The CFPB has released their final rule covering nonbank providers and the rule appears to sweep up all of the debt relief world.
The rule will become effective 30 days after publication in the Federal Register. It is my understanding this will be published on July 3, 2013.
The CFPB rule making document makes it clear companies who believe they are covered by this new CFPB rule should begin to immediately gather and measure performance data, have compliance systems in place, detect risks to consumers from the products and services, and closely monitor affiliates for compliance.
“The rules states the CFPB has the authority to “require reports and conduct examinations on a periodic basis of such persons 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 persons, and (c) detecting and assessing risks to consumers and to markets for consumer financial products and services. By granting the Bureau supervisory authority over such “covered persons,” as opposed to over particular activities in which they engage, the Dodd-Frank Act establishes that the Bureau’s supervisory authority is not limited to the products or services that qualified a person for supervision, but also includes other activities of such a person that involve other consumer financial products or services or are subject to Federal consumer financial law.”
Specifically the rule describes covered entities in 12 U.S.C. 5481(15) which include appear to include a number of entities in the debt relief field including escrow companies, entities that provide financial advisory services, credit counseling debt management, debt settlement, or any modification of the terms of any extension of credit, foreclosure relief services, debt collectors, and any other product or service described by the CFPB. – Source
The rule “defines the covered persons subject to the Bureau’s authority under the provision not exclusively by reference to the category of activities in which they engage, but based on whether there is reasonable cause to believe that their conduct – whatever the particular activity involved – poses risks to consumers with regard to the offering or provision of consumer financial products or services.” This appears to encompass both for-profit and nonprofit debt relief entities.
The wide ranging rule also specifically states it covers “(A) any person that engages in offering or providing a consumer financial product or service; and (B) any affiliate of a person described [in (A)] if such affiliate acts as a service provider to such person.”
The rule also appears to cover attorneys as service providers. If so this would be an interesting development since in the debt relief space the FTC has given a wider passage to attorney model debt settlement companies.
As part of the CFPB rule it speaks to items it will look for as it did in the recent action against this debt settlement company. And by taking such action the CFPB certainly appears to have signaled their authority over the debt relief space.
The CFPB rule says in evaluating risk to consumers it will look to see, “whether a nonbank covered person has engaged in conduct that would pose risks to consumers because, for example, it involves potentially unfair, deceptive, or abusive acts or practices, or because the conduct otherwise potentially violates applicable Federal consumer financial law.”
While at least one commenter to the proposed rule asked for a “statue of limitations” against past non-compliant behavior, the CFPB did not agree. The CFPB stated the conduct of companies, past and present is important.
The plain language of 12 U.S.C. 5514(a)(1)(C) covers conduct that a nonbank covered person “is engaging, or has engaged, in” that poses risks to consumers. The Bureau further believes that past conduct may pose risks to consumers, even if the identical conduct is not likely to recur, to the extent that such conduct indicates weak compliance systems that might lead to other potential law violations or harms to consumers.
One commenter to the CFPB noted the CFPB complaint reporting process may not always be accurate. “In this regard, a commenter stated that because the Bureau’s complaint system permits the submission of complaints by third parties on behalf of consumers, the system runs the risk of being inundated with complaints from “credit repair organizations, debt settlement companies, advocacy groups, politicians, competitors, and even blog sites dedicated to airing gripes about specific companies.”
But the CFPB said it would not solely use complaints as a basis of action but would “look at many factors relating to complaints and information from other sources in deciding whether there is a sufficient basis to initiate a proceeding.”
One point in the rule which seems to significantly shift the burden of compliance to the debt relief companies is where the CFPB already assumes companies will be aware of information, regulation, compliance, etc. that might result in an inquiry.
“The Bureau does not believe that a reasonable opportunity to respond requires the Bureau to provide copies of all complaints or information from other sources relied on by the Bureau in issuing a Notice along with a Notice. Respondents should typically already have, or have access to, copies of any complaints, pleadings, judicial opinions, or independent studies on which the initiating official may rely in issuing a Notice.”
This information may include “documents, records, or other items that respondents may wish to rely on are types that should reasonably be available to respondents, such as product or service information, promotional materials, transactional, account, or financial information, and policies or procedures.”
The CFPB places complaints in the public database already after 15 days following the forwarding of the complaint to the company.
In a step closer to requiring debt relief companies to register with the Consumer Financial Protection Bureau the final rule includes language that may make that possible.
“The Bureau notes that the provision in the Proposed Rule stating that “[n]otice may be served on a person currently registered with the Bureau” by using “the most recent business address shown on the person’s registration form,” was included to permit such service if the Bureau adopts a rule requiring nonbank covered persons to register with the Bureau. The Bureau anticipates that to the extent a registration rule is adopted, a person required to register with the Bureau would be required to have its business address on file with the Bureau. In such a case, the Bureau believes that it should be able to rely on the address provided by a registrant in serving a Notice. Although a registration rule has not been adopted, the Bureau is including this provision in the final rule to avoid the need to revise the final rule to add such a provision should the Bureau adopt a registration rule in the future.”
If you would like to read the full rule documents, it’s right here.
Update July 4, 2013
The new rules were published in the Federal Register on July 3, 2013 and will go into force on August 2, 2013. – Source