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CFPB Soon to Release Plans for First-Party Debt Collectors

Banks and credit unions should expect to hear about the Consumer Financial Protection Bureau’s plans for first-party debt collectors “soon,” Director Richard Cordray said.

In a speech to the National Association of Federal Credit Unions, Cordray provided updates on several of the agency’s rulemaking efforts, including debt collection, prepaid cards and payday loans. Cordray said it plans to “address first-party debt collectors, and you will hear more about that soon.”

In July, the bureau published an outline of possible proposals to place limits on third-party debt collectors and debt buyers. These proposals include requiring collectors to substantiate a debt before collecting on it, requiring collectors to include certain information when transferring debts and limiting the number of times a collector can try and communicate with a borrower.

Ballard Spahr LLP, which has represented the financial sector, has said many of the agency’s proposals for third-party collections could be carried over into a future CFPB rulemaking for first-party debt collections at banks and other financial institutions.

“[W]e believe that many of the requirements discussed in the … outline for ‘debt collectors’ will also be applied to first-party collections,” Ballard Spahr said in a legal alert issued in July.

In his speech, Cordray also said the bureau is finalizing a long-delayed final rule covering prepaid financial products such as reloadable prepaid cards as well as digital and mobile wallets. A proposed rule issued in 2014 included a requirement for financial institutions to investigate and resolve reported errors and limited liability for cardholders for erroneous or fraudulent charges, as well as specific fee disclosures.

The final prepaid card rule, Cordray said, will “ensure that consumers get the information they need to choose the product that is right for them and that these accounts enjoy the same kind of protections as checking accounts, including error correction rights, dispute resolution rights, and access to account information.”

Cordray also said the bureau is looking at overdraft and other fees that prepaid cardholders can face.

In addition, Cordray said the CFPB was still accepting feedback on its proposed small-dollar lending rule for payday loans, vehicle title loans and certain installment loans and the agency had already received half a million comments. The proposed rule, announced in June, would require these lenders to determine a borrower’s ability to repay before offering them a loan unless lenders adhere to certain restrictions.

One of these exemptions, Cordray said, was modeling longer-term loans after credit union payday alternative loans that feature a 28 percent interest rate cap and a maximum $20 application fee.

“Our proposal would end debt traps by requiring lenders to take steps to make sure consumers can actually afford to repay their loans,” Cordray said. “It would also restrict lenders from attempting to collect payment from consumers’ bank accounts in ways that tend to rack up excessive fees.”

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