CFPB v. PRA, the Sequel

On March 23, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) announced a proposed stipulated final judgment and order  (“Proposed Order”) against Portfolio Recovery Associates (PRA), one of the nation’s largest debt collectors and debt buyers, for violating a prior 2015 CFPB Consent Order (“Prior Consent Order”)  and engaging in other related violations of federal consumer financial law. Once entered by the court, the order will direct PRA to pay a total of $24 million in redress and civil penalties.

The Prior Consent Order against PRA dates back to September 2015 and resulted in $27 million of penalties levied. The Prior Consent Order alleged that PRA was: (1) collecting upon unsubstantiated or inaccurate debt; (2) filing misleading documents in litigation; (3) falsely claiming that attorneys were retained on non-legal accounts; and (4) making misrepresentations on time-barred debt. PRA was ordered to take specific remediation for the next five years. PRA denied all wrongdoing in both matters. In the Proposed Order, the CFPB contends that PRA not only failed to adhere to the consented terms from the Prior Consent Order but also continued to “engag[e] in deceptive conduct in violation of the Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Act (CFPA).”

Specifically, the CFPB identified numerous debt collection and credit reporting violations by PRA and their downstream vendors in the five-year lookback period.

On the debt collection side, the CFPB took issue with PRA allegedly:

• Making representations about unsubstantiated debts to consumers without reviewing Original Account Level Documentation (OALD);
• Initiating legal action without properly offering, or in some cases possessing required documentation;
• Misrepresenting to consumers that it would provide certain requested documentation within 30 days;
• Collecting on time-barred debt without making the prescribed and mandated disclosures; and
• Suing to collect on time-barred debt.

With regards to credit reporting, the CFPB took issue with PRA’s alleged failure to:

• Resolve certain “direct disputes” in timely fashion;
• Adequately investigate fraud or identity theft claims; and
• Inform consumers about investigation outcomes on accounts where the consumer’s dispute was deemed “frivolous or irrelevant” by PRA.

In the wake of the sequel between the CFPB and PRA, the question is where do we go from here? At Clark Hill PLC, we have identified some key universal themes and a few nuanced items.

Universal Themes:

1. The CFPB will hold repeat offenders accountable. Starting in March 2022, Director Rohit Chopra publicly announced that the CFPB will be “reigning in on repeat offenders.” In December, the Bureau proposed a new registry that would enhance nationwide monitoring of offending companies and impose new reporting and compliance requirements on their senior leadership.
2. Perfection is now the standard. It is evident from the Proposed Order that PRA made substantial strides in its remediation efforts over the past five years. However, the Bureau remains unimpressed with these “half measures.” Miscalculating the statute of limitations on a small number of accounts (characterized as “dozens” by the Bureau) or mislabeling receipt dates on certain older credit reporting disputes prior to 2017 was enough to draw their ire with line-item exceptions.
3. Downstream vendor oversight continues to come under fire. The Proposed Order conspicuously mentions the role of vendors in the collection ecosystem and how their conduct should always be viewed through the lens of a contractor’s compliance profile. PRA’s use of law firms seemingly did not comport with the oversight structure the Bureau envisioned in 2015. The CFPB clearly went to great lengths in the instant matter to expose vendor conduct as a barometer of PRA compliance or lack thereof.

Nuanced Elements:

1. Direct Disputes have become a critical FCRA focus for the Bureau. While indirect disputes managed through e-Oscar queues received some of the early attention from the Bureau (and from the compliance solutions providers in the financial services sector), direct disputes (where the collection agent/creditor/lender is sent the dispute directly) have evolved into the newest frontier of FCRA enforcement. It is clear the Bureau believes these types of credit disputes are not being tended to adequately by furnishers of credit information and those who collect on their behalf. Further, the Proposed Order eliminates some of the discretion that is typically afforded to data furnishers. It implies that in certain circumstances, such as where the consumer fails to file a fraud affidavit, furnishers are restricted from resolving a dispute in its favor.
2. Substantiation (OALD) is becoming the must-have in collection litigation. Even though the FDCPA is silent as to any such requirements to prove a debt prior to litigation, the Proposed Consent Order reinforces the CFPB’s consistent position that a creditor and their representative law firms possess extensive and accurate OALD materials.
3. The Bureau is Seeking to Impose National Litigation Standards. The Proposed Order requires PRA and its law firm vendors, to supply certain documents to consumers, upon request, and at any time during the course of the litigation. Such a mandate may conflict with certain state and local rules of procedure which dictate the timing and scope of discovery.

The press release announcing the Proposed Order was clear: “CFPB orders are not suggestions, and companies cannot ignore them simply because they are large or dominant in the market.” Although the CFPB often reminds the industry that a consent order is specific to targets of an investigation, debt collectors, servicers, and data furnishers must critically review the new standards imposed here and adjust processes and operations accordingly.

Clark Hill’s Consumer Financial Services Regulatory and Compliance Practice Group provides effective representation during enforcement and supervision, technical guidance, policy advice, and strategic planning and outreach to relevant stakeholders in the financial services industry. Our exceptional team of lawyers and government and regulatory advisors has extensive experience in – and an in-depth understanding of – the laws and regulations governing financial products and services. For more information, please contact Joann Needleman (jneedleman@clarkhill.com), and Aryeh “Ari” Derman (aderman@clarkhill.com).