Understandably, many of you might not have noticed this with all the election news.
According to a rule the agency published Wednesday, the CFPB will investigate whether debt buyers, third-party collection agencies and attorneys are being honest with consumers about who they are and how much consumers owe. It also plans to evaluate whether companies are responding adequately to consumers' complaints.Unfortunately, the CFPB's plan suffers from a fundamental misunderstanding of the debt collection industry and is unlikely to yield many positive results to consumers, while wasting precious CFPB resources that could be better utilized elsewhere.
The bureau announced plans to examine debt-collection agencies in February, but the final plan and examination guidelines provide the industry with key details about what to expect from these audits....
The bureau decided to examine companies with more than $10 million in annual receipts from consumer debt activities.
The FDCPA Already Effective Regulates Large Debt Collectors
Contrary to popular belief, the debt collection industry has been regulated rather closely over the last few years. The Fair Debt Collection Practices act allows private attorneys, such as myself, to act as "private AG's" to go after debt collectors who are violating the law. On top of actual damages, each violation imposes a statutory fine of $1,000 and the debt collector must also pay for the consumer's attorneys fees.
The potential for large class action judgments clearly provides a significant incentive for debt collectors. The result is that the industry's major players, have by and large changed their business models to comply with federal laws on debt collection. This is why FDCPA cases have begun to decline, despite living in a time where debt collection obviously remains a large industry. Thus the truth is that the largest companies do whatever they can to comply with debt collection laws because it is in their financial interest. Abuses at large firms clearly still happen, but they are not the result of company policy, and when they do, the FDCPA empowers consumer attorneys to make them pay dearly.
The FDCPA Does Not Effectively Regulate Small Debt Collection Companies
Small debt collectors. These bad actors routinely violate the FDCPA, collect as much as they can until they get hit with a big FDCPA suit, and then go under and open up shop a few months later with a new name. In essence they are out of the reach of the "private AGs" because they are by and large judgment proof.
The CFPB Inspections and Regulation of Only Large Debt Collection Companies Will Therefore Accomplish Very Little that the FDCPA Isn't Already Incentivizing, While Allowing those who the FDCPA Cannot Reach to Continue to Harass Consumers
So Why did the CFPB Take This Nonsensical Approach?
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has authority to supervise all nonbank entities of all sizes that offer financial products or services in the residential mortgage, private education lending and payday lending markets, as well as "larger participants" defined by the Bureau in other markets for consumer financial products or services.
Clearly the CFPB is caught up in the definition of "larger participants" and thus has announced that it will only regulate debt collectors with ten million more in annual receipts.
This however was a self-inflicted wound. They were free to interpret "larger participants" any way they chose.
Alternative Plan of Action
-The CFPB should instead focus it's efforts on smaller debt collection companies and empower consumer attorneys to hold them accountable.
-They should define any company which regularly collects debt for profit as the "larger participants" that Dodd Frank authorizes them to regulate.
-The CFPB should scrap all on sight inspections. They are a waste of time at the larger companies, which are by-and-large FDCPA compliant. At the smaller companies they become unfeasible for obvious reasons.
-The CFPB should force anyone wanting to collect debts to register with the CFPB and carry liability insurance, or post a bond of at least 1 million dollars would help end abusive practices far, far more.
-In order to hold larger firms accountable, above and beyond the FDCPA, the CFPB should simply collect data on consumer complaints, and FDCPA lawsuits and conduct audits of repeat abusers and assess fines and penalties. This approach recognizes the effectiveness of the FDCPA, saves man hours wasted on inspections, and allows the CFPB to seek additional justice against repeat offenders.