The Consumer Financial Protection Bureau issued its annual report to Congress on the Fair Debt Collection Practices Act. As always, this report mixed a healthy dose of natural, self-congratulatory rhetoric with significant insights to the state of the industry and the regulatory environment. While future posts will address specific issues raised by the report, the following regulatory themes can generally be derived from this report:
- Although many in the collection industry have argued for a more balanced CFPB, the CFPB believes it cannot meet its core function of consumer protection if it is required to worry about balance toward industries that it regulates.
- Debt collect continues to be the largest single source of complaints to the CFPB. This is somewhat natural since (as the CFPB has previously observed), the nature of the relationship between collector and consumer is unusual in that the consumer does not select the relationship. It is arguable that this dynamic, together with the inherent unhappy nature of the collection call, almost automatically leads to a high number of consumer complaints. The volume of complaints, however, is a warning to the industry that there are still substantial improvements needed in consumer interactions.
- Although there has been considerable industry speculation relating to the issuance of new rules governing the debt collection industry, the absence of the rules does not imply a passive approach to regulation. In litigation alone, in 2016 the CFPB obtained over 59 million dollars in restitution and civil monetary penalties from debt collectors. An industry participant that fails to monitor the CFPB’s litigation positions incurs substantial legal, regulatory, and reputational risk, since the Bureau’s litigation positions and settlement orders present a clear indication of their thought process and a likely glimpse into what any future rules will contain.
- Industry focus on the CFPB has led to a tendency to forget about the FTC as a regulator. The report points out the FTC was very active in 2016, including in areas of collection industry concern such as emailing and text messaging cases. To ignore the FTC at this time of focus on the CFPB is a sure path to disaster.
In addition to the regulatory themes, some of the CFPB’s commentary appears to validate observations of a number of industry members:
- The collection industry is experiencing some significant consolidation. As revenue has increased in the collection space since 2005, the number of agencies that collect debt has declined by approximately 25%. While the reasons for this decline are outside of the scope of the annual report, it may safely be assumed that the cost of regulatory compliance and the demands of creditors have altered the profit dynamic of a collection agency, particularly in the case of smaller agencies.
- The report may help identify marketing opportunities. While traditional credit card and other financial services debt is still growing at a healthy rate and represents approximately 35% of debt in collection, telecommunications debt is still a healthy opportunity for agencies with the capability to collect smaller balance accounts. Also, auto debt is growing faster than most other types of debt.
In the next few weeks, Barron & Newburger will issue a series of more detailed posts relating to the issues raised by the report. These observations will present many themes; however the two most significant takeaways are that (i) notwithstanding the presence of a White House and Congress that are hostile to the Bureau, it remains a force to be taken very seriously; and (ii) there is no economic substitute for a well-designed and well-enforced compliance program. In this area, as much as any other area of business, it always costs more to clean up a problem than to avoid it in the first place.