Insights

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) overhauled virtually every aspect of the consumer credit industry, and lawyers, regulators and consumer advocates are still combing over its provisions. One industry that will experience changes due to the Act is the debt collection industry, which some analysts say service and collect some portion of $950 billion in consumer credit. In the Act, Congress granted the new Bureau of Consumer Financial Protection (the “Bureau”) broad, sweeping regulatory and enforcement powers of most entities offering debt collection services. State-licensed debt collectors and collection agencies now must address the potential for regulation and examination by the Bureau. Additionally, the Bureau now has primary responsibility for the Fair Debt Collection Practices Act (“FDCPA”) for all entities subject to the Bureau’s authority.

Title X – which created the Bureau– authorizes the Bureau to enforce the FDCPA, which Title X classified as one of 28 “enumerated consumer laws” for which the Bureau now has primary regulatory and enforcement responsibility. Title X specifically gives the Bureau all powers and duties under the FDCPA to prescribe rules, issue guidelines, or to conduct studies or issue reports mandated by such laws as the Federal Trade Commission had on the day before the “designated transfer date.” Title X requires the Secretary of the Treasury – not later than 60 days after the date of enactment of the Act – to consult with federal banking agencies and others to designate a single calendar date for the transfer of functions to the Bureau and publish notice of that designated date in the Federal Register. The Transfer Date does not have to be within 60 days of enactment of the Act – it just has to be selected within the 60 days. To date, the Secretary of the Treasury has not announced this transfer date.

Accordingly, Title X shifts responsibility for the FDCPA to the Bureau for all entities subject to the Bureau’s reach, designated as “covered persons” in the Act. “Covered persons” includes any person that engages in offering or providing a consumer financial product or service, which includes collecting debt related to the extension of credit.

Not all “covered persons” will fall within the reach of the Bureau. Title X will, for example, apply to all mortgage creditors, regardless of the size of the creditor. However, the Bureau can only regulate “larger participants of a market for other consumer financial products or services.” The Act does not define how to determine which entities are “larger participants,” but instead gives the Bureau authority over anyone who it deems by rule to be a larger participant. The Bureau must consult with the Federal Trade Commission prior to issuing this rule to define covered persons subject to supervision by the Bureau. The Bureau must issue its initial rule as to what constitutes a “larger participant” not later than one year after the designated transfer date. We expect that the Bureau will capture, however, most national collection agencies, as collection agencies with a nationwide footprint undoubtedly constitute “larger participants” in the debt collection market. Further, the Bureau can regulate service providers, so, to the extent a debt collector includes persons who service and collect mortgage debt, the Bureau will capture such persons as mortgage-related service providers, unless the Bureau decides to create exceptions.

In addition to requiring the Bureau to consult with the FTC over what entities constitute “larger participants,” Title X does not completely strip the FTC of its authority. Section 1089 of Title X, which amends the FDCPA, authorizes the FTC to enforce compliance with Title X, except to the extent that the FDCPA commits enforcement of its requirements imposed to another Government agency (i.e., the Bureau). Significantly, Title X makes clear that the Bureau cannot prescribe rules with respect to the collection of debts by “auto dealers” that act in a way that violates the FDCPA. Section 1029(a) of Title X prohibits the Bureau from exercising any rulemaking, supervisory, enforcement, or any other authority, including any authority to order assessments, over a motor vehicle dealer “predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.” This means that the FTC could take action against motor vehicle dealers that run afoul of the FDCPA, even if the Bureau cannot. Further, Title X retains the identification of a violation of the FDCPA as an unfair or deceptive act or practice in violation of the FTC Act. Because the Act did not alter the functions and powers granted to the FTC under the FTC Act, the FTC can use its FTC Act authority to enforce compliance by any person who violates the FDCPA. The FTC thus remains a key player in the regulation of debt collection.

Not only does the Act give the Bureau primary responsibility for the FDCPA, Title X gives the Bureau powerful tools to employ against debt collectors and collection agencies that violate the FDCPA. In addition to the existing civil liability under the FDCPA—that allows a consumer to file a private civil action to seek a statutory $1,000 penalty in an individual action or the lesser of $500,000 or 1 percent of the net worth of the debt collector—the Act now empowers the Bureau to go after offending debt collectors for FDCPA violations. The Bureau can seek a maximum $1 million civil money penalty against the most egregious offenders. The Act also empowers the Bureau to seek rescission or reformation of contracts; refund of moneys or return of real property; restitution; disgorgement or compensation for unjust enrichment; and payment of unspecified damages or other monetary relief.

As with all aspects of the Act and Title X, it remains to be seen precisely what shape the regulatory landscape for debt collectors and collection agencies will take post Dodd-Frank. Rest assured, Basis Points will continue to bring you these developments as they unfold.

Catherine M. Brennan is a partner in the Maryland office of Hudson Cook, LLP. Cathy can be reached at 410-865-5405 or by email at cbrennan@hudco.com.