The outline provides the first public glimpse of what the CFPB is thinking as in moves forward in the debt collection rulemaking process.
The CFPB released its outline of proposals for the debt collection industry on July 28, 2016. 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 (SBREFA). The outline provides the first public glimpse of what the CFPB is thinking as in moves forward in the debt collection rulemaking process. The outline of proposals is not a proposed rule or a final interpretation of rules and is not binding. However, it is a very good road map of where the CFPB is heading as it gets closer to releasing debt collection rules. As such, debt collectors may want to examine current practices in light of the proposal.
The CFPB’s outline of proposals is divided into four main categories. Each category is summarized below. The full outline of proposals (including referenced appendices) is available at: http://files.consumerfinance.gov/f/documents/20160727_cfpb_Outline_of_proposals.pdf.
Information Integrity and Related Concerns
The proposal sets forth debt substantiation requirements for debt collectors, calls for the review and transfer of certain information throughout the course of collection and requires enhanced validation notice requirements and a new statement of consumer rights.
The proposal would require debt collectors to possess reasonable support for making collection attempts at various intervals in the debt collection process, including before beginning collection attempts, after a dispute and prior to initiating litigation.
- Prior to initiating collection activity - debt collectors would need to have a reasonable basis for claims that the individual owes a particular debt and that the debt collector is legally entitled to collect the debt. A debt collector would have a reasonable basis for claims of indebtedness if the collector has: (1) obtained “fundamental information” about the debt (found in Appendix C); (2) reviewed account information and found no “warning signs;” and (3) obtained a representation of accuracy from the debt owner.
- After a dispute - collectors would need to obtain additional support before proceeding with further collection efforts following receipt of a written or oral dispute. The supporting documentation necessary would depend on the relevant category of dispute, e.g., generic, wrong amount of debt, wrong consumer, or wrong collector (outlined in Appendix D). For written disputes within the 30-day period, collectors would need to review and provide the consumer with the documentation for the relevant category of dispute found in Appendix D. For disputes received outside the 30-day period or oral disputes, the collector would need to review the documentation for the relevant category of dispute, but would not need to actually provide the consumer with such documentation. If an oral dispute is received within the 30-day validation window, the collector would need to inform the consumer of the right to obtain verification of the debt by submitting a timely written dispute. A debt collector could respond to duplicative consumer disputes using a generic, standardized form.
- In litigation - debt collectors would need to review certain documentation before pursuing action against a consumer in court. This obligation could be satisfied by obtaining and reviewing all of the consumer dispute documentation found in Appendix D.
Review and Transfer of Information
Subsequent debt collectors would need to obtain and review certain information regarding past collection activity that may affect compliance with the FDCPA and other federal laws. A list of this information is provided in Appendix E. Debt collectors would also be required to forward certain information it may receive after returning the debt to a debt owner or subsequent buyer that may indicate that the debt is uncollectible or lacks sufficient support, such as payments, bankruptcy discharge notices, identity theft reports, disputes, and any assertions or implications of legally exempt income or assets.
The proposal would require debt collectors to include more specific information about the debt in the initial validation notice sent to the consumer, including a list of items found in Appendix F, a “Statement of Rights” that lists the consumer’s rights under federal laws, and a “tear off” feature that would include checkboxes that allow consumers to dispute a debt or request the original creditor name. The CFPB provided a model validation notice and Statement of Rights (found in Appendix F and G).
The CFPB is also considering whether to either require translated versions of the validation notice and Statement of Rights on the reverse side of all notices, or only if the collector’s initial communication is in another language or the creditor provides language preference information and the CFPB has published translations.
Debt collectors would also be prohibited from furnishing information about a debt to consumer reporting agencies until the collector has first communicated directly about the debt to the consumer (such as by a validation notice).
Consumer Understanding Initiatives
The proposal requires a debt collector to provide disclosures to consumers when a debt collector intends to sue, if the statute of limitations on the debt has expired, and about whether the debt is too old to credit report.
Debt collectors would need to include a “litigation disclosure” in all written and oral communications with the consumer that contain an express or implied representation of intent to sue. The disclosure would need to inform the consumer that the debt collector intends to sue; that a court could rule against the consumer if [s]he fails to defend the lawsuit; and that additional information about debt collection litigation is available from the CFPB.
Time-Barred and Obsolete Debt Disclosures
Debt collectors would be required to make certain disclosures when a debt collector seeks payment on a time-barred debt, including (1) that because of the debt’s age the debt collector cannot sue to recover it, and (2) whether the debt may be credit reported. Both disclosures would be required in the validation notice, and the CFPB is considering whether this disclosure should be required at additional intervals. The CFPB plans to provide model disclosures.
Before accepting payment on a debt that is both time-barred and obsolete, a debt collector would need to obtain the consumer’s written acknowledgment of the receipt of the required time-barred debt and obsolescence disclosures. Further, debt collectors would not be able to collect on time-barred debt that can be revived under state law, unless the collector waives its right to sue on the debt.
Earlier collectors would also have to inform subsequent debt collectors whether they have given the time-barred debt disclosure, and if so, subsequent collectors would then be prohibited from suing on a debt if the earlier collector provided a time-barred debt disclosure.
Collector Communication Practices
The proposal includes an array of requirements related to appropriate communication times, places, and methods.
The proposal clarifies that certain “limited-content messages” are not communications under the FDCPA and do not trigger the FDCPA’s warnings if the message includes only: the individual collector’s name, the consumer’s name, and a toll-free method the consumer can use to reply to the collector.
This CFPB suggests the following message could be used in voice mail messages, live conversations, text messages, emails, etc. without triggering the FDCPA warnings: “This is John Smith calling for David Jones. David, please contact me at 1-800-555-1212.”
The proposal limits the frequency with which debt collectors may contact, or attempt to contact, consumers or third parties. The CFPB proposes separate caps for consumer contacts and location contacts. The threshold for consumer contacts would also vary depending on whether a “confirmed consumer contact” has been made. “Confirmed consumer contact” occurs once any debt collector has communicated with the consumer about the debt, and the consumer has answered when contacted that [s]he is the consumer. The confirmed contact status would pass from one collector to another. The tables below illustrate the number of permissible consumer and location contacts (or attempts) per account per week.
Number of permissible consumer contacts (or contact attempts) per account per week
Number of location contacts (or contact attempts) to a third party per account per week
Time, Place, Manner restrictions
The proposal identifies times, place and communication methods that would be considered inconvenient to contact a consumer. If a debt collector has conflicting location information for the consumer, the collector would need to assume that the convenient time to communicate with a consumer is when it would be convenient in all of the locations in which the collector’s information indicates the consumer might be located. The time a communication is sent would be the determining factor for newer technologies as to whether a contact was made at a convenient time. Because an email or text message is generally available for a consumer’s receipt when the collector sends it, the time of sending will be the determining factor—not for example, when the consumer sees or opens it.
It would be presumably inconvenient for a debt collector to communicate with a consumer if the consumer is in any of the following locations (unless there for work): (1) medical facilities or other places of treatment for serious medical conditions, (2) places of worship, (3) places of burial or grieving, and (4) childcare facilities. The CFPB is also considering military combat zones or qualified hazardous duty postings.
Debt collectors would also be prohibited from communicating using a communication method that the collector knows or should know is inconvenient to the consumer, and specifies that a debt collector would need to obtain the consumer’s consent to send a communication to a work e-mail address.
The proposal finds that it is generally permissible to contact a deceased consumer’s surviving spouse, parents of deceased minors, and personal representatives designated under state law. The CFPB is 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.
Each debt collector, to obtain consent, would need to obtain it directly from the consumer (orally or in writing). A debt collector would not be able to rely on consumer consent provided to the original creditor or a prior collector. Collectors would need to disclose to the consumer—either orally or in writing—what the consumer is consenting to and memorialize such consent. The CFPB is considering specifying that consumers can revoke consent previously provided to the collector.
FDCPA Prohibited Practices
The proposal describes five practices that the CFPB is considering clarifying should be deemed to violate the FDCPA (found in Appendix H).
Prohibition on Certain Debt Sales
The proposal prohibits debt buyers from placing or selling debt to: (1) those subject to a judgment, order, or similar restriction prohibiting them from purchasing or collecting debt in the state in which the consumer resides; or (2) those that lack any license required to purchase or collect debt in the state in which the consumer resides. Debt buyers would also be prohibited from placing or selling debt when a debt buyer knows or should know that the debt was paid or settled, discharged in bankruptcy, or the result of identity theft.
The proposal requires debt collectors retain certain records for 3 years after their last communication or attempted communication with the consumer. Information subject to retention would include: (1) all records the debt collector relied upon for the information in the validation notice and to support claims of indebtedness (such as information the collector obtained before collection; representations received from the creditor before collection; and dispute records; and (2) all records related to the debt collector’s interactions with the consumer (such as written and oral communications to and from and individual collector notes).