Regulatory Alert | August 2016

Regulatory Alert | August 2016

Debt Collection – CFPB Reveals Outline for Future Rulemaking

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On July 28, 2016, the Consumer Financial Protection Bureau (CFPB or Bureau) released an outline of possible regulatory proposals[1] to address debt collection practices by third-party debt collectors under the Fair Debt Collection Practices Act (FDCPA).[2] The CFPB will address first-party debt collectors and creditors, which are not currently covered by the FDCPA, “on a separate track.”

The CFPB’s initiative is raising some concerns with respect to how potentially more stringent debt collection standards may impact such areas as: banks’ ability to sell non-performing loans to debt collectors, assumptions regarding banks’ loss given default (LGD) rates as well as related write-offs, provisioning and capital allocations. They may also impact the ability of a  range of debt buyers (including hedge funds) to acquire defaulted debt.

It will likely take more than half a year before the CFPB issues final rules regarding debt collection. This provides lenders and their third party service providers with time to prepare for more stringent regulations. It also provides banks with opportunities to update scenario analysis regarding LGD rates in light of tightening debt collection standards, as appropriate.

The Client Alert analyzes the CFPB’s newest initiative and its implications for a broad range of market participants.

  1. See CFPB Small Business Review Panel for Debt Collector and Debt Buyer Rulemaking, Outline of Proposals Under Consideration and Alternatives Considered; see also Prepared Remarks of CFPB Director Richard Cordray on Field Hearing on Debt Collection, available at:
  2. The FDCPA was enacted in 1977 to “eliminate abusive debt collection practices by debt collectors.” It does not apply to first-party debt collectors. Section 1089 of the Dodd-Frank Wall Street Reform and Consumer Protection Act gave the CFPB authority to “prescribe rules with respect to the collection of debts by debt collectors.” It is the first federal agency to have statutory authority to write implementing regulations for the FDCPA. See Section 1089 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-213, July 21, 2010. The Dodd-Frank Act also gave the CFPB authority to issue regulations “identifying as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.”

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