CFPB’s Debt Collection Rules May Be Coming Sooner Than Some in the Industry Anticipated

Yesterday, at the Consumer Advisory Board Meeting in Washington D.C., Consumer Financial Protection Bureau (CFPB) Director Richard Cordray provided an update on one of the most highly anticipated areas in the debt collection industry – the CFPB’s intentions with respect to its proposed debt collection rulemaking. The biggest news from the meeting was that the CFPB is indeed moving forward with rulemaking efforts in this area, as there was some skepticism in the industry as to whether the current political climate would thwart efforts to do so. In addition to reaffirming the CFPB’s intention to move forward, Director Cordray’s remarks provided some interesting specifics that should interest both third-party debt collectors as well as first-party creditors (i.e., creditors collecting their own debt).

As background, the CFPB issued an outline of proposed debt collection rules last summer intended to “drastically overhaul the debt collection market.” As Director Cordray noted in his comments to the Consumer Advisory Board, the 117 page outline, which is summarized here, focused on three primary issues:

  1. Ensuring collectors were collecting the right amount from the right consumer.
  2. Ensuring consumers understand the debt collection process and their rights.
  3. Ensuring consumers were treated with dignity and respect in their communications with collectors.

The CFPB made clear that the outline would only apply to third-party debt collectors subject to the Fair Debt Collection Practices (FDCPA), but Director Cordray’s prepared remarks indicated that the CFPB would issue future rulemaking that would apply to first-party creditors.

Change of Course for Right Consumer, Right Amount Rulemaking

Yesterday, however, Director Cordray announced a change of course. The CFPB will now be taking a bifurcated approach to addressing the issues detailed in its outline. Specifically, the CFPB will be developing a separate rule to deal with the “right consumer, right amount” aspect of the outline that will simultaneously address both third-party debt collectors and first-party creditors.

The CFPB noted that it had received substantial feedback from the industry about the difficulties for debt collectors to comply with the “right consumer, right amount” without concurrent rulemaking to ensure first-party creditors and third-party debt collectors were working together to guarantee they were collecting the right amount from the right consumer. As a result, the CFPB felt that it would be best to address these intertwined issues apart from the other two areas addressed in its outline, which are limited to third-party debt collectors.

For third-party debt collectors, this means the rulemaking process with respect to the “right consumer, right amount” aspect of the outline is effectively starting over. For first-party creditors, however, this likely means that first-party rules are much closer than previously anticipated. Either way, this announcement further demonstrates the CFPB’s continued focus on these issues, and there is no sign that the CFPB is stepping back from eventually addressing the topic.

CFPB to Move Quickly on Other Debt Collection Proposals

In addition to announcing that the CFPB would be developing a separate rule to deal with both first-party creditors and third-party debt collectors, Director Cordray indicated that following this path would enable the CFPB “to move forward more quickly with a proposed rule focused on … information third-party collectors must disclose to people about the debt collection process and their rights as consumers and ensuring that third-party collectors treat people with the dignity and respect they deserve.”

Third-party debt collectors should be prepared to adjust their policies and procedures to account for this rulemaking, but many collectors should already be in substantial compliance with any proposed rule that requires them to treat consumers with respect and disclose their identity and the nature of the debt to the consumer. By removing the hurdle of “right consumer, right amount” issue from the immediate debt collection rulemaking, it is expected that the CFPB will issue a proposed debt collection rule much sooner than previously expected.

Given the expiration of Director Cordray’s term in July 2018, the high volume of consumer complaints the CFPB has received related to debt collection and the urgency felt by many CFPB staff members to complete a debt collection rulemaking while Director Cordray is still leading the Bureau, the industry should expect to see an announcement on a debt collection rulemaking from the CFPB within the next year.