CUCollector - Credit Union Collector

Elizabeth Warren, the BCFP and You

Editorial

I’ve been very surprised at the lack of concern many people in the collections and recovery industry seem to have about the passing of the “Restoring American Financial Stability Act of 2010” and the possible appointment of Elizabeth Warren to the position of its Director. This bureau will be in place and active effective July 31, 2011. After this date, all speculation will cease and as I’d warned in July 2010, major changes will be coming. Let’s just hope their plates are too full to get to us in a hurry.

This all sounds fine and dandy and most people in the collections and recovery industry would think this won’t affect them. After all, wasn’t this bill supposed to stop corruption on Wall Street? Well, the devil is in the details. The Bill has a crosshair in it and it's sites are directed right at us. Written right into the bill’s summary is the bullet pointed authority.

“Examination and Enforcement: Authority to examine and enforce regulations for banks and credit unions with assets of over $10 billion and all mortgage-related businesses (lenders, servicers, mortgage brokers, and foreclosure scam operators) and large non-bank financial companies, such as large payday lenders, debt collectors, and consumer reporting agencies. Banks with assets of $10 billion or less will be examined by the appropriate bank regulator.” Read it here!
Now that it’s out there in black and white, there is no question that they intend to regulate collections. Don’t even pretend that this will exclude repossessions. They’ve got a special plan likely for this. You may be thinking, certainly they only intend to reel in those unlicensed or renegade repossessors and collectors as we’ve seen in numerous news stories and TV expose’s. Don’t be too sure of that, the picture they paint of us all is painted with the same brush as they paint the worst of us with. We’re all pretty used to being disliked or spoken ill of but, this bill sets out to give someone the authority to put a leash on us.

As expected, on September 17^th, The White House selected Elizabeth Warren to head and staff the newly created Bureau of Consumer Financial Protection (BCFP). To create the department without the Senatorial required approvals clearly specified in S.3217, the “Restoring American Financial Stability Act of 2010”, The President has elected to circumvent what would be a heated and lengthy confirmation process by appointing Harvard Law School Professor Elizabeth Warren to the position of Interim Director of the new $400M a year budgeted department which will be temporarily housed at the Federal Reserve. As the bill is written, the CFPB's director will have freedom to define the agency's reach broadly, and there will be little that the president, Congress or the Fed can do about it for at least five years.

In this role, Warren will be able to commence the building of what was her vision, a government bureau exclusive of Senatorial review that will have broad and sweeping power to regulate any business that has the potential to cause financial hardship to the consumer. This will include the selection of key personnel to staff this bureau which will have, and I quote from the Senate Bill summary “the authority to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices.” While little press coverage will exist on the key personnel she selects to form this body, rest assured it will be stacked with many provocative consumer rights advocates.
For a little background, Elizabeth Warren has long been a crusader for consumer rights and the hero of bankruptcy attorneys and consumer rights groups like the National Consumer Law Center (NCLC). She was a professor of President Obama’s and has called debt collections “the new Wild West - Shoot First and don’t ask any questions-ever.” Her advocates, like the aforementioned NCLC have called for a moratorium on self help repossession in their March 2010 publication and seminar "Repo Madness" alleging that it endangers the public and asserts lenders rights through vigilante justice. They are calling for the requirement of a legal process for repossessions and that repossessions only be conducted by law enforcement personnel at a specified time and place. Adding insult to injury, they make their case by using statistics of the number of deaths and injuries to repossession personnel as cause for the demise of the industry.
If this doesn’t sound like a job killer to an already financially troubled industry, then I don’t know what is. The enactment of any kind of Federal regulation from the BCFP to institute this would obviously be a final coffin nail to the recovery industry and would create a clogged and overburdened court system, which if you’ve been to court lately, is pretty swamped as it is. If this process turns out to look anything like the foreclosure process, it could take many months to get a repossession approved by the courts.

Now, if that wasn’t enough, you can rest assured there will be increased penalties and limitations on debt collectors of all types, Credit Unions, banks, independent auto lenders and collection agencies. As of July 31, 2010 there were a record 6,267 FDCPA cases filed and there will be more. With increased penalties and more consumer friendly laws, this will increase. All this while the FTC complains in their publication “Repairing a Broken System” that it is the debt collections industry that is abusing the legal system by clogging the courts with small balance cases that should be arbitrated.

So, you ask yourself, collections will be more difficult, what else is new? Well, this will reduce recoveries. You can kiss away thousand of more jobs as these reduced recoveries will press many collection agencies out of business.

The secondary debt market values will plummet. As the recovery ratios will have decreased, lenders who traditionally have sold their charged off portfolios after an initial agency assignment will find a dry or low valued market. If as a lender you’ve tried selling a portfolio in the last year or two, you know its bad enough as it is now.

With reduced recoveries, increased reserves, delinquency and losses, the tightening of lending guidelines and the increase in interest rates will have to follow for the mere survival of any financial institution. This will slow down the lending market and make loans more difficult for the average person to obtain or afford. If no one is buying large ticket items like cars or houses, then production will decrease. Can you smell layoffs? But don’t worry for the UAW, there will be more Government bailouts for the industries that are “Too Big to Fail,” it’s written right into the same bill that will create this death to the collections and recovery industry.

So what can you do about any of this? Not much. If you happen to run into one of our fine and outstanding elected representatives that voted for this, be sure to thank them for turning the world upside down. After all, they are creating a system that rewards failure and punishes success. But find solace in the fact that such systems are imbalanced and unsustainable. They will someday be crushed under their own gravity as they defy nature.

The economic world is as sensitive and delicate as the ecosystem. When you remove even what is perceived as the most pernicious of predators, you allow an explosion in the population of its prey which in turn will decimate their own natural resources and possibly other species as well. Those that applaud the actions that will likely be applied to the collections industry will surely suffer from them as well as us. Let’s hope they suffer more than we do.

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K.W. Armstrong

Editor, CUCollector.com