Banks in Kentucky are very worried that the provisions of the Consumer Financial Protection Bureau’s proposed debt collection rule will apply to them, and have submitted a comment saying so.
Generally speaking, banks do not have to comply with the Fair Debt Collection Practices Act because the law mainly applies to third-party collections, not institutions that collect on their own debts. But a recent ruling from the Supreme Court and the wording of the proposed debt collection rule have the Kentucky Bankers Association expressing “concerns” about how the proposed rule may apply to banks in Kentucky and beyond.
The Supreme Court’s ruling in Henson v. Santander addressed the FDCPA’s definition of debt collector and the proposed rule fails to take that definition into account, the comment letter states. In Henson, the Supreme Court sought to resolve the issue of whether banks and other creditors met the definition of debt collector, under the FDCPA. The CFPB, according to the KBA, fails to take that ruling into consideration, instead opting to essentially mirror the original FDCPA’s definition of debt collector. The KBA is proposing the CFPB amend the proposed rule to explicitly state that a creditor collecting on its own debt is not a collector because if it does not, the definition “will be the subject of court challenges that does not further the purpose of protecting consumers from abusive practices and adding clarity to the FDCPA.”
The KBA also points to a couple of footnotes in the proposed rule that make it appear as though the provisions apply to banks, especially as they apply to the Unfair, Deceptive, and Abusive Acts and Practices portion of the proposed rule.
“Since most banks are subject to UDAAP, and the Proposal is issued at least in part by UDAAP, there is an implied thought that banks, previously exempt pursuant to Henson v. Santander Consumer are not subject to the proposal,” the association writes.
The KBA also requested that banks be “expressly excluded” from the communication thresholds, especially if they are going to be subject to the provisions of the proposed rule, and highlighted what it thought to be a contradiction over the provision that unpaid debts could not be reported to a credit bureau without first notifying the consumer.
