If you are considering hiring a collection agency (or your business has a collections department), it’s imperative to be aware of the various regulatory guidelines and laws regarding consumer protection and debt collection. One of the most important pieces of legislation is the Frank-Dodd Wall Street Reform and Consumer Protection Act. This law spells out prohibited practices known as UDAAP (for unfair, deceptive, or abusive acts and practices), among other things. UDAAP prohibitions are binding upon those who work in consumer debt collection; you’ll want to ensure that any agency you hire is compliant. Here is a quick refresher on what constitutes unfair, deceptive, and abusive acts or practices:
Unfair acts or practices are those that disadvantage the consumer. Dodd-Frank defines an act or practice as unfair if…
(1) It causes or is likely to cause substantial injury to consumers
(2) The injury is not reasonably avoidable by consumers; and
(3) The injury is not outweighed by countervailing benefits to consumers or to competition.
‘Substantial injury’ typically means that the consumer has suffered some monetary harm (in the form of fees, charges, etc), although there can be other types of harm as well. An example of an unfair act is posting an on-time payment late or improperly and then charging late fees.
An act or practice is deceptive when:
(1) The act or practice misleads or is likely to mislead the consumer;
(2) The consumer’s interpretation is reasonable under the circumstances; and
(3) The misleading act or practice is material.
In this context, ‘material’ means anything that is likely important to the consumer, and can affect their decision-making regarding a product or service. Misrepresentations of any type are deceptive. For instance, examples could be misrepresenting communications as coming from an attorney or government agent, or the nature and amount of debt owed.
Abusive acts and practices are those that...
(1) Materially interfere with the ability of a consumer to understand a term or condition of a consumer financial product or service; or
(2) Take unreasonable advantage of –
(A) a consumer’s lack of understanding of the material risks, costs, or conditions of the product or service;
(B) a consumer’s inability to protect his or her interests in selecting or using a consumer financial product or service; or
(C) a consumer’s reasonable reliance on a covered person to act in his or her interests
Examples of abusive acts and practices might be harassment, promising results that are not possible (such as forgiveness of debt if the contract doesn’t allow for this), or threatening behavior (such as imprisonment) that is not legal or intended.
Debt collectors must avoid engaging in UDAAPs at all times. A great collection agency will find the balance between being effective at recouping debts, but also maintaining the relationship you have built with your clients and customers - read how to find a great agency. When searching for a collection agency, be sure to ask about compliance with the Frank-Dodd act.
Have you experienced UDAAPs at all? Tell us in the comments!
