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Last week, former Deputy Director of the Consumer Financial Protection Bureau (CFPB) Thomas B. Pahl kicked off the Receivables Management Association International’s (RMAi) annual conference with jaw-dropping warnings to the industry. During his keynote address, “Looking Ahead—The Future of the Collection Industry,” Mr. Pahl shared his insights for the future of the collections industry amid new regulations and the new Biden administration.

Long story short, the CFPB will revert to regulation by enforcement—this time, on steroids. Below, I’ve highlighted major updates and looming concerns for the ARM industry.


The Appointment of Director Chopra Is Imminent

Mr. Pahl reported on the status of President Biden’s nomination of Rohit Chopra as Director of the CFPB. In March, a vote by the Senate Banking Committee to approve Chopra’s nomination and advance it to the full Senate resulted in a 12-12 tie vote. Due to the tie, the nomination process was temporarily halted.

However, upon his motion, Senate Majority Leader Chuck Schumer, D-N.Y., can advance the nomination of Chopra to the full Senate for its final consideration. Should a tie occur in the full Senate, Vice President Kamala Harris can cast her vote in favor of Chopra and thereby ensure his appointment. In other words, Chopra’s appointment is imminent.


An Aggressive Regulatory Regime Is Looming

As Pahl explained, Chopra’s appointment suggests the Biden administration could be preparing for a return to a more aggressive regulatory regime. Specifically, Pahl expects the Bureau to be much more aggressive in initiating investigations and pursuing enforcement actions than it was under Director Kraninger’s leadership.

In fact, Pahl expects the CFPB to go after both the good actors and the bad actors. He believes the Biden CFPB will function more like a Cordray-led Bureau, only this time on steroids.


A 60-Day Extension Is Likely; Expect More Stringent Rules

Noting the CFPB’s recent announcement to consider a proposed rule to extend the compliance date of Regulation F by an additional 60 days (from November 30, 2021 to January 29, 2022), Pahl opined that the Bureau’s staff is most likely responding to the administration’s request for a delay in the implementation date for the new rules. In Pahl’s view, doing so would allow Chopra to influence the new rules not by rescission but by potentially adding more stringent rules to Regulation F in order to further control the third-party collection industry. Pahl does not think rescission of Regulation F is at all likely.


Additional New Rules May Be in the Cards

Pahl predicted Chopra, as new CFPB director, would have an interest in adding more restrictions to text and email communications, foreign language requirements, and credit reporting requirements. Chopra might even consider more time barred debt disclosure requirements and collection restrictions.

Pahl added, however, that any such rule making would have to follow the notice and comment period requirements of the Administrative Procedures Act and withstand the scrutiny of attacks claiming such rulemaking was arbitrary and capricious.

Of course, rule making represents only one of the functions of the CFPB. Pahl explained that under the Dodd Frank Act, the CFPB is also charged with the supervision and enforcement of the financial services industry.

And this is where Pahl’s presentation got interesting.


A Warning for Larger Market Participants—and Midsize Agencies as Well

Pahl encouraged Larger Market Participants (LMP) to take immediate steps to prepare for hyper invasive supervisory exams. He warned that supervisory examinations under the Chopra regime will apply the most discerning compliance lens to an LMP’s compliance management system with an emphasis on compliance with Regulation F. He also said more enforcement is coming. Supervisory examiners will be directed to leave no stone unturned and to refer even the slightest compliance infraction to the CFPB enforcement division.

Pahl also issued a wake-up call to the industry at large, saying the new CFPB has a strong appetite to revise the definition of an LMP. He will not be surprised if the $10M annual collection fee threshold (the calculation presently excludes medical debt collection fees) is lowered dramatically so as to expand supervision to many midsize agencies.

Pahl thinks fees earned from the collection of medical debt will be considered in the LMP calculation and that agencies otherwise insulated from supervisory examinations will be rudely awakened to a whole new world.


Prepare for Aggressive Enforcement Industry Wide

Pahl could not have been clearer about his prediction that the CFPB plans to regulate the industry by enforcement. As far as the CFPB is concerned, vague laws, ambiguous regulations, and the ever-expanding definition of the Unfair and Deceptive or Abusive Practices Act (UDAAP) sets the perfect stage for aggressive fines and penalties against an unsuspecting industry.


Service Providers Face Greater Scrutiny

In his previous roles, together with state and international law enforcement partners, Chopra has worked to “increase scrutiny of dominant technology firms that pose risks to privacy, national security, and fair competition.” In other words, according to Pahl, the false sense of protection service providers have enjoyed for the past 10 years of CFPB history will soon implode.

Under CFPB Director Chopra, service providers to the third-party debt collection market—technology service providers in particular—need to wake up, step up, and invest in robust compliance management systems.


The FTC Is Stepping Up

The Federal Trade Commission (FTC), comprised of four Democrat and two Republican appointees, continues to serve as the chief law enforcement agency of Federal consumer financial laws. But in Pahl’s opinion, once President Biden’s FTC Commission Chair is seated (thereby replacing Chopra) and Chopra’s appointment is confirmed, the ARM industry will likely see the largest shifts in policy we have seen in over 30 years.

The FTC plans to aggressively pursue law enforcement against bad actors in the collections space. Meanwhile, the CFPB plans to go after all actors, and the CFPB will not hesitate to work collaboratively with the FTC to oversee and control the industry.


More of Rozanne’s Takeaways

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Rozanne Andersen serves as Ontario Systems’ Vice President and Chief Compliance Officer. She is a licensed attorney and a 30+ year veteran and advocate of the banking, credit, and collection industry. She holds Chief Compliance Officer certifications from both ACA International and RMAI International. In 2020, Andersen received an international Compliance Officer of the Year award from Women in Compliance. Prior to joining Ontario Systems, Andersen served as former general counsel, director of government affairs, and CEO of ACA International. Since 2011, she has led Ontario Systems’ regulatory compliance efforts to ensure compliance solutions are embedded in the company’s software, contact management, payment processing, and cloud solutions. Ontario Systems is widely recognized as a leading software provider to the collection, healthcare, debt buyer and Federal, state, and local government markets.
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