CFPB To Intertwine "Right Consumer, Right Amount" Creditor and Debt Collector Rules

Today CFPB Director Richard Cordray announced that the Bureau will be separating the "right consumer, right amount" aspect of its debt collection rulemaking in order to ensure that complexities are properly addressed by intertwining rules for both creditors and their clients. 

At its summer meeting of the Consumer Financial Protection Bureau's (CFPB) Consumer Advisory Board, Director Cordray's opening remarks addressed multiple topics, including:

1. Transparancy in the credit card market
2. CFPB research into credit invisibility
3. The CFPB's mandate to collect data on the availability of credit to small business
4. Debt collection rulemaking

The final item on the list kicks off the process that the ARM industry has been waiting for since the release of last summer's Outline of Proposals Under Consideration and Alternatives Considered for third party debt collection.

The Outline intended to address three core issues:

1. Collecting the right amount from the right consumer
2. Ensuring that consumers understand the collection process and their rights in that process
3. Ensuring that consumers are treated with dignity and respect within the debt collection process

Topics in the Outline were wide-ranging and complex, including:

• Debt substantiation
• Transfer of data from collection agency to collection agency
• Validation notice
• Litigation disclosure
• Time barred debt
• Contact frequency and voicemail messages
• Time, place, and manner of communication
• Decedent debt
• Consumer consent
• Transfer of debt
• Recordkeeping

insideARM covered the details of the proposals and industry reactions extensively (scroll to the bottom of this article for a full list of links to our coverage on this topic).

Following release of the Outline, one key theme echoed by many was the difficulty for third party collectors to adhere to the debt substantiation and data transfer requirements without simultaneous rules also applying to their creditor clients, also referred to by the Bureau as "first" parties.

[Editor's Note: "First Party" collections typically refers to either a creditor collecting on their own debt, or an outsourced firm collecting in the name of the creditor - or owner of the debt. These collectors are viewed as an extension of the creditor, while "Third Party" collectors communicate with consumers under their own name, i.e. first parties will say, "I am calling from ABC credit card company about your account," while third parties will say, "I am calling from CDE collection agency about your credit card account with ABC credit."  However, creditors also sometimes have their own in-house collection departments. This category of collectors is not currently subject to the Federal Debt Collection Practices Act (FDCPA). The theory has been that, because the communications are in the name of the creditor, there is a motivation by that creditor to maintain a good relationship with the consumer as well as the company's reputation -- therefore, the potential for harassment is much lower, and market forces eliminate the need for regulation. The CFPB and consumer advocates, however, have suggested that regulation of this category is indeed needed; that who is doing the collecting is irrelevant, and that consumers require similar protections either way.]

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The Outline of Proposals described above was issued in advance of the required Small Business Regulatory Fairness Enforcement Act (SBREFA) hearing -- a step that by law must be incorporated into rulemakings. Last year's SBREFA hearing covered third party collectors only. The Bureau subsequently announced it would convene a separate panel - and issue a separate outline - to address first party rules. 

Today, Director Cordray said he had listened to the concerns and had decided that one aspect that they had intended to address with the Proposals Under Consideration -- collecting the right amount from the right consumer -- would be best handled by addressing first and third party rules simultaneously. He said that intertwining the rules is the only way to ensure that collectors have the right information. 

Interestingly, this really incorporates a dynamic that is slightly different than "first party" collections -- it addresses the relationship between the creditor and its client, and the creditor's responsibilities in the collection process. In any event, Cordray said that this topic, "right consumer, right amount," will be addressed after the other two.

The Director did not mention timing, however we anticipate that the CFPB will release its latest Regulatory Agenda update at any time now (this agenda is released twice per year - in the fall and spring - but has yet to be released for spring 2017). Historically, as it relates to debt collection, the agenda releases have simply pushed the pre-rule phase out by several months. Based on today's announcement, it seems that we may see something more specific in the coming update.