Alert November 13, 2012

CFPB Finalizes Rule Defining Larger Participants of the Debt Collection Market

The CFPB released its final rule defining “larger participants” of the debt collection market. Under section 1024 of the Dodd-Frank Act, the CFPB has the authority to supervise nonbank “larger participant[s] in markets for other consumer financial products or services.” The final rule covers third-party debt collectors, debt buyers, and collection attorneys with annual receipts of $10 million or more. The definition of “annual receipts” is adapted from the definition used by the Small Business Administration and is measured by the amount of time the debt collector has been in business. Of import, the rule aggregates the annual receipts of affiliated companies to determine whether the annual receipts meet the threshold. Ultimately, the CFPB will have supervisory authority over 175 debt collectors, representing 63% of the debt collection market.

In announcing the final rule at the debt collection field hearing, CFPB Director Richard Cordray stated that “reasonable market oversight is critical to fostering competition in consumer financial markets.” Mr. Cordray noted that the CFPB will be focused on the systemic issues in the debt collection market, in particular, the accuracy of the data debt collectors use in pursuing consumers, the extent to which the accuracy of the information “deteriorates as it is passed down the line,” and how debt collectors process consumer disputes. Mr. Cordray also stressed the importance of “robust compliance programs,” noting that it will not be enough for debt collectors to simply point to policies and procedures as a means of justifying their collection practices, but rather debt collectors must consistently follow their policies and procedures and ensure that they have a sound monitoring system in place. The rule is effective January 3, 2013.

The CFPB also released the Examination Manual it will use to supervise debt collectors. The Examination Manual covers seven examination modules focused on compliance with the Federal Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act and the Equal Credit Opportunity Act, as well as reviewing supervised entities’ policies and procedures related to payment processing and litigation-based collection, such as determining when collection actions are time-barred. Pursuant to the CFPB’s fact sheet, examiners will also focus on disclosure, the accuracy of information, complaint and dispute resolution processes and customer service.