In July of 2016, the Consumer Financial Protection Bureau released an outline of new rules targeting third-party debt-collection operations. The new rules targeted various areas including: Debt validation, Limits on Contact, Consumer Disputes, and Deceased Consumers. At the time, the CFPB stated it planned to release rules relevant to first-party creditors at a later date. However, Richard Cordray, the director of the CFPB, announced at the agency’s Consumer Advisory Board meeting in Washington D.C. on June 8, 2017 that the new rules on debt validation will cover both first-party creditors and third-party debt collectors.
The topic of debt validation concerns the information debt collectors maintain on debts, such as consumer name and the debt amount, as well as the practices collectors engage in to confirm the debt is valid. Under the proposed rules, debt collectors would have a much higher burden to prove a debt is valid before starting collection. After reviewing feedback on the proposed rules, the CFPB concluded that rules on debt validation should cover both first-party creditors and third-party debt collectors because much of the information third-party collectors maintain is obtained from and created by first-party creditors such as banks and other lenders. To ensure all collectors have the correct information about a debt and the debtor, the CFPB found all parties in the collection process must work together, warranting a uniform set of rules with respect to the validation process.
The CFPB will move forward with the remaining draft rules on other third-party collection activities separately, as originally contemplated. Specifically, the agency is focusing on new rules regarding disclosures third-party debt collectors must make to consumers about the debt collection process and consumer rights. The agency stated it planned to “move forward quickly” with these additional proposed rules.
The CFPB’s decision is a further step in the CFPB’s efforts to extend statutory and regulatory collection obligations to first-party creditors. While this may seems a logical step in the CFPB’s enforcement efforts, it will likely prompt controversy among first-party creditors as it expands the current state of the law, and may be viewed as a move towards still further expansion.