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.