The past few months have been busy for the new Consumer Financial Protection Bureau (CFPB). After announcing plans to monitor the credit bureaus, helping to levy punishments against a number of major banks for deceptive credit card marketing, and setting up a helpful consumer complaint database, the CFPB last month announced a controversial rule change that stands to make it easier for stay-at-home spouses to build credit and published a rule giving itself federal oversight over the country’s biggest debt collection companies.
Given that we are a ‘“what-have-you-done-for-me-lately” society that’s been spending money like it’s going out of style as of late, that last development is likely of paramount interest to most folks. We’ve all either heard or experienced firsthand how annoying, rude, and unscrupulous debt collectors can be, after all, and it’s about time someone did something about it.
So, what exactly does the CFPB’s oversight over debt collection companies entail?
Beginning January 2, 2013, the CFPB will evaluate how well debt collection entities with at least $10 million in annual receipts – from firms that buy defaulted debt to attorneys who collect via litigation – fulfill their obligations to:
- Accurately identify themselves and the debt in question
- Use accurate records when engaging in collections
- Effectively handle consumer complaints
- Be honest and civil with consumers
This begs a couple of obvious questions. First of all, is the CFPB going to do anything but watch? And why hasn’t this been taking place for years? I mean, it’s not like debt is anything new, and we all know that debt collectors like to skirt the law.
To answer the second question first, debt collectors have long been subject to state and local scrutiny. What makes the CFPB’s announcement unique is that it marks the first time that debt collectors have been subject to federal oversight. This will enable more coordinated, uniform enforcement of federal consumer protection laws across the country, which should be good news for the roughly 30 million consumers – 10% of the country – being hounded by debt collectors for an average of $1,500 in amounts owed.
In terms of how exactly this supervision will manifest itself, the CFPB plans to conduct on-site examinations of debt collection practices in order to ensure that debt collectors are essentially behaving themselves. Not only does the agency plan to monitor whether debt collectors use accurate information and properly handle consumer disputes, but it will also encourage what Director Richard Cordray has called “robust compliance programs.”
“It is not enough for a debt collector to point to policies and procedures as a means of justifying their collection practices – these policies and procedures must be followed consistently. The best way to be sure of that is by having sound monitoring systems in place,” Cordray said in a speech given Oct. 24 in Seattle. “A good compliance program also closely analyzes complaints to find patterns that may pose risks to consumers, such as whether the complaints stem from a specific employee or from a certain type of account. We expect to see an effective and comprehensive process to address consumer complaints.”
But what will happen to those companies that are found to be operating outside the law?
Well, the CFPB has a number of enforcement techniques at its disposal. Most notably, it can hit law-breaking debt collectors where it hurts most – their wallets. According to sources in the CFPB, the agency can levy civil money penalties or freeze a company’s assets if administrative or court hearings find that a debt collector – or any entity under the CFPB’s jurisdiction for that matter – has violated the law. The Wall Street Reform and Consumer Protection Act also gives the agency the power to:
- Rescind or reform contracts
- Require law breakers to refund money or return property to consumers, pay damages and/or restitution, and give up revenue gleaned via illegal means
- Notify the public of illegal acts (and require the culpable party to pay for the notification)
- Limit the operations of the entity at fault (e.g. by issuing cease-and-desist orders)
- Assess civil money penalties
In other words, those of you who are worried that the CFPB’s bark is worse than its bite needn’t worry too much. The agency has plenty of firepower at its disposal. Now, it’s time for debt collectors to feel what it’s like to be under scrutiny.