Consumer Financial Protection Bureau (CFPB) Issues Advanced Notice of Proposed Rulemaking for the Debt Collection Industry
Thursday, November 14, 2013

On November 6th, the Consumer Financial Bureau (the “CFPB” or the “Bureau”) kicked off its process for issuing long-awaited rules that will govern the practices of the debt collection industry.1  Section 1089 of the Dodd-Frank Act amended the Fair Debt Collection Practices Act (FDCPA) to authorize the CFPB to issue such rules.2  The CFPB’s rules will be the first formal rules that implement and interpret the requirements of the FDCPA.  The rules have the potential to reshape many aspects of the debt collection industry.

The CFPB cites three rationales for its decision to issue an Advance Notice of Proposed Rulemaking (ANPR).3 First, it notes that “significant consumer protection problems relating to debt collection appear to exist despite various vigorous government enforcement, supervision, policy development, and educational efforts.4   Second, the Bureau observes that the FDCPA needs rules that account for the impact of technologies that have emerged since the enactment of the statute in 1977, such as email, text and voice messaging, and social media.  Third, the Bureau states that it wishes to examine whether rules are warranted to govern the conduct of not only third party debt collectors, but also creditors that seek to collect debts in their own names.

The ANPR covers a wide range of potential rulemaking topics and potential rulemaking approaches, including many that the Bureau draws from prior work and recommendations of the Federal Trade Commission (FTC), including a 2009 FTC report that urged modernization and reform of the FDCPA.  In particular, the ANPR makes 162 requests for information and comments to help the CFPB determine whether and to what extent it should issue rules, including rules that would do the following:

  • Govern the conduct of creditors that collect debts in their own names;

  • Require certain information to transfer during the sale or resale of debts or the placement of debts with third-party debt collectors, including information about the debts themselves, such as account statements or other documentation of the debts, and about collateral facts which would aid collectors in ascertaining applicable restrictions on communications with consumers at inconvenient times and places and with employers;

  • Require notification to consumers of the sale or the placement of their debts in collection along with information identifying purchasers and collectors;

  • Require debt collectors to disclose to consumers itemized statements of consumers’ debts, including principal amounts as well as fees and other charges assessed, less payments received by creditors;

  • Require affirmative disclosures, in either debt validation notices or separate documents, of consumers’ rights under the FDCPA to have collection efforts suspended upon their written disputation of debts and to request that collectors cease communications;

  • Require debt collectors to provide validation notices in languages other than English under certain circumstances;

  • Permit consumers to request that debt collectors use particular forms of communication when communicating with them;

  • Clarify that requirements under the FDCPA for written notices to be sent, either to debt collectors or to consumers, may be satisfied under certain circumstances by electronic communications, including by text messages or emails;

  • Impose special requirements on debt collectors that wish to use mobile telephones, emails, or text messages to contact consumers about their debts so as to ensure that such communications do not violate the FDCPA’s prohibition against communicating with consumers at inconvenient times or places, including a requirement that debt collectors must ascertain the time zones where consumers are physically located and whether consumers are located in sensitive locations, such as hospitals, before debt collectors may attempt to contact consumers on their mobile telephones or by emails or text messages;

  • Clarify what information debt collectors should disclose and what safeguards they should employ when leaving recorded telephone messages for consumers or when sending them emails or text messages to ensure that collectors satisfy the requirements of the FDCPA that they identify themselves to consumers but do not disclose information about consumers to third parties with access to such messages, emails, or text messages;

  • Define the particular types of consumer communications that debt collectors should deem to be “disputes” under the FDCPA;

  • Exclude from rules that require debt collectors to investigate disputed debts those disputes that collectors know or have reason to believe are “frivolous and irrelevant”;

  • Require consumers to provide certain documentation to debt collectors to support their claims of disputes and to trigger collectors’ obligations under the FDCPA to investigate such disputes;

  • Impose specific requirements as to how debt collectors must investigate the validity of disputed debts, including a requirement that such investigations must be “reasonable” and entail a review of account-specific documents from debt owners rather than simply a review of the accuracy of debt validation notices;

  • Requiring debt collectors, in response to consumer disputes of the validity of debts, to provide consumers with certain evidentiary materials which support collectors’ investigatory conclusions that such debts are valid;

  • Restrict or prohibit the resale or re-placement of unverified disputed debts and from reporting such debts to consumer reporting agencies;

  • Restrict debt collectors from using aliases to identify themselves to third parties when seeking location information about consumers;

  • Clarify situations in which debt collectors may communicate with third parties, such as consumers’ employers, their spouses, executors, and administrators, and attorneys acting on behalf of consumers;

  • Require debt collectors to provide consumers with payment receipts and indications on such receipts as to whether such payments satisfy the debts in whole or in part;

  • Require debt collectors to disclose to consumers when debts are time barred such that debt collectors cannot lawfully sue to collect on such debts;

  • Require debt collectors to disclose to consumers that partial payments on time barred debts will revive collectors’ rights to sue to collect on such debts;

  • Identify or clarify particular acts or practices of debt collectors that should be prohibited as unfair, deceptive, or abusive, including:

  • Conduct prohibited by section 806 of the FDCPA which has the natural consequence of harassing, oppressing, or abusing any person in the course of collecting debts, including examples of such conduct set forth in the statute;

  • Conduct prohibited by section 807 of the FDCPA which involves false, deceptive, or misleading representations or means in connection with the collection of debts, including examples of such conduct set forth in the statute;

  • Conduct prohibited by section 808 of the FDCPA which involves unfair or unconscionable means of collecting or attempting to collect debts, including examples of such conduct set forth in the statute;

  • Making false or misleading claims about the costs or availability of particular payment methods;

  • Applying debt payments made by consumers with respect to multiple debts first to those debts that consumers dispute or other than as consumers direct such payments to apply; and

  • Making unsubstantiated claims to consumers in seeking to recover debts, including claims regarding the positive impact on consumers’ credit scores, credit reports, and creditworthiness, if debts are paid;

  • Certain acts or practices by third parties that act as service providers to debt collectors; and

  • Certain choices of venue in debt collection litigation;

  • Complement or supplement State rules regarding pleadings, motions, and supporting documentation required in State debt collection litigation as a means of protecting consumers engaged in such litigation and to facilitate consumers’ exercise of their legal rights in such litigation;

  • Revise procedures or criteria set forth in Regulation F that State governments must use to apply to the CFPB to exempt a class of debt collection practices from the provisions of the FDCPA due to the fact that State laws provide substantially similar protections and are subject to adequate enforcement;

  • Clarify requirements under the FDCPA for bad check enforcement programs;

  • Require debt collectors to register with the CFPB; and

  • Impose recordkeeping requirements on creditors, debt owners, and debt collectors to ensure that records exist during the statute of limitations for private actions under the FDCPA.

Responses to the ANPR are due February 10, 2014.  As noted above, additional opportunities will exist to participate in the rulemaking process for small businesses, when the CFPB convenes a so-called SBREFA panel to solicit their input, and for the general public, when the CFPB issues a specific proposal for its rules.


1  This new rulemaking proceeding follows in the wake of several recent CFPB debt collection actions.  In October 2012, the Bureau issued its so-called “Larger Participant Rule,” which established the CFPB’s supervisory jurisdiction over 175 large participants in the debt collection industry.  In July 2013, the Bureau issued a compliance bulletin, CFPB 2013-07, which outlined specific debt collection practices that the CFPB deems to constitute unfair, deceptive, and abusive acts or practices. 

2  For its proposed rules, the Bureau cites various other potential sources of authority for its rules, including section 1031 of the Dodd-Frank Act, which permits it to issue regulations that identify and include requirements for preventing unfair, deceptive, and abusive acts and practices, as well as section 1032 of the Act, which authorizes the Bureau to prescribe rules to ensure full, accurate, and effective disclosures of consumer financial products and services in a manner that permits consumes to understand the costs, benefits, and risks of such products and services.  Finally, the Bureau cites its general authority under section 1022 of the Act to prescribe rules that it deems necessary to enable it to administer and carry out the purposes and objectives of the Federal consumer financial laws and to prevent evasions thereof.     

 Rather than commence its rulemaking by issuing a specific proposal, the Bureau instead issued a so-called “ANPR.”  An ANPR is essentially an agency-directed brainstorming session in which an agency identifies a problem that it wishes to solve though regulations, lays out in broad terms potential solutions to that problem, and solicits public feedback as to whether and how the agency should proceed.  The agency then utilizes this feedback in crafting a specific rulemaking proposal.  The ANPR is available here.

4  The Bureau observed that for many years consumers have submitted more complaints to the Federal Trade Commission about debt collectors than any other single industry and that this trend has continued since the CFPB has begun accepting debt collection complaints.  Similarly, the Bureau observed that debt collectors have been frequent targets of consumer litigation as well as FTC and now CFPB enforcement actions.

 

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