On July 28, the CFPB announced that it is considering proposing a rule to “overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt.” The CFPB released several related documents, including a report on third-party debt collection operations and an outline of the proposal (the “Outline”) that will be presented to a panel of small businesses pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA). Under the SBREFA process, the CFPB first seeks input from a panel of small businesses that likely will be subject to the forthcoming rule. A report regarding the input of those reviewers is then created and considered by the CFPB before issuing its proposed rule.
While the CFPB’s earlier Advanced Notice of Proposed Rulemaking posed questions regarding collections by creditors and first party collectors, the Outline only addresses proposals for third party collectors (i.e., collectors operating in their own name when collecting on behalf of others including debt buyers and collection law firms). Based on remarks by Director Cordray, the CFPB is expected to address first party collections separately. That said, in practical terms the outline in effect would impose certain new compliance obligations on creditors.
The Outline’s proposals for third party collections notably include (i) requirements to obtain and review information substantiating consumer debts to be collected; (ii) requirements regarding the transfer of information when consumer debts are transferred; (iii) revisions and additions to the debt validation notice; (iv) required disclosures when collection communications are made in connection with time-barred debt (as well as a prohibition on filing suit in connection with time-barred debt); and (v) limits to the contacts and contact attempts made in connection with a debt. These and other requirements proposed in the Outline are discussed further below.
Prohibition on Unsubstantiated Claims of Indebtedness
The CFPB proposes to require substantiation of debts prior to initiating collections and in reaction to certain events during the course of collections.
Substantiation Prior to Initiating Collections
Collectors would be required to obtain certain “fundamental information” to substantiate a claim of indebtedness and to review that information for “warning signs”—i.e., indications that the information is inaccurate or inadequate before commencing collections activity. The proposal would further “allow” collectors to establish reasonable support for claims of indebtedness by obtaining a representation that its information is “accurate.” Specifically, the CFPB proposes to allow a representation that (i) the debt owner implemented reasonable policies and procedures to ensure the accuracy of transferred information; and (ii) the transferred information is identical to the information in the debt owner’s records.
The “fundamental information” to be obtained includes:
- The full name, last known address, and last known telephone number of the consumer;
- The account number of the consumer with the debt owner at the time the account went into default;
- The date of default, the amount owed at default, and the date and amount of any payment or credit applied after default;
- Each charge for interest or fees imposed after default and the contractual or statutory source for such interest or fees; and
- The complete chain of title from the debt owner at the time of default to the collector.
Collectors would be required to look for “warning signs” within an individual account or across an entire portfolio, such as:
- Information for an individual debt is not in a clearly understandable form;
- Information for an individual debt is facially implausible or contradictory;
- A significant percentage of debt in the portfolio has missing or implausible information either in absolute terms or relative to portfolios with comparable types of accounts; or
- A significant percentage of debt in the portfolio has unresolved disputes, either in absolute terms or relative to portfolios with comparable types of accounts.
A collector who has each of the specific fundamental elements of information above, a representation of accuracy, and no warning signs of problems, would have a reasonable basis for claims of indebtedness and thus could initiate collections. The collector also may acquire a reasonable basis for substantiation without each specific element above but would bear the burden of justifying its alternative approach to substantiation.
Substantiation During the Course of Collections
Debt collectors also would be required to look for “warning signs” that may arise during collection activity. If such signs occur, the collector must obtain additional support prior to making any subsequent claims of indebtedness. These “warning signs” include:
- A dispute filed by a consumer with respect to an individual debt;
- The inability to obtain underlying documents in response to a dispute; or
- Receipt of disputes for a significant percentage of debt in the portfolio, either in absolute terms or relative to portfolios with comparable types of accounts.
Collectors would also be required to obtain additional support before proceeding with further claims of indebtedness following receipt of a consumer dispute, with the amount and type of additional support differing based on the nature of the dispute. The types of disputes include:
- Generic Disputes. For “generic” disputes, such as “I dispute the debt” with no additional information, the additional support would consist of documentation establishing:
- The first and last name, address, and account number (with the creditor at the time of default) of the debtor;
- The date of default and date of last payment;
- The name and address of the creditor at default; and
- The amount of the debt balance at default and any post-default interest and fees, and a description of the amount owed.
Documentation evidencing such information may include a combination of: (i) a charge-off statement; (ii) the most recent billing or periodic statement; or (iii) a contract, note, application, and/or service agreement.
- Specific Disputes. For specific dispute types below, verification would consist of both general documentation about the debt responsive to a generic dispute and documentation responsive to the dispute.
- Dispute as to amount of debt. Verification would consist of documentation establishing:
- The amount of principal, interest, or fees disputed;
- The basis for seeking to collect any such disputed amount (e.g., late fee or a charge for purchase on a credit card and the date the charge was made), including the terms and conditions relevant to collecting any post-default interest or fees, if applicable;
- The date and amount of each payment (or other credit) after default; and
- Any additional information required to respond to the specific dispute.
Documentation evidencing such facts may include a copy of a billing or periodic statement(s) covering the relevant time period, and/or the underlying agreement describing the applicable interest rate or fees.
- Dispute as to wrong consumer. Verification would consist of documentation containing:
- Either: information that the consumer provided to the creditor with respect to the consumer’s date of birth and information obtained with respect to the consumer’s addresses throughout the life of the account; or a number that uniquely identifies the consumer, such as a taxpayer ID number, as defined in 26 CFR 301.6109–1 (e.g., SSN, EIN, ITIN);
- The consumer’s original agreement or original consent to the debt; and
- Any additional information required to respond to the specific dispute.
Documentation evidencing such facts may include: a copy of the credit application or document reflecting information gathered from the creditor’s Customer Identification Program, and a copy of the contract, note, application, or service agreement.
- Dispute as to wrong collector. For disputes in which the consumer asserts that the debt collector is not the owner of the debt or is not entitled to collect on the debt, verification would consist of documentation establishing the following facts:
- The names and addresses of all persons that obtained the debt after default (as debt owners or third-party collectors), and the date of and parties to each purchase, assignment, or transfer; and
- Any additional information required to respond to the specific dispute.
Documentation evidencing such information may include a copy of the bill of sale or assignment of the debt.
Claims of indebtedness made in complaints filed in litigation
Before making a claim of indebtedness in litigation, debt collectors, including collection law firms, would be required to have support for claims that the consumer being sued owes the amount claimed and that the collector has a legal right to make the claim. Specifically, debt collectors must obtain and review all of the information required to substantiate a debt in connection with a dispute, as described above. While the Outline is not clear, this requirement may encompass the documentation required for each of the specific complaint types above as well as a generic dispute. Collectors also would be permitted to acquire a reasonable basis through an alternative approach, but would bear the burden of justifying any such approach.
Requirements to Obtain, Review, and Transfer Certain Information
When debts are transferred, collectors would be required to obtain and review certain information. Prior collectors would be obligated to transfer this information if the consumer provided such information, but not to obtain such information affirmatively. Prior collectors also would be required to provide this information when returning a debt to the creditor, forwarding the debt to another third party collector or selling the debt to a subsequent debt buyer. The information required potentially includes:
- Whether the debt was disputed in writing within 30 days of receipt of the validation notice and either (i) a statement that the debt was verified; or (ii) the details of the dispute, including information the consumer submitted or the prior collector provided;
- Whether the debt was disputed orally or more than 30 days after receipt of the validation notice, and either (i) a statement that the claims were substantiated; or (ii) the details of the dispute, including information the consumer submitted or the prior collector provided;
- Any time, place, or method of communication that the consumer stated is inconvenient;
- The name and address of any attorney who is representing the consumer in connection with the debt;
- Whether the consumer’s employer prohibits the consumer from receiving collection communications at the place of employment;
- Whether the collector has made confirmed consumer contact, and the contact information used to establish such contact;
- Whether the collector has provided the time-barred debt disclosure;
- Whether the consumer is deceased and, if so, the date of death;
- Whether the consumer is an active duty service member and whether the consumer has secured an interest rate reduction pursuant to the SCRA;
- For student loans, whether the consumer has applied for discharge of the debt and the date of the application;
- For student loans eligible for rehabilitation, the terms of any rehabilitation agreement, the number of payments made, and any requested adjustment to the amount of the monthly payment; and
- Whether the consumer’s income and assets are exempt under federal or state laws from a judgment-creditor seeking garnishment related to debt collection litigation.
The CFPB also is considering requiring subsequent collectors to obtain (and prior collectors to transfer) the language preference of the consumer, and whether the consumer has submitted an oral or written cease communication request.
Furthermore, debt collectors would be required to forward the following after returning a debt to the debt owner or selling it: (i) payments submitted by the consumer; (ii) bankruptcy discharge notices; (iii) identity theft reports; (iv) disputes; and (v) any assertion or implication by the consumer that his or her income and assets are exempt from garnishment.
The CFPB is proposing changes to the validation notice and other requirements relating to that notice:
- Revisions to the Validation Notice. The CFPB is considering substantial changes to the disclosures required in debt validation notices, including requiring disclosure of the amount of the debt on the default date, the total amount currently owed, and an itemization of interest, fees, payments, and credits since the default date. The validation notice also would include an action-item “tear-off” to facilitate consumers exercising their dispute rights under the notice. The Outline includes a proposed model notice for collectors.
- Statement of Rights. Debt collectors also would be required to provide consumers with a one-page Statement of Rights with the validation notice. It would include plain-language explanations of consumer rights under the Fair Debt Collection Practices Act (FDCPA) and Fair Credit Reporting Act. A proposed Statement of Rights is included in the Outline. The CFPB is further considering a requirement that debt collectors offer an additional copy of the Statement of Rights when the first communication is made more than 180 days after the consumer received the validation notice and accompanying Statement of Rights.
- Non-English language requirements. The Bureau is considering whether to adopt one of two alternative proposals related to the use of translated validation notices and Statements of Rights.
- Alternative 1: Debt collectors would be required to send translated versions of the validation notice and Statement of Rights to a consumer if: (i) the debt collector’s initial communication with the consumer took place in a language other than English or the collector received information from the creditor or a prior collector indicating that the consumer prefers to communicate in a language other than English; and (ii) the Bureau has published in the Federal Register versions of the validation notice and Statement of Rights in the relevant non-English language.
- Alternative 2: Debt collectors would be required to include a Spanish translation on the reverse of every validation notice and Statement of Rights.
- Disputes. The CFPB also is considering additional requirements relating to disputes within 30 days of a debt validation notice, including requirements to notify any subsequent collector of a timely validation dispute, to notify the consumer if a dispute is deemed to be duplicative, and to notify consumers after an oral dispute of their right to obtain verification by submitting a timely written dispute unless the collector provides copies of verification in response to oral disputes.
Debt collectors would be required to provide a brief “litigation disclosure” in which they represent, expressly or by implication, their intent to sue. The disclosure would inform the consumer that: (i) the debt collector intends to sue; (ii) a court could rule against the consumer if he or she fails to defend a lawsuit; and (iii) additional information about debt collection litigation is available through the CFPB. Debt collectors would provide the disclosure at the same time as—and using the same medium in which—they represent that they intend to sue.
The CFPB proposes to prohibit suit and threats of suit on time-barred debt. In addition, the CFPB proposes to require disclosures when a debt collector seeks payment on time-barred debt, along with several other requirements:
- Time-Barred Debt Disclosure. Debt collectors would be required to provide a disclosure when seeking to collect a time-barred debt. According to the Outline, this disclosure would consist of a brief, plain-language statement informing the consumer that, because of the age of the debt, the collector cannot sue to recover it. Debt collectors also would be required to include such a statement in the validation notice, in the first oral communication in which they request payment, and potentially at additional intervals, including possibly in each communication seeking payment. The CFPB is further considering whether such disclosures would be required only if the collector knew or should have known that the debt was time-barred, or whether a collector should be strictly liable.
- Binding Later Collectors. Subsequent collectors would be prohibited from suing on a debt as to which an earlier collector provided a time-barred debt disclosure.
- Credit Reporting. The CFPB also is considering requiring a disclosure that would inform the consumer whether a particular time-barred debt generally can or cannot appear on a credit report.
- Waiver of Revival. The Bureau is considering whether to prohibit collectors from collecting on time-barred debt that can be revived under state law unless they waive the right to sue on the debt.
Leaving of Messages
The CFPB is considering a proposal clarifying that no information regarding a debt is conveyed—and no FDCPA “communication” occurs—if collectors only convey: (i) the individual debt collector’s name; (ii) the consumer’s name; and (iii) a toll-free method that the consumer can use to reply to the collector. Such a clarification would address cases holding that the FDCPA prohibits a collector from leaving a voicemail or answer machine message without providing a mini-Miranda notice (which, in turn, may violate the FDCPA’s proscription against conduct likely to result in third party disclosure of a debt).1
Limits on Contact Frequency
The frequency with which a debt collector may attempt to contact a consumer would be limited. The applicable limit would depend, in part, on whether a confirmed consumer contact exists. The limits would apply on a per account, rather than per consumer basis, as follows:
Collector Does Not Have
Collector Has Confirmed
Attempts per unique address or phone number
Total contact attempts
Limits on Location and Third-Party Contacts
Collectors also would be allowed to make only a limited number of location contacts with third parties if the collector does not have confirmed consumer contact. Like the consumer contact caps, the limits apply per account, rather than per consumer. The limits proposed are:
|Collector Activity (Per Week)
|Collector Does Not Have Confirmed Consumer Contact
|Collector Has Confirmed Consumer Contact
Attempts per unique address or phone number per third party
Total contact attempts per third party
Total contact attempts across all third parties
No specific limit
Live communication per third party (total, not weekly)
Restrictions on the time, place, and manner of communications
The CFPB proposes several clarifications and amplifications of the FDCPA’s existing limitations on the time, place, and manner of debt collection communications:
- Clarifications regarding inconvenient times. In the absence of knowledge to the contrary, a debt collector would be deemed know that it is convenient to communicate with a consumer if it would be convenient in all of the consumer’s known locations. Furthermore, whether a communication is sent at an unusual or inconvenient time would be based on the time at which the message generally is available for the consumer to receive it, not when the consumer actually sees or opens it.
- Clarifications regarding inconvenient places. The following four categories of places would be presumptively inconvenient for consumers: (i) medical facilities, including hospitals, emergency rooms, hospices, or other places of treatment of serious medical conditions; (ii) places of worship, including churches, synagogues, mosques, temples; (iii) places of burial or grieving, including funeral homes and cemeteries; and (iv) daycare or childcare centers or facilities. The proposal makes clear, however, these locations are not presumptively inconvenient for consumers who are employed at any of those locations, unless the debt collector otherwise knows or has reason to know that to be the case. The CFPB also is seeking feedback regarding the advantages and disadvantages to servicemembers and collectors of including military combat zones or qualified hazardous duty postings in the list of presumptively inconvenient places.
- Clarifications regarding inconvenient communication methods. The proposals under consideration would clarify (i) that a consumer need not utter any “magic words,” such as the word “inconvenient,” to provide a collector with the requisite knowledge that a time, place, or communication method is inconvenient; and (ii) that collectors may need to ask clarifying questions if a consumer makes an ambiguous statement.
- Work email addresses. Collectors would be prohibited from using an email address that they know or should know is the consumer’s workplace email for debt collection communications unless the consumer specifically consents.
The CFPB proposes several changes relating to decedent debt:
- Telephone Numbers. Debt collectors would be required to display working, in-bound, toll-free telephone numbers to appear on caller ID screens of consumers.
- Other Deceptive Claims. The CFPB proposes to clarify prohibited false, misleading, or unsubstantiated statements include claims: (i) that a person such as a surviving spouse of a decedent is responsible for a consumer’s debts; (ii) about the consequences for consumers of paying or not paying debts (e.g., a military servicemember having his or her security clearance revoked); and (iii) that relate to the collector’s location or identity (e.g., a debt collector pretending to be located in the same city or town as the consumer).
- Emails Revealing That the Communication Relates to a Debt. Debt collectors could be prohibited from sending an email message to a consumer if the message’s “from” or “subject” lines contain information that would reveal that the email is about a debt.
Questions regarding the matters discussed may be directed to any of our lawyers listed in this alert, or to any other Orrick attorney with whom you have consulted in the past.
1 See, e.g., Foti v. NCO Financial Systems, Inc., 424 F. Supp. 2d 643, 648 (S.D.N.Y. 2006).