The Consumer Financial Protection Bureau (CFPB) issued its long-awaited proposals for addressing its concerns in the debt collection industry yesterday. CFPB Director Richard Cordray acknowledged that the entity’s proposals would serve to “drastically overhaul the debt collection market.” The proposals are not binding, and the CFPB will almost certainly make significant edits and adjustments prior to issuing proposed rules; however, the proposals offer valuable insight into the standards that the CFPB will likely incorporate into a final rule. Additionally, and perhaps more importantly, the proposals suggest minimum standards in areas that were previously plagued with ambiguity and identify activities that might violate existing law or constitute an unfair, deceptive, or abusive practice. Therefore, debt collectors, debt buyers, and affected servicers should carefully review the proposals and consider reviewing and revising their own processes.
The CFPB’s proposed plan covered a number of areas, including several areas that the CFPB has recently addressed in previous action in the debt collection space.
Highlighted below are particularly noteworthy proposals included in the CFPB’s outline:
- Data Integrity Requirements: Perhaps the biggest compliance challenge for debt collectors presented by the CFPB’s proposal concerns new requirements concerning data integrity both prior to commencing debt collection activity and during the debt collection lifecycle. While the CFPB previously signaled some of these requirements through prior consent orders and its Supervision and Examination Manual, the CFPB’s proposal greatly expands upon existing guidance.
- Debt Disputes: The proposal would also require debt collectors to review certain categories of specific information in response to various types of disputes before continuing further collection activity for both verbal and written disputes.
- Debt Validation Notices: Under the proposal, collectors would also be required to send more robust debt validation notices and a new notice known as a statement of rights, which could significantly increase the number of disputes.
- Transferee/Transferor Requirements: The proposal would require transferee debt collectors to (1) obtain representations regarding the accuracy of transferred information from transferor debt collectors and (2) obtain and review (and the transferor to provide) certain categories of information that affect the transferee debt collector’s ability to comply with federal law.
- Pre-Litigation Account Review: The proposal also essentially requires debt collectors, prior to filing litigation, to review accounts as though the consumer disputed every aspect of the loan.
- Time-Barred Debt Disclosure: The proposal would also create new disclosure obligations for debt collectors seeking to collect on time-barred debts.
- Consumer Contact Restrictions: The proposal would significantly alter current debt collection practices by placing specific numerical limitations on communications with consumers. The CFPB’s proposal to alter the number of permissible communications based on varying circumstances would doubtless prove difficult to operationalize for many collectors.
- Time, Place, and Manner Restrictions: The proposal places significant burdens on debt collectors by requiring their employees to accurately determine whether the time, place, or manner of the communication is inconvenient during a telephone call.
- Decedent Debtor Communications: The proposed changes regarding decedent debtors would require debt collectors to determine whether a person is considered a “personal representative” under state law. For collectors operating in most or all states, this proposal would create significant issues in accurately determining state law requirements.
View Bradley’s detailed breakdown of the CFPB’s proposals, including analysis regarding the more significant changes discussed above.