United States: CFPB Outlines Overhaul Of Acceptable Debt Collection Practices

On July 28, at a public hearing in Sacramento, California, the Consumer Financial Protection Bureau released an outline of new rules targeting third-party debt-collection operations. The new rules seek to curb "excessive or disruptive" communication by restricting collectors from calling debtors numerous times a day, require debt collection companies to have "more and better information" about the debt they collect, including documentation on what is owed, and give consumers more options to dispute their bills.

The CFPB's outline focuses on rules pertinent to third-party debt collectors—those who operate on behalf of creditors—and debt buyers. Rules relevant to creditors, first-party collectors, and banks are expected to follow at a later date.

The new debt-collection rules would represent the first major regulatory overhaul of the debt collection market since 1977 when the Fair Debt Collection Practices Act ("FDCPA") was enacted.

In 2010, the Dodd-Frank Act created the CFPB as the primary agency to enforce and create a regulatory framework for the FDCPA. Since then, the CFPB has been working to write rules that establish what is permissible and what is prohibited under the law. The CFPB's recent outline targets various areas, including:

  • Debt Validation: Under the proposed rules, debt collectors would have a much higher burden to substantially prove a debt is valid before starting collection.
  • Limits on Contact: Once a debt is considered valid, the new rules seek to limit a collector to no more than six communication attempts per week. Further, if a consumer wants a collector to stop calling a certain number, the new rules would make it easier to make such a request.
  • Consumer Disputes: If a consumer disputes the validity of a debt, the proposed rules would require collectors to provide clearer and easier ways for that person to communicate the grounds for their dispute. This includes a proposed "tear off" portion of a collection notice where someone can denote why the amount is wrong or why they believe the debt is invalid. It also includes a proposal to allow consumers to dispute a debt over the phone. The latter proposal would represent a major change from existing law because, presently, most disputes must be handled in writing. Further, if a consumer disputes a debt, collectors would be required to stop collection efforts until they gather enough evidence to substantiate the debt. Additionally, under the proposed rules, if a disputed debt is sold, the new collector would inherit the dispute and would still have to provide validation.
  • Deceased Consumers: Also under consideration is a 30-day waiting period after a consumer's death before collectors can contact surviving family members. The CFPB said the proposal would clarify that "it is generally permissible for collectors to contact surviving spouses, parents of deceased minors, and individuals who are designated as personal representatives of an estate under state law." The CFPB is also proposing a 30-day waiting period for loans following the death of a debtor, stopping all collection attempts from a surviving spouse or child during that period.

The step of releasing an outline of new rules for debt collectors is the latest in a series of initiatives the CFPB is taking this year. Earlier this year, the CFPB proposed a rule that would restrict the use of arbitration clauses in consumer financial contracts – from credit cards to bank accounts to private student loans. In June, the agency proposed the first federal rule to regulate payday lenders. Rules governing bank overdraft fees and prepaid cards are expected to follow later this year.

Following the public hearing, the 39-page outline will be reviewed by representatives of small businesses for its impact before the agency formally proposes the rules. Once formal rules are written, possibly later this year, the public will have 90 days to submit comments before the rules go into effect.

The Troutman Sanders' Consumer Financial Services Law Monitor blog offers timely updates regarding the financial services industry to inform you of recent changes in the law, upcoming regulatory deadlines and significant judicial opinions that may impact your business. To view the blog, click here.

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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Authors
David N. Anthony
Stephen Piepgrass
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