It's Time to Review Your Credit Collections Practices
In October 2016, the Consumer Financial Protection Bureau (CFPB) faulted a large credit union for allegedly using improper collection practices.
The resulting consent order requires the credit union to change its collection practices and pay $28.5 million ($23 million in consumer refunds and a $5.5 million civil money penalty).
The CFPB alleged that the credit union:
- Threatened legal action, including wage garnishment, when it seldom took such action;
- Misrepresented the credit consequences of not making loan payments; and
- Improperly froze member account access.
Of particular interest is the CFPB's focus on the suspension/termination of online/electronic account access when a member's loan payments became delinquent.
It is common for financial institutions to restrict or discontinue access to ancillary services (such as internet banking) for seriously delinquent consumers. In most cases, no funds will be in the related deposit accounts and once a loan reaches the point of charge-off, it makes little sense for a financial institution to continue to provide services/tools for a consumer who is likely not using the services and/or the related accounts. The ability to discontinue access to such ancillary services is typically described in the related service terms/agreement and/or in the financial institution's deposit account or member services agreement.
In this case, the CFPB faulted the credit union for:
- Turning off access to online services too soon (almost immediately after a loan became delinquent in many cases),
- Not adequately disclosing the possibility of suspension/termination of services,
- Not providing advance notice that the services would be suspended/terminated, and
- Allowing the electronic deposit of federal benefits but preventing consumer access to the deposited funds.
The consent order serves as a good reminder for all financial institutions to review their credit collection practices, including suspension/termination of ancillary services.
Please contact Christopher Rahl if you need assistance reviewing your collection letters or your collection policies and procedures.