The Consumer Financial Protection Bureau has announced plans to address the verification component of the proposal it issued last year in a rule that will cover both first-party and third-party collections at the same time, changing course from a previously announced plan to cover first-party creditors separately from third-party collectors. The CFPB will continue to move forward with other parts of the proposal issued last year that will cover third-party collectors, specifically.
Richard Cordray, the director of the CFPB, made the announcement at the agency’s Consumer Advisory Board meeting this morning in Washington, D.C.
“As we evaluated the feedback we received on the proposals under consideration, one thing became clear,” Cordray said. “Writing rules to make sure debt collectors have the right information about their debts is best handled by considering solutions from first-party creditors and third-party collectors at the same time. First-party creditors like banks and other lenders create the information about the debt and they may use it to collect the debt themselves or they may provide it to companies that collect the debt on their behalf or buy the debt outright. Either way, those actually collecting on the debts need to have the correct and accurate information. All of the parties must work together to ensure they are collecting the right amount of debt from the right consumer.”
The CFPB will continue to move forward with other aspects of the proposed rule, Cordray said, mainly covering disclosures that will have to be made by third-party collectors to individuals when collecting debts.
“But breaking the different aspects of informational issues into two distinct rules was shaping up to be troublesome in various ways,” Cordray said. “So we have now decided to consolidate all of the issues of right consumer, right amount into the separate rule we will be developing for first-party creditors, which will now cover these intertwined issues for third-party collectors and debt buyers as well.
“That way, we can address this entire set of considerations marketwide.”
The CFPB had issued a proposal last July, in advance of a Small Business Regulatory Enforcement Fairness Act hearing on the topic of debt collection. The SBREFA hearing was a required component of the rulemaking process and the CFPB could not issue a proposed rule until convening a SBREFA panel. When announcing the proposals, the CFPB said it would cover first-party collections in a separate rule.
“In the meantime, we will be able to move forward more quickly with a proposed rule focused on the remaining issues,” Cordray said. “These issues are again information that third-party collectors must disclose to people about the debt collection process and their rights as consumers ensuring that third-party collectors treat people with the dignity and respect they deserve.”
The announcement and the decision from the CFPB is a significant win for the collections industry, which had raised a number of concerns about the verification component of the rules.
Cordray did not announce whether the contact limits proposed by the CFPB would be included in the new rule or would be delayed until the subsequent rule is released.
“Once we move forward with the proposed rule on these issues we will return to the subject of covering the right amount from the right consumer, which is a key objective of regardless who is collecting the debt,” Cordray said. “And we’ll take care to get it right.”
Stay tuned for more details and reaction from the industry.