On October 24, 2012, the CFPB announced that, beginning January 2, 2013, certain debt collection agencies and debt collection firms will come under federal supervision for the first time. In the announcement, the CFPB also gave debt collection agencies and law firms advance notice that the CFPB’s examiners will be assessing every aspect of their practices and procedures. Director Cordray warned, “[w]e want all companies to realize that the better business choice is to follow the law—not break it.” Based on the CFPB’s recent history, this warning should not be taken lightly and strongly suggests that the CFPB may be preparing enforcement actions against certain debt collection agencies and debt collection attorneys.
In going after lawyers, is the CFPB ignoring legislative history? Back when Dodd-Frank was being debated, Democratic Congressman John Conyers emphasized in a floor speech in June 2010 that the new CFPB would not interfere in the practice of law: "giving the new Bureau authority to regulate the practice of law,” Conyers said, “could materially interfere with and jeopardize sensitive aspects of the attorney-client relationship." He concluded that "[a]ny regulation from a new source would unavoidably conflict with the existing rules and lines of accountability….Our committee was determined to avoid any possible overlap between the Bureau's authority and the practice of law."
Law firms have been regulated primarily by state bar associations, not federal consumer agencies. When the rule was first proposed, the inclusion of law firms met with stiff resistance from the American Bar Association, the Commercial Law League of America and the National Association of Retail Collection Attorneys. The CFPB rejected those pleas.
Director Cordray’s comments regarding debt collection agencies and debt collection firms are nearly identical to comments he made shortly before the CFPB announced a series of settlement agreements with Discover, American Express and Capital One over alleged deceptive business practices involving consumers that totaled more than half a billion dollars in fines and refunds to consumers. In examining debt collection agencies, the Bureau advised that it would also be assessing whether these agencies engaged in similar deceptive business practices. It seems highly unlikely that the CFPB would have made this bold pronouncement if it was not already planning enforcement actions against certain debt collectors.
The CFPB’s reach will be extensive: While extending only to those agencies and law firms with over $10 million in annual receipts from collections—which accounts for just 175 of the 4,500 collection agencies—that segment represents over 60 percent of the debt collection industry’s annual receipts.
Notwithstanding the apparent intentions of Congress, the CFPB rule is now final. Stay tuned to the CFPB-Lawblog for updates, as we’ll continue to monitor enforcement actions in the debt collection arena.