A big question in collections is how will the CFPB change credit unions and other lenders' debt collection practices, but the specific modifications remain uncertain.
As of July 2014, debt collection and debt collectors were among the largest consumer complaints the CFPB has addressed. Between July 2011 and July 2014, 20% of the grievances involved debt collection, beating credit card issues at 14% and lagging behind mortgages at 34%, according to the CFPB's 2014 report to Congress.
Debt collection complaints ranked even higher for the Federal Trade Commission, which reported consumers made approximately 73,211 debt collection complaints in 2013. Nearly 60,500 of them involved third-party debt collectors and more than 12,700 complaints were against first-party debt collectors, which are employees or contractors hired by the firms that originated the debt.
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Third-party debt collectors are those that have purchased the debt from the original firm or, more likely, according to the FTC, from brokers who made money buying and selling debt. These collectors can also be firms that first-party institutions hire to collect their debts. Some sources said the confusion in roles is one reason this lending segment is becoming more difficult to manage.
"Our job at the Consumer Bureau is to root out bad actors that violate the law," CFPB Director Richard Cordray said when announcing the agency's first formal steps in gathering information prior to proposing a rule in November 2013. "Their violations hurt not only consumers, but also every debt collector that tries to operate within the law."
In the CFPB's 2012 advance notice of proposed rulemaking, Cordray said the bureau wanted to learn how it might construct a rule that ensured debt collectors pursued debts from consumers who actually own the money. The CFPB was particularly interested in debt collections firms to establish a direct chain of ownership of the debt.
The advance notice also said the CFPB wanted to examine what debt collectors can or have to tell consumers about debts they are collecting and the origin of the debt.
Although some have expressed concerns about what the CFPB might do in the debt collection area, at least one attorney argued that a final rule in this area would be better than what exists now.
"The problem for credit unions and other financial institutions is that there hasn't been any new regulation, just regulation by enforcement," Brian Witt, a partner with law firm Farleigh Wada Witt in Portland, Ore.
Witt pointed out that while the CFPB has not pressed forward with regulations that would attract open debate, it has moved on enforcement actions that have left many in the financial services communities confused about the rules. For instance, the rules regarding liability when a first-party debt collector, which is often a financial institution, hires or contracts with another firm for collections. Previously, first-party firms would not necessarily be responsible for the actions of the contracted firms in debt collections, Witt said. However, recent enforcement actions have extracted settlements from first-party firms for the actions of their contracted firms.
"There are real questions about where the lines are now for how much a credit union might be responsible for the way another firm collects its debts," Witt said.
Read more: Anticipating the CFPB's future regs …
He described an evolving system where the CFPB might hold first-party firms and their service providers to one standard and not hold other firms to the same standard.
Witt said that although only credit unions with more than $10 billion in assets are directly subject to CFPB regulations, his firm noticed concerns about collections management cropping up in NCUA exams of smaller credit unions and even in the exams of state-chartered credit unions.
Once the CFPB proposes a regulation, Witt contended, the agency will be on the record with its priorities for enforcement and with clear rules that credit unions and other first-party collectors can use to set policies. He said he could not predict when the bureau would move forward with its rules.
"We've been following this for some time and the industry really needs some guidance," Witt said.
Amanda Smith, an associate with law firm Messick & Lauer in Media, Pa., said the CFPB has provided some guidance on what credit unions can do to keep their collections activity in compliance.
Messick & Lauer represents credit unions, CUSOs and small businesses that specialize in commercial and residential real estate transactions.
Smith advised credit unions to raise the profile of collections compliance, particularly by making sure communications with members conform to the Unfair, Deceptive, or Abusive Acts or Practices Act.
This was somewhat difficult as the UDAAP had a reputation for being unclear, but Smith said the CFPB published a bulletin to help make the law's requirements clearer.
"UDAAP was previously a very grey area, but this bulletin provided the industry with specific acts or practices that the CFPB considers to be unfair, deceptive or abusive acts with regards to debt collection activities," Smith wrote in an email to CU Times, referring to it as a cheat sheet.
She advised credit unions to ensure their policies and procedures prevent employees from acting in an unfair, deceptive or abusive manner with members.
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