How to Grow Your Business in the Age of Compliance: The CFPB & FTC

Lawsuits, regulatory penalties and imminent regulation: collections agencies are in crisis. Since the Consumer Financial Protection Bureau (CFPB) was created in 2010, collection practices have faced intense scrutiny. Enforcement actions at the Bureau have grown rapidly, from just eight in 2012 to 55 last year according to a recent review. [1] There has been almost $500 million in penalties and disgorgements, and over $11.2 billion in consumer relief over that period.

Debt collection has been an issue in about a quarter of these cases, the most often featured sub sector after mortgages. And the consumer relief involved is much higher: $6.7 billion. The CFPB’s own data, meanwhile, shows that debt collection remains by far the most common cause of consumer complaints. Since 2013, it’s attracted an average of 6,820 complaints a month. [2] However, what they don’t say is that most of these complaints are resolved within a very short time by the agency, and many are not complaints at all, but rather requests for additional information on the account.

And it’s not just the CFPB: Debt collectors are also the most likely to see complaints to the Federal Trade Commission (FTC), with which the CFPB has a memorandum of understanding to coordinate law enforcement and rulemaking efforts. Last November the FTC announced a national campaign to tackle poor collection practice, code named “Operation Collection Protection.”

“We’ll continue our aggressive law enforcement against abuse. We’ll also continue to educate consumers about illegal collection practices, and we’ll continue to work with our law enforcement partners, and the debt collection industry to combat unlawful behaviour,” FTC Chairwoman Edith Ramirez warned.

The FTC would build “a national coalition”, she added, including federal and state partners, and local authorities. Following the warning, shares of the two largest US debt collectors fell more than 10%.

The battle is even being fought in light entertainment: Late-night TV host John Oliver recently set up his own debt buying agency to buy (and forgive, on air) $15 million of medical bad debt. The industry needed tighter regulation, he argued.

Regulation coming

Against this unpromising backdrop, Oliver will eventually get his wish. The CFPB released its proposed collection rules on July 28^th, but with the Small Business Regulatory Enforcement Fairness Act (SBREFA) process and additional comment periods, the final rules will probably not go into effect until sometime in 2018. 

New regulation will undoubtedly present challenges, as will the CFPB and FTC enforcement efforts. However, it’s not the end of the world. With the right approach, it could even be an opportunity for growth. By showing your commitment prior to the posting of the final rules and having good, strong policies and procedures in place, you’ll be one step ahead of your competitors who are not doing the same.

For a start, we’ve been here before. In 1977 the Fair Debt Collection Practices Act was greeted with despair from the industry, and some, it’s true, could not meet the expected standards. But many others survived – and thrived. The same is likely to happen again: The poorest performing collection businesses will be forced to up their game, or be weeded out. Others will take their market share. In addition, the crooks who call themselves collectors will continue to be eliminated on a regular basis.

Time to Act

Firms shouldn’t wait for new rules to ensure their staff and vendors are protecting data, treating consumers with respect and acting within the law. Indeed, they’d be advised not to given that past enforcement actions already give a strong steer as to what regulators look for and expect.

Instead businesses should act now to put strong compliance frameworks in place using the guides available from ACA International, the CFPB and others. This will address many of the causes for complaint. It should, for example, include cleaning data to avoid the “no brainers” that cause regulatory headaches: bankrupt and deceased accounts, and active military personnel, for example.  

Have a compliance management complete with compliance tracking, employee training, vendor management and reporting in place.  Additionally, make this information easily accessible by the CFPB if a Civil Investigative Demand (CID) is issued. 

It should also deal with contact: ensuring correct ownership of cell phones and putting in place a process to secure (and withdraw) permission to call. Even then, it is worth giving consumers as many alternatives as possible to communicate directly – whether by phone, email, text, online or web-chats. Given a choice of channel, many will be more willing to talk. If they do go to the CFPB consumer portal, companies should look to respond quickly: Many complaints on the portal are just requests for information. 

Finally, don’t ignore the CFPB or the FTC. If you get a CID, respond immediately. If you can demonstrate a good system of compliance, it will stand you in good stead even then.

Of course, there’s little doubt these are challenging times for collections. For those that put in place a strong system of compliance, however, there’s every reason for optimism. It’s often said that in Chinese script, “crisis” includes the symbols for both “danger” and “opportunity.” It’s not actually true in Chinese. For collection agencies, though, it might be.

About the Author

Linda Straub Jones is the Director of Market Planning for Compliance Products with LexisNexis Risk Solutions.  She has over 30 years of experience in the credit/collections industry and has worked as a collector, skip tracer and paralegal with a collections law firm.  In her current position Linda is the subject matter expert on the collection industry rules and regulations, and helps to strategize in how to help customers solve for those regulations using data. She can be reached at linda.straub@lexisnexis.com

[1] “Consumer Financial Protection Bureau Law Enforcement: An Empirical Review,” Christopher Lewis Peterson, University of Utah, May 17, 2016 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2780791

[2] “Monthly Complaint Report”, CFPB, June 2016

http://files.consumerfinance.gov/f/documents/Monthly_Complaint_Report_-_June_2016.pdf