Debt buying and collection industry leaders have aggressively lobbied lawmakers to nix - or at least revamp - the Consumer Financial Protection Agency blueprint, which would consolidate financial industry oversight.
And, nine months after the Obama Administration unveiled the far-reaching regulatory reform proposal, it appears legislative support is waning. That's good news for collectors and debt buyers. Industry leaders argue the proposal would duplicate what is handled already by agencies such as the Federal Trade Commission. They say the CFPA easily could be unduly unfair to collectors and creditors - and is confusing as well.
The agency’s powers would be too great, argue the leaders at DBA International and ACA International, the largest collection industry trade groups. The legislation is so broadly written, in fact, it appears to grant unfettered authority to rule outside the bounds of Congressional intent.
Roger Knauf, executive director at DBA International in McLean, Va., says the CFPA likely would be able to update the Fair Debt Collection Practices Act (FDCPA) via administrative fiat rather than through the normal legislative process. He believes, citing just one example, that the proposed agency could rule on how collectors can contact consumers via e-mail and cell phones.
There is a fear that a CFPA would have draconian powers, able to levy fines of up to $1 million a day for violations. “For a big bank like Chase, that may not be expensive,” says Knauf, “but if you’re a small firm, it could put you out of business.”
Adam Peterman, director of Federal Government Affairs at ACA International, inadvertently sums up the industry’s objections about fairness in his simple description of the proposed agency as “a one-size-fits-all that is supposed to work for both large multinational banks and mom-and-pop collection agencies.”
The CFPA, in short, would not only oversee banking and collections, but all firms engaged directly or indirectly in the financial industry. Jurisdictions would include credit cards, consumer loans, debt buying, credit reporting and payday loans.
Supporters - on Capitol Hill and with various consumer protection groups - say the CFPA would nicely pull together consumer oversight powers now scattered among many agencies. It would be akin to the FTC. The goal, they argue, is to move consumer interests higher on the regulatory priority list.
The Fairness Factor
DBA and ACA leaders do not object to enhanced consumer protections, the associations run strict ethics programs designed as self-policing measures, but they don't believe the industry would get a fair shake under the CFPA.
Peterman says the agency likely would be granted authority to restrict pay structures. There is an argument, he says, that bonuses should be limited because they provide an incentive to dupe consumers. But just because a firm compensates someone for a job well done does not necessarily mean they have duped consumers, he adds.
While it’s one thing for the federal government to limit pay for firms on the government dole, it’s another for it to limit an entire segment of the economy that has not taken any money from the government.
The CFPA further likely would have injunctive powers enabling it to stop any activity it believes to be a wrongdoing. Stopping a company’s cash flow, he says, even if for a short time, could easily put a small firm out of business without proof that an actual wrongdoing occurred.
The reality is the full impact the proposed CFPA would have on collectors, debt buyers, and creditors, too, has never been too clear, but industry leaders are convinced that layering new rules on top of old ones would, at a minimum, raise the cost of doing business and make it difficult for collection firms to meet their financial goals.
So, ever since the reform proposal came to light, the association leaders went into action.
Two weeks ago, Knauf met with Richard Shelby, R-Alabama, the ranking Republican on the Senate Banking Committee. Shelby says he will not support creating the CFPA.
Industry leaders recently have become a bit more hopeful that the CFPA plan will be shelved - or at least tabled indefinitely. Overall prospects for the CFPA are dimming. To wit: Senate Banking Committee Chairman Chris Dodd, D-Connecticut, who originally said he would not back off from plans for the CFPA, recently said he would scrap the idea if Republicans were willing to create a beefed-up consumer protection division within another federal agency, such as Treasury.
Peterman adds that Dodd’s retirement plans – he has announced he will not seek re-election - make it likely that the CFPA will be dropped from the financial reform bill. His retirement, Peterman believes, makes him more willing to compromise to get the bill passed - and thus add to his legacy.
More good news for the collection industry is the recent election of Republican Scott Brown to the Massachusetts senate seat once held by Ted Kennedy. “After Brown was elected, it became unclear if the Senate has the votes to pass the legislation,” adds Peterman.
Already, the House of Representatives has shown a willingness to change some of the more objectionable provisions. In December the House voted on its own version of the CFPA, with significantly watered down powers that would only examine the nation’s largest banks.
Knauf and Peterman credit the members of their respective associations for their help with lobbying. Both associations conducted a grassroots outreach to educate members. ACA’s legislative council met several times to craft a strategy to fight the proposed agency.
The ACA, adds Peterman, also mobilized members to contribute approximately $11,000 to the Brown campaign, and some agencies offered the campaign the use of their phones.
In spite of the many objections raised by the industry to the CFPA, there actually would be some advantages, particularly to debt buyers. Debt sellers, typically banks, and debt buyers would fall under the same regulatory umbrella.
In most bad-debt deals, sellers do not provide buyers supporting documents that help prove a debt is owed. At times, they may offer the information for a specific period of time, but that usually does not help subsequent buyers of the same accounts.
An umbrella regulatory agency could ensure that banks make such documents available. Even so, Knauf is quick to add, any pros are far outweighed by the cons.
To read more about Knauf and his career, please return to www.collectionscreditrisk.com on Wednesday.