The CFPB’s final collections rule: initial impressions

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On November 13, 2020, from 12:OO p.m. to 1:00 p.m. ET, we will present a webinar on the CFPB’s final collection rule.  

On October 30, the CFPB released “part one” of its long-awaited final collections rule, which restated and clarified certain prohibitions on harassment and abuse, false or misleading representations, and unfair practices by debt collectors under the Fair Debt Collection Practices Act (“FDCPA”).  The release marks one of the most significant developments in the debt collection industry since the FDCPA was enacted in 1977.

The final rule and accompanying commentary released by the CFPB is 653 pages, and there is much to analyze and digest.  Several sections – most notably, the process for obtaining consent to use email and text messaging – are significantly revised from the Bureau’s NPRM.  The final rule will become effective one year from the date of publication in the Federal Register.  The CFPB announced that it would release “part two” of the rulemaking in December 2020, which will contain final rules on certain consumer disclosures (i.e., the validation notice and time-barred debts), as well as debt collector furnishing of consumer repayment information to consumer reporting agencies.

The final rule focuses on clarifying how debt collectors can permissibly engage in various types of debt collection communications and seeks to provide consumers with more control over how often and through what means debt collectors can contact them regarding their debts.

For instance, the final rule establishes a rebuttable presumption that seven or fewer calls within a seven-day period does not constitute harassment.  It further provides that the seven-day call cap on communications will continue to be measured on a per-account, rather than a per-consumer, basis (with the exception of student loans serviced under a single account number).  However, the Official Commentary also outlines a series of factors that a consumer could use to rebut this presumption when a debt collector did not exceed the call frequency limit.  It also outlines a series of factors that a debt collector can use to rebut the presumption that it engaged in harassment if the collector ends up exceeding the cap.  Also, although the rule does not impose numerical limits on email and text messages, the CFPB has added a statement to the Official Commentary indicating that communications using these methods can violate the FDCPA, either by themselves or in combination with communications through other channels.

The final rule retains a safe harbor procedure for the use of limited content messages, but that protection now only covers voicemails, and no longer includes emails, text, or live calls with third-parties as previously proposed in the NPRM.  The final rule clarifies how FDCPA protections apply to newer communication technologies, such as email and text messages.  This includes an entirely revamped process for transferring creditor consent to email and a prohibition on any creditor transfer of consent to text.  All communications – including email and text messages –remain subject to the final rule’s time of day (8 a.m. to 9 p.m. in the consumer’s time zone, plus any other times designated by the consumer) and inconvenient place restrictions.  The final rule further requires that all email and text communications include a clear and simple opt-out method for the consumer to use to stop those communications if the consumer wishes to do so.

The requirement to obtain E-SIGN consent to send legally required notices to consumers via email remains in the final rule and the NPRM’s prior, alternative approach to “confirming” any E-SIGN consent given to the creditor has been removed in its entirety.  However, the final rule does appear to permit sending a debt validation notice via email absent E-SIGN consent (although the CFPB omitted its proposed safe harbor allowing this) so long as the email constitutes the debt collector’s initial communication with the consumer.

The final rule also provides some assurance to creditors and other first-party collectors that they are not subject to the final rule.  In addition to expressly stating that the final rule does not apply to those parties, the CFPB removed the Dodd-Frank UDAAP provision as one of the bases for the rulemaking.  The Bureau also included a comment in the preamble to the final rule stating that its rulemaking process did not consider whether and how any of the final rule’s provisions should be applied to creditors and other first-party collectors, and specifically commented that its call frequency presumptions were not intended to apply to creditors.

Elsewhere, however, the final rule explicitly leaves open the question of whether activities that would violate the final rule, when undertaken by entities not subject to the FDCPA, may violate UDAAP.  The Bureau also declined to clarify whether any particular actions taken by a creditor or first-party debt collector would constitute an unfair, deceptive, or abusive practice under Dodd-Frank Act § 1031.  There are also state debt collection laws that may impliedly incorporate the final rule’s provisions as to creditors, and others (like California’s Rosenthal Act) that may do so explicitly.  Thus, it remains unclear whether creditors must (or should) adhere to the final rule as a matter of UDAAP or state law compliance.

There are a number of additional, miscellaneous items of note.  First, the final rule contains provisions that deal specifically with how the final rule interacts with the CFPB’s mortgage servicing requirements.

Second, although the CFPB declined to finalize the proposed safe harbor for meaningful attorney involvement, it reiterated that it believes the doctrine is alive and well under the FDCPA, and predicted further litigation against debt collection law firms under this theory.

With regard to debt sales and placements, the CFPB removed the prohibition against selling debts subject to identity theft claims because it believes that the FCRA already prohibits such activity, and amended the prohibition involving bankrupt accounts to permit the sale or placement of such accounts when secured by an enforceable lien.

Finally, the CFPB added a new requirement that if a debt collection communication occurs in more than one language, the mini-Miranda disclosure must be provided in all of those languages, which may be operationally cumbersome to implement.

Over the next two weeks, our team will publish a series of blog posts breaking down various portions of the final rule, and will host a deep-dive webinar into the final rule on November 13th from noon to 1 p.m. ET.  

Below is the list of topics that we plan to discuss in further detail moving forward:

  • Potential creditor impacts;
  • Final contact frequency limits and limited content messages;
  • Using text and email in collections;
  • Applicable time/place restrictions for all communications;
  • E-SIGN requirements for legally-required notices;
  • Mortgage servicing impacts;
  • Credit reporting impacts;
  • Debt sale restrictions and legal collections; and
  • Potential impacts of the election on future rulemaking, potential CRA efforts, enforcement of the final rule, and future CFPB leadership.

We hope that this series of blog posts will be useful to you and your colleagues as you review and analyze how the final rule impacts your operations and of course, we hope you will join us on November 13th.   Make Ballard Spahr your one-stop source for information about the final rule!

DISCLAIMER: 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.

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