CFPB: No "Crisis" in Debt Collection, But Problems Need Correcting

The Consumer Financial Protection Bureau (CFPB) showed its strong support for the Consumer Federation of America (CFA) at the CFA’s 2013 Financial Services Conference entitled, “The Consumer in the Financial Services Revolution.”

CFPB Director Richard Cordray delivered a keynote address during which he stated that, “The Consumer Federation of America has been one of our foremost and fiercest allies for consumers … It is a special treat for me to speak today with a group that is so closely aligned to our own goals.” The full text of Cordray’s prepared remarks is available here.

In addition to Cordray, CFPB staff was strongly represented on a number of the panel discussions at the CFA conference.

Tom Pahl, CFPB Managing Counsel for Regulations, participated in the panel discussion on, “Debt Collection Abuses and Remedies.” The panel also included Jessica Whitney, Assistant Attorney General – Iowa; Jay Gonsalves, President – Action Collection Agency of Boston and President – ACA International 2008-2009; and Claudia Wilner, Senior Staff Attorney – New Economy Project.

Information availability: Pahl described how the information transferred between an originating creditor and a debt buyer is usually controlled by contract. Pahl observed that although both originating creditors and the debt buyers have the same three options in dealing with a debt (pursue in-house collection efforts, contract with a third-party debt collector, or sell the debt) and both types of entities are driven by the same incentive to maximize profits; debt buyers may not have the same information about the underlying debts to make these decision as originating creditors.

Debt collection crisis: Pahl commented that he did not perceive any sort of immediate “crisis” with the current state of debt collection, but he does believe that there are some persistent problems in the industry.

Enforcement: Pahl emphasized that the answer to persistent problems with debt collection practices is tougher enforcement. He argued that federal and state laws and regulations must have teeth so that there is a real deterrent for bad actors. Pahl noted that although the CFPB’s supervisory authority is limited to larger participants in the debt collection market, the CFPB’s rulemaking and enforcement authorities are not limited by size.

ANPR: Pahl encouraged the audience to participate in the CFPB’s debt collection rulemaking by submitting comments to the recent Advance Notice of Proposed Rulemaking (ANPR). He noted that the ANPR was intentionally broad as the CFPB considers what areas would be appropriate for federal regulation. Specifically, he noted that the CFPB wants to craft regulations that would systematically improve the entire debt collection system (creditors, debt buyers, third-party debt collectors) rather than impacting any one particular group. In the near term, Pahl hopes that the CFPB will come up with rules that make sense, create an environment where creditors know what their obligations are, and provide incentives so that consumers are treated better. Additional information about the ANPR is available here.

Time-barred debt: Pahl expressed a strong interest in knowing why consumers pay debts, whether through legal or moral obligation. He observed that in his experience, consumers pay debts because they are worried about being sued or that the debt will appear on their credit report. Without adequate disclosures about the consequences of paying a debt, consumers would be paying the debts for reasons that are not valid. Pahl wants consumers to make well-informed decisions on whether to pay, especially when the consequences of paying a time-barred debt is not the same as paying a newer debt.

Corey Stone, CFPB Assistant Director for Deposits, Cash, Collection, and Reporting Market, participated on a panel to discuss, “Credit Report Inaccuracies: Problems and Solutions.”

Furnishers: Stone commented that the CFPB is focusing on data flows and the elements that drive accuracy in credit reports. He took note of the principle, “garbage in – garbage out,” indicating the CFPB’s awareness that furnishers that supply inaccurate information to consumer reporting agencies (CRAs) may be responsible for some of the inaccuracies in credit reports. Stone observed that the CFPB’s supervisory authority over the major creditors that furnish the majority of the tradelines contained in credit reports began on “Day 1.” Stone stated that the CFPB has already begun examining the FCRA operations among these furnishers.

Supervision: Stone observed, however, that the CFPB is still in the process of building up its supervision program for the credit reporting industry. The CFPB was unable to recruit examiners with deep experience in the industry, and so the CFPB has had a “big lift” to put together the examination guides and to train examiners on relevant FCRA issues.

Matching algorithms: Stone stated that the CFPB is seeking additional information about the matching algorithms being used by the national CRAs (Equifax, Experian, and TransUnion) to assess how data elements may vary from one individual to the next and across furnishers. Corey noted that variations in how information can be matched to a consumer credit file can get “messy” and impact accuracy.

File disclosures: Throughout the panel discussion, there was an emphasis on the need for consumers to review their credit reports, whether through annualcreditreport.com or by other means, such as credit monitoring. Stone related an anecdote about his own frequent rejection from receiving his credit report through annualcreditreport.com due to having the same name as his father. Stone believes that there will need to be some evolution in this part of the market as the standards for identification verification should not be as stringent as the matching algorithm for entering data into a consumer credit file.

Consumer disputes: Stone noted that an important element of accuracy is the consumer dispute process. Stone stated the CFPB’s complaint system has been a useful tool to assist the CFPB to identify which problems need to be tackled next.

Next steps: With regard to accuracy, the CFPB will be considering the best methodology to track accuracy issues rather than relying on consumers to request their free annual credit reports.

Kim Phan provides guidance to Ballard Spahr LLP clients on Consumer Financial Protection Bureau activity. Ms. Phan’s experience includes preparing nonbank companies to participate in the CFPB consumer complaint system, submitting public comments on the larger participant rule for the debt collection market, and responding to CFPB supervisory activity. She supports nonbank company interactions with the Federal Trade Commission’s Bureau of Consumer Protection, including responding to investigations and drafting testimony for FTC events.