On July 29, 2016, the Consumer Financial Protection Bureau (CFPB) released a series of proposals concerning its long-awaited debt collection rulemaking. They would apply to third-party debt collectors, including collection agencies, debt buyers, collection law firms and loan servicers. These proposals would supplement the Federal Debt Collection Practices Act (FDCPA) as the CFPB has rule writing authority under the FDCPA.
Notably, first-party collectors, including creditors, are not debt collectors under the FDCPA. Thus, the CFPB’s proposals do not encompass first-party collection activities. The CFPB deferred consideration of first-party collections to a second rulemaking process; it expects to initiate that effort in the coming months. Any rulemaking that results will likely be promulgated under the CFPB’s authority to prohibit unfair, deceptive and abusive acts and practices.
The CFPB issued an advance notice of proposed rulemaking (ANPR) on debt collection in November 2013 and has been working towards a proposed rule since that time. The CFPB’s proposals focus on four key areas: (1) Information Integrity and Related Concerns, (2) Consumer Understanding Initiatives, (3) Collector Communication Practices and (4) Debt Transfer Prohibitions and Recordkeeping.
1. Information Integrity and Related Concerns
The most common debt collection complaints the CFPB has received in recent years involve debt collectors trying to recover the wrong amount of money or attempting to recover from the wrong consumer. The CFPB believes these issues arise from substantial deficiencies in the quality and quantity of information provided when debt is sold and the absence of meaningful information provided to consumers that would help them recognize whether the debt is theirs.
To address these concerns, the CFPB is considering three options:
Debt Substantiation. Debt collectors would be required to substantiate a particular debt or possess a reasonable basis for claiming a consumer owes that debt. Under the proposal, this could be satisfied by obtaining and reviewing fundamental information, obtaining a representation of accuracy from the creditor and identifying certain warning signs that could indicate issues regarding the information regarding a particular consumer or portfolio. Collectors would be required to undertake this review prior to initiating collection activity and at several additional points in the collection lifecycle if collection issues arise, such as a dispute from a consumer. The CFPB is also considering a requirement that collectors provide specific types of substantiation and take other actions in response to various types of consumer disputes.
Debt Transfers. When debt is transferred from one collector to another, the CFPB is considering a requirement that subsequent collectors obtain and review information concerning prior collection activities before starting their own collection efforts. The CFPB is also considering a proposal to require debt collectors to forward certain information they receive from consumers after they transfer a debt to a subsequent collector or return it to the debt owner.
Validation Notice and Statement of Rights. The CFPB is considering whether to enhance the information provided to consumers in validation notices to help them determine if the debt is theirs and clarify consumers’ rights. The validation notice would include a “tear-off” that consumers can use to lodge a dispute and request more information about the original creditor. Debt collectors would also be required to provide consumers with a one-page Statement of Rights, which would be provided to consumers with the validation notice and possibly again with the first communication made more than 180 days after the consumer received the validation notice and initial copy of the Statement of Rights.
In addition to the items described above, the CFPB is considering proposals that would require communication in languages others than English and would prohibit debt collectors from furnishing information about a debt to a credit reporting agency prior to communicating directly with the consumer about the debt.
2. Consumer Understanding Initiatives
The CFPB is concerned that consumers may not understand how litigation may factor into the debt collection process and the restrictions that accompany attempts to collect debt that falls outside the statute of limitations.
Litigation Disclosure. Debt collectors would be required to provide a brief litigation disclosure in all written and oral communications in which they represent, expressly or by implication, their intent to sue. The disclosure would inform the consumer of the collector’s intent to sue, that a court could rule against the consumer if the consumer fails to defend a lawsuit, and that additional information about debt collection litigation is available from the CFPB.
Time-barred and Obsolete Debt. Collectors would be required to follow a series of disclosures and substantive prohibitions relating to the collection of time-barred and the revival of obsolete debt, including:
- A time-barred debt disclosure that informs the consumer that the debt collector cannot sue to recover the debt because of its age;
- Prohibiting a subsequent debt collector from suing on a debt when a previous collector provided a time-barred debt disclosure to the consumer;
- A disclosure informing consumers whether a particular time-barred debt generally can or cannot appear on a credit report;
- Prohibiting debt collectors from collecting on time-barred debt that can be revived under state law unless the collectors waive the right to sue on the debt; and
- Prohibiting debt collectors from accepting payment on a debt that is both time-barred and obsolete debt until the collector obtains the consumer’s written acknowledgement of having received a time-barred debt disclosure and an obsolescence disclosure.
The CFPB considered an outright ban on the sale or collection of time-barred debt. However, they decided not to propose that restriction at this time.
3. Collector Communication Practices
The CFPB noted that the second largest source of debt collection complaints arises from communication practices. The CFPB is considering various caps on the number of times debt collectors can contact consumers, as well as limitations on the time, place and manner of collector contacts. It is also contemplating specific parameters concerning the use of voicemail. The CFPB is also considering imposing a 30-day wait period, from the time of a debtor’s death, during which collectors would be barred from making collection attempts from surviving family members or personal representatives. Finally, if a consumer waives restrictions on debt collector communications, the CFPB is considering proposing that such consent may not be transferred from one collector to another. Instead, each collector would be required to obtain a new consent directly from the consumer.
4. Debt Transfer Prohibitions and Recordkeeping
The CFPB is considering an additional proposal to prohibit debt buyers from placing debt with or selling debt to (1) companies subject to a judgment, order or similar restriction prohibiting them from purchasing or collecting debt in the state in which the consumer resides, or (2) to persons who lack any license required to purchase or collect debt in the state in which the consumer resides.
The CFPB is also considering a proposal that would prohibit the sale or placement for collection of debt when the debt buyers know (or should have known) that the debt was paid, settled, discharged in bankruptcy or the result of identity theft.
Finally, the CFPB is considering requiring debt collectors to retain records documenting collections activity for three years after the last communication or attempted communication with the consumer.
Lessons for First-Party Collectors
The CFPB’s proposals show its priorities and concerns with respect to debt collection. While they are currently limited to third-party collection efforts, similar proposals or concepts could eventually be applied in the first-party context. Moreover, these requirements on debt collectors will require action by creditors, such as providing more information to debt collectors about debts. First-party collectors should start considering their processes and how they might adjust their collection efforts in these areas.
The release of these proposals started the Small Business Regulatory Enforcement Act (SBREFA) process. Next, the CFPB will convene a Small Business Review Panel to elicit feedback and comments from industry participants and allow those participants to submit written comments on the proposals. The CFPB will then issue a report and proposed rule. The timing of that entire process can take several months, possibly more than a year.