Consumer Law & Policy Blog

A Comment on the CFPB's Debt Collection Bulletin

by Jeff Sovern

As Deepak pointed out last week, a lot has been going on in debt collection, and one item is that the CFPB has issued a bulletin stating that people subject to its jurisdiction may not commit unfair, deceptive, or abusive practices in collecting debts.  The Fair Debt Collection Practices Act generally does not apply to creditors collecting their own debts, but the Bureau is clearly willing to use its UDAAP power to, in effect, apply some of the FDCPA's provisions to creditors.  This is terrific news for consumers who are being hounded by creditors as opposed to independent debt collectors, but it still provides more limited protection than the FDCPA itself for two main reasons.

First, there is no private claim under the Dodd-Frank Act to enforce the Bureau's UDAAP powers.  By contrast, the FDCPA provides for a private claim with statutory damages of up to $1,000 and attorney's fees to prevaliing plaintiffs.  Because the Bureau's resources are finite, it will surely not have the funding to pursue every possible UDAAP claim.  Consumers who can persuade the Bureau to pursue their complaints will undoubtedly find the Bureau's intervention helpful, but only so many will be able to take advantage of that opportunity. 

It may be that some consumers will be able to convince courts to find conduct that the Bureau has labeled unfair, abusive, or deceptive a violation of state UDAP statutes.  States often follow FTC interpretations in construing their UDAP statutes; perhaps they will find CFPB interpretations equally persuasive.  State UDAP statutes are sometimes called "little FTC Acts;" one of my co-authors has observed that they may come to be known as little FTC/CFPB Acts as well.  But such a strategy may not work in every state.  Many state statutes explicitly provide that FTC interpretations are relevant in construing their statutes; I'm not aware of any state that has bestowed a similar status on CFPB interpretations.  And many state statutes do not mention unfair conduct, much less abusive. On the other hand, other statutes refer to illegal conduct, and since the Bureau has labeled the conduct in question illegal, that should go a long way to supporting a UDAP claim in such states.

Now I turn to the second reason.  The Bureau Bulletin listed specific behaviors that could be unfair, abusive or deceptive (though it says "could" rather than "are," I would not be so brave as to suggest that the Bureau will not view the listed conduct as unlawful).  The Bulletin carefully noted that the list was not exhaustive and consisted just of examples.  Still, the list consisted largely of examples of misrepresentations (e.g., claiming that something is from an attorney or the government when it wasn't) or unfair conduct (e.g., telling co-workers of the debt). But the FDCPA goes beyond these protections. For instance, in section 1692g, it requires collectors to tell consumers that they have the right to seek validation of the debt and in 1692e(11), that the collector is attempting to collect a debt. Section 1692c(c) largely bars collectors from further communications with the consumer once the consumer has made a written request that the collector stop such communications.  If creditors fail to live up to these other FDCPA provisions, are they committing a UDAAP violation? My guess is not as to the disclosure requirements, but I'm not sure.  I believe the Bureau has the power to define UDAAP as including these protections, just as the FTC has--and has used--its UDAP power to require door-to-door sellers to give certain notices to consumers.  But I think the Bureau would be clearer if it intended creditors to provide these protections, and perhaps some day it will be. On the other hand, if I represented creditors, I would recommend that they cease communicating with a consumer if the consumer so demanded. That's because the Bulletin mentions that telling employers or co-workers about the debt would be a UDAAP violation.  If the Bureau thinks one privacy invasion barred by the FDCPA is a UDAAP violation, why not another? 

Don't get me wrong: the Bureau has provided consumer-debtors significant protections in its Bulletin.  It is a major step forward.  But it's not quite the same as the FDCPA protections.

 

Ed Mierzwinski: Banks, Not CFPB, Spy on Consumers

Ed's excellent post is here.  Those who purport to be so concerned about the privacy of bank customers should seek to amend the Gramm-Leach-Bliley privacy provisions to bar banks from selling consumer information unless their customers affirmatively opt-in to the sale of that information. But that would mean supporting consumer protection, precisely what the CFPB opponents do not want. 

More on Debt Collection: CFPB To Go After Banks' Collection Practices

Suddenly, there's a lot going on the in the world of debt collection regulation. On the heels of yesterday's announcement by the FTC of a huge debt-collection settlement (discussed in the post below), the CFPB is announcing today that it will use its UDAAP authority to regulate the collection practices of banks. “It doesn’t matter who is collecting the debt — unfair, deceptive or abusive practices are illegal,” says CFPB director Richard Cordray in a statement. And the OCC, too, is investigating how JP Morgan and other banks collect credit card debt. Jessica Silver-Greenberg and Ed Wyatt have a story in today's TImes that takes a broad look at the developments at all three agencies.

The CFPB published two bulletins on debt collection today. The first makes clear that any entity subject to the Bureau's jurisdiction under the Dodd-Frank Act, whether a third-party collector or a creditor collecting its own debts, can be held accountable for any unfair, deceptive, or abusive practices in collecting a consumer’s debts. The second warns companies to avoid deceptive statements concerning the impact of paying a debt on a consumer’s credit score, credit report, or creditworthiness.

Will the Democrats Reform the Filibuster to Permit Cordray Confirmation?

That's the topic of a Times article, Democrats Plan Challenge to G.O.P.’s Filibuster Use.  The plan seems to be to leave unchanged the filibuster rules for legislation and confirmation of judges, but limit use of the filibuster for votes on confirmation of agency appointees. Such a change would make it easier to vote on confirmation of Cordray to head the CFPB.

Will the Senate Compromise on the Cordray Confirmation?

by Jeff Sovern

From time to time, reports appear that Senator Portman is trying to broker a compromise that would permit confirmation of Richard Cordray as CFPB director.  And some, including Ballard Spahr's Alan Kaplinsky, have predicted that a compromise will be eventually be reached.  I don't have any inside information--it's not as if legislators or their staffers are calling me.  I certainly know less about what is happening in Congress than Senator Portman, and I suspect I know far less than Alan Kaplinsky as well. But here's why I'm skeptical about a compromise:

The Republican opponents of confirmation of Cordray claim that the Bureau's director has too much power. The director, they say, is not part of a commission, but can act based on his own views. He has a five-year term and can be removed only for cause, meaning that he need not fear firing if he angers people.  The Bureau gets its funding outside of the congressional appropriations process, and that frees the Bureau from having its funding reduced by legislators unhappy with its decisions.  But, as I have pointed out before, the Senate has had no difficulty confirming nominees to head the Office of the Comptroller of the Currency, including nominees of both Democratic and Republican presidents, and has even done so on a voice vote (reserved for non-controversial votes) when the Republicans had a majority of the Senate.  Accordingly, I view the Republicans' stated reason for opposition as a pretext.  As they also voted against creation of the Bureau in the first place, it seems inescapable that their real goal is to prevent the Bureau from acting.

That's why I think a compromise is unlikely. If Senator Portman attempts to broker a compromise that adds checks to the director's power, by for example, providing for a commission structure, that addresses only the pretext and not the real objection. Accordingly, I don't see why the Republicans would agree to it.  A commission would make it harder for the Bureau to protect consumers, but not impossible.  If your goal is to paralyze the Bureau, why would you agree to something that won't necessarily do that?  I think Senator Portman is trying to broker a compromise because he feels differently. He is from the same state as Cordray and so may be more receptive to his directorship.

Despite all this, there are a few ways I could see a compromise happening.  A director-less Bureau has power over banks but much less over non-bank lenders. That means the Bureau could insist on banks doing things in ways which rendered them less able to compete with non-banks.  Banks might respond by seeking confirmation of a director so that they can compete with the non-banks.  Or it mght be possible to broker a compromise in which the Republican senators get something they want more than disrupting the Bureau.  And as I say, I'm speculating here, so I could easily be overlooking something.

But still, it doesn't look good for consumers.  Wouldn't it be nice if politics were more honest?

 

Politico on the CFPB After Cordray

Here. Cordray's recess appointment expires in December. What happens then?  Under Dodd-Frank, Cordray's deputy takes over as acting director. Right now, Steve Antonakes is the acting deputy. But some of those who argue Cordray's appointment is invalid claim also that his naming Antonakes as acting deputy is invalid.  Of course, the Supreme Court may rule that Cordray's appointment was valid (or rather, the NLRB members whose appointments are at issue in the Noel Canning case) or even if the courts find Cordray's appointment was invalid, they could nevertheless ratify his decisions--but any decision in Noel Canning is unlikely before Cordray's appointment expires.  Another option, according to Politico:

[T]he court could allow the Treasury Secretary Jack Lew to assume the role  former Secretary Timothy Geithner did before Cordray was appointed director and  oversee the CFPB. In that role, Lew could ratify Cordray’s actions and delegate  the day-to-day responsibilities to an adviser — presumably someone within the  bureau, like Antonakes.

Not everyone agrees that’s permissible under Dodd-Frank, and it could lead to  even more legal challenges.

Either way, without a director, the bureau would be stripped of its powers to  oversee nonbanks and be limited to enforcing laws transferred to the bureau from  other agencies.

I'm not clear on which court the article is referring to or what procedural steps would lead to a court coming to such a result, but I hope we don't need to find out.

New Book Describes the Creation of the CFPB

by Jeff Sovern

Here's the blurb I provided:

"Powerful interest groups seldom lose major battles in Congress, but that is exactly what happened when Congress created the Consumer Financial Protection Bureau in 2010. Larry Kirsch and Robert N. Mayer have produced, in Financial Justice: The People's Campaign to Stop Lender Abuse, an eminently readable and yet important account of the fight to establish the CFPB. For those who care about consumer protection, want to learn how laws get passed and new agencies created, or just enjoy a good real-life David-and-Goliath struggle, this book is a must-read."

Back in college I read Eric Redman's book, The Dance of Legislation, which described how Congress enacted a particular law and provided a sort of case study on the legislative process.  This book provides a similar case study--but it's about the Dodd-Frank Act and the CFPB, something likely to be of interest to readers of this blog.  I think this book will be of use for years to come to people interested in the enactment of consumer protection legislation. The book also contains a foreward by former House Financial Services Chair Barney Frank and an afterword by Hofstra professor Norman I. Silber based on his correspondence with Senator Elizabeth Warren  (Disclosure: the book mentions the effort by Norm Silber and me that resulted in numerous law professors joining a letter supporting passage of the Dodd-Frank Act).

American Banker: Supreme Court Case May Have Big Impact on CFPB

Here (but behind a paywall).  Among the points made in the article are that the recess appointment of current CFPB Director Richard Cordray is likely to expire before the Supreme Court rules and that banks could be hurt if Cordray's appointment is ruled unconstitutional because that would leave banks subject to the Bureau but not nonbank lenders. The article also offers speculation about what will happen when Cordray's appointment expired.  Alan Kaplinsky is quoted as saying that the president would be unlikely to make another recess appointment because that would be seen as thumbing his nose at the court (but is that an attempt by Alan to forestall such a recess appointment?). An alternative is for the Secretary of the Treasury to appoint an acting director, but such an acting director would not have the full range of powers accorded a director to protect consumers.

Will Banks Get Out of the Deposit Advance Loan Business? If So, Is That Desirable?

by Jeff Sovern

Deposit advance loans are banks' answer to payday loans.   Just like payday loans, they tend to be for short periods and high interest rates.  And just as with payday loans, consumer advocates fear that consumers get trapped in them, in the sense that many borrowers can't come up with the money to pay off the principal, and so just keep rolling them over and over--thereby paying the high interest rates for a succession of short-term loans, rather than paying a lower interest rate for a longer term loan.  Regulators have responded by proposing limits to such loans.  Last week, the Wall Street Journal reported that some banks issuing deposit advance loans are threatening to stop making the loans if the regulators carry through on their proposal. 

That raises the question of whether it would be a bad thing if the banks did so.  No doubt many consumer advocates would see it as a positive for banks to stop making the loans.  On the other hand, as CFPB director Richard Cordray has noted, there is a demand for these products.  What would the borrowers who are now taking out such loans do if they could no longer get them?  If they ended up with payday lenders, it's hard to see how that would be an improvement. If, on the other hand, they found a cheaper way to borrow (credit cards?  family member?) that would be a positive, but if they had access to such a source of funds, presumably they would already choose it over the high cost borrowing--though that assumes they recognize it as cheaper.  If they couldn't borrow from another source, and so did without the money, would that be better?  Does the answer depend on what they would have used the money for and whether they wouid have been ensnared by a debt trap?  And who should make that judgment?  The consumer or regulators? All this raises one of the most fundamental questions in consumer protection law: should consumers be able to make these judgments for themselves, or does the fact that so many consumers have made such judgments poorly mean that regulators should make the judgment for them? 

When Elizabeth Warren first proposed the CFPB, she often drew an analogy to a defective toaster.  She said you can't buy a defective toaster that can burn down your house, but you can take out a bad mortgage that will cost you your home.  Are these loans like the defective toaster, in that consumers can't see them for what they are?  I envy the certainty of those who believe they know the answer.

 

House Financial Services Committee Hearing: CFPB Budget Review

by Jeff Sovern

Yesterday, the House Financial Services Committee held a hearing titled CFPB Budget Review.  You can listen to the webcast here.  It seems to be part of the continuing Republican attack on the Bureau.  The American Banker reported on the hearing here (behind a paywall).  The article points out that Republicans were criticial of the Bureau for paying salaries they regard as high, but also complained that top officials were leaving the Bureau.  Apparently they believe that the salaries are higher than they should be, even though they are not high enough to keep people at the Bureau.  As we have noted in the past, the Chair of the Committee, Jeb Hensarling, refused to allow the Bureau's director to testify, but seemed to have not problem with hearing from one of his subordinates.  Ah, politics.