No Clarity on Debt Collection Laws Until CFPB Director Confirmed

Republicans’ opposition to confirming a director to head the Consumer Financial Protection Bureau (CFPB) may be doing more harm than good to the accounts receivables management industry.

The CFPB, which officially became operational Thursday, is charged with interpreting the Fair Debt Collection Practices Act (FDCPA) and will be able to write new rules governing the debt collection industry. In particular, ARM industry professionals say the agency can allow debt collectors to use the full spectrum of options to communicate with consumers and provide guidance on how to do so to stay compliant with FDCPA. But the Dodd-Frank Act, which created the bureau, says the agency can’t issue new rules or supervise financial companies without a director.

President Barack Obama this week nominated former Ohio Attorney General Richard Cordray to lead the new bureau. Cordray, who aggressively investigated mortgage foreclosures and has more than $2 billion in settlements to his credit, currently oversees the agency’s enforcement division.

Congressional Republicans consider him a clone of Elizabeth Warren, the Harvard Professor who championed the formation of the bureau and the initial frontrunner for the job.  But Senate opposition to his confirmation is not necessarily a personal matter.

Republicans have long contended that confirming one director to head the bureau gives a single person too much power. They are insisting that the agency be run by a board of directors, and hope if one of a number of bills circulating around Congress that supports a board makes it to his desk, that Obama will sign it.

“The Senate should not confirm any person to lead the Bureau until some reasonable reforms are adopted,” Senator Richard Shelby of Alabama, the ranking Republican on the banking committee, said in a press release.

In the meantime, regulators are making decisions that are opening up the ARM industry to more paperwork, while some state courts have made it easier for consumers to sue debt collectors.

In June, the West Virginia Supreme Court of Appeals said that consumers can sue debt collectors for overly aggressive collection practices — a ruling that carries higher punitive damages for the offending agency if a judge agrees with the plaintiff. Shortly after, the California Supreme Court ruled that a debt collector can be sued for disclosing medical records.

“In the short term, the thought of continuing forward without any guidance from the CFPB is troubling when you consider all the conflicting court decisions and enforcement actions across the United States,” said Fred Blitt, president of the National Association of Retail Collection Attorneys (NARCA) and a managing partner of the law firm of Blitt and Gaines, P.C. in Wheeling, Illinois.  “There are also a lot of questions about how the FDCPA applies to newer forms of communication. However, in the long run, the most important thing is to ensure that the approach taken by the CFPB protects consumers without unduly burdening legitimate debt collection.  We’ll leave it to Congress and the administration to sort out whether that balance is best achieved by a single director or by a board.”

“Without question, clarity is critically important so that the industry does not hang in limbo,” said ACA International spokesman Mark Schiffman. “We hope the President and Congress are able to finalize the CFPB’s structure and leadership expeditiously. We aren’t taking any chances and are working with CFPB as they define how they will function.”

Even though Cordray was tough on the debt collections industry when he was Ohio’s AG, Kaulkin Ginsberg Director Michael Lamm said he doubts that Cordray, or any director, will focus on debt collection.

“I don’t think they are putting debt collections at the top of that list.  They have other issues and bigger issues they need to deal with, the bigger one being the mortgage industry,” Lamm said.

David Sands, president of the New England Collectors Association, told insideARM that there is a growing anxiety among debt collection professionals about communications with consumers, especially given the recent state Supreme Court rulings and regulations. But he doesn’t think giving the CFPB “unbridled power” to make rules is the best course to take either.

“There should be more checks and balances, rather than giving someone ultimate rulemaking power,” said Sands.  It’s not a partisan thing.”