Legal Issues in Collections

By David A. Wolfe, Esq.

With the passage of the Dodd-Frank legislation in 2010, the Obama administration created the Consumer Financial Protection Bureau, (CFPB), as an independent bureau within the Federal Reserve System for the purpose of implementing and enforcing federal consumer financial law and providing transparency and fairness in consumer financial transactions.  When the CFPB officially opens on July 21, 2011, it will enjoy broad authority over a wide range of financial matters, and while mortgages, credit cards and student loans will be the priority issues addressed in the immediate future, non-bank firms such as debt collections will be the subject of new scrutiny for the bureau.  The CFPB identified these market participants as those involved in the collection of consumer debts for another entity as well as debt collectors working to recover debts purchased from another creditor.  While the bureau is not permitted to regulate such firms until a director is confirmed, the CFPB is currently seeking comment on how it should supervise these firms. 

The Fair Debt Collection Practices Act (FDCPA) was enacted in 1978, with no major revisions since and according to the Federal Trade Commission (FTC), the agency with primary oversight for the FDCPA, complaints by consumers against debt collectors rose 17% in 2010.  While the agency may investigate complaints, it lacks the authority to write rules and must rely on the Department of Justice to pursue court action.  As a result, the current form of the FDCPA has evolved as a result of court decisions. 

Under Dodd-Frank, after July 21 the FTC will have authority to enforce the FDCPA concurrently with the CFPB, with the CFPB having the additional power to write rules and investigate and resolve complaints.  In carrying out these duties, the CFPB can seek very broad remedies, including rescission or reformation of contracts, refund of money, restitution and civil money penalties.  To assist with its investigative process, the CFPB is developing online and paper intake methods to collect and track consumer complaints.  The database will gather and store complaints and inquiries made directly to the CFPB as well as complaints made to the FTC and referred to the CFPB. 

Currently divided into several units, including research, community affairs, consumer complaints, the Office of Fair Lending and the Office of Financial Opportunity, the CFPB is attempting to ensure that the financial services marketplace is more transparent and less exploitive while remaining competitive.  The CFPB is expected to act aggressively to curb perceived FDCPA abuses and the bureau’s priorities and regulatory philosophy will certainly differ from that of the FTC, which will result in new restrictions and regulations on those seeking to recover debt. 

David Wolfe is an associate in Consumer Collections located in the Detroit office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 248.362.6142 or dwolfe@weltman.com.

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