In our CFR Blogs, we focus on rulemaking at the CFPB. We think it is important to keep our readers up to date on matters affecting financial services companies. And, we generally try to avoid speculation about the role of politics.
With this said, it is clear that the CFPB has been laying low since the inauguration of President Trump and the ascendency of a Republican Congress. There are many theories as to why the agency has been quiet—none more telling than the bureau's concern that Congress will reject any final regulation promulgated by the CFPB in a number of areas, including small dollar lending, consumer arbitration and debt collection. Once a promulgated regulation is rejected by Congress, the CFPB cannot resurrect it even for modification. The Congressional Review Act, a seldom used 1996 law, appears to mandate just this result.
We report to you that Director Cordray reviewed the work of the Bureau in the June meeting of the Consumer Advisory Board. One of the topics that the Director addressed was his intention that the CFPB proceed to formulate new rules to govern the debt collection market. The Director said:
“Debt collection is still the single largest source of complaints to the federal government of any area of consumer finance. People cannot ‘vote with their feet' if they experience problems because they have no choice over who collects their debts. This makes them less able to protect themselves from harmful practices, which is a classic example of what economists would term a ‘market failure.'”
The Fair Debt Collection Practices Act (“FDCPA”), which is the only federal law that directly impacts debt collection was originally passed in 1977. Since then, no regulations have been promulgated in connection with the law. Further, no federal agency was given the authority to interpret and define the broad prohibitions against unfair or unconscionable debt collection conduct, until the advent of the CFPB. The Director asserts that regulation of debt collection is a paramount task for the CFPB to complete.
But, there is one substantial problem for the Bureau to overcome: the FDCPA does not apply to 1st party debt collectors—those who are collecting debt that they originated. Therefore, the CFPB is having to “dance a little side step” in its efforts to regulate debt collection. Its approach seems to be to create what observers have come to term “right consumer, right amount” rules that will apply across the debt collection market—that is having application to and consequences for both 1st party debt owners and 3rd party debt collectors.
By requiring the focus of all parties in the debt collection process on the integrity of data—its completeness and accuracy—Director Cordray seems convinced that the CFPB can accomplish meaningful reform of the debt collection industry in one single FCDPA regulation, without the need to utilize its general rule making authority under the Unfair, Deceptive or Abusive Acts or Practices (“UDAAP”) rulemaking provisions of The Dodd-Frank Act.
This is actually a gamble of some gravity. If a wary Congress sees this effort as an “overreach” by an unpopular Director, the entire effort at debt collection regulation may go down in flames.