Consumer Finance Litigation

Early in the morning on July 28, 2016, in coordination with the Consumer Financial Protection Bureau's (the "Bureau") field hearing on debt collection being held the same day in Sacramento, California, the Bureau released a detailed outline of proposals under consideration for debt collection rulemaking. While the proposals only cover third-party debt collection issues, the Bureau indicated that they plan to address first-party collectors and creditors with similar proposals at a later date. We expect that many of the same principles outlined in the third-party proposals will be similar to those issued in the first-party proposals.

As stated by Director Richard Cordray, the Bureau believes that these proposals will "drastically overhaul the debt collection market." After a thorough review of the proposals, we agree that these proposals constitute enormous changes in debt collection law.

Burr & Forman has prepared a 10-page summary of the proposal for distribution to its clients. If you would like an electronic copy of the summary, please contact Burr partner Zachary D. Miller at zmiller@burr.com.

However, an abbreviated summary of the major changes is below:

Who is Covered?

The proposals would apply to third-party collectors, including: (1) collection agencies, (2) debt buyers, (3) collection law firms and (4) loan servicers. The Bureau will convene a second proceeding in the next several months for creditors and others engaged in collection activity who are "covered persons" under the Dodd-Frank Act but who may not be "debt collectors" under the FDCPA.

Information Integrity

The Bureau stated that its most common debt collection complaint involves collectors allegedly seeking to recover from the wrong consumer.

Substantiation Process for Consumer Disputes

• The Bureau proposes articulating a "list of fundamental information" that a collector could obtain and review to look for "warning signs" that information being obtained from a creditor is inaccurate or inadequate before commencing collection activity.
• The Bureau is also considering requiring collectors to look for warning signs that may raise questions as to the adequacy or accuracy of the information with respect to a particular consumer or portfolio.
• Under the proposals, once a collector has conducted an "initial review" for warning signs, collectors would still be responsible for reviewing for warning signs that appear during the collection process.
• The Bureau also stated that it believes that if a consumer disputes a debt, orally or in writing, by asserting that he or she does not owe the debt or the amount being claimed, that the dispute calls into question the collector's basis for claiming that the collector is pursuing the right person or the right amount.
• The Bureau has outlined various types of disputes and the information required to respond.
• The Bureau is also considering clarifying that communications from consumers constitute disputes if they challenge the validity of the debt or the legal right of the collector to seek payment on the debt.
• The Bureau is also considering requiring debt collectors to have reasonable support for claims that a consumer being sued owes the amount claimed before filing a collection suit.

Review and transfer of information

• The Bureau's proposal would require subsequent debt collectors to obtain (and prior creditors to provide) certain information consumers provided to prior collectors that obligates collectors to take or refrain from taking collection action.
• The Bureau is also considering a proposal that would require debt collectors to forward certain information they may receive from consumers after they have returned the debt to the debt owner or sold it to a subsequent debt buyer.

Updated validation notice

• The Bureau is considering changing the standard 1692g validation notice provided to the consumer to include additional information about the debt itself.
• The Bureau is also considering requiring the notice to include additional information regarding a consumer's rights.
• Further, the Bureau is considering a proposal that requires the validation notice to contain a "tear-off" with choices to facilitate the exercise of consumer rights.

Additional communication proposals

• Additionally, the Bureau is considering two proposals aimed at consumers with limited English proficiency (LEP): (1) requiring collectors to send translated versions of the validation notice and statement of rights if the debt collector's initial communication with the consumer took place predominantly in a language other than English and the Bureau has published in the Federal Register versions of the validation notice and statement of rights in the relevant non-English language or (2) requiring a Spanish language translation on the reverse side of every validation notice and statement of rights.
• Finally, the Bureau is considering a proposal that would prohibit debt collectors from furnishing credit information to a consumer reporting agency regarding an account unless it has communicated with the consumer about the account.

"Consumer Understanding" Initiatives

• The Bureau is considering requiring debt collectors to provide a litigation disclosure in all written or oral communications in which they represent, expressly or by implication, their intent to sue.
• The Bureau is also considering a proposal requiring debt collectors to give consumers a disclosure regarding time-barred or obsolete debt.
• Additionally, the Bureau is considering a proposal that would prohibit a subsequent collector from filing suit on a debt that it determines is not time-barred if a prior collector gave a consumer a time-barred debt disclosure.
• The Bureau is considering whether to prohibit collectors from collecting on time-barred debt that can be revived under state law unless they waive the right to sue on the debt.
• Finally, the Bureau is considering requiring a collector to obtain a consumer's written acknowledgement of having received a time-barred debt disclosure and obsolescence disclosure before accepting a payment on a debt that is time-barred and not subject to credit reporting.

Collector Communication Practices

Voicemail messages

• The Bureau is considering a proposal that would permit a collector to leave a voicemail message for a consumer that does not violate the FDCPA as long as the message transmits only the following information: (1) the individual debt collector's name (i.e., David Jones); (2) the consumer's name; and (3) a toll-free method that the consumer can use to reply to the collector.

Limits on Attempted and Completed Consumer Contacts

• The Bureau stated that it is considering a rule that would establish different numerical restrictions on contact attempts depending on whether the collector has successfully established contact with the consumer.
• The Bureau is considering the following restrictions:

Location contacts and frequency of third-party contacts

• The Bureau is also considering applying contact attempts for collectors' attempts to contact third-parties to obtain location information regarding the consumer. The Bureau is considering the following restrictions:

Inconvenient Times to Contact Consumer

• The Bureau stated that it would like to provide clarification on what constitutes an inconvenient time for a consumer to receive a communication when the collector has conflicting information regarding a consumer's location. For example, if a consumer has an area code and a zip code that are in differing time zones. In that situation, the Bureau is considering a proposal that would provide that in the absence of knowledge of circumstances to the contrary, a debt collector knows or should know that it is convenient to communicate with a consumer if it would be convenient in all of the locations in which the collector's information indicates the consumer may reside.
• Additionally, the Bureau is considering proposals that would clarify how convenient time restrictions apply to emails and text messages.

Inconvenient Places to Contact Consumer

• The Bureau is considering an automatic presumption that four distinct locations are inconvenient places for a collector to contact a consumer: (1) medical facilities, including hospitals, emergency rooms, hospices, or other places of treatment for serious medical conditions; (2) places of worship, including churches, synagogues, mosques, temples; (3) places of burial or grieving, including funeral homes and cemeteries; and (4) daycare or childcare centers or facilities.

Inconvenient Communication Methods

• The Bureau is considering prohibiting a collector from contacting a consumer using methods that the collector knows are inconvenient to the consumer.
• The proposal under consideration would generally prohibit debt collectors from using an email address to contact a consumer that they know or should know is the consumer's workplace email for debt collection communications.

Decedent Debt

• The Bureau is considering proposals related to collector communications once a consumer who owes a debt dies. Specifically, the proposals would clarify that it is generally permissible for collectors to contact surviving spouses, parents of deceased minors, and individuals who are designated as personal representatives of an estate under state law after a 30-day pause after the consumer's death.

Consent

• Various FDCPA provisions would allow a consumer to waive protections by consumer consent. The Bureau is considering clarifications that the consent cannot be passed downstream from one collector to another.
• Additionally, the Bureau is considering requiring collectors to clearly and prominently disclose to the consumer - either orally or in writing - what the consumer is consenting to (e.g., that the consumer consents to communications at a specific date and time, or to the debt collector revealing information about a debt to a third party).
• The Bureau is considering requiring the collector to memorialize the consent by some means in the consumer's account file. The Bureau is also considering specifying that consumers may revoke consent previously provided to the collector.

As the Bureau continues to comment on these proposals and address proposals for first-party collectors and creditors, we will continue to provide our clients with up-to-date information regarding future changes in law that has been relatively unchanged since the Fair Debt Collection Practices Act (FDCPA) was enacted in 1977.