If you are a collection professional working
for a creditor, debt buyer, collection agency or collection law firm, and you
have not yet added the website for the Consumer Financial Protection Bureau (CFPB) to the favorites on
your web browser, it is high time that you do so. The CFPB has been publishing lots of
information this year, and has laid out some details of how it plans to
directly or indirectly regulate virtually all aspects of the collection
industry. This article is hardly
comprehensive, but here are a few highlights.
On February 17, 2012, the CFPB published its Proposed Rule
Defining Larger Participants in Certain Consumer Financial Product and Service
Markets. Entities in the debt collection market that
generate $10 million in annual receipts from consumer collection activities
would be deemed a “larger participant” in the market. This “larger participant” designation would subject
those entities to direct supervision by the CFPB. The Bureau estimated that approximately 175
collection entities would qualify as “larger participant” under the Proposed
Rule. As of the date of this writing,
the CFPB has not published a Final Rule relating to larger participants in the
debt collection market. If your company
does not meet the $10 million “larger participant” threshold, however, you
should not feel left out in the cold.
The CFPB has several other methods that it plans to employ to supervise or
otherwise regulate members of the collection industry, and some of them are
discussed below.
On March 20, 2012, the CFPB issued its first Annual Report to
Congress on the Fair Debt Collection Practices Act. In it, the CFPB explains that it now has
primarily responsibility for administering the FDCPA, including rulemaking and
supervisory authority, and that it now shares overall enforcement authority
with the FTC and other federal agencies.
The CFPB emphasizes its belief that “consumer complaint data provides
useful insight into the acts and practices of debt collectors” and that it will
continue the FTC’s practice of gathering consumer complaints about members of
the collection industry through its website, via telephone, mail, faxes and by
referral from other agencies.
On April 13, 2012, the CFPB released its Bulletin 2012-03
relating to Service Providers. In
it, the CFPB explains its position that it not only has the power to supervise
and examine banks and non-banks, but it also may supervise and examine “service
providers” for those entities. A
“service provider” is any entity that “provides a material service to a covered
person in connection with the offering or provision by that person of a
consumer financial product or service.”
It therefore appears that the CFPB believes that it has the power to
supervise and examine virtually any entity operating in the consumer collection
industry. In addition, the CFPB makes
clear in the Bulletin that it expects all supervised banks and nonbanks to
ensure that their service providers implement effective processes to comply
with all statutes and regulations governing the collection process to avoid
unwarranted risks to consumers. Thus,
the CFPB expects supervised entities to conduct due diligence on all service
providers to ensure they understand and can comply with the laws, to review the
compliance policies and procedures used by their service providers and their
training and oversight practices, to include contractual provisions with
service providers designed to ensure compliance, to establish monitoring
processes designed to determine compliance by service providers, and to take
prompt action, including termination, to address any problems identified by the
monitoring process.
On May 25, 2012, the CFPB published its Proposed Procedural
Rules to Establish Supervisory Authority Over Certain Nonbank Covered Persons
Based on Risk Determination. Here, the CFPB
sets out the method by which it will supervise any nonbank covered person who
the Bureau has reasonable cause to believe “is engaging, or has engaged, in
conduct that poses risks to consumers” in connection with consumer financial
products or services. Generally
speaking, the CFPB will serve the company with a notice explaining why it has
reasonable cause to believe the company presents a risk to consumers. If the company disagrees, it will have 20
days to file a written response under penalty of perjury explaining why it
feels the CFPB is mistaken and why it should not be subject to
supervision. The response must be
accompanied by all records and documents that support the company’s position. The company may also make a request for the
opportunity to supplement that response verbally. In the alternative, the company can simply
agree to consent to supervision by the CFPB.
It seems clear that the consumer complaints that the CFPB plans to
compile concerning members of the collection industry will be the genesis for
the CFPB’s determination of its “reasonable cause to believe” that an entity
presents risks to consumers.
If you have been worried about how your
attorney-client privileged documents are going to be handled when the CFPB has
arrived, keep worrying. On July 5, 2012,
the CFPB issued its Final Rule on
Confidential Treatment of Privileged Information. In it, the CFPB makes clear that if it asks a
supervised or regulated entity for documents or information – even if it “may
be subject to one or more statutory or common law privileges, including the
attorney-client privilege and attorney work product protection” – it will
expect the documents and information to be produced. The CFPB claims that you should not worry
about this, however, because in its opinion, giving privileged documents and
information to the CFPB will not result in a waiver of the attorney-client
privilege. It is unclear whether the
CFPB is correct on this point, however, and legislation designed to clarify the
issue has not been passed as of the date of this writing. The CFPB also states that it will not
“routinely” share the confidential information it gets from you with law
enforcement agencies, including State Attorneys General, but that it reserves
the right to do so in some circumstances.
It should be clear that debt collection will
be a major focus of the CFPB now that the agency is up and running. Collection professionals should watch for
more CFPB rules, guidance, enforcement actions and other developments in the
coming months.
