Today, the Consumer Financial Protection Bureau ("CFPB" or "Bureau"), issued its outline of proposals under consideration for the regulation of debt collection. More than three years in the making, the CFPB's proposals will subject debt collectors to stricter rules under the Fair Debt Collections Practices Act ("FDCPA"). The Bureau's release came in preparation for the convening of a Small Business Review Panel ("Panel") to gather feedback from small debt collection industry players, which constitute the large majority of debt collection firms, according to the CFPB. The Panel process is the first step in the debt collection rulemaking process.
Many of the proposals are enhancements to existing policies and procedures used by leading edge debt collectors today, with a few new wrinkles. Some of the key points are as follows:
Data Integrity and Substantiation. Ensuring that debt collectors can substantiate the debts they are collecting and that they are collecting the debt from the right person have been high priorities for the Bureau in its public statements about this market. The CFPB suggests that data integrity can be compromised when accounts are placed or sold from a creditor to a debt collector and to a subsequent debt collector thereafter. The CFPB's proposal will put in place mandated, and some will say onerous, requirements upon debt collectors to validate claims of indebtedness before their first communication with any consumer. Debt collectors will also be tasked to ensure that critical information regarding the debt, such as details of disputes, bankruptcies and payments, must be retained by the original owner of the debt and supplied to subsequent debt collectors.
Consumer Understanding Initiatives. The CFPB proposes a new series of disclosures to assist consumers in understanding and recognizing the debt. These disclosures are also meant to inform consumers about their rights, including the right to dispute the claim. The proposals contain a new form of an initial demand letter which includes a "tear-off" portion that consumers can send back to the debt collector with check-off boxes to identify a dispute or indicate willingness to pay the debt. Under the proposals, debt collectors will be required to provide consumers with a report presenting information that confirms the debt. Debt collectors would also have to make disclosures regarding future and potential litigation as well as statements as to whether the debt is time-barred or obsolete.
Limitations on Communications. The CFPB cites to consistent consumer complaints that debt collectors too frequently and repeatedly contact them by telephone. In response, the CFPB's proposal would significantly limit the number of times a debt collector may contact a consumer in a given week, as well as where a debt collector may contact a consumer; it also provides a 30 day waiting period before a collector may contact a decedent debtor's spouse.
The CFPB reviewed more than 23,000 responses to its Advanced Notice of Proposal Rulemaking ("ANPR"). The Bureau also conducted a survey to examine consumer experiences with debt collection, engaged in consumer testing of disclosures and carried out an industry survey to get a better sense of current collector practices.
The Small Business Regulatory Enforcement Fairness Act ("SBREFA") directs the CFPB to convene a Panel when considering a proposed rule that could have a significant impact on a substantial number of small entities. In addition to the CFPB, the Small Business Administration ("SBA") Office of Advocacy and the Office of Management and Budget ("OMB") will also preside over the Panel, which will convene at the end of August. At the conclusion of the Panel meeting, debt collector representatives will submit written comments and the CFPB, SBA and OMB will prepare a final report that will be placed in the rulemaking record. The CFPB's proposal notes that a second Panel will be convened to consider first-party collection efforts, a highly unusual bifurcation of the SBREFA process. It is anticipated that the proposed rule for debt collection will not be published until sometime in late 2017.
Additional insight and analysis of the CFPB's outline of proposal will be forthcoming from Clark Hill's Consumer Financial Services Regulatory & Compliance Practice Group.