Jonathan Pompan published "The CFPB and Future of Credit Counseling" in the Third Quarter 2012 edition of The Independent Counselor, e-Newsletter of the Association of Consumer Credit Counseling Agencies.
As the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) continues to announce enforcement actions and regulatory changes to the consumer financial legal landscape, there are some signs about how the Bureau will look at credit counseling services. In the CFPB’s proposed rule defining larger market participants in the debt relief services market, nonprofit credit counseling services are specifically covered, along with debt settlement services. Although it’s not certain when the final rule will be released, this core definition is likely to continue to cover counseling services. But, the CFPB has already achieved a number of results that reflect how it may approach credit counseling.
Now at the start of its second year, the CFPB has a list of accomplishments that includes enforcement actions, rulemakings in the areas of nonbank supervision and examination, mortgage servicer reform and shining a light on financial services for servicemembers and seniors. Despite the CFPBs support for housing counseling services in the recent rulemakings targeting mortgage disclosures and general supportive attitude towards services that are assisting consumers in financial distress, recent regulatory developments, enforcement actions, and public outreach, give some indication that credit counseling agencies need to be prepared for additional scrutiny.
Consumer Reporting Agency Supervision and Plans for the Debt Collection Market
In September, the CFPB began supervision of larger market participants in the consumer reporting market. Under the final rule, a nonbank covered person with more than $7 million in annual receipts resulting from consumer reporting activities is a larger participant in that market. The Bureau has said it expects about 30 credit reporting companies to fit this profile. In addition, the Bureau has released detailed examination guidelines for consumer reporting companies. Also, the CFPB will hold a field hearing on debt collection for late October. This hearing will likely shed new light on how the agency will proceed with its proposed supervision of the debt collection market.
Enforcement Actions Against Banks
The CFPB has publicly announced three enforcement actions all of which have been against major national banks related to their credit card business. In each of these cases, the Bureau has aggressively scrutinized and been critical of how the banks monitor third-party vendors and employees; designed, approved, and implemented compliance management systems; and interfaced with consumers. These enforcement actions also were the by-product of multi-agency cooperation between the CFPB and other federal regulators, and in the case of the actions, a state banking department. The actions also involved a coordinated effort by multiple divisions within the CFPB, including supervision and enforcement. On top of this, the CFPB was a party to the joint federal and state mortgage servicer settlement that was initiated by 49 states’ Attorneys General. Accordingly, the CFPB has demonstrated it will coordinate with state and other federal regulators, and look closely at every stage of the consumer experience, from outreach and marketing, enrollment, fulfillment, and quality assurance.
CFPB “Beta” Approach Is No Laughing Matter
What do The Daily Show, The Colbert Report, and the CFPB have in common? While credit counseling agencies may hope the answer is a sense of humor, according to a recent Washington Post story, the answer is that there is at least one Web designer who has worked at all three places. That designer is indicative of the unusual team of government employees at the CFPB. The Bureau has become known as a “Beltway Start-up” with access to close to a half-billion-dollar budget and more than 1,000 employees.
The Post article details the CFPB’s use of “classic start-up style” and attributes the CFPB’s “beta” projects to an approach that encourages staff to work quickly and make corrections later. This approach is as good an explanation as any for the CFPB’s practice of often placing proposals on its website without always simultaneously utilizing the Federal Register and the notice and comment process provided for in the Administrative Procedures Act.
Instead, CFPB proposals like sample disclosures for student loans, mortgage servicers, and other initiatives like a draft Strategic Plan, and FAQs that acknowledge credit counseling (but don’t always tell the full story) sometimes seem to only exist on the Web. And, comments from the public are sometimes limited to the arbitrary length of intake forms on the CFPB website. However, the CFPB website provides a window into an area that matters very much but is easily underestimated. For credit counseling agencies, the “beta” approaches and CFPB website are no laughing matter.
Future of Credit Counseling and CFPB
The recent move to supervise certain nonbanks, the CFPB’s enforcement actions, and Beta approach to policymaking, raise questions about whether and how the CFPB will regulate nonprofit credit counseling agencies. If, and when, the CFPB announces its final rule for nonbank larger participants, it will provide some insight into how credit counseling is being considered. Exact plans remain unclear, but the proposed rule for larger market participants expressly included the debt relief services category.
Moreover, the CFPB does not need to have supervision authority expressly over credit counseling to bring exams for practices that it determines “pose a risk to consumers,” to launch investigations, or issue guidance materials.
Credit counseling agencies need to continue to monitor the CFPB’s interest in credit counseling and related areas, remain engaged as an industry, produce research and data that demonstrates the benefits to consumers of their services, and be able to demonstrate compliance with applicable law and regulations.