On Oct. 30, 2020, the Consumer Financial Protection Bureau (CFPB) issued a final rule clarifying prohibitions on harassment and abuse, false or misleading representations, and unfair practices by debt collectors when collecting consumer debt. The rule focuses on debt collection communications, and specifically clarifies how the protections of the Fair Debt Collection Practices Act (FDCPA) apply to modern communication formats, such as email and text messages. Although the new rule marks the first attempt to clarify the FDCPA’s application to newer technologies since 1977, the CFPB chose not to implement some originally proposed changes and guidance. This article clarifies what is not in the new rule, what the CFPB signals that it is saving for future rule changes, and what that might mean for debt collectors, creditors and consumers moving forward.
Creditors and First-Party Collectors
In issuing the final rule, the CFPB clarified the scope of the rule’s application by recognizing who the rule does and, more importantly, does not apply to. Creditors and first-party collectors, which are generally not subject to the provisions of the FDCPA, are not covered by the final rule. The CFPB specified that it was relying on its authority under the FDCPA to promulgate the final rule, curtailing its overall reach within the debt collection industry. The proposed rule, in contrast, relied in part on the Dodd-Frank Act’s section 1031 authority to promulgate regulations concerning unfair, deceptive, or abusive acts and practices (UDAAP).
Financial services parties that are “covered persons” under the CFPA may find that the final rule sets standards that establish a quasi-rule governing their conduct. But limiting the final rule to debt collectors avoids the difficult jurisdictional questions raised by a rule that directs creditors. Over half of defaulted debt in the U.S. originates from health care, utility and government creditors. It’s fairly likely that had the rule tried to direct these entities’ conduct, the rule would be subject to substantial legal challenges about whether the CFPB has authority over hospitals, dentists or city governments, for example.
Safe Harbor for Meaningful Attorney Involvement
Originally, the CFPB proposed a provision outlining lawyers’ responsibilities in debt collection litigation in an effort to clarify what qualifies as “meaningful attorney involvement” under the FDCPA. According to the CFPB, the proposed provision was intended to offer protection against claims asserting a lack of meaningful attorney involvement in collection litigation. But there was one important caveat—to qualify for this safe harbor, litigators had to first meet the requirements outlined in the proposed provision, such as reviewing the information used to support “pleadings, written motions, or other paper.”
A host of industry representatives and consumer protection advocates criticized the requirements for several reasons. Many noted that the standards created more confusion than clarity, as the CFPB failed to provide guidance on what exactly would qualify as a sufficient review of information. Others, including the American Bar Association, objected that the rule usurped the authority of courts to regulate the conduct of lawyers. The CFPB ultimately declined to adopt the proposed provision based on the strong negative reaction by both consumer and industry commenters alike. But the CFPB did not foreclose the possibility of a future rulemaking, stating that it would continue to monitor the developments in the legal theory to determine whether further guidance is necessary. Thus, it appears that the status quo remains the same for those litigating collection cases, at least for now.
Looking to boost consumer trust in debt collection notices, the CFPB proposed a rule that would increase the information disclosed to consumers about their debt in a validation notice. The logic behind the proposed rule was that the more information the consumer knew about the debt, the more likely the consumer would be to trust the veracity of the debt notice.
Itemized Debt in Validation Notice. The CFPB’s proposed rule required debt collectors to include specific information in the itemization of the consumer’s debt. Examples of the proposed itemization requirements included the account number associated with the debt and the name of the creditor to whom the debt is currently owed. Industry commenters were very concerned about this new requirement, as it would add significant complexity to the disclosures, particularly concerning medical debts.
Uniform Validation Notice Form. In addition to increasing the amount of information disclosed to consumers in a validation notice, the CFBP also proposed a rule to create a uniform validation notice. The proposed rule sought to create a single national standard for the validation notice to resolve inconsistencies in notice requirements across the country. Accordingly, the CFPB included a single-page model validation notice in plain English in its proposed rule. While both industry and consumer advocates support the notice in concept, the actual design of the notice is very difficult—requiring coordination with state law, practical letter mailing formats, and substantive considerations about language to be on the notice.
Ultimately, the final rule did not adopt any validation notice rules. The CFPB noted that it intended to issue a disclosure-focused finalized rule to address the validation notice requirements in December 2020. Debt collectors should mark their calendars in anticipation of this future rulemaking, and be on the lookout for a more standardized validation notice format.
The CFPB’s proposed rule would have defined the terms “statute of limitations” and “time-barred debt,” prohibiting debt collectors from suing and threatening to sue consumers to collect on time-barred debts. Additionally, this proposed rule would require debt collectors collecting a debt that the collector knew or should have known is time-barred to disclose: (1) that the law limits how long the consumer can be sued for debt, and that, because of the age of the debt, the debt collection will not sue to collect the debt; and (2) if the debt collector’s right to bring a legal claim against the consumer to collect the debt can be revived under applicable law, the collector must disclose the fact that revival can occur and the circumstances in which it can occur. The CFPB declined to finalize a time-barred debt rule, hinting that it intended to address a time-barred debt rule at the same time it issues a disclosure focused rule for validation notices in December 2020. Therefore, debt collectors should be on the lookout for this rule in December, and be prepared for time limitations on their ability to sue consumers in 2021.
While the new rule provides assurances for many interested parties, those in the industry should continue to monitor the CFPB’s notices of proposed rulemakings and updated guidance for future developments within this arena.