The Fair Debt Collection Practices Act

Since 1977 the Fair Debt Collection Practices Act has been “sort of” easy to interpret. The reason for the “sort of” is simple: There have been no rules or regulations to govern the implementation of the law’s limitations on debt collectors’ behaviors and actions.

In the absence of implementation guidelines, those hoping to understand FDCPA were forced to review Federal Trade Commission advisory opinions, informal FTC staff letters, commentary on the Act or judicial opinions. But hold on to your seats. As Bob Dylan sang in 1964, “The times, they are a-changin’”!

With the advent of the Dodd-Frank Wall Street Reform and Protection Act in 2010, responsibility for supervising debt collectors and the implementation of FDCPA has passed to the Consumer Financial Protection Bureau. On Nov. 12, 2013, CFPB published a 34-page notice of proposed rulemaking that includes informational observations, a request for comment, and 162 questions through which CFPB seeks to develop a regulatory scheme to implement FDCPA.

It is essential that this notice of proposed rulemaking be carefully read by compliance officers, as it provides hints about the direction CFPB is taking, as well as outright markers of the agency’s intentions.

Although not apparent from the organization of the document, the 162 questions raised in the proposed rule can be categorized into three distinct groups. Importantly, the groups are not segregated into neat, distinct sections, but mixed and mingled within the various parts of the notice.

The first group of questions gets at requests for information. CFPB apparently does not have sufficient insights into certain collection practices, such as actions taken related to disputed accounts. For example, it may need more information on collection investigation procedures and those types of accounts that are disputed in greater numbers than others.

Consequently, the agency wants the public to share its knowledge concerning these areas to help it make judgments about whether to take regulatory action and to what extent.

The second set of “questions” is really more accurately a set of musings. It appears CFPB is signaling the areas it might be considering regulating, such as providing various notices in languages other than English or establishing a requirement that a consumer’s rights be stated in a particular format. In these instances, the public’s sense of the concept or alternative approaches is invited.

The final cohort of inquiries amounts to statements of areas in which the bureau is intending to regulate the debt collection industry. An example of this will be disclosures that advise consumers about the implications of collectors acting on debts that are time barred, that is, the statute of limitations has run out on their judicial enforceability.

The closing date for acceptance of comments was Feb. 10, 2014. Nevertheless, it remains crucial for compliance officers to take the time to fully understand the NPRM’s breadth and reach. The document provides a rich amplification of not only the direction the agency is moving, but paints the picture of the concerns it intends to address and what is to come in the future.

A number of rules can be expected to be promulgated in light of the notice of proposed rulemaking. At the outset, first-party collectors, such as credit unions collecting their own loans, will be covered by the rules and be required to abide by them. This is a major change from the current application of the Act, which has excepted first-party collectors.

Next, it is likely that the number and breadth of required disclosures will be vastly increased. Currently, a debt collector is required to provide limited information about five areas related to the debt: the amount, creditor, borrower’s right to dispute the debt, the consumer/debtor’s obligation to verify the debt; and the name/address of an original creditor.

Based on a number of problematic areas in the notice of proposed rule-making, debt collectors of the future will mostly like be required to provide additional information in a structured manner. This may include the nature of the debt broken down in a regulated presentation format—a matrix breaking out specific aspects of the debt. Illustratively, this might include: the principal amount; interest on the sum and various fees/charges that have been levied on the debt; information about the transfer of the debt from the original creditor through sale to a purchaser of the debt; and the nature of the debt subject to collection, such as being related to a mortgage or credit card.

Additionally, disclosures may be required to be made in languages other than English. The notice of proposed rule-making underscores the fact that a large segment of U.S. borrowers speak languages other than English and many of these persons have limited English proficiency.

Compliance officers, take note! CFPB has made it clear that among the issues raised by consumers are debt collection practices. Critically, the number of debt collection complaints equals the number the agency receives about mortgages.

It will take a bit of time for rules to be disclosed to the public for initial comment, but when all is said and done, the area of debt collecting can be expected to be supervised with an iron hand in the future. And, first-party collectors will be among those subject to supervision!

CUES member Stephen A.J. Eisenberg is EVP/general counsel for $17 billion Pentagon Federal Credit Union, Alexandria, Va.

Photocredit: Dollarphotoclub.com/bagraphix