The Consumer Financial Protection Bureau (CFPB) in the U.S. published an outline of proposals on July 28, 2016 to govern consumer debt collection by debt collectors including third-party collection agencies, debt buyers, collection law firms and loan servicers (including residential mortgage servicers) in response to consumer complaints received under the Fair Debt Collection Practices Act. Debt collectors have also requested additional guidance on collection practices from the CFPB, which previously had primarily created industry standards through its enforcement operations rather than through formal rulemaking. The CFPB was given additional authority to regulate debt collection practices through the Dodd-Frank Act. These proposals would not apply to the collection of commercial debts.
The first category of proposals relates to information integrity and continuity. Among other things, the proposals would require debt collectors to support initial claims of indebtedness through a combination of documentation and representations and warranties received from the original debt owner. Information to be provided as part of a debt sale would include the consumer’s name, address, telephone number, account number with the original creditor, date of default and amount owed at default, details of post-default interest and/or fees, contract terms supporting post-default interest and/or fees, date and amount of each payment or credit after default, and a full chain of title information, if the debt is not being purchased from the original creditor. As part of the sale of debt, a debt owner would be required to represent that the information it is providing is accurate, that it has adopted and implemented reasonable written policies and procedures to ensure the accuracy of transferred information and that the transferred information is identical to the information in the debt owner’s records. Information related to prior collection efforts, including any additional information provided by consumers to debt collectors, consumer disputes, and the results of any investigation into such disputes would also be required to be transferred as part of the sale of any debt.
Debt collectors would be required to screen this initial information from the debt sale for “warning signs”, or indications that the information associated with the debt is inaccurate or inadequate before commencing collection activities. If any warning signs were discovered, debt collectors would be entitled to obtain and review supplemental information from the original or other previous creditors.
Consumers would have to be provided with a clear and simple dispute mechanism, and any consumer dispute would trigger additional substantiation requirements for debt collectors. While the primary burden of complying with these regulations would be on the debt collectors, they would in turn look to original creditors, such as banks and other debt originators, to supply them with the information and representations they need to be in compliance.
Another category of proposals relates to the consumer experience. The CFPB is proposing certain changes to the validation notice provided to consumers at the start of a collection to make it clearer what debt is being collected, as well as what the consumer’s rights are. Another aspect of the proposal explores whether validation notices should be initially sent in multiple languages, such as English and Spanish, or under what circumstances a debt collector should be required to provide materials in a language besides English.
The CFPB would also require that consumers must be given a true opportunity to respond to a debt collection attempt (for example, receipt of a validation notice and a period for the consumer to respond) before a debt collector could notify a credit reporting agency of the debt. Additionally, the CFPB is considering additional limits to the number of times per week and the manner of contact and attempted contact made by debt collectors with respect to any consumer to ensure consumers are not harassed. A final set of proposals in this category would seek to restrict a debt collector’s ability to contact the estate representative of a deceased debtor for a certain period following the debtor’s death.
The CFPB is considering a number of proposals related to time-barred debt (debt which is past the relevant statute of limitations) and obsolete debt. The proposals would require debt collectors to disclose to consumers when older debts are past the applicable statute of limitations or barred from appearing on credit reports. It would also require consumers to be informed of the risk of waiver of these defenses by making a payment on the debt or admitting the debt in writing. Finally, out of a concern that consumers would not understand disclosures about waivers, the CFPB is considering banning the sale of time-barred debt and/or banning the collection of time-barred debt outright.
These proposals were prepared in connection with the convening of a Small Business Review Panel to gather industry feedback. The CFPB has not requested public comment at this time, and has not provided a specific timeline for publishing the proposed rule that will be developed out of this proposal and the feedback from the Small Business Review Panel.