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7/29/16 - CFPB Moves Forward on Debt Collection Proposal

The Consumer Financial Protection Bureau released a series of proposals on July 28 to expand regulation of the debt-collection market and move forward on the most significant revision of the Fair Debt Collection Practice Act since its enactment in 1977.

Notably, FDCPA exclusively applies to third-party debt collectors and does not extend to first-party collectors such as banks and other originators. To date, the CFPB has taken enforcement actions against first- and third-party collectors by relying on its authority to prevent unfair, deceptive, or abusive acts or practices. As the rulemaking process unfolds, the CFPB will address applicability to first-party collectors and is expected to update the FDCPA in light of the technological developments of the roughly 40 years since its passage.

The proposals follow an advanced notice of proposed rulemaking on debt collection and the CFPB’s November 2013 survey of debt-collection firms and vendors. The formal rulemaking process is likely to extend into at least 2017 and incorporate feedback from a small-business review panel as required by law.

OVERVIEW OF THE PROPOSALS

While the July 28 proposals focus strictly on third-party debt collectors, the CFPB said it plans a separate process to address first-party collectors and others engaged in collection activity, stating in its outline of the proposals that this approach “will enable participants to provide more focused and specific insights.” Third-party collectors are likely to note the proposals’ emphasis on data integrity and validation throughout the collection process. The CFPB’s key proposed provisions are outlined below.

  • Data Validation: Collectors would be expected to substantiate important data relating to the debt prior to contacting consumers, including the consumer’s full name, last known address, last known telephone number, account number, date of default, amount owed at default, and the date and amount of any payment or credit applied after default.
  • Limits on Communications: Collectors would be limited to six communication attempts per week prior to confirmed contact with the consumer and three per week after confirmed contact. Additionally, the proposals seek to make it easier for consumers to opt out of communication methods, including specific addresses or phone numbers, and contemplate a 30-day waiting period after a consumer passes away. The proposals also provide clarity around multiple technological issues, addressing such things as a “convenient” time to contact a consumer via email or text. The CFPB is considering whether these communication limits should apply to mortgage servicers.
  • Collection Notices: Third-party collectors would be required to disclose certain information relating to the consumer’s debt in initial collection notices, including a “Statement of Rights” and in some instances, disclosures surrounding time-barred debt and litigation. These notices may be required to be in both Spanish and English. The proposals also consider including a “tear-off” portion of the notice that consumers could send back to the collector to dispute or pay the debt. The agency said it may require retention of all pertinent records for three years after final consumer interaction.
  • Handling of Disputes:
    • Written Disputes: If a consumer returns the proposed “tear-off” or provides a written response, the collector would be required to provide written documentation back to the consumer substantiating the debt within 30 days. These documentation requirements vary by complaint type and topic, but include full name, address, account number, amount of debt, and date of default. Collectors could not continue collection activities until providing documentation.
    • All Disputes: If the consumer disputes the debt, collection activities may not resume until the collector reviews all relevant documentation. In addition, the collector is responsible for looking out for “warning signs” that the information is inaccurate or incomplete. Any debts in which the collector lacks sufficient evidence may not be collected. Evidence would include data such as the amount of principal, interest, or fees billed, and the date and amount of each payment made after default. Collectors would bear the responsibility of validating that information on the debt is valid and complete.
    • Transfer of Disputes: If a debt is transferred and the transferor has not resolved a dispute, the new collector may not collect on the debt until the dispute has been resolved. The proposals consider outlining specific information that must be sent to the new collector during a debt transfer.
     
  • Time-Barred Debt: The proposals consider prohibiting lawsuits and the threat of lawsuits on time-barred debt. The report also expressed concern regarding the collection of time-barred debt even when legal action is not threatened.

The proposals address collection practices that the CFPB has scrutinized since its inception, including some practices that it has taken action against through its UDAAP authority. For that reason, many firms have already conformed their processes to comply with some of the proposed requirements. While the CFPB’s proposals explicitly apply to third-party collectors, all debt collectors are advised to consider potential adjustments to collection practices to be consistent with these proposals.

HOW PROMONTORY CAN HELP

Promontory’s professionals have the experience and knowledge of the debt-collection market to help clients navigate the shifting regulatory environment, and can  help companies with UDAAP-specific risk assessments, responses to regulatory actions, programs for consumer-complaint and dispute management, and policies and procedures. Our team also provides strategic advice and project management to help debt-collection firms conduct programs for remediating identified risks.

CONTACT PROMONTORY

For more information about our debt-collection regulatory expertise, please contact:

Linda Gallagher
Managing Director and Global Head of the Consumer Protection Practice
lgallagher@promontory.com
+1 202 370 0411

Matthew Ondus
Director
mondus@promontory.com
+1 202 370 0395