Last week, the Consumer Financial Protection Bureau (CFPB) flexed their muscles and sent a very clear message to everyone who deals with consumer debt ... straighten up and fly right! The CFPB has opened their complaint database for consumer complaints about debt collectors and said very clearly they were going to use that information as the guide post for how to focus supervisory attention and seek penalties against those who cannot toe the line.
For over a year now, I have been saying in this space that the CFPB and its director, Richard Cordray, were going to grab the consumer collection industry by the seat of their pants, turn it upside down, and give it a good shaking. No one believed me. I was ridiculed by the largest debt buyers and collection agencies in the world ("Bartmann gets it wrong again").
Well, Thursday it happened. That is not me saying, "I told you so", it is my outrage over the pain and misery committed by debt collectors who behave badly and routinely sue consumers because they lost their job in a lousy economy not of their making and can't dig themselves out of that mess fast enough. Even worse than suing a family when they are down on their luck, they sue based on fake evidence. Remember the "robo-signing' scandal a couple years back with the mortgage industry? Well, it is still happening tens of millions of times every year in credit card debt collection.
In my world, behavior of that nature cannot continue forever until something gives. When the dam breaks, the entire world will change overnight.
Historically, leaders in the debt collection industry have justified bad behavior by saying "well, it is only a few bad apples" that caused the problems. I have maintained it was a whole damn orchard full of bad apples. Not many have shared my view.
I have for you an extra dose of irony. On Tuesday the FTC assessed the largest fine ever against a collection agency -- $3.2 million. What was their sin, you say? Oh, just your run of the mill refusal to obey the law about a jillion times. And who was the "bad apple" who besmirched the image of the debt collection industry? Only the largest debt collection agency in the world -- Expert Global Solutions (they used to be known as NCO Financial Group).
And this is not the first time NCO has been in trouble with the Feds. In February 2012 NCO paid $575,000 in fines and repaid $950,000 to consumers whom they had overcharged. In December 2005 NCO paid a fine of $1.5 million for falsifying delinquency dates on customer accounts. In February 2012, NCO paid a fine of $250,000 for hiring felons as debt collectors. I think know we know why they changed their name.
The CFPB and state regulators are clearly looking beyond collection agencies and will look at the practices of the banks themselves. Over the past year, one bank in particular has drawn attention for its consumer debt collection practices. JPMorgan Chase has taken some especially hard knocks. Even the CFPB has said "it does not matter who is collecting the debt - unfair, deceptive, or abusive practices are illegal." This is a gauntlet thrown directly in the face of the major banks. Effectively, the CFPB said "we are watching you too."
It should be clear how I feel about "bad apples" in the industry. But it is very important that I draw a distinction between NCO and other abusive robo-suing debt collectors and JPMorgan Chase. I think Chase is an outstanding bank and extraordinarily well run. Jamie Dimon is clearly the smartest guy on Wall Street.
Even the smartest guy does not know what goes on deep down inside the guts of a large organization. In the case of Chase, they had a collection group that apparently got way out of control.
I have known and worked with JPMorgan Chase for over 20 years. Chase was my investment banker and both JPMorgan and Chase were lenders to my companies. I have high regard for the bank's professionalism and I have never met a Chase banker who was not on top of his game. I am positive Mr. Dimon and his senior executives were offended by the actions of a few. I do not for one minute believe Chase executives would have approved the things that happened.
But there you go. What happened has happened and you deal with it as it is. I expect Mr. Dimon has sent a message "fix this and don't let it happen again".
Other bankers should benefit from this lesson. Sometimes people do things that are dumb and those dumb things can come back to hurt the bank's reputation and cost a lot of money to fix.
In this environment of heightened awareness of abusive behavior across the spectrum, banks should look for debt buyers and collection agencies who are different: who don't litigate against consumers, who don't collect debt so old it is past the statute of limitation, who don't add interest to accounts and who go the extra step to actually help their customers find jobs and put their financial house in order.
The CFPB is the harbinger of a whole new world. One that is much different than the past. One that is ripe with opportunity for banks that can adapt and adopt a new set of rules. The new Sherriff will tolerate nothing less.