Debt Collection Lawyers to be Overseen by CFPB

Today the Consumer Financial Protection Bureau issued its final rule on oversight of the debt collection industry [PDF], which includes debt collection lawyers. The rule takes effect on January 2, 2013, and according to the CFPB it provides authority for the oversight of “any firm that has more than $10 million in annual receipts from consumer debt collection activities.”

The CFPB’s authority under the rule will extend to about 175 debt collectors, which—according to the New York Times—makes up about 63 percent of the debt collection industry in the United States. Among other things, the CFPB will be evaluating whether debt collectors (1) provide required disclosures; (2) provide accurate information; (3) have a consumer complaint and dispute resolution process; and (4) communicate civilly and honestly with consumers.

According to the rule, attorneys or law firms are subject to the rule by being subject to the FDCPA. At footnote 77 of the rule (p. 33), the rule states that:

[C]onsumer debt collection…is generally subject to the FDCPA. That is true even if the debt collector is an attorney or law firm. “[A]ttorneys who ‘regularly’ engage in consumer-debt-collection activity” are subject to the FCPA, “even when that activity consists of litigation.” Heintz v. Jenkins, 514 U.S. 291, 299 (1995).

(Rule, pp. 33–34)

Perhaps important to those attorneys affected by this rule is that in calculating whether an attorney or firm hits the $10 million threshold, “the calculation of annual receipts…is built on the concepts of ‘total income’ and ‘cost of goods sold,’ as used in Federal income tax reporting. Quantities that consumer debt collectors do not include in those categories would not count as annual receipts.” (Rule, p. 21) The rule also will not apply to “a person who only enforces a security interest, and does not seek payment of money or transfer of assets that are not designated as collateral for the note or instrument.” (Id., p. 30)

There are some other comments regarding the application of the rule to attorneys (pp. 32–37), but the main thrust of the rule is that those nonbank entities engaged in the regular practice of debt collection will be subject to oversight by the CFPB. The ABA Business Law Section had some influence on the scope of the rule as well. For further information, check out the rule (all 86 pages of it).

(photo: Shutterstock: 29791441)