On September 15, 2016 a coalition of 59 different consumer advocacy groups representing consumer protection, civil rights, and legal services sent a letter to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray expressing their concerns with the outline of proposed regulations on debt collection issued by the Consumer Financial Protection Bureau on July 28, 2016. The letter states: “The (CFPB) proposal represents a missed opportunity to fundamentally improve protections for consumers victimized by predatory debt collection practices.”

A copy of the letter can be found here.

The letter highlights what the coalition believes are “significant aspects of the outline fall far short of the reforms needed to protect consumers from abusive debt collection practices.” The issued highlighted include the following:

1)     The proposal still permits collection without sufficient substantiation

2)     The proposal still effectively prevents private enforcement

3)     The proposal still allows disputes to be inadequately investigated

4)     The proposal still allows lawsuits and default judgments to be obtained based on faulty documentation

5)     The proposed call limits are not sufficient. Call harassment will continue

6)     Many of the provisions in the proposal undermines state protections

7)     Various other concerns including:

a. The proposal still allows messages left with third parties
b. Inadequate protections for collection of time-barred debt
c. Confusing proposed validation notices
d. New required disclosures that will overwhelm consumers
e. Insufficient protections for medical, student loan, and decedent debt
f. Failure to prohibit mandatory arbitration clauses
g. Insufficient detail/clarification on credit bureau reporting
h. Failure to properly address language concerns for consumers with limited English proficiency

insideARM Perspective

It is clear that the consumer advocacy groups are not pleased with the current proposal and intend to work together to seek changes to any final rulemaking to address the concerns listed above.

The ARM industry should understand the challenges that lie ahead as the rulemaking process continues. While all of the issues addressed in this letter are of concern to the ARM industry, there are a couple issues that should be noted.

Debt “substantiation requirements” is an issue that will need to be addressed not only in the third party rulemaking, but also in the first party rulemaking. In fact, the issue needs to be addresses simultaneously. Third parties are unable to meet any new substantiation requirements without an absolute mandate that the creditors provide all information and create a methodology to share information obtained at prior agencies.

The issue of “private enforcement” rights is huge.  The consumer groups appear to be asking the CFPB to include provisions similar to those in the Fair Debt Collection Practices Act (FDCPA) and create a new avenue for private litigation based on the CFPB rules. One would assume that the consumer groups are also specifically looking for strict liability provisions associated with any final rules. There is a specific sentence in this section of the letter that suggests that the consumer advocacy groups have never seen an agreement between a major creditor and a third party servicer. That sentence reads:

 “Collectors would be able to protect themselves through indemnity agreements.”

If only that were true! Anyone who has ever negotiated a contract for a third party servicer with a major credit grantor can tell of the extreme challenges of getting any type of indemnity agreement from a client.

Call limits are going to continue to be a thorny issue. There is a huge disagreement between collectors and the consumer groups on what level of call attempts is absolutely needed to allow a collector communicate with a consumer. This issue was discussed in great detail at last month’s SBREFA hearing.

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