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From the American Bar Association’s September 21st Article by Caren D. Enloe

The Debt Collection Rule: Communications, Disclosures, and the Other Changes You Need to Know

Caren D. Enloe

On November 30, 2021, the Consumer Financial Protection Bureau’s (“CFPB’s”) much-anticipated Debt Collection Rule (the “Rule”) will take effect.[1]  The (“Rule”), which is interprets the federal Fair Debt Collection Practices Act (the “FDCPA”), attempts to clarify how debt collectors can use new communication technologies and expands the information debt collectors must provide at the outset of their debt collection efforts.  Additionally, the Rule prohibits debt collectors from threatening litigation or bringing suit on time-barred debts, eliminates the practice of passive debt collection through credit reporting, and imposes document retention requirements.  This article highlights some of the more note-worthy provisions of the Rule. A comprehensive review of the Rule will be provided in The Business Lawyer’s Survey of Consumer Financial Services in the coming months.

Who’s Covered.  While the proposed rule raised concerns as to whether first-party creditors were in scope, the final version of the Rule expressly states it applies only to “debt collectors” as that term is defined in the FDCPA.[2]  First-party creditors, however, should be mindful of the CFPB’s warning that the Rule is not intended to address whether activities performed by entities not subject to the FDCPA would violate other statutes, including the unfair, deceptive, or abusive acts or practices (“UDAAP”) provision found in the Dodd-Frank Act.[3]  It is therefore foreseeable that the CFPB will use the Rule as a framework for enforcement actions against first-party creditors.

COMMUNICATIONS

Limited Content Messages. The Rule introduces a new concept in the definition section (section 1006.2), the limited-content message. Limited-content messages are intended to provide a safe way for debt collectors to leave non-substantive messages requesting a return call from a consumer while not inadvertently disclosing the debt to third parties.[4]  The Rule’s Official Interpretation makes clear that limited-content messages are not communications regarding a debt because they do not communicate information, directly or indirectly, about a debt.[5]  To qualify as a limited-content message, the message must be left by voicemail and only contain the specified limited content set forth in the Rule, including “[a] business name for the debt collector that does not indicate that the debt collector is in the debt collection business.”[6]  This may prove problematic for some debt collectors with names that include words indicating the nature of the business. At a minimum, this provision is likely to create litigation as to what does and does not indicate a debt collector is in the debt collection business.

Call Frequency Limitations.  The FDCPA prohibits debt collectors from causing a telephone to ring and from engaging a person in telephone conversations repeatedly or continuously with the intent to annoy, abuse, or harass.[7]  Section 1006.14 of the Rule creates bright-line numeric limitations on telephone calls by creating presumptions of compliance and violations.  Generally, and subject to certain very limited exceptions, a debt collector is presumed to violate the provision if: (a) it places telephone calls to a particular person in connection with a particular debt more than seven times within seven consecutive days; or (b) after having a telephone conversation with a particular person regarding a particular debt, the debt collector makes a call within seven days of that conversation.[8]  

Use of Electronic Communications. The Rule allows for the use of email and text messaging and sets forth procedures which, if followed, will provide the debt collector with a bona fide error defense as to any inadvertent disclosure to a third party. Specifically, section 1006.6(d)(4) of the Rule allows the debt collector to use an email address (i) the consumer has either previously used to communicate with the debt collector (and for which the consumer has not subsequently opted out) or for which the consumer has provided prior express consent to use; or (ii) that was used previously by the creditor or a prior debt collector subject to certain limitations and conditions.[9]  Section 1006.6(d)(5) also allows for text messaging subject to similar conditions.[10]  The Rule further requires debt collectors to allow consumers to opt out of electronic communications and provide a clear and conspicuous statement describing a “reasonable and simple method” for opting out.[11]

Inconvenient Time and Place. Section 1006.6(b)(1) of the Rule provides that it is an inconvenient time to communicate with the consumer before 8:00 AM and after 9:00 PM, per the local time at the consumer’s location.[12] The Rule applies this restriction equally to communications and attempts to communicate.[13]  The Official Interpretation of the Rule makes clear that if the debt collector has ambiguous information regarding the consumer’s location, then the debt collector may assume a time that is convenient in all time zones at which the debt collector’s information indicates the consumer may be located.[14]

Section 1006.22(f)(3) of the Rule prohibits communicating or attempting to communicate with a consumer using an email address that the debt collector knows is provided to the consumer by their employer unless the consumer provided the email address to the debt collector or a prior debt collector and the consumer has not subsequently opted out.[15]

DISCLOSURES

In General.  The FDCPA requires debt collectors to provide consumers with a validation notice that includes the name of the creditor, the amount of the debt, and the disclosure of certain statutorily prescribed consumer protection rights.[16]  The Rule significantly expands the requirements of the FDCPA by requiring significantly more information and robust disclosures.  These disclosures fall into three general categories: (i) information to help consumers identify the debt; (ii) information about consumer protections; and (iii) information to help consumers exercise their rights, including a tear-off dispute form with prescribed prompts.  Additionally, the Rule allows for certain optional disclosures.  The Rule also includes an optional model form and a safe harbor for those that wish to use the model form.[17]  Deviations are allowed, provided that the content, format, and placement of information remains substantially similar to the model form.[18]

Itemization Date. The Rule introduces a new concept to debt validation which will have an indirect impact on creditors—the “itemization date.”[19]  Subject to a narrow exception for certain residential mortgage debt,[20] the Rule now requires the debt collector to include in the validation notice an itemization of the account balance from a specified “itemization date” through the date of the validation notice.  Section 1006.34(b) allows debt collectors to choose as their “itemization date” one of five specified reference dates[21]:

    • the date of the last periodic statement or written account statement or invoice provided to the consumer by the creditor;
    • the charge-off date;
    • the last payment date;
    • the transaction date; or
    • the judgment date.

Because of the nature of the “itemization date,” its point of origin is necessarily the creditor.  Banks and financial service providers will need to coordinate with their third-party debt collectors to provide the requisite documentation to support the itemization date the debt collector is using, the amount of the debt as of that date, and an itemization of any charges and fees accruing after the itemization date.

Validation Period.  Additionally, while the FDCPA provides a consumer with thirty days to exercise its consumer protections, including disputing and requesting validation of the debt, the Rule defines the validation period to include an additional five business days by stating that a debt collector “may assume” that the consumer receives the validation notice on any date that is five days (excluding federal legal public holidays, Saturdays and Sundays) after the debt collector sent the notice.[22]

Information To Help the Consumer Identify the Debt. Section 1006.34 requires the debt collector include in the validation notice the following information to help the consumer identify the debt: the debt collector’s name and mailing address at which they accept disputes and requests for original creditor information; the consumer’s name and mailing address; the identity of the creditor as of the itemization date; the current creditor; the account number or a truncated version of the same; the itemization date and amount of the debt on that date; an itemization of the debt from the itemization date forward; and the current amount of the debt.[23]

Information about Consumer Protections. The Rule additionally requires that the validation notice contain certain information about consumer protections, including the disclosures set forth in section 1692g(a)(3)-(5).  The debt collector additionally is required to include the end date of the validation period.[24]

Consumer Response.  The validation notice expands on the provisions of section 1692g(a) of the FDCPA by requiring the validation notice to include certain prescribed prompts, which must be conveyed in a prescribed order using the specified phrasing or substantially similar phrasing.[25] Such prompts include dispute prompts, as well as prompts for original creditor information.[26]

Optional Disclosures.  The validation notice may include certain optional disclosures, including the debt collector’s telephone contact information, availability, and reference code.[27] Certain prescribed payment disclosures also are allowed so long as they do not overshadow the validation notice.[28]  The Rule allows for, but does not require:  (i) validation notices to be sent electronically consistent with section 1006.42 of the Rule; and (ii) Spanish-language disclosures.  Additionally, the Rule permits the inclusion of certain disclosures that are specifically required or that provide a safe harbor under applicable law.[29]

Electronic Disclosures.  The Rule allows for the sending of the mandatory disclosures required by section 1692g(a) and (b) electronically so long as debt collectors comply with the E-SIGN Act, 15 U.S.C. §7001(c).[30]

OTHER CHANGES YOU SHOULD KNOW ABOUT

Deceased Consumers. The FDCPA defines a consumer as any natural person obligated or allegedly obligated to pay a consumer debt.[31]  The Rule interprets the definition of a consumer to include deceased natural consumers.[32]  For purposes of debt validation, the Rule  makes clear that if the debt collector knows or should know that the consumer is deceased, and if the debt collector has not previously provided the validation notice to the deceased consumer, the debt collector must provide the debt validation notice to a person authorized to act on behalf of the deceased consumer’s estate.[33] Of particular note, the Rule requires the validation notice to identify the estate’s representative by name.[34]

Time-Barred Debt.  The Rule interprets the FDCPA’s prohibition of false or misleading representations to prohibit legal actions or threats of legal actions against a consumer to collect time-barred debts.[35]  Because the limitations period to collect a debt varies from state to state, section 1006.26(a)(1) defines “statute of limitations” as “the period prescribed by applicable law for bringing a legal action against the consumer to collect a debt”[36] and time-barred debt as “a debt for which the applicable statute of limitations has expired.”[37]  The CFPB is not finalizing, for now, the time-barred debt and revival disclosures it proposed in February 2020, noting concerns expressed during the comment period by all stakeholders regarding the proposed disclosures.[38]

Restrictions on Credit Reporting.  Banks and other financial service providers that rely on third-party debt collectors to furnish credit reporting information should be aware of the Rule’s restrictions on credit reporting.  Section 1006.30(a) generally prohibits debt collectors from furnishing information to a consumer reporting agency about a debt before the debt collector either speaks to the consumer about the debt in person or by telephone or sends its validation notice and then waits for a reasonable period of time to receive a notice of undeliverability.[39] The Rule presumes that a reasonable period of time is 14 consecutive days after the date that the initial communication is sent.[40]

Record Retention.  Section 1006.100 of the Rule requires debt collectors to retain records evidencing compliance with the FDCPA and the Rule beginning on the date that the debt collector begins collection activity and ending three years after the debt collector’s last collection activity.[41]  With respect to call recordings, the Rule makes clear that if a debt collector records telephone calls made in connection with the collection of the debt, the recordings must be kept for three years from the date of the call. [42]

WHAT’S NEXT

As debt collectors move forward with implementing new policies and practices to comply with the Rule, they should understand that this is not the end of the story.  The CFPB anticipates treating the Rule as “significant” for purposes of the Dodd-Frank Act and will assess the Rule within the next five years, including and evaluation of its costs, benefits, and other effects.[43]

While first -party creditors have avoided direct implications from the Rule thus far, there remain indirect implications. Creditors should revisit third-party vendor management requirements and update them, as appropriate, to reflect changes and ensure the compliance of third-party debt collectors.  By the same token, compliance departments for third-party debt collectors, including law firms, are aligning their policies, procedures, media content, and scripts to conform with the Rule and to take advantage of the safe harbors contained within the Rule. Compliance with the debt validation requirements will additionally require increased cooperation and communication between debt collectors and creditors to ensure information is accurately conveyed.

[1] Debt Collection Practices (Regulation F), 85 Fed Reg. 76734 (Nov. 30, 2020) (to be codified at 12 C.F.R. pt. 1006) [hereinafter Rule Pt. 1]; Debt Collection Practices (Regulation F), 86 Fed Reg. 5766 (Jan. 19, 2021) (to be codified at 12 C.F.R. pt. 1006) [hereinafter Rule Pt. 2]. 

[2] Rule Pt. 1, at 76742.

[3] Id.

[4] Id. at 76888 (to be codified at 12 C.F.R. § 1006.2(j)).

[5] Id. at 76896 (to be codified at Supplement I to Part 1006, ¶ 2(j)(1)-1).

[6] Id. at 76888 (to be codified at 12 C.F.R. § 1006.2(j)(1)(i)).

[7] 15 U.S.C. § 1692d(5) (2021).

[8] Id. at 76890 (to be codified at 12 C.F.R. § 1006.14(b)(2)).

[9] Id. at 76889 (to be codified at 12 C.F.R. § 1006.6(d)(3)).

[10] Id. at 76889 (to be codified at 12 C.F.R. § 1006.6(d)(4)).

[11] Id. at 76890 (to be codified at 12 C.F.R. § 1006.6(e)).

[12] Id. at 76889 (to be codified at 12 C.F.R. § 1006.6(b)).

[13] Id.

[14] Id. at 76897 (to be codified at Supplement I to Part 1006, ¶ 6(b)(1)(ii)-1).

[15] Id. at 76892 (to be codified at 12 C.F.R. § 1006.22(f)(3)).

[16] 15 U.S.C. § 1692g(a) (2021).

[17] See Rule Pt. 2, at 5855 (to be codified at 12 C.F.R. § 1006.34(d)).

[18] Id.

[19] Id. at 5854 (to be codified at 12 C.F.R. § 1006.34(b)(3)).

[20] Id. at 5855 (to be codified at 12 C.F.R. § 1006.34(c)(5)).

[21] Id. at 5854 (to be codified at 12 C.F.R. § 1006.34(b)(3)).

[22] Id. (to be codified at 12 C.F.R. § 1006.34(b)(5)).

[23] Id. at 5854–55 (to be codified at 12 C.F.R. § 1006.34(c)(2)).

[24] Id. at 5855 (to be codified at 12 C.F.R. § 1006.34(c)(3)).

[25] Id. (to be codified at 12 C.F.R. § 1006.34(c)(4)).

[26] Id.

[27] Id. (to be codified at 12 C.F.R. § 1006.34(d)(3)).

[28]  Id. (to be codified at 12 C.F.R. § 1006.34(d)(3)(iii)).

[29] Id. at 5855–56 (to be codified at 12 C.F.R. § 1006.34(d)(3)(iv)).

[30] Id. at 5856 (to be codified at 12 C.F.R. § 1006.42(b)).

[31] 15 U.S.C. § 1692a(3) (2021).

[32] Id. at 5854 (to be codified at 12 C.F.R. § 1006.2(e)).

[33] Id. at 5858 (to be codified at Supplement I to Part 1006, ¶ 34(a)(1)-1) (emphasis added).

[34] Id.

[35] Id. (to be codified at 12 C.F.R. § 1006.26(b)).

[36] Id. (to be codified at 12 C.F.R. § 1006.26(a)(1)).

[37] Id. (to be codified at 12 C.F.R. § 1006.26(a)(2)).

[38] Id. at 5782.

[39] Id. at 5854 (to be codified at 12 C.F.R. § 1006.30(a)).

[40] Id. at 5858 (to be codified at Supplement I to Part 1006, ¶ 30(a)(1)(ii)-2.

[41] See Rule Pt. 1, at 76893 (to be codified at 12 C.F.R. § 1006.100).

[42] Id. at 76907 (to be codified at Supplement I to Part 1006, ¶ 100(b)-1).

[43] Id. at 76738.

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