The Consumer Financial Protection Bureau (CFPB) has moved a step closer to issuing a debt collection rule by releasing an outline of the proposals it is considering in preparation for convening a small business review panel. The Small Business Regulatory Enforcement Fairness Act and the Dodd-Frank Act require the CFPB to convene such a panel when developing rules that may have a significant economic impact on a substantial number of small businesses. While changes may result from input provided by the small entity representatives selected to meet with the panel, the outline is a strong indicator of the approach the CFPB is likely to take in a proposed debt collection rule.
Authority. While much of the proposals rely on the CFPB's rulemaking authority under the Fair Debt Collection Practices Act (FDCPA) (for which there are currently no implementing regulations), the proposals also rely on the CFPB's Dodd-Frank authority to issue rules prohibiting unfair, deceptive, or abusive acts or practices and require disclosures to permit consumers to understand the costs, benefits, and risks associated with consumer financial products and services such as debt collection.
Scope. Perhaps most surprising is the CFPB's decision to limit the proposals' coverage to "debt collectors" that are subject to the FDCPA. As a result, the proposals are not intended to apply to a first-party creditor collecting its own debts or to a servicer when collecting debts that were current when servicing began to the extent the creditor or servicer would not be a "debt collector" under the FDCPA. According to the CFPB, the proposals would apply only to businesses "in the following categories for debts acquired in default: collection agencies, debt buyers, collection law firms, and loan servicers." The CFPB states that it "expects to convene a second proceeding in the next several months" for creditors and others engaged in debt collection not covered by the proposals, noting that it believes a separate SBREFA process "is the most efficient way to proceed, particularly because it will allow participants to provide more focused and specific insights." Nevertheless, we believe that many of the requirements discussed in the SBREFA outline for "debt collectors" will also be applied to first-party collections.
Debt Substantiation. A collector (including a subsequent collector of a disputed debt) would be subject to the general requirement that it must have a reasonable basis for claiming that a consumer owes a debt and, to satisfy that requirement, would have to take specific actions before making an initial claim of indebtedness, during the course of collections generally, after a dispute generally, after receiving a dispute within 30 days of the FDCPA validation notice, and prior to filing a collection lawsuit. Highlights include the following:
- A collector would have a "reasonable basis" to commence collection activity if, after reviewing specified items of "fundamental information," it found no account-specific or portfolio-wide "warning signs" that the information associated with the debt is inaccurate or inadequate and had obtained a written representation of accuracy from the prior debt owner. A collector could have a reasonable basis without reviewing each specified item of information or obtaining a representation of accuracy but would "bear the burden" of justifying its alternate approach. A collector would also be required to conduct an ongoing review to identify "warning signs" that arise during the course of collection. If such "warning signs" are detected, more investigation and review of underlying documentation would be needed.
- After receiving an oral or written dispute, a collector could not continue collection activity until it had reviewed documentation establishing specified facts (which would vary depending on whether the dispute is generic or specific in nature) and concluded that such information provided a reasonable basis for resuming collection activity. (Such documentation would also have to be provided to the consumer to satisfy the FDCPA "substantiation" requirement for written disputes received within 30 days of the validation notice.) A collector that relied on other support for resuming collection activity would "bear the burden" of justifying its alternate approach.
Debt Transfers. A collector would be required to provide specified information to an entity to which it transfers a debt that would obligate a collector under the FDCPA or other federal consumer protection laws to take or refrain from taking certain actions or that indicates the consumer is entitled to certain rights, or may facilitate collector conduct beneficial to the consumer. The collector would also be required to forward to the transferee specified information it may receive from the consumer after the transfer that could indicate all or part of the debt may be uncollectible or is likely to lack sufficient support. The CFPB indicates that it is considering a supplemental proposal that would prohibit debt buyers from selling debts to certain entities (such as one lacking a required license) or selling certain debts (such as one that it knows or should know resulted from identity theft).
Validation Notice. The validation notice would be revised to contain "enhanced and clarified information about the debt and the consumer's rights," along with a tear-off portion to be returned to the collector identifying various types of reasons for disputes from which a consumer could select and containing an option for the consumer to request the original creditor's name and address. (Appendix F to the outline includes an example of a model validation notice.) A collector would have to include with the validation notice a new "Statement of Rights" (an example of which is included in Appendix G) and send an additional copy in the first communication made more than 180 days after the consumer receiving the initial statement. The outline describes two alternatives the CFPB is considering for providing the validation notice and statement in languages other than English. Also under consideration are a prohibition on furnishing information about a debt to a consumer reporting agency unless the collector has communicated directly with the consumer about the debt and a requirement to send a litigation disclosure containing specified information in all written or oral communications in which a collector expressly or implicitly represents its intent to sue. (The CFPB does not indicate in the outline what statements might be deemed implicit representations of a collector's intent to sue.)
Time-Barred Debts. A collector seeking to collect a time-barred debt would be required to include a "time-barred debt disclosure" in the validation notice, in the first oral communication in which it requests payment, and possibly in each subsequent communication seeking payment. The same disclosure requirement would apply to any subsequent collector and a subsequent collector could not sue on a debt as to which a prior collector had provided the disclosure. The CFPB is also considering whether to require an "obsolescence disclosure" informing the consumer whether a time-barred debt can appear on a credit report; prohibit collection of a time-barred debt that can be revived under state law unless the right to sue is waived; and prohibit a collector from accepting payment on a time-barred or obsolete debt until it has obtained the consumer's written acknowledgment of having received a time-barred debt and obsolescence disclosure.
Communication Limits. New limits and requirements would be imposed on the frequency and leaving of messages by collectors; time, place, and manner of collector contacts; and collection of decedent debts. Highlights include the following:
- A "limited-contact message" from a collector that conveys only certain limited information would not be a FDCPA "communication" and therefore would not trigger the FDCPA "mini-Miranda" disclosure. To satisfy the FDCPA requirement that a collector must meaningfully disclose its identity in telephone calls, a collector would have to display a working, in-bound telephone number to appear on a consumer's ID screen. A collector could not contact any person using a communication method that would cause the person to incur an unavoidable charge.
- The frequency of collector contacts with debtors would be subject to weekly caps, which would vary based on whether there has been a "confirmed consumer contact" by a current or a prior collector. A "confirmed consumer contact" is one in which the consumer has answered when contacted that he or she is the debtor or alleged debtor and would generally pass from collector to collector. The contact would no longer exist if the collector reasonably believes that previously confirmed contact information for the consumer has become inaccurate. The caps would apply across all contact channels on a per-account basis and successful and attempted contacts as well as "limited-contact messages" would count as "contacts" to which the cap applies.
If it does not have a "confirmed consumer contact," a collector could have up to three contacts per week to each phone number or address it has for the consumer, up to a total of six contacts per week. A collector with a "confirmed consumer contact" could have up to two contacts per week to each phone number or address it has for the consumer, up to a total of three contacts per week only one of which could be a live communication.
- The frequency of third-party contacts to obtain location information would also be subject to weekly caps that would apply across all contact channels on a per account basis and include successful and attempted contacts. If it does not have a "confirmed consumer contact," a collector could have up to three contacts per week to each phone number or address it has for a third party, up to a total of six contacts per week. Live communications with a third party per account are limited to one in total (not weekly). Once a collector has a "confirmed consumer contact," any further location communications would be prohibited. However, if at a later time the collector reasonably believes that the confirmed contact information is no longer accurate, it could resume contacting third parties for location information, subject to these same limits.
For both the debtor and third-party contact caps, the CFPB is considering whether to structure the caps as "hard caps" or general caps with limited exceptions or whether to establish a rebuttable presumption that contacts above the cap constitute harassing, oppressive or abusive conduct in violation of the FDCPA.
- If a consumer has a mobile phone number in one location and a street address in another, in the absence of knowledge to the contrary, a collector would be deemed to know (or should know) that it is convenient to communicate with the consumer only if it would be deemed convenient under the FDCPA in all of the locations the collector's information indicates the consumer might be. Certain categories of places would be deemed presumptively inconvenient for communications from collectors and if a consumer indicated either expressly or by implication that a particular communication method was inconvenient, the collector using that method would be deemed to have known (or to should have known) that such method was inconvenient. A collector could not use a consumer's work email address for collections communications without violating the FDCPA prohibition against disclosing debts to third parties unless it had the consumer's specific consent for such communications. However, unless its content indicated otherwise, an email sent to a collector by a consumer from his or her work address could constitute consent for future communications at that address.
- After the death of a consumer alleged to owe a debt, a collector would have to wait at least 30 days before communicating with the consumer's spouse, parent, or guardian of a minor consumer, or an individual designated under state law as the personal representative of the consumer's estate.
- Each collector seeking to rely on a consumer's consent for communications that would otherwise be prohibited under the FDCPA would have to obtain such consent directly from the consumer and could not rely on consent obtained by a prior collector. A collector would be required to memorialize the consent and the consumer would have the right to revoke his or her consent.
Together with the outline, the CFPB released a report, "Study of Third-Party Debt Collection Operations," which provides the results of the CFPB's survey of practices and procedures of businesses that would be considered “debt collectors” under the FDCPA. We will discuss the report in a posting on our blog, CFPB Monitor.
On August 31, 2016, Ballard Spahr attorneys will hold a webinar ''The CFPB's Debt Collection Rulemaking – A Review of the Bureau's SBREFA Outline and Where We Think It's Headed” from 12 p.m. to 1 p.m. ET. The webinar registration form is available here.
Attorneys in Ballard Spahr's Consumer Financial Services Group regularly advise clients on compliance with the FDCPA and state debt collection laws and defend clients in FDCPA lawsuits and enforcement matters. The Group has created a team of lawyers who conduct compliance reviews for debt collectors and debt buyers in anticipation of CFPB examinations. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance.
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