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Debtors and Debt Collectors

By Blair Rugh 3 Aug 2016

It has been obvious for some time that the Consumer Financial Protection Bureau has painted a target on the chests of debt collectors. Since the CFPB began collecting and publishing consumer complaints about financial institutions by far the greatest number of complaints about any aspect of the financial services industry has been against debt collectors. Recently, the CFPB announced that it would soon publish proposed rulemaking with further restrictions on the activities of debt collectors. Neither debtors nor debt collectors are generally held in particularly high regard. It is like a lawsuit between a lawyer and a member of Congress; there is not a lot of sympathy on either side. Some debtors got into the situation they are in because they could not control their spending, but many are there because of an unanticipated financial reversal. In either case, no one should be the subject of bullying just because the bully has the upper hand.

This CFPB is moving closer in proposing new and enhanced debt collection rules as outlined in its recent notice for a small business review panel as required under the Small Business Regulatory Enforcement Fairness Act (SBREFA). This initial round targets third party debt collectors, including loan servicers.  

The CFPB’s proposal envisages a two prong approach. The first is to make sure that the debt collector has the correct information from whoever it is collecting the debt for or from whom it purchased the debt. A great number of the debt collector complaints are from people who either did not owe the debt or owed an amount different than that claimed by the collector. The proposed rules would require the debt collector to “substantiate a reasonable basis for claims that a particular consumer owes a particular debt”.

It would also require the debt owner to make a written representation to the collector that the transferred information is identical to that in the creditor’s file. Thereafter, during the collection process, if the collector receives a warning sign that the information that they have may not be accurate, such as when the debtor denies the debt, the debt collector must take further steps before it would be able to support and lawfully make claims of indebtedness regarding the account or the portfolio, as applicable. Also, the debt collector may not make any filing with a credit bureau until it has made contact with the debtor.

There would be further substantiation that the debt collector must make before he or she initiates litigation to collect the debt, including a litigation disclosure that must be provided to the debtor. If the debt is time-barred by a statute of limitation, there will be a further disclosure that the collector must provide to the debtor warning, among other things, that actions by the debtor could have the effect of reinstating the debt.

The second prong of the proposal governs the number of times that a debt collector may contact a consumer and that the collector may not contact the consumer in an “inconvenient place or by an inconvenient method.” The proposed rules provide that a debt collector who has not yet made contact with a debtor may make only six attempts per week and no more than three per week may be made to a unique address or telephone number. After contact is made with the debtor, it could only initiate contact thereafter once a week.

Additionally, a debt collector may not contact a debtor in an inconvenient place such as a place of worship, a funeral home or a hospital. Seems silly that a rule is necessary for common sense, but looks like we will have it. There will also be rules about contacting a debtor using his or her work related email and how soon after a debtor’s death a debt collector may contact the person’s spouse or personal representative.

While a lending organization collecting its own debts is not subject to the rules of the Fair Debt Collection Practices Act or the regulations implementing it, the CFPB has indicated that a failure to follow those rules could result in a UDAAP.

I am normally not in harmony with the regulations of the CFPB, but this is one area where I hope it can clean up any abuse. Ensuring your debt collectors have the tools and processes in place to manage these concerns benefits everyone. 

For more information on the Collection module and how it addresses the concerns in the CFPB's proposal please contact us at [email protected].

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