Beginning on January 2, 2013, supervision over debt collection agencies will fall under the auspices of the Consumer Financial Protection Board (CFPB), the pro-consumer agency that was established as part of the Dodd-Frank Wall Street Reform legislation. Oversight of debt collectors was formerly relegated primarily to the Federal Trade Commission (FTC); FTC will now share its oversight duties with the CFPB.
Under the new arrangement, third party debt collection agencies, debt buyers and collection law firms with revenues over $10 million per year are all subject to the CFPB's direct supervision and investigatory authority. This means that the CFPB will have its eye on mega companies such as Asset Acceptance (which in January 2012 agreed to a $2.5 million settlement with the FTC for claims that it deceived consumers); Midland Funding, LLC, Midland Credit Management and their parent company, Encore Capital Group (which settled a class action lawsuit in 2011 affecting 1.44 million consumers for for $5.2 million), and the many LR Credit entities owned by the gigantic Leucadia National Corporation. (In Sykes v. Mel Harris and Associates, LLC, the following LR Credit entities are currently on the hot seat in the Federal District Court for the Southern District of New York for their alleged collection abuses: L-Credit; LR Credit, LLC; LR Credit 10, LLC; LR Credit 12, LLC; LR Credit 14, LLC; LR Credit 18, LLC; and LR Credit 19, LLC).
CFPB's supervision is not strictly limited to the major players, however. There are several provisions in CFPB's final rule for debt collection supervision that will allow the Bureau to examine and supervise smaller collection agencies. One of these is that the relationships of smaller companies that engage in collection work on behalf of larger participants are open to examination, and if certain criteria are met, the smaller company could be subject to direct supervision. The final rule also contains a clause allowing the CFPB the right to examine an entity of any size that it determines, "on the basis of reasonable cause, is engaging in or has engaged in conduct that poses risk to consumers."
The CFPB has broad authority to look into the acts of debt collection companies. It will be interesting to see if debt collectors change their behavior once they under the CFPB's scrutiny.