Special Alert: CFPB Releases Outline of Proposed Rule for Third Party Debt Collectors

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.

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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.



CFPB Provides Five Year Overview of Consumer Complaints

On July 20, the CFPB published an overview of the consumer complaints it handled between July 2011 and July 2016. According to the overview, the CFPB has handled almost one million consumer complaints, the majority of which relate to either mortgages or debt collection. The CFPB has also handled a significant number of complaints related to the following: (i) bank accounts and services, most commonly about opening, closing, or managing bank accounts; (ii) credit cards, in particular billing disputes; and (iii) credit reporting, most often involving reporting errors in credit reports.


CFPB to Host Field Hearing on Debt Collection

On July 28, the CFPB will host a field hearing on debt collection in Sacramento, California. CFPB Director Cordray will deliver remarks at the hearing, with consumer groups, industry representatives, and members of the public also providing testimony. It is highly anticipated that, at the hearing, the CFPB will release an outline of proposals for consideration by a Small Business Review Panel. Pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA), the CFPB must convene a Small Business Review Panel if a proposed rule may have a significant impact on a substantial number of small entities. A SBREFA outline may be a strong indicator of the approach the CFPB intends to take on a future proposed rule on debt collection.


FTC Continues Operation Collection Protection Efforts

On July 14, the FTC announced that two debt collectors and three companies (collectively, Defendants) previously charged with using false threats and other illegal collection tactics in violation of the FTC Act and the FDCPA have agreed to a stipulated final order. According to the FTC, the Defendants purchased consumer debts and then collected payment by intimidating consumers with false threat of lawsuits, wage garnishment and arrest, and by impersonating attorneys or process servers. In addition, the FTC alleged that the Defendants (i) failed to disclose to consumers their right to receive verification of a debt; (ii) did not identify themselves as debt collectors; and (iii) disclosed debts to third parties. The final order imposes a $4,802,646 judgment, which the FTC partially suspended upon the surrender of certain assets, and requires that the two individual debt collectors separately pay $59,207 and $50,562. The action is part of the FTC’s Operation Collection Protection, a nationwide initiative designed to combat alleged abusive and deceptive debt collection practices.


CFPB’s Summer Edition of Supervisory Highlights Discloses Issues across Various Financial Markets

On June 30, the CFPB released its twelfth edition of Supervisory Highlights providing supervisory observations from its examiners in the areas of auto origination, debt collection, mortgage origination, small-dollar lending, and fair lending. In the area of auto origination, examiners determined that one or more institutions engaged in deceptive advertising practices related to the benefits of gap coverage products and the effects of payment deferrals, and failed to implement adequate compliance management systems. In the area of debt collection, examiners found that debt sellers sold thousands of debts that were unsuitable for sale because: (i) the accounts were in bankruptcy; (ii) the debts were the product of fraud; or (iii) the accounts had been paid in full. CFPB examiners further observed violations of the Fair Debt Collection Practices Act (FDCPA), determining that at least one collector falsely represented to consumers that a down payment was necessary in order to establish a repayment arrangement, when no such down payment was required by the collectors’ policies and procedures. For mortgage origination, CFPB examiners focused on compliance with provisions of CFPB’s Title XIV rules, the Truth in Lending Act (TILA), as implemented by Regulation Z, and the Real Estate Settlement Procedures Act (RESPA), as implemented by Regulation X, disclosure provisions, and other applicable consumer financial laws. Read more…