United States: Interview With CFPB Head Richard Cordray Promises New Rules And Enforcement Actions

We will be undertaking rulemaking in the debt collection area. The work on that will get started later this fall. . . .

The Fair Debt Collection Act was passed in 1977 and there were never any provisions for rules to be written under it, so it hasn't kept pace with the times. It's now 35 years old and there is room for us to update the act to take account of various court decisions, changes in the industry, changes among the consumer public to improve coverage so people are protected and treated fairly. That's an important area for us and an area where we've already had some activity moving toward rulemaking.

We're also examining debt collectors. We've done some enforcement actions involving debt collection, and there will be more. We've put out a bulletin on first-party debt collectors, making clear that they're also covered under existing law. And we're starting to provide some tools for consumers to use, such as the template letters they can use to try and avoid undue harassment and abuse from debt collectors.

We put out the white paper on payday lending and the deposit advance products in late spring. That is leading us toward policy work in the area. There is some follow-up research work we're doing that has been under way since the first paper came out. But there will be activity in this area in the near future.

The issue coming out recently of online payday lenders who are relying on financial banks to be the mechanism for financing and collecting the money really has been interesting. Frankly, the work in that area involves coordination with both federal regulators, state officials and it can even be international with some online lenders originating from outside of the United States now. It's an area where we've been building partnerships as well as thinking about the policy work that we need to do, and we're making progress.

The fact that prepaid cards are not covered by consumer protection laws at the moment is a compelling need for us to write regulations to get them covered. We're moving forward to write rules to make sure they are protected under [the Electronic Fund Transfer Act] . It's a real front-burner issue for us.

In the credit card context, under the CARD Act there is an ability to repay provision in there. But it operates in a somewhat different way for credit cards than it should for mortgages. They're different kinds of transactions, different size, different scope. You can get in and out of credit cards in a hurry, not so easy to get in and out of mortgages. How it applies to smaller dollar lending is a further differentiation. It's something that we're having to think about.

The general principle, though, of ability to repay as the basis for making loans is just common sense. The lender should care about whether the borrower can repay because they're the ones lending the money. They're the ones at risk. The market is no longer so straightforward. With mortgages, for example, the ability to repay was arguably lost if you could sell into the secondary market.

There are a number of consumer groups that have been pushing [the ability to repay model] as a broad principle across markets. There is quite a bit to what they're saying. How it would apply from one market to another is worth further analysis and that's something we're engaged in analyzing.