A Wish List from the Enemy Camp – NCLC Proposing Major Changes to Lending and Collections through the CFPB

In December 2010, the National Consumer Law Center (NCLC) published yet another paper proposing changes to the collections industry. As I’d written about in July 2010’s article “The End of Self Help Repossessions”, just as in their March 2010 publication “Repo Madness” where they proposed a moratorium on the self help repossession process, they are at it again with “Time to Update the Credit Practices Rule” subtitled “CFPB Should Modernize FTC Rule Addressing Abusive Creditor Collection Practices.” Within its pages are proposals that would crush late charge fee income as well as require repossession reinstatement rights.

As I’d predicted, it appears as though the NCLC clearly sees the Consumer Financial Protection Bureau (CFPB) as its vehicle for pushing it’s often radical and overly consumer protective views upon the American financial world as well as the collections and recovery industries. Their ability to push this through will come largely dependent upon the facilitators put in place by its creator in progress and Harvard professor Elizabeth Warren, in this newly forming division of the Treasury Department which is absent of any Congressional oversight and answers to no one effective July 2011.

 Read “Time to Update the Credit Practices Rule” Here!

Amongst their proposals:

  •   Require a right to reinstate after repossession of a vehicle or manufactured home.

 This actually isn’t so bad. I’m in California where by the Reese Levering Act, which only applies to indirect (dealer originated) loans, we’re required to allow reinstatement with only special circumstances allowed to deny it. I’ve always seen repossession as either an act of finalization or one of correction. Preferably the latter of course. For anyone in the repossession industry, this would be a bonus. A large number of reinstatements re-default and are eventually repossessed again. More work for them!

  •  Prohibit late fees for a single missed payment when all subsequent payments are made on time.

 Here is a real profit killer! What this would allow, is a member or customer to maintain constant delinquency while with no financial consequence. This is a real endorsement for irresponsibility. The financial consequence of this one would do major damage to the profits of Credit Unions, banks and all lenders who are already struggling for survival in a low interest rate environment, higher reserve requirements, ever increasing regulatory demands and already diminished fee income. This will definitely tighten up the credit market as lenders will likely shy away from risk as there will be little to gain from it. In a society full of people trying to rebuild their lives in the aftermath of the Great Recession, this will hinder their recovery.    

  •  Prohibit creditors and debt collectors from selling or assigning a debt for collection without giving the consumer notice of the transfer and providing the transferee with proof of the details of the debt, including proof that it is not time-barred.

 This proposal could very well kill the value of many charge off sale portfolios if media was not purchased and transferred during the original sale.

  •  Prohibit creditors or their agents from entering a debtor’s home for any purpose allegedly authorized by contract without first obtaining a court order.

 While I can see a value in this that it would prevent some of the atrocious errors such as I wrote about in “Burglars or Bankers” but, this could tack another 30 to 90 days onto what in many states is already a long and laborious process. With the massive numbers of foreclosures already in process, this would surely drag on the economic recovery that will only truly come about when the bleeding in the market stops. This proposal will only prolong the problems.

  •  Prohibit loans secured by check or electronic access to the consumer’s bank account, when at the time of the loan, there are insufficient funds in the account to cover the check or promise to pay.

 The NCLC sees these practices as an unlawful wage garnishment which can create hardship making basic survival needs such as food, rent and other necessities. If improperly written, couldn’t this just as easily be applied to ACH payments set up at loan origination? They seem to believe there is an omnipotence to lenders that allows us to know if the member has no funds in their accounts even if they claim to us that there is. What is to stop the borrower from crying foul and filing suit?

 Once again, the NCLC illustrates it’s despise of the entire financial world in its vilification of anything they sniff at that they consider could be abused or has been abused in the past. If they succeed in convincing their oversight absent friends in the CFPB that such actions are necessary or beneficial to the public, the consequences could be rather dire. In their push for a Utopian world absent any risk or penalty to the consumer for default, they fail to consider the probable unintended consequences of their actions.

In the title I use the term “Enemy Camp.” I am merely being facetious and don’t really consider them enemies  but, I do feel that they have unique opportunities and access to a developing and broadly sweeping regulatory body absent of congressional oversight that is impervious to legislation. The threat of their proposed changes are real and come July, we’ll see just how this all pans out.  Even if they mean well, never forget. 

“Hell is paved with good intentions.” Samuel Johnson, 1670

Kevin Armstrong



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