The Consumer Financial Protection Bureau (CFPB or Bureau) continues to take strides toward new regulation of the debt collection industry. In July 2016 the Bureau released an Outline of Proposals under Consideration and Alternatives Considered (Outline) for the new rule and stated that it would complete its pre-rule activities in connection with new regulations by February 2017. The CFPB's Outline focused on four broad areas related to debt collection: (1) information integrity and substantiation of claims of indebtedness, (2) litigation-related disclosures, (3) communications with consumers, and (4) debt transfers and recordkeeping.
In advance of what will likely be a highly contested proposed rule, on January 12, 2017, the Bureau released several debt collection-related documents, potentially aimed at building support for provisions of the regulations. These include a report on a national survey of consumer experiences with debt collectors, a white paper on consumer risks in online debt sales, and a compilation of stories illustrating consumers' experiences with debt collectors.
Regarding its survey, the Bureau notes that "although the analysis sought to ensure reasonable sample size in calculations, the report does not present standard errors or statements about the statistical significance of the differences." Comments on the CFPB's eventual proposal, as with any rulemaking proceeding, will likely seek to address both the Bureau's proposed rule and the empirical support that underlies the proposal.
Information Integrity and Substantiation of Claims
In the Outline, the CFPB discussed requiring debt collectors to establish a reasonable basis for claims of indebtedness by obtaining and reviewing documentation of the debt as necessary to resolve warning signs that may appear during various points in the collection process. The CFPB's survey report found that 53% of consumers contacted about a debt in the year prior claimed at least one collection effort was incorrect, i.e., the debt was not owed by the consumer, was owed by a family member, or was for the wrong amount. Consumers reported that often the amount was incorrect, the debt was not owed, or the debtor was a family member.
Recently, the CFPB took action against a pawnbroker for allegedly deceiving consumers about the annual cost of loans, citing that the company misstated the charges associated with its loans. The Bureau may use this action in further support of regulations requiring creditors and collectors to substantiate claims of indebtedness.
The CFPB has also stated that it is considering requiring additional consumer-facing disclosures in a new rule, including:
- A "litigation" disclosure in all written and oral communications in which a debt collector expresses an intent to sue;
- A "time-barred debt" disclosure whenever a debt collector seeks to collect on time-barred debts; and
- An "obsolescence disclosure" explaining whether a debt can or cannot appear on a credit report.
In addition, the CFPB discussed prohibiting collectors from attempting to collect time-barred debts that can be revised under state law unless they waive the right to sue.
In support of these initiatives, the CFPB may point to its survey results, which found that 15% of consumers contacted about a debt in collection over the prior year reported being sued. The CFPB may point to this statistic as evidence that debt collectors typically do not intend to sue a consumer, since only one in seven of consumers with a debt collection experience reported being sued.
The Bureau's survey also found that, of those consumers who were sued, only one out of four attended the court hearing. The CFPB believes that, because most consumers do not contest the suit, collectors are able to hold them responsible for debts that may not be documented or which may be time-barred. The Bureau might also cite these findings to support time-barred debt and obsolescence disclosures under the theory that such disclosures would allow consumers to contest collection efforts in litigation.
The CFPB may point to recent enforcement actions against debt collectors in support of its proposal for litigation-related disclosures. For example, the Bureau brought an action against collectors for allegedly deceiving consumers into believing they were being sued over past due debts, as well as a consent order under the CFPB's unfair, deceptive, or abusive acts or practices (UDAAP) authority for allegedly falsely threatening legal action when consumers fell behind on a loan.
Communications with Consumers
One area where the CFPB seems particularly focused is collector communication with consumers. In the Outline, the CFPB discussed proposals to place numerical restrictions on the frequency of consumer contact attempts; restrict collectors from contacting consumers at medical facilities, daycare centers, and other locations; and require a 30-day waiting period before contacting the surviving spouses or other decedent after a consumer's death.
Consistent with the CFPB's emphasis on debtor communications, its survey report found that 27% of consumers reported feeling threatened by the conduct of a creditor or collector during collection communications. Thirty-six percent reported being contacted outside of the generally permissible 8:00 am to 9:00 pm window provided for under the FDCPA, and, of the 40% of consumers who reported making a request for a debt collector to cease contact, 75% said their request was not honored. In addition, 37% of consumers in the survey reported that they were usually contacted about a debt four or more times in a week. Seventeen percent reported being contacted eight or more times per week. Notably, the survey found that medical bills, credit cards, and student loans were the most frequently cited debts consumers were contacted about.
Recently, the CFPB and the New York Attorney General took action against several collectors for allegedly pressuring and deceiving consumers into paying inflated debts. The Bureau alleges, among other things, that the collectors impersonated law enforcement officials and government agencies, and threatened arrest or legal actions the collectors had no intention of taking. This action may further reinforce the Bureau's initiative to place additional limitations on collectors' interactions with consumers.
Debt Transfers and Recordkeeping
In its Outline, the CFPB proposed additional restrictions related to the sale of debt, including prohibiting sales to buyers subject to a court order prohibiting them from collecting debt, or prohibiting the sale of debt to those who lack any license to purchase or collect debt.
Keeping in tune with potential restrictions on the sale of debt, the CFPB drew attention to the hazards of online marketplaces for charged-off debts. The Bureau's white paper on online debt sales discusses how portfolios sold online often contain sensitive personal and financial information about consumers, including social security numbers, home telephone numbers, street addresses, bank account information, and current account balances. The white paper reports that these portfolios and the information contained within them can be cheaply and easily bought and sold online, and that sensitive consumer information can easily fall into the wrong hands as a result.
Based on a survey of online debt marketplaces, the CFPB found that the average asking price per dollar of face value debt was just under one cent. Most of the debt offered on websites was credit card debt, though payday loan portfolios made up a significant portion of debts sold online. More than 75% of the advertised portfolios had been collected upon by two or more prior collectors. Finally, some of the portfolios were advertised as including "media" – which, according to the CFPB, meant that the portfolios could contain sensitive personal consumer information. The Bureau may refer to these findings in support of its proposal to restrict debt sales to those with a license, or other, similar prohibitions.
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The CFPB's January 12 report showcases what the Bureau believes are the most adverse effects of a failure to keep the debt collection marketplace in check. We expect to see the CFPB continue to prioritize regulation of this industry, particularly when debt collectors threaten consumers with litigation, use inaccurate information, or fail to adhere to FDCPA-imposed limitations on communications with consumers. And where the FDCPA does not reach collection conduct that the Bureau views as impermissible, its UDAAP authority likely does. We also anticipate that the Bureau will be keeping a close eye on credit card and medical debt collectors.
While the Bureau will also likely continue to build its case for new regulations, it has not yet completed the second of two planned Small Business Regulatory Enforcement Fairness Act (SBREFA) panels in connection with its rulemaking. Thus, despite its estimate that pre-rule activities would be complete by February 2017, a comprehensive proposed rule may still be a ways off.