The Consumer Financial Protection Bureau (“CFPB”) announced yesterday at a field hearing in Sacramento, California, that it is considering several potential approaches to issuing rules on debt collection. The CFPB would take this action pursuant to its authority under the Dodd-Frank Act to issue regulations implementing the Fair Debt Collection Practices Act (“FDCPA”) as well as to issue regulations prohibiting unfair, deceptive, and abusive acts and practices. This rulemaking would mark the first time regulations would be issued to implement the FDCPA, and it is likely to have significant effects on the debt collection industry.
The CFPB’s issuance of proposed debt collection rules has been anticipated for years; the CFPB issued an Advance Notice of Proposed Rulemaking (“ANPR”) regarding debt collection in November 2013. And the CFPB has focused on debt collection since its earliest days. It has conducted three debt collection research projects, including a Study of Third Party Debt Collection Operations that it also published yesterday. It has brought more than 25 debt collection enforcement actions alleging violations of the FDCPA or unfair, deceptive or abusive debt collection acts or practices. At the field hearing, CFPB Director Richard Cordray stated that debt collection complaints represent the largest category of CFPB complaints, about 25 percent of all complaints the CFPB receives.
The proposals issued yesterday are not proposed regulations for public comment; rather, they are potential options that will be presented to stakeholders on a panel convened under the Small Business Regulatory Enforcement Fairness Act (SBFREFA). At some point after the SBREFA participants provide feedback, proposed regulations will be issued for comment.
Overview of the Outlined Proposals:
The CFPB’s Outline of Proposals states that the regulations would cover third-party debt collectors, debt buyers, collection law firms, and loan servicers, but not persons collecting their own debts. (Persons collecting their own debts will be addressed through a separate proposal.) The proposals being considered generally address three aspects of debt collection: information integrity, consumer understanding, and collector communications. Two additional proposals focus on the transfer of debts and recordkeeping.
Details of the Outlined Proposals:
According to the CFPB’s Outline, the most common debt collection complaint is that a debt collector is trying to collect from the wrong consumer or in the wrong amount. The proposals addressing information integrity would do three things to address these types of complaints:
- Require debt collectors to substantiate or possess a reasonable basis for claims that a consumer owes a debt, in order to begin collections and throughout the collections process;
- Require that a collector pass on certain information the consumer provides during collections to any downstream collectors; and
- Make improvements to the validation notice currently required by the FDCPA and require a Statement of Rights to provide consumer critical information that would assist the consumer in determining whether they actually owe the debt at issue and to navigate the debt collection process more generally.
For example, one proposal would require collectors to confirm they have sufficient information, such as the full name, last known address, last known phone number, account number, date of default, amount owed at default, and the date and amount of any payment applied after default, to start collecting on the debt.
Further, if a consumer has disputed a debt but the collector had not taken steps to address the dispute, then (pursuant to the proposal under consideration) the fact that a dispute had been filed would be required to be transferred to any new collector, and the subsequent collector could not make claims of indebtedness until it had addressed the dispute.
The Outline also contemplates requiring a brief disclosure about the possibility of litigation, and requiring disclosures and imposing restrictions in connection with debts older than the applicable statute of limitations or that are barred from appearing on credit reports. The litigation disclosure would be required to be included in all written and oral communications in which a collector expressly or implies an intent to sue the consumer.
Time-barred debt is a particular area of concern for the CFPB. One proposal relating to time-barred debt would prohibit collectors from suing and threatening to sue on time-barred debt. Another proposal would require a time-barred debt disclosure when a collector tries to collect on a debt that is barred by applicable statute of limitations. The disclosure would notify the consumer that the collector could not sue to recover the debt because the debt was too old. The debt collector could not accept payments on the time-barred debt unless the consumer acknowledged having received the disclosures. The CFPB also is considering whether to prohibit collectors from collecting on time-barred debt that can be revived under state law unless they waive the right to sue on the debt, even if a consumer makes a payment or acknowledges the debt in writing.
And, “[g]iven the frequency with which debts are transferred between collectors,” the CFPB writes in the Outline, the proposal would prohibit a subsequent collector from suing on a debt as to which an earlier collector provided a time-barred debt disclosure. The proposal under consideration would also require the later collector to provide a time-barred debt disclosure in the validation notice and the first oral communication in which it requests payment, and possibly at additional intervals. Earlier collectors would have to indicate when they transfer the debt to others if they have given the time-barred debt disclosure to the consumer.
The Outline also addresses “obsolete” debt—debt beyond applicable credit reporting periods. The CFPB is considering whether to require a disclosure that would inform the consumer whether a particular time-barred debt generally can or cannot appear on a credit report.
Collector Communications with Consumers:
The CFPB’s Outline states that the second largest category of debt collection complaints relates to collector communication practices, such as frequent or repeated phone calls and disclosures about debts to third parties. As a result, the CFPB is considering implementing regulations to govern:
- How frequently a collector may contact a consumer, and restrictions around leaving the consumer phone messages;
- The time, place, and manner in which collectors may contact consumers; and
- Situations involving the death of a consumer alleged to owe a debt.
One proposal would limit collectors to making no more than six attempts a week to contact a customer the collector has not previously reached. Another proposal would impose a 30-day waiting period after a debtor dies before a debt collector could communicate with surviving spouses and similar parties. These restrictions would apply above and beyond restrictions already contained in the FDCPA.
The CFPB is also considering prohibiting debt buyers from placing debt with, or selling debt, to: 1) a person who is subject to a judgment, order, or other restriction that prohibits the person from collecting debt in the state where the consumer resides; or 2) a person that lacks a required license, such as a state debt collector license. The CFPB is also considering prohibiting a debt buyer from selling or placing a debt with another party when the debt buyer knows the debt was paid, settled, discharged in bankruptcy, or the result of identity theft.
A recordkeeping requirement under consideration would require a debt collector to retain records showing the actions the collector took in connection with a debt for three years after the collector’s last communication or attempted communication with the consumer about the debt. The requirement would apply to recorded phone calls, but would not require collectors who do not already record phone calls to begin doing so.
The next step is for the SBREFA panel to gather input from small businesses that may be affected by the proposals being considered. This is expected to occur in August. Typically, 15 to 20 small business representatives are selected to participate.
Within 60 days of the Panel convening, it must issue a report on the input received. The CFPB will then publish a proposed rule, but it is unclear how long after the report that the CFPB will release the proposed rule and how long the public comment period will be.
We will continue to monitor the CFPB’s debt collection rulemaking efforts and provide a comprehensive review of the proposed rule once it is released in its final form.