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Insights into CFPB’s Latest Debt Collection Proposal

regulatory

At the end of July, the Consumer Financial Protection Bureau (CFPB) took a significant step toward reforming the regulatory framework for the debt collection and debt buying industry by announcing an outline of proposals under consideration.  The proposals will now be considered by a small business review panel before the CFPB announces a proposed rule for wider industry comment.

The CFPB said its proposals will affect only third-party debt collectors pursuant to the Fair Debt Collection Practices Act (FDCPA).  However, the CFPB signaled it may consider a separate set of proposals for first-party collectors.

The collections industry has long been a focus of the CFPB.  In 2012, the bureau designated larger market participants in the debt collections marketplace and placed some of these entities under supervision. In 2013, the CFPB released an Advanced Notice of Proposed Rulemaking covering collections.

The focus on debt collection is fueled in part by the large number of consumer complaints it receives about the debt collection market (roughly 35% of total complaints).  Moreover, the CFPB’s proposals build upon some of the regulatory and enforcement priorities that the CFPB and Federal Trade Commission have pursued for several years around data quality, consumer communication and disclosures.

Here are some of the key takeaways for third party debt collectors from the CFPB’s proposals:

Address data quality: Collectors would be required to substantiate claims that a consumer owes a debt in order to begin a collection. Collectors would also be required to pass on information provided by consumers in the course of collections activity.

New Validation Notice and Statement of Rights: The CFPB’s draft outline would update the information provided to consumers through the FDCPA validation notice, as well as require disclosure of a consumer statement of rights.

Changes to frequency of communications:  Debt collectors would be limited to six emails, phone calls or mailings per week, including unanswered calls and voicemails. After reaching the consumer, the debt collector would be allowed either one contact or three attempted contacts per week. There would also be a waiting period of 30 days before contacting the family of a debtor who has died.

New disclosures on “out of statute” debt and litigation: In the outline, CFPB proposes having debt collectors provide new disclosures to consumers regarding the possibility of litigation and whether the debt is beyond the statute of limitations.

Waiting period before sending collection accounts to  a consumer reporting agency: Reporting a person’s debt would be prohibited under the draft outline unless the collector has first communicated directly with the consumer about the debt.

The CFPB will next hear comments from a panel of small businesses in the industry, complete an analysis of how its proposals would impact small businesses, and take written comments from the public. Following those steps, the agency will issue a proposed rule for comment.