CFPB Sues Debt Buyers and Their Owners/Officials for Unlawful Debt Collection Practices Based on Third-Party Conduct | Ballard Spahr LLP


The CFPB Filed a complaint Earlier this week in federal district court in New York against three companies purchasing defaulted debt (Corporate Defendants) and three individuals who are owners and/or officers of the Corporate Defendants (Individual Defendants).

The Bureau alleges that the Common Defendants (1) placed consumer debt directly with collection agencies, who collected the debt on their behalf, or with “master servicers,” who then placed the debt with collection agencies, who collected the debt on their behalf and (b) sold consumer debt to debt collectors, some of whom were contractually obligated to make ongoing payments to the common defendants. The CFPB alleges that both debt collectors collecting debt on behalf of the common defendants and debt collectors to whom the common defendants sold debt used fraudulent collection tactics, including false threats of trial, arrest and jail, and false credit report statements. The CFPB’s claims against the defendants consist of claims for direct violations of the CFPA and FDCPA and claims for significant assistance by collection agencies to CFPA violations.

Direct Violations. The CFPB alleges that the corporate and individual defendants violated the CFPA’s UDAAP prohibition by falsely alleging through collection agencies with whom they placed debt that consumers would be sued if they failed to pay their debts or that the Repaying (or not repaying) their impact would affect credit scores. According to the CFPB, the defendants did not authorize these collection agencies to sue consumers, did not intend to sue consumers directly, and did not submit information to consumer reporting agencies. It also alleges that two of the joint defendants violated the FDCPA by making these misrepresentations and that such FDCPA violations also constituted CFPA violations.

Significant support. The CFPB claims:

  • Collection agencies, with which all of the defendant companies placed debt, and collection agencies to which they sold debt, violated the CFPA’s UDAAP prohibition by threatening false legal proceedings and providing false credit report information. All of the defendants knowingly or recklessly provided significant assistance to the collection agencies in violation of the CFPA because they knew or should have known of the collection agencies’ fraudulent practices and continued to place or sell debt to the collection agencies. In the lawsuit, the CFPB’s allegations in support of its allegation include that the defendants “knew or should have known” that the defendants received hundreds of complaints about false threats and testimonies from debt collectors and recordings of phone conversations that included debt Collectors made such threats or declarations.
  • Debt collectors to whom one of the joint defendants sold debt violated the CFPA’s UDAAP prohibition by falsely threatening arrest or jail. This common defendant and one of the individual defendants (who owned and managed the common defendant) knowingly or recklessly provided significant assistance to these debt collectors in violation of the CFPA because they knew, or should have known, of the debt collectors’ false threats to continue selling debt to them.

The CFPB’s claims in this enforcement action appear to us to be particularly aggressive because, rather than taking action against the collection agencies employed by the corporate defendants or the debt buyers to whom they sold debt, it seeks to hold corporate and individual defendants directly and separately accountable liable for the violations committed by these third parties. Therefore, debt sellers (including first-party creditors) should conduct appropriate due diligence when selecting debt collectors or debt buyers, monitor debt collectors and debt buyers for compliance with applicable consumer protection laws and regulations, and take appropriate action Act promptly when compliance issues arise to ensure that all problems are fully resolved.

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