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A Consumer Lawyer’s Role in the Age of the CFPB

130603_cfpb_mahaskey_605The advent of the “CFPB,” an acronym for the Consumer Financial Protection Bureau, not only spread fear throughout the debt collection industry, but created uncertainty regarding the future role of consumer lawyers. The “regulation by enforcement” policy followed by this federal agency is considered by many to be “strong arm” tactics by the government. The result of most CFPB enforcement actions has been the entry of consent orders with the offending debt collectors, that require payment of punitive fines and set minimum standards to be followed by these companies and firms. While the CFPB has substantially impacted the debt collection industry, it has left consumer lawyers to ponder the nature of their practice in this new environment.

Even though the CFPB is coercing debt collectors to pay millions of dollars in fines, and promise to change their ways, there is currently about twelve trillion dollars in unpaid public debt.  That makes debt collection a BIG market. While the sting of $100,000,000.00 fine will hurt, it will not destroy companies that are used to raking in billions of dollars per year. Likewise, setting minimum standards for debt collectors will not necessarily raise the bar of ethical conduct. As always, government intervention has unintended consequences.

Regulation by the CFPB and other government agencies is not limited solely to debt collection, but also includes regulation of consumer lenders. The chilling effect of that regulation, among other factors, has led to tighter lending policies. By loaning out less money, and being more prudent regarding the loans made, the default rates, and total annual debt amounts, have dropped since 2008. While the trend is beginning to reverse, the austere lending of the past several years has caused the pool of available consumer debt to start drying up. As a result, debt collectors have been forced to collect older “paper” to stay in business.

As the age of debt increases, so does the risk of collection. Statutes of limitation may expire, judgments may go dormant, and debts may have been bankrupted in the name of a previous creditor. Older debt also means less documentation, due to loss, destruction, or the number of hands through which the debt has been passed. These deficiencies make it exceedingly difficult for debt collectors to adhere to the minimum standards set forth by the CFPB, and the federal statutes on which those standards are based. But, while the cat’s away, the mice will play. ┬áThe CFPB cannot scrutinize every lawsuit and collection letter sent to consumers. And, there you go. At least a few more years of job security for the little old consumer protection lawyer.

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