CFPB Announces New Direction for Debt Collection Rulemaking

Consumer Financial Protection Bureau Director Richard Cordray delivered remarks outlining an important new direction on how the CFPB intends to proceed in developing rules to govern the debt collection market during today’s Consumer Advisory Board meeting in Washington, D.C. Specifically, Director Cordray stated that after considering the feedback received on the third-party Debt Collection Outline of Proposals Under Consideration released in July 2016, the CFPB has decided that the substantiation aspect of the rulemaking, i.e. the proposals related to ensuring debt collectors are collecting the right amount from the right consumer, is best handled by hearing from first and third parties at the same time.

“As we evaluated the feedback we received on the proposals under consideration, one thing became clear. Writing rules to make sure debt collectors have the right information about their debts is best handled by considering solutions from first-party creditors and third-party collectors at the same time … All of these parties must work together to ensure they are collecting the right amount of debt from the right consumer. But breaking the different aspects of the informational issues into pieces in two distinct rules was shaping up to be troublesome in various ways,” stated Director Cordray.

To implement this change, Director Cordray announced that the CFPB will consolidate all of the “intertwined” substantiation issues in a separate first-party creditors’ rule so that the CFPB can address the “entire set of considerations market-wide.” According to Director Cordray, this decision will allow the CFPB to move forward more quickly on other aspects of the third-party debt collection rulemaking. This means the CFPB will now be focusing its third-party rulemaking efforts in the near term on rules to ensure that consumers understand their rights, e.g. through improved disclosures, and rules to ensure that consumers are treated with respect, especially when it comes to communications with debt collectors.

Director Cordray’s announcement marks a critically important change that is essential to improve the debt collection rulemaking process and one that ACA International has been very strongly advocating for since the CFPB released its Debt Collection Outline of Proposals. ACA has consistently asserted that third-party debt collectors cannot assess the CFPB’s substantiation proposals to provide meaningful input without knowing how the CFPB intends to regulate first parties’ obligations. In addition, first-party creditors possess information and data that is central to the CFPB’s debt collection rulemaking that third parties simply do not have.

This precise issue was also a main focal point of ACA members who served as Small Entity Representatives (SERs) during the Small Business Advocacy Review Panel that took place in August 2016 on the CFPB’s proposals. Like ACA, the SERs strongly urged the CFPB to obtain joint feedback from first and third parties on the proposals, stressing that successful debt collection practices rely upon communications between the first-party small businesses who have outstanding accounts receivable and small third-party debt collection agencies hired to collect the owed debt.

Given these issues, ACA is pleased that the CFPB has listened to the concerns of the debt collection industry in this regard, seems to possess a better understanding of the inextricably-linked relationship between first and third parties when it comes to substantiation, and has made the decision to handle this aspect of any new debt collection rules simultaneously. ACA will continue its advocacy efforts to ensure that the CFPB takes any additional steps to adjust its rulemaking process to reflect the operational realities of the debt collection industry as part of its larger strategy to advocate for fair, balanced, and well-reasoned debt collection rules.

Posted in Debt Collection.