E. Gottlieb and Jeffrey E. Jamison
On October 24, 2012, the Consumer Financial Protection Bureau (CFPB) announced that, beginning January 2, 2013, certain debt collection
agencies and debt collection firms will come under federal supervision for the
first time. In the announcement, the CFPB also gave debt collection agencies
and law firms advance notice that the CFPB's examiners will be assessing every
aspect of their practices and procedures. Director Cordray warned, "[w]e want all companies to realize that
the better business choice is to follow the law-not break it." Based on the
CFPB's recent history, this warning should not be taken lightly and strongly
suggests that the CFPB may be preparing enforcement actions against certain
debt collection agencies and debt collection attorneys.
In going after lawyers, is the CFPB ignoring legislative
history? Back when Dodd-Frank was being debated, Democratic Congressman
John Conyers emphasized in a floor
speech in June 2010 that the new CFPB would not interfere in the practice
of law: "giving the new Bureau authority to regulate the practice of law,"
Conyers said, "could materially interfere with and jeopardize sensitive aspects
of the attorney-client relationship." He concluded that "[a]ny regulation
from a new source would unavoidably conflict with the existing rules and lines
of accountability....Our committee was determined to avoid any possible overlap
between the Bureau's authority and the practice of law."
Law firms have been regulated primarily by state bar
associations, not federal consumer agencies. When the rule was first proposed,
the inclusion of law firms met with stiff resistance from the American Bar
Association, the Commercial Law League of America and the National Association
of Retail Collection Attorneys. The CFPB rejected those pleas.
Director Cordray's comments regarding debt collection
agencies and debt collection firms are nearly identical to comments he made
shortly before the CFPB announced a series of settlement agreements with Discover,
Express and Capital
One over alleged deceptive business practices involving consumers that
totaled more than half a billion dollars in fines and refunds to consumers. In
examining debt collection agencies, the Bureau advised that it would also be
assessing whether these agencies engaged in similar deceptive business
practices. It seems highly unlikely that the CFPB would have made this bold
pronouncement if it was not already planning enforcement actions against
certain debt collectors.
The CFPB's reach will be extensive: While extending
only to those agencies and law firms with over $10 million in annual receipts
from collections-which accounts for just 175 of the 4,500 collection
agencies-that segment represents over 60 percent of the debt collection
industry's annual receipts.
Notwithstanding the apparent intentions of Congress, the
CFPB rule is now final. Stay tuned to the CFPB-Lawblog for updates, as
we'll continue to monitor enforcement actions in the debt collection arena.
more articles about the Consumer Financial Protection Bureau at Dykema's
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