Action from CFPB and FTC Coordination
The Consumer Financial Protection Bureau (CFPB) and Congress have both signaled an interest in expanding the scope of the Fair Debt Collection Practices Act (FDCPA) to cover commercial debt, a move that would likely subject those related to the commercial debt space to the extensive litigation associated with this statute and new compliance burdens.
In a blog post from April 15, 2022, CFPB Director Rohit Chopra stated,
“It isn’t just consumers who are harmed by illegal debt collection practices. Congress also intended for the FDCPA to protect law-abiding debt collection businesses, so ‘debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged.’ At the CFPB, we regularly hear from honest debt collection small businesses frustrated that they must compete with bad actors that break the law.”
The blog post links to the annual FDCPA report submitted to Congress, which contains a section outlining the need for a focus on debt owed by businesses. It indicates that there have been complaints to the Federal Trade Commission (FTC) about “abusive practices” of some financial institutions toward small businesses. Notably, Director Chopra most recently served as an FTC commissioner.
Congress Also Focused on Commercial Collections
Concurrently, Congress has also indicated an interest in this type of debt owed by businesses. In late February, Congressman Al Lawson (D-FL) introduced H.R. 6814, the Small Business Fair Debt Collection Protection Act. The stated intention of the legislation is to “promote entrepreneurism and allows small business owners to have equivalent protections as consumers when dealing with debt collectors.” The legislation was set to be part of a House Financial Services Committee markup in March but was pulled from the hearing when the focus switched to Ukraine relief bills. However, the legislation is likely to face a markup sometime in the next few months, and potential movement in the United States House of Representatives.
Why Is This Significant?
The FDCPA, which was enacted by Congress in 1977, has a clear focus on consumer debt and ensuring consumer protection. Even in the CFPB’s Supervision and Examination materials, they clarify the exemption for certain types of debt, including commercial debt.
They list the following areas that are exempt from coverage:
A. Debts it originated (15 USC 1692a(6)(F)(ii)); [12 CFR 1006.2(i)(2)(vi)(B)]
B. Debts that were not in default when they were obtained (15 USC 1692a(6)(F)(iii)); [12 CFR 1006.2(i)(2)(vi)(C)]
C. Debts that were obtained as security for a commercial credit transaction (15 USC 1692a(6)(F)(iv)); [12 CFR 1006.2(i)(2)(vi)(D)]
D. Debts if the activity is incidental to a bona fide fiduciary relationship or escrow arrangement (for example, a debt held in the entity’s trust department or mortgage loan escrow for taxes and insurance) (15 USC 1692a(6)(F)(i)); [12 CFR 1006.2(i)(2)(vi)(A)]
Major policy shifts to the longstanding areas exempted from FDCPA coverage would trigger extensive new compliance burdens, such as licensing requirements and a host of other steps to ensure FDCPA compliance. FDCPA litigation, which is widespread and includes statutory damages, often focuses on minor technical violations. Encompassing the collection of debt from businesses, in addition to consumer debt, would likely lead to new litigation theories and other regulatory concerns in this area. Creditors and businesses could potentially be forced to pass on resulting costs when extending credit to small and large businesses.
Outlook from Washington, D.C.
Expanding the FDCPA to include commercial debt appears to be another area where coordination efforts are happening between Congress and the agencies to force consideration of new, and major, policy shifts. Expanding the scope of the FDCPA to cover commercial collections would require a statutory change done through Congress and a signature from the president to enact this change into law. The Small Business Fair Debt Collection Protection Act aims to make this change statutorily. However, it seems unlikely the legislation will advance in the Senate, regardless of whether there is passage out of the House Financial Services Committee and the United States House of Representatives.
Similar to this issue, creditors, such as financial institutions, have continuously pointed out to the CFPB that the language of the FDCPA and related congressional history indicate they should not be covered under this statute. If the CFPB and Congress attempt to expand the FDCPA to cover commercial debt, it may indicate a willingness to expand the FDCPA in other areas beyond Congress’s original intent. Financial institutions, creditors and commercial collectors should be following this issue to determine whether the CFPB is following the statutory language in the FDCPA or pushing the envelope.
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