Tuesday, December 4, 2018

Update - No New Banks Is Not Good News?

I previously looked at the drastic decline in the number of new banks established, according to the FDIC, starting in around 2010. For example, 2012, 2013 and 2014 each had 0 new commercial banks. 2011, 2012,2014 and 2015 each had 0 new savings institutions. One need not be a banking expert to formulate reasons for this trend, new banks failed more often during the financial crisis, economic uncertainty made new businesses a hard sell to investors, some banks profits were squeezed (as with many businesses) and there was increased and/or unpredictable new regulation.

However, the trend appears to be changing, with 10 new commercial banks reporting to the FDIC in 2017 and YTD 2018. This is the greatest number in the same period since 2010, when there were 9 new commercial banks reporting to the FDIC.

Some see this as a hopeful sign and point to the FDIC's apparent willingness to encourage the establishment of new banks.

The reasons why new banks are not established are likely complex, as are the reasons why banks fail, and may not be subject to generalized conclusions. However, to the extent new banks provide financing for economic expansion and opportunities for investors, more of them can't be a bad thing.

Wednesday, November 28, 2018

Multiple Collection Calls May Violate The Law But It Depends On Whose Law

The recent Massachusetts Federal District Court decision Hatuey v. IC System Civil No. 1:16-cv-12542-DPW 11/14/2018 points up an interesting contrast between the application of the Federal Fair Debt Collection Pratices Act (FDCPA)  to a debt collector versus the Massachusetts Attorney General's Debt Colletion regulations applied to a creditor. The cases emphasize that debt collection regulation is not consistent and those in receivables management must use extreme care to keep themselves educated as to sometimes contradictory regulatory frameworks.

In the Hatuey case, the plaintff, Josie Hatuey, received collection calls from the defendant, ICS, seeking payment for debts owed by a Brian O'Neill and O'Neill LLC. Hatuey received one call in February 2015 during which Hatuey informed ICS he was not O'Neill or O'Neill LLC and did not owe the debt. ICS did not thereafter call him with reference to that debt. ICS called Hatuey six times between November 23 and December 1, 2016 with reference to a different debt owed by O'Neill and O'Neill LLC. Hatuey answered only one of the six 2016 calls. He told ICS that he was not O'Neill or O'Neill LLC, and that he did not owe the debt. ICS thereafter stopped calling him.

The Hatuey court focussed on the low number of calls, that Hatuey did not answer them, that ICS immediately ceased calling when advised the debts were not Hatuey's, that the calls were not at inconvenient hours nor abusive, and found that ICS did not call Hatuey with an intent to annoy, abuse of harass and therefore did not violate the FDCPA. The court found in favor of ICS.

The Hatuey case provides an interesting contrast to Brent Watkins v. Glenn Associates a 2016 Massachusetts Superior Court case decided under 940 CMR 7.00, the Massachusetts Attorney General's Fair Debt Collection Regulations.  In the Watkins case, Glenn Associates sought payment for its own debt, presumably debt it had purchased. As in Hatuey, at issue were phone calls Glenn Associates made to Watkins. Glenn Associates spoke to Watkins on his cell phone on December 17, 2014 regarding an alleged outstanding college tuition debt. Glenn Associates then called Mr. Watkins' cell phone twice on December 22, 2014 and twice on the next day, December 23, 2014. Glenn Associates did not speak to Watkins during the December 22 and 23, 2014 calls, nor did it leave messages, and made no other calls to Watkins.

The Watkins court found Glenn Associates violated The Massachusetts Debt Collection Regulations when it called Watkins and left no messages. "The unambiguous language of the Debt Collection regulations states that it is an "unfair and deceptive act or practice for a creditor to . . . initiat[e] a communication with any debtor via telephone . . . in excess of two such communications in each seven day period . . . . 940 Code Mass. Regs. § 7.04(1)(f)." The court referred to Attorney General's guidance on the regulations and reasoned a creditor "... cannot circumvent the Debt Collection law on excessive "initiation of communication" merely by choosing not to leave a voicemail. To hold otherwise would render the limit on initiating communication meaningless and permit creditors to call ceaselessly ..." 

In the Hatuey case, the debt collector made six calls during the period from November 23 to December 1, 2016, and would undoubtedly have violated the Massachusetts regulations. In fact, ICS' acts were arguably worse than those of Glenn Associates because it called Hatuey six times without leaving messages to Glenn Associates four times. The FDCPA and the Massachusetts Debt Collection Regulations cover the same classes of persons, debt collectors and creditors. No one is served when the same activities are illegal under one set of regulations but legal under another. Debt collection regulation should be made more consistent and predictable.

Exemption From The FDCPA For Attorneys

Some good points but a little inflammatory. Bills like these have been proposed before and have not passed. I wonder if the congresspersons propose them for reasons other than passage, for campaign contributions, to burnish their image among certain constituents, etc. Exempting attorneys from the FDCPA would have little effect on Massachusetts attorneys because we are covered by the Massachusetts Attorney General's Debt Collection Regulations.


Wednesday, November 14, 2018

BCFP May Bring Sorely Needed Certainty to Debt Collection Regulation

Currently, differing interpretations of federal law regarding debt collection results in debt collection activities that may or may not be unlawful and an excess of litigation. Creditors claim the Federal Fair Debt Collection Practices Act ("FDCPA") even lacks a definition for the term "debt collection" and is one of the most heavily litigated in the country. Consumer advocates request clear definitions of prohibited debt collection practices.  The terms of the law appear to apply to debt collectors only, not creditors collecting their own debts, but even that distinction is questioned.

On October 17, 2018, the Bureau of Consumer Financial Protection (BCFP), formerly known as the CFPB, announced that it plans to issue a Notice of Proposed Rulemaking (NPRM) for the Fair Debt Collection Practices Act (FDCPA) by March 2019Theproposedrule,orNPRM,istheofficialdocumentthatannouncesandexplainstheBCFP’splantoaddressaproblemoraccomplishagoal, in this case, regulations covering debt collection.

The NPRM on debt collection regulations is expected to follow on a 2016 attempt by the then-CFPB to issue debt collection regulations. It is likely to contain a background section and specific proposals for rules. Most importantly, there is a period for public comment, and BCFP attorney Thomas Pahl, who is responsible for the rulemaking effort, has strongly urged public comment on the rulemaking.  

Clarity in debt collection under the FDCPA is sorely needed. All agree that the terms of the FDCPA are less than clear, leaving debt collectors unsure of how to comply and consumers unsure of their rights. Further, the law was passed in the 1970's, when debt collectors communicated with consumers in person, telephone or by U.S. mail. Now, consumers use and prefer email and texting, and debt collectors use automated contacts and seek to leave messages. Reconciling the law's vague terms to 21st methods of communication has been a fertile source of litigation, with predictably inconsistent outcomes. Hopefully BCFP proposed regulation will remedy these problems in a way that benefits both debt collectors and consumers.

Thursday, November 8, 2018

Tuesday, November 6, 2018

FTC Cracks Down On Creative Fraudsters

In its November 1, 2018 press release, the FTC announced a lawsuit against a western New York debt collection operation, allegedly owned or controlled by Robert Heidenreich, claiming use of unlawful means to collect debts. This case and a similar one are interesting for the level of the collector's lawlessness.

Heidenreich's alleged methods were inventive. Collectors used fictitious names. Heidenreich allegedly called himself "Bobby Rich" or "Collin Storm." Collectors called consumers, frequently with reference to payday loans, claiming to be a deputy sheriff and stating there was a warrant for their arrest. The collector would then tell the consumer it was possible the consumer could avoid arrest by talking to the complainant's lawyer. Another collector, not a lawyer, would pose as a lawyer and threaten the consumer with criminal liability unless payments were made. Collectors called the debtors family members and employers to exert pressure to pay, and threatened to file lawsuits they did not intend to file, and were abusive and used profanity. The collectors consciously and purposely sought payment in excess of the amount owed and for debts that had already been paid.

As a notable Massachusetts case once held, it is difficult to define the terms 'unfair and deceptive' because there is no limit to human inventiveness in this field. Debt collectors are specifically forbidden to use fictitious names, falsely invoke the threat of criminal prosecution. falsely threaten to file civil lawsuits, seek amounts in excess of the amount owed, or to use abusive or profane language. The defendant's collection methods were egregiously unlawful.

Perhaps even more inventive is the scheme of assembling counterfeit loans and selling them to unsuspecting debt collectors. Joel Tucker, via various entities, was alleged to have assembled entire fictitious loan portfolios, replete with social security numbers, and loan and payment histories, and selling them to collectors. The collectors then went on to attempt to collect from consumers for debts that never existed. Evidently one source of personal information on consumers is prior loan applications. The was the case for a Rhode Island man who was the victim of such a scam and spent literally years to get to the bottom of it.  It may not be surprising that the debt collector who had purchased the fake debt and sought payment from the Rhode Island man did not trouble itself with the niceties of lawful debt collection, and used profanity as well as threats to the Rhode Island man's wife.

Legitimate, lawful debt collection plays a vital role in the economy. The vast majority of debt collectors do their best to comply with laws regulating them, and should be aware of the consequences if they do not. Alleged fraudsters like Heidenreich and Tucker really have nothing to do with debt collection, they are criminals who only use the loan and collection context to further their unlawful schemes. Nevertheless, legitimate debt collectors have the most interest in law enforcement against alleged fraudsters like Heidenreich and Tucker, because such individuals, rightly or wrongly, are seen as the face of debt collection. Hopefully regulators like the FTC will continue to pursue egregiously unlawful debt collection scam artists for the good of consumers and debt collectors.

Thursday, October 25, 2018

BCFP Complaint Snapshot - Complaints, Complainers and Compliance

The BCFP (formerly CFPB) has a complaint database where consumers can register complaints about financial products and financial institutions can respond. This month the BCFP (formerly CFPB) released its 50 State Complaint Snapshot, an interesting compilation of complaints the BCFP received for the period January 1, 2017 through June 30, 2018.   The nature of the complaints is broken down into fairly broad categories: debt collection, credit or consumer reporting, checking or savings, and credit card. For each category there is a comparison between the percentage of complaints for the top issue in 2016 and the percentage for 2017. So for debt collection, the top issue is attempts to collect debt not owed, and a bar graph is given comparing the percent of the total in 2016 and 2017.

There is a section for the top 5 loan products (car loans, mortgages, credit cards, etc.) and the percentage change in  complaints from 2015 to 2018 for each loan product. The data is massaged into different groups: the total number of complaints, complaints per month, change in complaint volume for the given period, timely company responses and my favorite, complaints per 100,000 population.

By employing such broad categories, and using a small number of compilations, the BCFP makes the report easy to review and compare states. There is a one page of figures for each state.

For financial institutions, the big number is the percentage of 'timely' responses to complaints, over 95% in all states ('timely' is not defined). Similarly with the percent change in complaint volume from Q1 to Q2 2018, which in almost all states shows a decrease, as does the percentage change in complaints from 2017 to 2018.

Like many such reports, the 50 state snapshot may mask more than it illuminates. The snapshot only reports on complaints through the BCFP, not complaints directly to the financial institutions, to state or local advocacy groups, or to state attorneys general. In a given state those complaints could be many more or many fewer than those to the BCFP. So, for example, reduced complaint volume between Q1 and Q2 2018 is only useful if the total number of complaints to all sources is known. Indeed, in states with fewer complaints overall to the BCFP, this may only mean: 1) the local financial institutions, local or state consumer resources are doing a better job of making consumers aware of their services or 2) doing a better job of serving them, or 3) that there are fewer people in that state. It may mean that the given state's debt collection regulation is better, or that debt collection regulation is worse but that local financial institutions do a better job serving consumers, or that most if not all financial institutions receive few complaints and one receives a lot of complaints.

It would seem the best apples to apples comparison among states is the number of complaints per 100,000 population, but once again, this is subject to speculation. The fewest complaints per 100,000 was Iowa, with 63. The highest was the District of Columbia, with a whopping 358 per 100,000. Georgia was second with 270 per 100,000, Delaware third with 228.

Questions abound. Are financial institutions in D.C. and Georgia really that much worse than Iowa, or do Iowa consumers use other complaint portals? Are Iowa consumers smarter about their money so they don't need to avail themselves of BCFP help, or are they uninformed about the BCFP complaint portal? D.C. consumers likely use the BCFP complaint portal because D.C. is where the BCFP is located, but perhaps all that means is that D.C. local consumer resources are not adequate. Or, maybe D.C. consumers are chronic complainers who actually fare better with financial institutions than Iowa consumers, and Iowa consumers fare worse but never say anything about it?

 In the early years of the CFPB, financial institutions likely deservedly received criticism for their slow, inadequate, or non-existent response to CFPB complaints, and for their claims that the 'complaints' were so abbreviated they were impossible to respond to. The sky-high percentage 'timely' responses suggests financial institutions have now chosen to respond rapidly to complaints received through the BCFP portal, certainly to better serve their customers but possibly to burnish their image with the BCFP. Similarly with the change in complaint volume from Q1 to Q2 2018. Why was that period chosen? These two numbers, percent timely response to complaints, and reduction in claim volume from Q1 to Q2 2018, are very positive for the financial industry. Did financial institutions have any say in these figures being included in the snapshot?

The BCFP's figures are also open to speculation because the number of financial products used by consumers is not given. If D.C. consumers, who have the highest complaint rate, have a high number per capita mortgages, credit cards, car loans or other financial products, 358 complaints per 100,000 may not be high at all.  Conversely, if Iowans, with the lowest complaint rate, have few such financial products, their 65 complaints per 100,000 rate may be very high.

Compilations like the 50-state snapshot unquestionably serve a useful purpose and certainly have value. A reduction overall in complaints, whether through the BCFP complaint portal or not, cannot be a bad thing. My father dealt with market and other behavioral studies for his entire career. He never got tired of telling me there are lies, damned lies, and statistics. Boy did I get tired of hearing it. But he was right.