The CFPB’s final collections rule: using electronic communications to send required disclosures

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

One of the initial promises of the CFPB’s NPRM was a level of certainty as to the use of electronic communications to provide legally-required collection disclosures to consumers.  In adopting the final rules, however, the CFPB left this promise unfilled by creating different standards for different types of disclosures.

Electronic Delivery of Disclosures Related to Validation, Original Creditor Information Requests, or Consumer Disputes.

The NPRM initially clarified that the E-SIGN Act’s consumer-consent requirements generally apply to the electronic delivery of validation notices, original creditor information request responses and dispute responses.  It specifically proposed two approaches to electronic delivery of such notices: a debtor collector could (1) obtain an E-SIGN Act-compliant consent (an “E-SIGN Consent”) directly from the consumer; or (2) comply with certain alternative procedures that would allow the collector to rely on a creditor’s previously obtained E-SIGN Consent.

Industry reaction to the first option proposed in the NPRM was, at best, lukewarm.  Most industry members found the option to offer little utility in the context of most collection activities because an E-SIGN Consent requires affirmative consent and cannot be obtained orally.  As a result, an E-SIGN Consent generally could not be obtained easily during the normal course of a collections call or by implied consent, such as in response to an email or text.  But the second approach in the NPRM held potentially more (albeit imperfect) promise.  It proposed that so long as certain procedures were followed, a debt collector could utilize email or text messages for these notices so long as a creditor or another debt collector previously obtained the consumer’s E-SIGN Consent for that delivery method.  In short, the debt collector could avoid having to obtain E-SIGN Consent directly from the consumer in such circumstances.

The final rule, however, muddies this certainty.  While helpfully eliminating the first approach’s requirement for a debt collector to obtain E-SIGN Consent directly from the consumer, the final rule removed entirely the second, more promising option outlined above.  This effectively leaves debt collectors in the same pre-rule position for these notices: a complete lack of certainty as to whether a debt collector can rely on a previously obtained E-SIGN Consent.

In taking this action, the CFPB explained that the revisions primarily stemmed from a lack of data because “debt collectors do not presently engage in widespread use of electronic communications.” See Preamble to Debt Collection Practices (Regulation F) (the “Preamble”), page 255.  The CFPB indicated that it was “not taking a position . . . on whether a consumer’s E-SIGN consent provided to a creditor (or to a prior debt collector) transfers to a debt collector . . .” and also expressed an intent to “in the future, revisit specific procedures for electronic delivery of required notices.” See Preamble, page 429.  These actions will likely further debt collectors’ hesitation to provide notices and disclosures electronically given the difficulty of obtaining E-SIGN consent directly from a consumer and the lack of certainty as to reliance on a previously obtained E-SIGN consent.

Electronic Delivery of Validation Notices with Initial Communications

Despite the ambiguity created by the deletion of the NPRM’s second option, at least one potential silver lining is buried in the final rule’s section-by-section analysis of a specific type of validation notice.  This analysis, but not the final rule itself, appears to clarify that a validation notice delivered in an email that constitutes the collector’s initial communication with the consumer about the debt can be delivered without first obtaining E-SIGN Consent.  Specifically, the CFPB reasoned that the “FDCPA does not require the validation notice information to be provided in writing when it is contained in the initial communication” and, accordingly, “the E-SIGN Act’s consumer-consent requirements do not apply to a debt collector’s electronic delivery of the validation notice information within the debt collector’s initial communication to a consumer.”

The CFPB’s logic mirrors that of the district court in Greene v. TrueAccord Corp., a 2020 decision that held the use of email to send the initial communication containing the validation notice without first obtaining the consumer’s E-SIGN consent to receive the notice electronically did not violate the FDCPA.

Electronic Delivery of Certain Notices to Debt Collectors by the Consumer

The CFPB separately clarified that E-SIGN Consent was unnecessary for a consumer to provide a cease and desist request or refusal to pay notification electronically under the FDCPA.  Specifically, in the final rule’s section-by-section analysis of Section 1006.6(c)(1), the CFPB stated that the FDCPA’s requirement that such notices be in writing is satisfied when the consumer provides the communication electronically (e.g., in an email message or through a debt collector’s web portal).  In doing so, the CFPB utilized authority granted by the E-SIGN Act to federal agencies with rulemaking authority under a particular law to interpret the E-SIGN Act’s application to that law.  (This is the same authority on which the CFPB originally relied to create the NPRM’s two approaches to electronic disclosures discussed above.)  While compliance-minded debt collectors likely already honored such communications, the final rule now leaves no doubt that collectors must “give legal effect to a consumer’s electronic cease communication request if the debt collector generally accepts electronic communications from consumers.” See Preamble, page 145.

Conclusions

In our view, the final rule ultimately sends a mixed message on whether the CFPB wants to encourage the use of email or other electronic methods to deliver legally-required notices to consumers.  This is because, for most notice types, the rule continues to cast doubt on whether a debt collector may rely on previously obtained E-SIGN consents.  As a result, the final rule forestalls any rapid, wide-spread use of electronic methods to replace the current industry practice of sending such notices by U.S. mail.  But, at the same time, the CFPB at least appears to provide a viable, albeit limited, path forward for sending electronic validations notices if sent as the initial communication with a consumer.  Depending on a collector’s ability to operationalize and manage that path, it could open the door to this new opportunity.

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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