The Consumer Financial Protection Bureau would be wise to tread slowly as it develops its rule regarding a new set of regulations for the debt collection industry to follow, according to a new paper authored by a professor from George Mason University.
The paper, “The Law and Economics of Consumer Debt Collection and Its Regulation” was released yesterday by Prof. Todd Zywicki, a law professor from George Mason. Almost immediately after it was published, DBA International sent out a press release touting the paper’s conclusion.
Zywicki spends a large amount of the 69-page paper on the history of debt collection regulation and quotes a number of studies that have been released in the last 40 years that examine the impact that regulation has had on lending and collection efforts. He uses that as a foundation for analyzing the Consumer Financial Protection Bureau’s Advanced Notice of Proposed Rulemaking on debt collections. While representatives from the CFPB have said there is no timetable for issuing the final rule, it is expected to be released in early 2016, nearly three years after it was originally proposed.
The collections and debt-buying industry should love the conclusions reached by Zywicki, who urges that additional regulations could have a dramatic impact on the availability of credit, and that changes in telecommunications technology and usage patterns necessitate an update to the allowable methods collectors can use to contact delinquent debtors.
Because making debt collection more costly and less effective raises the risk of lending, lenders would be expected to offset strict debt collection rules through a variety of adjustments. Those adjustments may include increasing interest rates, increasing the size of down payments, or inducing consumers to substitute alternative products that are less affected by restrictions on creditor remedies.
While declarative in that additional debt collection regulation may not be necessary, the paper does not include many solutions or alternatives. For example, when discussing the relationship between creditors and third-party collection agencies, and the amount of information shared between the two partners, the paper concludes:
…the CFPB should make a rigorous effort to establish how much and what type of information should be provided that currently is not bring provided.
Where the paper does make headway, much to the delight of the industry, is in the area of communications between collectors and consumers. For instance, collectors should have access to consumers’ cell phones because more households are ditching landline phones, according to the paper.
Restricting the ability to contact these households will reduce the likelihood of inexpensive and amicable resolution of disputes and forces collectors to use other more expensive techniques, such as lawsuits.
The paper also tackles the notice of expressed consent, saying that consent should automatically apply when a consumer provides his or her cell phone number on an application.
Perhaps most importantly, the CFPB should allow collectors to use electronic messaging channels, such as email and text messages, when trying to connect with borrowers.
Debt collection is one of the most heavily regulated areas of the consumer credit ecosystem. Yet it is also one of the most important: without an efficacious and efficient debt collection system, creditors will be unable to lend, and borrowers will be unable to borrow.
