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What CFPB Field Hearing Means For Upcoming Rule

Is it possible to catch someone off-guard but not catch them by surprise at the same time? It appears that way, at least in the collection industry. Friday afternoon’s announcement that the Consumer Financial Protection Bureau (CFPB) would hold a field hearing on July 28 to discuss the topic of debt collection shocked many in the industry. But nobody was surprised that the agency is ready to move forward with its proposed debt collection rule.

The CFPB’s process has been to announce a field hearing, and then on the eve of the field hearing, publish a major regulatory initiative.

On June 2, the CFPB held a field hearing to discuss small dollar lending. The same day, it issued a proposed rule to regulate the payday lending industry.

On May 5, a field hearing was held to discuss arbitration clauses in consumer lending contracts. The same day, it issued a rule proposal that would ban the use of mandatory arbitration clauses.

On February 3, the field hearing topic was checking accounts. The same day, it published a letter it had sent to the nation’s 25-largest banks, urging them to make checking accounts more widely available to lower-risk deposit accounts that help consumers avoid over drafting.

Whether the CFPB will issue its proposed debt collection rule on July 28 or possibly a rules outline — a requirement as part of its planned Small Business Regulatory Enforcement Fairness Act hearing – remains to be seen. What does appear to be the case, is that the CFPB is moving forward, quickly.

Based on the current timeline, it’s possible for the CFPB to have a final rule issued before the next president is inaugurated on January 20, 2017, a date that might be the reason why the agency is moving quickly. A Republican win in November’s presidential election may lead to the undoing of a lot of what the CFPB has done and plans to do.

“My opinion is that they are moving faster because of the presidential election,” said Rozanne Andersen, the chief compliance officer at Ontario Systems. “I think they are going to look at an abbreviated timeline to get this thing done and working in the marketplace.”

The CFPB issued its advance notice of proposed rulemaking in November 2013. The comment period closed on February 28, 2014, and since then, it has been crickets. There have been a number of consent orders that the CFPB has entered into with collection agencies, debt buyers, and other market participants. This strategy has earned the name “regulation by enforcement,” but the industry has been waiting for an update about the proposed rule for more than two years.

CAN’T WAIT ANY LONGER

“They need to get a rule out,” said Stefanie Jackman, a partner in the law firm of Ballard Spahr. “The consent orders are shaping behavior, but they need a broader statement as to how FDCPA will work, especially in first-party context. They have to address how to incorporate newer technologies. They require rulemaking to set the standards.”

Many have attempted to interpret what a potential rule will look like, based on the items included in the consent orders. There are those who wonder whether the rule will also regulate first-party creditors as well as third-party collectors. The Fair Debt Collection Practices Act only pertains to third-party collections.

“There have been a lot of tea leaves to read based on enforcement actions, based on some of the amicus briefs the Bureau has filed, and other things,” said Walter Zalenski, a partner in the law firm of Buckley Sandler. “They’ve been aggressive in the collection space and there’s been a lot of signals. But you never know for sure until (the proposed rule is published in) the federal register. One thing we can say is that the SBREFA outline on payday lending was quite close to the ultimate proposal, so the anticipated release next week will be closely analyzed.”

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