John Tonetti, debt collection program manager for the Consumer Financial Protection Bureau, on Thursday told an audience of collection industry leaders that the regulatory agency is listening to debt collectors.
"We will be descriptive before we are prescriptive," Tonetti said, during a speech at the National Collections & Credit Risk Conference in New Orleans. "We're making sure we understand how the [debt collection] industry works. We will be careful to judge the impact of our decisions."
Under a proposal announced last month, the CFPB announced plans to supervise collection agencies with more than $10 million in annual receipts from collection activities. Credit reporting firms with more than $7 million in annual receipts also would be supervised. The two industries are the first identified in the agency's nonbank supervision program, which launched Jan. 5. The proposal must be finalized by July 21,
"We're not doing this in a vacuum," said Tonetti, referring to the agency's oversight plans. "We're not saying, 'You should do this.' We're reaching out and listening - both to consumer advocates but also your industry," he said.
Collections and debt buying insiders are eager to gauge how they will be viewed by the CFPB. Last year, the appointment of Richard Cordray was widely considered a red flag. Cordray has been a debt collection watchdog. As Ohio’s Attorney General, he won a lawsuit settlement of more than $400,000 from National Enterprise Systems. Republican lawmakers may still contest Cordray’s appointment.
The plans to supervise agencies with more than $10 million in annual receipts translates to an estimated 175 collection firms, roughly 4% of the market but a group representing an estimated 63% of annual receipts in the market.
Tonetti was asked if the roughly 175 collection agencies generate 63% of the complaints.
"[Cordray] has said that the smaller agencies seem to generate a disproportionate number of the complaints. I understand that people [in the debt collection industry] are concerned about what we could do. We intend to look closely at the complaints and set up a system to have agencies respond and resolve them [before issuing penalties]."
It's unclear exactly how strictly the CFPB will regulate collectors and debt buyers in that $10 million in receipts category. They may be asked to submit reports to the CFPB, but also could be subject to examinations.
Tonetti said his discussions with collection leaders largely have been fruitful. He has had at least eight formal meetings, including with ACA International, the largest association for collection agencies, and DBA International, the association for debt buyers.
"Of course, we find out that nobody wants to be regulated but everyone feels that someone else should be regulated. The overwhelming emphasis is that we want to protect the consumer and help them understand what they're getting into," he said.
Tonetti cited a personal example of how consumers often are confused by credit terms and various agreements - and why oversight is necessary. "I'm in the market for a student loan for my son and I can tell you I have no idea what some of the language is trying to say," he said.
Debt collectors and creditors attending the conference were realistic. Those interviewed were quick to remember that the CFPB is in place to protect consumers - not debt collection industry interests.
But most seemed hopeful for a good start with the CFPB. The idea is to turn the negative potential for an onslaught of new rules into a positive opportunity to reform existing regulations that hamper the industry.