The Consumer Financial Protection Bureau (CFPB) recently filed a proposed settlement to resolve a lawsuit against a debt collection enterprise and its owner. The CFPB alleges that Fair Collections & Outsourcing (FCO) violated federal law by failing to establish or implement reasonable written policies and procedures regarding the accuracy and integrity of the information it furnished to credit reporting agencies and failed to conduct reasonable investigations of indirect consumer disputes, resulting in inaccurate information remaining on consumers’ credit reports. The CFPB also alleges that FCO and its owner, Michael Sobota, violated federal law when FCO represented that consumers owed certain debts when, in fact, FCO did not have a reasonable basis for asserting that the consumers owed those debts. If entered by the court, the settlement would require FCO and Sobota to put in place reasonable policies and procedures to prevent future violations and pay an $850,000 civil money penalty.
“As we recover from the economic devastation caused by COVID-19, credit reports play a huge role in consumers’ financial lives. Inaccurate information, such as information related to tenant debt, can be devastating for someone who’s applying for a loan, seeking a new place to live, or trying to get a new job,” said CFPB Acting Director Dave Uejio. “We will not tolerate companies that put inaccurate data on consumers’ credit reports or fail to investigate consumers’ disputes.”
FCO, which collectively comprises FCO Holding, Inc. and its subsidiaries, Fair Collections & Outsourcing, Inc., Fair Collections & Outsourcing of New England, Inc., and FCO Worldwide, Inc, is a non-bank debt collector based in Maryland. The proposed settlement seeks to resolve the CFPB’s pending lawsuit against FCO and Sobota, filed in federal district court in Maryland in September 2019.
Harmed Consumers by Violating Multiple Consumer Financial Protection Laws
The CFPB alleges that FCO violated the Consumer Financial Protection Act of 2010, the Fair Credit Reporting Act (FCRA), and Regulation V (the Furnisher Rule). Specifically, the CFPB alleges that FCO:
- Failed to implement proper policies and procedures: The CFPB alleges that FCO lacked reasonable policies and procedures regarding the accuracy and integrity of the information it furnished to consumer reporting companies, specifically concerning the handling of indirect disputes, which are disputes submitted by consumers to credit reporting agencies.
- Failed to conduct reasonable investigations of disputes, including disputes related to identity theft: The CFPB alleges that FCO failed to conduct reasonable investigations or indirect disputes. The CFPB also alleges that FCO continued to furnish information about accounts for which consumers submitted identity theft reports directly to FCO without FCO conducting an investigation.
The CFPB also alleges that FCO and Sobota violated the Fair Debt Collection Practices Act when FCO told consumers they owed certain debts when they did not have a reasonable basis for the assertion.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions and persons that violate federal consumer financial laws. The proposed settlement, if entered by the court, would require FCO and Sobota to:
- Implement reasonable policies and procedures in connection with furnishing: FCO would be required to establish, modify, update and implement policies and procedures regarding the accuracy and integrity of information furnished to consumer reporting agencies and to establish internal controls to identify practices or activities that could compromise the accuracy or integrity of the information it furnishes and to evaluate the effectiveness of its furnishing policies and procedures.
- Properly review identity theft reports: FCO would be required to establish an identity theft report review program to identify instances in which FCO received identity theft reports from consumers and take steps to ensure that they handle those reports as required by the FCRA.
- Evaluate reliability on accounts for which FCO collects: FCO, and Sobota would be required to have written intake policies and procedures designed to evaluate the quality, completeness, accuracy, and integrity of account information before FCO commence collections and policies and procedures to monitor, evaluate, and address trends in disputes and other indicia of unreliability on accounts for which FCO collects.
- Retain an independent consultant: FCO would be required to retain an independent consultant with specialized experience in consumer-information furnishing and debt collection, approved by the CFPB, to conduct an independent review of FCO’s furnishing and debt collection activities and to make recommendations on policies and procedures, among other things.
- Pay a civil penalty: The terms of the order would also impose a penalty of $850,000 to be paid to the CFPB and deposited into the Bureau’s Civil Penalty Fund.