Guest Post: 1928 Louisiana Bankers Association Code of Ethics and NARCA - The National Creditors Bar Association – Timely and Relevant

By:  Mark Dobosz

Robert Taylor in his January 15, 2016 article in American Banker Magazine (Banks Can Use 'Code of Ethics' to Strengthen Public Trust) points out

…an advantage of developing an ethics code is that, unlike bank regulatory policy that must be adjusted constantly depending on the jurisdiction and interpretation, ethical standards are basically timeless. In fact, the Code of Ethics crafted by community bankers at the 1928 convention of the Louisiana Bankers Association is still relevant today.” He adds, “None of us can escape the inevitable ethical dilemma. But having high expectations for your bank’s culture, and your own ethical behavior, is its own reward. It will also help restore public confidence in this profession.

                                       

Since 1993 – NARCA, The National Creditors Bar Association has had as a foundational cornerstone of all its members  - The NARCA Code of Professional Conduct and Ethics. All NARCA member firms are committed to fairness in the collection process for everyone. In addition to local, state, and federal laws and State Bar Association licensing and certification, attorney members are required to adhere to the Code.

While the debt collection industry has had its share of “bad players” who have tarnished the industry. Creditors rights attorneys, in particular members of NARCA – The National Creditors Bar Association, represent the highest and finest examples of ethics in practice.

 The CFPB continually reminds the financial services and debt collection sector that “self-policing” is integral to providing consumers with the confidence and knowledge that the industry is operating in an ethical manner in their interactions with individuals. NARCA demonstrates this process by also utilizing a Grievance Process for its members and clients with a forum in which to investigate and sanction (where necessary) violations of their Code of Ethics.

 Additionally, the fundamental regulation of creditors rights attorneys by the state bar associations, judiciary, state legislatures and attorneys general has a foundational layer of ethical oversight, which if violated, could lead to the loss of an attorney’s license to practice law. A consequence not possible through any other regulatory body at the federal level.

The 1928 Louisiana Bankers Association Code of Ethics may be a historical reference among banks that saw “self-policing as very important to their profession. The 1993, the NARCA – The National Creditors Bar Association Code of Professional Conduct and Ethics stands as a hallmark and legal profession example for creditors rights attorneys. Timely and a strong example of “self policing”? Yes, one which consumers should take comfort in during these times.

 

About the Author:  Mark Dobosz currently serves as the Executive Director for NARCA – The National Creditors Bar Association. Mark is a one of NARCA’s speakers on many of the creditors rights issues impacting NARCA members. 

The National Creditors Bar Association (NARCA) is a trade association dedicated to creditors rights attorneys. NARCA's values are: Professional, Ethical, Responsible

The Telephone Message Conundrum Continues for Debt Collectors in New York

Ten years after the Southern District of New York entered into its infamous decision in Foti v. NCO Financial Systems, Inc., 424 F. Supp. 2d 643 (S.D.N.Y. 2006) and just two weeks after it begrudgingly ruled in Nicaisse v. Stephens and Michaels Assocs, Inc., 2015 U.S. Dist. LEXIS 172073 (E.D.N.Y. Dec. 28, 2015), the Eastern District of New York has joined the debate of how to properly leave telephone messages.

The Eastern District’s answer is simple: don’t do it.  In Halberstam v. Global Credit and Collection Corp., 2016 U.S. Dist. LEXIS 3567 (S.D.N.Y. Jan. 11, 2016), the debt collector’s call was answered by a third party who asked if he could take a message.  The debt collector responded as follows:

Name is Eric Panganiban.  Callback number is 1-866-277-1877…direct extension is 6929.  Regarding a personal business matter.

The issue as couched by the court was whether under the Fair Debt Collection Practices Act, a debt collector, whose telephone call to a debtor is answered by a third party, may leave his name and number for the debtor to return the call, without disclosing that he is a debt collector, or whether the debt collector must refrain from leaving callback information and attempt the call at a later time.  The court held that the debt collector must refrain from leaving any callback information.  In so holding, the court determined that soliciting a call back is a “communication in connection with the collection of a debt.”  “In our case…the only purpose of…[the] call was quite obviously to collect the debt, and anyone, regardless of their level of sophistication, who knew that the call came from a collection firm would understand that purpose.” Halberstam at *9-10. 

The opinion is troublesome and illustrates how problematic telephone messaging is for debt collectors.  In this case, the information provided in the message was less than the information provided by the telephone device’s caller id.  The collector did not identify the company name; however, the collection agency’s name most likely was disclosed by the caller identification on the telephone device itself.   To date, the majority of courts have not been persuaded by the Hobson’s choice illustrated in these cases- specifically, that debt collectors disclosing their identity as a debt collector to comply with §1692e(11)’s requirements run afoul of §1692c(b)’s prohibition on communications to third parties.  The safe but impractical solution is to never leave a message. 

 

CFPB Enters Consent Order with Buy Here Pay Here Auto Dealer

In its first enforcement order of the year, the CFPB took aim at the financing practices of a buy here pay here auto dealer.  “Buy here pay here dealers” sell the car and originate the auto loan without selling it to a third party.

The CFPB in its press release noted the dealer engaged in abusive financing schemes, hid auto finance charges and misled consumers.  The consent order requires the dealer pay $700,000.00 in restitution to consumers and levies a civil monetary penalty of $100,000.00 on the dealer.  The civil penalty has been suspended based upon the dealer’s inability to pay.  Additionally, the CFPB once again sets forth specific remediation requirements which should be reviewed carefully and considered by the auto finance industry.

According to the findings, which are set forth in the Consent Order and are neither admitted nor denied by the dealer, the dealer sold used cars and provided onsite financing to consumers.  According to the Consent Order, 98% of all purchases were financed onsite and over a two year period, the dealer offered approximately 1000 people financing/year.  The dealers’ practices were such that consumers filled out credit applications prior to being shown any cars.  Once the dealer determined the monthly payment the consumer could afford, the consumer was shown a car in the dealer’s inventory which met the monthly payment ability of the consumer.  None of the cars on the lot displayed purchase prices and the purchase price was not disclosed to the consumer until after the consumer had test driven the car and was ready to purchase the car.  Additionally, the dealer required that, as a condition to providing financing, the consumers agree to purchase a $1,600.00 service contract and a $100.00 GPS payment reminder device.  It was additionally the dealer’s practice to not negotiate the price of the car with finance customers; however, the dealer did negotiate purchase prices with cash customers.  Put simply, customers who obtained financing were treated differently by being required to pay full price, purchase a service contract and a GPS reminder device. 

Pursuant to the Consent Order, the dealer violated the Truth in Lending Act, as well as the Dodd Frank UDAAP provision as follows:

• The amounts charged for the service contract and GPS payment reminder device were finance charges because they were charges payable directly or indirectly by the consumer and imposed by the creditor as an incident or condition of the extension of credit. By requiring credit consumers to purchase the same but not cash consumers, the dealer imposed a finance charge and therefore needed to disclose the same as a cost of credit.  By failing to do so, the dealer’s inaccurately disclosed the finance charges and APR;
   
• The CFPB additionally considered the fact that credit customers were required to pay the full price of the car but cash customers were often provided with discount purchase prices to mean credit customers essentially paid a markup and the same should have been disclosed as a finance charge and APR;
   
• The dealer’s advertised APR was inaccurate as a result of its failure to take into account the costs of the required service contract, payment reminder device and “markup”; and
• The dealer’s failure to post sticker prices or disclose the asking price until the consumer indicated it would purchase the car, coupled with the TILA disclosure violations set forth above, resulted in an unfair and deceptive practice because it “lured consumers with misleading advertising and then kept them in the dark about the true cost of financing the cars they were purchasing.”

Auto dealers should review the Consent Order and take note of several points:

• The relative scope of the violation was minimal: 2,000 loans over a two year period and yet, the Consent Order requires $700,000.00 in restitution.  The clear indication is that the CFPB is not limiting its focus to large players but also is focused on particular practices;
   
• Required charges are finance charges for purpose of the Truth in Lending Act and should be disclosed as such;
   
• The remediation provisions of the Consent Order should be considered as a likely expectation of the CFPB moving forward and require:
   
  • Purchase prices be clearly and prominently displayed on all vehicles available for for sale; and
     
  • The dealer provide an initial disclosure and receive a written acknowledgement of the disclosures prior or simultaneous with offering a car to the consumer or soliciting a commitment from the consumer to purchase:
    • The make, model and VIN of the vehicle;
    • The duration of the retail installment contract
    • The timing, number and dollar amount of periodic payments;
    • The total number of payments required before the consumer acquires full ownership of the vehicle;
    • The purchase price;
    • The finance charge;
    • An itemization of any additional products to be included in the financing transaction; and
    • The APR

Buy here pay here dealers are encouraged to review their current policies and procedures in light of the Consent Order and adjust their practices accordingly.

Guest Post: Technology, Automation and the Coming of Age – Can the CFPB and the Credit and Financial Services Sectors Partner?

By: Mark Dobosz

January 21, 2016

Public-Private partnerships have often proven to be some of the best examples of meeting the needs of a variety of infrastructures the US economy and its consumers. An article by Andrew Deye in the June 2015 Kennedy School Review indicates that “In a September 2014 report, Moody’s Investors Service stated, ‘the United States has the potential to become the largest P3 market in the world, given the sheer size of its infrastructure’.”

                            

The data centers of our regulatory agencies are a key infrastructure to consumer information and deserve no less than one that can be best built for the 21^st century through a Public Private Partnership (P3).

                                                                                          

According to KPMG’s independent audit report of the CFPB, released on January 13, 2016,  
 

The bureau can be more effective in its mission where trust exists between consumers and the agency that works to protect them... The current process for maintaining the inventory of these data sets is manually intensive. In an effort to improve transparency, the CFPB’s Chief Data Office is transitioning from this manual process of tracking these data sets to an automated tool…The CFPB’s chief data office is in the process of transitioning the manual process to the use of an automated tool.

 KPMG’s findings on the CFPB’s privacy policies and procedures

The CFPB has been highly emphatic in requiring the financial services and the debt collection industry to increase compliance by establishing and maintaining systems and procedures to ensure consumer data privacy in all transactions.  All of which have utilized “automated” systems that have proven to be effective and efficient in the credit ecosystem. Millions have been spent by the industry to meet these demands in the past 5-7 years. The National Creditors Bar Association (NARCA) members report a 300%+ increase in compliance costs from 2011-2014.

The experience of implementing secure data automation of consumer financial and personal information is an asset that is currently underutilized by the CFPB. A Public Private Partnership (P3) between industry and the regulatory agency would bring to market the exact types of automation and systems that the regulatory agency has been requiring industry to implement in their financial services and credit ecosystem operations in the past few years. Why offer consumers two standards and systems of data privacy and security protection when a standardized system that is recognized as best in class could be built through a P3 and provide consumers with the confidence that both government and the private sector are on the same page.

As Deye concludes in his article, at a conceptual level, the primary drivers of infrastructure P3s—new sources of capital, cost savings, risk transfer, and accountability—remain strong. Government officials at all levels (federal, state, and local) continue to operate in an environment of constrained financial resources and citizen expectations for efficient and timely operations.”

If I-595, the Port of Baltimore and the Long Beach Courthouse (all recent successful P3 projects) can provide citizens with safe, secure and efficient infrastructure, then a CFPB-Financial Services P3 should be pursued to provide US consumers with the same level of benefits. This P3 could be a “coming of age” in the regulator’s history.

About the Author:  Mark Dobosz currently serves as the Executive Director for NARCA – The National Creditors Bar Association. Mark is a one of NARCA’s speakers on many of the creditors rights issues impacting NARCA members. 

The National Creditors Bar Association (NARCA) is a trade association dedicated to creditors rights attorneys. NARCA's values are: Professional, Ethical, Responsible

Use of Assumed Name Trips up Lender in Debt Collection

In a cautionary tale to banks who use assumed names for their recovery divisions, the District of Rhode Island recently denied a motion to dismiss by Wells Fargo in an FDCPA case, holding that the bank was not exempt from the definition of a debt collector.  Pimental v. Wells Fargo Bank, N.A., 2016 U.S. Dist. LEXIS 1825 (D.R.I. Jan. 6, 2016).  The consumers filed suit alleging that: (a) the bank does business in Rhode Island by collecting mortgage debts using the name America’s Servicing Company (“ASC”); (b) at the time ASC acquired the right to collect, the mortgage and debt were in default; (c) the letters ASC sent to the consumers did not identify the bank as the obligor, did not indicate ASC was collecting on behalf of the bank and did not reference the bank at all; (d) ASC attempted to collect the debt using a name other than the entity to whom it was owed; and (e) ASC’s letters violated sections 1692d and 1692e of the FDCPA.

The FDCPA defines a “debt collector” as “any person who uses any instrumentality of interstate commerce of the mails in the principal purpose of which is the collection of any debts or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”  Under 15 U.S.C. §1692a(6)(F), entities collecting on debts they originate or which were acquired by them prior to default are not debt collectors.  Moreover, banks generally are not considered as debt collectors even when they do obtain accounts which are in the default because their principal business purpose is not the collection of debts. 

As noted by the magistrate judge in her Report and Recommendation concerning the motion, however, while creditors are not generally covered by the FDCPA, the creditor exemption is lost when the creditor opts to collect under a different name.  “Any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts” is a debt collector under the FDCPA. See 15 U.S.C. 1692a(6).  The court held that the consumers had sufficiently pled facts to support a claim that the bank was a debt collector on this basis.  In accepting the Magistrate Judge’s recommendations and denying the bank’s motion to dismiss, the court rejected the bank’s argument that the plaintiffs were required to plead that they believed a third party was collecting the debt from them.  Instead the court determined that it is enough if a “hypothetical unsophisticated consumer” would have been misled by the bank’s use of the ASC name.

The case serves as a reminder to banks who operate using fictitious names for their recovery divisions to use caution in their outward facing communications with consumers as they may lose their FDCPA exempt status if they do not clearly identify themselves as the creditor.  If there is good news from the case to be had, even though the debt was alleged to be in default at the time it was acquired by the bank, the court did not hold that the bank was a debt collector on that basis. 

Guest Post: Our Government Online – Have The Risks of Online Advertising for Consumers Been Fully Considered?

By: Mark Dobosz

January 15, 2016

In a March 2014 Forbes Magazine article, “5 reasons your Business Should Use Google Ad Words” author John Rampton states, “By using the right keywords for your target audience, you’re already ahead because you’re reaching people who have an interest in your product or service.”

So why would a government regulator feel the need to drum up more business for a service that is clearly and readily available to consumers? Is there not enough interest they (the consumer) have in utilizing the service?  And has the government regulator fully calculated and balanced the risks and hazards of the online advertising environment based on solid research?

An online posting today by Ballard Spahr (“CFPB Using Google Ads To Solicit Consumer Complaints”) points out the following  - “In an effort to publicize its online complaint system and bring in more complaints, the CFPB is now soliciting complaints through Internet advertising.”

In May 2014, the Permanent Subcommittee on Investigations of the U.S. Senate

Homeland Security and Governmental Affairs Committee issued a report – “Online Advertising and Hidden Hazards to Consumer Security and Data Privacy.”

The Sub-Committee’s report cited the following:

“Although consumers are becoming increasingly vigilant about safeguarding the information they share on the Internet, many are less informed about the plethora of information created about them by online companies as they travel the Internet. A consumer may be aware; for example, that a search engine provider may use the search terms the consumer enters in order to select an advertisement targeted to his interests. Consumers are less aware, however, of the true scale of the data being collected about their online activity. A visit to an online news site may trigger interactions with hundreds of other parties that may be collecting information on the consumer as he travels the web. The Subcommittee found, for example, a trip to a popular tabloid news website triggered a user interaction with some 352 other web servers as well. Many of those interactions were benign; some of those third parties, however, may have been using cookies or other technology to compile data on the consumer. The sheer volume of such activity makes it difficult for even the most vigilant consumer to control the data being collected or protect against its malicious use.

Furthermore, the growth of online advertising has brought with it a rise in cybercriminals attempting to seek out and exploit weaknesses in the ecosystem and locate new potential victims. Many consumers are unaware that mainstream websites are becoming frequent avenues for cybercriminals seeking to infect a consumer’s computer with advertisement based malware, or “malvertising.” Some estimates state that malvertising has increased over 200% in 2013 to over 209,000 incidents generating over 12.4 billion malicious ad impressions.4 According to a recent study by the security firm Symantec, more than half of Internet website publishers have suffered a malware attack through a malicious advertisement. The Subcommittee seeks to highlight this specific aspect of online security. The Internet as a whole, as well as all the consumers who visit mainstream websites, is vulnerable to the growing number of malware attacks through online advertising. While there are many other significant vulnerabilities on the Internet, malware attacks delivered through online advertising are a real and growing problem.”

ONLINE ADVERTISING AND HIDDEN HAZARDS TO CONSUMER SECURITY AND DATA PRIVACY REPORT- May 2014

Permanent Subcommittee on Investigations of the U.S. Senate

Homeland Security and Governmental Affairs Committee

 

All of us know that maintaining effective information security programs — and overseeing cyber security – especially among supervised federal regulators (i.e. the CFPB) who routinely handle personal information of consumers is paramount to their role and integrity of purpose. 


However, it is public knowledge from reports released in October 2015 by the CFPB’s’ inspector general, that cyber security remains one of the agencies top management challenges.


Protecting consumers is the ultimate goal of all players in the credit ecosystem – industry and regulators. Nether side can’t afford to not be hyper-vigilant in protecting consumer data in the world of cyberspace crime through online interactions.
 
Industry has already been tasked with multiple requirements to insure protection and confidentiality at an extremely high cost – while simultaneously being limited in their communication and data collection methods.
 
Federal regulators should be held to the same standards and methods of protection of consumer data.  Engaging in practices like online advertising that have been proven to present great risks to consumers – without further in-depth research and the costly prevention systems can be irresponsible. Agencies that have been cited for having challenges to managing their cyber security programs should take note.
 
An ecosystem only functions optimally when all the components are operating in unison and sync with each other.
 

About the Author:  Mark Dobosz currently serves as the Executive Director for NARCA – The National Creditors Bar Association. Mark is a one of NARCA’s speakers on many of the creditors rights issues impacting NARCA members. 

The National Creditors Bar Association (NARCA) is a trade association dedicated to creditors rights attorneys. NARCA's values are: Professional, Ethical, Responsible