Third-party debt collectors take note: there may have been an unannounced change in the regulations governing third-party collection agencies in Massachusetts. Traditionally, the Massachusetts Division of Banks (DOB) regulated third-party debt collectors while the Massachusetts Attorney General's Office (AG) regulated creditors. Without an announcement or warning, the AG recently changed its website to now list third-party debt collectors as entities that it regulates.
Massachusetts splits the regulation of debt collection practices. In a January 2007 press release, the AG stated that it regulates debt collection practices by creditors through 940 C.M.R. 7.00 and the DOB regulates debt collection practices by debt collection agencies through 209 C.M.R. 18.00.
The mortgage crisis of 2009 brought an increase in certain collection practices such as filing foreclosure actions without proper documentation and debt buyers purchasing and trying to revive zombie debt. In response, the AG amended its rules to include passive debt buyers in the definition of “creditor,” placing them within the umbrella of the AG’s regulatory oversight.
This amendment caused uncertainty about where traditional third-party agencies fell within the regulatory environment in Massachusetts. Debt collection industry representatives from ACA International and the New England Collectors Association met with the AG to get clarity on the issue. At that time, the AG gave verbal assurances that the amendment’s intention was to deal with non-collection agency entities and that it did not apply to third party debt collectors. Based on these assurances, ACA International released guidance to its members that third-party debt collectors are not “creditors” under the amendment, and thus are not governed by the AG rules.
Nonetheless, questions began to arise within the industry about the applicability of the AG rules to traditional debt collectors. On February 28, 2018, ACA International sent a letter to the AG requesting confirmation that the previous assurances received from the AG’s office were still correct. insideARM previously published an article about ACA International’s request. The AG did not respond to this letter.
As recently as September 22, 2016, the AG’s office and the DOB maintained that regulation of third-party debt collectors was the responsibility of the DOB, not the AG. At a hearing attended by both the AG and DOB Commissioner David Cotney, Cotney stated, “…the Division [of Banks] licenses and supervises third-party debt collectors, as well as debt buyers actively engaged in debt collection activity. The Office of the Attorney General oversees creditors, including passive debt buyers, through its regulation, 940 CMR 7.00.” The AG gave no indication during the hearing that this description was incorrect or that the AG also regulated third-party debt collectors.
At some point, the AG quietly updated its website to include third-party debt collectors in the list of entities that it regulates. The images below show the difference between the old website and the new website. insideARM added the red underline emphasis to the images below.
Old website as of December 6, 2017 according to a source:
New website as visible today:
Third-party debt collection agencies should review and take note of this change. The AG’s rules differ from the DOB rules. For example, the verification requirements under the AG rules contain more procedures than the DOB rules. If this is indeed a change, then clarification needs to be provided by both the AG and the DOB on how third-party debt collection agencies are supposed to proceed.
More concerning is the covert, unannounced change implemented by the AG after it provided assurances to the industry that its rules did not govern third-party debt collection agencies. The language of the two Code of Massachusetts Regulations (CMR) sections have not changed, only the language on the AG’s website.
Many questions arise out of this situation:
- Why was the website change not announced, especially considering prior guidance by the AG?
- Why was the website change done under the cover of darkness when ACA International openly requested guidance on this very issue?
- Does the website language change, without a change in the CMR, mean that third-party debt collectors are now also subject to the AG rules?
- Why is there a need for third-party debt collectors to follow a second, separate set of rules when they are already fully regulated by the DOB?
One thing is for sure: the industry needs clarification on this issue.