On Thursday July 28, 2016, the Consumer Financial Protection Bureau (CFPB) released a series of proposals aimed at overhauling the debt collection business. The new proposals require debt collectors to take additional steps to substantiate the accuracy of a debt, limit certain types of communications with consumers, and simplify dispute and litigation procedures.
In prepared remarks delivered in Sacramento, California, CFPB Director Richard Cordray explained that nearly a quarter of all complaints filed with the CFPB involved debt collection—more complaints than any other financial service or product that the CFPB regulates. The new proposals are the CFPB’s attempt to combat some of the most common complaints. However, given the scale of the proposals, the new regulations are likely to impose significant financial costs on the debt collection industry.
As part of the CFPB’s proposals, collectors would be required to take additional steps to verify and maintain the accuracy of the debt. Specifically, collectors would be required to substantiate the debt “or possess a reasonable basis, for claims that a particular consumer owes a particular debt.” Debt collectors would also be responsible for passing certain information about the debt to other debt collectors to help ensure that only valid debt is subject to the collections process.
The proposals further require debt collectors to include a Statement of Rights to consumers when attempting to collect a debt. The Statement of Rights would outline legal protections that consumers may take advantage of during the debt collections process and would further help consumers verify the accuracy of the debt.
The new proposals also seek to limit communications between the debt collectors and consumers. Under the proposals, the CFPB is considering imposing a limit on the number of attempted communications with a consumer at six times per week if the collector does not have confirmed consumer contact and three times per week if the collector has confirmation of contact. Additionally, debt collectors would be prohibited from attempting to contact a surviving spouse for 30-days after the consumer had passed away.
Disputes and Litigation
Under the new proposals, debt collectors would be required to provide consumers with easier procedures for disputing debts. The CFPB proposes that debt collectors include a “tear-off” dispute provision on a debt collection notice. If the consumer wished to dispute the debt, the consumers would be able to simply remove the tear-off portion, mark why they are disputing the debt, and mail the dispute back to the debt collector. Upon receipt of the dispute tear-off, the debt collector would be responsible for sending a report substantiating the debt to the consumer within 30-days. If the debt collector failed to do so, the debt collector would be barred from attempting to collect the debt. Debt collectors would also be prohibited from transferring the debt in an attempt to circumvent the written report requirement. If a debt collector transferred the debt before it responded to the dispute, the next debt collector would not be allowed to collect on the debt until the dispute was resolved.
The new proposals further require a debt collector to make additional disclosures if a debt collector chooses to sue the consumer over a debt. Specifically, the debt collector would need to inform the consumer that the collector intended to sue and that if the consumer did not appear in court, the court may rule against the consumer. The debt collector would also need to include a statement that the consumer may obtain information for legal services through the CFPB website and by calling the CFPB’s toll free number.
The CFPB’s proposals marks the first steps in the rule making process. Next, the CFPB will convene a Small Business Review Panel and gather feedback before issuing a final proposed rule.