The Hot Topic of Compliance Remains Front-And-Center for ARM Professionals

Mike Ginsberg

As we all get ready for a fall travel season full of conferences and business meetings, the issue of compliance will undoubtedly be at the top of everyone’s list of discussion topics.  Credit grantors, debt buyers, collection agencies, collection attorneys and vendors alike are adjusting to the new age of Consumer Financial Protection Bureau (CFPB) oversight, the onslaught of new state compliance requirements, pending legislation and regulation at the federal level and recent enforcement actions of the Federal Trade Commission.

Rozanne Andersen, who is widely recognized as a leading authority on compliance and regulation in the ARM industry, highlights the most pressing compliance issues in Kaulkin Ginsberg’s Mid-Year Report.  Some of her findings include:

The New Sheriff

On the heels of last fall’s announcement of the definition of Larger Market Participant (LMP) for the ARM industry [firms that generate more than $10 million in fees from non-healthcare collections], the CFPB has completed three LMP examinations. Policies, procedures, complaints, and calls were analyzed and IT departments were turned upside.   The exams varied in duration with the longest exam lasting approximately 11 weeks conducted by ten examiners.

While many of you who do not meet the definition of LMP have breathed a sigh of relief because you will avoid direct supervision by the CFPB, others who do meet the definition have voiced concern over the CFPB’s slow start. The CFPB estimates there are 175 LMPs in the ARM space. ARM executives for the LMPs worry that unless the pace of the CFPB’s examination schedule picks up it could take years before the first round of examinations is completed.  However, given that the CFPB has an extensive enforcement staff, including numerous experienced regulatory attorneys and paralegals, companies subject to CFPB jurisdiction should expect CFPB enforcement activity to substantially increase in the coming months.

The Client’s New Role

The collection practices of supervised creditors are now being examined by the CFPB as is the oversight they exercise over their collection agency partners and the debt purchasers to which they sell consumer debt. As such, we are seeing a new deputy, a new law enforcement official if you will, in our space. Creditors like never before are auditing their agencies, performing on site due diligence exams, monitoring complaints, mandating compliance requirements and in some cases, assessing monetary fines on their collection agency partners that violate the creditor’s compliance requirements.

The Quiet Giant

The Federal Trade Commission, once the sole law enforcement agency of the collection industry, remains very active on the law enforcement front but also assists the CFPB in identifying collection practices that pose substantial harm to consumers, ferreting out the bad actors and recommending legislative or regulatory action. The most notable enforcement action was announced on July 16, 2013 with regard to what is considered the largest collection agency in the world – NCO Group.  In this action against NCO Group, the FTC levied the largest civil penalty it has ever obtained against a third party debt collector.

Other Focus areas include TCPA, call recording, debt documentation to name a few.  Also, select states and cities passed legislation this year that places new duties on debt collectors, debt purchasers and those who collect purchased debt.  Moreover, the Chair of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, U.S. Sen. Sherrod Brown (D-Ohio), held a hearing on debt collection on July 17 to shed light on the industry’s practices. Building on past efforts to curtail abusive debt collection and credit reporting practices, Brown has also urged the CFPB to use its authority under the Fair Credit Reporting Act (FCRA) to investigate and curtail consumer abuses in the credit reporting industry. The hearing will reconvene in September.

It is critical for participants in all facets of ARM to remain focused on developments on the dynamic compliance front.

For more information, request a copy of our Accounts Receivable Management Industry Report, 2013 Midyear Review.