Breaking News: CFPB Releases Outline of Proposals for Debt Collection Rulemaking

The outline provides the first public glimpse of what the CFPB is thinking as it moves forward in the debt collection rulemaking process.

In coordination with its field hearing on debt collection being held today in Sacramento, Calif., the Consumer Financial Protection Bureau has released an outline of proposals under consideration for the long-awaited debt collection rulemaking. The proposals are a core part of the materials used by the CFPB as part of the small business panel process required by the Small Business Regulatory Enforcement Fairness Act. The outline provides the first public glimpse of what the CFPB is thinking as it moves forward in the debt collection rulemaking process.

“Today we are considering proposals that would drastically overhaul the debt collection market,” said CFPB Director Richard Cordray in the released statement. “This is about bringing better accuracy and accountability to a market that desperately needs it.”

Although the proposals only cover third-party debt collection issues – from the time when third-party collectors first examine their portfolios of debt to their last attempts to collect – the CFPB also indicated that they plan to address first-party debt collectors and creditors on a separate track at a later date.

According to the CFPB’s press release, the proposals are aimed to:

  • Collect the correct debt: Collectors would have to scrub their files and substantiate the debt before contacting consumers. For example, collectors would have to confirm that they have sufficient information to start collection, such as the full name, last known address, last known telephone number, account number, date of default, amount owed at default, and the date and amount of any payment or credit applied after default.
  • Limit excessive or disruptive communications: Collectors would be limited to six communication attempts per week through any point of contact before they have reached the consumer. In addition, if a consumer wants to stop specific ways collectors are contacting them, for example on a particular phone line, while they are at work, or during certain hours, it would be easier for a consumer to do that. The CFPB is also considering proposing a 30-day waiting period after a consumer has passed away during which collectors would be prohibited from communicating with certain parties, like surviving spouses.
  • Make debt details clear and disputes easy: Collectors would be required to include more specific information about the debt in the initial collection notices sent to consumers. This information would include the consumer’s federal rights. They would have to disclose to consumers, when applicable, that the debt is too old for a lawsuit. The proposal under consideration would also add a “tear-off” portion to the notice that consumers could send back to the collector to easily dispute the debt, with options for why the consumer thinks the collector’s demand is wrong. The tear-off would also allow consumers to pay the debt. The consumer could also verbally question the debt’s validity at any time, and prompt the collector to have to check its files again.
  • Document debt on demand for disputes: If the tear-off sheet or any written notice is sent back within 30 days of the initial collection notice, the collector would have to provide a debt report – written information substantiating the debt – back to the consumer. The collector could not continue to pursue the debt until that report and verification is sent.
  • Stop collecting or suing for debt without proper documentation: If a consumer disputes – in any way – the validity of the debt, collectors would have to stop collections until the necessary documentation is checked. Collecting on debt that lacks sufficient evidence would be prohibited. In addition, collectors that come across any specific warning signs that the information is inaccurate or incomplete would not be able to collect until they resolve the problem. Warning signs could include a portfolio with a high rate of disputes or the inability to obtain underlying documents to respond to specific disputes. Collectors also would be required to check documentation of a debt before pursuing action against a consumer in court. For example, collectors would have to review evidence of the amount of principal, interest, or fees billed, and the date and amount of each payment made after default.
  • Stop burying the dispute:If debt collectors transfer debt without responding to disputes, the next collector could not try to collect until the dispute is resolved. The proposals under consideration also outline information that collectors would have to send when they transfer the debt to another collector so that a consumer does not have to resubmit this information to the new collector.

Along with the outline of proposals, the CFPB also released a report, “Study of Third-Party Debt Collection Operations,” which contains results from the CFPB’s survey of debt collection firms and vendors as a part of their efforts to better understand the operational costs of debt collection. According to the CFPB, the answers to the survey questions provided material for its consideration of what it would cost collectors of different types to comply with potential new debt collection rules.

ACA is covering today’s CFPB field hearing later today in Sacramento, Calif., and is already at work actively analyzing the outline of proposals. ACA will also host a special teleseminar for members on Monday, Aug. 1, to provide a first-hand account of the Sacramento field hearing, discuss these highly anticipated proposals, and preview what to expect from the debt collection SBREFA process in August. Attendees will gain an understanding of the next steps in the CFPB rulemaking process and get insights and perspective from ACA’s regulatory and legal experts. This critical information is essential for every business in the debt collection industry.