What Every Business Should Know About the New CFPB Rules and How They Will Change the Debt Collection Process

The Consumer Financial Protection Bureau is broadening its reach witha recently released Advance Notice of Proposed Rulemaking meant to cover a wide spectrum of topicsconcerning debt collection and how the process of debt collection should be handled by a collection agency or collection attorney. 

According to CFPB’s Robert Cordray, “Debt collection . . . has more salience today than perhaps at any time in our country’s history … and is quickly becoming the topic that draws the most complaints of all of the consumer financial products and services covered by our consumer response team.”  Cordray continues to describe regulations adopted by the CFPB that prohibit “unfair, deceptive or abusive” acts related to collecting debt. 

Earlier in 2013, the CFPB was given oversight of any company that takes in more than $10 million in receipts related to collecting on consumer debt.  This number included approximately 175 companies that are now under the auspices of the CFPB for regulation.  It is expected that the CFPB will further expand its rules, including rules enacted upon debt owners and related to their communication with third-party debt collectors. 

In an effort to settle the questions that are still on the table related to the FDCPA and the specific debts that are subject to the authority of the CFPB, the CFPB has published the Advanced Notice of Proposed Rulemaking to give the financial services industry time to weigh in on certain issues that are still to be decided by lawmakers.  The issues include:

• Should first-party collectors be given the same set of regulations as those given to third-party collectors?
• What documentationshould be included in the transfer of debt collection to a third-party collector?
• Does the consumer have a right to know when a debt is given to a third-party collection firm?
• What should be the specific content of the FDCPA validation notices and Fair Credit Reporting Act dispute processes?
• Considering changes in technology, particularly mobile phone technology, what regulations should be placed on communications between the industry and consumers?

Creditors Play an Unrecognized and Powerful Role in the Debt Collection Process

Image courtesy of David Castillo Dominici / freedigitalphotos.net

While third-party debt collectors and collection law firms get the blame when it comes to collections calls, most people don’t think about the fact that it is a creditor that is responsible for the initiation of the collection activity, and creditors pay a large role in how the collection activity is carried out.  Debt collectors are paid only if they can recover payment for the creditor and they are required to follow the laws regarding collection activity. 

Creditors claim that it is important to them that debt collectors acting on their behalf are respectful when they make collections calls because the reputation of the creditor is at stake.  One reason for this is that third-party debt collectors are often working for creditors that the customer is likely to work with again in the future. 

Utility companies, hospitals, government agencies, etc. want to maintain a decent relationship with the customers to avoid potential problems in the future.  However, despite the claims of the creditors, they are not choosing collection agencies based on their ability to uphold the reputation of the creditors. 

As unusual as it may seem, choosing a service provider based on who can provide the lowest price is the bottom line when creditors choose a collection agency.  The average amount of money they recover, known as the recovery rate, along with the price they charge, is how most creditors select a collection agency to recover the money they are owed.  The creditors, it seems, care more about who can perform the job at the least expense, rather than which collection agency has the best trained employees and the least number of complaints. 

Creditors also claim that they are strict in what they will and won’t allow collection agencies to do on their behalf; however, their ultimate goal is to recover some or all of the money owed by each customer, and they make it clear to the collection agency they hire that the recovery rate is what is of most importance to them. 

Creditors are often large corporations or government agencies, and the reality is that regardless of how the collection agency they hire to recover debt treats their customers, many of the customers won’t have the option to discontinue future services.