The Impact of CFPB's UDAAP Authority on Creditors and First Party Debt Collectors

In late January, a group of collection regulation experts at Venable LLC published a terrific article on the CFPB’s interest in First Party Collections. Venable LLC, a Washington, DC based law firm has a collections and compliance group focused on our industry. It highlighted two recent CFPB enforcement actions against original lenders and their collection practices under its general unfair, deceptive, and abusive practices (UDAAP) authority. I encourage you to read the article. It is quite thought provoking.

The two cases they discussed make you think what it could mean to the ARM industry; both creditors (original lenders) and collection agencies that are involved in first party outsourcing of accounts for credit grantors or original lenders.

Technically and legally, while both groups of debt collectors essentially work the same group of consumers, agencies have to adhere to the FDCPA while creditors do not. There are good reasons for the distinction, like the fundamental borrower-lender relationship between a bank and consumer. But how does it look through the consumer lens?

One could argue that the consumer doesn’t really see or value the distinction, particularly once an account is closed due to delinquency. So perhaps the CFPB doesn’t see much value in the distinction either.

Here are just a few of the issues to consider:

If the CFPB proposes new rules on First Party collections, what might they cover?

1. Certainly anything having to do with poor customer treatment, harassment, unfair, deceptive, and abusive practices could be dealt with consistently across the board regardless of if the debt collector works for the creditor or  collection agency
2. But what about a “Validation” notice requirement? It doesn’t make much sense to require a creditor to issue a validation notice as part of their collection process. Consumers are given every opportunity to work with their creditor long before their account becomes delinquent. This frivolous requirement would likely not create any real value for consumers and instead interfere with the process of communication between lender and borrower.
3. Mini-Miranda disclosures? Some creditors give the disclosure already, but not all. Should the consumer be made aware of their rights regardless of who the debt collector works for? From a consumer’s perspective it may be hard to argue against it.

The article suggests that UDAAP could be the catch-all grounds for review of First Party activities. The industry would benefit by clarifying and leveraging the same laws across the board rather than be entangled in the UDAAP net cast in the direction of those who engage in those practices. The creditors and their respective industry associations could continue to argue that the FDCPA should not apply to them but they, and the rest of us, may be better served by ensuring all debt collectors play by the same rules.

But if creditors have to comply with the same rules would it automatically decrease outsourcing opportunities for collection agencies? We would point to several reasons why that is not likely to be the case:

• Most creditors, particularly banks and large lenders, have already aligned their internal operations with the FDCPA
• Agencies have already made considerable investments in the infrastructure and Compliance Management Systems dealing with these specific laws and rules
• Lenders have limited resources and would rather focus those resources in the front-end to lend, service,  and grow rather than fight delinquencies
• Most creditors recognize that with a strong outsourcing strategy they can still control the customer experience while effectively managing call center capacity demands
• Lastly, the most sophisticated creditors know that through specialization and more cost efficient structures a strong agency can manage the debt collection function at a lower cost than their own internal operations

Consumers with delinquent accounts have certain rights when contacted by a debt collector. By now they should also have certain expectations. As a highly-regulated industry we are all very familiar with these responsibilities. Should those rights and expectations vary depending on who the debt collector works for? Maybe. But if your organization still believes the customer is always right? Probably not.

To address some of the issues surrounding the application of UDAAP provisions in the creditor and first party collection space, the iA Institute (publisher of insideARM) is hosting a First Party Outsourcing Summit in Minneapolis in October. It is a round table event for creditors and agencies about the unique challenges of first party outsourcing. While the subject may have been addressed in a single session at prior industry conferences, this is the first event devoted exclusively to the issues for both sides in the First Party environment. Learn more about the event.

Marcelo A. Aita is President and CEO for the NCB group of companies and a member of the Executive Steering Committee of the Consumer Relations Consortium. NCB Management Services, Inc. is a national accounts receivable management company providing call center solutions to major financial institutions, commercial clients, debt buyers, and private schools since 1994. Prior to joining NCB in 2008, he held various finance and operations positions at HSBC North America for over 17 years, serving as a National Director of Call Center Operations for the credit card business and having responsibility for more than 8,000 employees across 12 call centers in both North America and Asia. Marcelo managed customer service and sales, global resourcing, collections and debt recoveries.