Warner & Kaine Call for Action in Response to Abusive Debt Collection Practices Against Servicemembers

WASHINGTON, D.C. – U.S. Senators Mark Warner and Tim Kaine wrote letters to Secretary of Defense Chuck Hagel, Consumer Financial Protection Bureau Director Richard Cordray, and Federal Trade Commission (FTC) Chairwoman Edith Ramirez calling their attention to recent reports published in ProPublica and the Washington Post that detail abusive debt collection practices against servicemembers undertaken by a Virginia-based retailer. In a joint letter with U.S. Senators Jeanne Shaheen, Richard Blumenthal and Jack Reed, Warner and Kaine asked that Secretary Hagel and Director Cordray investigate these claims, educate servicemembers about these practices and look into potential actions to ensure active duty servicemembers are able to defend themselves. In a follow up letter with U.S. Senators  Richard Blumenthal, Mazie Hirono, Tom Udall and Ed Markey, Warner and Kaine urged Director Cordray and Chairwoman Ramirez to close a loophole in the Fair Debt Collection Practices Act (FDCPA) that the company has used to file claims in Virginia and win default judgments against servicemembers vulnerable to abusive loan contracts and who may currently be serving in a different state or country.  

“According to the report, these retailers seemingly included a provision in the fine print of their contracts that allows the retailers to bring suit against servicemembers in certain jurisdictions in the Commonwealth of Virginia, even though they may not be based there or, in fact, ever have been based there,” the Senators wrote to Secretary Hagel and Director Cordray. “We urge you to fully investigate these claims and educate our servicemembers about their rights and the debt collection practices used by these retailers.”

In the letter, the Senators cited the Servicemember Civil Relief Act (SCRA) that was implemented to protect the legal interests of servicemembers who often face unique financial circumstances as a result of their deployment or service to our nation. Specifically, the Senators said, “the SCRA allows servicemembers to devote their full attention to protecting our country and seeks to prevent unscrupulous actors from taking advantage of financial challenges that may result from a deployment.”   The recent report, however, indicates “that certain retailers may have violated the spirit of this law.”

Full text of the letters is below:

August 5, 2014
The Honorable Richard Cordray
Director
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, D.C. 20552

The Honorable Charles T. Hagel
Department of Defense
1000 Defense Pentagon
Washington, DC 20301-1000

Dear Director Cordray and Secretary Hagel,

We write to call your attention to a recent report that certain retailers have undertaken aggressive debt collection actions against active duty servicemembers without affording them, arguably, a real opportunity to defend themselves.  We urge you to investigate these claims, educate our servicemembers about these practices and look into potential actions we can take to ensure that active duty servicemembers are able to defend themselves.

The Servicemember Civil Relief Act (SCRA) protects the legal interests of our servicemembers who often face unique financial circumstances as a result of their deployment or service to our nation.  SCRA allows servicemembers to devote their full attention to protecting our country and seeks to prevent unscrupulous actors from taking advantage of financial challenges that may result from a deployment.

A recent report from ProPublica and the Washington Post alleges that certain retailers may have violated the spirit of this law.  According to the report, these retailers seemingly included a provision in the fine print of their contracts that allows the retailers to bring suit against servicemembers in certain jurisdictions in the Commonwealth of Virginia, even though they may not be based there or, in fact, ever have been based there.  Since many active duty servicemembers are often transferred out-of-state – or even out-of-country – it is more difficult for them to defend themselves.  As a result, the retailers are alleged to have used these cases to force involuntary garnishment of servicemembers’ wages while they are serving our country.  The report also calls into question the adequacy of the defense provided by the courts in these instances.

We urge you to fully investigate these claims and educate our servicemembers about their rights and the debt collection practices used by these retailers.  In addition, we encourage you to determine whether there are any actions we can take to ensure due process for our servicemembers, especially the practice of including contractual provisions that may limit servicemembers’ ability to defend themselves while they are on active duty.

Thank you for your attention to this matter.

Jeanne Shaheen  
United States Senator                                                                            

Jack Reed                                                                
United States Senator

Richard Blumenthal                                                                                                          
United States Senator   

Mark R. Warner                                                      
United States Senator

Tim Kaine
United States Senator 

August 5, 2014
The Honorable Richard Cordray                                      
Director    
Consumer Financial Protection Bureau  
1700 G Street Northwest    
Washington, D.C.  20552    

The Honorable Edith Ramirez
Chairwoman
Federal Trade Commission
600 Pennsylvania Avenue Northwest

Washington, D.C.  20580

Dear Director Cordray and Chairwoman Ramirez:

We write to express grave concern about a loophole in the Fair Debt Collection Practices Act (FDCPA) that has made servicemembers vulnerable to abusive loan contracts, and urge you to use your authority to close this loophole and take any enforcement actions consistent with the law.

Last week, ProPublica reported on a business that appears to be using an FDCPA loophole to sue thousands of servicemembers in a venue where they often cannot adequately defend themselves. In their contracts, the business has required borrowers to agree that any resulting legal action against the borrowers 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 servicemember lives, even if he or she is deployed. The business has reportedly obtained thousands of default judgments against servicemembers who cannot be present and have no meaningful legal representation.

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. As the business brings these actions itself, rather than using an attorney, the FDCPA does not apply. But 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. 

As the National Consumer Law Center makes clear in its UDAP manual, there is ample precedent for this decision in numerous legal cases that have established such venue rigging as unfair under both state laws and in federal circuits. We therefore urge your agencies to issue regulations that expressly forbid such suits against consumers – and the binding clauses that purport to allow this litigation – by original creditors. Courts need to know, unambiguously, that they cannot allow such suits to proceed. We also strongly encourage you to use your enforcement powers to stop such predatory schemes where they exist.

More broadly, we urge the Bureau to review the broad range of unfair, abusive, and deceptive practices by original creditors that the Bureau may capture in its upcoming rulemaking. As a group of Senators noted in a comment letter five months ago regarding the Bureau’s Advance Notice of Proposed Rulemaking on debt collection practices, original creditors often get away with the sorts of harassment and intimidation that are already illegal for third-party collectors under the FDCPA. This is wrong, and the Bureau has the power to stop it. 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.

Sincerely, 

____________________________                                        ______________________________ 

RICHARD BLUMENTHAL                                                            ED MARKEY

United States Senate                                                                        United States Senate

____________________________                                        ______________________________ 

TOM UDALL                                                                                    MAZIE K. HIRONO

United States Senate                                                                        United States Senate

____________________________                                        ______________________________ 

TIM KAINE                                                                           MARK R. WARNER

United States Senate                                                                        United States Senate

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