April 22, 2014

Our Mini-Theme: Debt Collection Issues Reign in the Brave New World of Consumer Financial Services

Nicole F. Munro

This month in Business Law Today, we consider one of the leading issues in consumer financial services law: debt collection. The debt collection industry is feeling enormous and unprecedented pressure from both debtors’ attorneys, who are benefitting from the federal Fair Debt Collection Practices Act’s (FDCPA) fee shifting provision, and federal regulators, who are just now venturing into uncharted regulatory territory. Until 2010, the debt collection industry never had a regulator with rulemaking authority at the federal level. Instead, federal courts created a complex body of case law interpreting the FDCPA, with wide variations across jurisdictions. But the Dodd-Frank Act has the potential to change all of that by enabling the Consumer Financial Protection Bureau (CFPB) to make rules under the FDCPA; previously, the Federal Trade Commission (FTC) could enforce the FDCPA, but could not make rules. In its third year of existence, the CFPB is starting to address debt collection while consumers are flooding courts with suits against debt collectors under the FDCPA and its state law counterparts. 

On November 6, 2013, the CFPB issued its Advanced Notice of Proposed Rulemaking (ANPR) for debt collection practices, seeking responses to 450 questions and sub-questions about the debt collection industry. The questions suggest, most notably, that the CFPB is considering bringing creditors within the scope of the FDCPA and potentially imposing time-barred debt disclosures in light of the split among the circuits. This BLT mini-theme is dedicated to examining the current debt collection landscape, which was shaped by federal courts, and considering the future debt collection landscape, which will inevitably be shaped by the CFPB. 

In this issue, Sulejman Dizdarevic and Matthew Stromquist consider whether the FDCPA applies to entities pursuing foreclosure actions. The FDCPA defines “debt collector” as a person regularly engaged in collecting debts on behalf of another. For the purposes of only one specific sub-section of the FDCPA, “debt collector” also includes persons who enforce security interests. This article examines the various ways in which different federal courts and the CFPB address the issue of whether a person foreclosing a security interest is a debt collector. 

Donald Maurice discusses the professional obligations of debt collection attorneys. A number of recent state disciplinary actions have found that debt collection attorneys assisted in the unauthorized practice of law by inadequately supervising out-of-state attorneys when acting as local counsel or inadequately supervising non-attorneys. The article provides guidance on how to handle professional supervisory obligations in the debt collection context. 

Joann Needleman describes the CFPB’s advanced notice of proposed rulemaking for debt collection practices and traces the events leading up to and immediately following Dodd-Frank, including the FTC’s debt collection industry studies. The Dodd-Frank Act of 2010 granted the CFPB specific rule making authority over persons engaged in debt collection. Pursuant to that authority, the CFPB issued a detailed Advanced Notice of Proposed Rulemaking with 450 questions covering a wide range of topics. The article considers how the themes in the ANPR questions indicate what types of rules the CFPB will make, and provides an overview of the comments that the National Association of Retail Collection Attorneys submitted in response to the ANPR. 

Thomas R. Dominczyk asks whether collecting time-barred debt is really worth the risk in light of the onslaught of debtors’ lawsuits and the FTC’s and CFPB’s new focus on time-barred debt disclosures. The article traces the history of the issue, from judicial determinations of whether collection of time-barred debt violates the FDCPA, to the FTC’s requirement in a consent order with Asset Acceptance that it provide a particular disclosure when collecting time barred debt, to debtors asking courts to defer to the FTC’s disclosure requirements in the Asset Acceptance consent order, and finally, to the CFPB’s focus on time-barred debt in its debt collection ANPR and recent amicus briefs.

Rachel Marin analyzes whether and how debt collectors can charge interest under the FDCPA. Courts are divided on whether a debt collector can charge interest once the creditor has charged off the debt and stopped charging interest and what responsibilities a debt collector has to provide the debtor with information about the accrual of interest. This article discusses the nuanced variations across jurisdictions when it comes to these tricky FDCPA issues. 

In his article titled “Affidavits: FDCPA Violation or State Court Concern?,” Shannon P. Miller argues that the use of the FDCPA to challenge state court debt collection litigation infringes upon a creditor’s access to the courts for redress while also overshadowing the state court’s ability to make procedural as well as evidentiary determinations related to matters properly within its jurisdiction.

On April 12, 2014, at the Business Law Section’s Spring Meeting in Los Angeles, the Consumer Financial Services Committee’s Debt Collection Practices and Bankruptcy
 Subcommittee presented a CLE program titled “Assessing the CFPB's ANPR on Debt Collection Rules.” The presentation was co-sponsored by the Banking Law Committee, Consumer Bankruptcy Committee, and Credit Unions Committee. The panel discussed issues raised by the CFPB’s Advance Notice of Proposed Rulemaking on Debt Collection Rules and the comments made by consumer groups and members of the credit and collection industry. The program was recorded and is available through the Business Law Section’s Program Library.

Nicole F. Munro