Welcome to our annual year-end review of consumer credit law. Beginning today and over the next several days, we feature a series of articles exploring the events that shaped the consumer financial services industry in 2021.
Today I explore two federal regulations and two federal court decisions that stood out this year. I also have a survey of state laws and regulations that demonstrate the ever increasing roles they play in the regulation of consumer credit.
Regulation of the Year – Regulation F of the Fair Debt Collection Practices Act
Nearly a decade in the making, Regulation F of the Fair Debt Collection Practices Act became effective Nov. 30, 2021. We followed its progress from the very start on Nov. 6, 2013 when the Bureau announced the Advance Notice of Public Rulemaking, then took a look at the SBREFA hearings in 2016, the Notice of Proposed Rule in 2019 and the Final Rule in 2020.
Game Changer of the Year – TransUnion LLC v. Ramirez
Simply put, this June 25 Supreme Court decision held that just because Congress prohibits a particular conduct, it does not mean that if that conduct were to occur a plaintiff can file a federal lawsuit. Rather, a plaintiff must demonstrate that he himself suffered a real, concrete injury. A risk that an injury might occur is not enough.
On the heels of the decision, federal courts are now routinely dismissing FDCPA lawsuits that were welcome in the past.
A positive outcome for the credit and collections industry is that claims arising from federal statutory violations are far more difficult to pursue. So many FDCPA cases were premised on the theory that the “least sophisticated consumer” would be confused by the content of the letter, while the plaintiff herself was not.
After Ramirez, this type of claim has a short life in any federal court. The references to a “federal court” are intentional because state courts are not constrained by the same issues that drove Ramirez.
In 2015, I discussed this potential outcome if federal courts were to take this path. And so, we now see a significant rise in state court filings in our offices in Illinois, New York, New Jersey, Pennsylvania, and Florida.
Ultimately, some states may align themselves with Ramirez, but in the meantime the transition to state court filings alters existing litigation strategies.
In the past, federal litigation by both plaintiff and defense counsel relied on federal rules of evidence and procedure no matter where the case was filed and admissions to these federal courts is often permitted without admission to the state bar.
But with filings moving to state courts, the rules of evidence and procedure are diverse and sometimes conflicting. Even filing a pleading can have remarkably different requirements not only between the states, but between different court divisions within the states.
Crowded state court dockets mean more time spent for routine conferences and longer time frames to dispose of cases. Cases may be venued in far-flung, remote locations and telephonic or remote appearances may not be freely granted. And finally, state courts often have less familiarity with the FDCPA, Fair Credit Reporting Act and similar federal consumer credit laws, furthering the time needed to dispose of a case.
Disrupter of the Year – Hunstein v. Preferred Collection and Management Services, Inc.
With so many decisions, regulations, and statutes from which to choose, the Eleventh Circuit’s April 21 decision in Hunstein gets the nod for this year’s most disruptive event in consumer credit and collections law.
The decision held that a debt collector’s transmittal of consumer information to a letter vendor constitutes a communication with an unauthorized third party in connection with the collection of a debt and states a claim for violation of 15 U.S.C. § 1692c(b).
The result was a multitude of lawsuits against debt collectors not only in the Eleventh Circuit, but elsewhere. And even though a substituted opinion tried to quell the damage and attempt to reconcile its glaring standing issues drawn out by the Supreme Court’s decision in Ramirez, ultimately the Eleventh Circuit vacated the decision sua sponte and set it down for en banc rehearing.
Mr. Hunstein has already filed his brief and a joint brief from his amici curiae, Public Justice, The National Association of Consumer Advocates, and the National Consumer Law Center has also been filed.
Dark Horse of the Year – FTC Amends Safeguards Rule
In October, the Federal Trade Commission issued its amendments to the Safeguards Rule. The Rule was first promulgated in 2002 under authority granted to the FTC by the Gramm-Leach-Bliley Act in 1999, which regulates privacy and data security practices of financial institutions. Among other things that the amendments include, covered financial institutions will be required to:
- Designate a “Qualified Individual” responsible for overseeing and implementing the covered entity’s information security program and enforcing the information security program;
- Require annual written reports from the Qualified Individual;
- Conduct a written risk assessment;
- Deploy new elements of its information security program;
- Continuously monitor or perform annual penetration testing and biannual vulnerability assessment;
- Require training for personnel;
- Undertake periodic assessment of service providers; and
- Develop a written incident response plan.
These outlined amendments are effective Dec. 10, 2022, while the remainder of the amendments take effect Jan. 10, 2022.
The amendments also expand the scope of covered financial institutions but provide an important carve-out for those serving a smaller number of consumers. And while covering more entities might seem not such a great thing, in this case I think it is.
Of the few states that have adopted privacy legislation, exemptions of some type are provided to either entities that are covered by the GLBA or their data. And, by enhancing the Safeguards Rule, covered entities have a better basis today to seek exemptions from privacy legislation in the future. For this reason, the amendments have a broader impact then even the FTC anticipated and will play a significant role in privacy legislation for years to come.
Losing no momentum from 2020, state and local governments and regulators were again active in 2021. Like in 2020, there was a continued focus on judgment executions, limits on the use of small claims courts, reductions in limitations periods, and regulation of medical and student loan debt collection.
My appreciation to the Receivables Management Association International and Jan Stieger, its Executive Director and David Reid, General Counsel. So much of my state and local insights are developed during my work as the organization’s outside counsel. The analysis of the laws mentioned here draw from public comments and testimony of RMAI and my own insights.
» Medical Debt – AB 1020 – Enacted Oct. 4, 2021; Effective dates vary
Medical debt collection was the subject of California’s AB 1020, which was enacted on Oct. 4. Among other things, it amended California’s consumer debt collection law (the “Rosenthal Act”) to require debt collectors “[c]ollecting consumer debt that originated with a hospital licensed pursuant to subdivision (a) of Section 1250 of the Health and Safety Code” to provide the consumer with a disclosure in the first written communication and to “wait at least 180 days from the date the debtor was initially billed for the hospital services that are the basis of the debt before reporting adverse information to a credit reporting agency or filing a lawsuit against the debtor.”
» Data and Document Requirements – SB 531 – Enacted Oct. 4, 2021, Effective July 1, 2022
This law takes the data and documentation requirements existing under the California Fair Debt Buying Practices Act and includes them in the Rosenthal Fair Debt Collection Practices Act, effectively making requirements previously applicable only to debt buyers now applicable to all debt collectors.
» Judgment Executions on Bank Accounts – HB 6372; Effective Oct. 1, 2021
The law exempts from executions on bank account electronic direct deposits not to exceed $1,000 when readily identifiable as wages and when such deposits are made to the judgment debtor’s account during a look-back period of two months preceding the date that the execution was served on the financial institution.
District of Columbia
» Debt Collection Regulation – ACT 24-165, Effective Sept. 23, 2021
The District of Columbia undertook a significant rewrite of its debt collection regulations, and the outcome is simply a mess. Where the law previously was limited to well-defined entities, it is now expanded to encompass pretty much anyone seeking to collect a debt in the nation’s capital. Large international financial institutions down to the smallest businesses are pulled into the amended act.
While the law is effective for just 225 days, the D.C. City Council has already proposed permanent legislation that mirrors what was passed in September. The law (and the anticipated permanent legislation) represents a significant overhaul to D.C.’s debt collection law. Aside from restricting telephone communications (regardless of whether the telephone calls are made to collect a debt), it creates two classes of covered debt – “claims” and “consumer debt” – and imposes different restrictions on each, which are confusing and conflicting.
» Small Claims Court and Licensing – HB 1082 – Effective Oct. 17, 2021
Maine now prohibits debt collectors from suing to collect debt in small claims court. The reasons remain murky since most debt collectors I talked to do not sue in Maine small claims court because of a bizarre twist – the fees imposed by Maine’s small claims courts are extraordinarily high. I offered testimony on this bill explaining the immense consumer harm occasioned by excluding these cases from small claims court. The new law also permits debt collectors to use the National Multistate Licensing System (NMLS) when applying for a debt collection license.
» Personal Property, Homestead and Account Exemptions – HB 542 – Effective Oct. 17, 2021
Maine increased personal property exemptions from attachment and executions, including wages and homesteads as well as adding an inflation-indexed bank account exemption.
» Licensing – HB 6a – Effective Aug. 1, 2021
The law amends the Collection Agency Act’s definition of “collection agency” to include “debt buyers.” The change now means that as of Jan. 1, 2022, debt buyers are required to be licensed as a collection agency under the existing Collection Agency Act.
It further defines a debt buyer as a “business engaged in the purchase of any charged-off account, bill, or other indebtedness for collection purposes, whether the business collects the account, bill, or other indebtedness, hires a third party for collection, or hires an attorney for litigation related to the collection.”
» Medical Debt – SB 248 – Effective July 1, 2021
Another broken piece of legislation, Nevada has imposed some awful requirements on medical debt collection. My in-depth analysis is here.
» Statute of Limitations – Pleadings – SB 153 – Effective April 6, and May 6, 2022
The wait is over as the Consumer Credit Fairness Act has become law. The Act reduces the statute of limitations on “consumer credit transactions” from six years to three (except in two instances) and “any subsequent payment toward, written or oral affirmation of or other activity on the debt does not revive or extend the limitations period.” It also imposes requirements for bringing lawsuits to collect consumer credit transactions.
» Large Print – SB 737-A – Effective Nov. 7, 2021
The law requires “principal creditors” and “debt collectors to inform debtors that written communications are available in large print format,” but as my partner Eric Rosenkoetter wrote in his detailed analysis, “[t]he problem with the law is the disconnect between what it says and what it tells debt collectors to say.” It imposes disclosure requirements that are contradictory and confusing.
» New York Department of Financial Services – Proposed Amendments to Part 1 of Title 23 NYCRR – Published Dec. 15, 2021, Effective Feb. 13, 2022
The New York Department of Financial Services has proposed to amend its debt collection rule on the heels of the adoption of the Consumer Credit Fairness Act and the Large Print Bill.
As you might expect, there are conflicts between these new laws and DFS’s proposed rule.
To start, the proposed rule would prohibit all oral communications by debt collectors concerning debt subject to an expired limitations period. Yet the Large Print law mandates that consumers be given a telephone number to contact the debt collector to request a written communication in a “reasonably accommodatable format.”
Speaking of “reasonably accommodatable format,” email and electronic communications could very well suffice as such a format under the Large Print law. And a consumer could request an electronic format by simply telephoning the debt collector. But DFS’s proposed rule would prohibit electronic communications by debt collectors to consumers absent written, revocable consent.
The proposed rule appears rushed and debt collection rulemaking was not even on DFS’s agenda at the start of the year, making it appear that the proposed rule is less a consumer protection measure and more of an effort to disrupt the roll-out of the federal Regulation F.
» Judgment Interest – SB 5724-A – Pending adoption
I anticipate this bill will be signed by Gov. Kathy Hochul before year-end. It reduces the judgment interest on matters arising from consumer credit transactions from nine percent to two percent. The bill impacts accrued, but unpaid interest on such judgments.
As passed by the legislature, it would also require judgment creditors with ongoing executions to serve amended executions on consumers, which as you might expect would substantially increase the workload of sheriffs’ departments and cause consumers to believe that a new judgment or execution has been entered against them. Efforts are underway to remove this provision from the bill prior to it being signed by the governor.
» Statute of Limitations – SB 13 – Effective June 16, 2021
Ohio reduced its statute of limitations on a written contract from eight to six years and from six to four years on oral contracts. In addition, a six-year statute of limitations was created for consumer transactions incurred primarily for personal, family, or household purposes, regardless of whether it is a written contract.
In addition, consumer transactions are not subject to the state’s borrowing statute if the Ohio post-judgment interest is less than the rate charged by the other state.
» Bank Account Exemptions – HB 1525 – Effective July 25, 2021
A judgment debt will receive an automatic $1,000 exemption from bank garnishments, but the law will sunset on July 1, 2025.
More states will focus on medical and student loan debt. You can add condominium and homeowners association debt to that mix.
Like last year, there is significant pressure to restrain debt collection at the state and local level and it will likely take the form of increased exemptions afforded to judgment debtors and temporary suspensions of executions, garnishments, evictions and foreclosures.
There will be continued efforts to roll back the new FDCPA rules. Because the FDCPA will give way to more restrictive state regulation, you should see several states introduce legislation designed to limit electronic communications and the frequency of telephone communications. The District of Columbia has already enacted “anti-Reg. F” provisions, New York has already proposed them, and California will likely follow.
A comprehensive privacy bill is pending in New York and a lead sponsor has stated its passage is a priority. However, others have questioned whether it will see the governor’s desk.
It shouldn’t be long before we see proposals from the CFPB to amend or add additional rules to Regulation F.
More FDCPA and FCRA litigation will find its way into state courts and by the end of 2022, more of these cases will be pending in state courts.
Wishing you all a Happy and Healthy 2022.