On July 28, 2016, the Consumer Financial Protection Bureau (CFPB) issued its Outline of Proposal Under Consideration and Alternatives Considered (Outline) relating to future debt collection and debt buying rulemaking. The Outline was specifically developed for use in the debt collection Small Business Regulatory Enforcement Fairness Act (SBREFA) process, but was nevertheless widely anticipated as a “sneak preview” of the direction the CFPB may take in its future rulemaking. Although the scope of the proposals is limited to third-party collectors, they clearly will affect creditors, as explained below. “Creditor” and “debt owner” are used interchangeably in this discussion except where indicated.
Building on the Past
The Outline provides the clearest picture to date of what elements likely will be incorporated into future debt collection rulemaking. Most of the proposals in the Outline are not surprising based on historical developments. In 2007, the Federal Trade Commission (FTC) held a public workshop to explore the need to better protect consumers in the debt collection process and in 2009 published Collecting Consumer Debts: The Challenges of Change. That year, the FTC also held a series of roundtable discussions and in 2010 published Repairing a Broken System-Protecting Consumers in Debt Collection Litigation and Arbitration. In 2011, the CFPB published the first version of its Supervision and Examination Manual and in 2012 issued the second version as well as its final rule Defining Larger Participants of the Consumer Debt Collection Market. In 2013, the FTC and CFPB co-hosted the Life of a Debt: Data Integrity in Debt Collection roundtable and later that year the CFPB issued its debt collection Advanced Notice of Proposed Rulemaking.
Throughout this timeframe, many other factors also contributed to the debt collection and debt buying landscape, including FTC and CFPB enforcement actions and consent orders, studies and reports by federal agencies, state legislation and regulation, and analysis of the thousands of complaints submitted to the CFPB relating to debt collection.
The Outline consists of three main sections: (1) Information Integrity and Related Concerns; (2) Other Consumer Understanding Initiatives; and (3) Collector Communication Practices.
This section can be broken down into how debt collectors must substantiate claims of indebtedness before, during, and after the collection process. The proposals address the long-standing concerns the FTC and CFPB have regarding the integrity of debt collection data as debts are transferred among creditors, debt buyers, and debt collectors and the ability of consumers to understand the information they are provided.
Before undertaking debt collection efforts, the CFPB proposes collectors possess certain “fundamental information” to substantiate a claim of indebtedness. This information includes: (1) the full name, last known address, and last known telephone number of the consumer; (2) the account number of the consumer with the debt owner at the time the account went into default; (3) the date of default, the amount owed at default, and the date and amount of any payment or credit applied after default; (4) each charge for interest or fees imposed after default and the contractual or statutory source for such interest or fees; and (5) the complete chain of title from the debt owner at the time of default to the collector.
The possession of this information prior to collection activity has become increasingly common due in part to technology, increased focus on compliance, the DBA International Certification Program, and laws passed in several states that require possession of similar information. Presumably, the word “default” is used in a generic sense in the Outline and will be clarified in future proposals to mean “charge-off” when appropriate, as with credit-card debt.
The more interesting aspect of the proposal is the risk-sharing between debt collectors and debt owners for ensuring the accuracy of the information. Debt collectors would be tasked with searching for “warning signs” at the account level for individual debts that are not in “a clearly understandable form” or are “facially implausible or contradictory.” At the account level, the signs include determining that a significant percentage of debt in the portfolio has “missing or implausible information” or “unresolved disputes.” The problem with this proposal is the ability to effectively build or enhance compliance programs that can accurately identify whether debts are “clearly understandable” or “facially implausible.” Hopefully, the CFPB will refine this with metrics-based standards that can be more readily incorporated into compliance programs.
An additional basis of support for a claim of indebtedness would be receipt of a representation of accuracy from the debt owner or creditor. The CFPB asserts that this would eliminate the ability of debt owners to “shift the responsibility for the accuracy of information” to debt collectors. Although by its own description the Outline does not address proposals directed toward creditors, this would effectively do just that. The representation would state that the debt owner “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.” Although a debt collector would not be required to obtain the representation, they would alternatively bear the burden of justifying any alternative approach.
Once collection activity begins, a debt collector typically sends the consumer a written notice within five days of the initial communication, pursuant to the FDCPA, 15 U.S.C. § 1692g. Regarding information to identify the debt, subsection (a) requires that the notice include the amount of the debt and the name of the creditor to whom the debt is owed. The CFPB, relying on consumer complaints and surveys, proposes that additional information be included to assist consumers in identifying the debt. Specifically, the CFPB would require, in part: (1) a description of the debt type, e.g., “credit card”; (2) the merchant brand associated with the debt; (3) the name of the creditor at the time of default; (4) the account number of the default creditor; (5) the amount owed on the default date; and (6) itemization of interest, fees, payments, and credits since the default date. Many debt collectors currently include much of this in the notice depending on the amount of information received from the debt owner. Again, this represents another portion of the Outline that will directly impact debt owners.
FDCPA § 1692g also provides that consumers must be notified that, if they dispute the validity of the debt in writing within 30 days of receipt of the notice, the debt collector will obtain and mail verification of the debt, or a copy of a judgment against the consumer, or the name and address of the original creditor if different from the current creditor and requested in writing. One current problem is that a consumer can simply state, “I dispute this debt,” in which case the debt collector has no guidance as to the actual nature of the dispute or what verification would be sufficiently responsive. The CFPB’s proposal may provide some benefit in this regard.
The Outline divides disputes into categories: (1) generic disputes; (2) disputes as to amount of debt; (3) disputes as to wrong consumer; and (4) disputes as to wrong collector. The CFPB then provides lists of information specific to each category that would be generally considered responsive (Outline, Appx. D) in addition to the information contained in the validation notice. Additional information not listed could be required depending on the nature of the dispute. Although this may prove helpful to debt collectors, the CFPB also proposes a validation notice that would facilitate consumer disputes.
The sample validation notice (Outline, Appx. F) includes the data elements listed above. Of note is that the notice also includes a tear-off portion at the bottom that includes check-off boxes for disputing the debt, including the category of dispute and requesting the name and address of the original creditor, or for enclosing a payment. It will remain to be seen whether a significant portion of consumers simply check all the dispute boxes, in which case debt collectors will be faced with potentially providing large amounts of additional information. However, it is noteworthy that that the CFPB is “considering clarifying that debt collectors are permitted to contact consumers while a dispute is pending to request clarification of a dispute submitted by the consumer, as long as the content of their communication is strictly limited to achieving this purpose and does not also include, for example, a request for payment.”
The CFPB also proposes an additional, one-page statement of rights (Outline, Appx. G) that would be mailed with the validation notice. The content is basic, providing an overview of what consumers can do and what debt collectors cannot. Unless the final rule allows this content simply to be printed on the back of the validation notice, this could represent a significant cost increase for some debt collectors. Whether the reverse side of the validation notice could be used also depends on how the CFPB decides to provide translated versions. Regardless, the number of required state disclosures continues to grow, and more is not always better with regard to notices and consumer comprehension. Given that most state law disclosure requirements are generally less protective than the CFPB’s proposal, perhaps an argument will be made that they are inconsistent and therefore preempted pursuant to FDCPA § 1692n.
The CFPB states that one of two approaches will be used to provide the validation notice and statement of rights to consumers with limited English proficiency. Under the first proposal, if the debt collector believes the consumer’s predominate language is any other than English, and the CFPB has published translated versions in that other language, the translated version would be required. Under the second proposal, a Spanish version would always be included on the reverse side of the validation notice and statement of rights, which would be feasible only if the CFPB provides the Spanish translation.
The FTC and CFPB have long been concerned with the integrity of debt collection data as it is transferred among creditors, debt buyers, and debt collectors. To address this, the CFPB proposes that, before initiating collection activity, debt collectors would be required to review information (Outline, Appx. E) from previous collection attempts by the debt owners or other debt collectors, particularly with regard to disputes, communication requests, statute of limitation disclosures, etc. When the account is returned to the debt owner, the debt collector would be required to provide it with the information it acquired during its own collection efforts. This reporting requirement would continue even though the entity receiving the information no longer owns or is assigned the account. This could prove technologically challenging after business relationships have ended and the previous platforms for securely sharing information have changed or no longer exist.
Other Consumer Understanding Proposals
The CFPB states concern that consumers do not understand several other areas of the debt collection process and have proposals to address the litigation process and collection of debts beyond the statute of limitations.
Citing a 2009 national study, the CFPB has concluded that many consumers do not participate in the litigation process because, in part, they are unfamiliar with it. Consumer nonparticipation has been the subject of much debate, and certainly another possible explanation is that consumers simply know they owe the debt and therefore see little to gain. Regardless, the CFPB proposes a separate litigation disclosure to advise consumers of the consequences of not defending debt collection lawsuits and notifying consumers that additional information about debt collection litigation, including contact information for legal services programs, can be obtained on the CFPB’s website or by calling the CFPB. The disclosure would require the debt collector to provide the disclosure in all written or oral communications in which they represent, either expressly or by implication, an intention to file a lawsuit. Of course, whether a letter “implies” intent to take legal action has been a frequent subject of litigation, and injecting this subjective standard into the requirement is unlikely to improve the situation. The CFPB has expressed no intent to provide model language for this intended disclosure.
Time-Barred Debt, Revival, and Waiver
Restrictions on debt collectors’ ability to collect out-of-statue debt and the revival of such debt have been on the CFPB’s radar for years. Under the proposal, the debt collection industry would be required to provide disclosures with respect to debt that is time-barred or obsolete for credit-reporting purposes. Additionally, debt collectors would be restricted with regard to collecting or accepting voluntary payments on time-barred debt.
The time-barred debt notice would simply state that, due to the age of the debt, the debt collector cannot file a lawsuit to collect. Of note, the proposal would bar a subsequent collector from suing on the debt once the disclosure had been made. An obvious problem with this proposal is that, if a prior debt collector made a mistake and provided the disclosure in error, any subsequent collector would be bound to the previous erroneous assessment and disclosure. A similar disclosure would be developed by the CFPB to inform the consumer whether a time-barred debt is also obsolete for credit-reporting purposes.
The CFPB notes that some consumers may actually believe it is beneficial to acknowledge or make a payment on time-barred debt, even if state law provides that such actions revive the statute of limitations. In its own words, “[t]o try to correct this impression,” the CFPB could require collectors to provide a disclosure explaining the ramifications. However, the CFPB instead proposes that collectors would not be able to seek collection on an out-of-statute debt unless they waived the right to file suit, regardless of state law.
Remarkably, the CFPB also proposes that a debt collector could not accept any payment on debt that is time-barred and obsolete unless the consumer, proactively and in writing, acknowledged receipt of the time-barred debt and obsolescence disclosures described above. This presumes, of course, that the consumer read the notices, recalls them, and is willing to provide a written acknowledgement to that effect. Except for the CFPB’s apparent bias toward any collection of out-of-statute debt, this seems wholly unnecessary given the records kept by collection agencies regarding when specific letters and notices are sent to consumers. Any collection agency not sending mandatory notices is unlikely to be deterred by lack of consumer acknowledgment.
Communication Requirements and Restrictions
Debt collectors face a dilemma when leaving voicemails for consumers. On one hand, under FDCPA § 1692c(b), a debt collector may not convey information regarding a debt to third parties, subject to certain exceptions. On the other, they are required by FDCPA § 1692e(11) to state that the communication is from a debt collector. Thus, the conundrum is what type of message to leave on a voicemail that might be overheard by a third party, as was illustrated in Foti v. NCO Financial Systems, 424 F. Supp. 2d 643 (S.D.N.Y. 2006). The CFPB’s proposed resolution is to leave a voicemail that simply provides the debt collector’s name, the consumer’s name, and a toll-free callback number. The CFPB states that it would clarify that, because no information about a debt was conveyed, no FDCPA “communication” occurred.
The second proposal considers a cap on communications or attempted communications with a consumer. The CFPB provides a new definition, “confirmed consumer contact,” which occurs when “any collector, including a prior collector, has communicated with the consumer about the debt, and the consumer has answered when contacted that he or she is the debtor or alleged debtor.” This is significant because, in the absence of confirmed consumer contact, a debt collector is allowed three attempted contacts per unique address or telephone number per week and a total of six, provided the consumer has more than one address or telephone number. However, if the debt collector, or any previous debt collector, has established confirmed consumer contact, those numbers drop to two and three, respectively, with one live communication permitted per week. Similar restrictions would apply to calls to third parties for location information. To the extent this has the effect of limiting effective communication, it will presumably increase the number of debt collection actions.
The CFPB proposes that a presumption would exist that calls to consumers in medical facilities, places of worship, places of burial or grieving, and daycare centers are inconvenient. The CFPB states that it is not considering calls to the consumer’s place of employment to be presumptively inconvenient. However, contacting the consumer via her or his work e-mail would be prohibited in the absence of specific consent.
Regarding the collection of decedent debt, the CFPB proposes a 30-day, or alternatively a 60-day, waiting period during which collectors would be prohibited from communicating with surviving spouses, parents of deceased minor consumers, as well as personal representatives unless they reached out to the collector. The CFPB proposes interpreting those parties to be “consumers” under FDCPA § 1692c(d) for the purposes of communications. Location contacts during this period would be allowed solely for the purpose of identifying the executor of the estate.
A Predictor of Future Rulemaking
The CFPB’s debt collection Notice of Proposed Rulemaking likely will be substantially similar to the Outline based on previous such outlines. However, some change should be expected. The Outline focuses primarily on the CFPB’s rulemaking authority under the FDCPA, but includes less insight as to additional rules that might be proposed pursuant to its rulemaking authority under the Dodd-Frank Act regarding unfair, deceptive, or abusive acts or practices. There will be more to come in that regard when the CFPB convenes its second SBREFA proceeding that will include creditors and debt owners.
Fortunately, most estimates place implementation of the final rule in 2019, which provides ample time to consider what it would take to comply with rules similar to those in the Outline. Although it might be premature to implement changes based on mere proposals, time remains to develop implementation strategy, prioritization, and anticipated cost so that when the time comes, a plan is in place for quick implementation and testing of any new technologies, policies, and procedures.