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David A. Reed
Attorney at Law
Reed & Jolly, PLLC
david@reedandjolly.com
(703) 675-9578
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Carolinas Credit Union League
Cooperative Credit Union Association
Credit Union League of Connecticut
Cornerstone Credit Union League
Credit Union Association of the Dakotas
Delaware Credit Union League
Hawaii Credit Union League
Idaho Credit Union League
Kansas Credit Union Association
Kentucky Credit Union League
League of Southeastern Credit Unions
Louisiana Credit Union League
Maryland & DC Credit Union Association
Minnesota Credit Union Network
Mississippi Credit Union Association
Missouri Credit Union Association
Montana Credit Union Network
Mountain West Credit Union Association
Nebraska Credit Union League
New Jersey Credit Union League
Credit Union Association of New Mexico
New York Credit Union Association
Northwest Credit Union Association
Pennsylvania Credit Union Association
Tennessee Credit Union League
Association of Vermont Credit Unions
Virginia Credit Union League
West Virginia Credit Union League
Directed by The Credit Union Webinar Network
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Attorney, author, consultant, and nationally-recognizedspeaker, David Reed is a partner in the law firm of Reed andJolly, PLLC. He provides guidance to financial institutions onestablishment and revision of policies and procedures,organizational compliance, collections, security, contractualagreements, regulatory matters, and corporate governance.His engaging speaking style has made him a nationwidelecturer on regulatory compliance, consumer lending,bankruptcy, and collections.
A former trial attorney and vice president and generalcounsel of a large credit union, David is particularly known asan expert in the areas of operations, bankruptcy, andcollections. He has trained state and federal examinationstaff on numerous issues, including BSA, ID theft red flags,SAFE Act, third-party contract management, and bankruptcy.He also serves as editor of several industry manuals.
David A. ReedAttorney at LawReed & Jolly, PLLCdavid@reedandjolly.com(703) 675-9578
Remember the definition of the words “but” and “however”
You don’t need a law degree as much as you need the ability to identify the issue, understand the risk, and know the next step
You can hire any type of legal expertise needed, once you know the issue
Ask yourself how a flare gun works
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Collections is about MORE than just recovering money!
Collections is at the crossroads of account service, lending, back office operations, and compliance.
No other operational unit is more likely to drive a borrower into the waiting arms of an attorney than collections!
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Monitoring Accounts
Your systems and third-party data
P&P, Privacy, FCRA
Contacting Borrowers and Arranging Payment
Phone calls, letters, e-mails, and texts
P&P, state collections laws, UDAAP
Repossession of Collateral
Automobiles, equipment, and homes
P&P, state version of UCC
Obtaining Judgments and Collections Assistance
Third-party vendors
P&P, state and federal collections laws, UDAAP8
So many rules, so little time!
There is money to be made in consumer protection.
Private cause of action.
More attorneys are being trained as consumer advocates.
Bankruptcy attorneys have created a new staff position to help with their “new” business model.
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It’s a fallen world. Nobody is perfect. Not my job. Etc.
Words matter!
Remember this: It is bad enough to make a mistake, but it is worse if it is in writing.
Letters, e-mails, and texts last forever and never get stale.
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It is never the right answer to say, “This is always the way we have done it.”
Conduct an inventory of the department.
Identify unique compliance risks and manage them.
Now is the time to make your collections process as effective and compliant as possible.
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All examinations are open book!
Examination questionnaires and guidance
Collection program controls
CFPB study on collections practices
New regulations, proposals, interpretations, or headlines?
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Many areas impact the collections process
Is the collections function integrated into institution operations?
How would other areas answer these questions:
I could never be in collections because _________.
or
Collections main job is __________.
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Contact the borrower
Arrange for payment
Answer borrowers’ questions
Recover collateral
Find “lost” borrowers
Biggest job is to find a solution to the delinquency!
When was the last time you reviewed a full set of collections-related policies and procedures?
Are they up-to-date and accurate?
Do you train on them?
Are they available to the entire collections team?
Do you have a list of ALL the functions and processes that reside within the Collections Department?
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Contact borrowers
Arrange for payment
Process payments
Attend meetings
Modify loans
Foreclosures
Placement with agencies and law firms
Charge off loans
Investigate card disputes, payment issues, and UFOs
Correct loan set up errors
Jump start dead batteries
Garnishments and levies
Credit reports
Subpoenas
Attend meetings
Returned mail
Make coffee
Skip trace
Prepare delinquency reports
Serve as internal resource
The answer person
Attend meetings
Small claims court
Account correspondence
Does collections have access to sensitive borrower data?
Does the department use an auto dialer, texting, or e-mails to communicate with borrowers?
Privacy, TCPA, and CAN-SPAM issues
What types of third-party vendor relationships exist?
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Have other staff ever actually been in the collections area?
Do compliance officers spend any time in “the pit”?
Create a field trip to collections, job fair, brown bag seminar, or open house
Take the initiative and define your role
Loan service, not arm twisting
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List all products
List most common reasons for delinquency
List all applicable delinquency solutions
From full payment to short sale
List requirements for each solution
Include compliance considerations
Amend as necessary
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What does Collections have to do
with Compliance?
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Compliance Risk – Risk of violations and noncompliance with laws, rules, regulations, or ethical standards, resulting in fines, penalties, or damages.
Impacted by:
Regulatory requirements that impose greater responsibilities for institutions and their staff and resources. Material growth in particular areas, products, and services; or offering new services, products, and programs.
Indicators:
Authority and accountability
Level of violations or noncompliance
Training and resources
Litigation and complaints 21
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BSA/AML
PATRIOT Act
TILA
RESPA
HMDA
Electronic Fund Transfer
Bankruptcy Code
GLB – Part 748
Fair Credit/FACTA
Internet banking guidance
SAFE Act
Real property laws
SCRA
UDAAP
UCC
State collections and consumer protection laws
Employment laws
ADA
State and federal criminal laws
TCPA
Disaster and pandemic planning
Lending laws and regs
Accounting guidelines
Bylaws
What letters do you send and why?
Is everyone sending the correct letters?
Can the sender customize a letter?
Which ones require specific language?
Bankruptcy
Repossession
Real estate collections
Foreclosure
State requirements23
Are you utilizing safe harbor letters?
Consider having your most risky letters reviewed by counsel to ensure compliance.
Legal services are a commodity and you need to be an educated consumer.
It is better to buy a compliant letter now than pay a defense attorney later.
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Consumer-oriented mission
UDAAP powers (and profits)
Collections has been a central focus in recent years
Application of the FDCPA to lenders
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Most regulations require a federally insured institution to develop a written security program designed to:
Ensure the security and confidentiality of borrower records and information;
Protect each office from robberies, burglaries, larcenies, and embezzlement;
Prevent destruction of vital records;
Assist in the identification of persons who commit or attempt such crimes.
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A violation of lending law could be used by an attorney to threaten or stall collection efforts.
Modifications are an opportunity to rebirth the loan and cure all the compliance issues.
You need to understand all the rules.
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Real Estate Settlement Procedures Act
Loss mitigation procedures:
If a borrower applies to the servicer for consideration of a loss mitigation option:
Acknowledge receipt within five days
Inform the borrower if information is missing
Provide a written decision and reasons if denied
Provide an appeals process
The rule restricts a servicer from simultaneously evaluating a borrower for a loan modification while pursuing foreclosure on the property
Small servicers are exempt from many of the procedural requirements, but cannot initiate the foreclosure process unless a borrower is more than 120 days delinquent or proceed to a foreclosure judgment or sale if the borrower is following the terms of a loan mitigation agreement 29
Bankruptcy Code
Ultimate goal is release from personal liability
Discharge
Protection of the automatic stay is extensive
Post discharge injunction protects debtor AFTER discharge
Any attempt to collect on an obligation is risky
Bankruptcy attorneys are always on the lookout for creditor violations
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Fair Credit Reporting Act.
Primary responsibilities are accuracy of data and the integrity of your process.
Borrowers are very savvy about credit scores.
Difference between human error and systemic failure.
EOscar maintenance and control issues.
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Fair and Accurate Credit Transactions Act
Identity Theft Report
Alleges identity theft
Includes copy of report filed with law enforcement
Subject filer to criminal penalties if false information is filed
Extended Fraud Alert
Active Duty Alert
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“Red Flag” Guidelines
Guidelines to use in identifying patterns of activity related to ID theft
What red flags exist in collections?
Take a look at the sample red flags listed in the Appendix J to the regulation
https://www.gpo.gov/fdsys/granule/CFR-2012-title12-vol3/CFR-2012-title12-vol3-part222-appJ
State code (UCC and other sections).
Autos and real estate.
Specific state law requirements IN ADDITION TO the obligations found in the contract.
Incorrect language equals liability!
When was the last time you had all of your collection letters reviewed by competent counsel?
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Telephone Consumer Protection Act
Focuses on the use of auto dialers in the business process
Collections versus marketing calls
Collections calls require only “prior express” consent
Marketing calls require “express written consent”
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Multiple federal laws and agency regulations
Suspicious Activity Reports
ID theft
Criminal acts
Fraud
Currency Transaction Reports
Any cash over $10,000
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What is it?
Replaces Soldiers’ and Sailors’ Civil Relief Act of 1940 (SSCRA)
SSCRA enacted to postpone or suspend certain civil obligations of persons in military service
Does not relieve obligation to pay
All institutions subject to compliance
Huge impact on collections!
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Who is covered?
Army, Navy, Air Force, Marine Corps, and Coast Guard on active duty; commissioned officers of Public Health Service and NOAA
National Guard and reserve components while on federal service are also included
Are you looking for APO or FPO on change of addresses?
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32 CFR Part 232 contains limitations and requirements for certain types of consumer credit extended to active duty servicemembers and their families.
Special (well deserved) status of servicemembers and their families
Remember your existing SCRA obligations!
CFPB attention and resources
Servicemembers Affairs, Hollister Petraeus
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The new DOD regulations amend the Military Lending Act of 2006 and adds additional protections for military borrowers and their dependents
Not just directed at bottom-dwelling lenders anymore
Now covers most loans, including credit cards
Guidance has been provided by the DOD
https://www.federalregister.gov/documents/2016/08/26/2016-20486/military-lending-act-limitations-on-terms-of-consumer-credit-extended-to-service-members-and
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Modifies the MAPR to include fees for credit-related ancillary products sold in connection with the credit transaction, finance charges associated with consumer credit, and certain application and participation fees.
Provides a safe harbor for creditors ascertaining whether a consumer is covered by the final rule's protections.
Subjects creditors to civil liability and administrative enforcement for MLA violations.
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Reg B and the Fair Housing Act
Prohibits discrimination in ANY aspect of lending!
From advertisement to final collection
Problem areas are repossession, foreclosure, and modifications
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Sex
Marital status
Race
Color
Religion
National origin
Age
Receipt of public income
Exercise of legal rights under consumer protection laws
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Application procedures
Information requirements
Investigation procedures
Standards of creditworthiness
Terms of credit
Furnishing of credit information
Treatment of delinquent or slow accounts
Termination of credit
Collection procedure
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Three “types” of lending discrimination
Overt evidence of discrimination
Disparate treatment
Disparate impact
Access a map of your primary lending area
Paper or electronic
Place a mark within the zip code of every repossession, foreclosure, and lawsuit
Overlay recent demographic census data on each MSA
How do they compare?
More dots in “majority minority” areas?
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Consumer Financial Protection Act (Title X)
Unlawful Deceptive Abusive Acts and Practices
A powerful extension of CFPB power
Define “abusive”
Human error versus systematic violations
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FDCPA
State collection laws
Do you have extra obligations?
State privacy laws
What’s in your state law?
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Access to cash
Dual controls
Control over due dates
How is your team incented?
Let’s talk about Wells Fargo
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Do an internet search on this: “I can’t pay my mortgage”
Hint: Don’t leave your PPI!
Consumer protection fuel is the attorney’s fee –it is more addictive than drugs!
Why is collections on the front lines?
If there is a chance to improve their position, why not?
Highly regulated area within a highly regulated industry
All lending rules apply at the point of default as well as collection specific rules
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CFPB may bring administrative enforcement proceedings or civil actions in Federal district court. The Bureau can obtain “any appropriate legal or equitable relief with respect to a violation of Federal consumer financial law,” including:
Rescission or reformation of contracts
Refund of money or return of real property
Restitution
Disgorgement or compensation for unjust enrichment
Payment of damages or other monetary relief
Public notification regarding the violation
Limits on the activities or functions of the person against whom the action is brought
Civil monetary penalties (which can go either to victims or to financial education)
CFPB has no criminal enforcement authority 51
Navy FCU entered into a Consent Order and paid $28.5 million based on UDAAP violations regarding threat of legal actions, credit score impact, and electronic account access.
Capitol One and others agreed to settle a TCPA class action lawsuit for $75 million.
CFPB ordered Encore Capital Group and Portfolio Recovery Specialists to return a combined $62 million to consumers and pay $18 million in penalties for UDAAP violations.
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Audit
Annual
Defined scope
Review policies, procedures, training materials, employees, forms, and work samples
Report significant findings, conclusions, and recommendations
Can be conducted with in-house resources
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Perform regular quality assurance audits to confirm practice meets policy and procedures
Monitor complaints and demand letters
Not just in your institution, but in your area
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Do you understand the full impact of the rules on your institution?
Involve all stakeholders in the analysis, comment, and implementation of the rules.
Do you have a Compliance Committee?
Create your checklist of collections hot spots.
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What’s in your audit?
Track all recommendations with due dates and responsible parties attached to all findings
Track your inventory findings
What “exceptions” were discovered
Track complaints related to lending and collections
Focus on new products, services, and policy changes
Include examination findings, settlement demands, and institution lawsuits (prosecution and defense)
Add CFPB enforcement actions and consumer litigation trends
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Your institution may need to take any number of actions to comply with a new regulation.
Change business plans or product lines
Change policies and procedures
Modify or enhance the critical functions
Amend forms
Train staff
It is never enough simply to “do it.” You must also DOCUMENT it.
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Include all collections processes in your Compliance Risk Assessment and audits
Ensure policies and procedures are up to date and address compliance risks
Include collections staff in your quality assurance loop
Understand the interaction between compliance and collections
Maintain privacy obligations
Scrutinize repossession and foreclosure processes
Train staff in sound collections practices AND regulatory compliance landmines
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How do you stay informed of developments in the area?
This area continues to attract the interests of consumer protection attorneys
CFPB has its focus fixed firmly on the collections function of your institution!
Advanced notice of proposed rulemaking and research related collections
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For questions please contact:
David A. Reed
Attorney at Law
Reed & Jolly, LLC
(703) 675-9578
David@reedandjolly.com
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This presentation is designed to provide accurate and authoritative information in regard to the subject matter covered.
It is provided with the understanding that the publisher is not rendering legal, accounting, or other professional services.
If legal or other advice for your specific situation is needed, the services of a professional should be sought.
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