CFPB Prosecutes Debt Buyers and Their Owners/Directors for Illegal 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 that purchase defaulted debt (corporate defendants) and three individuals who are owners and/or officers of the corporate defendants (individuals).

The Bureau alleges that the defendant companies (1) placed consumer debts directly with debt collectors who collected the debts on their behalf or with “master repairers” who then placed the debts with debt collectors who collected the debts on their behalf, and (b) sold consumer debts to debt collectors, some of whom were contractually obligated to make ongoing payments to the defendant companies. The CFPB alleges that debt collectors who collected debts on behalf of the corporate defendants and debt collectors to whom the corporate defendants sold debts used deceptive collection tactics, including false threats of lawsuits, arrest and imprisonment, and misrepresentation on credit reports. The CFPB’s claims against the defendants consist of claims for direct violations of the CFPA and FDCPA and claims for substantial assistance with violations of the CFPA by debt collectors.

Direct Violations. The CFPB alleges that the corporate defendants and individual defendants violated the CFPA’s UDAAP ban by falsely stating through debt collectors with whom they incurred debts that consumers would be sued if they failed to pay their debts or that repayment (or non-repayment) would affect their credit ratings. According to the CFPB, the defendants did not authorize these debt collectors to sue consumers, did not intend to sue consumers imminently, and did not provide information to consumer reporting agencies. . He also alleges that two of the defendant companies violated the FDCPA by making these false statements and that these violations of the FDCPA were also violations of the CFPA.

Substantial help. The CFPB alleges:

  • The debt collectors from whom all of the defendant companies incurred debt and the debt collectors to whom they sold debt violated the CFPA UDAAP ban by making false threats of lawsuits and misrepresentations regarding credit reports. All defendants knowingly or recklessly provided substantial assistance to debt collectors in violation of the CFPA because they knew or should have known of debt collectors’ deceptive practices and continued to incur debt or sell debt to agents recovery. In the complaint, among the allegations made by the CFPB to support its claim that the defendants “knew or should have known”, is the defendants’ receipt of hundreds of complaints about false threats and statements from debt collectors and records of telephone calls in which debt collectors made such threats or statements.
  • The debt collectors to whom one of the defendant companies sold debts violated the CFPA UDAAP ban by uttering false threats of arrest or jail. This Defendant Company and one of the Defendant Individuals (who owned and operated the Defendant Company) knowingly or recklessly provided substantial assistance to these debt collectors in violation of the CFPA because they knew or should have known of the false threats. debt collectors and continued to sell debts to them.

The CFPB’s claims in this lawsuit appear to us to be particularly aggressive because rather than taking action against the debt collectors used by the defendant companies or the debt buyers to whom they sold debts, it seeks to hold the companies and individual defendants directly and separately liable. for violations committed by such third parties. As such, the key takeaway for sellers of debt (including first creditors) is that they must exercise due diligence when selecting debt collectors or buyers of debt, monitor debt collectors and debt purchasers to ensure that they comply with applicable consumer protection laws and regulations, and to take appropriate action. Act quickly when compliance issues arise to ensure full resolution of any issues.

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