This morning, the Consumer Financial Protection Bureau’s (CFPB) former director Richard Cordray published a white paper on Medium, addressed to current director Kathleen Kraninger, warning the CFPB to pay attention to the fallout of the COVID-19 pandemic. His comments include sections about debt collection, credit reporting, and rulemaking.
Among several recommendations—such as helping keep consumers in their homes by stopping foreclosures and evictions—Cordray urges Kraninger to “provide vigorous oversight over debt collectors.” In full, Cordray’s comments on debt collection state:
As more indebted consumers begin to face delinquency and default, there will be more scope for harassment and abuses by some debt collectors. This is especially true as borrowers find it more difficult to repay their loans, and debt collectors find it harder to get compensated for debts they are unable to collect. The CFPB and state officials can issue guidance reminding debt collectors that the Fair Debt Collection Practices Act prohibits any conduct “the natural consequence of which is to harass, oppress or abuse any person in connection with the collection of a debt” or any conduct that is “unfair or unconscionable.” The CFPB should issue guidance about what parameters debt collectors should observe in the current crisis to avoid engaging in conduct that is abusive or unconscionable, such as refraining from initiating new debt collection lawsuits, garnishing wages, or attaching bank accounts. The CFPB must also ensure that contracted debt collectors abide by all the terms newly set by the original lenders for loan modifications or payment forbearance to deal with the crisis.
Cordray also makes mention of credit reporting, specifically addressing the CFPB’s policy statement from last week that recognized credit reporting agencies and data furnishers are also enduring hardship, and thus will ease the dispute investigation timeframe requirement on a case-by-case basis. Cordray bluntly states:
That guidance is harmful to consumers and should be rescinded immediately.
Cordray also lays out some concerns about using the code in credit reporting that specifies the consumer’s account is impacted by a disaster. Cordray discusses the importance of reporting accounts accurately and keeping consumers’ access to credit open when they will most need it. He states that the CFPB should “encourage” the proactive use of the disaster code.
Cordray recommends that the CPFB stop all non-essential rulemaking, and instead focus on helping consumers with the disaster currently happening. Cordray notes:
For the next several months, it is also likely that neither industry nor consumers are likely to have the bandwidth to pay attention to requests for information or otherwise to participate in the rulemaking process in any event. This step should include the CFPB’s latest request for information on its new task force charged with rewriting federal consumer financial law; nothing could possibly justify such a priority right now.
There are many comments that can be made about Cordray’s statements, but we’ll leave it at only a few. Some items referenced by Cordray, such as pausing rulemaking efforts to focus on the crisis at-hand and giving consumers who are directly impacted by the crisis some leeway, are solid recommendations. Others miss the mark.
The only leeway provided by the CFPB’s policy statement from last week is to give companies some extra time—not forego the requirement altogether—on a case-by-case basis in the dispute investigation timeframe, recognizing that companies themselves have been forced to slim down their resources due to the crisis. Cordray’s recommendation doesn’t take into account that many businesses are impacted as well, and following his guidelines might lead to companies actively choosing NOT to credit report, which would make credit reports less accurate (or at least not show the full picture).
The white paper also discusses how crucial it is to keep consumer access to credit open. At the end of the day, the credit ecosystem is a two-way relationship—it doesn’t work if one party is lending money and the other is not repaying it. If lenders can’t—or are unreasonably burdened from—recovering on the credit they provide, they will provide less credit. One way to prevent this roadblock is to refrain from issuing blanket regulatory prohibitions on the recovery of debt. Consumers who need hardship assistance should absolutely get it, but not all consumers fit this bill. Many were able to retain their jobs and successfully transition to working from home. Any regulations that come forth should keep this in mind.