Why creditors and servicers should care about the CFPB’s proposed debt collection rules
The Bureau’s proposed debt collection rules, released last week, only apply to debt collectors, as defined under the Fair Debt Collection Practices Act. So, why should creditors and servicers be interested in them? Lots of reasons.
First, a number of provisions call for creditors (or by extension, servicers) to take action before a debt is assigned to a collection agency in order to facilitate the collection agency’s use of electronic communications with the consumer. The various provisions that allow a consumer’s consent to receive electronic communications to be transferred from a creditor to a debt collector either require the creditor to keep records of the consumer’s prior E-SIGN consent, or require the creditor to make a disclosure to the consumer about placement of the debt with a collection agency, and then track any consumer opt-outs from receiving electronic communications from the debt collector. In several instances, we believe these options for transferring consent (which are likely to facilitate the debt collection process and help avoid the potentially large impact of the call frequency restrictions) will require new system development and new data communication streams to be supported by creditors and servicers. The long lead times associated with such system builds suggests that planning for them should begin in the near future.
Second, creditors will be required to exercise effective third-party oversight over debt collectors with whom they place accounts, and understanding the proposed rules – with all of their complexity – will be essential to doing this. Creditors will also likely see increased documentation demands and requests for additional representations and warranties from their third-party agency and debt buying partners to maximize their ability to use existing consumer contact information to begin collection efforts.
Finally, there is the potential for the rules, when finalized, to be applied directly to creditors and servicers. Although the proposed rules make occasional distinctions between creditor collections and those of third-party debt collectors, the main thrust of the proposed rules is to define unfair and deceptive practices with respect to debt collection by reference to principles like harassment and third-party disclosure. Although there are good reasons to treat creditor and servicer collections differently than third-party collections, the potential exists for some portions of the proposed rules to be applied to creditors by analogy under the CFPB’s UDAAP authority, and indeed the Bureau released a Bulletin in 2013 stating that it would consider doing so with respect to certain provisions of the FDCPA.
For example, there are a number of proposed approaches (e.g., contact limitations, limited content messages, using text and email, etc.) that could have direct impacts on how collections are performed in the first-party environment. It is not much of a stretch to anticipate that the CFPB will seek to impart those expectations into first-party collections through examinations and enforcement using its UDAAP authority. Moreover, many states have debt collection statutes modeled after the FDCPA, but which also apply to creditors and servicers collecting debt. The state agencies responsible for enforcing these statutes (or even private litigants) could argue that the unfair or deceptive practices defined in the final CFPB rules are also prohibited by these state laws.
We believe that creditors and servicers should carefully analyze the proposed rules and make a determination about which ones may apply, and how to incorporate them into their own collections efforts. Sitting on the sidelines and dismissing the rules as applicable only to debt collectors does not seem like a viable option, in our view.