July 7, 2017

The Consumer Finance Protection Bureau Moves Slowly on Debt Collection

Excerpt: The Consumer Financial Protection Bureau (CFPB) recently dropped a proposal that would have required parties who purchased debt to verify the accuracy of the information received, now treating them as first party rather than third party collectors. This paves the way for the agency to move on proposals for third-party debt collection standards, which CFPB has been working on since 2013. 

The issuance of a proposal for new standards is now expected by the end of 2017. 

The Consumer Financial Protection Bureau (CFPB) recently dropped a proposal that would have required parties who purchased debt to verify the accuracy of the information received as third party rather than first party collectors. This paves the way for the agency to move on proposals for third-party debt collection standards, which CFPB has been working on since 2013. 

The accuracy of debt amounts will be the responsibility of the debt originators rather than third-party debt purchasers.

The issuance of a proposal for new standards is now expected by the end of 2017. 

The requirement that third-party debt collectors verify information regarding the amount of loans, the loan-holder, and even the length of the loans met with resistance in the industry. CFPB Director Richard Cordray’s recent dropping of the requirement places the responsibility for verification back with the originator of the debt. The information must be verified before it is passed on to purchasers.

The debt buyer verification requirement had been one of the sticking points holding up new proposals. The four-year span is unusually long, even by regulatory body standards. 

Another reason for the delay, though, was that banks were not covered by the original provisions of the 1977 Fair Debt Collection Practices Act (FDCPA). The Supreme Court just recently ruled that it pertains only to third-party collectors. 

The number of changes in the decades since FDCPA’s passage, however, make new policies crucial, a fact the Supreme Court acknowledged in communications about the ruling.

The FDCPA applies only to third-party collectors, not banks, according to a Supreme Court ruling.

Accuracy and Verification at Issue

The CFPB published a proposal for small businesses in July 2016 restricting debt collection contacts to six times per week. It also mandated that debt collectors disclose to consumers if the latter’s debt had passed statute of limitations — reached the time limit after which debt collection cannot be enforced by law.

The same proposal listed information that the CFPB deems essential for determining whether a debtor reasonably owes the debt. 

It is widely believed in the industry that minimum data fields need to become standard practice in both determining the amount of debt owed and the person or entity who owes it. 

Some observers note that variations in the information that systems collect and possess will be a challenge going forward. 

Banks have robust data on current accounts. But if an account moves into delinquency and charge-off, the data often become outmoded.  This situation has improved as the older, non-electronically monitored debt, has passed through the system and servicing and collection applications have improved.

The CFPB proposals are expected to not only hold originators responsible for debt verification, but to establish a clear movement of accurate data as debt moves through the financial system. 

Benefits of a Seasoned Loan Advisor 

As regulation and rules change, banks can rely on Garnet to help them sell assets transparently and compliantly to maximize market value. ALL of Garnet loan sales take into account the latest and most comprehensive rulings from each regulatory body involved, as well as consent orders and other industry best standards. The Garnet Capital process supports our banking clients as regulations and standards evolve. 

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