Udall Seeks To Protect Service Members From Abusive Loan Contracts

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WASHINGTONThursday, Sen. Tom Udall, D-N.M. announced that he and several colleagues sent a letter to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray and Federal Trade Commission (FTC) Chairwoman Edith Ramirez, urging them to close a loophole in the Fair Debt Collection Practices Act (FDCPA) that leaves service members vulnerable to abusive loan contracts.

The letter follows a ProPublica report on USA Discounters, a business that appears to be using an FDCPA loophole to sue thousands of service members in a venue where they often cannot adequately defend themselves.

The business has required borrowers to agree that any resulting legal action could be brought in a single court in the same location as the company headquarters, regardless of where the transaction takes place or where the service member lives, even if he or she is deployed. The business has reportedly won thousands of default judgments against service members who cannot be present and have no meaningful legal representation.

The senators wrote, “Courts ought not to be issuing or enforcing judgments in cases that are brought through the use of such unfair practices, and your agencies have a role in ensuring that they do not do so. For third-party debt collectors, forcing consumers into such venues would be unequivocally illegal, as the FDCPA already contains strict requirements that legal action against consumers be undertaken either in a jurisdiction where the consumer signed the contract or where the consumer resides when the action is initiated…suing consumers in places far away from where they live is clearly an unfair practice (UDAP) that your agencies have the power to explicitly prohibit for original creditors, as well.” 

The senators also asked the CFPB to review the broader range of unfair, abusive, and deceptive practices by original creditors as it works to issue new rules on debt collection. Original creditors often get away with the sorts of harassment and intimidation that are already illegal for third-party collectors under the FDCPA, the senators noted.

“This is wrong, and the Bureau has the power to stop it,” the senators wrote. “The ProPublica story is a wake-up call that where loopholes in the laws and regulations on debt collection exist, predatory collectors can and will use them. We look forward to working with you over the coming months to make sure the updated regulations put stronger, more effective protections in place.”

The letter also was signed by U.S. Senators Richard Blumenthal, D-Conn., Mazie Hirono, D-Hawaii, Tim Kaine, D-Va., Ed Markey, D-Mass. and Mark Warner, D-Va.

The full text of the letter is available  HERE.