Litigation and post-judgment remedies as a collections strategy fell out of favor (for good reason) during the COVID-19 pandemic, but as the economy normalizes, creditors and lenders are using it again.
But in 2022, there was a consent order between the CFPB and a large bank that dealt with garnishments, specifically, cross-border garnishments, according to Chris Willis, of Troutman Pepper. A cross-border garnishment occurs when a bank freezes a customer’s account or otherwise charges garnishment fees as a result of the garnishment orders of an out-of-state court.
This consent order led to confusion among financial institutions.
But how concerned should banks and lenders really be about cross-border garnishments and the consent order?
In a recent episode of The Consumer Finance Podcast, brought to you by Troutman Pepper, Chris Willis lead a discussion with Lori Sommerfield and Mary Zinsner about just this topic.
Here are three critical takeaways from their discussion:
- Financial institutions need a compliance program for their garnishment processes. This includes reviewing all garnishment processes, “not only about cross-border garnishment law issues, but also compliance with state laws generally,” according to Sommerfield. State garnishment laws can change year-to-year, and so it’s critical to include this as part of your compliance management process.
- State garnishment law compliance is an area of focus for the CFPB. But it’s going to be tough to see how big of an effect the Order has on garnishment as a collection strategy. State garnishment law compliance “is clearly an ongoing topic of interest,” for the CFPB, says Sommerfield, but it’s difficult to tell just how much of an impact the consent order had because garnishments are dealt with at the district court level.
- Tracking cases is the only way to understand the impact. Both Zinsner and Sommerfield recommend having a 50-state garnishment law survey, and keeping it up to date as part of your compliance management system, and setting notifications when garnishment decisions involving this consent order are issued.
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