August 4, 2016

CFPB Releases New Debt Collection Proposals; Narrows Scope to Third-Party Collection Activities Initially

(New York, NY):  The Consumer Financial Protection Bureau (CFPB), in connection with last week’s debt collection field hearing, released an outline of proposals under consideration to “drastically overhaul” the market.

The proposals offer the first real indication of the agency’s approach since late 2013 and split the rulemaking into two parts, addressing first-party creditors and third-party debt collectors in separate proceedings. Together, the overhaul represents the first major update to federal oversight of the industry since the Fair Debt Collection Practices Act (FDCPA) was enacted nearly 40 years ago.

“Both consumers and responsible businesses stand to benefit by improved standards for debt collection,” CFPB Director Richard Cordray said in prepared remarks. “Consumers deserve to be treated with dignity and respect, and businesses should be able to operate fairly and reasonably to collect the debts they are legitimately owed.”

New consumer protections include debt substantiation requirements designed to improve the integrity and transfer of information, expanded disclosures intended to enhance consumer understanding and streamline disputes, and provisions that would curtail “excessive or disruptive” communications. The regulatory overhaul will also seek to clarify how the law applies to modern technologies such as email and text messages – an undertaking Auriemma welcomes to help correct significant blind spots in existing legislation.

Perhaps most significant is the CFPB’s decision to address first-party creditors, including banks collecting their own debts, “soon, but on a separate track.” The initial round of proposals announced last week would apply to third-party debt collectors and debt buyers, businesses currently covered by the FDCPA. The Bureau plans to hold a separate consultation process for creditors in the next several months.

Many in the industry expected the new rules to apply universally following the CFPB’s advance notice of proposed rulemaking (ANPR) in November 2013. That document sought information about first- and third-party collection activities and whether the CFPB should “harmonize” rules across both categories. In comments submitted in response to the ANPR, Auriemma noted that “first-party creditors have a fundamentally different relationship with customers than third-party debt collectors,” and underscored potential unintended consequences associated with expanding the scope of certain FDCPA provisions.

Still, creditors are paying close attention to the initial proposals despite not being covered: banks and other financial institutions comply voluntarily with many provisions of the FDCPA – which the new rules will supplant – and the proposals announced last week will likely be viewed as a precursor to first-party requirements.

Limitations on debt collection communications will be of particular interest to the industry, which has long been waiting for regulators to define acceptable parameters. Initial proposals include bright-line restrictions on both attempts and contacts:

  • One provision would limit collectors to no more than six attempts per account per week to contact a consumer they have not previously reached. After initial contact, a collector would generally be limited to one actual contact per account per week and no more than three attempts.
  • The caps would cover all contact attempts through various phone numbers, email addresses, or postal addresses, including unanswered calls and voicemails.
  • The proposals would also make it easier for consumers to block communications on a particular phone line or during certain hours.

Last week’s field hearing comes ahead of a regulatory review panel scheduled for later this month. Pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA), the CFPB is required to convene such panels to evaluate economic impacts of new rules on smaller market players. A report outlining findings is expected to be published within 60 days of the session. Auriemma will continue to closely monitor the rulemaking process leading up to and following publication of proposed rules.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.

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