Debt collection is a highly regulated practice. As we are well aware, there are federal laws, regulations and agencies, such as the FDCPA and CFPB, which present challenges to any firm in the industry. But now regulation is going local. Within the past five years, select municipalities have adopted their own regulatory processes adding yet another layer to previously established state and federal laws. With the inception of these city-enforced laws, compliance has taken on a new form by imposing restrictions on firms and the claims they have against a specific segment of the population.
Effective, July 1 2013, a City of Chicago ordinance now requires debt collectors attempting to collect consumer debt from city residents be licensed not only with the state, but with the City itself. Chicago’s ordinance was merely following in the footsteps of New York City which tightened preexisting
licensing and debt collection requirements in 2009.
At first blush, many of the provisions of Chicago’s ordinance seems aligned with the FDCPA. On closer review, there are select provisions that are vastly more onerous in their application. For instance, Chicago’s written notice provision contains additional verification requirements creating another potential pitfall when responding to consumer verification requests. It states:
Upon written request, collectors shall provide verification of the consumer debt that shall include: (1) the charge-off balance and itemized principal, interest, charges and fees; (2) itemized post charge-off interest, charges and fees; and (3) a description of the debtor’s obligation to pay.
Thus, firms must not only provide consumers with documents, but now they must formulate a report that outlines principal, interest, and fees. In the case of revolving charge accounts, such as credit cards, this type of reporting would be time-consuming and burdensome because the interest rolls into the principal from one billing cycle to the next. This calculation is one to which few companies in the industry are accustomed but will now have to implement.
Not only will debt collectors have to adapt, but so too will representative law firms. Clients and attorneys will have to work together to create a completely distinct verification and document delivery process to comply with these municipal ordinances. Naturally, setbacks and delays are to be expected in the initial compliance period but the question remains: will firms have to make wholesale modifications to their operations in order to comply and stay competitive?
Eventually, debt purchasers, collection agencies and law firms seeking to collect debt from Chicago residents will have no choice but to acclimate to the changes.
The document turnaround time from the point of initial request from the client to the delivery to the consumer will have to be acceler-ated. Internal firm procedures concerning consumer communications will have to be closely monitored. Now, more than ever, with new record retention requirements firms will have to manage a significantly higher volume of records in order to comply with the ordi-nance.
Today, the focus is on the design and implementation of stronger consumer protection laws. However, as firms are forced to comply with municipal ordinances, what recourse will the consumers have in defending their claim? As firms better equip themselves to meet the regulatory requirements, the burden of overcoming these developments will be on the consumer in establishing a defense. Will the institution of these ordinances lead to better work standards within the collections industry thus leading to more successful claims, or will it give consumers more leeway in challenging the claim if creditors can’t meet the strict demands?
Furthermore, our industry has already been operating under federal and state regulatory authority. Now, with two prominent markets like New York and Chicago overseeing collections practice within their respective city limits, there is little to stop other largely popu-lated home-rule municipalities from establishing their own regulations. What will stop a consumer who is unsuccessful challenging a debt collector at one level of government from asserting the same claims in these new venues? The FDCPA was drafted to provide uniform practices and guidelines across the country with respect to debt collection practices. The advent of more localized control and regulation fractures the homogeneity of our clients’ processes and exposes them to additional tiers of liability. The move poses the question as to who really has the final authority over our industry’s practices and how many layers respective practitioners will be re-quired to penetrate in order to enforce their claim.