The Big Wait for the Consumer Financial Protection Bureau’s Next Move

The Consumer Financial Protection bureau has placed the topic of debt collection at the forefront of their priorities as soon as the period of Advance Notice of Proposed Rulemaking ends.  What this means for the debt collection industry is that 2014 might become one of the most important years for the collection industry since the FDCPA was passed in 1977.

Some of the changes announced by the agency include increased regulations for debt collection practices.  These regulations could include restrictions placed on the originating creditors, as well as better accuracy on forms or documents that are shared between collection parties, debt buyers and settlement companies.  The potential also exists for updated rules on the limit and scope of communication that must transpire between a collection agency or collection attorneys and a debtor, including communication via text messaging. 

The biggest changes, according to senior CFPB officials, will likely occur for creditors that both originate -and collect on debt.  Currently, the Fair Debt Collection Practices Act only places restrictions on third-party collectors.  These changes proposed this year by the CFPB could affect first-party creditors in much the same way that the Fair Debt Collection Practices Act affects current third-party collectors.  It could also give the Consumer Financial Protection Bureau the authority to supervise larger debt collectors that are not affiliated with a bank; although banks are also under fire for their current debt collection practices, as well. 

This past July, American Banker interviewed Paul Joseph, the director of business development for McCarthy, Burgess & Wolff, a debt collection firm.  In that interview, Joseph stated: “You can't ignore this.  It's a freight train.  I have no doubt they're going to eventually come after everything [with regard to consumer debt].” If his conclusions are true, the ARM industry might be in for a rude awakening when the dust settles and the new regulations are in place.  

Are Debt Buyers Reluctant To Buy Paper Because Of Regulatory Compliance Issues?

With tens of millions of Americans owing an average of $1400 to $1500 in debt collection, business for collection agencies and law firms is booming.  Purchasing debt for four to six cents of each dollar owed can prove to be quite lucrative.  However, the Consumer Financial Protection Bureau has recently implemented several new regulations.  These regulations may dampen the enthusiasm of buying paper debt for some collection agencies.  Many of the new regulations apply to mortgage lenders but some also apply to regular non-mortgage debts.  The CFPB has produced extensive information in this regard that can be downloaded from the internet.

New Collection Tactics

Because of new consumer protection, collection agencies and law firms are stepping up their “bedside manner” when it comes to collecting debt.  All investors and companies that purchase debt are more reluctant to purchase debts because of the new regulations.    Some agencies are not procedurally equipped to be compliant  rather than just demand payment.  Law firms may be able to deal with such changes because more effectively since they are skilled at reading and interpreting the new laws and regulations than straight collection agencies.  Attorneys deal with many different clients all the time and are therefore more flexible in gauging their assistance accordingly.

Law Firm Vs. Agency

Any new regulation handed down from the government, whether state or federal, is bound to include lots of paper work and even more reading.  Attorneys read, among other things, for a living.  Their eyes and minds are trained to see flaws and benefits in any legal document immediately.  Because of their extensive exposure to legal documents, they are much quicker and much better at adhering to new laws, thus avoiding hefty fines for non-compliance.  Law firms still will be very effective in collecting debt on behalf of their client, the creditor.