On July 28, 2016, the Consumer Financial Protection Bureau ("CFPB") and Director Richard Cordray announced at a field hearing in Sacramento, California the CFPB's proposals to overhaul the $13.7 billion dollar debt collection market, affecting about 70 million consumers nationwide.
The CFPB will be proposing new regulations for third-party debt collectors and others covered by the Fair Debt Collection Practices Act ("FDCPA"), including many debt buyers. It published a 117-page outline discussing its research process and the proposals under consideration. With these proposals, the CFPB's goal is "cleaning up the integrity" of the debt collection process. As such, these proposals target all aspects of the debt collection lifecycle, focusing on accuracy in debt collection, and limiting permissible contact by the debt collectors to the consumer. Specifically, the CFPB made proposals to the following areas for which it will propose new regulations:
- Information Integrity: The CFPB's outline reports that the most common debt collection complaint it receives from consumers are for collectors seeking to recover debt from the wrong consumer or in the wrong amount. The CFPB proposal contains three major interventions seeking to alleviate these problems: (1) a requirement that debt collectors substantiate a debt before contacting the consumer, during collection, and before litigation; (2) a requirement that certain information provided by the consumer to one debt collector is provided to and reviewed by subsequent debt collectors; and (3) an updated FDCPA validation notice and a Statement of Rights, with the objective of providing consumers with information they need to determine if they owe the particular debt that the collector is attempted to collect. Further, the CFPB is considering a requirement where collectors must obtain additional support before proceeding with further claims of indebtedness when the consumer disputes the debt.
- Collector Communication Practices: The CFPB explains that the second most common debt collection complaint it receives from consumers are for communication practices and states that about one-in-three consumers had been contacted by a creditor or collector regarding a debt within the past year. It also acknowledges that the various FDCPA requirements frustrate and confuse collectors as much as consumers. In response, the CFPB proposes specific limitations to govern debt collectors' contact with consumers, including: (1) limiting collectors to six communication attempts per week through any point of contact before they have reached the consumer; (2) limiting the time, place, and manner of collection contacts; and (3) a 30-day waiting period after a reported death during which collectors would be prohibited from communicating with certain parties, like surviving spouses. The CFPB is also proposing creating regulations that would allow debt collectors to leave certain limited-content voicemails and other messages. Finally, the CFPB wants to clarify the framework for obtaining consent from consumers, and require each subsequent debt collector to obtain consent rather than allowing consent to run with the debt.
- Litigation Disclosures: The CFPB's outline details that between 60 and 95 percent of consumer debt collection lawsuits result in default judgment. In response, the CFPB's proposal includes a litigation disclosure requirement in oral communications in which the collectors represent, expressly or by implication, their intent to sue, which would include, among other things that the court could rule against the consumer if he or she fails to defend a lawsuit.
- Time-Barred Debt: The Bureau is concerned that some debt collectors sue or threaten to sue on time-barred debt and that consumers do not understand that there are statutes of limitations that prohibit collectors from pursing lawsuits to collect on the debt. The CFPB is considering a disclosure requirement whereby a debt collector must provide a time-barred debt disclosure when it seeks to collect a time-barred debt. The CFPB is also proposing a prohibition on a subsequent collector from suing on a debt when an earlier collector provided a time-barred debt disclosure.
- Prohibitions on Debt Transfers: To crack down on unlawful debt collection practices, the CFPB proposal contains prohibitions designed to limit access to debt collectors that have operated unlawfully. This includes prohibitions on debt buyers from selling debt to collectors that are subject to a judgment or other restriction or that lack any license required to purchase or collect debt in the state in which the consumer resides.
- Recordkeeping: The CFPB also proposes a recordkeeping requirement on debt collectors which would require the collectors to retain records documenting the actions it took with respect to a debt for three years after its last communication or attempted communication (including communication in litigation) with the consumer about the debt.
In developing its proposals, the CFPB engaged in three major debt collection research projects to assist in making decisions in the rulemaking. It further relied on insights gained from its supervisory processes whereby it identified many FDCPA violations by debt collectors. Finally, the CFPB relied on more than 200,000 consumer claims regarding debt collection practices to identify the principle areas of consumer concerns that need to be addressed. As part of the review and proposal process, the CFPB is releasing a report, "Study of Third-Party Debt Collection Operations," summarizing its findings.
Director Cordray characterized these proposals as a drastic overhaul that will bring about "better accuracy and accountability to a market that desperately needs it." Before proposing new regulations, the CFPB will seek feedback from the debt collection industry and other stakeholders as it develops its proposed regulations, first by convening a Small Business Review Panel and by industry interest groups and consumer groups. The CFPB also announced that while this current proposal does not address first-party debt collection activities, additional proposals for reform for these industry players are forthcoming.
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