Removing Barriers Blog

CUNA Cautiously Reviewing Debt Collection Proposals Aimed at Third-Parties
Posted August 01, 2016 by mcarew

We are still in the early stages of reviewing recently released proposals from the CFPB, relating to a Small Business Review panel on debt collection. These proposals were released in anticipation of a Small Business Review Panel, and are not a formal Proposed Rule. While the CFPB has said the proposals are aimed at third-party debt collectors, we still have some initial concerns that this proposal will also impact credit unions who have a relationship with third-parties. We are going to remain cautious of overly prescriptive rules in the future that could impact credit union operations and safety and soundness. 

In the proposal, the CFPB states that “The bureau expects to convene a second proceeding in the next several months for creditors and others engaged in collection activity who are covered persons under the Dodd-Frank Act but who may not be ‘debt collectors’ under the Fair Debt Collection Practices Act (FCDPA). The bureau believes that holding separate Small Business Regulatory Enforcement Fairness Act (SBREFA) consultation processes is the most efficient way to proceed, particularly because it will enable participants to provide more focused and specific insights.” 

Accordingly, the CFPB has not included first party creditors as Small Entity Representatives (SERs) in this SBREFA process—therefore, the input of small credit unions will not be included in this first panel. However, the CFPB has indicated that credit unions will have an opportunity to participate in a future SBREFA panel on debt collection, and we assume that all of our concerns will be considered in Regulatory Flexibility Act analysis. 

We appreciate that the CFPB has made a distinction between for-profit third-party debt collectors and first party non-profit credit union collectors, as we have been urging them to do. Credit unions, who are owned by the their members and who report to a Board of members, have an inherent interest in keeping members satisfied and collecting debts in the fairest and most respectful way. As owners, credit union members also are directly impacted if the credit union cannot collect on unpaid debts, and any losses are suffered by the membership as a whole. 

Congress recognized this distinction and purposefully did not include first party creditors in the Federal Debt Collection Practices Act (FDCPA), and as such, the Bureau does not have the authority to include them in an FDCPA rulemaking. However, we are aware, particularly because of recent enforcement actions, that the CFPB may take an overbroad approach to the use of its UDAAP authority and include first-party creditors in future debt collection rules. 

Abusive debt collection practices have no place in the financial services marketplace, so we support efforts that are focused solely on the bad  actors who are harming consumers. 

At first-glance it appears the CFPB proposal is once again taking an extremely prescriptive approach to creating new rules. This trend in other recent CFPB rulemakings has been problematic for credit unions who do not need one-size-fits-all rulemakings that do not take into account their differences from for-profit financial service providers. This is also problematic because such stringent requirements often do not account for potential market changes, as well as safety and soundness concerns that protect credit union membership as a whole.  

We are continuing to review the proposals and will provide the CFPB, Small Business Administration, and the Office of Information and Regulatory Affairs our thoughts on this and any other SBREFA proposal that impacts credit unions.