Industry scrambles to prepare for CFPB debt collection rules

Banks, credit card companies and debt collectors have pushed for an overhaul of federal debt collection rules, and they are poised to reap the benefits of unlimited contact with consumers via e- mail and SMS.

But with the Consumer Financial Protection Bureau’s rules due to go into effect on November 30, many creditors and collectors are scrambling to make changes that require a high degree of coordination with each other.

While the rules do not apply specifically to banks and other lenders seeking debt collection, they do require technological change and information sharing so that third party debt collectors can take advantage of certain “safe havens” that allow them. protect from liability.

Under the rules, debt collectors will be allowed to call consumers up to seven times a week. But other provisions, including requirements that consumers receive a detailed list of their debts and know how to opt out of electronic communications, prove to be a challenge.

“It’s a bit of a tsunami for creditors and debt collectors frantically trying to prepare for November 30,” said Joann Needleman, a lawyer at the Clark Hill law firm who represents both creditors and debt collectors. collection agents.

Debt collectors hope the rules will reduce the thousands of lawsuits filed each year for alleged violations of the Fair Debt Collection Practices Act, enacted in 1977, including numerous cases alleging violations related to consumer notices validating a debt. But the rules have also raised concerns among creditors about what will be required in terms of continued monitoring and control of third-party vendors.

The new CFPB director, Rohit Chopra, who is expected to be sworn in next week, swore aggressively pursue enforcement actions against companies that harm consumers. Some experts believe the CFPB will seek to hold creditors who work with third-party collectors accountable for engaging in “unfair, deceptive or abusive acts or practices,” known as UDAAP claims.

“There is a perfect storm potential for original creditors given the current administration and in particular Director Chopra,” said Jonathan Pompan, partner and co-chair of the consumer financial services practice group at law firm Venable. . “What policies, procedures and activities does the creditor engage in that potentially fall within the rule in order to render the potential for UDAAP claims?” It will vary depending on the practices of creditors, but it covers the full range of notice-calling restrictions.

CFPB finalized two debt collection rules last year under former CFPB director Kathy Kraninger amending Regulation F, which implements the FDCPA.

The bureau had offered to extend the compliance date by 60 days, but chose not to despite support for the delay of consumer advocates. Creditors and debt collectors assured that they would be prepared to comply.

“There was not much industry interest in extending this deadline,” said April Kuehnhoff, a lawyer at the National Consumer Law Center.

The office said so can offer additional advice on debt collection for mortgage agents facing capacity constraints because borrowers exit forbearance plans.

The first rule of recovery focuses on texts and emails, while the second clarifies disclosures and prohibits collectors from suing or threatening to sue consumers for prescribed debts.

Under the new rules, debt collectors will be required to provide understandable and accurate information about the balance owed on a debt. For example, the rules require debt collectors to disclose to the consumer the debt balance on a specific date (of which there are five options) and a breakdown of all charges, interest, credits, and other charges after that date. Consumers should also be informed of their right to dispute a debt.

This is more information consumers currently receive when collectors first contact them about a debt. Currently, collectors send a validation notice with only the amount of the debt as well as other statutory disclosures.

Providing a breakdown of the debt turns out to be an obstacle.

“The validation notice requirement is the most data intensive,” Pompan said.

The CFPB has created a model form that collectors can use for the purpose of obtaining limited refuge from legal action. Collectors must provide specific information to qualify, and use of the template form for the validation notice is not mandatory as long as any other form is substantially similar.

The difficulty is that lenders have to transfer accurate information about a consumer’s debts to collectors, who then have to ensure that the same information is given to the consumer. Many see this as a heavy task given the large volume of accounts in the collection process.

“It’s not easy when you’re working on millions of accounts at once,” Needleman said.

Consumer advocates say the rules give consumers additional rights, but they fear unlimited email and text communications could lead to harassment and abuse.

A major benefit to consumers under the rules is that if a consumer asks a collector to stop using a specific method of communication, including phone calls, emails, or text messages, the collector is required to ‘Stop.

But the limit of seven calls per week per debt could result in some heavily indebted consumers being inundated with calls.

“We are really concerned about excessive phone calls, especially when you have consumers with medical debt, who have multiple accounts in collection,” said Kuehnhoff of the NCLC.

Another concern of consumer advocates is that the rules allow collectors to provide validation notices orally in an initial communication. Reviews do not have to be written in the language used by the consumer.

Consumer advocates have also opposed the unlimited use of emails and texts, and have expressed concerns over whether creditors and collectors have accurate contact information, such as email address. of the consumer.

Consumers can choose not to receive such communications, but advocates question whether the right person will be contacted.

“Are [collectors] going to reach the right person or someone else who could be a third party? Kuehnhoff asked. “When you don’t get consumer consent, it’s hard to know if this is really the right email address. ”

The CFPB has spent approximately eight years, from start to finish, enacting rules for modern communications. But the real work of implementing the changes has only just begun.

“At a minimum, vendor monitoring expectations require that creditors who use debt collectors be very familiar with the debt collection rule and all of its elements,” Pompan said.