Warning From Trade Groups: Proposed CFPB Debt Collection Rules Could Snag Credit Unions

A loophole in the CFPB’s proposed debt collection rules could allow the agency to take action against credit unions even though the rules were not intended for those institutions, trade groups recently warned.

The CFPB has said the controversial debt collection rules are intended for third-party debt collectors.

However, trade groups are warning that a section of the rule would allow the CFPB to sanction any debt collector under the agency’s Unfair, Deceptive or Abusive Acts or Practices.

“Credit unions are not the type of debt collector the [law] intended to limit or prohibit from making contact with consumers,” NAFCU Regulatory Affairs Counsel Kaley Schafer wrote in a letter to the agency.

After years of research, the CFPB on May 7 released a 538-page proposed rule implementing the Fair Debt Collection Practices Act. The proposal specifies rules for third-party debt collectors covered under that law. Among other things, the rule addresses technological advances that have taken place since the law was enacted in 1977.

The proposal would limit the number of telephone calls from third-party debt collectors to a borrower to no more than seven per week.

Consumer groups have blasted that section of the rule, saying it could lead to harassment of consumers who have more than one debt. Some 232 groups, including the AFL-CIO, the Center for Responsible Lending, the Consumer Federation of America and the NAACP filed a letter with the bureau opposing the proposed rule.

In a comment letter to the CFPB, Alexander Monterrubio, CUNA’s senior director of advocacy and counsel, said the rule was intended for third-party debt collectors, not for credit unions.

He urged the agency to “carefully consider the broad impact its rule will have on consumers and the operations of third-party collectors and seek to limit disruption to this critical function.”

Monterrubio questioned whether the proposed seven telephone calls per week limit was grounded in any empirical data and urged the bureau to conduct research if it plans to adopt that limit.

Schafer wrote that credit unions should be exempt from any first-party debt collection rules the agency may adopt.

“Credit unions are not the nefarious, bad actors that the Bureau intends to target with this rulemaking,” she wrote.

The consumer groups opposing the plan were blunt in their criticism.

“The rule as proposed does far more to protect abusive debt collectors than consumers,” they wrote, saying that the plan opens consumers to harassment, abuse and invasions of their privacy.

The rule should be changed to limit collectors to three attempted telephone calls a week and one conversation for each consumer, they wrote.

The rule also could be read to allow collectors to contact third parties, such as employers, neighbors, families and friends, they said, adding that loophole should be changed before a final rule is issued.

The rule also does not impose specific limits on the number of texts, emails or direct messages a debt collector may attempt, they said.