ARM Leaders Discuss New Consumer Financial Protection Proposal

U.S. Senate Banking Committee chairman Christopher Dodd (D-Conn.) this week unveiled proposed Senate financial reform that collection industry officials oppose.

The bill is basically unchanged from the proposal Dodd first discussed shortly after passage of the House financial reform bill last December, according to Adam Peterman, director of federal government affairs for ACA International. Peterman called most of the changes between the two bills as nothing more than cosmetic, with the exception of the restrictions on compensation, which have been removed.

The measure, initially titled Restoring American Financial Stability — the Senate Banking Committee’s website says the name is likely to change — calls for a Consumer Financial Protection Bureau (CFPB) to be housed within the Federal Reserve. The Fed would not have authority over the bureau, but would rather be renting the new agency space. The President would appoint the head of the bureau, with Elizabeth Warren, currently Congressional Oversight Panel chairwoman, a leading candidate.

While consumer protection is a good concept, the idea of a separate autonomous agency to handle these issues is likely to lead to severe, negative unintended consequences, says Gary Wood, president of Madera Partners, LLC, Austin, Tex., a debt buying and selling consulting firm.

“This doesn’t provide enough credence for the people who provide the credit to the marketplace,” Wood says, who is also chairman of the legislative task force for DBA International, a leading trade group for debt purchasers. He pointed to North Carolina, Wisconsin and Mississippi, which have all reduced the statute of limitations on debt, with debtors not being allowed to repay the debt later, even if they so desire.

That means that debtors in these three states with delinquencies beyond the statute of limitations cannot repay the debts in order to improve their credit records, Wood says. So it would be hard for them to improve their credit scores and to qualify for mortgages and other credit. Credit bureaus typically keep debt on their records for seven years, regardless of the statute of limitations in a consumer’s home state.

Another big issue with the legislation, according to Peterman, is that it would give the FTC and the CFPB concurrent enforcement authority, which Peterman called “at least as bad and perhaps worse” than the backstop authority that was proposed initially. This would open up the Fair Debt Collection Practices Act (FDCPA) for changes that may or may not take into account the needs of consumers, lenders, debt buyers and collectors.

Dodd said he hopes to be able to send the legislation to the Senate floor by March 26, when the Senate leaves for a 10-day Easter recess. Peterman and Wood expect the bill to proceed that far, but are doubtful it can survive a Senate vote because the Democrats would have to maintain all of their votes while also attracting at least one Republican to get the 60 needed for approval. Republicans have stayed on their side of the aisle on Democratic proposals, such as Dodd’s during the current legislative session.

But Peterman cautioned: “It’s hard to predict what the final fate of the legislation will be.”

ACA will be working on a grass roots campaign to encourage voters to contact their legislators to vote against the bill.

ARM industry leaders are not the only group opposed to the new proposal. The American Bankers Association issued a strong opinion early this week after Dodd announced the measure.

“The ABA has strongly supported regulatory reform and continues to do so,” said Edward L. Yingling, ABA’s president and chief executive officer. “However, we are very disappointed that the bipartisan process has broken down, at least for now, and we do not believe that workable regulatory reform can be enacted without a bipartisan approach.”

ABA opposes the new bill as it now stands and is suggesting a number of areas that need to be changed, including: the approach to consumer protection, which continues to separate prudential and consumer regulation; the elimination of the thrift charter; the elimination of the Federal Reserve’s authority over state member banks; issues within the resolution mechanism; the weakening of federal preemption; and the failure to address accounting issues in any fashion.