Debtors to Get More Protection from Collection Under New Regulator

The new Consumer Financial Protection Bureau (CFPB) officially opened for business in July. Mandated by the Dodd-Frank financial reform package that was passed in 2010, the CFPB will be the new federal regulator for the debt collection and accounts receivable management industry.

Housed within (and funded by) the Federal Reserve, the CFPB will have greater powers than its regulatory predecessor, the Federal Trade Commission. The new agency will be able to write binding rules rather than simply make recommendations to Congress, although it should be noted that any changes to the Fair Debt Collection Practices Act (FDCPA) will have to be made by Congress.

The initial focus of the CFPB and how it will regulate the ARM industry has been the subject of much speculation. And while the agency has not tipped its hand, proposals and testimony put forth by several groups over the past couple of years could provide some insight into the direction the new regulator may take.

Some of the most likely changes to federal laws and regulations to occur over the next two years include:

• Stricter documentation requirements for the filing of collection lawsuits,
• Stricter documentation requirements for the sale and purchase of consumer debt,
• New specific requirements for initial consumer communications, to include more robust information about the origin of the debt in question,
• Codified clarification on the use of e-mail, most likely defining an e-mail as a collection letter not eligible to be the initial communication, and only permissible with express consent,
• Clarification on the use of user-fee communications, like mobile phones and text messaging,
• An explicit definition of how many calls over a given period constitutes “harassment.”

The FTC Has Already Done Plenty of Research

In April of this year, the FTC held a one-day workshop to address the complex changes in consumer communication technology that have taken place since the FDCPA was enacted 34 years ago. The workshop, formally titled “Debt Collection 2.0: Protecting Consumers as Technologies Change,” focused on advancements in mobile phones, social media, and e-mail, and the increasing amount of consumer information that is available on the Internet.

This workshop came after two separate 100+ page reports were created by the FTC to address imminent changes in the FDCPA and collection rules. Collecting Consumer Debts:  The Challenges of Change:  A Federal Trade Commission Workshop Report was published in early 2009 after a 2007 workshop to address the state of consumer debt collection. Feeling that the workshop did not adequately address the legal debt collection process, the FTC convened another series of workshops in 2009, resulting in the 2010 publication of Repairing a Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration.

Although both reports contained many recommendations, no actions were taken to update or improve debt collection laws and regulations because the proposals came from the 30,000-foot level. The 2011 technology workshop was more granular, focusing on narrow issues that arise from new technologies. (For example, there was an in-depth discussion of the Foti conundrum at the workshop). But there has still been no report or recommendations published from that event.

The CFPB will be relying heavily on the work of previous regulators. As such, it can be assumed that much of the FTC’s research will be absorbed rather than duplicated. Since much of the FTC’s research focused on improving the debt collection litigation process and making accommodations for new communication technology, it would make sense that the CFPB would move first on those consumer protections.