Creditors Facing Significant Cost Investments To Comply With CFPB Proposals

While the Consumer Financial Protection Bureau has said it will address first-party collections in a “separate track” from the measures it is taking in the third-party collection space, banks and other creditors are still facing significant increases in costs as a result of the proposals to improve the quantity and quality of documentation and information that is supposed to be provided to collection agencies.

“This one really does have a direct effect on banks in terms of the costs that will be incurred to try to satisfy the requirements that the third-party debt collectors will inevitably be asking for in terms of documentation and making sure that the amount of the debt, the identification of the borrower, and all those things are verified across the board,” Kevin Petrasic, a partner at White & Case, told Bloomberg BNA. “I think that’s a big deal.”

If the costs are too extreme, it could lead to banks re-thinking the decision to send accounts to third-party collectors, the regulatory counsel for the Consumer Bankers Association said.

Along with the increased costs, banks are also facing increased liability, especially from consumer attorneys. Under the proposals, creditors would be required to have policies and procedures in place to ensure the accuracy of information being provided to collection agencies and that the information being transmitted is identical to the bank’s records. The representation could lead to consumer attorneys suing banks to verify those policies and procedures are in place. Additionally, industry lawyers pointed out that if the information transmitted to collection agencies is inaccurate, would creditors be held liable, potentially under the umbrella of Unfair and Deceptive Acts and Practices (UDAAP)?

[John K. Rossman, an attorney at Moss & Barnett in Minneapolis] said banks will also be required to transmit to the debt collector information regarding – among other things – disputes and bankruptcy filings. “This could create a logistical quagmire for the bank seeking to coordinate a multi-channel flow of information, especially if the process includes a first-party customer service entity, a third-party debt collector and a collection attorney,” he said.