Yesterday, I was honored to be among the small business representatives who testified in front of the Small Business Review Panel for the CFPB Debt Collector and Debt Buyer Rulemaking.
The process started on July 28, 2016 with the CFPB field hearing in Sacramento, California where the CFPB released the Outline of Proposals Under Consideration and Alternatives Considered (Outline). The Outline consisted of over 70 pages explaining the rules the CFPB is considering under their rulemaking authority. The Outline applies to defaulted debt and the entities servicing the debt—collection agencies, debt buyers, collection law firms, and loan servicers.
The CFPB, with the help of our industry associations, chose nineteen small business representatives (SERs) to report to the Panel concerning the economic impact of the Outline on small businesses. We had exactly 28 days to digest the Outline and alternatives, gather data and information concerning the cost of the different proposals, and assess how the proposals would impact the access to credit of small businesses.
Prior to the SBREFA panel meeting, the CFPB and Small Business Administration held several introductory phone calls with the SERs and panel members. During the phone calls, the SERs asked the CFPB questions about the proposals. We answered CFPB questions about our internal operations related to areas where the Outline proposed new regulations. For example, under the section regarding information integrity, the CFPB asked questions regarding our processes for reviewing account information for warning signs and steps we would take after discovering a warning sign.
The hearing included several hours of answering similar questions, discussing concerns, and presenting data related to the cost of the Outline to the industry. We testified from 9:00 AM to 5:00 PM with a 15 minute break in the morning and afternoon and a working lunch. Although the SERs represented four distinct groups, the feedback centered on three themes:
- Clear, concise rules with defined terms, model language, and safe harbor provisions to eliminate the uncertainty that results in lawsuits over technical violations of the FDCPA and other consumer protection statutes with no harm to the consumer.
- Flexible rules that can be applied to all the different types of accounts serviced by the different entities in the industry.
- Establishing a future date certain after which the rules would apply, as retroactive application of the rules would have significant negative financial implications.
For example, there was general consensus concerning providing consumers with the date of default, amount owed at default, and any payments applied after default. First, “default” is not defined in the Outline. As the SERs explained, default is a legal term of art that is handled differently across asset classes with different rules in all 50 states. Many reported that requiring small businesses to determine date of default on accounts currently in our offices would be extremely costly and time intensive. Many SERs explained with data that, if applied retroactively, such a rule could result in a total loss of certain portfolios. Alternatively, the SERs proposed using dates that are already known – such as charge-off date – in the case of credit cards or service date in the case of medical.
Throughout the hearing, the CFPB rulemaking team members were receptive to our comments and concerns. They engaged in discussion and asked follow-up questions. The day ended with Director Cordray making a short appearance to thank everyone for their participation. The industry associations were instrumental in our preparation assisting in data gathering. Thanks to everyone who participated in surveys, provided thoughts, feedback, data and alternative ideas. Several of the CFPB representatives said they were very impressed with the amount of data the SERs provided and the quality of alternate proposals offered.
The CFPB indicated that before any debt collection rule proposal would be released, they will hold a first party debt collection SBREFA with the creditors. They are not sure what role debt collectors, debt buyers, loan servicers and collection law firms would have in that process; however, they seemed to understand the overlap and need to hear again from the third-party SERs and industry associations on the impact of any proposed first party outline.
The process is not over, the SERs have a couple more weeks to prepare our written submissions. The written submission is a more comprehensive opportunity to provide cost analysis and alternative suggestions. The written submissions-due on September 9, 2016-will become a part of the public record if the CFPB does propose a rule.
By Kelly Knepper-Stephens