On Thursday, June 8, 2017, during a public session of the Consumer Financial Protection Bureau's (CFPB) Consumer Advisory Board meeting, Director Richard Cordray announced that the CFPB was changing course on one key aspect of its debt collection rule making.
In July 2016, the CFPB issued its outline of proposals under consideration for the regulation of debt collection. (See June 28, 2016 alert). The outline came in advance of a Small Business Review Panel ("Panel") to gather feedback from small debt collection industry representatives. The Panel convened in late August 2016. One of the key elements in the outline was a requirement that debt collectors substantiate the debt, in other words that debt collectors had the right supporting information about the debts they were collecting. While this sounds sensible, in practice it is problematic; verifying the accuracy of the debts on behalf of their first-party clients (the original creditors) is potentially impossible when collectors have no assured access to underlying debt documentation.
During the day-long Panel proceedings, many small entity representatives (SERs) from the third-party debt collection industry highlighted the deficiencies of the proposal. The SERs submitted detailed written comments as well.
After reviewing the comments and submissions, the CFPB has now concluded that issues of "right consumer, right amount" should be a rule geared more toward first-party creditors instead of third-party debt collectors. The CFPB will still move forward with its remaining proposals for the third-party debt collectors, which will include consumer understanding initiatives and limitations on consumer communication. A notice of a proposed rule is still some time away due to continuing research.
The CFPB's decision is a win for a debt collection industry that sees few victories. For one, it marks one of the rare occasions in which the CFPB has changed course on policy in the midst of rulemaking activities. It is one of the few instances in which industry concerns were not only listened to but acted upon by the CFPB. The decision to change course on the issue of substantiation shows recognition by the CFPB that certain requirements must involve solutions from first-party creditors in addition to the third-party collectors actually doing the collection. Consumer advocates are also pleased with the decision.
These events also show that effective and strategic advocacy, especially during the Small Business Review Panel process, is critical to ensuring workable rules from the CFPB. Any industry subject to CFPB rulemaking should not discount these and other important advocacy opportunities.
For first-party creditors, the time is now to consider issues of data integrity and effective collaboration with debt collectors they hire. Creditors will now have to consider documentation issues at the front end of the initiation of the loan in order to substantiate it on the back end. Proactive efforts in advance of the upcoming rulemaking on a first- and third-party substantiation program should begin now. The CFPB appears to be moving toward the realization that we all live in a credit based eco-system and a holistic approach, involving all stakeholders in the debt collection market, is warranted.
