As insideARM predicted, yesterday’s House Fin. Servs. Committee Hearing was a lively debate regarding debt collection in general, with a special focus on the Consumer Financial Protection Bureau’s (CFPB’s) Notice of Proposed Rulemaking (NPRM). It will come as no surprise that there was a healthy dose of strong, partisan opinions in the room.
Witnesses included [click names for PDFs of each of the witnesses' testimony]:
- John Bedard (Bedard Law Group)
- Sarah Auchterlonie (Brownstein Hyatt Farber Schreck)
- Dalié Jiménez (University of California, Irvine School of Law)
- April Kuehnhoff (National Consumer Law Center)
- Bhairavi Desai (New York Taxi Workers Alliance)
- Dr. Cassandra Gould (Quinn Chapel A.M.E. Church and Missouri Faith Voices)
- Honorable Rohit Chopra (Federal Trade Commission)
Below are summaries of some of the significant topics highlighted.
Electronic communications were front-and-center of the conversation, specifically as they relate to the proposed requirements outlined in the NPRM. Auchterlonie mentioned the many consumer benefits of a meaningful conversation with debt collectors, including the ability to settle for less than the full balance and to enter into assistance programs for those experiencing hardships. Auchterlonie and Rep. McHenry (R-NC) both acknowledged that without electronic communications, there is a barrier to reaching younger generations of consumers who prefer electronic communications channels and don’t answer the phone.
As noted by Bedard, electronic communications are more secure and more likely to prevent third-party disclosure. In fact, Chopra mentioned the issue of third-party disclosure is present when a communication is sent to the wrong email address or phone number, but when pressed by McHenry, he implied that a phone number provided by a consumer should be safe.
Consumer advocates, such as Kuehnhoff, and certain Committee members, such as Chairwoman Maxine Waters (D-CA) repeated the common saying that the NPRM will allow debt collectors to send unlimited text messages and emails to consumers.
Rep. Zeldin (R-NY) described this as opening "the floodgates to abusive emails and text messages from the debt collection industry." Auchterlonie reminded the Committee that, "The text of the FDCPA prohibits abusive communications on all communications—not just telephone, but all communication. So we've got that inherently built into the statute. But in addition to that, we also have the specific rules the CFPB implemented that require opt-out mechanisms, and these are the same sorts of opt-out mechanisms you get with commercial and store emails and so on. There's an opportunity for consumers to choose the medium in which they communicate with their collection agency."
When asked by Rep. Rose (R-TN) if there was ever a scenario where a consumer in collections would benefit from a call or email, Bedard answered in the affirmative: "Yes, especially for those consumers who may not even know that they have an account that is delinquent or in default. A text message, email, or a phone call is welcome to those consumers who are concerned about their accounts and they are interested in keeping abreast of what's happening on their credit."
There was a lively discussion about the ability to collect time-barred debts, referenced as “zombie debt” throughout the hearing. Many of the consumer advocates were strongly against the collection of this debt. The strongest voice in the room on the issue was Jiménez, who argued it is often the creditor—not the debt collector—responsible for the problems with time-barred debts due to poor documentation management when debts are sold.
Jiménez also mentioned that the law is currently too complicated. It is difficult to determine who can repay and who can’t. There are exemption laws and nuances to statute of limitations laws on the state-level that add complexity. The biggest problem, according to Jiménez, is that in order to take advantage of these rights, consumers have to actually show up in court, which they often do not.
Jiménez advocated for a uniform national statute of limitations for the collection of debt and enforcement of a judgment, each being 7 years long.
Rep. Garcia (D-IL) later spent most of his five-minute speaking time on the topic of "zombie debt"—specifically his concerns about the phrase "known or should have known" as used in the NPRM. In response, Kuehnhoff's position is that debt collectors have "a strict liability standard for being held responsible, rather than a 'you should or should have known.'" Kuehnhoff sees "known or should have known" as a faulty standard by which to regulate time-barred debt: "If there is documentation that the debt collector didn't bother to obtain...that would have shown that the debt was time-barred before they sued, they should be held responsible because they should have known because they should have obtained that documentation."
Cottage Industry of Plaintiffs' Counsel and Regulation by Enforcement
Industry representatives—as well as certain members of the Committee—called a spade a spade and highlighted the issues caused by the cottage industry of plaintiffs' counsel and regulation by enforcement.
Auchterlonie and Bedard called out how debt collectors are fearful to use newer channels of communication or make other adjustments in their practices, for fear of endless litigation by a cottage industry of plaintiffs' counsel. Bedard mentioned that currently there is a patchwork of requirements due to jurisdiction-by-jurisdiction interpretations of the law, meaning neither debt collectors nor consumers have a uniform standard to expect. Auchterlonie stated that her clients don’t write letters for the least sophisticated consumer; they write letters for the sophisticated plaintiff’s lawyer. When asked whether the $1,000 statutory damages award in the FDCPA was enough, Auchterlonie called out that plaintiff’s counsel are demanding much more than that.
Bedard referenced how regulation by enforcement is a wrong and illegal practice.
Editor’s Note: One common misconception is that ending regulation by enforcement ends enforcement actions against bad actors. That is not the case. Regulation by enforcement is the specific practice of a regulator punishing a company for something and writing rules through enforcement actions for something that was not clarified as being wrong or illegal prior to the enforcement action. In other words, punishment without notice.
Debt Collection Impact on Access to Credit
One common thread emphasized by Auchterlonie was the impact of debt collection on consumer access to credit, stating that without healthy collections, available credit decreases. There is a clear relationship between impaired debts and access to credit. This is particularly true for small businesses, who rely on the ability to collect accounts in order to have the cash flow to keep the doors open and continue offering services today for payment in the future. Many small businesses rely on third-party debt collectors because they do not have the infrastructure in-house to collect.
Auchterlonie also mentioned that the consumers most in need of credit are the first to see an impact of decreased access to credit. Jiménez countered that these consumers—who have the lowest likelihood to repay their obligations—arguably should be prevented from accessing credit since they are the ones who fall into the most problematic situations if they cannot pay.
One interesting thing that came from yesterday’s hearing is how blatantly certain Committee members and consumer advocates categorize all debt collection—including practices that have passed muster in the courts—as “predatory.” For example, the majority of states and courts permit the collection of time-barred debt so long as there are clear disclosures about the impact of payments or acknowledgments of the debt, yet it’s “predatory.” There is already a natural limit on how many communications—electronic or not—a debt collector may send due to the prohibition against harassment and abuse, yet the common echo yesterday was that lack of a cap on electronic communications will allegedly allow endless emails and texts, which would be “predatory.”
The other interesting observation is that many consumer advocates attributed the CFPB’s NPRM to Kraninger, when in fact—as mentioned by Auchterlonie—the rule was many years in the making under multiple directors.
insideARM spoke with Bedard about his overall impression of the hearing. He said:
The Committee was clearly divided on the appropriate legislative approach to solving perceived problems in the collection industry and on whether the Bureau’s proposed rules go far enough to accomplish that goal. Nonetheless, there are many Representatives who understand the issues, appreciate the challenges, and are looking toward a fair and balanced approach to regulation.