CFPB Issues Outline of Possible Debt Collection Rules

CFPBToday the Consumer Financial Protection Bureau released an outline of its proposals for rules under the federal Fair Debt Collection Practices Act. The FDCPA regulates the practices of debt collectors, primarily persons who collect consumer debt on behalf of others and sometimes persons who purchase defaulted consumer debts.

The CFPB’s outline displays its intention to issue rules not only covering these third-party debt collectors and debt purchasers, but also to regulate the debt collection activities of original creditors themselves under the Bureau’s authority from the Dodd-Frank Act to issue regulations prohibiting unfair, deceptive, and abusive acts and practices.

The outline addresses proposals intended to ensure the accuracy and integrity of information and documents used in the debt collection process, as well as providing model notices for the delivery of consumer disclosures required by the FDCPA.

Substantiation of Indebtedness

The proposed rules could require debt collectors to “substantiate” a debt before initiating the collection process. Substantiation would require three steps: (1) obtaining “fundamental information;” (2) the debt owner’s written representation of accuracy; and, (3) monitoring that there are no “warning signs” attributable to the account.

‘Fundamental Information’

The Bureau may propose that debt collectors have “fundamental information” before commencing collection. The “fundamental information” would include the following:

  • 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.

The proposal would not require a debt collector to obtain every item and would allow the debt collector to substantiate indebtedness through alternative or additional information. In that case, a debt collector would “bear the burden of justifying its alternative approach.”

Representation of Accuracy

In addition to obtaining the specified information, a debt collector would need to obtain a “written representation” from the debt owner 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.” Failure to obtain the written representation would not prohibit collection, but the debt collector would again bear the burden of justifying its alternative approach.

Review for ‘Warning Signs’

The final step in substantiation would require a debt collector to review both the account being collected and, if applicable, the “portfolio,” for warning signs that would “raise questions” concerning the accuracy or integrity of the information provided by the debt owner concerning either a particular account or the entire portfolio. With respect to an account, this would be information that is not in a “clearly understandable form” or is “facially implausible or contradictory.” Across a portfolio, a significant portion of the accounts have missing or “implausible information,” or a “significant percentage” of the accounts have unresolved disputes.

If a warning sign is uncovered, the proposed rules may require a debt collector “to take further steps before it would be able to support and lawfully make claims of indebtedness regarding the account or the portfolio, as applicable.” Such steps may include:

  • Obtaining and reviewing supplemental information from the original creditor or prior collectors;
  • Obtaining and reviewing information from other sources, such as data vendors that provide consumer contact information; and
  • At the portfolio level, obtaining and reviewing documentation “for a representative sample of accounts—or in some cases, for all accounts—in the portfolio.”

The warning sign review would make debt collectors “responsible” for undertaking an investigation in response to detected warning signs. It would not require a debt collector to “confirm all of the information” it receives.

Impact on Persons Not Subject to FDCPA

The Bureau stated the proposed rules will not require persons not presently subject to the FDCPA to provide information “when they sell or transfer a debt.” But it will consider imposing such a rule “in the future.”

Monitoring Collection Process for ‘Warning Signs’

The rules may require debt collectors to monitor their collection efforts for the appearance of “warning signs” and to undertake specific actions when they appear. These “warning signs are: (1) a consumer dispute “with respect to an individual debt”; (2) a debt collector’s “inability to obtain documents” in response to a consumer’s dispute; or (3) a debt collector’s receipt of disputes for a significant percentage of a portfolio as compared to similar debt types.

Unlike current law, which requires a debt collector to respond to a written dispute received within 30 days of its initial notice to the consumer, the rules would expand a dispute to both written and oral disputes received at any time, including complaints made in litigation.

Debt Subject to a Statute of Limitations Defense

The proposed rules would require new disclosures with respect to any debt subject to a statute of limitations defense. As proposed, the rules would require a simple statement that the debt collector “cannot sue” on the debt. This statement under the vast majority of state law would be legally incorrect. The states do in fact allow such debts to be sued upon and only handfuls prohibit it.

Contact with Consumers – Voicemails

The proposed rules would allow a safe harbor for voicemails, a particularly troublesome source of frivolous litigation against compliant debt collectors. The Bureau proposes that certain voicemail disclosures would not violate the FDCPA. The proposed disclosure would state: (1) the individual debt collector’s name; (2) the consumer’s name; and (3) a toll-free method that the consumer can use to reply to the collector.

The outline even proposes a compliant script: “This is John Smith calling for David Jones. David, please contact me at 1-800-555-1212.”

The Bureau states “[t]his would allow collectors to leave such limited-content messages in a voicemail message, with a third-party in a live conversation, or through another method of communication (e.g., in a text message or an email), without triggering the requirement to provide the FDCPA warnings . . . If the collector succeeds in reaching the consumer or if the consumer contacts the collector after receiving the message, these FDCPA requirements would apply immediately.”

Contact with Consumers – Frequency of Telephone Calls

The proposed rules would limit the number of calls made to consumers on a weekly basis. Where the debtor is confirmed, the total contact would be limited to twice a week to the same contact number or three times a week to all contact numbers. Where the contact has not been confirmed, the number of contacts would be limited to three per contact or a total of six for all contact points.

Attempts to contact third parties would count to the cap. These caps would likely discourage calls when repossession of a vehicle or foreclosure proceedings were contemplated. It would likely behoove the debt collector to move forward with taking the collateral than run afoul of the proposed contact limitations.

Contact with Consumers – Making of Telephone Calls

The Bureau proposes a rule that would make it impermissible to contact a consumer if the consumer stated something to the effect of “I cannot talk on the phone about this.” In that event, the debt collector must ask the consumer if a different time or place for the call would be acceptable. If the consumer does not provide a different time or place then “the collector thereafter would be limited to contacting the consumer using methods other than calls.”

Contact with Consumers – Workplace Emails

A debt collector could communicate with a debtor using the debtor’s “work email . . . if the consumer specifically consented to being contacted at his or her work email.” Such consent can be provided directly from the debtor or the debtor may provide the email address “in a communication with the collector as a place to which to send return emails.”

For example, if a consumer emailed a collector from “a certain email address,” which happened to be the debtor’s work email address, the debt collector can deem that as “consent to use that email address for future communications so long as the content of the email did not convey otherwise.”

Form Validation Notices

The proposed rules would include a model notice that would provide consumers with the information required under section 1692g of the FDCPA. Use of the model notice would be deemed as indicative of compliance with section 1692g.

Maurice Wutscher Attorneys Spotlighted

The outline will be announced at a field hearing today in Sacramento, California. Maurice Wutscher attorney Brent Yarborough has been invited by the Bureau to speak today on the proposed outline of rules. A live video feed of Mr. Yarborough’s comments can be seen at 11:20 am Pacific Time, 1:20 pm Eastern time here. The outline was issued pursuant to the Small Business Regulatory Enforcement Fairness Act. Maurice Wutscher’s Donald Maurice has been engaged to participate in the SBREFA panel hearings on the proposed rules, which will be convened in late August.

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Donald Maurice provides counsel to the financial services industry, successfully litigating matters in the state and federal courts in individual and class actions. He has successfully argued before the Third, Fourth and Eighth Circuit U.S. Courts of Appeals, and has represented the financial services industry before several courts including as counsel for amicus curiae before the United States Supreme Court. He counsels clients in regulatory actions before the CFPB, and other federal and state regulators and in the development and testing of debt collection compliance systems. Don is peer-rated AV by Martindale-Hubbell, the worldwide guide to lawyers. In addition to being a frequent speaker and author on consumer financial services law, he serves as outside counsel to RMA International, on the governing Board of Regents of the American College of Consumer Financial Services Lawyers and on the Governing Committee of the Conference on Consumer Finance Law. From 2014 to 2017, he chaired the ABA's Bankruptcy and Debt Collection Subcommittee.