On July 28, the Consumer Financial Protection Bureau (the CFPB) released a summary of proposals it is considering to reform debt collection practices. At the same time, it released a Study of Third Party Debt Collection Operations that the CFPB undertook to better understand how debt collection firms operate. The CFPB has published the proposals in preparation for convening a Small Business Review Panel, which is a preliminary step in the rulemaking process before the agency releases a proposed rule for public comment.
The debt collection reforms under consideration would apply only to debt collectors that are subject to the Fair Debt Collection Practices Act (the FDCPA). If these proposals are adopted, however, it is likely that they would have significant implications not only for debt collectors and buyers of distressed debt but also potentially for first-party creditors and loan servicers that are not debt collectors under the FDCPA. The CFPB has stated that it intends to address consumer protection issues involving first-party debt collectors and creditors in the near future, and the proposals outlined by the CFPB may offer some insight into what the CFPB intends for such entities. The proposals also provide an indication of debt collection practices that the CFPB may regard as unfair, deceptive or abusive acts or practices under the Dodd-Frank Act.
The proposals seek to curb perceived abuses by requiring debt collectors to undertake certain actions and provide disclosures to debtors in the course of their activities. Specifically, among others, the CFPB is considering the following proposals:
Substantiation of the Debt—Specifying the types of information that a debt collector should review to substantiate the validity of a debt before beginning collection activity, as well as a requirement that debt collectors look for “warning signs” that may arise during the collection process to suggest that the collector should take additional steps to obtain reasonable support for the debt before continuing to collect the debt. The agency is also considering requiring debt collectors to obtain additional support before proceeding with debt collection if a consumer disputes the validity of a debt. Subsequent debt collectors that acquire a debt would be required to address any dispute that had not been appropriately resolved by a prior debt collector before undertaking collection activity. Further, the agency is considering requiring debt collectors to perform certain due diligence to validate the debt before making claims concerning the debt as part of a litigation proceeding.
- Transfer of Information—Considering requiring debt collectors to transfer certain information concerning a debt to subsequent collectors to which the debt is sold or transferred. For example, the agency is considering requiring a debt collector to pass along to a subsequent debt collector whether the debt was disputed or the details of any time, place or method of communication a consumer has stated is inconvenient. In addition, the CFPB is considering requiring a debt collector to forward certain information it receives after it has sold or transferred a debt. It also says that it intends to consider in the future comparable requirements for debt owners that are not subject to the proposals under consideration.
- Validation Notice and Statement of Rights—Specifying information to be included in validation notices, including a “tear off” portion of the notice that a consumer could use to dispute the debt by checking certain boxes and returning it to the collector. The agency is also considering a requirement that debt collectors provide consumers with a statement of rights at the same time they provide the validation notice.
- Limits on Collecting Time-Barred Debts—Prohibiting a debt collector from suing or threatening to sue on time-barred debts and requiring debt collectors to provide certain disclosures before taking actions to collect a time-barred debt even if the collector does not sue or threaten to bring suit on the debt. Further, since in some states a time-barred debt can be revived if a consumer makes a payment or acknowledges the debt, the CFPB is considering whether to prohibit debt collectors from making any attempt to collect on a time-barred debt unless they waive their right to sue on the debt. However, the agency says that it is not considering an absolute bar on collection or sales of time-barred debt.
- Limits on Consumer Contact—Adopting limits on the number of permissible contacts and attempted contacts with a consumer each week. Specifically, if a debt collector does not have a confirmed consumer contact, the agency is considering limiting a debt collector to not more than three attempts each week per unique address or phone number, with an aggregate limit of six attempts. When a debt collector has a confirmed consumer contact, it would be limited to not more than two attempts each week per unique address or phone number, with an aggregate limit of three attempts and no more than one live communication per week. The CFPB is also considering a proposal that would specify locations, such as medical facilities and places of worship, that the agency would presume are inconvenient locations to contact a debtor, but it has stated that it is not currently considering designating a consumer’s workplace as a presumptively inconvenient place. The agency says that it is also considering a 30-day waiting period following a debtor’s death before a collector could contact a surviving spouse or other appropriate person concerning a decedent’s debt.
- Limitations on Transfer—Prohibiting debt buyers from placing debt with or selling debt to a person that is subject to a judgment, order or similar restriction prohibiting them from purchasing or collecting debt in the state where the consumer resides or that lacks a required license to purchase or collect debt, as applicable, in the state where the consumer resides.
- Recordkeeping—Requiring debt collectors to retain records documenting the actions taken in the course of collecting a debt for three years after the last communication or attempted communication with a consumer about a debt.
At this stage, the CFPB has not issued a proposed rule to implement any of the measures under consideration; the agency has simply provided information about the proposals it is considering to facilitate the consultation process contemplated by the Small Business Regulatory Enforcement Fairness Act, which requires the CFPB to convene a panel to seek input from small businesses that may be affected by the proposals being considered.