On November 12, 2013, the CFPB issued an Advance Notice of Proposed Rulemaking, seeking comments to its proposal to update the Fair Debt Collection Practices Act (“FDCPA”). As part of its proposed rulemaking, the CFPB sought comments about applying a regulatory regime similar to the FDCPA – which applies only to third-party debt collectors – to first-party debt collectors. See 78 Fed. Reg. 67848 (Nov. 12, 2013) (the “ANPR”). Should the CFPB effectively expand the FDCPA’s reach, it would signal a major shift in debt collection regulation, with the potential to create additional litigation risk and compliance cost for first-party debt collectors.
CFPB Claims Authority to Regulate First-Party Debt Collectors
On July 10, 2013, the CFPB released Bulletin 2013-07, taking the position that the Dodd-Frank Act authorizes it to regulate debt collection-related unfair, deceptive, or abusive acts or practices (“UDAAPs”) of both first- and third-party debt collectors. The CFPB reasoned that:
- The FDCPA grants the CFPB authority to regulate debt collection practices, and
- Dodd-Frank grants it authority to regulate UDAAPs;
- Therefore, the CFPB has authority to regulate UDAAPs that occur in the course of debt collection activity, even where: (i) such conduct is beyond the scope of conduct regulated by the FDCPA; and (ii) the UDAAPs relate to first-party debt collection.
That same day, the CFPB also released Bulletin 2013-08, restating its position that “[t]he FDCPA and Dodd-Frank together prohibit covered persons or service providers, including debt collectors, from engaging in deception while collecting or attempting to collect on consumer debts.”
Through the ANPR, the CFPB reiterated the same position, and found that first-party debt collection has been problematic in ways that Congress did not contemplate at the time it created the FDCPA, stating that “[f]or instance, the FTC receives tens of thousands of debt collection complaints each year concerning [first-party debt collector] creditors.” But the ANPR, the CFPB also went one step further, stating that it sought comments as to whether “it should generally seek to harmonize any rules it develops for third-party collectors and first-party collectors, except to the extent that the law, facts, or policy considerations warrant different treatment.” More specifically, the CFPB sought comment about proposing rules governing first- and third-party debt collection regarding validation notices, disputes, and verifications and debt collection communications with borrowers – subjects which are explicitly within the FDCPA’s scope.
The CFPB has demonstrated that it is willing to take action against first-party debt collectors, when it believes that UDAAPs have occurred, bringing enforcement actions against first-party debt collectors in 2012 and 2014. What remains to be seen, however, is whether and the extent to which the CFPB will propose new rules that will effectively bring first-party debt collectors under the umbrella of the FDCPA.
The Opposing View: Comments by the American Bankers Association and Consumer Bankers Association (“the Associations”)
In a February 28, 2014 letter, the Associations responded to the ANPR. They agreed with the CFPB’s goal of modernizing the FDCPA, but objected to the proposed wholesale application of the FDCPA to first-party debt collectors on two general grounds:
First, the Associations noted that substantial differences between first- and third-party debt collectors warrant different rules for each type of collector. In contrast to third-party collectors, first-party collectors maintain long-term relationships with consumers. Imposing a regulatory regime similar to the FDCPA would hamper first-party collectors’ ability to foster this relationship with borrowers, and would result in redundant and confusing notices to and communications with borrowers. Moreover, the costs of the added regulatory burden would harm consumers, because it would be passed on to consumers in the form of increased credit costs and decreased credit availability.
Second, Congress explicitly decided to exempt first-party creditors from the FDCPA, and nothing in the Dodd-Frank Act negated this Congressional decision. In particular, the FDCPA was designed to address certain issues that are specific to third-party debt collection practices, such as requiring collectors to verify standing to collect debts and by limiting communications to curb abusive collection practices. The Association accordingly challenges the CFPB’s legal basis to effectively expand the FDCPA to encompass first-party debt collection, given that Congress declined to do so.
The Associations do not dispute the CFPB’s authority to regulate debt-collection UDAAPs through the Dodd-Frank Act. Rather, the Associations urge that the CFPB should: (1) refrain from applying the entire FDCPA regulatory regime to first-party collectors; and (2) prioritize third-party debt collection reform before turning its attention to the less-problematic first-party debt collection regulation.
Where the CFPB Goes From Here
In its Fall 2014 rulemaking agenda, the CFPB stated that, due to a high volume of comments, it intends to continue to investigate the extent to which it will further regulate debt collection practices. The CFPB is presently developing a consumer survey and is conducting tests to determine the type of information and disclosures consumers need from debt collectors. LenderLaw Watch will continue to monitor developments in the CFPB’s proposed debt collection rulemaking and bring you updates as they occur.