CFPB Unveils Outline for Sweeping Changes to Debt Collection Industry Practice
The Consumer Financial Protection Bureau (“CFPB”) revealed yesterday its proposal to overhaul debt collection industry practices through tighter regulations, including limits on the frequency of consumer contact and ensuring companies are collecting the correct amounts owed and from the right persons. The agency’s Director Richard Cordray remarked that the purpose of the proposal was to bring “better accuracy and accountability to a market that desperately needs it.” The outline comes ahead of the agency’s formal proposed rulemaking slated for 2017.
With nearly 70 million consumers in debt, the U.S. debt collection market is a multi-billion dollar industry, which includes not only banks and original creditors, but also third-party debt collectors and other debt buyers. The proposed rules would apply to third-party debt collectors and others covered by the Fair Debt Collections Practices Act (“FDCPA”).
The CFPB is now considering proposals to clarify the parameters of consent from consumers consistent with section 805 of the FDCPA, which requires consent from consumers directly in order to waive various restrictions on methods of communication. Specifically, under this proposal, if a debt collector obtains the debt from a creditor or prior collector, it cannot rely on the consent parameters previously provided and the collector must obtain new consent. The agency is considering how to implement the consent requirements. Another substantial change heralded by the proposal anticipates limits for collectors to attempt to reach consumers, by placing a restriction on calling no more than six times per week per account to contact a consumer they have not previously reached.
Additional changes outlined in the proposal include requiring collectors to substantiate debts prior to collection and provide a statement with specific information about a consumer’s federal rights, written in plain language. Consumers can also stop or limit communications, including restricting collectors from calling a work phone number or calling during certain hours. The proposal also seeks to identify places that are presumptively inconvenient to contact a consumer if the collector know or has reason to know the consumer is at that location including, medical facilities, place of worship, places of burial or grieving and daycare or childcare facilities.
The CFPB’s Outline of Proposals can be found here.
Given the changing landscape of technology and methods of contacting consumer, hard limits on frequency of contacts or limits on inconvenient locations of contact could have a negative impact on consumers. By limiting collection alternatives, such as the time, place, and/or manner of contacting consumers, consumers may find themselves quickly in litigation or combating adverse credit reporting that could have been avoided through reasonable contact efforts. Consumer’s benefit from workout options, including payment plans, that these calls seek to provide. By further reducing an entity’s ability to contact a consumer about critical account information, consumers may in fact find themselves worse off. The message to debt collectors is clear – steering through the numerous changes to debt collection practices to be rolled by the CFPB in the near future will be a rough ride.