Finance Bill Creates Power Sharing, FDCPA Reform Dilemma in Gov't

It’s official. The Consumer Financial Protection Bureau (CFPB) will become a reality and it has been given rulemaking authority over the Fair Debt Collection Practices Act. It also will share FDCPA enforcement responsibilities with the Federal Trade Commission, which had been the debt collection industry’s chief regulator.

President Barack Obama made the CFPB and its oversight of the FDCPA a reality Wednesday when he signed into law the Dodd-Frank Wall Street Reform Act, otherwise known as the financial reform bill. It marks the first time since the FDCPA became law that accounts receivable management professionals will be able to look for compliance guidance from someone other than the FTC or the courts.

Under the language in the bill, the CFPB could set rules about what collectors are allowed to say in any communications, including messages left on voicemails (“FDCPA Rulemaking Part of Financial Reform Bill,” July 7).  It also may determine if and how debt collectors use text messaging, email or social media to contact consumers.

But there are limits to what the bureau can do.

“(CFPB) can interpret the statute and clarify it.  It can’t change it,” Joel Winston, associate director of the FTC’s division of financial practices, told insideARM.com. “If the laws said it requires X, it can’t do a rule that repeals that.  If there is a need for changes to the FDCPA, that will still have to be done by Congress.”

Lou Freedman, chair of the federal government affairs committee for the National Association of Retail Collection Attorneys (NARCA), told insideARM.com that the industry could benefit from having rules that are binding. But he said Congress still needs to revisit the FDCPA and he believes it will do so after the November mid-term elections.

“We believe there are some changes that need to be made to the FDCPA,” Freedman said. “Not everyone (consumers and ARM professionals) agrees what those changes should be.  It’s something for NARCA to discuss.  In general we support what rest of the industry would like to see.”

ARM industry trade group ACA International had opposed giving the CFPB rulemaking authority over FDCPA, saying the statute excluded such authority.  Instead, ACA favored changes to the law.

But Adam Peterman, ACA’s director of federal government affairs, said the industry’s largest trade association will reassess the situation after the bureau is established and the November elections are held.

“Whether we can have things improved through the rulemaking process or through changes to the underlying amendment…that’s something we will have to wait and see,” Peterman said.

The CFPB, whose ultimate mission will be to protect consumers of financial products, will be housed in the Federal Reserve System and receive its funding from the Fed’s operating budget.  For Fiscal Year 2010 it will receive 10 percent of the Fed’s budget or about $500 million, and 12 percent in Fiscal Year 2012. Its director is to be nominated by President Obama and confirmed by the Senate.

Winston said the FTC will continue to oversee all industry matters relating to the FDCPA for at least the next six months.  Treasury Secretary Timothy Geithner has six to 12 months from the date the law is signed to transfer formal guidance under the FDCPA over to the CFPB.

“Once the new bureau is established, both the CFPB and the FTC will have the ability to enforce the statutes and any new rules that the new bureau would put in place,” Winston said.

“As far as enforcement is concerned, FTC is not losing enforcement, we’re simply sharing it concurrently with the new bureau and during that period we will be discussing how to do it,” Winston noted.  “How this will be divided up and the extent to which it will be divided remains to be seen.”

Winston said he doesn’t know if the ARM industry will be called on to offer views on rulemaking. Industry representatives however, feel they will be allowed input.

“We would like to be involved in the rulemaking progress and think it’s important for us as lawyers to be involved in the rulemaking process,” Freedman said.