I have spent the last two weeks preparing for our upcoming debt collection training webinar. This is an enormous topic to tackle—which is part of the reason why we waited until the 10th installment of our Sirote CFPB Compliance Series to deal with the subject matter. Put simply, debt collection is hard.
For the last forty years, debt collection has been a legal hornets' nest. The Fair Debt Collection Practices Act (FDCPA), the primary federal debt collector's law, has created decades of litigation. In 2015 alone, the CFPB reported almost 12,000 FDCPA cases in the court system. This comprehensive body of statutory and case law mainly regulates debt collectors and companies engaged in debt-collector-like behavior (for example, default debt buyers). On top of that, many states like California, have their own body of debt collection laws.
And then the Dodd-Frank Act happened…
In 2010, Congress passed, and President Obama signed, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which empowered the newly created Consumer Financial Protection Bureau (CFPB) with additional regulatory oversight of the debt collection industry. Since then, the CFPB has taken charge of regulating companies engaged in debt collection—but not just traditional debt collectors. The CFPB is using its broad authority to designate Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) to focus on original creditors collecting their own debts. These “original creditors” generally have been exempt from federal debt collection laws.
Debt collection is at the top of the CFPB's priority list. Looking at the CFPB's consumer complaint data, debt collection has been the most-complained-about area over the last few years, and it isn't even close. So, what are they doing about it:
- Effective January 2013, the CFPB identified those debt collection companies subject to supervision in its larger market participant rule
- In July 2013, the CFPB issued a bulletin reinforcing its UDAAP authority over debt collectors and original creditors under the Dodd-Frank Act
- In September 2015, the CFPB announced settlements with two of the largest companies in the debt-buyer industry
- In December 2015, the CFPB issued another bulletin specifically dealing with in-person debt collection
- In July 2016, the CFPB outlined its proposals for FDCPA regulations, paving the way for the first set of FDCPA regulations
- In January 2017, the CFPB published a comprehensive study of consumer interaction with the debt collection industry
In sum, the CFPB has expended a great deal of time, effort, money and energy on debt collection. But, is it too much? Is the CFPB too focused on an area with an already-robust statutory and case law framework? My interpretation of the facts indicate not.
Don't get me wrong, the CFPB's approach certainly has its problems. Just last month, ACA International, a trade group for the debt collection industry, published a white paper outlining the flaws and shortcomings in the CFPB's January 2017 debt collection study. Many continue to criticize the CFPB's unchecked use of its UDAAP authority as being overreaching. But, after spending the last two weeks researching debt collection from different perspectives, it is clear to me there is a problem that needs fixing.
From the consumers' standpoint, collectors often use unscrupulous tactics or try to collect unsubstantiated debt. The CFPB data shows that the most common complaints are that collectors contact consumers for debts they do not owe, harass consumers or make false or misleading statements, threaten to take illegal actions, fail to send legally required notices, and impermissibly contact and share information with others.
On the other side, creditors find it increasingly difficult to collect consumer debts, and the “good” collectors in the industry are being grouped-in with the bad actors. Further, federal courts have developed sometimes-inconsistent case law, so collectors operating in multiple states may be subject to different FDCPA interpretations. Creditors often say collection is “more art than science.” All of this makes debt collection—an already challenging area—even more challenging. When default rates and collection costs rise, credit becomes more expensive for consumers.
The bottom line is we should expect to see the CFPB continue to focus on consumer debt collection for the foreseeable future.