If you are a collection professional working for a creditor, debt buyer, collection agency or collection law firm, and you have not yet added the website for the Consumer Financial Protection Bureau (CFPB) to the favorites on your web browser, it is high time that you do so. The CFPB has been publishing lots of information this year, and has laid out some details of how it plans to directly or indirectly regulate virtually all aspects of the collection industry. This article is hardly comprehensive, but here are a few highlights.
On February 17, 2012, the CFPB published its Proposed Rule Defining Larger Participants in Certain Consumer Financial Product and Service Markets. Entities in the debt collection market that generate $10 million in annual receipts from consumer collection activities would be deemed a “larger participant” in the market. This “larger participant” designation would subject those entities to direct supervision by the CFPB. The Bureau estimated that approximately 175 collection entities would qualify as “larger participant” under the Proposed Rule. As of the date of this writing, the CFPB has not published a Final Rule relating to larger participants in the debt collection market. If your company does not meet the $10 million “larger participant” threshold, however, you should not feel left out in the cold. The CFPB has several other methods that it plans to employ to supervise or otherwise regulate members of the collection industry, and some of them are discussed below.
On March 20, 2012, the CFPB issued its first Annual Report to Congress on the Fair Debt Collection Practices Act. In it, the CFPB explains that it now has primarily responsibility for administering the FDCPA, including rulemaking and supervisory authority, and that it now shares overall enforcement authority with the FTC and other federal agencies. The CFPB emphasizes its belief that “consumer complaint data provides useful insight into the acts and practices of debt collectors” and that it will continue the FTC’s practice of gathering consumer complaints about members of the collection industry through its website, via telephone, mail, faxes and by referral from other agencies.
On April 13, 2012, the CFPB released its Bulletin 2012-03 relating to Service Providers. In it, the CFPB explains its position that it not only has the power to supervise and examine banks and non-banks, but it also may supervise and examine “service providers” for those entities. A “service provider” is any entity that “provides a material service to a covered person in connection with the offering or provision by that person of a consumer financial product or service.” It therefore appears that the CFPB believes that it has the power to supervise and examine virtually any entity operating in the consumer collection industry. In addition, the CFPB makes clear in the Bulletin that it expects all supervised banks and nonbanks to ensure that their service providers implement effective processes to comply with all statutes and regulations governing the collection process to avoid unwarranted risks to consumers. Thus, the CFPB expects supervised entities to conduct due diligence on all service providers to ensure they understand and can comply with the laws, to review the compliance policies and procedures used by their service providers and their training and oversight practices, to include contractual provisions with service providers designed to ensure compliance, to establish monitoring processes designed to determine compliance by service providers, and to take prompt action, including termination, to address any problems identified by the monitoring process.
On May 25, 2012, the CFPB published its Proposed Procedural Rules to Establish Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination. Here, the CFPB sets out the method by which it will supervise any nonbank covered person who the Bureau has reasonable cause to believe “is engaging, or has engaged, in conduct that poses risks to consumers” in connection with consumer financial products or services. Generally speaking, the CFPB will serve the company with a notice explaining why it has reasonable cause to believe the company presents a risk to consumers. If the company disagrees, it will have 20 days to file a written response under penalty of perjury explaining why it feels the CFPB is mistaken and why it should not be subject to supervision. The response must be accompanied by all records and documents that support the company’s position. The company may also make a request to for the opportunity to supplement that response verbally. In the alternative, the company can simply agree to consent to supervision by the CFPB. It seems clear that the consumer complaints that the CFPB plans to compile concerning members of the collection industry will be the genesis for the CFPB’s determination of its “reasonable cause to believe” that an entity presents risks to consumers.
If you have been worried about how your attorney-client privileged documents are going to be handled when the CFPB has arrived, keep worrying. On July 5, 2012, the CFPB issued its Final Rule on Confidential Treatment of Privileged Information. In it, the CFPB makes clear that if it asks a supervised or regulated entity for documents or information – even if it “may be subject to one or more statutory or common law privileges, including the attorney-client privilege and attorney work product protection” – it will expect the documents and information to be produced. The CFPB claims that you should not worry about this, however, because in its opinion, giving privileged documents and information to the CFPB will not result in a waiver of the attorney-client privilege. It is unclear whether the CFPB is correct on this point, however, and legislation designed to clarify the issue has not been passed as of the date of this writing. The CFPB also states that it will not “routinely” share the confidential information it gets from you with law enforcement agencies, including State Attorneys General, but that it reserves the right to do so in some circumstances.
It should be clear that debt collection will be a major focus of the CFPB now that the agency is up and running. Collection professionals should watch for more CFPB rules, guidance, enforcement actions and other developments in the coming months.
By Tomio B. Narita
Simmonds & Narita LLP