News Column

Udall Urges CFPB, FTC to Protect Service Members from Abusive Loan Contracts

August 21, 2014



WASHINGTON, Aug. 21 -- The office of Sen. Tom Udall, D-N.M., issued the following news release:

Today, U.S. Senator Tom Udall announced that he and several colleagues sent a letter to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray and Federal Trade Commission (FTC) Chairwoman Edith Ramirez, urging them to close a loophole in the Fair Debt Collection Practices Act (FDCPA) that leaves service members vulnerable to abusive loan contracts. The letter follows a ProPublica report on USA Discounters, a business that appears to be using an FDCPA loophole to sue thousands of service members in a venue where they often cannot adequately defend themselves. The business has required borrowers to agree that any resulting legal action could be brought in a single court in the same location as the company headquarters, regardless of where the transaction takes place or where the service member lives, even if he or she is deployed. The business has reportedly won thousands of default judgments against service members who cannot be present and have no meaningful legal representation.

The senators wrote, "Courts ought not to be issuing or enforcing judgments in cases that are brought through the use of such unfair practices, and your agencies have a role in ensuring that they do not do so. For third-party debt collectors, forcing consumers into such venues would be unequivocally illegal, as the FDCPA already contains strict requirements that legal action against consumers be undertaken either in a jurisdiction where the consumer signed the contract or where the consumer resides when the action is initiated...suing consumers in places far away from where they live is clearly an unfair practice (UDAP) that your agencies have the power to explicitly prohibit for original creditors, as well."

The senators also asked the CFPB to review the broader range of unfair, abusive, and deceptive practices by original creditors as it works to issue new rules on debt collection. Original creditors often get away with the sorts of harassment and intimidation that are already illegal for third-party collectors under the FDCPA, the senators noted. "This is wrong, and the Bureau has the power to stop it," the senators wrote. "The ProPublica story is a wake-up call that where loopholes in the laws and regulations on debt collection exist, predatory collectors can and will use them. We look forward to working with you over the coming months to make sure the updated regulations put stronger, more effective protections in place."

The letter was also signed by U.S. Senators Richard Blumenthal (D-Conn.), Mazie Hirono (D-Hawaii), Tim Kaine (D-Va.), Ed Markey (D-Mass.) and Mark Warner (D-Va.).

The full text of the letter is available below or HERE (http://www.scribd.com/doc/237412645/Letter-to-CFPB-Director-Cordray-FTC-Chairwoman-Ramirez-on-FDCPA-Loophole).

Dear Director Cordray and Chairwoman Ramirez:

We write to express grave concern about a loophole in the Fair Debt Collection Practices Act (FDCPA) that has made servicemembers vulnerable to abusive loan contracts, and urge you to use your authority to close this loophole and take any enforcement actions consistent with the law.

Last week, ProPublica reported on a business that appears to be using an FDCPA loophole to sue thousands of servicemembers in a venue where they often cannot adequately defend themselves. In their contracts, the business has required borrowers to agree that any resulting legal action against the borrowers could be brought in a single court in the same location as the company headquarters, regardless of where the transaction takes place or where the servicemember lives, even if he or she is deployed. The business has reportedly obtained thousands of default judgments against servicemembers who cannot be present and have no meaningful legal representation.

Courts ought not to be issuing or enforcing judgments in cases that are brought through the use of such unfair practices, and your agencies have a role in ensuring that they do not do so. For third-party debt collectors, forcing consumers into such venues would be unequivocally illegal, as the FDCPA already contains strict requirements that legal action against consumers be undertaken either in a jurisdiction where the consumer signed the contract or where the consumer resides when the action is initiated. As the business brings these actions itself, rather than using an attorney, the FDCPA does not apply. But suing consumers in places far away from where they live is clearly an unfair practice (UDAP) that your agencies have the power to explicitly prohibit for original creditors, as well.

As the National Consumer Law Center makes clear in its UDAP manual, there is ample precedent for this decision in numerous legal cases that have established such venue rigging as unfair under both state laws and in federal circuits. We therefore urge your agencies to issue regulations that expressly forbid such suits against consumers - and the binding clauses that purport to allow this litigation - by original creditors. Courts need to know, unambiguously, that they cannot allow such suits to proceed. We also strongly encourage you to use your enforcement powers to stop such predatory schemes where they exist.

More broadly, we urge the Bureau to review the broad range of unfair, abusive, and deceptive practices by original creditors that the Bureau may capture in its upcoming rulemaking. As a group of Senators noted in a comment letter five months ago regarding the Bureau's Advance Notice of Proposed Rulemaking on debt collection practices, original creditors often get away with the sorts of harassment and intimidation that are already illegal for third-party collectors under the FDCPA. This is wrong, and the Bureau has the power to stop it. The ProPublica story is a wake-up call that where loopholes in the laws and regulations on debt collection exist, predatory collectors can and will use them. We look forward to working with you over the coming months to make sure the updated regulations put stronger, more effective protections in place.

Sincerely,

U.S. Senator Richard Blumenthal

U.S. Senator Tom Udall

U.S. Senator Mark Warner

U.S. Senator Mazie Hirono

U.S. Senator Tim Kaine

U.S. Senator Ed Markey

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