CFPB Releases Outline for Proposed Rules on FDCPA

July 28, 2016

Prepared by:  Wes Huffman (whuffman@wpllc.net)  

Today, the Consumer Financial Protection Bureau (CFPB) released what officials are describing as an outline of forthcoming regulations on the Federal Debt Collection Practices Act (FDCPA).  The Bureau still must meet with a Small Business Review Panel and indicates it remains open to discussions with all stakeholders before the official publication of proposed rules, but the 119-page outline provides a pretty clear roadmap for where the process is headed.  In announcing the outline, the CFPB said the proposed rules are designed to specifically ensure third-party debt collectors do the following:

• 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.

In the Advance Notice of Proposed Rulemaking (ANPR) on FDCPA, the CFPB had suggested an intent to apply certain FDCPA requirements, which have only applied to third-party collectors, to first-party creditors. The rules outlined today largely do not address first-party creditors, but the Bureau has indicated it plans to promulgate regulations in this area on a “separate track.”

The release of the outline accompanies a CFPB field hearing on debt collection in Sacramento, CA with Director Richard Cordray giving a speech.  In his prepared remarks, Cordray acknowledges the role of debt collection in a credit based economy, but is also harshly critical of the industry. The CFPB Director also plans to say, “Those living under the shadow of indebtedness already tend to bear an emotional toll, which is intensified as they experience the new trials of the debt collection process.”

The CFPB continued its traditional practice of releasing new proposals at midnight.  Therefore, those concerned with the outline could only comment in generalities for media coverage of the proposal.

The Association of Credit and Collection Professionals spoke to the potential impact on small businesses, telling Politico, “Professional debt collectors are invaluable advisors to small businesses, many of which are just a few unpaid invoices away from having to close their doors or eliminate jobs.”  ACA International also mentioned the potential impact on the availability of credit:  “If creditors are not able to collect rightfully-owed debts, they will be less likely to extend credit to consumers who rely on credit for much needed goods and services,” spokesperson Cindy Sebrell told Politico.

COHEAO, along with all other affected stakeholders, is currently in the process of reviewing the outline and its potential impact on our members.  We will be discussing the proposed regulations at our upcoming Mid-Year Conference and will continue to provide additional information to COHEAO members as the process continues.

• The CFPB outline is available online.
• The CFPB press release is available online.
• Director Cordray’s prepared remarks are available online.