The recent final rule (the “Rule”) implementing the Fair Debt Collection Practices Act (“FDCPA”) only directly governs parties defined as “debt collectors” by the FDCPA, principally meaning those who collect delinquent debt for others.[1]  However, this Rule from the Consumer Financial Protection Bureau, accompanied by a 560-page Preamble, will also likely influence the collection activities of “creditors” — i.e., those collectors that fall outside that “debt collector” definition — in various ways.[2]  The Rule also will affect how creditors should work with the debt collectors they hire.  In this Alert, we focus specifically on these different impacts of the Rule on creditors.  The Rule will take effect one year from the date it is published in the Federal Register.

Influence on the UDAAP / UDAP Analysis for Creditors

While creditors are not subject to the FDCPA, their collection activities are subject to similar prohibitions on unfair, deceptive and abusive acts and practices under the federal “UDAAP” law and various state “UDAP” laws.  Indeed, the Rule now delineates numerous practices that, if undertaken by “debt collectors,” would be considered “unfair” (see 12 CFR § 1006.22), “deceptive” (id. § 1006.18) or “abusive” (id. § 1006.14) under the FDCPA.

As we noted in our Alert on the proposed rule in 2019, the proposed version would have made this connection between the FDCPA and UDAAP more explicit.  In particular, the Bureau proposed to invoke its authority to issue UDAAP rules by prohibiting, under that law, some of the same practices by debt collectors that it also proposed to ban under the FDCPA.

After an outcry by creditors, who argued that reliance on UDAAP would lead courts and regulators viewing creditors on the same plane as debt collectors, the Bureau deleted references to UDAAP in its final Rule and now relies solely on the FDCPA.  The Bureau also further assured creditors by noting in several sections of the Rule’s Preamble that the law distinguishes “debt collector” activities from the collection activities of “creditors,” at least when the creditors also originated the debt:

• The FDCPA itself, according to the Bureau, “recognizes that creditor communications are less sensitive than debt collector communications.”[3] In other words, while consumers may view a creditor communication about a non-delinquent debt as ordinary, hearing from a collector hired by a creditor to pursue a delinquent debt is not.
• The same goes for the risk that a communication intended for the consumer might be received by a third party not authorized to receive it, according to the Bureau: “a consumer who is indifferent to the disclosure of creditor communications [to a third party] may not be indifferent to the disclosure of debt collection communications.”[4]

But the Bureau only went so far to reassure creditors worried about the Rule’s standards surfacing in a UDAAP action.  The agency simply refused to comment on that possibility, stating flatly that the Rule:

is not intended to address whether activities performed by entities that are not subject to the FDCPA may violate other laws, including the prohibitions against unfair, deceptive, or abusive practices in Dodd-Frank Act section 1031.

For the same reasons, the Bureau declines to clarify whether any particular actions taken by a [creditor] would constitute an unfair, deceptive, or abusive practice under Dodd-Frank Act section 1031.[5]

Creditors, therefore, are largely left to their own devices in assessing how the Rule’s conduct prohibitions may impact the analysis of whether particular collection activities may be considered “unfair,” “deceptive,” or “abusive” under UDAAP and UDAP law.  Careful consideration is warranted, particularly with respect to the statutory definition of “unfair” in Dodd-Frank Act § 1031.

State Debt Collection Laws

Some state “mini-FDCPA” laws, including California’s Rosenthal Act, define “debt collector” much more broadly than the federal FDCPA, to include creditors engaged in collection activity.  California, moreover, requires creditors to comply with many substantive provisions of the federal FDCPA itself.  Although there is no reference in the Rosenthal Act to “rules promulgated under” the federal FDCPA, California plaintiffs’ attorneys will likely argue that the new rules define the scope of permissible behavior by creditors and debt collectors alike.  Creditors also should monitor whether states move toward adding such language, thereby making the Rule’s prohibitions directly applicable to them in such states.

Creditor Interactions with Debt Collectors Under the Rule

The Rule also has important implications for how creditors “hand off” accounts to debt collection agencies.  In particular, the rule provides creditors with a safe-harbor mechanism to protect their debt collectors’ ability to engage consumers by e-mail.  The mechanism, however, calls for costly processes that do not now exist at most creditors.  Specifically, before outreach by the debt collector, the creditor would have to send the consumer a detailed notice, with rights to “opt-out” of receiving e-mails from the debt collector.  Moreover, the safe-harbor is generally available only for e-mail addresses on a domain that is available to the general public, which presumably would require creditors to “scrub” e-mail addresses prior to hand-off.  See 12 CFR §1006.6(d)(4)(ii).

There is no similar safe harbor for a creditor’s transfer of a telephone number that the debt collector may use to text a consumer.  12 CFR §1006.6(d)(5).  Nonetheless, the Rule leaves open the possibility of creditors and debt collectors working together to adopt a procedure similar to the safe harbor for e-mail.  The Rule also leaves open another important question:  whether E-SIGN consent given to a creditor is transferrable to a debt collector that it hires.

Validation Rules Coming in December

In the Rule’s Preamble, the CFPB explained that it intends to issue follow-on regulations to govern the obligation of debt collectors to deliver “debt validation notices” to borrowers.  At least as proposed, the Bureau’s model debt validation notice would impose important obligations on creditors to provide accurate account information for their debt collectors to disclose.  The Bureau expects to finalize these additional regulations in December.

A Future CFPB Rule on Collections by Creditors?

Not long before the Trump Administration installed its own leaders atop the CFPB, President Obama’s CFPB Director, Richard Cordray, had outlined plans to propose a separate collections rule to govern “creditors that collect their own debts.”  Whether plans for such a proposal are back “on” in light of last week’s presidential election is another issue for creditors to monitor in the coming months.

[1]         The definition of “debt collector” includes “third-party” collectors, i.e., those who collect delinquent debts “owed or due another,” as well as a narrow range of actors who operate a “business the principal purpose of which is the collection of any debts.”  See FDCPA § 803(6).  The definition does not include those who own the debt they collect, even if they purchased that debt in default.  See Henson v. Santander Consumer USA, 137 S. Ct. 1718 (2017).

[2]         In the Preamble discussion of the Rule, the CFPB uses the term “first-party debt collectors” to refer to these collectors who fall outside the FDCPA’s “debt collector” definition.

[3]         Preamble to the Rule, at 179.

[4]         Preamble to the Rule, at 172.

[5]         Preamble to the Rule, at 32-33.