On Monday, the CFPB issued its final rule defining larger participants of a market for consumer reporting. It acted pursuant to Section 1024 of Dodd-Frank which grants the CFPB the authority to supervise non-bank covered persons for compliance with Federal consumer financial laws. Dodd-Frank automatically gave the CFPB the authority to supervise non-bank covered persons in the residential mortgage, private education lending and payday lending industries. In addition, and relevant to the final rule issued on Monday, Dodd-Frank authorizes the CFPB to supervise non-bank “larger participants” of markets for other consumer financial products and services.
In February of this year, the CFPB issued a proposed rule defining larger participants of two markets: consumer reporting and consumer debt collection. Surprisingly, the final rule issuedon Monday deals only with consumer reporting. There is scant reference to debt collectors or debt buyers in the final rule. The “Summary” to the final rule states: “After the issuance of the final rule, the Bureau will take further action regarding the proposed consumer debt collection market.” The “Supplementary Information” to the final rule states: “After the issuance of the rule, the Bureau will take further action relating to the notice of proposed rulemaking to define larger participants of a market for consumer debt collection.” In its press release accompanying the final rule, the CFPB states: “The CFPB plans to finalize its ‘larger participant’ rule on debt collection this fall, and plans to issue additional ‘larger participant’ rules in the future.”
So where does this leave things with respect to debt collectors and debt buyers? If we take the CFPB at its word, a final rule will be issued sometime in the fall. Wikipedia states:”According to United States tradition, autumn runs from the day after Labor Day [this year September 3] through Thanksgiving [this year November 22].”
If the CFPB delays the effective date of the final debt collection rule for the same period of time that it has delayed the effective date of the final credit reporting rule (about 45 days), that means that the CFPB will start examining larger debt collectors and debt buyers sometime between the middle of October and the early part of January of next year.
However, the reality is that the CFPB already possesses the authority to examine debt collectors (regardless of size) who collect debt on behalf of other banks and companies who are already subject to CFPB supervision (i.e., banks, thrifts and credit unions with more than $10 billion in assets, residential mortgage companies and companies that make payday loans and private student loans). To my knowledge, the CFPB has not yet exercised this authority.
Also, the CFPB will soon be finalizing a rule which will enable it to supervise non-banks (regardless of size), including debt collectors and debt buyers, who are engaged in activities that pose risks to consumers. (Here is a link to our prior blog on this topic.)
Finally, and apart from its supervisory authority, the CFPB has the authority right now to investigate (including the right to issue civil investigative demands) and to initiate enforcement proceedings against debt collectors and debt buyers. Indeed, the CFPB is already investigating non-bank debt collectors and debt buyers.
As a result of this CFPB activity in the debt collection area, we have encouraged the industry to prepare now for their first CFPB exam and/or enforcement initiative. To that end, our Consumer Financial Services Group has created a team of lawyers who are already assisting debt collectors and debt buyers get ready for their first CFPB contact, be it an exam or the receipt of a civil investigative demand. We are reviewing compliance programs (including relevant policies and procedures) of several debt collectors and debt buyers. The time to prepare is now, not when the CFPB finalizes its rule or knocks on your door.