In April 2023, the CFPB released a policy statement on abusive acts and practices (Policy) and invited comments from interested stakeholders. According to the Consumer Relations Consortium (CRC), the ambiguity and vague concepts in Policy will ultimately harm the consumers the CFPB purports to protect. In its comment, the CRC urged the CFPB to update the Policy to create greater clarity and consistency to avoid this unintended consequence.
Legal Advisory Board members Jessica Klander of Bassford Remele, Aryeh Derman of Clark Hill, Justin Penn of Hinshaw and Culbertson, and Jedd Bellman of Orrick prepared the CRC’s June 30, 2023 comments and raised the following concerns:
The Policy is too vague to be effective.
The CRC began its comment by reminding the CFPB that debt collectors are often the most sophisticated person a consumer will speak to as they try to get their financial lives back on track. Though debt collectors represent their clients, they often assist consumers directly by serving as their primary liaison to the original creditor, gathering documents on their behalf, helping process disputes and hardship applications, and offering extended payment plans, settlements, etc.
To facilitate these types of communications, debt collectors must create and implement compliant policies and procedures. Clear laws create a path for debt collectors to ensure that all (and sometimes conflicting) applicable laws are followed. When laws or rules are unclear, debt collectors cannot draw solid lines for compliance. Ambiguous laws which cannot be followed with certainty deny consumers the opportunity to speak with anyone about their debt.
As currently written, the lack of clarity and vague concepts in the Policy will make compliance with it exceedingly difficult and therefore make communications- including those that assist consumers- likewise exceedingly difficult.
The definition of ‘Material interference’ lacks sufficient clarity.
In his prepared remarks, Director Chopra said the Policy “explains how companies are prohibited from manipulating people by ‘materially interfere[ing],’ or in other words obscuring, important features of a product or service.” However, the examples in the Policy regarding what constitutes a “material interference” are broad and unclear. They involve “digital” and “physical” interference, including buried disclosures, undisclosed pricing or costs, and overly complicated terms. No other examples are provided.
In its comment, the CRC opined that the language in the Policy is so vague and broad that it could potentially apply to any consumer interaction. Without clarification, definition, or a safe harbor provision for good faith compliance with laws, the overbreadth of this language will necessarily create compliance uncertainty, additional litigation, and inconsistency among jurisdictions regarding its meaning.
Ultimately, this portion of the Policy will prevent communications with consumers and prevent them from getting their financial lives back on track. Consequently, the CRC urged the CFPB to address its concerns expressly rather than vaguely, provide additional definition and clarity, and add safe harbor provisions to the Policy.
The concept of “Unreasonable Advantage” should be tied to an objectively reasonable industry standard.
The Policy suggests that abusive conduct occurs when one takes “unreasonable advantage” of consumers and suggests that taking “unreasonable advantage” can come in three ways:
- The consumer’s lack of understanding.
- The inability of the consumer to protect their own interest
- Reasonable reliance by a consumer that a covered entity [debt collector] is acting in the consumer’s interest.
The Policy does not set forth objective standards debt collectors can follow. Instead, the standard is subjective and indicates:
- The consumer’s lack of understanding is sufficient to demonstrate abusive conduct, regardless of how it arose. This may be true regardless of any act or omission of the debt collector or whether that lack of understanding by the consumer was reasonable.
- There is a higher risk for abusive conduct where consumers cannot exercise meaningful choice when interacting with or choosing a particular entity. The Policy Statement does not include examples of how a consumer could have achieved a different outcome had they participated in selecting a downstream vendor.
- The definition of “reasonable reliance” is open-ended. Though the Policy provides two examples, it also mentions that “[t]here are a number of ways to establish reasonable reliance” and cautions that the scenarios provided are not exhaustive.
Though the CRC fully supports consumer financial education and the mission to empower consumers by giving them the tools to make well-informed financial decisions, the scope of what could constitute taking “unreasonable advantage” of a consumer is so subjective and uncertain that the CFPB will leave the industry, especially the numerous good actors paralyzed concerning how to communicate with consumers and stay compliant.
In its comment, the CRC urged the CFPB to change its proposed Policy to create clear guidance and reasonable objective standards. Debt collectors engage in inbound and outbound phone calls, emails, and other communications with limited knowledge of a consumer’s financial background or competency. Without sufficiently describing the standards the CFPB desires to set forth or the specific conduct it seeks to derail, debt collectors cannot be sure what additional information or disclosures are needed when communicating with consumers. When debt collectors don't have the guidance to create clear internal procedures, consumer communications are stifled, ultimately to the consumer's detriment.
The CRC’s full comment can be found here.
About the Consumer Relations Consortium
The Consumer Relations Consortium (CRC) is an organization comprised of more than 60 national companies representing the diverse ecosystem of debt collection including creditors, data/technology providers and compliance-oriented debt collectors that are larger market participants. Established in 2013, CRC is evolving the debt collection paradigm by engaging stakeholders—including consumer advocates, Federal and State regulators, academic and industry thought leaders, creditors and debt collectors—and challenging them to move beyond talking points and focus on fashioning real-world solutions that actually improve the consumer experience. CRC’s collaborative and candid approach is unique in the market. CRC is managed by The iA Institute.
About the Legal Advisory Board
The Legal Advisory Board (LAB) is an exclusive membership group of outside counsel with expertise in the accounts receivable industry who have each pledged their time and resources to support the mission of the CRC. The LAB is limited to ten law firms and is comprised of fourteen total attorneys. The 2023 members can be found here. Throughout the year, the LAB serves as a legal resource to the CRC membership and assists in fulfilling the mission of promoting forward-thinking approaches to the issues raised by regulatory policy and technology innovation in the accounts receivable industry.