The process of enacting and implementing specific rules for the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., is now underway. The effectiveness of the FDCPA has suffered from a clear and consistent interpretation and the debt collection industry is eager to see the promulgation of rules to help guide all participants, including debt collectors, attorneys, the courts, and consumers. This article examines the process of the Consumer Financial Protection Bureau’s (the CFPB) in developing rules for an industry that, up until now, has not been regulated, with the exception of attorneys who practice debt collection law, who are already regulated by their states. Additionally, this article will focus on those critical areas of concern for the CFPB as well as areas that may not be appropriate for rules. Finally, this article will examine how collection attorneys responded to this process as well as highlight their unique role in the debt collection industry.
On November 6, 2013, the CFPB issued its Advance Notice of Proposed Rulemaking (ANPR), (CFPB-2013-0003), for debt collection practices. Rather than issue formal rules and provide a period of public commentary, the CFPB took a different approach. The ANPR was a request for information by way of seeking responses to 450 enumerated questions and sub-questions, which covered the following areas:
- Information available to debt collectors at the time of assignment or sale;
- Verifying, validating, and investigating disputed debts both from the perspective of the FDCPA and the Fair Credit Reporting Act (FCRA), 15 U.C.S. § 1681 et seq.;
- Debt collection communications and emerging technologies;
- Unfair, deceptive, and abusive acts or practices;
- Debt collection litigation;
- The collection of time-barred debt;
- Exemption issues regarding state and local debt collection systems;
- Bad check enforcement, and;
- Recordkeeping, licensing, and monitoring.
The ANPR was a call to all stakeholders in the debt collection space to provide their input, their experience, and more importantly, their data in order to facilitate a more workable and predictable debt collection system.
History of the FDCPA – Lack of Regular Authority
The issuance of the ANPR for debt collection is significant for numerous reasons. Since the enactment of the FDCPA in 1977, it was the sole federal consumer protection statute related to financial services that was not otherwise accompanied by any sort of regulations. All other Title 15 statutes, such as the Truth in Lending Act and the Fair Credit Reporting Act (FCRA), had regulatory support in order to interpret and facilitate their purposes. Anecdotes aside, it is unclear why Congress failed to allow the Federal Trade Commission (FTC) to exercise regulatory authority, despite providing it sole enforcement authority over the FDCPA. The result has been 37 years of judicial oversight that has been far from consistent and that has ultimately resulted in more confusion by consumers and debt collectors alike.
Fast-forward to 2010 and the enactment of Dodd-Frank Wall Street Reform and Consumer Protection Act as well as to the creation of the CFPB. Under 12 U.S.C. § 5512, Congress granted the CFPB specific rulemaking authority over covered persons as well as enumerated consumer protection laws. “Covered person” means any person, or that person’s affiliate, like a service provider, “that engages in offering or providing a consumer financial product or service.” (12 USC § 5481(6).) Debt collection is further defined as a financial product or service pursuant to Section 5481(15)(A)(x), resulting in the CFPB being tasked with promulgating rules over debt collection and the FDCPA.
Despite its lack of regulatory authority, the FTC has undertaken extensive studies of the debt collection industry, publishing three reports since 2009. The first report published was Collecting Consumer Debts: The Challenges of Change. In that report, the FTC recognized that the modernization of the FDCPA was needed in order to address new technologies as well as inconsistencies in the implementation and interpretation of the law. Examples included what qualified as a dispute, what was the appropriate standard necessary for the validation of a debt, and how and in what manner could debt collectors communicate with consumers (e.g., voice mail and e-mail).
In Challenges of Change, the FTC acknowledged that it needed further information on debt collection litigation and proposed a series of regional workshops to engage in a dialogue of that subset of the debt collection industry. Three workshops took place that same year, and the FTC gathered industry experts, from consumer advocates, academics, judges, lawyers, and trade association representatives, to discuss all the aspects of the court system, including evidence used in debt collection litigation, service of process, alternative dispute methods, and courthouse administration of debt collection dockets. As the result of the testimony presented in those regional workshops, the FTC issued another report titled Repairing a Broken System: Protecting Consumers in Debt Collection Litigation (2010). This report suggested that many state court systems, including the judges who preside over those courts, were ill-equipped to handle high volume debt collection cases and that the consumers were being harmed as a result. Recommendations were made for enhanced state court rules, which would deal with issues such as heightening pleading and evidentiary requirements for debt collection lawsuits only.
Lastly, the FTC issued a report titled The Structure and Practices of the Debt Buying Industry (2013). In its research for the report, the FTC took an extensive look at the debt buying industry, focusing primarily on the exchange of data and information at the time of sale or transfer. The FTC acknowledged, however, that its study did not permit any conclusions as to the prevalence of errors or inaccuracies in the information about the debts transferred.
More recently, in June 2013, the FTC and the CFPB undertook a joint roundtable titled Life of A Debt: Date Integrity in Debt Collection, which focused on four key areas: (1) information available to debt collectors at the time of assignment or sale, (2) verifying disputed debts both from the perspective of the FDCPA and FCRA, (3) debt collection litigation, and (4) time-barred debt. The roundtable was followed by a day-long meeting with all industry stakeholders at the CFPB’s offices to further drill down into the nuances of these critical areas. It was apparent from this breakout meeting that the rulemaking process was going to be a monumental task. Competing interests of both consumers and the debt collection industry, coupled with a myriad of state laws and established practices, would make finding, developing, and implementing the appropriate rule extremely difficult.
With the above history and backdrop, the CFPB created an extremely detailed and well-thought-out ANPR document. Tremendous effort and time were devoted to ensure that all aspects of the debt collection space were covered in the ANPR. It is clear that the CFPB was seeking wide and divergent opinions from a vast array of stakeholders. To ensure responses from a diverse group of people, the CFPB partnered with Cornell University’s law school to set up a separate website portal, www.regulationroom.org, which invited consumers, industry, and all other interested parties to share their experience regarding debt collection.
The ANPR was closed for comment on February 28, 2014. However, it is interesting to note that on March 7, 2014, the CFPB published a notice in the Federal Register, Docket No: CFPB–2014–0005, advising of its intent to conduct a further and more extensive “consumer” survey on debt collection, and requested public comment of same.
Underlying Themes in the ANPR
Although the ANPR is broken down into nine topics, the request for comments suggest a few overarching themes. These themes have their origin in prior work done by the FTC as well as in recent CFPB activities in the form of bulletins and amicus briefing.
The CFPB is Seeking to Regulate Originating Creditors and Lenders
The most apparent policy statement implied in the ANPR is that the CFPB is looking to regulate the conduct of originating lenders and creditors in the debt collector space. The bureau specifically requested comment on “whether a rule under the Dodd-Frank Act would be useful to protect consumers from the conduct of creditors collecting in their own names on debts arising out of consumer credit transactions.” This is a departure from the statutory scheme of the FDCPA, which defines a debt collector as one who engages in the “collection of any debts . . . owed or due another.” (15 U.S.C. § 1692(6).) However, with the issuance of the 2013-07 bulletin on July 10, 2013, the CFPB concluded that, by its authority under Dodd-Frank, all “covered persons,” including originating creditors, must refrain from committing unfair, deceptive acts and practices (UDAAPs) when engaging in debt collection. The UDAAPs defined in the CFPB’s bulletin were identical for the most part to the conduct defined by the FDCPA as violations under the act.
While it remains to be seen whether the CFPB can propose any such rules that target the conduct of an originating creditor, several sections of the ANPR suggest that the CFPB is heading in that direction. For example, several questions regarding the sale and transfer of debt suggest that originators would be responsible or even liable for the accuracy and availability of the data transferred or sold, even well after the sale or transfer date. Further, the ANPR suggests affirmative duties upon originators to notify consumers at the time of sale and/or transfer of the debt.
The CFPB Seems to Acknowledge the State’s Role in Debt Collection Litigation
In an interesting divergence from the FTC’s past emphasis on the need for the federal government to intervene in state court debt collection litigation, the CFPB seems to be less concerned about debt collection litigation for the purpose of writing rules. The ANPR acknowledged that, at the recent FTC-CFPB Roundtable, panelists emphasized that states had begun to address debt collection litigation issues by enacting new courts and statutes on service of process and pleading requirements. Further, there were only nine questions that directly addressed litigation and that focused solely on issues of venue, pleading requirements and documentation, deceptive claims made in pleadings, and specific data on number of lawsuits filed. It seems clear that the CFPB recognizes that debt collection litigation is a complex process of civil procedure rules of all 50 states, which can be further complicated by specific local rules broken down further by counties and/or cities in many of those states. Proposing rules into a one-size-fits-all scheme could result in serious conflicts with state laws and/or court rules. The themes set forth by the FTC’s Repairing the Broken System seem to be resonating. The CFPB seems to understand that its role here is best served as policy-maker rather than regulator.
However, the CFPB has stated in numerous bulletins and published statements that the bureau will work closely with attorneys general to assist in the bureau’s mission, including a “national strategic plan” to combat “unconscionable” and “inexcusable” conduct by debt collectors. (Prepared Remarks by Richard Cordray before the National Association of Attorneys General, March 6, 2012.) That alliance has lead 31 attorneys general to submit a joint response and comment to the ANPR including support for the CFPB to promulgate nationwide evidence and pleading rules for debt collection lawsuits.
Time-Barred Debt is Still a Concern
Like its counterpart the FTC, the CFPB has concerns about time-barred debt in regard to the risk it can pose to consumers and their lack of understanding regarding their legal rights and obligations when it comes to time-barred debt. Neither Dodd-Frank nor the FDCPA speak directly on the issue of time-barred debt or statute of limitations. The CFPB sought comment as to whether disclosures regarding the age of the debt needed to be made, whether consumers understand what it means for a debt to be time-barred, and whether consumers fully comprehend the ramifications of making a payment on time-barred debt. The CFPB and the FTC have recently submitted joint amicus briefs on the issue of time-barred debt to the 6th and 7th Circuit Courts of Appeals. Both cases involved settlement letters where the debt collectors made no affirmative disclosure that the debt was otherwise time-barred. Neither letter made any representation that the consumer would be sued or that a lawsuit would be filed. The CFPB and FTC argued that an affirmative disclosure was not only necessary in order to prevent confusion by the consumer, but was required in order to avoid liability under the FDCPA. On March 11, 2014, the 7th Circuit case was affirmed and the circuit court held that a non-disclosure may deceive a consumer. The case was remanded back to the trial court for further proceedings. The 6th Circuit case is still pending. Expect to see a great deal of discussion on this issue as there is a split among the circuits. The CFPB is clearly looking to promulgate a proposed rule.
Collection Attorneys’ Response to the ANPR
As the only national trade association dedicated solely to the needs of attorneys engaged in the practice of debt collection law, the National Association of Retail Collection Attorneys (NARCA) provided comment and data to the ANPR. NARCA members include more than 700 law firms located in all 50 states, all of whom must meet association standards designed to ensure experience and professionalism. NARCA has a significant interest in ensuring that the bureau’s rulemaking is consistent with its members’ professional responsibilities to their clients, the courts, consumers, and the general public. Collection attorneys are not simply debt collectors who happen to have a license to practice law; rather, they are licensed attorneys who practice in the area of consumer collections and are already subject to strict standards of conduct and judicial oversight. This is part of what makes their role unique and not completely susceptible to broad rulemaking.
In responding to the ANPR, NARCA took a three-tiered approach. First, it carefully narrowed the scope of questions to a select group, a task that NARCA members, as attorneys, have the best ability to accomplish given their unique professional insight. Second, the selected questions were converted into a user-friendly survey. Third, a members-only website portal was created to solicit responses through two online platforms, one of which requested empirical data and the other of which sought narrative responses.
NARCA’s response focused on several themes. As to the issue of communicating with consumers, NARCA encouraged the CFPB to promote and enhance communications and not otherwise discourage or impede it. NARCA’s survey revealed that it is 81.1 percent more likely that suit will be filed once a consumer ceases communication with the creditor’s attorney.
As to the issue of disputes, NARCA’s survey results suggest that overall disputes make up only 3.2 percent of all the cases worked on by NARCA-member firms and that 75 percent of NARCA firms treat and define disputes broadly so as to treat every communication by a consumer questioning the debt as a dispute. However, when a debt is disputed, 60 percent of the time consumers fail to specify the nature of the dispute. When asked for more specific information, survey results suggest that only 15 percent of the consumers provide additional information. The issue of disputes goes hand-in-hand with communication, and NARCA encouraged and offered its support to the CFPB to develop a workable dispute process where information can be exchanged freely in order to best provide an environment for consumers to resolve their debts.
NARCA respectfully opposed any proposed rule that would require an attorney debt collector to disclose when a debt is time-barred and that the attorney debt collector could not lawfully sue to collect. Advising consumers of the consequences of making a payment on a time-barred debt requires an attorney to violate his or her ethical duties toward his or her clients, by providing a potential defensive strategy to its adversary. It is unlikely that a consumer who has defaulted on a financial obligation would make payments after being advised that he or she can escape the obligation by doing nothing, thus adversely affecting the attorney’s client. A collection attorney does not represent the consumer and should not be forced to abandon his or her ethical responsibilities simply because the practice area happens to be debt collection. Nevertheless, NARCA’s published standards as well as its stated policy positions mandate that its members should never knowingly file collection lawsuits beyond the applicable statute of limitations and members should maintain procedures to prevent the filing of law suits on time-barred debt.
Additionally, the determination as to whether a debt is time-barred requires the analysis of a trained and licensed attorney who can perform a legal review of the contract, determine the appropriate case law regarding the choice of law, and assess whether the statute has otherwise been tolled. For this reason, NARCA has serious concerns with any rules that would require non-lawyers to make such determination or disclosures.
Finally, NARCA’s survey revealed that debt collection lawsuits actually declined by 20 percent over the past three years, with the percentage of those cases resulting in default judgment also declining.
Developing and implementing rules for the debt collection industry is an uncharted path and a long-term project for the CFPB. Their approach has been thoughtful and deliberate. Phase one has been completed. Phase two will involve a meticulous review of all comments submitted in an effort to compose thoughtful, well-intended, and practical rules that will serve the CFPB’s mission and the intent and purpose of the FDCPA, eliminating abusive debt collection practices by debt collectors but also ensuring that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged.