Is the Consumer Financial Protection Bureau trying to legislate the debt-buying industry through a series of settlements it has reached with participants in this market?
It would certainly seem so, especially considering the terms of a settlement announced yesterday between the CFPB and Encore Credit and Portfolio Recovery Associates. Among the many, many things that the two companies have to change as a result what the CFPB found during its investigation, the two companies are barred from re-selling debt portfolios they have purchased. This is in line with a similar condition placed on JPMorgan Chase when it reached a recent settlement with the CFPB as well.
There are no laws against re-selling debt. It has been a common practice for more than a decade. But there is a stigma attached to the debt-buying industry; the image of scruffy ne’er-do-wells congregating in the alley behind a dingy bar, trading folders of portfolios for pennies at a time. Perhaps the CFPB is attempting to fight against that image by prohibiting more and more companies from re-selling transactions. But there are hundreds of legitimate transactions that are funded every day in this industry. But, if the CFPB continues to have its way, for how much longer is that going to continue?
Jan Stieger, the executive director of DBA International, said in a phone interview today that the association will continue its efforts to meet with regulators and legislators to keep debt-sale restrictions from rules or bills that are being considered. But if the CFPB continues to perform an end-around and putting limits on what companies can do in their settlement agreements, there might not be a need for a rule or law to go into effect for the debt-buying industry to dry up. There is precedent for the CFPB using its powers to essentially create legislation without the burdensome process of actually making rules or enacting legislation.
When the CFPB was created, car dealers, in what can only be described as a huge victory, managed to make sure they would not be subject to the CFPB’s regulatory authority. But, over the last couple of years, the CFPB has taken a number of steps that have had a tremendous impact on how car dealers operate. For example, the CFPB has gone after auto lenders for the discretionary pricing authority that dealers were given to mark up the interest rates on auto loans. Now, lenders have replaced that discretion with caps that restrict how much dealers can mark up interest rates.
How can the industry convince the CFPB that there it serves a legitimate purpose? Has the CFPB already made up its mind? Should the CFPB now stand for Curbing Funding of Portfolio Buying?
The CFPB was well within its rights to go after Chase, Encore, and PRA for what they did. There is a federal law that sets forth what can and can not be done when it comes to collecting debts and that law has to be followed. But there is nothing in that law, or any federal law, regarding the sale of debt portfolios from one entity to another. PRA is never known to have sold a portfolio and sources said that Encore stopped selling years ago; both companies are solely buyers. So why, then, tell either company that they can’t sell anymore? The only logical conclusion is to prove a symbolic point.
The CFPB is working on a rule that will further regulate the collections industry. Judging by the actions of the agency, it’s safe to assume that the rule, when finally issued, will include some language relative to the buying and selling of debt.
Is it time for the industry to get its affairs in order? Or is there something that can be done?