United States: CFPB Proposes New Rules To Modernize Debt Collection

On May 7, 2019, the Consumer Financial Protection Bureau (CFPB) issued proposed rules (“Proposed Rules”) under the Fair Debt Collection Practices Act (FDCPA) and its authority under the Dodd-Frank Act.  If finalized, the Proposed Rules will be the first substantive regulations for debt collection practices since the FDCPA was enacted in 1977. The Proposed Rules would clarify the application of the FDCPA to current market conditions, most notably by permitting the use of text messages, emails, and social media to communicate with debtors. At the same time, the Proposed Rules would address concerns about traditional means of communication, such as phone calls and voice mail messages.

Key Changes in the Proposed Rules

Proposed Rules apply to debt collectors as defined in the FDCPA

The Proposed Rules apply to debt collectors as defined in FDCPA; however, some provisions, such as the limits on phone call frequency, would apply only when the debt collector is attempting to collect debt related to a consumer financial product or service, rather than a business or commercial product or service. The Advance Notice of Proposed Rulemaking, 1 published in 2013 while the CFPB was still under the direction of former Director Richard Cordray, raised the possibility that the CFPB would promulgate rules that would apply to first-party collectors (i.e., collection of debts by the party to whom the debt is owed) that are not covered by the FDCPA. However, the Proposed Rules, issued under the direction of Director Kathy Kraninger, only apply to first-party collectors to the extent that such collectors are debt collectors as defined in the FDCPA.2

Use of emails, text messages, social media and other electronic communications

The Proposed Rules would clarify the application of the FDCPA by allowing debt collectors to use newer communication technologies, such as voicemail, email, text messages, and social media. However, use of such technologies would be limited in order to protect consumer privacy and prevent unfair, deceptive, or abusive acts or practices. The limitations would include allowing consumers to opt out of receiving messages on a particular medium or to designate a particular medium as one that a debt collector cannot use. In addition, social media could not be used to communicate with a consumer about a debt if the communication could be viewed by third parties.

Safe harbors related to unintentional third-party disclosure using electronic communication

The Proposed Rules also would provide certain safe harbors for debt collectors who may unintentionally violate the FDCPA. For example, a debt collector would not violate the FDCPA’s prohibition on disclosure to third parties if the debt collector can show it maintained procedures to reasonably confirm and document that the email address or phone number it used was one that the consumer used recently to contact the debt collector. 

Limits on debt collection phone calls

The Proposed Rules would limit the frequency of phone calls a debt collector attempting to collect debt related to a consumer financial product or service may make to a person with respect to a particular debt. Specifically, a debt collector would be prohibited from making more than seven phone calls to a person about a single debt within a seven-day period, or, within seven days after engaging in a telephone conversation with the person. The restrictions apply not only to calls to consumers, but also to calls placed to third parties to locate the consumer. However, certain calls are excluded from the frequency restrictions, for example, if the debt collector is responding to a request for information from the person it is calling.

Limited-content messages that may be left without risk of third-party disclosure

The Proposed Rules would define certain “limited-content messages” as not being “communications” under the FDCPA, addressing concerns about voice mail messages that might disclose the debt to third parties. To be a limited-content message, the message would need to include the consumer’s name, a request that the consumer reply to the message, the name and telephone number of a natural person the consumer can contact, and (in the case of electronic communications) an opt-out notice. The only additional content that is permitted, but not required, to be included in a limited-content message is a salutation, the date and time of the message, a generic statement that the message relates to an account, and suggested dates and times for the consumer to reply. Because limited-content messages would not be “communications” under the FDCPA, a debt collector would not be required to provide the so-called “mini Miranda” disclosure, which requires a debt collector to disclose in the initial communication with the consumer that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.3

Changes to the validation notice

The Proposed Rules would clarify the information the FDCPA requires a debt collector to provide to a consumer at the outset of the debt collection communications, including required prompts that a consumer could use to dispute the debt, request information about the original creditor, or certain other actions. For example, this information would include an itemization of the debt and “plain-language” information about how a consumer may respond to a collection attempt. The Proposed Rules also contain a model validation notice that debtors could use to ensure compliance with the FDCPA and the Proposed Rules.

Rules related to time-barred debt

The Proposed Rules would prohibit a debt collector from suing, or threatening to sue, a consumer to collect time-barred debt. However, the Proposed Rules would not restrict a collector from other collection attempts involving time-barred debt. The CFPB indicates that it is testing a disclosure related to time-barred debt with consumers and may engage in an additional rulemaking on this subject.

Restrictions on passive collection through consumer reporting

The Proposed Rules would prohibit a debt collector from furnishing information about a debt to a consumer reporting agency prior to communicating with the consumer about the debt.

Restrictions on debt sales, transfers or placements

The Proposed Rules would prohibit, with certain exceptions, the sale, transfer, or placement for collection of a debt if a debt collector knows or should know that the debt has been paid, settled, or discharged in bankruptcy, or that an identity theft report has been filed with respect to the debt.

Conclusion

The Proposed Rules, if finalized, could cause a shift in the nature of the communications used in the debt collection industry. Limitations on telephone calls, and authorization to use newer communication methods, may result in increased use of newer technologies. At the same time, because collectors may leave limited-content voice mail messages under the Proposed Rules, collectors may continue to rely on phone calls as fewer calls may need to be made.

The comment period is scheduled to close 90 days after the publication of the Proposed Rules in the Federal Register. We expect to provide a more detailed analysis of the CFPB’s Proposed Rules in the coming days.

Footnote

1 78 Fed. Reg. 67,847 (Nov. 12, 2013).

2 The FDCPA generally governs only third-party collectors, but does apply to “any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts.” 15 U.S.C. § 1692a(6). Additionally, the definition of a debt collector under the FDCPA includes “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts.” Id. The U.S. Supreme Court in Henson v. Santander Consumer USA, 137 S. Ct. 1718 (2017) declined to consider whether first-party collectors may be debt collectors under the FDCPA under the “principal purpose” prong of the definition of the term debt collector.

3 See 15 U.S.C. 1962e(11).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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