Creditors: Are Your Policies & Procedures in Order? Are Your 3rd Party Agencies?

EDITOR’S NOTE: The following is written by Linda Straub-Jones of NeuAnalytics and is published here with her permission.

Policies & procedures, a key part of your compliance management system, and something that can either make or break you when it comes to a Bona-Fide Error defense in court or with the CFPB. It is not only important that creditors have their policies & procedures in place for their own internal practices, but that you are aware of the policies & procedures of your 3rd party agencies, to ensure their compliance as well. 

Because of the important role policies & procedures play in your entire compliance management system, it is essential that you review them frequently to ensure they are up to date. It is also important that you review new regulations and updates to existing regulations to determine when a new policy & procedure should be written, or an existing one should be updated. Policies & procedures should be living documents that should change as the industry and regulations change. 

There have been many examples of cases where the CFPB or the court has found that policies & procedures were lacking, which contributed to a penalty or fine. But there are also cases where having good, solid policies & procedures in place has allowed companies to claim a Bona Fide Error defense and win a case. Below we will review both: 

In the following cases policies & procedures were lacking, and were called out by the Judge or the CFPB: 

  • The CFPB took action against a large bank for failures related to information it provided for checking account screening reports. The bank did not have processes in place for reporting accurate information, and consumers were not informed about the results of their reporting disputes and other key aspects of their checking account application denials. The CFPB ordered the bank to pay $4.6 million penalty and ordered them to implement necessary changes to their policies & procedures to prevent future legal violations. 
  • The FTC filed a complaint and proposed order against a Texas-based collection agency for not having appropriate policies & procedures in place relating to consumer credit reporting. The FTC’s complaint alleged that the agency failed to follow the requirements of the FCRA’s Furnisher Rule and found that the agency did not have adequate policies & procedures in place to handle consumer disputes regarding information reported to CRAs. The FTC also found that while the agency did have written policies & procedures in place about how disputes were handled, they did not properly train their employees on those policies. In its proposed order, the FTC laid out their minimum expectations relating to policies & procedures, which included eight specific policy & procedure suggestions relating to credit reporting and dispute resolution, and employee training relating to those policies & procedures. A settlement was reached, and the agency was required to pay a civil penalty of $72,000. 
  • The CFPB took action against a medical debt collector for not having policies and procedures in place relating to credit bureau disputes, but also noted that existing policies & procedures were not followed. Additionally, they stated that the agency had a lack of internal audit procedure to identify breakdowns in policies & procedures. The consent order required the collection agency to pay $5.4 million in relief to harmed consumers, and a $500,000 penalty. 
  • The CFPB filed a complaint against a collection agency for failing to maintain reasonable policies & procedures relating to the accuracy and integrity of the information it furnishes to CRAs, CRA disputes, investigations of disputes, and furnishing information that was a result of ID theft to CRAs before verifying that the information was correct. 

I definitely see a pattern here, especially as it relates to credit reporting and proper training of your employees of the policies & procedures. However, as I mentioned earlier, there are examples of when policies & procedures saved the day. 

  • A debt collector had policies & procedures in place regarding live telephone calls with consumers. These written policies & procedures, along with the proper training of their staff provided a Bona Fide Error defense when they were sued for an alleged FDCPA violation. While there were several allegations in the lawsuit that were debunked when the call recording was produced, what stood out was that the judge specifically referred to the agencies policies & procedures in his findings. The Judge stated that the agency’s written policies & procedures were very clear in how the agency’s collectors were to conduct themselves while on the phone with a consumer. Additionally, employees of the agency had online access to the procedures to reference and were also trained and tested on the policies and proper phone call procedures. 
  • In another case where policies & procedures provided a Bona Fide Error defense, a judge granted a summary judgment in a FDCPA case in favor of the collector in a case relating to a phone call made to the consumer after a letter of representation was received by an agency. The call was made to the consumer at 10:10 am, after the agency had signed for the legal representation letter at 9:58 am that same morning. In the court’s review of the evidence, they found that the agency had detailed policies & procedures in place explaining how correspondence is received, reviewed and processed. The policies prohibit an employee from communicating with a consumer after the receipt of notification that the consumer is represented by legal counsel. The agency also maintained a computer system that prevents communications from being made when coded to denote the consumer is represented by an attorney. All the agencies employees are trained and tested on the company’s policies and procedures. 

Are your policies & procedures up to date? Are your 3rd party agencies? Do you review and update them regularly as regulations or the industry changes? Do you audit your agencies policies & procedures to ensure they are up to date? Policies & procedures could be the key to overcoming a costly lawsuit, it’s worth taking the time to review them now.

Linda Straub Jones is a Sr. Account Executive with NeuAnalytics, a company that works with financial institutions to provide receivables management, compliance systems, operational support and productivity solutions.

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