The Consumer Financial Protection Bureau continues to refine the boundaries of what it will and will not allow debt buyers to do when selling portfolios through regulatory enforcement actions.
The most recent action, taken against Citigroup late last month, includes several new wrinkles that the CFPB had not included in similar actions taken against JPMorgan Chase, Encore Credit, and PRA Group.
“I think it’s a continuing evolution,” said Matthew Clark, the vice president of legal and compliance and general counsel at U.S. Asset Management, a debt buying company owned by EOS USA. “What we’re seeing from the CFPB is an attempt to restrict the sale and resale of debt.”
Similar to the other consent orders, Citi must include provisions in its debt sale contracts prohibiting buyers from reselling the accounts, and must provide account information to the portfolio buyer, among other provisions.
A primary difference between the consent order entered into with Citigroup and the previous orders is that Citi is restricted from selling any account that is within 150 days of the expiration of the statute of limitations. But what the CFPB does not provide is a clear-cut explanation of what date Citi should use when calculating the statute of limitations. If the order refers to the state statute of limitations, for example, is it the state where the debt was incurred, or the state where the debtor currently resides? And what date is being used to determine when to start the clock on the statute of limitations? Different types of debts offer varying types of determinations when calculating the statute of limitations.
The CFPB is “refining its template on consent orders,” said Barbara Sinsley, of counsel, with the law firm of Barron & Newburger. “It is clear that the CFPB is trying to develop a law firm template, a creditor template, and a debt buyer template.”
Another new wrinkle in the Citi consent order is the definition of the “Effective Credit Agreement,” Sinsley pointed out. Citi must provide the document, which is defined as “the written document or documents evidencing the terms of the legal obligation between Respondent and the Consumer at the time the account was charged-off,” to both the debt buyer and the consumer,upon request, when an account is sold.
The CFPB’s encroachment on the transactions between debt buyers and sellers is violating the right to contract for companies in the industry, Sinsley said.
“The problem is that every other class has the freedom to contract,” Sinsley said. “But debt sellers and buyers have different rights and the CFPB is trying to tell them what their rights are.”
Most in the industry have accepted that the orders and restrictions being placed on debt sales is the new normal and everyone agrees that clarity – especially from an agency like the CFPB – is a good thing to help define what is and is not allowed.
“This is the state of the industry,” Clark said. “More documentation is better. More clarity is better. But it feels like two steps forward and one step back.”
