The Consumer Financial Protection Bureau released an outline today of the proposed rules under consideration for its long-anticipated debt collection rulemaking. The outline covers a lot of ground, the high points of which we have summarized briefly here:
Creditors and Servicers: Most importantly, the CFPB advised that it is not going to try to regulate creditors and servicers of current debt together with third-party debt collectors and debt buyers subject to the federal Fair Debt Collection Practices Act. The CFPB indicated that it will, however, begin a similar rulemaking process separately "in several months" for "creditors and others engaged in collection activity who are covered persons under the Dodd-Frank Act but who may not be 'debt collectors' under the FDCPA." The CFPB did not suggest which of the areas addressed in this outline it might later propose to apply to creditors and servicers, or whether it will define "collection" for purposes of any substantive conduct limitations or requirements of its proposed regulation in a way that distinguishes collection activity from ordinary, routine servicing of performing accounts.
Information Integrity and Related Concerns: The CFPB describes debt collection errors - primarily wrong debtor or wrong debt amount - as its most common complaint related to collections. Instead of requiring debt collectors to obtain account-level documentation for every account (which they considered), the Bureau may propose to require third-party debt collectors to "substantiate" the debt before trying to collect it by establishing a "reasonable basis" for a claim. As part of that process, the Bureau may require debt collectors to (1) obtain some representation from the creditor that it has policies and procedures to ensure that the creditor transfers accurate account information, and (2) review certain information about the debtor and the account for "warning signs" of data errors. The information currently under consideration is:
- The full name, last known address, and last known telephone number of the consumer;
- The account number of the consumer with the debt owner at the time the account went into default;
- The date of default, the amount owed at default, and the date and amount of any payment or credit applied after default;
- Each charge for interest or fees imposed after default and the contractual or statutory source for such interest or fees; and
- The complete chain of title from the debt owner at the time of default to the collector.
If the debt collector detects an error in that fundamental information, the debt collector would have to take further steps before attempting to collect.
- Debt Validation Notice: The CFPB is considering requiring a more detailed debt validation notice that includes a tear-off portion that allows the debtor to request validation, ask for the identification of the original creditor, or make a payment. The Bureau proposes to have debt collectors briefly identify the account that gave rise to the debt, and to itemize the debt in some way. In Appendix F of the outline, the Bureau indicates what it might propose as a 'model' debt validation notice. A model form of debt validation notice would offer debt collectors relief from litigation over a letter the contents of which, today, is prescribed largely by common law interpreting the brief requirements stated in 15 USCA § 1692g. The Bureau is also proposing to require debt collectors to include a one-page Statement of Rights document in the envelope with the debt validation notice.
- Litigation Disclosure: The Bureau is considering a proposal that would require debt collectors to give a "litigation disclosure" in any written or oral correspondence in which the debt collector expressly or implicitly represents an intention to sue. The disclosure would inform the consumer that the debt collector intends to sue, that a court could rule against the consumer if she fails to defend the suit, and that certain information about debt collection litigation is available on the Bureau's website. The Bureau did not develop model language, but is asking small businesses to advise the Bureau about the potential usefulness of model language.
- Time-Barred Debt Disclosure: The Bureau is considering requiring debt collectors to give certain disclosures when they seek payment on time-barred (out-of-statute) debts. The Bureau is considering requiring specific disclosures about (1) whether the debt collector could sue to collect a time-barred debt, and (2) whether the debt can or cannot appear on her credit report (whether it is obsolete). Further, under the proposal, one debt collector that provides the time-barred debt disclosure would bar all subsequent debt collectors from suing on the debt even if the debtor revives the debt - the proposal hinges only on whether the earlier collector provided the disclosure, and not on the actual status of the debt.
Collection Contact Frequency: The CFPB is also proposing dramatic limits on collection contact frequency. The proposal begins by differentiating between contacts prior to "confirmed consumer contact" and contacts after "confirmed consumer contact." "Confirmed consumer contact" means that any collector - either the current collector or a prior one - has communicated with the consumer about the debt, and the consumer has answered when contacted that she is the debtor. Essentially, the CFPB acknowledges that collectors need more leeway when communicating with consumers with whom they have not yet made contact.
The contact frequency restrictions would apply per account (not per consumer) and would apply on a per-weekly basis. Prior to confirmed consumer contact, the collector could make three attempts per unique address or unique phone number, up to a total of six attempted contacts over the course of the week. Once the collector makes "confirmed consumer contact," however, its ability to continue to contact the consumer is limited. Specifically, the collector could only make two attempts per unique address or phone number, up to a total of three attempted contacts over the course of a week. Finally, the collector is limited to one live communication per account per week. By way of reference, the only state that currently regulates attempts (West Virginia) limits a debt collector to thirty attempts in a week. A couple of states limit collectors to two contacts in a week in the context of collection. If the Bureau proposes these contact frequency limitations as they appear in the outline, debt collectors will have their bright-line FDCPA test for where to draw the contact frequency line, but will be allowed far fewer contact attempts than they are allowed under any current collection law or rule.
While the CFPB did not define "attempt," it did provide that the contact caps would limit both successful and attempted contacts (e.g., if the collector leaves a "limited-contact message," this would count toward the cap). The CFPB left open whether to apply the caps equally to all communication channels or whether to create separate limits per unique contact channel.
Skip Tracing: Like the debtor contact restrictions, the proposed third party skip tracing contact restrictions the Bureau outlines adopt the "confirmed consumer contact" as a line of demarcation. And, like the debtor contact restrictions, the third party skip tracing contact restrictions would apply on a per-account and per-week basis. Specifically, prior to confirmed consumer contact, the collector could make three attempts to each third party's unique address or phone number per week, for a total of no more than six attempts to each third party per week. Consistent with the FDCPA's skip tracing requirements, the collector can engage in no more than one live communication with a third party for skip tracing purposes over the life of the account. There is no limit on the total number of contact attempts across all third parties for a specific account. Once there is confirmed consumer contact, the collector cannot contact any third parties for skip tracing purposes.
Time, Place, and Manner Restrictions: The Bureau is also considering more specific requirements for when, where, and how a collector can contact a debtor. Among other restrictions, the Bureau has proposed that debt collectors take into account both the area code of the debtor's phone number and any other indicators of where she is located when determining the permissible times to call the consumer (absent information to the contrary). Further, the Bureau may propose that if the collector knows or has reason to know that the debtor is in a "presumptively inconvenient" place (like the hospital, a place of worship or grieving, or a childcare facility), the debt collector cannot communicate with the debtor while she is in that place. Notably, the Bureau expressly refused to propose that the workplace be considered an inconvenient place to contact the debtor. However, the Bureau stressed that work email addresses may be an inconvenient way of reaching the debtor, and may also reveal the existence of the debt to a third party, and therefore may propose a ban on such contacts absent the debtor's prior consent.
Decedent Debt: The Bureau also may propose a 30-day waiting period for attempting to collect a debt where the obligated debtor has passed. The waiting period would begin to run from the date the debtor passes away. The moratorium on collection attempts during the 30-day period would only apply if the debt collector is aware or should be aware that the debtor has passed away. The Bureau also solicited comments on a proposed 60-day waiting period. Many of the other proposed restrictions on collecting from the estate of the deceased closely mirror the FTC's policy statement on collecting decedents' debts.
Consumer Consent: The Bureau also proposed that consent from the debtor to communications at inconvenient times or places, with third parties, or when the debtor is represented by an attorney, will not run to subsequent debt collectors. For instance, if one debt collector obtains the debtor's consent to contact third parties regarding the debt, a subsequent debt collector cannot rely on that consent to contact third parties regarding the debt. The Bureau does not propose to require written consent, but emphasized that debt collectors should memorialize the consent, either in writing or by recording phone calls.