The proposed new debt collection laws released last month by the CFPB clearly states Dodd-Frank empowers the CFPB. They have “decided to consider issuing debt collection regulations that implement the FDCPA and other statutory authorities and that cover the activities of debt collectors and debt buyers.
THEY’RE CHANGING THE RULES AND IT WILL IMPACT US, AGAIN.
How? Significantly, Financially, Operationally, and it will once again shake up how we all do business by forcing us to invest in new technology to implement and track these complex rules. We’ll also be forced to retrain or hire new staff qualified to handle these mandates. While the CFPB are the ultimate enforcers, they are deputizing all the 1st party lenders to get out and do the actual police work on the 3rd party vendors by making them 100% responsible for their actions, a brilliant plan, as if the 1st parties don’t properly police the 3rd parties, the CFPB swoops in and holds both accountable, i.e. large fines.
WHO does this apply to?
The Rule: Page 4 Section B states “ Debt Collection is a multi-billion dollar industry composed of debt owners, debt collection companies, law firms and a wide variety of related service providers.” It further states… “The proposals would apply to collection agencies, debt buyers, collection law firms and loan servicers.” While it doesn’t call out repossession agencies, field chase or door knock companies, forwarders and skip tracers, or a variety of other types of service related companies in the debt collection space, my guess is the 1st party lenders will take the conservative approach and classify every vendor they outsource accounts to under this category of “related service providers” to take the most conservative and safest approach possible.
What does this mean for your business? These are rules you should be prepared to follow, whether you’re a 3rd party service provider or a 1st party lender, as even though this document states “The bureau expects to convene a second proceeding in the next several months for creditors and others engaged in collection activity who are covered persons under the Dodd-Frank Act but who may not be “debt collectors” under the FDCPA”, the safest approach is everyone in the sandbox should play by the same rules, lenders and vendors alike. I’m pretty confident that’s the approach lenders should, and will take. Given the fact the CFPB has clearly moved the responsibility of 3rd party vendor activity under the control of 1st party lenders, getting prepared for these rule changes now makes sense, especially as the only way to follow some of these rules will be to change your technology from old school software to software that can track calls in a systematic approach with real-time reporting, and software that’s shared or interfaced between 1st and 3rd parties, and between different 3rd parties when 1st parties choose to assign accounts to multiple vendors over the course of the loan, as described below.
What (WHO) is a Debt Collector? Per the FDCPA, which was written and has been unchanged since 1977, you can read The Rule HERE.
In short, “The term “debt collector” means any person (except a creditor collecting their own debts) who uses any instrumentality of interstate commerce or the mails in any business, the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Is repossession or skip tracing considered a part of debt collection? Probably at this point its safe to error on the side of conservatism and say yes.
Why is the CFPB doing this? Some say fining companies is a great way to grow another branch of the Government at the expense of the companies they go after. It clearly states in this document; “The Bureau has ordered over $100 million in civil penalties, over $300 million in restitution to consumers, and billions of dollars in debt relief to consumers.” However, when it states “consumers have brought more than 50,000 federal actions alleging that debt collectors have violated the FDCPA, with nearly 12,000 such lawsuits being filed in 2015” and there have been 200,000+ debt collection complaints since they started tracking this in 2013, there is definitely a problem.
Most complaints are consumers complaining they don’t owe the debt, followed by collectors harassing them or making false or misleading statements, taking or threatening to take illegal actions, failing to send required notices, or improperly contacting or sharing information with third parties. For these reasons, they are changing the rules. Whether you agree or disagree, its happening, and you better get on the bus as those left at the station will have a tough time finding a ride home.
What’s the bottom line? Well, these guys write rules that are broad in scope, so that’s a tough question to answer. The document gets to the meat of the matter in Sections III through IV.
Section III. Information Integrity and Related Concerns. This starts by calling out the integrity of loan information and the transferring of this information from 1st to 3rd party debt collectors, servicers, etc. Highlights include:
Problem. There are often substantial deficiencies in the quality and quantity of information collectors receive
Substantiation process to verify indebtedness and additional rules surrounding this
COMMENT – This places a great deal of burden on the lender to provide more accurate information regarding the debt when placing the account to a 3rd party and this may have an adverse effect on outsourcing as the systems the 1st parties use in many cases are old and unreliable in regard to the ability to easily gather and distribute this type of data, with a certain degree of accuracy.
In the past there were not penalties placed on lenders for sending incomplete or inaccurate loan information regarding indebtedness, and once this is put in place, I believe there will be a knee jerk reaction to not outsource debt collection where the 1st party is not 100% confident in the correct amount of the debt, or in the case of asset based lending, in regard to holding title to the asset, which in many companies cases is a problem area.
A requirement that certain information that the consumer provides in the course of collections with one collector be passed on and reviewed by downstream collectors.
- “When subsequent collectors do not receive updated or new information resulting from prior collection activity, consumers have little practical alternative but to provide the same information again.”
- “I TOLD YOU I DON’T KNOW WHERE MY BROTHER IS AND WOULD YOU STOP CALLING ME!” OR “HE MOVED TWO YEARS AGO, HOW MANY TIMES DO I HAVE TO TELL YOU THIS?!”
- The CFPB’s document states…“If subsequent collectors lack certain information prior collectors had, subsequent collectors may engage in collection activity that contravenes these laws or undermines their protections.”
- As an example, in Oregon you can call the POE once a week, in MA. You can call the customer 1x a week based on X and 2x a week based on Y, so if the account moves to a second collector in that period, or if the 1st and 3rd party are simultaneously are calling and working the same account, a common occurrence, you all better be working in the same system or in a system with an airtight interface, or you have risk in this area.
- “After a collector is no longer seeking to collect a debt, the collector may receive information from or on behalf of the consumer….Failing to convey this information to downstream entities …”
- This is another can of worms as 3rd parties are not great at sharing new info when the account moves to their competitor. If everyone is in the same system, then the 1st party can control this, but if not, good luck.
COMMENT: Passing information between 3rd party vendors is interesting. They’re competitors, so that opens another set of issues. What is and how will “certain information” be passed to different vendors? Interestingly, we have a large lender client who uses our masterQueue platform and they’re the first company I’ve seen that mandates skip tracing and repossession and collection notes be made available to all downstream vendors who access their accounts in our platform. This allows vendors to see what has happened on the account before they receive the assignment, a positive step. This will also be critical as we get into more rules regarding consumer contact below, as the direction the CFPB is heading clearly states they’re concerned about who is being called, how often, when, by whom, for what purpose, etc. If everyone is not working in the same system, or in systems tightly interfaced, how can these things be tracked?
Proposed Solutions. (Appendix E, Page 109). “The proposal under consideration would require subsequent debt collectors to obtain (and prior collectors to provide) certain information consumers provided to prior collectors that obligates collectors to take or refrain from taking certain action relating to rights arising under certain substantive provisions of the FDCPA and the proposals under consideration.”
COMMENT: To me, this states that all work on any account must be transparent and available to anyone working the account, and that information must be in a system everyone can access, or in systems interfaced where notes and activity from one collector are available to be seen by another collector, even when they work for competing companies. This is will be interesting as not every company competes fairly, so will companies document false information to throw their competitor off track? As regulatory compliance weeds out the unscrupulous bad actors in the industry, one would hope that the level of professionalism will rise to a higher standard where everyone will work together in a fair and honest manner, and those who do not will be caught and penalized.
In Part III, we’ll address the new proposed rules surrounding frequency of customer contact and the remainder of the proposed rules.