A debt collection expert explained the importance of the rule-making pivot the Consumer Financial Protection Bureau evidently is making when it comes to finance companies and other credit providers looking to collect from consumers who defaulted.
CFPB director Richard Cordray shared the details during his prepared remarks during last week’s consumer advisory board meeting.
Cordray told meeting attendees — which included Joann Needleman, who is the leader of consumer financial services regulatory and compliance practice group at Clark Hill — about the feedback the bureau has received since rolling out its debt collection rules overall proposal last August.
“One thing became clear,” Cordray said. “Writing rules to make sure debt collectors have the right information about their debts is best handled by considering solutions from first-party creditors and third-party collectors at the same time.
“First-party creditors like banks and other lenders create the information about the debt, and they may use it to collect the debt themselves. Or they may provide it to companies that collect the debt on their behalf or buy the debt outright,” he continued.
“Either way, those actually collecting on the debts need to have the correct and accurate information. All of these parties must work together to ensure they are collecting the right amount of debt from the right consumer,” Corday added.
Cordray went on to elaborate about how the CFPB’s initial proposal triggered other potential issues and how bureau officials are responding.
“But breaking the different aspects of the informational issues into pieces in two distinct rules was shaping up to be troublesome in various ways. So we have now decided to consolidate all the issues of ‘right consumer, right amount’ into the separate rule we will be developing for first-party creditors, which will now cover these intertwined issues for third-party collectors and debt buyers as well,” Cordray said. “That way, we can address this entire set of considerations, market-wide.
“In the meantime, we will be able to move forward more quickly with a proposed rule focused on the remaining issues,” he continued. “These issues, again, are 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.
“Once we proceed with a proposed rule on these issues, we will return to the subject of collecting the right amount from the right consumer, which is a key objective regardless of who is collecting the debt. And we will take care to get it right,” Cordray went on to say.
After hearing the CFPB’s latest position, Needleman collaborated with her Clark Hill colleague Jane Luxton for a blog post to explain the implications of the bureau’s actions. Needleman and Luxton declared that, “The CFPB’s decision is a win for a debt collection industry that sees few victories.”
So the industry simply doesn’t rest and savor this win for too long, Needleman and Luxton offered recommendations on what finance companies and other industry participants should do next with regard to debt collections.
“For first-party creditors, the time is now to consider issues of data integrity and effective collaboration with debt collectors they hire,” Needleman and Luxton wrote. “Creditors will now have to consider documentation issues at the front end of the initiation of the loan in order to substantiate it on the back end.
“Proactive efforts in advance of the upcoming rulemaking on a first- and third-party substantiation program should begin now,” they continued. “The CFPB appears to be moving toward the realization that we all live in a credit based eco-system and a holistic approach, involving all stakeholders in the debt collection market, is warranted.”