Successful marketing leads to sales, but sometimes those sales don’t result in customers making timely payments. When that happens merchants and lenders often try to recover the cost of goods sold or loans through collections. But what are the risk for merchants seeking to collect outstanding payments? A lot, apparently, if two recent Consumer Financial Protection Bureau (“CFPB”) enforcement actions tell us anything. Although “first-party” collections are largely exempt from the Fair Debt Collections Practices Act (“FDCPA”), the CFPB has begun using its enforcement powers to challenge first-party collection practices, including those used by retail merchants and other lenders.
In CFPB v. Freedom Stores, Inc., the CFPB (and several states) alleged that a Virginia-based retailer that operates near military bases nationwide engaged in unfair and deceptive collection practices by filing illegal lawsuits in distant forums, debiting consumers’ accounts without authorization, and contacting service members’ commanding officers. To settle the allegations, Freedom Stores paid over $2.5 million in partial refunds to affected consumers. Similarly, in In re DriveTime, a “buy-here, pay-here” car dealer paid an $8 million penalty to settle allegations that the company engaged in various unlawful collection practices.
These actions demonstrate the need for first-party creditors to implement appropriate collection policies and procedures or else risk CFPB scrutiny. At a minimum, creditors should consider the following when engaging in collections: