Last week I had the pleasure of visiting the Consumer Finance Protection Bureau (CFPB) in Washington, DC. to meet with staff and attend a planning session.
Elizabeth Warren started the meeting with an introduction and left the meeting in the capable and good hands of Peggy Twohig and Alice Hrdy, both who supervised debt relief issues over at the FTC, and are now at the CFPB.
The CFPB is interested in hearing from people involved in the debt relief / financial world. The notice of what feedback they are looking for is below:
CFPB Debt Relief Notice
SUMMARY: The Bureau of Consumer Financial Protection (“CFPB”), created by the Consumer Financial Protection Act of 2010 (“Act”), is required to implement a program to supervise certain nondepository covered persons for compliance with Federal consumer financial laws. The scope of supervision coverage varies for different product markets. Section 1024 of the Act provides that the CFPB may supervise covered persons in the residential mortgage, private education lending, and payday lending markets. For other markets for consumer financial products or services, the supervision program generally will apply only to a “larger participant” of these markets, as defined by rule. The CFPB is required to issue an initial “larger participant” rule not later than July 21, 2012, one year after the designated transfer date.
This notice and request for comment (“Notice”) seeks public comment on the development of such a rule. After considering any comments on this Notice and other relevant information, the CFPB will draft and publish a proposed rule for public comment.
DATES: Comments must be received by August 15, 2011.
While I’m not at liberty to report on what was said at the session I attended I can tell you that it was reported to me that a nonprofit credit counseling trade group had stated they did not need to be regulated by the CFPB because the nonprofit trade group felt they are already sufficiently regulated. It was suggested that forcing credit counseling agencies to pay registration fees, provide performance data, and subject themselves to audits could be economically difficult and serve to further damage an already unsteady non-profit consumer services sector even if there were no additional regulations imposed.
My opinion is that with the uncertainty of who all the participants are in the debt relief world, all entities who collect a fee to intervene between a creditor and consumer, should be required to register with the CFPB. Good companies that should have nothing to worry about by registering, companies that try to fly under the radar, should be able to be easily identified to so consumers can have a chance at who to avoid.
As part of the public notice the CFPB identified groups they need to pay close attention to.
The CFPB says: “A variety of consumer financial products and services offered by nondepository covered persons could be subject to the CFPB’s supervision program under a larger participant rule. The CFPB is interested in public comment regarding which markets for consumer financial products and services should be addressed in an initial rule. Specifically, the CFPB solicits comment on whether the categories discussed below should be covered in the initial rule, whether each particular category consists of a single market or multiple markets, and whether other markets also should be addressed. Although the CFPB anticipates including certain specified markets in an initial rule, additional markets may be added through subsequent rulemakings.”
Two of those groups that the CFPB plans to regulate from the beginning include:
- Money Transmitting, Check Cashing, and Related Activities
Money transmitting generally involves the receipt of funds by a transmitter that then sends the funds via wire transfer, ACH transfer, or other means to a recipient in another location on behalf of a consumer, for a fee. The check cashing business generally involves the cashing of consumer checks by retail establishments for a fee. The sale of money orders and related items provides products consumers can use to pay bills or conduct other financial transactions. Typically, businesses engaged in the foregoing activities offer a menu of several of these products and services to consumers.
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Money transmitting is a significant industry. Total transaction volume for money transmission was approximately $72 billion in 2005, with $40 billion of that amount transmitted internationally. The CFPB will need to consider whether to include money transmitting alone, or money transmitting and related consumer financial products and services such as check cashing, as a market or markets to be covered in an initial rule. If multiple products are included, the CFPB will need to consider carefully how the respective product and service markets should be defined.
[Credit counselors that accept funds from consumers and remit those funds to creditors are subject to money transmitter regulations in a number of states and apparently the CFPB if you follow the definition.]
- Debt Relief Services
Debt relief services refer to consumer financial products and services offered to reduce a consumer’s debt. 33
33. Principally, these providers offer to reduce consumers’ credit card debt, but some providers offer to reduce medical or tax debt. Not included in the debt relief market are providers of debt relief services that relate to mortgage debt, commonly referred to as mortgage loan modification or foreclosure relief services. Section 1024(a)(1)(A) and (b) of the Act gives the CFPB authority to supervise those providers without regard to size.
Providers generally offer one of two products or services. 34
34. See generally, Federal Trade Commission, Telemarketing Sales Rule: Final Rule (debt relief services amendments), 75 FR. 48458 (Aug. 10, 2010).
Providers of “debt management plans,” typically non-profit credit counseling agencies, work with creditors to develop repayment plans for consumers. These plans typically permit a consumer to repay the full credit balance owed under renegotiated terms, such as substantially reduced interest rates and fees. For consumers who are unable to repay the full balance owed, “debt settlement” entities offer to negotiate with a consumer’s creditors to enable the consumer to make a lump-sum payment of less than the entire balance owed to the creditor, thereby settling the debt obligation. Statistics on the size of these industries, as well as the size of other debt relief services, are not readily available.
The CFPB will need to consider carefully how to define any debt relief provider market or markets included in an initial rule.
If you would like to provide a public comment to the CFPB you can leave a public comment for the CFPB online here.
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