On December 16, 2015, the Consumer Financial Protection Bureau (CFPB) announced an administrative enforcement action against debt collection firm EZCORP, Inc. (EZCORP), for allegedly engaging in illegal debt collection practices in violation of the Electronic Fund Transfer Act (EFTA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank).
EZCORP and its related entities, provided high-cost, short-term, unsecured loans, in 15 states from more than 500 storefronts, under the tradenames “EZMONEY Payday Loans,” “EZ Loan Services,” “EZ Payday Advance,” and “EZPAWN Payday Loans.” The CFPB alleges that EZCORP engaged in unfair and deceptive debt collection practices in violation of the EFTA and Dodd-Frank. Specifically, the CFPB alleges that EZCORP:
- made in-person visits to consumers’ homes and workplaces for the purpose of collecting debts, which visits disclosed or risked disclosing to third-parties the existence of consumers’ debts and caused or risked causing adverse employment consequences to those consumers;
- communicated with third-parties about consumers’ debts, including calling consumers’ credit references, supervisors, and landlords;
- deceived consumers with the threat of legal action, even though EZCORP did not refer consumers’ accounts to any law firm or legal department;
- lied about not conducting credit checks on loan applications, but routinely ran credit checks on consumers;
- required debt repayment by pre-authorized checking account withdrawals, even though by law consumer loans cannot be conditioned on pre-authorizing payment through electronic fund transfers; and
- lied to consumers by stating they could not stop electronic withdrawals or collection calls or repay loans early.
Pursuant to the CFPB consent order, EZCORP is required to:
- refund $7.5 million to approximately 93,000 consumers who made payments to EZCORP after EZCORP made in-person collection visits or who paid EZCORP from unauthorized or excessive electronic withdrawals;
- stop collecting on tens of millions in outstanding payday and installment debt allegedly owed by 130,000 consumers, and may not sell that debt to any third-parties. EZCORP must also request that consumer reporting agencies amend, delete, or suppress any negative information related to those debts;
- stop engaging in illegal debt collection practices, including making in-person collection visits, calling consumers at their workplace without specific written permission from the consumers, or attempting electronic withdrawals after a previous attempt failed due to insufficient funds without consumers’ permission; and
- pay a $3 million civil penalty.
In-Person Debt Collection Compliance Bulletin
In addition to taking action against EZCORP, the CFPB released Compliance Bulletin 2015-07, to provide guidance to creditors, debt buyers, and third-party collectors related to compliance with Dodd-Frank and the Fair Debt Collection Practices Act (FDCPA).
As it relates to Dodd-Frank, CFPB Bulletin 2015-07 warns that in-person debt collection creates heightened risk of committing unfair acts or practices in violation of Dodd-Frank. Specifically, under Dodd-Frank an act or practice is unfair when it causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and is not outweighed by countervailing benefits to consumers or competition. In-person collection efforts are likely to cause substantial injury to consumers because, for example, third-parties such as the consumers’ co-workers, supervisors, customers, landlords, roommates, or neighbors may learn about the consumers’ debts, which can cause reputational and other harm to the consumer. In addition, in-person visits to a consumer’s workplace may cause harm to the consumer if the consumer’s employer prohibits personal visits.
CFPB Bulletin 2015-07 also warns that in-person debt collection efforts pose heightened risks of violating the FDCPA. For example, section 805(a)(1) and (3) of the FDCPA prohibit debt collectors and others subject to the Act from communicating with a consumer about a debt “at any unusual time or place or time or place known or which should be known to be inconvenient to the consumer” or “at the consumer’s place of employment if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication.” Because in-person debt collection efforts may be perceived by consumers as inconvenient or debt collectors may have reason to know that a consumer’s employer prohibits consumers from receiving communications at their workplace, such in-person collection efforts may violate the FDCPA.
In addition, section 805(b) of the FDCPA prohibits third-party debt collectors and other subject to the Act from communicating with any person other than consumer in connection with the collection of a debt. Thus, in-person collection efforts cause heightened compliance risks, because debt collectors are likely to interact with third-parties during those in-person collection efforts.
Finally, CFPB Bulletin 2015-07 warns that in-person collection efforts pose heightened risks of violating the FDCPA’s prohibition against debt collectors engaging in conduct the natural consequence of which is to harass, oppress, or abuse any person, and from using unfair or unconscionable means to collect or attempt to collect a debt.
You can view the EZCORP Consent Order here: http://files.consumerfinance.gov/f/201512_cfpb_ezcorp-inc-consent-order.pdf.
You can view CFPB Compliance Bulletin 2015-07 here: http://files.consumerfinance.gov/f/201512_cfpb_compliance-bulletin-in-person-collection-of-consumer-debt.pdf.
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Zane Gilmer is a member of the firm’s litigation practice group. His practice focuses on business litigation and compliance and he is a member of the firm’s CFPB taskforce. Zane works out of the firm’s Denver office and he can be reached at firstname.lastname@example.org or 303.376.8416.
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