The Consumer Financial Protection Bureau is open for business, of course, but it still promises to be awhile before the collection industry gets a clear idea of how the regulatory agency intends to oversee it.
Needless to say, the industry is eager to find out. The prospect of a new agency with real power to make rules that apply to their business is scary to many collectors. Yet the change is necessary because the existing system, frankly, is in sore need of reform.
The Fair Debt Collection Practices Act has prevailed over the industry for more than 30 years, with the Federal Trade Commission serving as the regulatory watchdog.
But the FTC has power only to enforce the Act, not to write regulations. And while it receives consumer complaints about collectors and review them, the FTC’s job mostly involves submitting an annual report to Congress about its enforcement efforts on behalf of consumers.
The rules governing how agencies communicate with consumers haven’t had a major update since they were written in 1977.
The system is also broken because the Telephone Consumer Protection Act (TCPA), originally designed for telemarketing, has proven a giant hindrance to collectors. Courts have interpreted the 1991 act to bar collectors from calling consumers’ cell phones on an autodialer to help them collect debts.
This has been a major headache since 35% of Americans don’t have a land line anymore and only use their cell phones. Last month, a bill seeking to modernize the TCPA was introduced in the House of Representatives (see story).
Since the CFPB has the power to make rules and regulations, the collection industry will be watching closely how the agency handles such issues as communications by collectors to consumers.
Collectors’ hopes are that the CFPB will create a more predictable legal structure that embraces new technologies and decreases the uncertainty around compliance.
That is why ACA International has put together its own blueprint for modernizing the nation’s consumer collection system for the agency to consider (see story).
The collection industry won’t really know for quite some time how the CFPB is likely to oversee it. While President Obama has nominated a director, former Ohio -Attorney General Richard Cordray, it is expected to take awhile before the Senate considers his nomination. Republicans, in particular, want more say over the agency’s budget and some check on the agency’s broad powers.
Those issues may take quite some time to resolve. Until a director is confirmed, the CFPB will be able to enforce existing laws but can’t write new regulations or supervise non-lending financial institutions like debt collection agencies.
And when a director is in place, the agency’s early priorities are expected to center on credit-card disclosures and fees; prepaid-card disclosures and fees; and registration and supervision of non-bank lenders. It also will want to continue to make progress simplifying credit-card and mortgage disclosures.
This gives the collection industry some breathing room. Indeed, the agency’s early priorities suggest that it may be a year before debt collection appears in its crosshairs.
The collection industry got an inkling of what issues the CFPB may focus on at an FTC workshop last April focusing on new technologies in collections.
The issues aired at the workshop pertained to how collection agencies obtain information, including skip-tracing; telephone technologies; methods of verifying debt; the use of email and social media in debt collection and the future regulatory path.
In opening the workshop, David Vladeck, director of the FTC’s Bureau of Consumer Protection, reiterated what he told Congress recently that new technologies, especially social media and mobile text messaging, could enhance communication between collectors and consumers but also presented a number of challenges to consumer privacy.
In December 2010, a preliminary FTC staff report on Internet privacy proposed a framework to protect consumer privacy. Its three main recommendations applied to mobile technology and included “privacy by design,” simpler and streamlined privacy choices and transparency. Another issue that has emerged pertains to paid medical debt and whether it should be removed from credit reports.
In addition, an examination of the organizational structure of the CFPB and the appointees already made to the agency suggests a definite consumer-centric orientation.
Many appointees have experience in the financial-services sector, and that’s a good sign. And as for the CFPB staff members, some of them have come from the FTC, where they didn’t have regulation-making power. But they will now.
David Ingram is senior director of Collections Strategy at Experian.