CFPB Appears to Lay Ground Rules to Begin Enforcement in Debt Relief Industry

In a predatory move, the Consumer Financial Protection Bureau (CFPB) has issued a public request for comment over rules that could be used to regulate debt relief industry companies, both for-profit and not-for-profit.

The document, “Procedural Rules to Establish Supervisory Authority over Certain Nonbank Covered Persons Based on Risk Determination” has been put out for public comment.

Under this proposed rule the CFPB is not expressly mandated to cover debt relief companies but their mandate does allow them to have supervisory authority over any person or entity “that it “has reasonable cause to determine, by order, after notice . . . and a reasonable opportunity . . . to respond” that such covered person “is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.” – Source

That seems to certainly cover the debt relief space since bad actors have been known to specifically engage in conduct that harms consumers. It would be a seemingly absolute stretch to say that debt relief providers do not offer “consumer financial products or services.”

The CFPB is proposing that when an entity is brought to their attention which they believe “is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services” they will contact the entity. Additionally, these rules can apply to “Any affiliate of a person described in subparagraph (1) of this paragraph if such affiliate acts as a service provider to such person.”

This contact will allow the entity a chance to respond in writing and orally.

A Notice is intended to afford a respondent the opportunity to evaluate the assertions set forth therein and to formulate an appropriate response. The Proposed Rule would provide a respondent with two opportunities to respond to a Notice— first in writing and then, if requested by a respondent, through a supplemental oral response generally to be conducted by telephone. Under the Proposed Rule, a respondent would be required to include with the written response records, documents, or other items supporting the arguments set forth in the response that a respondent wants the Bureau’s Assistant Director for Nonbank Supervision (Assistant Director) and the Bureau’s Director (Director) to consider. A supplemental oral response, if requested, would provide a respondent with the opportunity to present arguments to the Bureau’s Assistant Director or her or his designee.

Receiving a notice from the CFPB would not constitute of charges. The process would be informal and no discovery would be permitted. Notices would be delivered through the “U.S. Postal Service by Registered Mail, Certified Mail or Express Mail delivery, or by third-party commercial carrier, for overnight delivery and obtaining a confirmation of receipt.”

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Entities that receive such a notice would be required to respond within 20 days of service of the notice. A failure to respond shall result in a waiver of an entities right to respond and trigger the final process which can result in a supervisory determination.

Companies that wish to respond to a notice from the CFPB shall “include all records, documents, or other items upon which a respondent relies; and (3) include an affidavit signed by the respondent attesting that the information contained in the response is true, accurate, and without any omission that would cause the response to be materially misleading.”

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There is an interesting reference in the proposed rule that leads me to believe the CFPB may still intend to have people and entities register with the CFPB. “Notice may be served on a person currently registered with the Bureau by sending a copy of a Notice addressed to the most recent business address shown on the person’s registration form…”

Entities that are deemed to require supervision by the CFPB will fall under the following 12 U.S.C. 5514 process.

“The Bureau shall require reports and conduct examinations on a periodic basis of persons described in subsection (a)(1) for purposes of—
(A) assessing compliance with the requirements of Federal consumer financial law;
(B) obtaining information about the activities and compliance systems or procedures of such person; and
(C) detecting and assessing risks to consumers and to markets for consumer financial products and services.”

Companies found to be problematic may result in a referral by the CFPB to “Any Federal agency authorized to enforce a Federal consumer financial law described in paragraph (1) may recommend in writing to the Bureau that the Bureau initiate an enforcement proceeding, as the Bureau is authorized by that Federal law or by this title”

Parties interested in commenting can submit their comments on Docket No. CFPB-2012-0021 or RIN 3170-AA24 by going to http://www.regulations.gov.

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You can read the full proposed rule here.

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