The CFPB will continue to garner headlines for perceived and real unsavory practices within collections unless the industry adheres to standards as a profession. Professions are noted for regulating their members and practices with formal rules and peer review to monitor its rules. This is not a new suggestion. Each passing month seems to bring another egregious headline. A more recent incident involves Discover Financial Services being ordered to pay $18.5 million by the CFPB. The CFPB alleged Discover engaged in a series of illegal practices related to the repayment and collection of student loans including overstating minimum payments required on student loan programs. The time for good collectors to come to the aid of our industry and exercise a higher level of self-regulation is past due. Revealing bad actors before the CFPB would improve the industry.
The recently released Supervisory Highlights report is the seventh the CFPB has released and it continues to provide insight on where the Bureau focused its scrutiny. Based on 138 escalated issues when conducting on-site inspections, the most prevalent issue is a complete lack of a monitoring system. An emphasis appears to be growing around the existence and proper function of internal controls over expected systems implemented to prevent consumer financial abuse. These internal controls are already a common process in financial transactions. In such processes financial auditors and SSAE 16 reviewers look for the existence of internal controls. If they exist, the controls are tested to see if they function as intended. The CFPB is following this well-established framework when determining what can be considered a violation of consumer financial protections.
The CFPB consistently determines a lack of a compliance management system (CMS) to be an omission of a requirement for any entity within their purview. The debt collection industry has been found to lack an effective dispute management system (DMS) to monitor and track complaints. However unfair it is to publish an unverified consumer complaint log, the CFPB expects collection agencies to have an effective system in place to centrally log all disputes, track them throughout the resolution process, deal with any third parties involved, and have a clear audit trail. Related to this CMS omission by the CFPB is the omission of a third party vendor monitoring program.
The second most prevalent issue in the Supervisory Highlights is the lack of clarity in the communication with consumers. An agency may have an issue with its communications if the CFPB determines a reasonable reader could construe some type of harm to consumers. The CFPB has monitored websites looking for perceived harmful consumer communications as well.
All first and third party collection groups need a legal review step as part of their communications screening process to ensure clear communications with consumers. ACA International, collection insurance companies, and benchmark groups should be a part of the compliance screening process for new collection letters and scripts directed to consumers.
The third most prevalent category of issues noted focused on situations where there was insufficient justification for taking an action construed as detrimental to consumers. The practice of referring medical debts, as a matter of course in collections, to credit bureaus was curtailed by the CFPB. Maintaining adequate documentation and chain of title is not unreasonable.
The fourth largest category of reported problems focused on legally mandated deadlines for responding to, or acting on, a consumer priority. State and federal government regulators mandate required actions based on very hard dates in the consumer transaction process.
The problem begins with banks creating unhappy consumers. According to research by Zogby Analytics, customer service for Bank of America, Wells Fargo, and Citibank is currently ranked among the worst for major national brands. Excessive interest rates have been out of the control of most state regulators since the Supreme Court’s 1978 decision in Marquette National Bank of Minneapolis v. First of Omaha Service Corp. to allow interest rates considered usurious by some states to be overridden by federally chartered banks. The CFPB arrived and found an ongoing need to protect consumers from financial abuse. The unpaid debts incurred are nevertheless legitimate and collectors are tasked with collecting on them. Unfortunately, the messenger, in this case the collector, takes the fall for the “hall of shame,” the customer service status of major banks. The problem persists. Consumers depend on credit from major banks and credit card companies to survive. Rather than garner headlines by attacking collection firms, the CFPB could remedy the problem before the debt arrives at collection agencies by placing limits similar to those curtailing mortgage companies in 2013. In the meantime, collection professional organizations and major collection firms need to step up and identify bad actors in the collection industry whether or not they are members. Associations like ACA International could contribute to this and implement a method of self-regulation including peer review.