Senate hearing on debt industry focuses on documentation and medical debts

by Ballard Spahr LLP

Collection documentation and medical debts proved to be the focus of much of yesterday’s  Senate Banking Committee hearing on the debt industry. The witnesses were Corey Stone, CFPB Assistant Director, Office of Deposits, Cash, Collections, and Reporting Markets, and James Reilly Dolan, FTC Acting Associate Director, Division of Financial Practices.

The two witnesses drew heavily on the discussions that took place at the CFPB’s and FTC’s joint roundtable in June 2013 which examined the flow of consumer data in the debt collection process. Based on their comments in response to questions from Democratic Senator Sherrod Brown, it seems likely that any future debt collection rulemaking or guidance by the CFPB will include standards for documentation that must be maintained by third-party debt collectors and debt buyers. (As we recently reported, the CFPB has issued five action letters for consumers to use as debt collection tools. We commented that the detailed account information requested in the letter to be used by consumers needing more information seems, in effect, to represent an indirect attempt by the CFPB to impose specific documentation requirements on persons collecting debts.)

Mr. Stone noted as a “promising development” the efforts of several companies to design documentation registries for debts in collection. Such a registry could be accessed by each collector or debt buyer that is attempting to collect a particular debt, thereby avoiding the need for documents to be transferred each time the debt moves to a new collector or is resold. (This registry concept seems ironically similar to the Mortgage Electronic Registration Systems, Inc., or MERS, which has regularly been the subject of challenges by consumer advocates.)

It is also possible that such documentation standards will be accompanied by changes to record retention requirements. Mr. Stone noted that TILA only has a two-year record retention requirement while the FCRA allows debts to be included on credit reports for up to seven years after they are placed for collection.

A substantial portion of Mr. Stone’s testimony dealt with issues relating to medical debts. He discussed the varying debt collection practices of hospitals and other medical providers and indicated that the CFPB’s findings suggest more protections are needed for consumers. We must observe, however, that the CFPB has very limited authority to address debt collection by medical providers.

Such providers are not subject to the CFPB’s supervisory authority. Nor are they generally subject to the CFPB’s authority to bring enforcement actions for violations of the FDCPA or the Dodd-Frank Act’s prohibition of  “unfair, deceptive, or abusive” acts or practices (UDAAPs). When collecting their own debts, medical providers generally are not subject to the FDCPA. Since medical debts typically do not involve an extension of credit, medical providers generally are not “covered persons” subject to the CFPB’s UDAAP authority under Dodd-Frank.

Republican Senator Pat Toomey was the only Senator other than Senator Brown who participated in the hearing. Senator Toomey questioned Mr. Stone about the CFPB’s recent bulletin warning creditors and servicers who are not covered by the FDCPA that their collection practices are subject to the CFPB’s UDAAP authority. He asked Mr. Stone why the CFPB chose to issue a bulletin to define UDAAPs rather than do so through the rulemaking process. (Might Senator Toomey be reading our blog, since we raised the same issue?)

Mr. Stone’s response claiming that the creditor and servicer conduct identified in the bulletin as potential UDAAPs was already unlawful conduct under existing law was not convincing.

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.

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