CFPB Issues FDCPA Proposed Rule: A Detailed Overview
On May 7, 2019, the Consumer Financial Protection Bureau (CFPB) released a much anticipated proposed rule regarding the Fair Debt Collection Practices Act (FDCPA). The proposed rule marks a momentous development for debt collection and the accounts receivable management industry generally. Before delving into some high level specifics on the over five-hundred page proposal, it’s worth noting that the CFPB has issued a proposed rule, which will have a 90-day comment period and which itself notes that the rule would not go into effect until one year post publication in the Federal Register. In other words, a rush to change business practices or anxiety over current practices not conforming may be hasty. That said, the rule cannot be ignored and deep understanding is necessary. We will follow up on this overview with a series of writings covering certain aspects of the rule in more depth. So, look out for more information to come.
If promulgated as proposed, the rule would broadly address three categories of issues: restrictions on communications, bolstering of disclosures, and clarification of which kinds of debts may be collected or transferred and how. Before looking to each of these three, it’s worth noting how the rule addresses definitions or key terms under the FDCPA.
Section 1006.2 of the rule sets forth definitions which largely incorporate the definitions found in the FDCPA but also adds to certain existing definitions and provides a few new definitions.
Consumer: though largely restating the FDCPA’s definition of “consumer,” the rule would include deceased persons as well. For purposes of collection, “consumer” would also include a confirmed successor-in-interest and the personal representative of a deceased consumer’s estate.
Debt: though, again, largely a restatement of the FDCPA’s definition of “debt,” the rule also adds a new category of debt called a “Consumer Financial Product or Service Debt,” which is a term incorporated from the Dodd-Frank Act. The idea is that certain of the rules apply to “debts,” others “Consumer Financial Products or Service Debts”.
Broadly, the rule recognizes the changing times and modes of communications, namely, texts and emails, with some additional notes on voicemails, which have taken on a new life given the use of, for example, ringless voicemails. More specifically, the rule addresses the following:
Email and Text Message Communications:
- A new safe-harbor is proposed for unintentional communications with third parties via email or text message.
- All emails, texts, and other electronic communications must contain an unsubscribe/opt-out option.
- Debt collectors must avoid modes of communications that consumers request the debt collector not use.
- Calls to cell phones and electronic communications generally are subject to the FDCPA’s prohibition on communicating at unusual and inconvenient times and places.
Debt Collectors may not contact consumers at email addresses known or that should be known to be provided by the consumer’s employer.
Debt collectors may only communicate on social media through private messaging functions.
If debt collectors use new model language for “limited-content messages” by voicemail or text, such message would not be a “communication” for purposes of disclosure to third parties.
Debt collectors will have news restrictions on communications regarding the debts of a deceased individual, including new validation requirements and dispute mechanisms.
Communicating Before Credit Reporting:
Debt collectors may not report to credit reporting agencies (CRAs) unless the collector has previously communicated with the consumer.
Debt collectors may not call a person about a particular debt more than seven times within a seven-day period. Additionally, if the collector has spoken with a debtor, they may not call that person again until seven days have passed. Compliance with the new rule provides a de facto safe harbor from 15 U.S.C. § 1692d(5) (calling with the intent to annoy or harass).
Disclosures and Validation Notices
The proposed rule revamps certain disclosure requirements and validation notice requirements as follows:
Debt collectors must provide disclosures that are storable by the consumer and reasonably expected to provide actual notice, as well as compliant with the E-SIGN Act or a set of alternative procedures. Here, the CFPB has provided a flowchart to aid in understanding its proposal.
Debt collectors’ validation notices must include: (1) the account number and an itemization of the debt; (2) information about consumer protections, such as the right to dispute; and (3) a consumer response form to allow the consumer to, for example, dispute the debt.
Spanish and Foreign Language Notices:
If debt collectors so choose, they may include an option for consumers to request notice in Spanish. Collectors may provide validation notices in any language, so long as it is accompanied by an English notice or such English notice was previously provided.
Model Validation Notice:
Debt collectors have a de facto safe harbor from 15 U.S.C. § 1692g by using a new Model Form B-3.
Prohibited Acts for Certain Debts
Among the most litigated issues under the FDCPA is time-barred debt. Collection attempts on out-of-statute debts will now have new restrictions, as will transfers of certain debts.
Debt Collectors may not transfer debts it knows or should know (1) have been paid or settled; (2) have been discharged in bankruptcy; or (3) are associated with an identity theft report.
Debt collectors may not sue or threaten suit on time-barred debts or debts the collector should know are out-of-statute.
It’s hard to overstate the impact this proposed rule will have on the industry when it takes effect regardless of what form the rule ultimately takes. Though the proposed rule issued as part of a phonebook-sized regulatory tome, it’s worth looking to at least the proposed rule language itself (which lets you skip to page 447/538 of the above-linked text). As noted above, we will be issuing a series of posts breaking down key aspects of the proposed rule over the coming weeks.