By Katalina M. Bianco, J.D.
Proposals that would restrict collector contact with consumers and require debt collectors to have more and accurate information before attempting to collect debts would "drastically overhaul" the debt collection market, according to the Consumer Financial Protection Bureau when issuing an outline of the proposals under consideration on June 28, 2016. The proposals apply only to third-party debt collectors and others covered by the Fair Debt Collection Practices Act, including many debt buyers, but the bureau has indicated that it will address first-party collectors soon "on a separate track."
"In the debt collection market, notably, consumers do not have the crucial power of choice over those who do business with them when creditors turn their debts over to third-party collectors. They cannot vote with their feet," CFPB Director Richard Cordray said in prepared remarks for a debt collection field hearing on June 28. Speaking of the proposals, Cordray said, "Consumers should not be limited to being passive participants in a system they do not trust or understand. We are determined to put the burden of proof on the debt collector and take some of this weight off the consumer."
Information integrity. The proposals address the most common complaints consumers have voiced about debt collection practices. In recent years, the most common debt collection complaint received by the CFPB concerns collectors seeking to recover from the wrong consumer or in the wrong amount, according to the bureau. Therefore, the CFPB is considering a requirement that debt collectors "substantiate," or possess a reasonable basis for, claims that a particular consumer owes a particular 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.
The bureau also is considering the provision of an improved FDCPA validation notice and a Statement of Rights that would provide consumers with the most critical information needed to determine whether they owe a particular debt and to navigate the debt collection process more generally.
Communications. Collectors would be limited to six communication attempts per week through any point of contact before they have reached the consumer. 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 under the proposed requirements. The CFPB also is considering proposing a 30-day waiting period after a consumer has passed away during which collectors would be prohibited from communicating with certain parties such as surviving spouses.
Debt details. 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. Collectors also would have to disclose to consumers, when applicable, that the debt is too old for a lawsuit.
Disputes. The proposal under consideration would add a "tear-off" portion to the initial collection notice sent to consumers 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 also would allow consumers to pay the debt. The consumer would be able to verbally question the debt’s validity at any time and prompt the collector to have to check its files again.
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 would not be permitted to continue pursuing the debt until that report and verification is sent.
If a consumer disputes 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. Collectors also would be required to check documentation of a debt before pursuing action against a consumer in court.
Finally, if a debt collector transfers 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.
Small Business Review Panel. The outline was prepared for an upcoming Small Business Review Panel to gather feedback from small industry players, which is the next step in the rulemaking process. The Dodd-Frank Act directs the CFPB to collect the advice and recommendations of small entities concerning whether the proposals under consideration might increase the cost of credit for small businesses and alternatives to minimize any such increase.
In addition to consulting with small business representatives, the CFPB said it will continue to seek input from the public, consumer groups, industry, and other stakeholders before continuing the rulemaking process.
Debt collection report. The bureau simultaneously released a report on the study of third-party debt collection operations. The CFPB conducted a survey of debt collection firms and vendors in order to better understand the operational costs of debt collection firms, particularly in areas potentially affected by the proposals under consideration. The answers to the survey questions provide material for the CFPB’s consideration of what it would cost collectors of different types to comply with potential new rules.
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