As we all took our first pass at reading through the 653-page-long release of the Consumer Financial Protection Bureau's (Bureau or CFPB) final debt collection rule, most of our eyes immediately went to sections that cause complexity in implementation and practicality. That's a natural reaction for a businessperson trying to identify how to comply with a regulation as robust as this. However, it's also important to take a step back and look at the rule as a whole. Doing so, it's impossible to ignore the many things that the Bureau got right. Below is a list of just a few.
1. Safe harbors, but not restrictions
For a long time, the industry has been asking the Bureau to provide clear rules of the road on how to comply with the Fair Debt Collection Practices Act (FDCPA), especially in the light of the non-stop FDCPA litigation that debt collectors face in their day-to-day business. How is a debt collector suppose to email a consumer? What phrasing should be used to provide a specific disclosure? So on and so forth.
What the Bureau did with its final rule is, arguably, better than that: it provided instructions on how to obtain safe harbors but refrained from restricting compliance solely to what is outlined. In other words, the rule provides one way to comply and get a safe harbor, but leaves flexibility for debt collectors whose business might require something else. They'd lose the safe harbor, but that doesn't mean it can't be compliant.
Let's take, for example, the email and text message provisions. One of the Bureau's big concerns regarding these new electronic forms of communication is the risk of third-party disclosure, specifically in the context of text messages since mobile phone numbers are reassigned at an alarmingly high rate. The Bureau laid out several procedures which, if followed, would provide debt collectors safe harbor from third-party disclosure in the form of a bona fide error defense.
However, the Bureau repeatedly states throughout the preamble of the final rule that the procedures they outlined are not the sole way to comply with the FDCPA:
- "Although the Bureau is not finalizing notice-and-opt-out or prior-use safe habor procedures for text messages, the Bureau notes that the final rule does not prohibit debt collectors from communicating with consumers by text message outside of the safe harbor." (p. 205.)
- "To the extent a debt collector regards the limitations in § 1006.6(d)(4)(ii)(E) as overbroad—because, for example, it does not cover a debt collector who sends an email to an '.edu' address—the Bureau reiterates that a debt collector may communicate by email without following the procedures in § 1006.6(d)(4)(ii). Such a debt collector would, however, lose the protection of the safe harbor (unless the debt collector's use of the email address otherwise satisfies the requirements of § 1006.6(d)(3))." (P. 200.)
What does this mean in plain English?
- If a debt collector follows the outlined procedures, then it gets what amounts to a de facto finding that its procedures are reasonable to prevent third-party disclosure for the purposes of the bona fide error defense. Meaning, the judge or jury cannot find that such procedures are unreasonable.
- A debt collector may deviate from the outlined procedures, but they would lose that de facto finding that its procedures were reasonable. Instead, if sued, the debt collector would have to prove that the procedures were reasonable and leave the decision in the hands of a judge or jury.
Guardrails if you want them, but not a prohibition on deviations that would have the same intended result.
2. Handoff letter passing the account from the creditor to the debt collector
I'm a highly-educated person and, prior to joining the industry, it never occurred to me that anyone other than the bank could ever contact me about any of my accounts. So it's understandable that consumers can get confused when this happens, especially when they are contacted by a company whose name they don't know and a telephone number they don't recognize.
One great concept introduced in the final rules that will tremendously assist consumers—and the debt collectors who are trying to convince consumers that they are legitimate and not scammers—is the concept of the handoff letter. While this concept only applies to the use of an email address that the consumer provided to the creditor, it is one that will make the transition much simpler for consumers, something that the Consumer Relations Consortium has been advocating for a while.
In the context of the final rule, if a debt collector wants to take advantage of the safe harbor against third-party disclosure by sending an email to a consumer at an email address that the consumer provided to the creditor, one of the requirements to do so is that the creditor must have sent a handoff letter to the consumer at least 35 days prior to the debt collector using that email address. Among other things, the handoff letter must be sent by the creditor and must "clearly and conspicuously" disclose that the debt has or will be transferred to the debt collector.
The first thought on everybody's mind is that, because this requires action on the part of the creditor, the industry is out of luck. I challenge this view, as creditors have the same goal as debt collectors: collect the right amount from the right person as efficiently as possible. If they can take steps that don't overly burden them to help this process, they likely will.
While this method proposes to limit the risk of third-party disclosure, it does something more: it puts the consumer on notice that someone other than the creditor will be contacting him or her about the account, and it lists the name of the debt collector in question. That way, when the debt collector emails or otherwise tries to communicate with the consumer, the consumer will be more comfortable and less likely to think that the communication is spam or fraud. Considering the scorpion dance that occurs when debt collectors attempt to communicate with consumers—specifically, to ensure they are speaking to the correct person—the handoff letter will prove itself invaluable.
3. E-SIGN's consumer-consent goes the way of the dodo, at least for validation notices
In the preamble of the final rule, the Bureau very clearly states in footnote 584:
FDCPA section 809(a) permits the validation notice information to be contained in the initial communication. In turn, FDCPA section 807(11) indicates that the initial communication with the consumer may be oral. Accordingly, the Bureau interprets the FDCPA as not requiring that the validation notice information be provided in writing when it is contained in the initial communication.
Then, in fn 585, the Bureau states:
The E-SIGN Act's consumer-consent requirements apply only when a "statute, regulation, or other rule of law" requires that a disclosure be provided in writing. . . Because the Bureau has determined that the FDCPA does not require that the validation notice information be provided in writing when it is contained in the initial communication (see previous footnote) and the Bureau is not imposing such a requirement through Regulation F, the Bureau has also determined that the E-SIGN Act's consumer-consent requirements do not apply to electronic delivery of the validation notice information when it is contained in the initial communication.
Despite the little conundrum that my colleague wrote about last week, these are very important footnotes. While it's believed that the Bureau intended to imply this in the Notice of Proposed Rulemaking, it was not very clearly stated and led to some confusion for the industry. The Bureau has now done one better: they explicitly state that E-SIGN does not apply to the validation notice.
While some debt collectors send a validation notice letter only after they have been able to reach the consumer by phone, many send the initial validation letter (soon-to-be email) immediately once the account is placed. Usually, this is due to non-negotiable creditor-client requirements. One of the benefits of sending emails—other than communicating with consumers through their preferred communication method—is that sending an email is much more cost-efficient than sending a physical letter. If the consumer-consent portion of E-SIGN applied to validation notices, it would have likely wiped out that efficiency and the adoption of email in the debt collection process and instead we'd be stuck with a New York-like requirement that, in practice, destroys the practicality of using email. The Bureau recognized this and decided to provide clarification to ensure a different result.
4. Consumer preference is king
The debt collection experience is, by its very nature, a downer—most people don't set out to fall behind on their obligations. Anything that makes the debt collection experience smoother is better, and one such thing is communicating with a consumer through their preferred method. It's more comfortable for the consumer, and it's helpful for debt collectors because the consumer is not caught off guard and is likely in a better state of mind if they are contacted according to their preference. If one thing is clear throughout the final rule, it is that consumer preference is king. There are exceptions, of course. For example, while a consumer can request that a debt collector not use a specific method of communication to contact them, the debt collector is permitted to do so if required by applicable law. Whether it's where, how, or when the consumer is contacted—or whether the consumer is contacted at all—the choice lies in the hand of the consumer to the highest extent practicably.