A new article by Todd Zywicki for the Mercatus Center at George Mason University urges the CFPB to consider the “unintended consequences” of new debt collection regulations and conduct a careful cost-benefit analysis before imposing such regulations. Mr. Zywicki is a law professor at George Mason and Senior Scholar with the Mercatus Center.
In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking in which it solicited comments on an array of issues relating to the debt collection practices of third-party debt collectors and debt buyers as well as those of creditors collecting their own debts. In its Spring 2015 rulemaking agenda, the CFPB indicated that further prerule activities, which are expected to involve the convening of a SBREFA panel, would occur in December 2015.
Among the unintended consequences noted by Mr. Zywicki is the risk that prohibitions or limits on communications using newer technologies (such as email and text messages) will result in creditors and collectors escalating to more intensive collection actions earlier in the debt collection cycle. He also observes that a ban on the collection of time-barred debt could have unintended consequences for consumers beyond the “obvious economic effect of leading to increased interest rates and a reduction in lending volume, especially for higher-risk consumers.” He comments that such a ban is likely to increase the number of lawsuits filed against debtors immediately before the statute of limitations expires.
Mr. Zwicki contends that because many restrictions on collections do not necessarily benefit consumers, any debt collection regulations issued by the CFPB should be based on a careful cost-benefit analysis and consideration of changing consumer lifestyles and communications technologies. He asserts that before adding new regulations, the CFPB “should take care to precisely identify what market failure it believes to exist; whether government regulation is the most effective means of redressing that market failure; and whether, in fact, government regulation can be written and implemented in such a manner that the marginal benefits exceed the marginal costs to consumers. Each of these steps requires careful analysis.” For example, with respect to the debt-buying industry, he notes that the industry has established a self-regulatory certification system for debt buyers and many large debt sellers have announced that they will sell their debt only to firms that are certified under that system. He suggests that as a result, market pressure and voluntary action, combined with oversight from other regulators, might already be addressing many of the CFPB’s concerns.
