chevron-down Created with Sketch Beta.
November 01, 2012

CFPB issues final rule on debt collection oversight

Narrows definition in response to ABA committee concerns

A final rule issued Oct. 24 by the Consumer Financial Protection Bureau (CFPB) provides for oversight of certain large debt collectors, including any firm that has more than $10 million in annual receipts from consumer debt collection activities.

“Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly,” according to CFPB Director Richard Cordray, who said the CFPB will be “supervising the larger debt collectors in the market for the first time at the federal level.”

Before issuing the final rule, the CFPB responded to comments submitted in April by the Consumer Financial Services Committee of the ABA Business Law Section. In its comment letter, the committee’s then-Chair Therese G. Franzen expressed concerns that the proposed rule would have included many practicing lawyers and law firms that are not “debt collectors” under state or federal law but that simply assert monetary claims – or seek to enforce judgments – against consumers on behalf of their clients.

In its final rule, the CFPB essentially agreed with the ABA committee and clarified that while lawyers “whose principal business activity is debt collection” will be subject to the bureau’s supervision if their annual receipts from those collection activities exceed $10 million, the much larger number of practicing lawyers who do not regularly engage in debt collection will not be subject to the rule.

In her letter, Franzen emphasized that Section 1027(e) of Title X of the Dodd-Frank Wall Street and Consumer Protection Act generally prevents the bureau from exercising supervisory or enforcement authority “with respect to any activity engaged in by an attorney as part of the practice of law under the laws of the state in which the attorney is licensed to practice.”   Exceptions to this are when attorneys offer or provide consumer financial products or services outside the practice of law and not within an attorney-client relationship or when attorneys are engaged in offering or providing a consumer financial product or service such as collection of consumer debt  but do not represent consumers in such activities.

The ABA supported inclusion of this practice-of-law exclusion in the Dodd-Frank Act, which has the practical effect of exempting most lawyers engaged in the practice of law from the expanded regulatory powers of the CFPB.

According to the CFPB, approximately 30 million American consumers currently are subject to debt collection, and the bureau’s supervisory authority will extend to about 175 debt collectors representing more than 60 percent of the debt collection industry’s annual receipts of $12.2 billion.

The new rule takes effect Jan. 2, 2013.

The material in all ABA publications is copyrighted and may be reprinted by permission only. Request reprint permission here.