The Consumer Financial Protection Bureau (CFPB) has released its long-awaited Outline of Proposed Rules governing third-party debt collectors. The proposal, released in advance of today’s 2:00 PM EDT CFPB Debt Collection Field Hearing in McClellan Park, California, is 117 pages and covers a wide range of topics that had been raised nearly three years ago in the Advance Notice of Proposed Rulemaking. According to the Bureau, the proposed rules would — among other things — “overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt.”
The Outline of Proposed Rules released yesterday applies primarily to third-party debt collectors and debt buyers. The CFPB says they’ll “address consumer protection issues involving first-party debt collectors and creditors on a separate track,” saying that a second SBREFA outline and hearing is expected in the coming months. Worth noting, however, is that some of the proposals – such as data transfer – can only be successfully implemented with creditor participation.
Topics covered in the outline include:
- Debt substantiation
- Transfer of data from collection agency to collection agency
- Validation notice
- Litigation disclosure
- Time barred debt
- Contact frequency and voicemail messages
- Time, place, and manner of communication
- Decedent debt
- Consumer consent
- Transfer of debt
The Press Release issued by the CFPB can be found here.
The Prepared remarks of Richard Cordray at the Field Hearing in Sacramento can be found here.
The Press Release highlights the following protections pertaining to third-party debt collectors and others covered by the Fair Debt Collection Practices Act, including many debt buyers.
- Collect the correct debt: Collectors would have to scrub their files and substantiate the debt before contacting consumers. For example, collectors would have to confirm that they have sufficient information to start collection, such as the 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.
- Limit excessive or disruptive communications: Collectors would be limited to six communication attempts per week through any point of contact before they have reached the consumer. In addition, if a consumer wants to stop specific ways collectors are contacting them, for example on a particular phone line, while they are at work, or during certain hours, it would be easier for a consumer to do that. The CFPB is also considering proposing a 30-day waiting period after a consumer has passed away during which collectors would be prohibited from communicating with certain parties, like surviving spouses.
- Make debt details clear and disputes easy: Collectors would be required to include more specific information about the debt in the initial collection notices sent to consumers. This information would include the consumer’s federal rights. They would have to disclose to consumers, when applicable, that the debt is too old for a lawsuit. The proposal under consideration would also add a “tear-off” portion to the notice that consumers could send back to the collector to easily dispute the debt, with options for why the consumer thinks the collector’s demand is wrong. The tear-off would also allow consumers to pay the debt. The consumer could also verbally question the debt’s validity at any time, and prompt the collector to have to check its files again.
- Document debt on demand for disputes: If the tear-off sheet or any written notice is sent back within 30 days of the initial collection notice, the collector would have to provide a debt report – written information substantiating the debt – back to the consumer. The collector could not continue to pursue the debt until that report and verification is sent.
- Stop collecting or suing for debt without proper documentation: If a consumer disputes – in any way – the validity of the debt, collectors would have to stop collections until the necessary documentation is checked. Collecting on debt that lacks sufficient evidence would be prohibited. In addition, collectors that come across any specific warning signs that the information is inaccurate or incomplete would not be able to collect until they resolve the problem. Warning signs could include a portfolio with a high rate of disputes or the inability to obtain underlying documents to respond to specific disputes. Collectors also would be required to check documentation of a debt before pursuing action against a consumer in court. For example, collectors would have to review evidence of the amount of principal, interest, or fees billed, and the date and amount of each payment made after default.
- Stop burying the dispute: If debt collectors transfer debt without responding to disputes, the next collector could not try to collect until the dispute is resolved. The proposals under consideration also outline information that collectors would have to send when they transfer the debt to another collector so that a consumer does not have to resubmit this information to the new collector.
Also of note in the Outline of Proposed Rules is the first published information regarding the Survey of Consumer Views on Debt that the Bureau conducted between December 2014 and March 2015. The survey was designed to provide the first comprehensive and representative information on consumers’ experiences with debt collection in the United States.
A few of the findings the CFPB highlights from the survey include:
- About one in three consumers with a credit record were contacted by a creditor or collector trying to collect a debt in the year prior to the survey.
- Five percent of all consumers with a credit record, or 15 percent of consumers who had experienced a collection attempt in the prior year, said that they had been sued in the prior year by someone seeking repayment of a debt.
- About one in seven consumers contacted about a collection in the prior year were uncertain whether the most recent contact was from a creditor or debt collector.
- 34 percent of consumers who were contacted about a collection in the prior year were usually contacted less than once per week, whereas 16 percent were usually contacted 8 or more times per week, i.e., more than once per day on average.
- Most consumers who had been contacted about a debt in collection (85 percent) said the creditor or collector stated that the reason for contacting the consumer was to collect a debt.
The Outline states that to date, the Bureau has completed much of the data processing necessary to fully analyze the survey results, but this work is ongoing. This report provides preliminary results for several of the survey questions as context for the August 2016 meeting of small-business representatives about the potential effects of proposals that the Bureau is considering for regulations regarding debt collection. After processing of the survey data is completed, the Bureau intends to report additional technical documentation of the survey methodology and tabulations from the survey. The Bureau also expects that the survey will form the basis for indepth studies of consumer finances and financial decisionmaking.
There is too much to comment on to provide a thorough perspective in this brief space. We will be posting analysis in the coming days on the various sections of the Outline.
What’s clear is that the CFPB Regulations team has done its homework. There is a clear demonstration of understanding of how the market works that is far more advanced than it was three years ago. With that said, there are some proposals that provide clarity; others require continued guesswork.
We will also be hosting a webinar series discussing the various implications/questions raised by the Outline during the week of August 15th (see link below to sign up), which will give our experts some time to digest the details. Look for announcements to sign up coming soon.
Read insideARM’s detailed coverage of the CFPB’s Outline of Proposed Rules
insideARM Perspective on CFPB Outline of Proposed Debt Collection Rules – Communication Part 1 (Contact frequency and voicemail messages)
insideARM Perspective on CFPB Outline of Proposed Debt Collection Rules – Communication Part 2 (General time, place, and manner restrictions; decedent debt; and consumer consent)
insideARM Perspective on CFPB Outline of Proposed Debt Collection Rules – Information Integrity (Data integrity, data transfer, substantiation, validation notice)
What Collectors Really Need to Know About the CFPB’s Proposed Rules - a podcast by Attorney John Rossman
Webinar: CFPB Rulemaking and Overview (August 16, repeated on August 18) – free for Compliance Professionals Forum members; $59 for others
Additional perspective to come.