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Last week’s enforcement action against Navy Federal Credit Union issued under the CFPB’s UDAAP authority for debt collection activities raises new compliance concerns for credit unions, but the CFPB’s overbroad use of UDAAP authority unfortunately has been a concern to credit unions for some time. While this enforcement action raises news concerns that we highlighted last week, particularly about conflicts with other statutory rights credit unions have and the extension of the FDCPA to first-party creditors without the support of Congress, this is certainly not the CFPB’s first enforcement action concerning debt collection.
CFPB bulletins released over the past several years and the onerous requirements created through other enforcement actions, neither of which are put out for public notice and comment, have been a driving force in why debt collection has been on CUNA’s radar. Some of the new debt collection requirements found in the CFPB’s small dollar loan proposed rule, that directly conflict with the Federal Credit Union Act (FCUA) and credit unions' contractual rights, raised a red flag for CUNA.
For example, the small dollar proposed rule attempts to limit credit unions' right to set-off to collect from a consumer’s deposit account, despite that the FCUA specifically allows this. The small dollar rule also targets leveraged payment mechanisms. Moreover, the arbitrary and capricious use of UDAAP to include credit union products in this proposed rule, despite insufficient evidence of harm to consumers, was a major focus of CUNA’s comment and also a factor in CUNA seeking a legal comment letter from the Dentons LLP to further highlight problems with the CFPB’s problematic use of UDAAP.
As CUNA reported in the Removing Barriers Blog last March, the CFPB has been unequivocal that it sees no problem with regulating through enforcement. Last spring, in a House Financial Services Committee hearing when asked about the forthcoming FDCPA rulemaking, Director Cordray provided some insight into his thinking.
He stated, “The notion that because we may issue the [debt collection] rule several years down the road, or maybe next year, we shouldn’t be engaging in UDAAP, I don’t think is a right approach.”
At that time CUNA noted, “This statement seems to indicate that the CFPB may continue creating policies for debt collection through their UDAAP enforcement authority, rather than through a formal rulemaking in the near future.”
CUNA has been meeting with the CFPB about debt collection and has highlighted problems with subjecting first-party creditors to the FDCPA, since Congress has not given the CFPB authority to do so. After the CFPB released an outline of proposals aimed at third-party debt collectors, CUNA put the Bureau on notice that these proposals will also impact credit unions. The letter notes that in our review of the CFPB’s proposals, the highly technical substantiation and oversight, among other new requirements, will impact credit unions, and that credit union feedback must be considered as part of the SBREFA process. This time last year, CUNA staff highlighted CFPB debt collection enforcement actions during a panel at CUNA’s Attorneys Conference.
While last week’s enforcement action has certainly brought to the forefront the fundamental unfairness and uncertainty presented by the CFPB's usage of its UDAAP authority, and the overall vagueness of UDAAP more generally, this is a concern CUNA has had for some time. CUNA’s 360 advocacy efforts remain focused on removing regulatory burdens for credit unions so they can better serve their members, and we continue to urge the CFPB to take into consideration the many distinctions between credit unions and others in the financial services marketplace.
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