The District of Columbia recently passed legislation to substantially revise its debt collection law on an emergency basis. The amended law became effective Sept. 23, 2021. DC’s debt collection law was first enacted in 1971 and the amendments not only make it more burdensome for debt collectors but also for most financial services companies and other businesses operating in the District who were not previously within the scope of the law. The amendments are available here.
Now Covers More Debt Types
The amendments to DC Code § 28-3814 add a new definition, “consumer debt.” It is defined as “money or its equivalent, or a loan or advance of money, which is, or is alleged to be, more than 30 days past due and owing, unless a different period is agreed to by the debtor, as a result of a purchase, lease, or loan of goods, services, or real or personal property for personal, family, medical, or household purposes.”
The amended law represents a material expansion of the type of debt subject to the law as it previously encompassed only a “claim,” which was defined as an “alleged obligation, arising from a consumer credit sale, consumer lease, or direct installment loan.” As a result, certain consumer debts not previously covered are now within the law’s scope including, but not limited to:
- Medical debt
- Credit card debt
- Student loans
- Utility debt
- Telecom debt
- Debt owed to a tradesperson, caterer and other business providing goods or services
The list is only an example, there are other debt types that fall within the amended definition. Note that these debts must be (or alleged to be) 30 days or more past due “unless a different period is agreed to by the debtor.”
Certain debt is exempt from the law:
- Debt incurred for commercial purposes is not subject to the law;
- Debt that is the result of “a loan directly secured on real estate;” or
- Debt that is a “direct motor vehicle installment loan covered by [DC Code § 28–360, et seq.].”
Covered Persons and the Unprecedented Expansion of Covered Creditors
The amended law makes no significant change to covered debt collectors. But the definition of covered creditors gets updated and a new definition for “debt buyer” is added. Both amendments are bound to disrupt banks, non-banks and a whole host of businesses which are now swept in to the DC law.
“Debt Buyer” Definition Presents Risk for Financial Institutions Acquiring Portfolios of Consumer Debt
The amendment does add a definition for a “debt buyer” as a “person or entity that is engaged in the business of purchasing charged-off consumer debt or other delinquent consumer debt for collection purposes, whether it collects the debt itself or hires a third party for collection, including an attorney, in order to collect such debt.” Because the definition does not provide any limitation on the nature or scope of such an entity’s business, a financial institution that acquires charged-off debt incidental to the acquisition of a greater pool of performing loans may come within the definition. For example, Maine’s debt collection law defines a debt buyer in much the same way, but also excludes “a supervised financial organization . . . or a person that acquires charged-off consumer debt incidental to the purchase of a portfolio predominantly consisting of consumer debt that has not been charged off.” Unlike Maine’s definition, the DC provision does not provide an express exclusion for financial institutions that acquire delinquent consumer debt incidental to a pool of performing loans.
While creditors are already subject to certain provisions of the law, the restrictions and penalties applicable to creditors are far less onerous than those imposed on debt buyers or debt collectors.
New Definition of “Claim” Expands the Scope of Covered Creditors
Under the law, creditors are either “claimants” (which is not defined) or a person “holding or alleging to hold a claim.” This is substantially similar to the preexisting definition. The real change came in the definition of “claim” which now reads “any obligation or alleged obligation, arising from a consumer debt.” The preexisting definition defined a claim as “a consumer credit sale, consumer lease, or direct installment loan.” Under the original law, creditors who did not engage in consumer credit sales or leases or make installments loans, were not covered. And, as a result, most businesses were not subject to the law. Now, any creditor owed an obligation from a consumer is subject to the act, so long as that “obligation” arises from a “consumer debt.“ Since the definition of consumer debt was also expanded, the result is that there are many types of entities that as of Sept. 23 will fall within the definition of “creditor” and become subject to the DC debt collection law when collecting their own consumer debt such as:
- Medical and legal professionals
- Contractors, tradespersons
- Utility, telecom and cable companies
- Car rental companies
- Companies that rent goods, machinery or equipment
- Government or public entities
- Schools, colleges, and universities
- Hospitality industry including short-term landlords
This is just to name a few because anyone collecting a “consumer debt” owed them is covered as a “creditor.” Banks and non-banks that were excluded under the prior version of the law because they did not engage in “consumer credit sales, leases or make installments loans” are now covered if collecting any consumer financial product that would fall within the broad definition of “consumer debt” or “claims.”
The “Call Cap” and Other Amendments Applicable to Creditors, Debt Collectors and Debt Buyers
The DC law imposes limitations on the number of telephone calls a debt collector, debt buyer or creditor can place to collect a consumer debt. The prohibition addresses 1) frequency of calls; 2) pattern or manner of calls; 3) the time a call is placed and 4) a cap on the number of calls that can be placed in a seven-day period. This call cap:
- limits creditors, debt collectors and debt buyers to no more than three telephone calls to a consumer in a seven-day period and is “inclusive of all phone numbers and accounts;”
- does not apply to calls made by the consumer “to a debt collector;” and
- excepts “a single completed call made by a debt collector in response to the consumer’s request for a returned phone call.”
Taking a closer look at the last two bullet points, the exceptions only apply to debt collectors and do not provide exceptions for calls made to or from creditors.
Subsection (c), which contains conduct-related prohibitions, includes several new prohibitions applicable to creditors, debt buyers and debt collectors. They are:
- (6) the threat of any action which the creditor or debt collector cannot legally take or any action which the creditor or debt collector in the usual course of business does not in fact take;
- (7) disclosing or threatening to disclose information concerning the existence of a debt known to be disputed by the consumer without disclosing the fact that the debt is disputed by the consumer; and
- (8) disclosing or threatening to disclose information affecting the consumer’s reputation for creditworthiness with knowledge or reason to know that the information is false.
Subsection (d)(3) is modernized and now prohibits creditors, debt collectors and debt buyers from “causing expense to any person incurred by a medium of communication or by concealment of the true purpose of the notice, letter, message, or communication.”
Subsection (e) gets updates to the language of parts (1) and (2). Part (1) originally prohibited the conveyance of only “false” information to an employer concerning “indebtedness.” Now it prohibits “any” information being conveyed, subject to limited exceptions. Likewise, part (2) originally prohibited “false” information being conveyed to “any relative or family member of the consumer.” It is amended to prohibit “any” information and includes “friend” among the prohibited persons.
Subsection (f) originally prohibited creditors and debt collectors from using “any fraudulent, deceptive, or misleading representation or means to collect or attempt to collect claims or to obtain information concerning consumers . . .” It is revised to prohibit “any unfair, fraudulent, deceptive, or
misleading representation, device, or practice to collect a consumer debt or to obtain information
in conjunction with the collection of claims in any way . . .” (changes to law in emphasis).
Subsection (f)(4) is amended to require the disclosure of the “name, phone number, email address, and full business address of the person to whom the claim has been assigned for collection, or to whom the claim is owed, at the time of making any demand for money.” (changes to law in emphasis).
New subsections (f)(10) and (11) are added to prohibit debt collectors and creditors from:
- (10) initiating a cause of action to collect a consumer debt when the debt collector knows or reasonably should know that the applicable statute of limitations period has expired; and
- (11) seeking to collect funds from a consumer that the debt collector knows or has reason to know are exempt from attachment or garnishment under federal or District law.
A new subsection (g)(6) prohibits debt collectors and creditors from “attempting to collect debts owed by a deceased consumer from a person with no legal obligation to pay the amounts alleged to be owed.”
Ban on Restarting Limitations Period
New section (l) provides that once a limitations period has expired, “any subsequent payment toward or written or oral affirmation of such a consumer debt shall not extend the limitations period.”
Reduction of Statute of Limitations
Under new subsection (o), as of Sept. 23, “any action for the collection of a consumer debt shall only be commenced within 3 years of accrual.” The limitations will apply regardless of whether “the legal basis of the claim sounds in contract, account stated, open account, or other cause and notwithstanding the provisions of any other statute of limitations unless that statute provides for a shorter limitations period. This time period also applies to contracts under seal.” Most credit card debt is already subject to a three-year limitations period under DC law.
Amendments Applicable to Debt Collectors and Debt Buyers
Several new additions to the DC law are only applicable to debt collectors and debt buyers.
Data and Document Requirements
The amendments require debt collectors and debt buyers “possess” certain documents and data before commencing collection activity. Further, lawsuits to collect covered debt are also required to plead particular information and provide enumerated documents.
The data and document requirements appear in subsection (m)(1) and are:
- Documentation of the name of the original creditor as well as the name of the current creditor or owner of the consumer debt;
- The debtor’s last account number with the original creditor;
- A copy of the signed contract, signed application, or other documents that provide evidence of the consumer’s liability and the terms thereof;
- The date that the consumer debt was incurred; provided, that in the case of a revolving credit account the date that the consumer debt was incurred shall be the last extension of credit made for the purchase of goods or services, for the lease of goods, or as a loan of money;
- The date and amount of the last payment by the consumer, if applicable; and
- An itemized accounting of the amount claimed to be owed, including the amount of the principal; the amount of any interest, fees or charges; and whether the charges were imposed by the original creditor, a debt collector, or a subsequent owner of the debt. If the debt arises from a credit card, the itemized accounting shall be measured from the charge-off balance and shall include copies of the charge-off statement and the most recent monthly statement recording a purchase transaction, last payment, or balance transfer.
The amendments also require a debt collector to have “complete and authenticated documentation that the person attempting collection is the owner of the consumer debt.” It is an odd requirement because most debt collectors do not own the debt they are collecting.
Consumer Notice in First Written Communication
The law requires debt collectors and debt buyers provide consumers with a notice in the first written communication. The notice, which I refer to as the “(m)(2) Notice,” must be recited verbatim as it appears in the Code and in 12-point type. The (m)(2) Notice allows the consumer to request certain documents and data concerning the debt that mirror the data and document requirements discussed above.
The (m)(2) Notice provisions substantially differ from the validation process under section 1692g of the federal FDCPA. Under the DC law:
- a consumer may request the information by “phone, mail, or email.” The FDCPA requires the consumer’s request to be in writing.
- The DC law has no time limitation on a consumer’s request for information nor does it restrict the number of times the request can be made. The FDCPA provides the consumer’s request must be made within 30 days of their receipt of the section 1692g notice.
Two Events Related to the (m)(2) Notice Trigger Cessation of Collection Activity
Two events require debt collectors to cease collection activity under the DC law.
First, the DC law requires a debt collector or debt buyer to “cease all collection of the consumer debt until the [(m)(2)] notice is provided to the consumer in writing.” There are several issues with the structure of the requirement. The law uses the word “provided” as opposed to “sent,” “received,” or “delivered.” Whether the collection prohibition ends on the sending of the (m)(2) Notice by the debt collector or its receipt by the consumer is open to interpretation. Regardless, the provision substantially disrupts existing procedures for many debt collectors.
The second trigger for ceasing collection occurs when the consumer requests information under the (m)(2) Notice (which, again, can be by “phone, mail or email”) and the debt collector cannot “provide” the information “within 15 days of receipt of the request.” In that instance, the debt collector “shall cease all collection of the consumer debt until such information is provided.” There is no limitation on the time period or number of requests a consumer can make to obtain the information outlined in the (m)(2) Notice as is the case with validation under section 1692g of the FDCPA.
Settlement and Payment Agreements
Debt collectors and debt buyers who make settlement agreements or payment arrangements are now required to “provide a written copy” of the payment schedule or settlement agreement to the consumer within seven days. “A consumer shall not be required to make a payment” toward the agreement until “the written agreement . . . has been provided by the debt collector.”
“Claims,” “Consumer Debt,” Judgments and Other Ambiguities
Because the federal FDCPA’s definition of “debt” (§ 1692a(5)) includes the phrase “whether or not such obligation has been reduced to judgment,” it is construed to cover the collection of judgments. There is no equivalent in the DC law’s newly introduced definition of “consumer debt” nor in its amended definition of “claim.” There is good reason to believe a judgment would not fall within the definition of a “consumer debt,” but judgments could certainly be encompassed in the definition of “claims” because “claims” means “any obligation or alleged obligation, arising from a consumer debt.” (emphasis added).
This distinction was probably inadvertent, but ultimately makes sense as you parse through the various sections of the amended DC law because certain of its provisions apply only to “claims,” while others speak only to “consumer debt.” Still, other prohibitions only reference “money” or “indebtedness.”
Subsections that Reference Only Consumer Debt
Newly added subsection (m) (data and documents), and along with it the (m)(2) Notice, apply to “consumer debt.” The same is true for new subsection (n), which applies to settlement or payment agreements. New subsections (o) through (t), which apply to legal actions, also only apply to “consumer debt.”
Subsections that Reference Only Claims
Subsection (d) of the DC law, which prohibits certain conduct by creditors, debt collectors and debt buyers, is applicable to activities “in connection with the collection of or attempt to collect any claim . . .” Similarly, subsection (g) prohibits “unfair or unconscionable means to collect or attempt to collect any claim . . .”
The original (f)(2) remains unchanged and because it was not amended it still states that creditors and debt collectors must disclose “in all written communications made to collect or attempt to collect a claim or to obtain or attempt to obtain information about a consumer, that the creditor or debt collector is attempting to collect a claim and that any information obtained will be used for that purpose.”
Subsection (f)(4) provides that creditors, debt collectors and debt buyers must disclose “name, phone number, email address, and full business address of the person to whom the claim has been assigned for collection, or to whom the claim is owed, at the time of making any demand for money.” Existing (f)(5) was not amended and so it prohibits “any false representation or implication of the character, extent, or amount of a claim against a consumer, or of its status in any legal proceeding.”
Subsections that Reference Both Claims and Consumer Debt
Subsection (f) was amended to read “[n]o creditor or debt collector shall use any unfair, fraudulent, deceptive, or misleading . . . practice to collect a consumer debt or to obtain information in conjunction with the collection of claims in any way . . .” (emphasis added). In this instance, the DC Council uses both terms, in ways that impose different limitations. However, note that the disclosure required by subsection (f)(4) and the prohibition of (f)(5) only apply to “claims” as discussed above.
Subsections that Reference Neither Claims nor Consumer Debt
More confusing are those subsections that neither reference “claims” or “consumer debt” but introduce new concepts of “money” or “indebtedness.” For example, subsection (c), which contains conduct prohibitions but provides that it applies to activities to “collect or attempt to collect any money alleged to be due and owing . . .” without making any reference to “claims” or “consumer debt.” Likewise, subsection (e) prohibits debt collectors, debt buyers or creditors from engaging in activities which “unreasonably publicize information relating to any alleged indebtedness or debtor . . .” but makes no reference to “claims” or “consumer debt.” Subsection (k) prohibits a “creditor, debt collector, or collection agency, or their representatives or agents” from contacting consumers by telephone before 8 a.m. or after 9 p.m.” but does not limit the contact to telephone calls in connection with the collection of “claims” or “consumer debts.”
Reference to the introductory paragraph of the DC law only adds to the confusion as subsection (a) was amended to read “[t]his section only applies to conduct and practices in connection with collection of obligations arising from any consumer debt . . .” (emphasis added).
The amendment materially revises civil liability for all covered persons.
- Creditors are liable for any violation, where under the original law, creditors were liable only if the violation was “willful.” However, creditors remain liable only for actual damages “proximately caused by the violation” and punitive damages for a “willful” violation.
- Debt collectors and debt buyers are subject to the same amendment, but also “may” be liable for
- Statutory damages of between $500 and no more than $4,000
- Attorney’s fees and costs
- Punitive damages (with no mention of “willful” conduct)
- Actual damages (with no reference to proximate causation)
- In the case of a class action, between $500 and no more than $4,000 for each class member
The amendment adds a provision that any violation of the federal Fair Debt Collection Practices Act is a violation of the DC law.
The 2020-2021 Collection Ban and Tolling – The Clock is Running
Last year the DC Council passed legislation that essentially prohibited debt collection during a public health emergency, D.C. Act 23-286 and D.C. Act 24-30. That law was set to expire “60 days after its conclusion.” That public health emergency terminated at 12:01 am on July 25, 2021, and 60 days thereafter would mean that last year’s collection ban would expire on Sept. 23.
As part of the collection ban, the statute of limitations for all consumer “debt” was tolled “during the duration of the public health emergency and for 60 days thereafter.” However, Sonia Gibson, head of National Government Affairs at Encore Capital Group, pointed out to me that on July 24, 2021, D.C. Act 24-125 was signed into law which effectively repealed the ban and so, tolling ended as well.
Permanent Legislation Expected Soon
The law will sunset on Dec. 22, 2021. However, another bill, which is a duplicate of the enacted emergency law, has been approved by Council and would extend this period for 225 days from the date it is enacted. That bill, B24-0348, is expected to be enacted following mandatory Congressional review. While the amendments are only temporary, permanent amendments were also introduced at the same time under bill B24-0357 that mirror both the emergency and temporary legislation. Stakeholders continue to engage with the DC Council on DC B24-0357, which would make these amendments permanent.
Join me for an on-demand webinar to explore these issues and others created by the amended DC law. The presentation examines the (m)(2) Notice and how it is bound to cause substantial compliance concerns, takes a closer look at judgments, and considers the negative impact the legislation has caused first-party servicers. Finally, I share what you can do to affect needed changes in the permanent bill. To register, click here.