The Consumer Financial Protection Bureau plans to unveil a final rule Wednesday for supervising large debt collection firms, targeting an industry that faces growing scrutiny from state and federal officials.
This marks the second time the agency has asserted its authority under the Dodd-Frank Act to oversee large nonbanks outside the direct lending sphere. Under the rule, which takes effect Jan. 2, any firm that has more than $10 million in annual receipts from consumer debt collection activities will be subject to CFPB oversight.
"Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly," Director Richard Cordray said in a press release. "Today we are announcing that we will be supervising the larger debt collectors in the market for the first time at the federal level."
"We want all companies to realize that the better business choice is to follow the law—not break it."
The rule will extend CFPB's authority to about 175 debt collectors, which account for about 60% of the industry's annual receipts in the debt collection market, the agency said.
The market includes three main types of debt collection: firms that may buy defaulted debt and collect the proceeds for themselves, firms that may collect defaulted debt for another company in return for a fee, and debt collection attorneys that collect through litigation.
"By expanding the supervision program to oversee the nonbanks that are larger participants in the consumer debt collection market, the bureau will now have a window into every stage of the process—from the origination of credit to debt collection," the agency said in its release.
The bureau also released examination guidance early Wednesday outlining the procedures examiners will use to assess potential risks and compliance at debt collection firms.
Examiners will be looking at whether debt collectors properly identify themselves and properly disclose the amount of debt owed when they call a consumer. They'll also look at whether debt collectors are using accurate information when they pursue debt.
As part of the agency's compliance review, examiners will also assess whether a company has a consumer complaint and dispute resolution process. Specifically, they will look at whether those complaints are resolved in a timely manner and whether the complaints indicate that a law may have been violated.
They will also review whether debt collectors are communicating "civilly and honestly" with consumers. For example, the agency said, debt collectors should not be using obscene or profane language, or calling repeatedly with the intent to annoy or harass. They also can't threaten to imprison consumers who do not pay their debt, or threaten to contact their employers.
The bureau first indicated that it planned to oversee debt collectors earlier this year, when it issued a proposal to oversee larger participants in both the debt collection and consumer reporting markets.
According to data provided by CFPB, approximately 30 million Americans have, on average, $1,500 of debt subject to collection.
"If they get the information wrong, this can be the difference between getting approved or denied for such financial products as a mortgage or a car loan," the agency said.
Under the Dodd-Frank Act, the bureau is authorized to supervise both large banks and nonbanks for compliance with consumer rules.
The nonbank supervision authority gives the agency express powers to oversee residential mortgage lenders, payday lenders and private student lenders. But the law also allows the CFPB to identify larger participants in other industries to subject to its examinations.
Last summer, the bureau indicated that it may seek to extend its supervision authority to other markets, such as money transmitters, prepaid-card issuers, debt-relief services and other kinds of consumer lenders.