and signatures were allegedly inserted
after affidavits had been notarized, and dates were allegedly changed after
affidavits were signed.  Creditors
allegedly obtained judgments against consumers for incorrect amounts, and
failed to promptly notify consumers or move to vacate judgments.
•         Debt buyers allegedly used affidavits
which claimed personal knowledge of the debt or of the seller’s account-level
documentation, where the affiant had only reviewed computer screens of
data.  Affidavits allegedly made false
representations that the generic terms and conditions specifically applied to
the account.  Affiants allegedly claimed
they had knowledge of account agreements but those agreements could not be
located.  Debt buyers allegedly used
seller affidavits which falsely stated that “hard copy” records had been
reviewed by the seller’s affiants.  Debt
buyers referred too many accounts to law firms staffed with too few attorneys,
did not require those attorneys to review OALD before filing suit, did not tell
the attorneys that the sellers had disclaimed the accuracy of the account data
or had put limits on the availability of documentation.
•         Attorneys allegedly sued for debt
buyers who lacked chain of title information, and without knowing if media
would be made available or if the sellers had disclaimed the accuracy of the
data provided, used affidavits when the attorney knew or should have known the
affiant lacked personal knowledge, filed too many lawsuits and spent too little
time reviewing account records, relied too much on computers and non-attorney
staff to determine which accounts were suit-worthy and whether the amount due,
interest, fees, date of last payment, and venue were correct.
          To
address these concerns, the consent orders imposed the following “rules”
relating to affidavit and litigation practices: 
•         Creditors must use affidavits with
facts supported by “Competent and Reliable Evidence,” (“CRE”) which is defined
as “documents and/or records created by Respondent in the ordinary course of
business, which are capable of supporting a finding that the proposition for
which the evidence is offered is true and accurate, and which comport with
applicable laws and court rules.”  All
affidavits must be based on personal knowledge of the affiant, who must
actually review the referenced records and the affidavit for accuracy, and
affidavits may not misrepresent the date of execution, the amount owed, or that
the debt is supported by CRE.  Creditors
must have written standards for training and quality control of affiants.  They may not pay affiants for volume and they
must employ sufficient affiants to handle the workload.
•         Debt buyers may not use affidavits that
falsely state the affidavit was executed in the presence of a notary, that
generic documents actually apply to the consumer’s account, that documents have
been reviewed when they have not been, or that the affiant has reviewed the
affidavit when he has not.  Debt buyers
may not file a collection lawsuit unless they posses OALD reflecting the customer’s
name, last four digits of account number at charge off, the claimed amount
(excluding post charge-off payments), and if suing for breach of contract, the
terms and conditions for the account.  If
the claimed amount in the suit is higher than the charge-off balance, the debt
buyer must also be prepared to explain for how the increase was calculated and
why it is permissible by contract or law. Debt buyers also must possess a
certified or properly authenticated bill of sale or other document evidencing
transfer of the debt to each owner of the account, which must include a
“specific reference to the debt being collected,” plus either of the following:
1) a document signed by the consumer evidencing the opening of the account; or
2) OALD reflecting a purchase, payment or other actual use by the consumer.
•         Attorneys may not submit an affidavit
to any court that falsely represents personal knowledge of the validity, truth,
or accuracy of the character, amount or legal status of any debt; falsely
represents the affidavit has been notarized if not executed in the presence of
a notary; contains an inaccurate statement, including that attached
documentation relates to the specific consumer; misrepresents the affiant’s
review of OALD or other documents; or falsely states the affiant has personally
reviewed the affidavit.  Attorneys may
not file suit against a consumer unless they have logged into their software
system to create a record they have accessed the account, and have reviewed
OALD showing name, last four digits of account number at charge-off, the
claimed amount (excluding any post charge off payments), and if suing under a
breach of contract theory, the applicable terms and conditions.  Attorneys must review a certified or properly
authenticated bill of sale or other document evidencing transfer of the debt to
each owner which must include a “specific reference to the debt being
collected”, plus any one of the following: 
1) a document signed by the consumer evidencing the opening of the
account; or 2) OALD reflecting a purchase, payment or other actual use by the
consumer.  Attorneys must also confirm,
using “methods or means proven to be historically reliable and accurate,” that
the statute of limitations has not expired, that the debt is not subject to
bankruptcy, and that the identity of the consumer, address, and venue are
correct.
          Navigating
the unwritten “rules” from consent orders
– It is worth repeating that none
of the factual allegations made by the CFPB were ever proven to be true, and
the consent orders are not binding on any company not identified in the
orders.  Having said this, any company
that wants to take “careful bearing” of the orders as suggested by Director
Cordray might ask some of the following questions about the accounts it handles,
or that are being handled for it:
What is your criteria for
identifying disputes and are you giving disputed accounts any heightened
scrutiny or other special handling?
Are you training your staff
to correctly identify disputed accounts and to promptly report them?
Has the seller disclaimed
the accuracy of the data sold?
Has the seller restricted
the availability of media?
Has the seller failed to
provide media when asked?
Has the media supplied by
the seller conflicted with the electronic data the seller supplied?
Are there certain portfolios
that contain a high percentage of problem accounts?
Do you possess OALD
reflecting the claimed amount, as well as OALD reflecting a purchase, payment,
or actual use by the consumer?
Has the affiant reviewed
OALD?
What have you done to
confirm the affiant has personal knowledge of the facts attested to? 
Have you confirmed the
affiant reviewed the affidavit and that it was executed in the presence of a
notary?
Have you confirmed the
attachments relate to the consumer’s account?
Has a record been created of
the steps that were taken to verify the accuracy of the affidavits submitted to
the court?
What is the proper role of
attorneys, non-attorneys, and computers in preparing the complaint?
Should there be a maximum
number of accounts, complaints, or letters that an attorney can review and
approve in one day?
What information and
documents have been provided to support the factual allegations of the
complaint?
What documents have been
reviewed to confirm the information supplied supports the factual allegations
made in the complaint?
What investigation have you
done to confirm the correct consumer is being sued, in the right venue, and
that statute of limitations has not run?
What has been done to
document attorney involvement?