For the consumer debt collection industry, the federal regulators have arrived. In February 2013, the Consumer Financial Protection Bureau (CFPB) began supervising roughly 175 large consumer debt collectors, defined as those averaging more than $10 million in annual debt collection receipts. CFPB's regulations and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) not only require supervision of roughly 60 percent of the collection market, but also allow CFPB to investigate service providers, as well as any covered collector the CFPB determines is risky. In anticipation of CFPB action, debt collectors should review their electronically stored information (ESI) policies, recognize that some Dodd-Frank standards are new and untested and ensure that their information on consumers is as accurate and adequate as possible. Debt collectors can begin with the following steps.
First, debt collectors and other businesses supervised by the CFPB should consider adopting policies for ESI designed to foster effective preservation of privileged information and quick responses to potential CFPB requests. The CFPB appears to have relied upon and adapted the Federal Trade Commission's (FTC's) rules governing the production of ESI and the withholding of privileged information in response to a civil investigative demand (CID). Debt collectors should develop policies to prepare for quick responses to CIDs because, unlike FTC regulations, CFPB regulations disfavor extending the time to modify or set aside CIDs beyond 20 days. In light of the need to petition quickly, consumer debt collectors should review their policies to increase their organizational speed and ability to assemble and catalogue ESI, which may form the basis for setting aside or modifying a CID.
Second, debt collectors should anticipate growing pains in teasing out some of Dodd-Frank's standards. For example, the CFPB will seek to ferret out "abusive" conduct, which is evaluated under a fairly subjective reasonableness test. Another stated focus of the agency is identifying activities that generally pose risks to consumers. To that end, the CFPB has instructed its examiners to assess compensation structures based on whether they believe employee incentives are risky.
Third, debt collectors should prepare for the CFPB's emphasis on the adequacy and accuracy of consumer debt information. Prior to CFPB regulation, the FTC reached a $2.5 million settlement with a consumer debt collector related to inaccurate and incomplete information used to collect consumer debts. Picking up where the FTC left off, CFPB Director Richard Cordray in 2012 emphasized the Bureau's plans to scrutinize the accuracy of debt information used by consumer debt collectors.
Regardless of size, all consumer debt collection businesses need to be aware of their new exposure to federal investigation by the CFPB. While some new requirements remain untested, the CFPB will likely exercise its new supervisory authority over consumer debt collectors with vigor.