As soon as next week, the Consumer Financial Protection Bureau (CFPB) is expected to propose the first substantive regulations under the Fair Debt Collection Practices Act (FDCPA) since the law’s enactment in 1977. This rulemaking has the potential to substantially clarify and modernize many of the FDCPA’s requirements, with important implications not only for debt collection agencies and others who fit the law’s narrow definitions of “debt collector,” but for any entity engaged in the collection or sale of consumer debts.
Interest among industry and consumer-group stakeholders likely will be intense: An earlier agency notice about possible subjects for FDCPA rulemaking drew over 23,000 written comments to the CFPB, and a concrete proposal like the one forthcoming could generate many more. That level of interest is not surprising, given that debt collection activities consistently have ranked either first or second on the list of areas generating the highest number of consumer complaints to the Bureau. According to some press reports, the proposal may be released Wednesday, May 8, in connection with a CFPB Town Hall hosted by Director Kraninger.
Given the likely implications and widespread interest in the proposal, this alert serves as a primer on the anticipated rulemaking, both by placing it in context through a brief summary of its background, and by focusing on topics that the proposal is likely to cover.
A. Background and Context for the Rulemaking
Prior to the passage of Dodd-Frank in 2010, no federal agency had authority to issue substantive rules governing the FDCPA. While the Federal Trade Commission produced interpretations of the law over the years, none were binding. Thus, details around the law’s general prohibitions evolved for decades — and still exist today — largely in the form of a splintered and sometimes inconsistent body of case law, informed at times by positions taken by agencies in enforcement actions. The lack of clarity and uniformity has led, predictably, to substantial uncertainties regarding compliance in some areas. Moreover, given the lack of industry-specific expertise in the courts, case law elaboration has proven ineffective when attempting to apply the law to modern ways of communicating with debtors — such as by email, text and mobile phone — that did not exist when the FDCPA appeared in 1977.
1. Dodd-Frank and the Intersection With UDAAP
The Dodd-Frank Act authorized the agency it created, the CFPB, to prescribe the first set of rules under the FDCPA. (See Dodd-Frank Act § 1089, amending § 814(d) of the FDCPA.) Moreover, as the CFPB has often noted in the context of describing this authority, Dodd-Frank also authorized the CFPB to issue regulations “identifying as unlawful unfair, deceptive, or abusive acts or practices” (UDAAPs) in connection with consumer financial products, and to prescribe “requirements for the purpose of preventing such acts or practices.” (See Dodd-Frank Act § 1031(b).)
Whether or not the CFPB relies on its separate UDAAP rule-writing authority in the forthcoming proposal, UDAAP principles will lurk behind any proposed FDCPA rules. The reason is that while FDCPA rules will apply only to those narrowly defined as “debt collectors” under that law, several FDCPA proscriptions likely to be at issue in the rulemaking overlap with what UDAAP prohibits every collector from doing: using unfair, abusive or deceptive means to collect. In particular, Section 808 of the FDCPA prohibits “unfair” means to collect debts; Section 806 forbids debt collectors from engaging in “conduct the natural consequence of which is to harass, oppress, or abuse any person” (emphasis added); and Section 807 prohibits debt collectors from using “any false, deceptive, or misleading representation or means” in collecting debt. In sum, banks and others who fall outside the “debt collection” definition because they collect for themselves (as discussed further below) will likely need to follow this rulemaking closely nonetheless.
2. Indications From Pre-rule Activities
As discussed below, the CFPB’s aims for this rulemaking have changed since late 2017, when leaders chosen by President Trump’s administration began serving at the agency. Nonetheless, several aspects of the agency’s earlier work remain relevant.
During the Obama administration, the CFPB under former Director Richard Cordray signaled an intent to cast a wide net in writing FDCPA rules, with a heavy emphasis on consumer protection. The agency argued then that consumers needed special protection from debt collectors because such consumers “cannot choose their debt collectors or ‘vote with their feet,’” and therefore “have less ability to protect themselves from harmful practices.” (See, e.g., CFPB, Apr. 2017 Regulatory Agenda). Congress and the CFPB used this very same rationale earlier this decade as a primary justification for what has become an extensive and burdensome set of regulations governing the mortgage servicing industry.
The CFPB under Cordray nonetheless said that it saw an opportunity, echoed to this day, to reduce costs and uncertainty for industry. In particular, the agency reported that it was receiving “encouragement from industry to engage in rulemaking to resolve conflicts in case law and address … the application of the FDCPA to modern communication technologies.” (See CFPB, Apr. 2017 Regulatory Agenda).
The CFPB began this rulemaking process by publishing an Advance Notice of Proposed Rulemaking (ANPR) in 2013, followed in 2016 by a detailed “Outline of Proposals.” Indeed, as recently as 18 months ago, the CFPB (still under Cordray) predicted that it would issue at least two separate sets of such rules. First, the CFPB would address debt collectors’ “communications practices and consumer disclosures.” The CFPB intended to “follow up separately at a later time” to address two other areas:
“concerns regarding information flows between creditors and FDCPA collectors” — a reference to whether consumer lenders transfer accurate information about those loans to debt collectors; and
“potential rules to govern creditors that collect their own debts.” This referred to the possibility of applying the FDCPA-type restrictions specifically to so-called “first-party” collectors, perhaps by invoking the agency’s UDAAP rule-writing authority. The text of the FDCPA generally governs only “third-party” collectors, i.e., those who collect debts “owed or due another,” as well as a narrow range of actors who operate a “business the principal purpose of which is the collection of any debts.” (See FDCPA § 803(6), emphasis added, and Henson v. Santander Consumer USA, 137 S. Ct. 1718 (2017).)
CFPB leaders under President Trump’s administration, however, have indicated that the second, “separate” rulemaking — and much of the substance of proposals outlined earlier by the CFPB — are no longer under consideration. Instead, the focus has returned to communications and disclosures, with a particular emphasis on updating the law’s requirements to account for modern communications technology that did not exist when the law first appeared in 1977. (See CFPB, Oct. 2018 Regulatory Agenda).
In regard to “communications,” current CFPB Director Kathy Kraninger explained in a speech just last week that the proposed rules will “protect consumers with clear, bright-line limits on the number of calls they may receive from debt collectors on a weekly basis.” Regarding disclosures specifically, she stated — likely in reference to the various “debt-validation” requirements in Section 809 of the FDCPA — that the agency “will propose that collectors provide consumers with more and better information at the outset of collection to help them identify debts and understand their options, including their rights in disputing debts or paying them.” Finally, in an April 17 speech at the Bipartisan Policy Center, Kraninger used vivid language to emphasize the need to modernize the law:
As many of you know, the [FDCPA] was passed in 1977. This was the same year that Steve Jobs introduced the world to the idea of a personal computer with the design of the Apple II. Phone booths were on almost every corner and cell phones were not even imaginable. And though there have been many advances in communications technologies since 1977, the FDCPA has not been updated to reflect our use of such technologies.
She added, accordingly, that the CFPB “will propose clarifying rules to better enable the use of modern communications technology in collections activity,” specifically regarding “how collectors may communicate via newer technology such as email or text messages.” (Id.)
B. After the Proposal: Expected Timeline for Comments and Other Action
After the CFPB publishes the proposal, stakeholders will, of course, have a window of time in which to submit written comments to the agency. Though the CFPB has discretion in selecting the length of the comment period, in this case a likely window is 60 days from the date the proposal appears in the Federal Register. Thus, if the proposal appears on the CFPB’s website on May 10, for example, and is published in the Federal Register on May 23, then a 60-day comment period would give stakeholders until July 22 to study the proposed rules and submit written comments. Under the Administrative Procedure Act, the CFPB must respond to the substance of all comments timely received in any final rule release.
The CFPB may take as long as it wishes to consider the comments and formulate final rules, but a final rule could appear before the end of this year or early next year. The agency also has discretion to set the final rules’ “effective date,” which can be anywhere from 30 days to several months from the date the final rules are unveiled. The length of that interval usually depends on how much time the agency estimates industry players reasonably need to make necessary changes to processes, systems and controls in light of the new rules. It is important to note, however, that the agency need not proceed directly from a proposal to final rules. Instead, and particularly if comments raise significant issues the agency did not consider in designing the proposal, the agency can restart the process by issuing a superseding proposal.