Commercial Collections Blog

Debt Collecting and the CFPB: How They Interact

The Consumer Federal Protection Bureau (CFPB) was created with the goal of protecting the American public from harmful business practices. The CFPB was created when the government passed the Dodd-Frank Act in 2010 when the law gave a new organization jurisdiction over most financial lending institutions and creditors. One of the specific services that fell into this new jurisdiction is debt collecting.

The CFPB’s role in government is to consolidate rules and regulations for financial industries, getting them all under the same umbrella so that the regulations can be assessed more efficiently. It also collects market reports and consumer complaints to keep an eye on the current economic landscape. This helps the organization work with state-level regulators for supervisory and enforcement issues.

Debt Collection and The CFPB

With a new administration comes changes for most departments in the federal government, and the CFPB is included with that. While the CFPB is in charge of writing rules for the different financial sections they oversee, changes to leadership can alter the course of existing rules or those that were in the pipeline expecting to become law. The current director of the CFPB, Mick Mulvaney, was nominated by President Trump to lead the Office of Management and Budget (OMB) in January 2017 and confirmed for the post on February 16th, 2017. Mulvaney has been a career politician, formerly holding office in the South Carolina House of Representatives and shortly after in the state Senate as well. From there he had a successful run to become a member of the U.S. House of Representatives representing the 5th district of South Carolina, a post which he held until being confirmed to lead the OMB. While serving in this position, President Trump also appointed Mulvaney to be the director of the CFPB concurrently, which took effect November 25, 2017.

With Mulvaney now steering the CFPB, he has placed an indefinite halt to all new rulemaking by the organization. Included in that regulatory freeze were plans to install rules for debt collectors, which are now stalled from proceeding with the way things are. Debt collectors should still be aware of the proposed rules, as this does not cancel them permanently, but they have been placed on the backburner for the time being. Of course, it is uncertain if the proposed rules will ever become law, but knowing what may be coming in the industry is always better than being blindsided. If you haven’t taken a look, or are want a refresher, the proposal for the new rules is here.

While that information is helpful to have, at this time the rules already established by the CFPB and other legislation that are currently in effect have not changed. The CFPB oversees three main types of debt collecting, which covers nearly all forms of legitimate credit collection agencies throughout the entire U.S.
If a firm collects debts through litigation or if they receive a fee for collecting a debt owned by another company or if they are collecting a debt by buying it themselves then, the CFPB oversees their actions. While that covers the bulk of debt collecting agencies, there is a separate category that affords the CFPB supervisory authority on top of monitoring. Any firm that has annual receipts that total more than $10 million falls under the CFPB’s supervisory authority, which allows them to have direct access to information and activities held by the agency.

The rules and regulations that the CFPB enforces in the overseeing aspect of their function stem from the Fair Debt Collection Practices Act (FDCPA). The law, which was originally passed in 1977, created the guidelines that debt collectors needed to follow. While the law has been updated since then, the basics haven’t been altered much. The FDCPA was written based on what Congress called “abundant evidence” of harmful debt collecting practices, inadequate laws and abusive practices that negatively affected national commerce. The law then goes on to establish what must be done and what is outlawed for debt collectors as they conduct their work. Here’s a basic rundown of those do’s and don’ts:

Required Conduct for Debt Collectors

  • Must identify themselves and clearly note they are a debt collector every time customer contact is made
  • When requested, give the original creditor’s name and address
  • Notification of the consumer’s right to dispute the debt must be given
  • Verification of the debt upon request must be provided
  • Any lawsuit must be filed in the appropriate court, meaning where the consumer resides or where they signed the originating contract

Prohibited Actions for Debt Collectors (consumer debt)

  • Telephone contact must be between 8 a.m. and 9 p.m. local time for the consumer unless clarified that those hours are justifiably inconvenient for the consumer
  • Continued communication after receiving written notice to cease contact by the consumer
  • Annoying or harassing by calling repeatedly or continuously
  • Contact at employment location of the consumer, after being advised by the employer that it is unacceptable
  • Contact with the consumer when it is known they have legal representation on the matter
  • Pursuing collection after receipt of written validation request until the verification has been mailed to the consumer
  • All misrepresentation or deceit, such as claims to be law enforcement or other legal authority
  • The inclusion of the consumer debt on any published “bad debt” lists
  • Trying to claim any unjustified amounts not established under contract or provided for by law
  • Threats of arrest or legal action unless such action is legally being taken
  • Using profane or abusive language with the consumer during any communication regarding the debt
  • Disclosing the nature of the debt to third parties, excepting spouses and authorized legal representatives of the consumer
  • Contact by media that may be considered embarrassing for the consumer; such as postcards or language/symbols on an envelope that would openly reveal the information contained is pursuing debt collection
  • Reporting false information to credit agencies, or threats to do so

For further explanation or additional details, the full text of the law can be read here.

The CFPB’s role in regards to those and other consumer financial laws is ensuring that agencies adhere to the requirements. The supervisory authority granted to the CFPB allows them to assess and evaluate if all proper disclosures are being made. CFPB examiners collect consumer request data, which they assess to ensure debt collectors are clear with the clients they interact with. The examiners also look through that data to ensure debt collectors are accurately identifying themselves to consumers in accordance with the law.

Another aspect of the CFPB’s role is that they evaluate the accuracy of debt collectors’ information. When outdated, or bad information, is used to attempt to collect a debt then mistakes can be made. Consumers that have already paid a debt, or if their name is on a debt they never owed, can slip through to collection agencies. While this doesn’t run afoul of the law, it can be embarrassing for the agency, and it is without a doubt angering to the consumer, so having updated and accurate information can prevent this. The CFPB monitors the data used by agencies and recommends changes to information collection when necessary.

The CFPB was established to protect the consumer, and as such another aspect of their supervisory authority is that they require debt collectors to provide a path for disputes and complaints. When performing compliance management reviews of debt collectors, the CFPB collects dispute information to see if the complaints are addressed appropriately and within the correct timeframes. They look for the debt collector’s process for addressing complaints and whether it includes a way for the dispute to reference consumer financial law violations. This can make the work of debt collecting more tedious, but ensuring compliance keeps the operation running smoothly and prevents unnecessary slowdowns due to CFPB intervention.

The last key aspect of the CFPB’s supervisory authority, which will be discussed, is that they collect communication data to ensure those interactions are civil and honest. If signs of harassment, threats or deception that breach the prohibited actions are discovered then the enforcement arm of the CFPB may intercede. Generally the course of action the CFPB takes when they find out egregious violations is to file legal action in federal district court or the initiation of administrative adjudication proceedings. The enforcement aspect is generally a reaction to uncovered violations, and the CFPB makes public all legal proceedings, which can add damage to an agency’s reputation.

Collecting debts can be profitable and rewarding work when done within the bounds of what is acceptable. The rules outlined by the FDCPA are unavoidable and it’s in the best interest of all debt collectors to create a process that adheres to those rules, as the CFPB is watching for violations. The CFPB has examiners watching the interactions that debt collectors are involved in, as part of their authority to collect data from the markets and industries they are directed to monitor. At the end of the day, the CFPB writes the rules that debt collectors must follow based on existing laws and the collected data they review. After creating those rules they also act as enforcement, initiating legal actions against debt collectors that they feel have violated the laws. The CFPB affects debt collection by being a watchdog that sets the boundaries and keeps collectors honest.