Brownstein Hyatt Farber Schreck, LLP
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Action by the CFPB and the FTC Coordination
Both the Consumer Financial Protection Bureau (CFPB) and Congress have expressed 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 vast litigation associated with this law and the new compliance burdens.
In an April 15, 2022 blog post, CFPB Director Rohit Chopra said:
“It’s not just consumers who are harmed by illegal debt collection practices. Congress also provided that the FDCPA protects law-abiding debt collection companies, so that “collectors who s ‘refrain from using abusive debt collection practices are not at a competitive disadvantage.’
The blog post points to the FDCPA’s annual report submitted to Congress, which contains a section highlighting the need to focus on corporate debt. It says there have been complaints to the Federal Trade Commission (FTC) about “abusive practices” by some financial institutions toward small businesses. Notably, Director Chopra recently served as Commissioner of the FTC.
Congress also focuses on commercial collections
At the same time, Congress has also shown interest in this type of corporate debt. In late February, Congressman Al Lawson (D-FL) introduced HR 6814, the Small Business Fair Debt Collection Protection Act. The stated intent of the legislation is to “promote entrepreneurship and provide small business owners with consumer-equivalent protections when dealing with debt collectors.” The legislation was to be part of a House Financial Services Committee markup in March, but was pulled from the hearing when attention shifted to relief bills in Ukraine. However, the legislation is expected to face some tagging over the next few months and potential motion in the US House of Representatives.
Why is this important?
The FDCPA, which was enacted by Congress in 1977, has a clear focus on consumer debt and provides consumer protection. Even in the CFPB check and review documents, they clarify the exemption of certain types of debts, including trade debts.
They list the following areas that are exempt from coverage:
A. Debts incurred by him (15 USC 1692a(6)(F)(ii)); [12 CFR
B. Debts that were not in default when obtained (15 USC 1692a(6)(F)(iii)); [12 CFR 1006.2(i)(2)(vi)(C)]
C. Debts Obtained as Security for a Trade Credit Transaction (15 USC 1692a(6)(F)(iv)); [12 CFR
D. Debts if the activity is incidental to a bona fide fiduciary relationship or escrow agreement (for example, a debt held by the entity’s fiduciary or a mortgage escrow for taxes and insurance) (15 U.S.C. 1692a(6)(F)(i)); [12 CFR
Major policy changes to areas long-exempt from FDCPA coverage would result in significant new compliance burdens, such as licensing requirements and a host of other measures to ensure FDCPA compliance. FDCPA litigation, which is widespread and includes statutory damages, often focuses on minor technical violations. To encompass the collection of debts from businesses, in addition to debts from consumers, would likely lead to new litigation theories and other regulatory concerns in this area. Creditors and companies could be forced to pass on the resulting costs when granting credit to small and large companies.
Washington, D.C. Outlook
The expansion of the FDCPA to include commercial debt appears to be another area where coordination efforts are underway between Congress and agencies to force consideration of new and major policy changes. Expanding the scope of the FDCPA to cover commercial collections would require a statutory change made by Congress and a signature from the President to enact that change into law. The Small Business Fair Debt Collection Protection Act seeks to make this change statutorily. However, it seems unlikely that the legislation will move forward in the Senate, whether or not there is a passage from the House Financial Services Committee and the U.S. House of Representatives.
Similar to this issue, creditors, such as financial institutions, have continually pointed out to the CFPB that the language of the FDCPA and related congressional history indicates that they should not be covered by this law. If the CFPB and Congress attempt to expand the FDCPA to cover commercial debt, it may indicate a desire to expand the FDCPA into other areas beyond the original intent of Congress. Financial institutions, creditors, and commercial collectors should follow this question to determine whether the CFPB is following the FDCPA’s statutory language or pushing the boundaries.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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