CFPB: Your New Medical Examiner?

Most men eagerly look forward to that glorious annual appointment – their prostate exam.  Right?  That inviting colonoscopy procedure sparks fond memories of holiday cheer and merriment too.   Ladies, nothing like climbing into those stirrups to conjure warm and fuzzy feelings of happiness and gentle comfort, no? Lest you are confused, this is not an article about election results or the new mandates of ObamaCare.  This article focuses on the exam procedure debt collectors will experience upon receiving a knock on the door from the Consumer Financial Protection Bureau.  “Nurse, rubber gloves please . . .”

The CFPB recently released its examination procedures for the debt collection industry.  The exam process is comprised of seven unique “modules.” These modules are independent topics focusing on a single aspect of the collector’s business.  They contain a detailed and comprehensive list of subtopics which the examiner will study.  Together, the seven topics paint what the CFPB believes is a comprehensive picture of the collector’s business.  Although many debt collectors are not considered “larger participants” in the collection industry, and thus not the focus of the CFPB’s direct attention, all debt collectors would benefit from taking heed.  The CFPB’s examination procedures will serve as an industry-wide baseline for debt collector compliance programs.  “Nurse, speculum please . . .”

The following list identifies and briefly describes each of the seven modules contained in the CFPB’s exam procedures:

  • Entity Business Model – The focus of this model is to determine whether the entity being examined is a “debt collector” under the FDCPA.  It also examines vendor relationships, internal controls such as employee supervision and reporting structures, and account management issues.
  • Communications In Connection with Debt Collection – This module studies all aspects of a debt collector’s communications, from disclosures and representations, to the timing and methods of communications, to everything in between.  This module answers the question, “How does this collector communicate with others?”
  • Information Sharing, Privacy, and Interactions with Consumer Reporting Agencies – This module examines how collectors safeguard consumer information, including the collector’s compliance with GLBA and the FCRA.
  • Consumer Complaints, Dispute Resolution, and Debt Validation – The CFPB wants to know collectors properly handle and resolve disputes.  This module examines the collector’s processes for validating debt and handling disputes.
  • Payment Processing and Account Maintenance – Properly applying payments to accounts is important.  Charging fees is a sensitive issue.  Ensuring collectors are handling payments properly, providing payment related disclosures, and complying with payment processing laws, including the Electronic Funds Transfer Act, is the focus of this module.
  •  Equal Credit Opportunity Act – This act prohibits discrimination in credit transactions.  This module exams whether the ECOA applies to the debt collector, and if so, the collector’s policies and procedures for complying with this law.
  • Litigation Practices, Repossession, and Time-Barred Debt  – If a collector files legal actions or exercises any control over legal actions, this module focuses on the lawfulness of those practices. It also examines the lawfulness of a collector’s repossession procedures and how it handles the collection of time-barred debt.

The CFPB’s exam procedures leave few stones unturned.  Like an annual physical exam, the examination begins by looking at a broad set of topics, then drills down to the details, searching harder and deeper in the areas that do not look quite right.  “Nurse, cotton swab . . .”

Like any medical exam, a CFPB exam will begin with a dialogue.  The CFPB will ask questions about the collector’s business and request and enormous amount of documents.  The beauty is that these questions are not a secret!  The CFPB’s examination procedures tell collectors, at least in part, what information they will be asked to provide.  The laundry list of items is daunting and includes some of the following:  organization charts, process flowcharts, board minutes, annual reports, policies and procedures, recordings, operational documents (checklists, worksheets, forms etc.), compensation policies, technology infrastructure, underlying credit documents, training materials, vendor contracts, complaints, consumer correspondence, and court documents.  The CFPA will also interview one or more key employees.

Hearing from the CFPB is serious business.  Don’t ignore the CFPB.  Your business may very well rest in their hands.  “This won’t hurt a bit.  Turn your head and cough . . .”