Why the CFPB’s Decision to Change Course on Debt Collection Rulemaking is a Very Big Deal

The CFPB’s decision to change course on one key aspect of its debt collection rulemaking was not only unexpected by industry and consumer advocates alike, but an important sign that the debt collection industry should not otherwise ignore. 

First the background. In July 2016, the CFPB issued its Outline of Proposals under Consideration for the regulation of debt collection (the “Outline”). The Outline came in advance of a Small Business Review Panel ("Panel") to gather feedback from small debt collection industry representatives. The Panel convened in late August 2016. One of the key elements in the Outline was a requirement to ensure that debt collectors substantiate the debt, in other words that debt collectors had the right supporting information about the debts they were collecting. While this sounds sensible, in practice it is problematic; mandating that debt collectors verify the accuracy of the debts on behalf of their 1st party clients is potentially impossible when collectors have no assured access to underlying debt documentation. 

The industry responded and did so effectively both in their oral presentations at the Panel proceedings and in their written comments. Many industry participants also met with the CPFB to discuss the particular topic of substantiation. This outreach has resulted in the Bureau now concluding that issues of “right consumer, right amount” should be a rule geared more toward 1st party creditors instead of 3rd party debt collectors. The Bureau will still move forward with its remaining proposals for 3rd party debt collection, which will include consumer understanding initiatives and limitations on consumer communication, but will look to shift its focus on substantiation to include 1^st parties. A notice of a proposed rule for 3^rd party debt collection is still some time away due to continuing research.  

Although the industry should pat themselves on the back for their advocacy, it is important to remember a critical component that was part of the CFPB’s decision; advocates saw the issue of substantiation as a problem as well. You have to look no farther than the National Consumer Law Center’s (NCLC) comments to the Advanced Notice of Proposed Rulemaking. On page 49, “Rules should require the original creditor and any debt buyer to pass on the information to the next buyer” [emphasis added]. So while the CFPB’s decision was as much about listening to industry, it was also about identifying where both sides agreed. (It should be noted, however, that the NCLC opposed any changes to Foti, while the Outline recommended a clear Foti fix). The NCLC issued a press release applauding the CFPB’s decision on substantiation.   

The CFPB has sent a signal to all stakeholders in the debt collection space: reach out and collaborate with each other. One industry group, the Consumer Relations Consortium (CRC) has been doing this for several years and it seems to be working. We as an industry should go back and look at all the comments of all consumer advocates and see where we can find key topics of agreement and then work from there. The industry wants rules and what better way to achieve that then through consensus from all sides. 

For 1st party creditors, the time is now to consider issues of data integrity and effective collaboration with debt collectors they hire. 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, and proactive efforts in advance of the upcoming rulemaking on 1st and 3rd party substantiation programs should begin immediately. Needless to say outreach to advocates must be part of the advocacy strategy. 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.  

Finally, last Thursday marked my last Consumer Advisory Board (CAB) meeting. All outgoing members were asked to say a few words; in my comments I thanked the CFPB staff who coordinated the CAB for all their hard work. They are truly an incredible group of dedicated public servants, who as I stated, spent the last three years “schlepping” all CAB members from one meeting to another, as well as from one end of the country to the other. I thanked the Director and told him that while we have had our differences and that I do not agree with a lot of the Bureau’s priorities, I have a tremendous amount of respect for him and what he has accomplished from ground zero. Finally, I thanked all my fellow CAB members and told them I was privileged to have been included in this special group. I told the consumer advocates in the room that I valued my experience on the CAB because it gave me an opportunity to know people with whom I would never have had the opportunity to collaborate. Finally, I suggested they remember that what we all have in common is much greater than our differences. We as an industry need to build on that understanding.