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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.

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.  

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 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.

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Comment Preferences

  •  Here's your "small" debt agency: (3+ / 0-)

    They DO get caught. The small agencies that are crap do stupid things and eventually someone will go to jail. The small companies that are actually pretty good will get bigger and end up servicing debt for Chase, Citi, and Bank of America.

    Trust me, when the CFPB opened shop the Big Boys went batshit crazy...there was an incredible mad scramble to get their houses in order that continues even today. These are the same masterminds who tried to wreck our economy with mortgage frauds and bad paperwork. You REALLY think they're all good to go and the CFPB can just step lightly around them?

    Do you REALLY think they were monitoring all their agencies all that closely? Think about it.

    I'd compromise with you and say the CFPB needs to look at both but if I had to choose, I'd definitely go after the big fish first. Make no assumptions.

    •  Even if what you are saying is true about small (0+ / 0-)

      firms getting caught (which it isn't--one example does not a pattern make)  you miss my point--which is that the FDCPA doesn't do a good job incentivizing them to comply.

      As for the large firms yes.  I've been involved in litigation--deposed them on their business practices.  By and large they are as compliant with the FDCPA as someone can possibly be.  Nobody welcomes on site inspections from a federal regulator, but their grief shouldn't become our joy unless the goal is to piss off debt collectors, and not to use precious resources effectively to help consumers

    •  In other words (1+ / 0-)
      Recommended by:
      The Jester

      maybe it's true that in some cases (although again I dispute that this is the rule rather than the exception) that small firms end up facing criminal charges.

      However how many times would they have violated the FDCPA without any justice to the consumer before it got to that point b/c no lawyer will sue someone who is judgment proof and can't pay.

      •  The majority of debt is serviced (0+ / 0-)

        by big debt collection agencies. Make sure those houses are in order FIRST. Then go after the small guys. That way you help the MOST consumers in a few fell swoops.

        Don't make the assumption that the big guys have their houses in order and would be in total compliance without the CFPB going after them. That would be furthest from the truth.

  •  In addition to the small (8+ / 0-)

    debt collection companies, somebody should be looking at small law firms that file "suits on account" in bulk. The complaints/petitions are filed without the slightest evidence to support the allegations, just in the hope of getting default judgments.  I don't understand why judges put up with these docket-cloggers.

    On November 6 I'm voting for Citizenship and Arithmetic.

    by coffeeprocessingmachine on Wed Nov 14, 2012 at 07:03:16 PM PST

    •  totally agree (1+ / 0-)
      Recommended by:
      The Jester

      they should have to register and post a bond just like everyone else.

      As for the junk affidavit/robo-testimony issue--that's outside the scope of this article but I also agree with you there.  That might be something that can only be addressed at the state level according to the constitution.

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