CFPB Issues Final Debt Collection Larger Participant Rule and Examination Procedures

by Ballard Spahr LLP
Contact

The Consumer Financial Protection Bureau has issued its long-awaited final rule defining larger participants of a market for consumer debt collection. The rule is effective January 2, 2013. To enable its examiners to immediately begin scheduling examinations of qualifying entities, the CFPB concurrently released its debt collection examination procedures.

The final rule defines larger participants as third-party debt collectors, debt buyers, and collection attorneys with more than $10 million in annual receipts resulting from consumer debt collection. The CFPB issued the final rule under Section 1024 of the Dodd-Frank Act, which authorizes the CFPB to supervise nonbank covered persons in the residential mortgage, private education lending, and payday lending industries for compliance with federal consumer financial laws. That provision also authorizes the CFPB to supervise nonbank “larger participants” of markets for other consumer financial products and services. (Our prior legal alert discussed the CFPB's final rule issued on July 16, 2012, defining larger participants of a market for consumer reporting.)

The final rule does not differ substantially from the proposed rule (which was the subject of a prior legal alert). The final rule and the supplementary information accompanying it contain several important clarifications, however, which include:

  • Amounts that result from the collection of medical debts—meaning debts originally owed to a medical provider— are expressly excluded from the definition of "annual receipts." The CFPB notes that where a consumer pays some or all of a medical bill with a credit card, such debt would be deemed originally owed to the card issuer. As a result, the amount collected would be included in the calculation of annual receipts.
  • For purposes of calculating the annual receipts of an entity such as a debt buyer that engages third-party collectors with whom it only has an agency or contractual relationship, amounts collected by such third parties would not have to be aggregated in the calculation of the debt buyer's annual receipts. (By contrast, the rule would require aggregation of the receipts of the debt buyer's affiliate.)
  • The CFPB notes that it rejected an approach under which the price debt buyers pay to purchase debt would be excluded from annual receipts. The CFPB said that approach would have been administratively difficult for the Bureau and debt buyers since debt buyers typically amortize their debt purchases over several years, which makes it difficult to know how much to exclude when counting income from debts recovered many years after purchase.
  • To make clear that traditional loan servicing is not considered consumer debt collection, the definition of "debt collector" expressly excludes a person engaged in collection activity concerning "a debt which was not in default at the time it was obtained by such person." This language is similar to the Fair Debt Collection Practices Act's definition of "debt collector." Nonprofit consumer credit counselors are also expressly excluded from the definition of "debt collector."
  • The CFPB declined to exclude the collection of student loans made under Title IV of the Higher Education Act from the definition of "consumer debt collection,” despite receiving comments that federal audits make the collection of such loans less risky for consumers. 
  • Regardless of whether enforcing a security interest qualifies as debt collection under the FDCPA, for purposes of the final rule, the CFPB does not deem a person to be engaged in consumer debt collection if that person only enforces a security interest and does not seek payment of money or the transfer of assets not designated as collateral.

As it did in the proposal, the CFPB notes in the supplementary information the sources of its authority to examine, regardless of their size, nonbank members of the debt collection industry that do not qualify as larger participants under the final rule. The Dodd-Frank Act authorizes the CFPB to examine a nonbank if it (1) acts as a service provider to banks or companies that are subject to CFPB supervision (i.e., banks, thrifts, and credit unions with more than $10 billion in assets, residential mortgage companies, companies that make payday loans or private student loans, and larger participants), or (2) is found to be engaging in or to have engaged in conduct that presents risks to consumers.

Ballard Spahr lawyers regularly consult with their clients engaged in consumer debt collection on compliance with the FDCPA and state debt collection laws. Our Consumer Financial Services Group has created a team of lawyers who have already conducted compliance reviews for debt collectors and debt buyers in anticipation of their first CFPB examinations. On November 6, members of this team will be conducting a webinar on "What Debt Collectors, Debt Buyers, and Collection Lawyers Need to Know About the CFPB Larger Participant Rule and CFPB Exams." More information on the webinar and a link to register are available on the Ballard Spahr website.

Ballard Spahr’s Consumer Financial Services Group produces the CFPB Monitor, a blog that focuses exclusively on important CFPB developments. To subscribe, use the link provided to the right. The group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.