United States: CFPB Outlines Long-Awaited Debt Collection Reforms

Anthony E. "Tony" DiResta and Kwamina Thomas Williford are partners and Brian J. Goodrich is an associate in our Washington DC office.

HIGHLIGHTS:

  • The Consumer Financial Protection Bureau (CFPB) released new proposals designed to "overhaul" the practices of the debt collection industry.
  • Key proposals include a cap on the number of times a collector may attempt to contact a borrower, new debt substantiation requirements and expanded consumer disclosures.
  • The Bureau will seek input from the public, consumer groups, industry and other stakeholders during the rulemaking process.

The Consumer Financial Protection Bureau (CFPB) released on July 28 new proposals designed to "overhaul" the practices of the debt collection industry. The proposals include sweeping changes to existing regulations, including a cap on the number of times a collector may attempt to contact a borrower, new debt substantiation requirements and expanded consumer disclosures. As proposed, the CFPB's new requirements would apply to third-party debt collectors and debt buyers; the proposals do not apply to first-party debt collectors.

The CFPB released its proposal in preparation for convening a Small Business Review Panel to gather feedback from small industry players. In addition to consulting with small business representatives, the Bureau will seek input from the public, consumer groups, industry and other stakeholders during the rulemaking process.

Requirements of the CFPB's Proposed Rulemaking

The CFPB's proposals, promulgated under the Fair Debt Collection Practices Act (FDCPA), would require significant operational changes for debt collectors and other actors in the industry throughout the debt collection lifecycle. The CFPB's proposals include:

New Debt Substantiation Requirements

Collectors would be required to have key information about borrowers and debts at critical junctures in the debt collection lifecycle. Critical junctures include prior to engaging in collection, after a consumer disputes a debt and before engaging in any debt-related litigation. The required information is designed to enable the collector to have a "reasonable basis" for believing that a particular consumer owes a particular debt before acting on it.

Requirement for Collectors to Review and Transfer Borrower Information

The Bureau's proposals would require subsequent collectors to obtain and review certain information arising from past collection activity prior to initiating their own collection activity. Specifically, the proposals would require subsequent collectors to obtain and review certain information that could either affect the subsequent collectors' obligations to comply with the FDCPA or facilitate collector behavior that may be beneficial to consumers. This information includes, for example, whether the consumer previously disputed the debt and whether it was substantiated; any time, place or method of communication that the consumer previously stated was inconvenient; and whether a previous collector provided a time-barred debt disclosure. The proposals would obligate prior collectors to transfer this information if the consumer provided it to them in the course of collection activity, but generally would not require collectors to affirmatively attempt to obtain the information.

Revised and Expanded Validation Notice and Statement of Rights

Under the proposals, validation notices would contain enhanced and clarified information about debts and consumers' rights. The notices would also include an action-item "tear-off" portion to facilitate consumers' exercise of their right to dispute debts. For example, under the new proposal, collectors would have to disclose to consumers if a debt is too old for a collector to bring a lawsuit against a borrower. The consumer would then complete the tear-off portion, choosing among multiple options why the consumer is disputing the debt, and then send that portion back to the collector.

New Limitations on Communications with Borrowers

Under the proposals, collectors would be limited to six communication attempts per week through any medium before they have reached a consumer. The proposals also allow a consumer to stop collectors from contacting them in specific ways, such as on a particular phone line, while they are at work or during certain hours. The proposals also include a 30-day waiting period after a consumer has passed away during which collectors would be prohibited from communicating with parties related to the deceased.

Additional Required Disclosures

The proposals require that collectors provide additional disclosures designed to address issues in the debt collection process that many consumers may not understand. Specifically, the proposals require that collectors disclose if they possess an intent to sue the borrower to collect on the debt. If so, the proposals require that the collector provide the borrower with additional information related to the legal process. Additionally, the proposals require a set of disclosures explaining the legal nuances associated with debts that are beyond the applicable statute of limitations or other debts that may be barred from appearing on borrowers' credit reports.

New Limitations on Debt Transfers

The proposals prohibit debt buyers from placing debt with or selling debt to 1) agencies subject to a judgment or order in the state in which the borrower resides or 2) agencies not licensed to purchase or collect debt in the state in which the borrowers resides.

Record-Keeping Requirements

The proposals require a debt collector to retain all records documenting the actions it took with respect to a debt for three years after its last communication or attempted communication with a borrower.

What Do the Proposals Apply To?

The proposals under consideration would apply to third-party debt collection agencies, loan servicers, debt buyers, debt collection law firms and other entities subject to the FDCPA. This includes smaller industry actors, such as firms or agencies that employ fewer than 20 employees. Notably, the proposals do not apply to first-party debt collectors and creditors; the CFPB's announcement stated that it would pursue reform of first-party debt collection practices separately.

Conclusion

Debt collection has been a large source of consumer complaints to the CFPB since the Bureau opened its doors. The CFPB's new proposals seek to address concerns uncovered by the CFPB through those complaints, as well as through the many enforcement actions the CFPB has conducted within the industry. Members of the debt collection industry are permitted to submit comments to the CFPB during the public comment period.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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