On July 28, 2016, the Consumer Financial Protection Bureau (CFPB) released an outline of proposals it is considering as potential elements of a new, comprehensive regulatory scheme to implement the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 (FDCPA). The proposed regulations, if implemented, would represent a major change in the enforcement of the FDCPA, which was enacted in 1977 but has not been significantly updated since. The outline of proposals is important for industry members to understand because it will very likely form the basis of the CFPB’s formal rulemaking on this topic.
The CFPB proposal states that these regulations, if put into practice, would apply to third-party “debt collectors” as defined under the FDCPA, and specifically to the following small entities: “collections agencies with $15 million or less in annual receipts; debt buyers with $38.5 million or less in annual receipts; collections law firms with $11.0 million or less in annual receipts; and small entity loan servicers that acquire accounts in default, which generally are either depository institutions with $550 million or less in assets or non-depositories with $20.5 million or less in annual receipts.”
The proposals contain detailed descriptions of dozens of potential rules the CFPB is considering. Some of the highlights include:
- Mandatory substantiation of the debt prior to and during the collections process. Debt collectors would be required review their files before commencing collection to ensure that they have valid and complete information about the borrower’s identity, the nature and amount of the debt, and the chain of title establishing the collector’s right to collect the debt. Debt collectors would also be obligated to continuously review the file for “warning signs” that information may be incorrect or incomplete. Additionally, if the consumer disputed the debt or the collector’s right to collect it, the collector would have to stop attempting to collect the debt and obtain the necessary documentation to address the consumer’s dispute before it could continue with collections activity.
- Increased continuity of collection status when the debt is transferred. If a debt collector returned a debt to the debt owner or sold the debt to another party, the collector would be required to provide the new holder with relevant information about the file, which the new holder would, in turn, be required to review. Further, if a debt collector received additional information concerning the debt (including payments submitted by the consumer, bankruptcy discharge notices, identify theft reports, and disputes) after the debt had been transferred, the debt collector would be required forward that information to the current debt holder.
- Enhanced validation notices. To make it easier for the consumer to recognize whether the debt being collected was theirs, the CFPB is considering adding to the information required to be in the validation notice sent to the consumer at the outset of the collections activity. Collectors are already required to provide information on the amount of the debt, the name of the creditor, the right to dispute the debt, and a statement that if the debt is not disputed it will be considered valid. But the CFPB is also considering requiring that the validation notice include (1) the consumer’s full name and address; (2) the debt collector’s full name and address; (3) a description of the debt type (i.e., “credit card”); (4) the merchant brand associated with the debt; (5) the name of the creditor at the time of default; (6) the account number with the default creditor; (7) the amount owed on the default date; (8) the creditor to which the debt is currently owed; (9) an itemization of interest, fees, payments, and credits since the default date; and (10) the amount currently owed. The CFPB is also considering including an “action item ‘tear-off’” at the bottom of the validation notice to make it easier for consumers to respond to the debt collection activity. The tear-off would have boxes to check to indicate that the consumer is disputing the debt and why. Additionally, the CFPB might require a one-page “Statement of Rights” to be included with the validation notice, informing the consumer of his or her rights and of certain limitations on the debt collector’s conduct and authority.
- New protections concerning the collection of time-barred and obsolete debts. Debt collectors could also be required to disclose to the consumer, when applicable, that the consumer’s debt is time-barred by a statute of limitations and therefore that the collector cannot sue the consumer if the consumer refuses to pay the debt. This notice that the debt is time-barred would bind subsequent collectors even if the later collector determined that the debt was not time-barred. Similarly, collectors may be required to inform the consumer when a time-barred debt is obsolete, meaning that it will not be included in the consumer’s credit report. And finally, in states where a time-barred debt can be revived and enforceable if the consumer makes a payment or acknowledges the debt in writing, the CFPB is considering a rule prohibiting debt collectors from collecting on time-barred debts unless they waive their right to sue in the event of revival.
- Additional limitations on communications with customers. The proposals under consideration would also cap the number of times a debt collector could contact a consumer (the current proposal is six contacts or attempted contacts per week prior to “confirmed customer contact” and three contacts per week thereafter. Certain places (like medical facilities, places of worship, places of burial and grieving, and child-care centers) would be deemed presumptively inconvenient for consumers so collectors could not contact them there. Additionally, the proposals would impose a 30-day waiting period before collectors could contact survivors following the death of a consumer. Further, the CFPB is considering prohibiting the use of work email addresses for debt-collection communications. Notably, though, the CFPB is also considering a rule permitting collectors to leave limited-content voicemails without triggering the requirements of an FDCPA “communication” – a step the CFPB hopes would provide clarity for collectors and reduce the number of attempted contacts necessary.
As is clear from these proposals, the CFPB is contemplating a major change in the way that the debt collection industry operates. While many of these potential changes could improve the debt collection process and provide increased protection for consumers, they also are likely to require debt collection companies to fundamentally reevaluate how they do business. For instance, reinforcement of time-bar protections may require greater emphasis on collecting debts as quickly as possible. And rules providing that a consumer dispute halts the collections process until the debt collector resolves the dispute are likely to impact the timeline – and feasibility – of collecting many debts. Such rules may also make portfolios containing disputed debts less attractive to subsequent debt buyers, increasing the risk a debt collection company undertakes when acquiring the debts in the first place. Implications like these make it very important to understand the proposals the CFPB is considering.
The release of the outline of proposals represents a significant step toward a final rule on debt collection, but the process is far from over and opportunities for consultation and feedback on the proposals remain. The Bureau has indicated that it will convene a panel to consult with a group of Small Entity Representatives (SERs) which will provide the Bureau with feedback and recommendations on the rules contained in the outline of proposals. The Bureau will then issue a proposed rule and invite public comment before the rule becomes final. Industry members that anticipate being affected by these rules should carefully review the outline of proposals and should consider participating in the consultative process if they have concerns or additional ideas to add to the discussion.