New Federal Oversight Coming for Debt Collectors

The Consumer Financial Protection Bureau (CEPB) continues to flex its administrative muscles.

Beginning in January, the year-old federal agency created in the wake of the recent financial crisis will begin overseeing a portion of the nation’s debt-collection industry.

Approximately 30 million American consumers have outstanding debt that is subject to collection, and this will be the first time that at least some of the country’s thousands of debt collectors will come under the supervision of one federal department.

Until now, the Federal Trade Commission (FTC) was mostly responsible for enforcing the Fair Debt Collection Practices Act, a federal law that outlines the rules and restrictions imposed on debt collection agencies.  Slack enforcement was sometimes picked up by various state government departments.

CFPB to Oversee Personal and Student Debt

The CFPB will now be responsible for the wide-ranging oversight of companies that specialize in collecting money on personal and household debt, as well as those that contract with the U.S. Department of Education to collect delinquent student loans.

Under new rules promulgated by the CFPB, any company with more than $10 million in annual receipts will have to “properly disclose” the amounts owed, use the most accurate data in the pursuit of outstanding debts and agree to quickly address consumer complaints – “civilly and honestly.”

While only about 175 out of the country’s 4,500 collection firms are large enough to be covered by the Bureau’s guidelines, they account for almost two-thirds of the industry’s $12.2 billion in yearly revenue.

The CFPB in September began supervising the country’s credit reporting agencies, including the big three: Equifax, Experian and TransUnion.

By adding debt collectors – who often pass on consumers’ collection status to the agencies – to its purview, bureau officials said it hopes to “keep an eye on every stage of the lending process.”

The bureau already supervises mortgage servicers and payday lenders.

‘Field Guide’ Released to Guide Debt Collectors

The CFPB also released an extensive “field guide” for use by its own examiners to ensure that all companies and financial institutions engaged in debt collection are following the law.

Firms covered under the new guidelines are those that buy defaulted debt and keep the proceeds for themselves; those that collect debt for another company for a fee; and those that collect debt through litigation.

In announcing the new role, CFPB Director Richard Cordray said he wanted “all companies to realize that the better business choice is to follow the law – not break it.”

While some in the debt collection industry object to the new rules, some consumer advocates say that it does not go far enough because it exempts the vast majority of debt collection companies from CFPB oversight.