ciskey debra jHave you written your UDAAP (unfair, deceptive, or abusive acts and practices) policy yet? Will it stand the test of examination, and does it address all the practices that carry risk of being labeled unfair, abusive, or deceptive? I have found it instructive to review the CFPB Supervision and Examination Manual’s UDAAP examination procedure and the documents it references.

In a number of writings and presentations, Director Cordray and others at the CFPB have expressed their position that debt collectors don’t get shopped by consumers like the other financial service providers under the Bureau’s purview. The consumer does not get to choose his/her debt collector, which makes the unfair, abusive or deceptive practices of debt collectors different from those of advertisers/product sellers, who are working to convince the consumer to spend money on a product or service the consumer perceives would be of benefit to him/her. Instead, we are trying to convince a consumer to pay for a product or service from which he/she has already benefitted. We are tasked with doing this in a way the consumer is neither deceived about the ultimate benefit of making the payment, or prevented from knowing that attributes of the debt may entitle the consumer not to pay it, or by paying, the consumer risks losing those entitlements.

It is helpful to review a couple of definitions. According to the CFPB’s UDAAP examination manual, an unfair act or practice causes or is likely to cause substantial injury to consumers, the injury is not reasonably avoidable by consumers, and the injury is not outweighed by countervailing benefits to consumers or to competition. This definition is adopted from the Federal Trade Commission, which it has used for years. This explains the reference to competition. Substantial injury usually involves monetary harm, and actual injury is not required in every case. Withholding material information from a consumer until it is too late for the consumer to act on the information prevents the consumer from reasonably avoiding injury. (http://files.consumerfinance. gov/f/201210_cfpb_supervisionand- examination-manual-v2.pdf)

An abusive act or practice materially interferes with the ability of a consumer to understand a term or condition of a financial product or service. Taking unreasonable advantage of a consumer’s lack of understanding, inability to protect his/her interests, or reliance on us to protect his/her interest is also abusive.

In its narrative defining deceptive practices, the CFPB references the FTC’s Policy Statement on Deception, which takes the form of a letter and is dated October 14, 1983. The letter was written to the then-Chairman of the House Committee on Energy and Commerce, Rep. John Dingell, and is signed by then-FTC Chairman James C. Miller, III. This 14-page document contains 58 endnotes, which comprise fully half of the letter. I have learned that footnotes and endnotes are often more instructive than the document itself, and that is true of this document as well. Much of the discussion in the policy statement relates to the practices of advertisers, but since it was cited in the CFPB’s examination manual we need to understand its application to debt collection practices as well.

This simple definition of a misrepresentation appears in endnote 4: “A misrepresentation is an express or implied statement contrary to fact. A misleading omission occurs when qualifying information necessary to prevent a practice, claim, representation, or reasonable expectation or belief from being misleading is not disclosed.” ITT Continental Baking Co. Inc., 83 FTC 865, 965 (1976). Another definition is provided in endnote 45, which relates to the materiality of the omission: “…The American Law Institute defines a material misrepresentation or omission as one which the reasonable person would regard as important in deciding how to act, or one which the maker knows that the recipient, because of his or her own peculiarities, is likely to consider important.” For example, not disclosing to a consumer that a debt is out of statute may be a misleading omission under this standard. We have seen the application of that standard in FTC enforcement actions with debt collectors.

FTC’s Four P’s

The CFPB also references the FTC’s four P’s test to evaluate whether a representation, omission, act or practice is likely to mislead:

Prominent - Is the statement prominent enough for the consumer to notice?
Presented - Is the information presented in an easy to understand format that does not contradict other information in the package and at the time when the consumer’s attention is not distracted elsewhere?
Placement - Is the placement of the information in a location where consumers can be expected to look or hear?
Proximity - Is the information in close proximity to the claim it qualifies?

When reviewing your policies and procedures (or writing them!), be sure to also review the training material related not only to the polices themselves, but to practices your collectors are trained to perform. Look at the scripting provided to your collectors related to out of statute debt, making settlement offers, setting up payment arrangements, and any other process that requires or allows collectors to use their own discretion. Be sure these materials do not come with a wink and a nod that may imply that “slight” omissions of material information, exaggerations about benefits of paying, or omissions of key disclosures would be acceptable. Training material was cited as a smoking gun in a CFPB enforcement action against a payday lender. Thinking like a regulator in the examination of our own materials and practices may be painful, but just like in the gym, “no pain, no gain.”

Debra Ciskey is the Compliance Officer at Wakefield & Associates. Inc. She is a member of the board of directors and a certified instructor for ACA International.