When the Consumer Financial Protection Bureau announced earlier this year that it proposed to supervise large debt collection agencies, the ARM industry was understandably shaken. The industry has more regulatory bodies covering it than most businesses, but it had never been subjected to the direct oversight of “supervision.”
There are still far more questions than answers, even six months later. It still has not been finalized how many debt collection agencies, exactly, will fall under the supervision threshold. After debt collection trade group ACA International filed formal comments disputing the CFPB’s proposed revenue threshold of $10 million, the agency decided to push back the decision on who will be subjected to supervision.
The CFPB initially estimated that their $10 million revenue threshold would bring some 175 collection agencies under supervisory auspices. While some in the industry wait to see if they will be supervised, others are moving forward in preparing for supervision and examination.
This means audits; intense audits to determine the level of compliance with not only the Fair Debt Collection Practices Act (FDCPA) but the myriad laws and regulations under the CFPB’s purview.
Operational audits are nothing new in the ARM industry. Major banks and credit issuers have subjected their debt collection vendors to auditing for years. insideARM.com has even run articles detailing the creditor/collection agency auditing process. But direct supervision and examination from a federal regulator is a different matter.
What should larger collection agencies expect from CFPB supervision?
The CFPB last year released its first Supervision and Examination Manual, designed to provide guidelines for its agents to use in active supervision. The agency noted that the three main principles guiding its examination and supervision procedures will be 1) a focus on the consumer, 2) a data-driven examination process, and 3) supervision consistency within industries.
Interestingly, the CFPB’s focus on data will extend well beyond that which is surrendered by the companies being examined. In addition to a company’s own data, the agency will be using its own internal research and data from other U.S. agencies in its examination process.
The examination manual has a section specific to agents supervising companies that fall under the FDCPA. Mostly an overview of the law, the FDCPA section does detail how agents are to approach a collection agency for examination. For example, in addition to interviews with principals of the company, examiners will also be reviewing “written collection procedures, reciprocal collection agreements, collection letters, dunning notices, envelopes, scripts used by collection personnel, validation notices, individual collection files, complaint files, and other relevant records.”
It would probably be a good idea for all debt collection agencies to engage in a self-audit based on the CFPB examination manual, especially larger ones that will definitely fall under supervision. Hiring an outside auditing firm to do it for you is an even better idea.
At least one large ARM firm has already announced such an engagement. CBE Group, a 1,000-employee debt collector headquartered in Iowa, in July said that it had retained a consulting firm to conduct a proactive CFPB assessment of its operations. The firm tapped accounting group McGladrey LLP to do the work.
“An external compliance audit conducted by a highly respected company, like McGladrey, will provide verification of CBE’s current policies and operation, as well as assist us in finding areas of potential improvement prior to the CFPB conducting its audit,” said CBE President and CEO Tom Penaluna.
The McGladrey assessment was conducted earlier in the year and included interviews with key personnel, tests, and reviews of standard operating procedures, all following the template released by the CFPB.
Regardless of where the final revenue threshold for supervision cuts off, many debt collection agencies will be put under a microscope the likes of which they’ve never seen before. Getting a jump on potential problems by conducting a self-assessment is the first step for avoiding issues under a new regulator.
This article originally appeared in the latest issue of Know Your Debtor, a free quarterly newsletter focused on the U.S. consumer environment. Make sure you’re registered to receive insideARM’s newsletters on your User Profile page.