The CFPB, aka the Consumer Financial Protection Bureau, is not just another acronym we should ignore.
No, the CFPB is unlike any federal agency we’ve ever seen. The consumer watchdog group is the result of Congress’ reaction to Wall Street’s failures and abuses that led to the Great Recession. The Dodd–Frank Wall Street Reform and Consumer Protection Act created the CFPB with a mandate to provide a single agency to enforce 18 major federal consumer laws, some of which are relevant to the multifamily industry.
Just six months after President Obama appointed Richard Cordray as the CFPB’s director, the agency made these headlines:
- “CFPB Fines Capital One Bank $210M for Lying to Its Customers About the Benefits of Some of Its Credit Cards”;
- “CFPB Orders Discover to Pay $200M to Customers Who WereMisledInto Buying ‘Add-On’ Services”; and
- “CFPB Forces 3 American ExpressSubsidiaries to Repay‘Deceived’ Customers $85M.”
I’ve been following the CFPB closely since its formation in 2010 and have watched in amazement as this fledgling government agency has taken on these massive, well-respected companies and made them bleed tens and hundreds of millions of dollars.
Since then, the agency has amassed more resources and aggressively expanded its regulatory authority over new business sectors. Sooner rather than later, the multifamily industry will become its focus.
Don’t Think Your Debt-Collection Agency Will Protect You
In October 2012, the CFPB gained authority over the debt-collection industry. As a consumer law and debt-collection attorney whose clients are all in the multifamily housing industry, I’m concerned, and I think you should be too.
The agency is getting debt-collection complaints from consumers, and our industry would be foolish to think that it isn’t receiving thousands of complaints from folks who were evicted from our multifamily properties and who are now being subjected to debt-collection efforts on move-out accounts.
At this point, maybe you’re thinking, “We sell our debt. I’m not concerned about the CFPB,” or, “Our collection attorney [or agency] handles all that stuff. The CFPB is their problem, not mine.”
If you believe that, read what CFPB director Richard Cordray recently told The Washington Post:
“We will be undertaking rulemaking in the debt-collection area. The work on that will get started later this fall. Debt collection is an area that is in need of revision and updating. It’s a very problematic area, one of the most complained-about areas by the public. It’s only gotten worse in the wake of the financial meltdown because so many people owe debt. An estimated 30 million Americans have a debt collector chasing after them now, so it’s a very salient issue now for the public. …
“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.”
Cordray Clearly Wants to Change the Rules and Go After “First-Party Debt Collectors.” That Means You, the Property Management Company.
Right now, no one knows what the CFPB will do. We don’t know how it will change consumer laws or how its enforcement efforts may change.
Some of my peers—consumer law experts and multifamily lawyers alike—aren’t nearly as skeptical or as concerned as I am, but I think inaction is our riskiest response. Doing nothing will cost us far more than starting now to conduct internal, consumer law compliance audits. We may not like what we learn, but we will be far stronger for asking tough questions and making changes, if needed, now, before the CFPB demands changes as well as millions or tens of millions of dollars.
Michael Sobota, president of multihousing collections firm FCO, agrees: “The multifamily industry, multifamily attorneys, and third-party collection agencies need to be educated about the CFPB right now,” he says. “What’s needed is a complete review and update of practices, policies, and procedures in light of the CFPB, starting with applicant screening, accurate documentation of residents’ accounts at the site, straight through the collections process.”
I wrote this article because I love the multifamily industry, and I don’t want all of us to suffer the same fate as American Express, Capital One, and Discover. Their boards of directors thought they were in compliance—until the CFPB showed up.
Patrick R. Pettitt, founder and CEO of Sage Law Practice Group, is a multifamily lawyer based in Hampton, Va. He recently founded the National Association of Multifamily Lawyers (NAMFL).