Last week, the CFPB created a stir when it announced a Consent Order (Order) with Portfolio Recovery Associates (PRA), one of the nation's largest debt collectors and debt buyers. The 39-page Order is comprehensive. It imposes collection activity requirements not found in the Fair Debt Collection Practices Act (FDCPA) and litigation requirements typically left up to state law. It also provides insight into the CFPB’s mindset regarding collection activity, credit reporting, and what we might see proposed as rulemaking.
Here are the top 3 things ARM industry participants should know:
1. The Consent Order stems from the 2015 Consent Order between the CFPB and PRA.
The Order is primarily based on alleged violations of a 2015 consent order between the CFPB and PRA (2015 Order).
The 2015 Order alleged PRA (1) collected on unsubstantiated debt, (2) filed misleading affidavits in debt-collection actions, (3) misrepresented that it intended to prove debts if consumers contested them, and (4) misrepresented that the company had legally enforceable claims to debts outside of the applicable statutes of limitations.
Though PRA did not admit to any of the CFPB’s allegations in the 2015 Order, it agreed to refrain from taking the following actions over a five-year period:
- Collecting debts without a reasonable basis
- Threatening or filing collection lawsuits without an intent to prove the debt
- Filing false or misleading affidavits in debt-collection actions
- Making false or misleading representations, and
- Collecting or suing on debt that is outside the statute of limitations.
The 2023 announcement alleges that PRA violated several requirements of the 2015 Order and, additionally, the Fair Credit Reporting Act (FCRA) by:
- Making representations about unsubstantiated debts,
- Threatening to take legal action without offering or possessing the required documentation
- Misrepresenting that it would provide certain documents within 30 days
- Collecting time-barred debt without required disclosures
- Initiating “dozens” of lawsuits on time-barred debt
- Failing to inform consumers about investigation outcomes
- Failing to resolve disputes timely
- Conducting unreasonable investigations in response to fraud and identity theft allegations
2. No finding of wrongdoing, but PRA agreed to a compliance plan.
The 2023 Order did not establish that PRA committed the acts alleged by the CFPB. Instead, this was a stipulated agreement where PRA did not admit wrongdoing but agreed to take and refrain from taking specific actions.
In addition to $24 million in fines and penalties, PRA agreed to prohibitions and affirmative requirements relative to debt collection and credit reporting, summarized as follows:
- Prohibitions: Debt Collection Activity. Among other prohibitions, the Order prohibits PRA from collecting debt where it does not have certain documents related to the account, specific chain of title documents, and reps and warranties from the debt seller. Further, PRA cannot engage in any collections activity on time-barred debt through litigation, arbitration, or other legal collections.
- Affirmative Requirements: Debt Collection. PRA must provide documents within 30 days of a consumer’s request at no cost (unless documents have been sent within the previous year). Letters sent to a subset of consumers must disclose the consumer’s right to dispute in certain instances and include a statement that PRA will send documents to the consumer within 30 days of their request. Specific subsets of accounts will need to be reviewed for balance adjustments based on account-level documentation.
- Prohibitions: Dispute Resolution Activity. PRA agreed not to resolve credit disputes based solely on (a) possession of document reflecting the name and claimed amount, (b) the failure of the consumer to provide a fraud affidavit, police report, or other documents evidencing fraud, or (c) that the consumer made a past payment on the debt.
- Affirmative Requirements: Dispute Resolution Activity. Within five business days of determining that a dispute does not include sufficient information, PRA must provide the consumer with a frivolous or irrelevant determination notice that complies with Regulation V.
The compliance plan portion of the Order requires PRA to train employees, develop procedures, and conduct auditing and monthly monitoring to ensure compliance.
3. Impact on PRA’s Law Firms and Service Providers
PRA’s compliance plan includes granular details and requirements for PRA’s collection law firms and service providers. Additionally, the plan requires PRA to obtain a written contract with its law firms and service providers to imposes the following requirements:
- Specific performance responsibilities and duty to maintain internal controls
- Duty to provide adequate training on compliance with the Order
- A duty to alert PRA when consumers submit certain types of disputes or defenses
- Allows PRA authority to conduct periodic reviews of the law firm or service providers controls
- The right for PRA to terminate the contract if these terms are not adhered to.
On March 23, 2023, PRA released a statement regarding the agreement with the CFPB. PRA noted that the impacted consumers represent less than one-tenth of 1% of PRA’s active accounts, and the Order is not expected to impact the company’s financial condition or results of operations.
PRA Group, Inc.’s President and Chief Executive Officer Kevin Stevenson said, “Our company was founded on the principles of treating customers with fairness and respect, and we have prided ourselves in upholding these values for more than 27 years. Although we have admitted to no wrongdoing as part of the resolution, and we continue to disagree with the CFPB’s characterization of our conduct, we are pleased to have this matter resolved and behind us, allowing us to return our full attention to our impactful work with consumers, promoting their journey toward financial recovery.”
Read the CFPB’s press release here.
Read the entire Consent Order here.
Read PRA’s complete statement here.
The CFPB’s press release regarding the Consent Order provides insight into its agenda.
First, in the headline of its press release about the Consent Order, the CFPB called PRA a “repeat offender.” The CFPB has already announced it intends to create a registry of “repeat offenders.” As with the current Order, the proposed rule does not include an actual finding of wrongdoing is not a prerequisite for the classification as a “repeat offender." Instead, the proposal incorporates a guilty-as-alleged standard. The comment period for the proposed registry is March 31, 2023. All stakeholders in the ARM industry are encouraged to comment.
Second, the Consent Order sheds light on what CFPB thinks debt collectors should have in their possession before collections and initiation of legal proceedings, regardless of what the law says. The FDCPA does not include a debt-substantiation requirement for collectors. State law typically dictates the documents a plaintiff in a legal proceeding must produce to be successful on those claims. This Consent Order does both. It imposes a substantiation requirement on PRA and dictates what PRA must possess before engaging in legal collections. If the CFPB had the power to rewrite the FDCPA, it’s a safe bet we’d see these requirements included.
Finally, the statute of limitations applicable to any one account is not as cut and dry as the bureau makes it seem. Statutes of limitation can be affected by a myriad of factors, including state law where the consumer lives, choice of law provisions in contracts, and case law.
Despite the vast number of accounts held by PRA, which is undoubtedly at least in the millions, the CFPB’s press release cited “dozens”(!) of lawsuits initiated on time-barred debts throughout a five-year period. Notably, the CFPB fails to mention whether any of these cases plausibly fell within another statute of limitations. As Legal Advisory Board member Joann Needleman and Ari Derman noted here, the CFPB demands perfection.
Those in the ARM industry should take note of the CFPB’s positions here, particularly when assessing risk tolerance. The areas of gray, for example, when two potential statutes of limitations might apply, are getting narrower, and the potential exposure for getting it wrong may go beyond the confines of an individual case.