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Dunning at the Drive-Thru

posted by Adam Levitin

The CFPB announced the first new enforcement action since Mulvaneyshchina.  It's a settlement with an installment lender, Security Group, Inc. (d/b/a under a lot of different names) over unfair debt collection practices.  We now know just how badly a firm has to behave to get in trouble with the Mulvaney CFPB:  

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If I'm reading this correctly, it sounds as if the debt collectors drove up to drive-thru windows at a fast food restaurants where the consumers worked and dunned them through the drive-thru window.  I imagine it went something like this:  "Where my money, ya lousy deadbeat? Oh, and can I have an Extra Value Meal #2 with a large Coke, please?"  

So now we know:  under the Mulvaney CFPB, there's no dunning at the drive-thru.  And debtor's kids seem to be off-limits too, at least the young ones.  It's good to know that there are still some lines that can't be crossed.    

Seriously, though, there's something that's actually very concerning in the consent order.  The CFPB alleged that the Security Group engaged in "unfair" acts and practices, in violation of 12 USC 5536.  "Unfair" is defined in 12 USC 5531(c)(1) as an act or practice that has three elements:

(1) "causes or is likely to cause substantial injury to consumers"

(2) the injury "is not reasonably avoidable by consumers"; and

(3) the injury "is not outweighed by countervailing benefits to consumers or to competition."  

In other words, "unfair" has a balancing test between the injury to consumer and any benefits to consumers or competition.  But the way the CFPB applied this test in the consent order is flat out wrong:  

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The CFPB did a balancing between the injury to consumers and costs and benefits to the defendant.  But the statutory language says nothing about whether there is a less injurious option available to defendants, nor does it require any inquiry into benefit to defendants.  It only requires a balancing of the consumer injury against consumer benefits or competitive benefits. Perhaps one could argue that there is some indirect benefit to consumers or competition from benefits to the defendant (e.g., more aggressive debt collection results in lower costs of credit and greater credit availability, although there's no evidence to suggest that these particular acts have any effect), but that's not what the CFPB alleges.  

I am hoping that this was just carelessness in applying the statute, not a deliberate interpretive choice. But if this is meant as an interpretive choice, it's concerning. First, it is clearly wrong as a matter of plain statutory language (which is puzzling given that the new management at the BCFP are sticklers for being faithful to the statutory language). But more importantly, if this is an interpretive choice, it would set up "unfair" to mean a balancing between harm to consumers and benefit to businesses. Thus, if a business were to make a lot of money by harming consumers only a little bit--say overcharging thousands of consumers $1/month--that would seem to be perfectly "fair" under this interpretation. If so, it's a license for theft. Again, this may well be carelessness, given that it is not consistent with past CFPB policy--the CFPB's Supervision Manual says "An act or practice that causes a small amount of harm to a large number of people may be deemed to cause substantial injury." But if it is something other than mistake, this is very worrying.  


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