Fair Debt Collection Practices Act (FDCPA)

Question 1

During the implementation of a new third-party debt collector for the bank, which of the following would be considered an acceptable practice?

A. Call a debtor to advise that the debtor’s name and debt will be published in the local newspaper
B. Call a debtor directly after receiving a letter from an attorney to confirm representation
C. Call a debtor between 8:00 a.m. and 9:00 p.m. local time based on the debtor’s address and zip code
D. Call a debtor’s employer to advise them of the debt and obtain the debtor’s address and phone number

Answer 1

C. Call a debtor between 8:00 a.m. and 9:00 p.m. local time based on the debtor’s address and zip code

This question asks about provisions of the Fair Debt Collection Practices Act (FDCPA). One provision of the FDCPA provides that third-party debt collectors may not call debtors between 9:00 p.m. and 8:00 a.m. local time based on the debtor’s location unless the debtor agrees to such calls (if he/she works nights, for example). Therefore, calling between 8:00 a.m. and 9:00 p.m. is acceptable under the FDCPA. None of the other practices in answers A, B, or D is permissible under the FDCPA.

Question 2

During a review of the last audit report on the bank’s debt collection practices, the compliance professional discovers that violations have been cited with regard to communicating after hours. Some customers had been called as late as 11 pm by the bank’s collection officers who are calling bank customers regarding debts owed to the bank. The compliance professional is asked to review the draft response and respond. What is the BEST plan of action?

A. The late calls are not a violation of the Fair Debt Collection Practices Act, but for UDAP reasons the recommendation should be that calls not be made after 9 pm local time
B. The late calls are a violation of the Fair Debt Collection Practices Act, so calls should not be made after 9 pm local time
C. The late calls are not a violation of the Fair Debt Collection Practices Act, so calls can be made any time
D. The late calls are a violation of Regulation Z’s servicing provisions; the recommendation should be that calls not be made after 9 pm local time

Answer 2

A. The late calls are not a violation of the Fair Debt Collection Practices Act, but for UDAP reasons the recommendation should be that calls not be made after 9 pm local time

Since the bank is collecting its debts in its own name to its own customers, the FDCPA does not apply. However, for UDAP reasons this is an unwise practice and the recommendation should be made to stop the late calls, as the FDCPA does place such restrictions on third-party debt collectors. There are no Reg. Z servicing provisions that address how late collection calls may be made.

Question 3

The bank has received a number of complaints regarding the conduct of third-party debt collectors contracted to collect delinquent mortgage loans owed to the bank. What is the BEST course of action to take regarding these complaints?

A. Immediately terminate the contracts of any third-party debt collectors who receive more than one complaint in any given month
B. Investigate whether alternative third-party debt collection firms are available to take over the debt collection function
C. Take all debt collection practices in-house to avoid any violations of the Fair Debt Collection Practices Act
D. Investigate whether the third-party debt collectors are in fact violating the provisions of the Fair Debt Collection Practices Act, then prepare a plan to address any deficiencies

Answer 3

D. Investigate whether the third-party debt collectors are in fact violating the provisions of the Fair Debt Collection Practices Act, then prepare a plan to address any deficiencies

Complaint management principles indicate that complaints be investigated to determine whether any violations of law or regulation have occurred, including in this case the FDCPA. Without this determination, there is no need to immediately terminate any contracts, investigate any alternative vendors, or bring collections in-house.

Question 4

What is the difference between business (first line) and compliance department (second line) responsibilities as part of an effective program regarding debt collection practices?

A. The first line does not have any responsibilities regarding third-party debt collectors; second line responsibilities involve day-to-day communications with those third-party debt collectors
B. First line responsibilities involve reporting to the bank’s Board of Directors around compliance with policies; second line responsibilities involve monitoring complaints regarding third-party debt collectors
C. First line responsibilities involve ensuring that policies and procedures involving third-party debt collectors are followed through monitoring and testing; second line responsibilities involve advising the business on those policies and procedures
D. First line responsibilities involve development of policies and procedures applicable to third-party debt collectors; the second line has no responsibilities since the first line is responsible for third-party debt collectors

Answer 4

C. First line responsibilities involve ensuring that policies and procedures involving third-party debt collectors are followed through monitoring and testing; second line responsibilities involve advising the business on those policies and procedures

Three lines of defense principles dictate the first line (the business) should be responsible for monitoring and testing to ensure policies and procedures are followed. The second line (compliance) should be responsible for advising on those standards. There is no need for the first line to report to the Board on compliance policies.