In an environment of heightened regulation and oversight, collection firms may find themselves under the expanding scrutiny of state and federal regulatory bodies as well as that of their own clients. In 2011, the Consumer Financial Protection Bureau “CFPB” released its Supervision and Examination Manual which put our industry on notice to expect concentrated examination and mandatory audits. This intense downward force applied by the CFPB permeates all aspects of debt collection, including the manner in which collection firms communicate with consumers. The lifeblood of this industry is communication compliant with the FDCPA. Yet, as time has progressed, collection firms have faced greater and greater restrictions on the means and methods of consumer communications.
As we have all seen, many clients have taken a proactive approach in an attempt to stem the tide of regulation by placing self-imposed limitations on verbal and written communications with consumers. Certain clients may restrict telephonic communication altogether while others may curtail a firm’s ability to place outbound calls to consumers. In states where attorneys appear in court for all of their collection lawsuits, firms can still rely upon face-to-face settlement negotiation; however, the number of consumers appearing in court who are willing to negotiate can vary significantly and often require out-of-court, written communications to follow up on or finalize in-court settlement discussions. As a result, client audits now include intensive review of the firm’s written communications with consumers.
Collection law firms generate a wide variety of letters: demand letters, verification letters, settlement letters, balance letters, and pay-off letters. In addition to such required communication, clients or the firm may choose to pursue a settlement letter campaign, to reach a broad range of consumers where a valid address is available. If the campaign is sufficiently widespread the number of “call-backs” is likely to be significant. On the other-hand this form of communication is passive and may not generate any response, creating exposure without any tangible benefits.
This exposure stems from the fact that letters have also become a favorite topic of client analysis and oversight. In response to CFPB bulletins and investigations, coupled with an apprehension of expensive consumer protection litigation, clients may strictly limit the types of letters a firm is permitted to send to consumers and/or the contents of said letters. It is becoming progressively more common for clients to not only require firms to obtain approval before utilizing a particular letter template but to require that particular language be used.
While we should work to please our clients, it is critical to engage them as partners in the process to make them aware of concerns or potential pitfalls from language the client may require the firm to use. As we know, use of the client’s requested language in a letter does not relieve the collection firm of responsibility for the contents of the letter. For example, a client may demand that a firm include specific language pertaining to 1099 (c) in their settlement letters. However, recent case law raises concerns over the precise wording of such disclosures and has opened the door for consumer protection litigation on the topic. A collection law firm has an independent duty to examine the requested language and make its own evaluation as to its propriety before acquiescing to a client’s request and sending to the consumer and then communicating those concerns to their client.
Any letter generated and mailed to a consumer has the potential to result in a consumer protection lawsuit or CFPB probe. Many collection firms who are keenly aware of this potential exposure have either curtailed the use of letters except where absolutely necessary (i.e. demand and verification letters) or have subjected the drafting, generating, and reviewing letters to intensive compliance review prior to their being mailed. These internal audits are utilized to ensure letter templates are in compliance with local and federal regulations and the often more onerous client requirements.
The challenge for our industry has always been change, especially sudden change when a new court ruling re-writes the rules. In this climate, clients and firms are always seeking to anticipate how regulation and litigation will alter the landscape. This is why an open dialogue with your clients is imperative, making them aware of change and identifying areas of concern.
Fred N. Blitt, Esq., is a partner with Blitt and Gaines, PC in Illinois and Couch, Conville and Blitt in Louisiana. He is past president of NARCA. Contact: