Senate Version of Financial Reform Bill Still Holds Danger for ARM Industry

With lawmakers eager to show voters that they are just as outraged by the bailout of big banks, account receivable management insiders believe the Senate could have its version of the financial reform bill out by month’s end.

“With the votes the way they are, I expect they will pass it within the next week or so,” said Adam Peterman, ACA International’s director of government affairs.

Peterman and other industry representatives are hoping they can influence language in the bill that will be “more reasonable” to the ARM industry. Given the slimmer margins for passing legislation in the Senate, experts say any language that makes it into the bill has a better chance of surviving changes when the House and Senate committees try to reconcile their bills.

The House passed in December its version of financial reform which calls for the creation of a new federal agency that would protect consumers by policing loan products, such as credit cards and mortgages. Although the Senate bill favors a bureau of consumer protection housed within the Federal Reserve, it too would have the same rulemaking authority that a standalone agency would.

“It’s the same thing in a different place,” said Peterman, who added that is ACA is working closely with the National Association of Retail Collection Attorneys (NARCA), the DBA International and the Commercial Law League of America to make adjustments to how this new body will operate.

Peterman said the proposed new regulator would be “dangerous” for the debt collection industry because it would be able to define what is “abusive.” That power, along with the prospect that it may be self-funded and responsible for interpreting the outdated Fair Debt Collection Practices Act (FDCPA), gives the industry more reason for concern, he said.

“Congressional control comes from its power of the purse strings. If an agency doesn’t have to answer to Congress, it loses its need to answer to any higher authority,” Peterman said. “Our concern is that this has not been very well thought out as to how it will affect all the underlying laws (governing the collections industry).”

Peterman said the senate bill holds other threats too. For example, it includes an administratively-imposed fee of up to $1 million per day for enforcing rules against violators, irrespective of a lawsuit. Peterman compared it to a beat officer on the lookout for violators and imposing fines when they find them. The problem, he said, is that the fines are based more on revenues generated by large commercial lenders, not small collection agencies with much less revenue.

“That’s the problem with this one agency over everything. You’re trying to create these guidelines for ABC Collection Agency and a large bank at the same time, and they are very different companies that do different things on different scales, and they are subject to different laws,” he said.

Peterman said the senate bill has been purged of some items that would negatively affect the ARM industry since the debates began.

Lawmakers eliminated proposals that would limit compensation, including bonuses. A proposal calling for injunctive relief that could cause collection agencies to halt operations without proof of wrongdoing also has been improved.

“They now need court approval before they take action,” Peterman said.

At the direction of its membership, ACA also abandoned its attempts to establish a government-backed self-regulatory organization that would require all ARM professionals to be licensed, registered and receive minimum education. But any hopes that lawmakers would delay implementation of new laws affecting the collections industry until Congress addresses the outdated FDCPA statute seems to have fallen on deaf ears, Peterman said.

“It’s my opinion that FDCPA needs to be overhauled, but we are not outwardly pushing for it because I don’t think the Congressional climate is conducive to producing a good bill,” he said. “Hopefully, that will be different in the next Congress.”