Last Thursday, at a Field Hearing on Debt Collection held in Sacramento, the Consumer Financial Protection Bureau (CFPB) released it long awaited Outline of Proposed Debt Collection Rules as it begins the Small Business Regulatory Enforcement Fairness Act (SBREFA) process. See our July 28, 2016 article.
We asked several industry experts to give us their reactions to the Field Hearing and/or the Outline. A sampling of the responses received are included below. Some of our respondents preferred to remain anonymous.
Manny Newburger, Attorney at Law – Barron & Newburger, PC
“Although the Bureau has indicated that it may promulgate model notices it did not mention a model disclosure regarding the issuance of IRS 1099-C forms. In light of the inconsistent case law on 1099-C disclosures a model disclosure would benefit consumers and debt collectors alike.
A requirement to provide FDCPA notices in any language other than English is dangerous unless the Bureau specifies the non-English text. There is precedent for this in the FTC’s Used Car Rule (16 CFR Part 455), which provides the Spanish text of the mandatory Buyer’s Guide. Failing to specify the non-English text that is required could ultimately be harmful to Spanish-speaking consumers.
Any mandatory disclosures should be coupled with a clear preemption of all state law debt collection disclosures. It is indisputable that “more is less” when it comes to such disclosures, and merely adding to the ever-growing stack of disclosures that debt collectors are required to provide would ensure that consumers are so overwhelmed that none of the notices are likely to be effective. The Bureau has the opportunity to ensure that consumer disclosures are truly effective by dictating the text of those disclosures and prohibiting variations or additions by the states.”
Bob Deter, Vice President, Compliance – National Enterprise Systems
“My overall impression is that the field hearing was positive. There was a good mix of panelists and the CFPB seems to have done a lot of research and listened to key stakeholders on all sides. It was nice to hear the CFPB and others recognize the important role the debt collection industry plays.
I heard a general theme acknowledging the need for open communication and clear rules. It seems these are two things all parties agree will advance the efforts of helping consumers to resolve their debt while working with legitimate debt collection companies, and, at the same time, protect consumers from scams and crooks. While stakeholders may disagree on details such as the allowable number of call attempts, exact documentation needed to prove an obligation, etc., there seems to be agreement on the overarching need for clarity in rules which will help open the lines of communication.
I look forward to seeing the outcome of the upcoming SBREFA panel and how it may impact the final regulations.”
Michael Meyer, CRO, CSO – MRS BPO, LLC.
“The CFPB certainly did its homework and came up with a well-balanced and workable blueprint that focuses on the main issues for both consumers and the industry.”
Anonymous General Counsel – Larger Market Participant Collection Agency
“We applaud this and any effort of the CFPB to bring certainty to many of the processes associated with the collections process. Recognizing the importance of standardizing the disclosures to consumers of their important rights and setting consumes’ expectations fairly and clearly about the responsibilities of debt collectors would dramatically improve the customer experience during the debt collection process.
We appreciate the CFPB’s recognition that many debt collectors abide by the rules and that complaints are down.
The collections industry looks forward to further exploration of model forms and disclosures and any guidance on verifying a consumer’s preferences for communication and exploring any means of communicating with consumers that meets their preferences and expectations.”
Don Maurice, Attorney at Law – MauriceWutscher
“The outline reflects some content from the Bureau’s consent orders, but there are substantial differences. Many of those differences reflect standards and practices adopted by DBA International’s Certification Program, which is specifically mentioned. The application of the outline’s document requirements for pre-existing accounts still needs to be sorted out. Of course the final proposed rules are still in the making, but the outline is encouraging, at least for debt buying companies.”
See Don Maurice’s July 28, 2016 blog for a more detailed reaction.
John Rossman & Mike Poncin, Attorneys at Law – Moss & Barnett
“If you don’t have 4 or 5 hours to devote to reviewing the dense outline of Rules issued by the CFPB last week, don’t worry. Attorneys John Rossman and Mike Poncin highlight the critical components of the CFPB outline and discuss what is essential for the industry now.”
Listen here to the Rossman/Poncin “Debt Collection Drill” Podcast discussing their reaction to the Outline.
Anthony E. DiResta, Partner – Holland & Knight
“It’s critical to remember that although the CFPB findings are not “final rules,” they clearly spell out the CFPB expectations for the industry. Compliance procedures in line with these findings as well as the results of consent decrees should be developed and implemented promptly as prudent risk management.”
Tim Collins, General Counsel and Chief Ethics & Compliance Officer – Convergent Resources
“After my review of the changes the CFPB proposed I think they fall in line with how the CFPB wants our industry to evolve from small mom and pop companies to large participants to make regulating and enforcement easier for them. Also, and time will tell, there are small agencies below the $10 million threshold that may not follow the new FDCPA rule changes as closely as those that are examined by the CFPB because in order to do so would put them out of business. The risk to them would be on the litigation front, not the regulatory front.”
Christopher Willis, Attorney at Law – Ballard Spahr LLP
“The outline of the CFPB’s proposed rules contained quite a few things we expected, like requirements for information to accompany placements or debt sales, but there were some surprises and disappointments as well.
I had hoped that the proposed rules would provide guidance on how to use alternative forms of communication like text messages, but the outline only noted that this guidance would be forthcoming later. I am very worried about the contact frequency rules in the outline, because I think they may be very detrimental to both collectors and consumers alike – collectors, because the limits will reduce collections, and consumers, because in the absence of contact with them, debt owners will have no choice but to pursue the legal collections channel. It was also surprising to see the CFPB split the rulemaking process into separate tracks for first- and third-party collections, after the Bureau had emphasized that it wanted to create a unified set of rules largely applicable to both.“
John Bedard, Attorney at Law – Bedard Law Group, PC
“The CFPB has finally tipped its hand to reveal its intentions to overhaul the collection industry. The sky is not falling. The end is not near. Deep breath. Remain calm. Everything is going to be just fine . . .”
Michael Kraft, General Counsel – The CCS Companies
I am overall encouraged by the rulemaking as it clarifies items in the law that have been troublesome for the industry and consumers. I am encouraged by the following:
- Voice mail messaging rules will benefit agencies and consumers alike since it reduces the litigation risk for agencies, reduces the number of call attempts for consumers and increases the likelihood of making actual contact to resolve outstanding accounts which is beneficial to all concerned.
- The Outline signals a move in a direction of imposing obligations on creditors for their own records, although that has not yet been proposed.
- The Outline standardizes the information that agencies should receive and on which they can rely.
- Expectation that the CFPB will create standard disclosures which will a) improve consumers’ comprehension of the law; b) reduce lawsuits (which are still occurring) based on the disclosures currently being used.
- The “reasonable time, place and manner” provisions which protect consumers, but also include a safety net for agencies who could not know ahead of the call that the consumer may be in a situation where such a call could be unreasonable.
However, I also have some areas of concern until specifics are reviewed. They include:
- Imposing what is currently a vague requirement on watching for red flags in inventory, either upon placement or upon implementing collections – It is not clear what an agency should be watching, how they should respond and what costs will be imposed on agencies. This provision could create regulatory exposure and more importantly – may subject agencies to litigation from consumer attorneys whose primary interest is their own incomes and not their clients.
- Information transfer rules – These are reasonable for consumers, but there should be some protections for agencies. I anticipate this will be a source of litigation by consumer attorneys claiming that information was received by the agency and not transferred, especially after the agency has closed and returned the accounts. This could be resolved, in part, by i) strengthening the bona fide error defense and fee shifting provisions; ii) limiting the time after which an agency must forward information on closed accounts; and iii) possibly shifting the burden of proof to the consumer in these situations.
- Requiring a separate page of rights be included – This could significantly increase costs to agencies, but as well increase litigation exposure by attorneys who will claim that the page was not included. Better (and safer) for all concerned is to include these statements either in the body of the letter or on the reverse so that the information stays with the original notice. This can also be accomplished as done in Colorado by requiring only a web site URL.
- Caps on contacts – These may be reasonable for many types of accounts, but perhaps not for others (e.g. student loans).
- Contact with decedent’s family after death – This is reasonable, but the agency should be mindful that many states have very limited times in which to make claims and an extended pause could impact recoveries based on those limits.
- Record keeping for 3 years may be too long, especially for smaller agencies, particularly given the massive amounts of storage needed for voice recordings and screen captures. The statute of limitations under the FDCPA 1 year and FCRA 2 years, so 2 years should be sufficient.
Lori Gruver, Partner and Chief Compliance Officer – Linebarger Goggan Blair & Sampson, LLP
“Much of what the CFPB developed aligns with my firm’s long-standing standards and practices and those of other reputable industry players. We are glad to have an outline of the rules and will now focus on monitoring any interpretations. Understanding and implementing the rules should not prove to be a significant challenge to anyone who understands that treating people fairly is the best way to maintain a vibrant collection industry. “
George Buck, President – Frost-Arnett
“It’s obvious the CFPB put a great amount of work in creating the proposal for new rulemaking. We appreciate the potential for some safe harbor in the new rules. The proposal outline helps move us in the direction of clarity and bright lines for industry operations.”
Anonymous General Counsel – Larger Market Participant
“The Proposal reflects a substantial improvement in the CFPB’s industry knowledge since their 2013 NPRM and suggests a willingness to listen and respond to industry concerns.
In some instances, such as the handling of disputes outside of “validation” requests and communicating consumer contact restrictions and other information, the Proposal seeks to impose additional requirements in areas where the industry already has been proactive, examples being “chain of collection” information required to respond to disputes regarding our right to collect and an enhanced list of contact restrictions to be “passed through” to future collectors.
The proposal that disputes, and at least some contact restrictions, be “inherited” by subsequent collectors certainly was not unexpected; the challenge will be in how to effect the necessary communications for administering these requirements, including system revisions for transmission, receipt and assimilation to assure these obligations are met.
While reflecting thoughtful, and potentially helpful, proposals such as “limited contact” messages, ability to contact disputing consumers for clarification and right to give limited attention to repetitive disputes, the Proposal takes a more aggressive position than previous CFPB enforcement actions by imposing firm “pre-collection substantiation” requirements in addition to client assurances, reliance on which still would be limited by the presence of “warning” signs.
Contact frequency caps appear too confining in light of experience, though this may be mitigated (as the CFPB notes) if other communication channels open up as, for example, we become able to send “limited contact” text messages.
As an aside, it appears that the CFPB diverged from some state rules and proposes to permit contact at an employment email address, so long as the consumer consented.”
Kelly Knepper-Stephens, General Counsel & Chief Compliance Officer – Stoneleigh Recovery Associates, LLC
“It is exciting that the CFPB has issued the proposals under consideration. It was good to see that some of the proposals will bring clarity to issues such as leaving voice mail messages; having a clear message will work to curtail the lawsuits our industry faces in that area. Affirming our ability to leave a message is a relief as our ability to reach out to the consumer through a variety of tools, including through electronic means, helps consumer resolve their accounts.
Conversely, any time our ability to contact a consumer is limited it takes away our opportunity to resolve accounts–it hurts the businesses in our industry and ultimately the consumer. Stoneleigh has been selected as a SER for the SBREFA process and we are looking forward to providing the CFPB and other participating government entities on the panel with detailed feedback and data about how the outline of proposals under consideration will impact small businesses in our industry.”
Read insideARM’s detailed coverage of the CFPB’s Outline of Proposed Rules
CFPB Outlines Debt Collection Rulemaking Proposals
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)
insideARM Perspective on CFPB Outline of Proposed Debt Collection Rules – Litigation and Time-Barred Disclosures
What Collectors Really Need to Know About the CFPB’s Proposed Rules - a podcast by Attorney John Rossman
15 Industry Experts React to CFPB Outline of Proposed Debt Collection Rules
Webinar: CFPB Rulemaking and Overview (August 16, repeated on August 18) – free for Compliance Professionals Forum members; $59 for others
President of FMA Alliance Shares Experience at Debt Collection SBREFA Hearing
Creditor Rights Law Firms Well-Represented on CFPB’s Small Business Review Panel
Small Business Representative Shares Her Thoughts About Yesterday’s Debt Collection SBREFA Hearing
Additional perspective to come.