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Compliance Examination Handbook
VII. Abusive Practices Federal Trade Commission Act, Section 5
Unfair or Deceptive Acts or Practices 1
Introduction
Advances in banking technology and changes in lending
organization structure since Gramm-Leach-Bliley have
permitted banks to engage in non-banking activities and
given banking organizations the ability to structure financial
products in increasingly complex ways and to market such
products with increasingly sophisticated methods. While
most banking organizations do not engage in unfair or
deceptive acts or practices, the pace and complexity of these
advances heighten the potential risk for consumer harm.
This potential risk, coupled with identified abusive practices,
warrants increased scrutiny by the FDIC and state and
federal enforcement agencies. Unfair and deceptive practices
are wrong, undermine consumer confidence, and present
significant credit and asset quality risk undermining the
financial soundness of banking organizations. Section 5 of the Federal Trade Commission Act (FTC Act)
declares that unfair or deceptive trade practices are illegal.
See 15 USC §45(a) (FTC Act Section 5). The FDIC confirmed
its intent to cite state nonmember banks and their institutionaffiliated
parties for violations of FTC Act Section 5 and will
take appropriate action pursuant to its authority under Section
8 of the Federal Deposit Insurance Act (FDI Act) when unfair
or deceptive trade practices are discovered.2 FDIC enforcement
action against entities other than banks will be coordinated
with the Federal Trade Commission, which also has authority
to take action against nonbank parties that engage in unfair or
deceptive trade practices. On March 11, 2004, the FDIC and the Federal Reserve
Board (FRB) issued additional guidance regarding unfair or
deceptive acts or practices prohibited by section 5 of the FTC
Act.3 The guidance explains:
Following the release of the UDAP guidance, the FDIC issued
a revised consultation policy which requires examiners to
consult with the Regional and Washington Offices whenever
an apparent unfair or deceptive act or practice is found. Standards for Determining What is Unfair or
Deceptive
The legal standards for unfairness and deception are
independent of each other. Depending on the facts, a practice
may be unfair, deceptive, or both. In order to determine whether a practice is "unfair," the FDIC
will consider whether the practice "causes or is likely to
cause substantial injury to consumers which is not reasonably
avoided by consumers themselves and not outweighed by
countervailing benefits to consumers or to competition",
see 15 USC §45(n). By adhering to this tenet, the FDIC will
take action to address conduct that falls well below the high
standards of business practice expected of banks and the
parties affiliated with them. To correct deceptive trade practices, the FDIC will take
action against representations, omissions, or practices that
are likely to mislead consumers acting reasonably under
the circumstances, and are likely to cause such consumers
harm. The FDIC will focus on material misrepresentations,
i.e., those that affect choices made by consumers because
such misrepresentations are most likely to cause consumers
financial harm. See FTC Policy Statement on Deception
(October 14, 1983). Unfair or deceptive acts or practices that violate the FTC Act
may also violate other federal or state laws. These include
the Truth-in-Lending and Truth-in-Savings Acts, the Equal
Credit Opportunity and Fair Housing Acts, and the Fair Debt
Collection Practices Act. On the other hand, certain practices
may comply fully with consumer protection or other laws and
yet still violate the FTC Act. Examiners should consider both
possibilities. Unfair Acts or Practices
Standards for assessing whether an act or practice is unfair
An act or practice is unfair where it (1) causes or is likely
to cause substantial injury to consumers, (2) cannot be
reasonably avoided by consumers, and (3) is not outweighed
by countervailing benefits to consumers or to competition.
Public policy may also be considered in the analysis of
whether a particular act or practice is unfair. Each of these
elements is discussed further below.
A practice is not considered unfair if consumers may reasonably avoid injury. Consumers cannot reasonably avoid injury from an act or practice if it interferes with their ability to effectively make decisions. Withholding material price information until after the consumer has committed to purchase the product or service would be an example of preventing a consumer from making an informed decision. A practice may also be unfair where consumers are subject to undue influence or are coerced into purchasing unwanted products or services. The FDIC will not second-guess the wisdom of particular consumer decisions. Instead, the FDIC will consider whether a bank’s behavior unreasonably creates or takes advantage of an obstacle to the free exercise of consumer decision-making. Deceptive Acts and Practices
Standards for assessing whether an act or practice is
deceptive
A three-part test is used to determine whether a representation,
omission, or practice is "deceptive." First, the representation,
omission, or practice must mislead or be likely to mislead
the consumer. Second, the consumer’s interpretation of the
representation, omission, or practice must be reasonable under
the circumstances. Lastly, the misleading representation,
omission, or practice must be material. Each of these elements
is discussed below in greater detail.
Relationship to Other Laws
Acts or practices that are unfair or deceptive within the
meaning of section 5 of the FTC Act may also violate other
federal or state statutes. On the other hand, there may be
circumstances in which an act or practice violates section
5 of the FTC Act even though the institution is in technical
compliance with other applicable laws, such as consumer
protection and fair lending laws. Banks should be mindful
of both possibilities. The following laws warrant particular
attention in this regard: Truth in Lending and Truth in Savings Acts
Pursuant to the Truth in Lending Act (TILA), creditors must
"clearly and conspicuously" disclose the costs and terms of
credit. The Truth in Savings Act (TISA) requires depository
institutions to provide interest and fee disclosures for deposit
accounts so that consumers may compare deposit products.
TISA also provides that advertisements shall not be misleading
or inaccurate, and cannot misrepresent an institution’s deposit
contract. An act or practice that does not comply with these
provisions of TILA or TISA may also violate the FTC Act. On
the other hand, a transaction that is in technical compliance
with TILA or TISA may nevertheless violate the FTC Act. For
example, consumers could be misled by advertisements of
"guaranteed" or "lifetime" interest rates when the creditor or
depository institution intends to change the rates, whether or
not the disclosures satisfy the technical requirements of TILA
or TISA. Equal Credit Opportunity and Fair Housing Acts
The Equal Credit Opportunity Act (ECOA) prohibits
discrimination in any aspect of a credit transaction against
persons on the basis of race, color, religion, national origin,
sex, marital status, age (provided the applicant has the
capacity to contract), the fact that an applicant’s income
derives from any public assistance program, and the fact that
the applicant has in good faith exercised any right under the
Consumer Credit Protection Act. Similarly, the Fair Housing
Act (FHAct) prohibits creditors involved in residential real
estate transactions from discriminating against any person on
the basis of race, color, religion, sex, handicap, familial status,
or national origin. Unfair or deceptive practices that target or
have a disparate impact on consumers who are members of
these protected classes may violate the ECOA or the FHAct, as
well as the FTC Act. Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act prohibits unfair,
deceptive, and abusive practices related to the collection of
consumer debts. Although this statute does not by its terms
apply to banks that collect their own debts, failure to adhere
to the standards set by this Act may support a claim of unfair
or deceptive practices in violation of the FTC Act. Moreover,
banks that either affirmatively or through lack of oversight,
permit a third-party debt collector acting on their behalf to
engage in deception, harassment, or threats in the collection
of monies due may be exposed to liability for approving or
assisting in an unfair or deceptive act or practice. Examination Procedures
Required Consultations with FDIC Regional and
Washington Offices
Because Congress drafted the FTC Act prohibition against
unfair and deceptive practices broadly, it is flexible enough to
address change in market conduct as it emerges. To determine
whether an act or practice is unfair or deceptive, examiners
must carefully evaluate the facts in consultation with policy
and legal staff from the FDIC Regional and Washington
Offices. FDIC examiners must consult with Field and Regional Office
staff when they identify an act or practice that appears to be
unfair or deceptive. This requirement applies when potential
unfair or deceptive acts or practices are identified during
an examination, through a consumer complaint, or from
another source. Further formal consultation with the FDIC
Washington Office is required once the preliminary facts
have been established and the Region believes a violation
should be cited. Formal FDIC Washington Office consultation
memoranda should be addressed to the Associate Director.
They should include a description of the act or practice that
explains why it meets the standards for unfairness or deception
described above. Scoping
The scope of an examination to determine whether an
institution is engaging in unfair or deceptive practices
encompasses the institution’s product(s), service(s), target
market(s), operations, and compliance management systems
and programs. Consistent with the FDIC’s risk-focused
examination approach, examiners should develop a
compliance risk profile for the institution using information
about the institution’s business lines, organizational structure,
operations, past supervisory performance and identified high
risk areas, such as subprime lending, servicing and collections
by third-parties, and situations in which allegations of
misleading advertising have been made. Consumer complaints received by the FDIC or the bank are
also an important source of information in identifying possible
areas of concern, even if previously resolved. Although a
consumer complaint may not evidence an unfair or deceptive
practice when considered in isolation, additional information
or a pattern of complaints may reveal such practices. Evaluating Compliance Management Systems and
Programs
When reviewing a bank’s compliance management system
(CMS), examiners should consider whether it ensures that the
institution avoids unfair or deceptive acts or practices, and
promptly remedies any such practices that may nevertheless
arise. The degree of specificity with which a CMS can be expected
to address this area will vary depending on the bank’s size,
complexity and product offerings. A small institution that
offers a limited number of products through a few branches,
with marketing restricted to local newspaper and radio outlets,
will not need the kind of specific, documented compliance
program that should be in place at an institution engaged in
nationwide mortgage or credit card lending. On the other hand,
where an institution offers products or uses business strategies
that have repeatedly raised concern about consumer treatment,
a compliance program should be in place that specifically
addresses steps taken to ensure that unfair or deceptive
conduct does not occur. Consider these general questions when conducting the
examination:
Identify the risks for unfair or deceptive acts or practices
in the bank’s product lines, interactions with customers and
potential customers, and outsourcing practices. Then consider:
Based upon your review of the risks and the bank’s CMS,
determine whether additional, more specific evaluation is
required. Evaluating Products, Operations and Communications
The prohibitions against unfair or deceptive acts or practices
apply to all bank products and services. However, there are
some activities that have been particularly susceptible to
violations of the FTC Act and warrant additional scrutiny.
These include:
Some operational areas also have a heightened risk of
producing unfair or deceptive practices. These include:
Section 5 of the FTC Act does not impose specific
requirements on banks. Policies and procedures necessary to
avoid engaging in unfair or deceptive activities will largely be
based upon the bank’s products and services, marketing and
advertising, and its outsourcing agreements with third parties. Examiners should use the questions below as applicable. If
it appears that unfairness or deception may be occurring,
examiners should analyze the situation by applying the
standards above and the UDAP Guidance. As they develop this
analysis, FDIC examiners should consult with Regional and
Washington Office policy staff as well as the Legal Division. Product Structure and Terms
The structure and pricing of consumer products, particularly
mortgages and credit cards, has become increasing complex
and diverse. Consequently, it has become increasingly
important that communications with consumers are
meaningful and easily understood. Examiners should use copies of disclosures, notices,
agreements, and promotional materials for the products and
services4 at risk for unfair or deceptive practices, as well as
discussions with appropriate bank personnel, to respond to the
following questions, as applicable:
Advertising and Solicitation
The need for clear and accurate marketing and disclosures
that are sensitive to the sophistication of the target audience
is heightened for products and services that have been
associated with deceptive practices. Accordingly, banks should
take particular care in marketing credit and other products
and services to the elderly, the financially vulnerable, and
customers who are not financially sophisticated. In addition,
creditors should pay particular attention to ensure that
disclosures are clear and accurate with respect to:
Examiners should use representative samples of all marketing
and advertising materials, including print, electronic and
other media, such as the Internet, e-mail and text messages,
telephone solicitation scripts, agreements and disclosures for
the product(s) and service(s) under analysis, together with any
marketing and solicitation policies or instructions, as well as
discussions with appropriate bank personnel, to respond to the
following questions:
Repricing and Other Changes in Terms
The terms and conditions governing many credit and deposit
products provide for periodic adjustments tied to an external
variable such as changes in a defined prime rate or the
London Inter Bank Offering Rate (LIBOR). Many of the
terms governing credit cards may be changed automatically
following the occurrence of a specified event. Such events may
include an increase in the interest rate upon the consumer’s
delinquency with either the credit card issuer or other creditor,
or upon fifteen-day written notice to the consumer. The terms
and notices given to consumers should be meaningful and easy
to understand. Examiners should use representative samples of customer
notification forms, periodic statements, telephone scripts,
and any related print or electronic materials, together with
repricing and other change-in-terms policies or procedures
and associated employee instructions and policy manuals, as
well as discussions with appropriate bank personnel, to obtain
responses to the following questions:
Servicing and Collections
Servicing practices have a noteworthy capacity to be unfair, as
do a number of collection practices. These activities are often
conducted by bank subsidiaries and third-party contractors,
in which case examiners should review these activities both
in light of the questions below as well as those found under
"Monitoring the Conduct of Employees and Third Parties." Examiners should use servicing and collection policies,
telephone scripts, training and compliance manuals, as well
as periodic statements and payment histories, in addition to
discussions with appropriate bank personnel, to determine:
Monitoring the Conduct of Employees and Third-Parties
Banks should have procedures in place to assure that their
employees and third-party contractors, as well as other
individuals and entities with whom they do business, avoid
engaging in unfair or deceptive acts or practices. Examiners
should evaluate how the bank monitors the activities of thirdparty
contractors, vendors and service providers to ensure that
they comply with the FTC’s prohibition on unfair or deceptive
acts. Examiners should use training and policy manuals, scripts,
oversight and compliance policies, and discussions with
appropriate bank personnel, to respond to the following
questions:
References
DSC Memorandum 6428, Procedures for Determining Compliance with the Prohibition on Unfair or Deceptive Acts or Practices found in Section 5 of the Federal Trade Commission Act, June 17, 2005 FDIC Consultation Policy
DSC RD Memo 04-17: Consultation Policy and Procedures for Compliance Examination and Community Reinvestment Act Issues http://fdic01/division/dsc/memos/memos/direct/04-017.pdf Policy Statements and Enforcement Actions Involving
Unfair or Deceptive Acts or Practices FTC Policy Statement on Unfairness, http://www.ftc.gov/bcp/policystmt/ad-unfair.htm FTC Policy Statement on Deception, http://www.ftc.gov/bcp/policystmt/ad-decept.htm FIL 57-2002: Guidance on Unfair or Deceptive Acts or Practices http://www.fdic.gov/news/news/financial/2002/fil0257.html FIL 26-2004: Unfair or Deceptive Acts or Practices by State-Chartered Banks http://www.fdic.gov/news/news/financial/2004/fil2604.html OCC Advisory Letter 2002-3: Guidance on Unfair or Deceptive Acts or Practices, http://www.occ.treas.gov/ftp/advisory/2002-3.txt OCC Unfair and Deceptive Enforcement Actions http://www.occ.treas.gov/Consumer/Unfair.htm FTC’s Subprime Lending Cases http://www.ftc.gov/opa/2002/07/subprimelendingcases.htm FTC Unfair or Deceptive Acts or Practices Enforcement Actions: Mortgage Servicing http://www.ftc.gov/bcp/conline/edcams/fairbanks/index.htm FTC Unfair or Deceptive Acts or Practices Enforcement Actions: Collection Practices http://www.ftc.gov/opa/2004/08/appliedcard.htm OCC Policy Statements and Enforcement Actions Relating to Credit Cards http://www.occ.treas.gov/Consumer/creditcard.htm Other Regulations with Provisions that Relate to Accurate Advertising
12 CFR Part 226: Regulation Z, Truth in Lending 12 CFR Section 226.16: Open-end advertising http://www.fdic.gov/regulations/laws/rules/6500-1650.html#6500226.16 12 CFR Section 226.24: Closed-end advertising http://www.fdic.gov/regulations/laws/rules/6500-1700.html#6500226.24 12 CFR Part 230: Regulation DD, Truth in Savings Advertising: 12 CFR Section 230.8 http://www.fdic.gov/regulations/laws/rules/6500-3250.html#6500230.8 12 CFR Section 230.11: Additional disclosure requirements for institutions advertising the payment of overdrafts http://www.fdic.gov/regulations/laws/rules/6500-3250.html#6500230.11 12 CFR Part 343: Consumer Protection in Sales of Insurance 12 CFR Section 343.40(d): Advertising http://www.fdic.gov/regulations/laws/rules/2000-6300.html Introduction
The Credit Practices Rule (Rule), contained in Subpart B of
the Federal Reserve Board’s Regulation AA, was adopted
to prohibit certain unfair and deceptive practices related to
consumer credit contracts. The prohibitions contained in the
Rule apply to all credit contracts originated or purchased by
financial institutions other than those for the purchase of real
estate. Regulation Overview
The Credit Practices Rule applies to all consumer credit
contracts other than those for the purchase of real estate.
It prohibits banks from using certain remedies to enforce
consumer credit obligations. Under the Rule, banks may not
include these remedies in their consumer credit contracts,
and, if banks purchase contracts that contain a prohibited
provision(s), banks are prohibited from enforcing the
provision(s). The prohibited provisions are: (1) A confession of judgment
clause, (also known as a cognovit or warrant of attorney)
which permits a creditor to obtain a judgment based on the
borrower’s agreement in advance that, in the event of a suit
on the obligation, the borrower waives the right to notice and
the opportunity to be heard; (2) a waiver of exemption in
which the consumer relinquishes a statutory right protecting
his or her home and other necessities from seizure to satisfy
a judgment, unless the waiver applies solely to property
that serves as security for the obligation; (3) an irrevocable
assignment of future wages which gives the bank the right
to receive the consumer’s wages or earnings directly from
the consumer’s employer, unless the assignment constitutes
a payroll deduction plan or other preauthorized payment
plan; and (4) the taking of nonpossessory security interests in
household goods, unless such goods are purchased with the
credit extended by the bank. The Rule also prohibits a practice known as "pyramiding late
charges." Under the pyramiding provision, a bank is prevented
from assessing multiple late charges based on a single late
payment that is subsequently paid. This provision applies
only to closed-end credit contracts. Finally, the Rule prohibits a bank from misrepresenting a
cosigner’s liability and requires the bank to give a cosigner,
prior to becoming obligated in a consumer credit transaction,
a disclosure notice which explains the nature of the cosigner’s
obligations and liabilities under the contract. Examination Procedures
References
Regulation AA, Unfair or Deceptive Acts or Practices, Part 227 12 CFR §227, 15 USC §57a http://www.fdic.gov/regulations/laws/rules/6500-3205.html#6500part227udapregaa Staff Guidelines on the Credit Practices Rule http://www.fdic.gov/regulations/laws/rules/6500-3205.html#6500part227staffguidelines Job Aids
Introduction
The purpose of the Federal Trade Commission’s (FTC) 1976
rule concerning the Preservation of Consumers’ Claims and
Defenses (16 CFR Part 433), sometimes called the Holderin-
Due-Course Rule (Rule), is to ensure that consumer credit
contracts used in financing the retail purchase of consumer
goods or services specifically preserve the consumer’s rights
against the seller. The FTC determined that it constitutes
an unfair and deceptive practice for a seller, in the course
of financing a consumer purchase of goods or services, to
employ procedures which make the consumer’s duty to pay
independent of the seller’s duty to fulfill its obligations. Regulation Overview
The Holder-in-Due-Course Rule prohibits a seller from taking
or receiving a consumer credit contract that does not contain a
prescribed notice which preserves the consumer’s claims and
defenses in the event that the contract is negotiated or assigned
to a third party creditor. In addition, the Rule provides that the
seller may not accept the proceeds of a purchase money loan
unless the evidence of the loan contains the prescribed notice
preserving as against the lender whatever claims and defenses
the consumer may have against the seller. Omission of the
required notice by the seller, or acceptance by the seller of
the proceeds of the purchase money loan where the evidence
of the loan does not contain the notice, constitutes an unfair
or deceptive practice within the meaning of Section 5 of the
Federal Trade Commission Act. The Rule does not apply to all credit instruments. The Notice
must appear in written obligations defined as "Consumer
Credit Contracts" in the Rule. The definition includes any
written instrument which, under the Truth in Lending Act and
Regulation Z constitutes a consumer credit contract and which
is used to "Finance a Sale" or in connection with a "Purchase
Money Loan," as those terms are defined in the Rule. Credit
card instruments are specifically exempted from the Rule. Under the Rule, banks which purchase consumer paper
containing the notice required of sellers cannot avail
themselves of the holder-in-due-course doctrine. Also, banks
which make purchase money loans containing the notice will
be subject to all claims and defenses which the consumer
could assert against the seller. If banks accept consumer paper which fails to contain the
notice required of sellers, they may be considered to be a
participant in the seller’s violation of the Rule. Banks making
purchase money loans must include the prescribed notice in
their contracts. The required notice, which follows, must be in at least ten
point, bold face, type: NOTICE
Any holder of this consumer credit contract is subject
to all claims and defenses which the debtor could assert
against the seller of goods or services obtained pursuant
hereto or with the proceeds hereof. Recovery hereunder
by the debtor shall not exceed amounts paid by the debtor
hereunder. References
FTC Trade Regulation Rule Concerning the Preservation of Consumers’ Claims and Defenses, and Staff Guidelines http://www.fdic.gov/regulations/laws/rules/6500-2600.html#6500ftctradereg Job Aids Preservation of Consumers’ Claims and Defenses (PCCD)
Introduction
The Fair Debt Collection Practices Act (FDCPA), effective
in 1978, was designed to eliminate abusive, deceptive,
and unfair debt collection practices. The federal law also
protects reputable debt collectors from unfair competition and
encourages consistent state action to protect consumers from
abuses in debt collection. The FDCPA applies only to the collection of debt incurred
by a consumer primarily for personal, family or household
purposes. It does not apply to the collection of corporate debt
or to debt for business or agricultural purposes. Regulation Overview
Debt That Is Covered
The FDCPA applies only to the collection of debt incurred
by a consumer primarily for personal, family or household
purposes. It does not apply to the collection of corporate debt
or to debt owed for business or agricultural purposes. Debt Collectors That Are Covered
Under FDCPA, a "debt collector" is defined as any person
who regularly collects, or attempts to collect, consumer
debts for another person or institution or uses some name
other than its own when collecting its own consumer debts.
That definition would include, for example, an institution
that regularly collects debts for an unrelated institution. This
includes reciprocal service arrangements where one institution
solicits the help of another in collecting a defaulted debt from
a customer who has moved. Debt Collectors That Are Not Covered
An institution is not a debt collector under the FDCPA when it
collects:
Debt collectors that are not covered also include:
Communications Connected with Debt Collection
For communications with a consumer or third party connected
with the collection of a debt, the term "consumer" is defined
to include the borrower’s spouse, parent (if the borrower is a
minor), guardian, executor, or administrator. When, Where, and With Whom Communication is
Permitted
Communicating with the Consumer
A debt collector may not communicate with a consumer at
any unusual time (generally before 8 a.m. or after 9 p.m. in
the consumer’s time zone) or at any place that is inconvenient
to the consumer, unless the consumer or a court of competent
jurisdiction has already given permission for such contacts.
A debt collector may not contact the consumer at his or her
place of employment if the collector has reason to believe the
employer prohibits such communications. If the debt collector knows the consumer has retained an
attorney to handle the debt, and can easily ascertain the
attorney’s name and address, all contacts must be with that
attorney, unless the attorney is unresponsive or agrees to allow
direct communication with the consumer. Ceasing Communication with the Consumer
When a consumer refuses, in writing, to pay a debt or requests
that the debt collector cease further communication, the
collector must cease all further communication, except to
advise the consumer that:
Mailed notices from the consumer are official when they are
received by the debt collector. Communicating with Third Parties
The only third parties that a debt collector may contact when
trying to collect a debt are:
The consumer or a court of competent jurisdiction may,
however, give the debt collector specific permission to contact
other third parties. In addition, a debt collector who is unable
to locate a consumer may ask a third party for the consumer’s
home address, telephone number and place of employment
(location information). The debt collector must give his or
her name and state that he or she is confirming or correcting
location information about the consumer. Unless specifically
asked, the debt collector may not name the collection firm or
agency or reveal that the consumer owes any debt. No third party may be contacted more than once unless
the collector believes that the information from the first
contact was wrong or incomplete and that the third party has
since received better information, or unless the third party
specifically requests additional contact. Contact with any third party by postcard, letter or telegram is
allowed only if the envelope or content of the communication
does not indicate the nature of the collector’s business. Validation of Debts
The debt collector must provide the consumer with certain
basic information. If that information was not in the initial
communication and if the consumer has not paid the debt five
days after the initial communication, the following information
must be sent to the consumer in written form:
If, within the 30-day period, the consumer disputes in writing
any portion of the debt or requests the name and address of the
original creditor, the collector must stop all collection efforts
until he or she mails the consumer a copy of a judgment or
verification of the debt, or the name and address of the original
creditor, as applicable. Prohibited Practices
Harassing or Abusive Practices
A debt collector in collecting a debt, may not harass, oppress,
or abuse any person. Specifically, a debt collector may not:
False or Misleading Representations
A debt collector, in collecting a debt, may not use any false,
deceptive, or misleading representation. Specifically, a debt
collector may not:
Unfair Practices
A debt collector may not use unfair or unconscionable means
to collect or attempt to collect a debt. Specifically, a debt
collector may not:
Multiple Debts
If a consumer owes several debts that are being collected by
the same debt collector, payments must be applied according
to the consumer’s instructions. No payment may be applied to
a disputed debt. Legal Actions by Debt Collectors
A debt collector may file a lawsuit to enforce a security
interest in real property only in the judicial district in which
the real property is located. Other legal actions may be brought
only in the judicial district in which the consumer lives or in
which the original contract creating the debt was signed. Furnishing Certain Deceptive Forms
No one may design, compile and/or furnish any form which
creates the false impression that someone other than the
creditor (for example, a debt collector) is participating in the
collection of a debt. Civil Liability
A debt collector who fails to comply with any provision of the
FDCPA is liable for:
In determining punitive damages, the court must consider the
nature, frequency and persistency of the violations and the
extent to which they were intentional. In a class action, the
court must also consider the resources of the debt collector
and the number of persons adversely affected. Defenses
A debt collector is not liable for a violation if a preponderance
of the evidence shows it was not intentional and was the result
of a bona fide error that arose despite procedures reasonably
designed to avoid any such error. The collector is also not
liable if he or she, in good faith, relied on an advisory opinion
of the Federal Trade Commission even if the ruling is later
amended, rescinded, or determined to be invalid for any
reason. Jurisdiction and Statute of Limitations
Action against debt collectors for violations of the FDCPA
may be brought in any appropriate U.S. district court or other
court of competent jurisdiction. The consumer has one year
from the date on which the violation occurred to start such as
action. Administrative Enforcement
The Federal Trade Commission (FTC) is the primary
enforcement agency for the FDCPA. The various financial
regulatory agencies enforce the FDCPA for the institutions
they supervise. Neither the FTC nor any other agency may
issue regulations governing the collection of consumer debts
by debt collectors. The FTC may, however, issue advisory
opinions under the Federal Trade Commission Act on the
meaning and application of the FDCPA. Relation to State Law
The FDCPA preempts state law only to the extent that a state
law is inconsistent with the FDCPA. A state law that is more
protective of the consumer is not considered inconsistent with
the FDCPA. Exemption for State Regulation
The FTC may exempt certain classes of debt collection
practices from the requirements of the FDCPA if the FTC
has determined that state laws impose substantially similar
requirements and that there is adequate provision for
enforcement. Examination Objectives
The objectives of the examination are to:
Examination Procedures
The following procedures are to be completed through
interviews with personnel knowledgeable about and directly
engaged in the institution’s collection activities and through
reviews of any written collection procedures, reciprocal
collection agreements, collection letters, dunning notices,
envelopes, scripts used by collection personnel, validation
notices, individual collection files, complaint files, and other
relevant records.
References
15 USC §1692: Fair Debt Collection Practices Act http://www.fdic.gov/regulations/laws/rules/6500-1300.html#6500titleviidcp Federal Trade Commission Staff Commentary on the FDCPA http://www.ftc.gov/os/statutes/fdcpa/commentary.htm FIL 26-97: Amendment to the Fair Debt Collection Practices Act http://www.fdic.gov/news/news/inactivefinancial/1997/fil9726.html Job Aids
Footnotes: 1 This section fully incorporates the examination procedures issued under
DSC RD Memo 05-021: Procedures for Determining Compliance with the
Prohibition on Unfair or Deceptive Acts or Practices Found in Section 5 of
the FTC Act. 2 See FIL 57-2002 3 See FIL 26-2004 4 Examiners should review sample periodic statements if they are used to
convey offers, particularly offers that relate to fees or collection practices. 5 This section fully incorporates the examination procedures issued under
DCA RD Memo 97-020: Fair Debt Collection Practices Act.
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