As reported in the New York Times today, the newly-created Consumer Financial Protection Bureau is proposing rules that would empower the Bureau to regulate the biggest consumer collection agencies, law firms and debt buyers, as well as big credit reporting companies. The proposed regulation does not impose any new regulations on these entities; it sets the stage for future regulations by specifying what large collection companies will be subjected to its future regulation.
For debt collectors, the threshold would be $10 million in collection receipts per year. This only includes receipts from consumer financial debts, not commercial debt or non-financial debts, such as medical debts. I would assume that student loans would be included, but I cannot verify that.
The entities that would be included would be non-bank third party collectors (such as collection agencies), non-bank debt buyers who purchase debts in default, and collection attorneys.
I doubt any Western New York collection law firm receives anywhere near $10 million in consumer financial product debts. A few huge collection law firm in the Metro New York City area may well be included. We see collection activity on consumer debts in our neck of the woods from these firms all the time.
The proposal aggregates receipts from affiliated companies; the intent, I am sure, is to prevent collectors from avoiding the requirements by simply splitting into separate legal entities controlled by the same parties. Aggressive collection agencies are infamous for operating under a bewildering array of different company names, all of which are actually controlled jointly.
The Bureau estimates that about 175 of the largest collection entities in the country, out of a total of about 4,500 collectors, would be subject to its regulations. This large entities collect about 63% of all consumer debt collection receipts.
Third party debt collectors of all sizes, including debt buyers and attorneys are now subject to the Fair Debt Collections Practices Act (FDCPA). This act provides for serious sanctions against collectors who violate its provisions. But enforcement is mostly left up to litigation by individual debtors, with some common enforcement through class actions or attorney general lawsuits. If I am analyzing this new proposal correctly, the Consumer Financial Protection Bureau intends to get into a position where it can regulate the larger entities in the consumer collections market, in the same way banks or other financial institutions are regulated.
I will be curious to know if the end result of such regulations is a standard model for fair collections, used by collectors not directly regulated by the Bureau, or if this would simply give smaller collectors a competitive edge (if the smaller entities can engage in lucrative abusive collection that are forbidden to thge larger companies.
The proposal would also bring the Bureau into a position to regulate credit reporting services with revenues of over $7 million. This is outside my area of expertise, so I am providing no additional analysis on this portion of the proposal.