In May of 2019, the Consumer Financial Protection Bureau (CFPB), proposed new rules to enforce the Fair Debt Collection Practices Act (FDCPA). After a period for public comment, the new rules become effective in 2020.
The FDCPA is the law that protects consumers from unfair and aggressive tactics by financial institutions and debt collectors. The CFPB is the federal agency charged with setting consumer protection rules within the framework of FDCPA. The rules are enforced the Federal Trade Commission (FTC). (Oops, the Credit Monkey sounds like a lawyer. The Monkey will try not to do it again.)
The CFPB’s proposed rules seek to modernize the FDCPA. The FDCPA was originally enacted in 1978 when landline telephones, fax machines and the United States Post Office were the standard in business communications. Forty years later, the Internet, text messaging, cellular phones, direct data exchange and email technologies replaced much of the old standard.
This change in communication technology leaves consumers and debt collectors in legal limbo. Neither debt collectors nor consumers know for sure what kinds of collection communications are proper and lawful. The intention of the proposed rule change is to bring the FDCPA into the Twenty-First Century.
Debt collectors immediately embraced the CFPB’s proposal. To them, anything that clarifies what is legal and not legal is a positive step. On the other side, acceptance by consumer protection groups is mixed. They believe the proposed rules favor collectors over consumers regardless of the fact that the new rules include additional protections for debtors.
The Credit Monkey believes that only time will tell how balanced the new rules really are. Besides, release of the final version of the rules are a few months away. No one knows for sure what they will exactly look like. However, we can be sure of one thing, a year from now the face of debt collections will be entirely different.
To help consumers prepare for the change, the Monkey read all 538 pages of the CFPB’s proposal and gleaned fifteen rule changes that could make a big difference to struggling consumers. Let’s take a closer look at those fifteen rule changes.
Release of Information
The proposed rules prohibit debt collectors from furnishing information about a debt to the credit bureaus unless the collector first communicates about the debt with the consumer. That communication could be by letter, telephone or by other electronic means but in most cases the communication will likely be a Notice of Debt Validation. The Notice of Debt Validation is explained in the next section.
This rule benefits consumers because he/she can resolve a possible derogatory mark on his/her credit report before it appears. Furthermore, it doesn’t matter how the debt is resolved. It can be paid, negotiated or disputed with the same result. It never appears on the consumer’s credit report and is never calculated into the FICO score. It’s a good deal. Consumers avoid credit report surprises when they apply for credit.
Debt validation is the cornerstone of credit repair. The new rules change how Debt Validation works. Under the present FDCPA rules, an alleged debtor must dispute the debt within thirty days from the time he/she receives Notice of Debt Validation or the debt is assumed to be valid by the collector. In other words, if the consumer doesn’t dispute the debt, the consumer owes the debt.
The Notice of Debt Validation is the first letter received when a third-party bill collector takes over an account. If the debt collector contacts the consumer by telephone first, the collector must mail the consumer a Notice of Debt Validation within five days.
The current rules require that a Notice of Debt Validation letter should tell you how much is owed, who it is owed to, and what to do if the Consumer doesn’t believe that the debt is his/hers.
The new rules are somewhat different. Under the new rules, the Notice of Debt Validation should contain the amount of the alleged balance and plain language information (for English and other languages) about how the consumer may respond to the collection attempt, including information about disputing the debt. The updated Notice of Debt Validation must include a “tear-off” that consumers could send back as a debt validation response to the collection attempt.
With the consumer-friendly changes to FDCPA, it sounds like consumer advocates should be happy with the new debt validation rules. They are, but not completely. Here’s why. The proposed Notice of Debt Validation, while far superior to the present letter, fails to require debt collectors to inform consumers that they can stop or limit how he/she is contacted by the bill collector. The Notice also fails to inform consumers of state laws that may also apply. In fairness, applicable state laws are referenced on the back side of the Notice in “small print”.
The CFPB appears to take a different approach with contact disclosures. The agency’s new rules require debt collectors to include opt-out instructions in every email, text message, and other electronic communication to consumers after the Notice of Debt Validation. In this case, opt-out refers to methods by which consumers can avoid further contact with a particular collections company.
What’s even more impressive is that the opt-out instructions must not require the consumer to pay a fee or provide any other information. It must be simple. Just an address, email address, cell phone number, or social media address is all that is needed in order to unsubscribe or opt out on any electronic communications platform. Furthermore, a collector may only reply once to confirm an opt-out request or to respond to a consumer communication initiated from a previously unsubscribed address or telephone number.
The opt-out restriction prevents bill collectors from “unintentionally initiating a conversation” with consumers who chose not to talk to debt collectors. That means no chatty, overly friendly debt collectors hoping to run an end around the opt-out rule through casual conversation.
The new rules prohibit debt collectors from contacting consumers through social media other than through private messaging. Social media contact, even by private messaging, may be completely prohibited if the consumer informs the debt collector not to use social media for communications.
Also, aggressive collectors cannot post personal financial information to a debtor’s social media wall or news feed. It comes down to this. Debt collectors cannot publicly shame a debtor into paying a debt using social media. Remember it this way. Debt collectors may Facebook stalk but they cannot Instagram accost.
Presently, the FDCPA prohibits collections telephone calls at inconvenient times. An inconvenient time is defined as telephone calls before 8:00 a.m. or after 9:00 p.m. in the consumer’s time zone. That rule is not hard and fast. If a debtor is working third shift and sleeps during the day, daytime calls become inconvenient. Collections calls at 10:00 p.m., while unusual are, not unreasonable for someone who works all night and sleeps all day.
The new inconvenient communication rules retain the existing landline telephone rules and extends them to cellular phone calls, text messages, and even emails. Why emails and texts? That way, the dings, pings and bings that keep consumers awake are eliminated.
The inconvenient communication rule applies to location as well as time. Under the current rules, debt collectors are prohibited from telephoning consumers or sending them mail at their place of employment.
Under the new rules, the same employer restrictions apply with an important addition. A debt collector cannot use a consumer’s work email when attempting to collect a debt. That restriction is intended to protect the consumer’s privacy and his/her job.
The proposed rules prohibit a collector from calling a consumer about a particular “consumer financial product or service”, meaning a debt, more than seven times within a seven-day period. If a telephone conversation occurs between the collector and a consumer, the collector can’t call the consumer again for another seven days.
The seven-day limit is debt-specific. That means, calls made regarding one debt do not count towards the seven-day call limit for calls made regarding a different debt with one exception. Student loans serviced under a single account or packet number are treated as one debt. Under this rule, the same student loan servicer is prohibited from calling a consumer five different times within the seven-day limit just because it services five different student loans. It’s either seven calls in seven days or one call in seven days if the collector talks to the consumer.
The Credit Monkey loves this rule. Telephone harassment is limited. It reminds debts collectors that if a consumer won’t respond within two or three collection calls, he/she isn’t going to respond to twenty calls in a single week. When a consumer responds to a collection call, why harass him daily when his/her financial circumstances usually won’t change in less than a week. One call to a responsive debtor in seven days is reasonable and just as effective and ten calls.
As mentioned previously, under the new rules, debt collectors are not permitted to use a consumer’s work email address, unless the collector has received prior consent from the consumer. Even if the consumer decides to accept collections emails using a work email, he/she may later opt out and tell the collector to stop using the work email. Conversely, the consumer could later opt-in and tell the bill collector to use his work email. Either way, it’s the consumers choice how his/her work email is used and not the debt collector.
Limited Content Messaging
A limited content message is what a collector leaves by voicemail, text message, or orally when the debt collector can’t speak directly with the consumer. Limited content messaging also extends to messages left with any third-party who answers the consumer’s home or cellular number. A limited-content message under the new rules is similar to those under the present system.
A limited content message must include the consumer’s name, a request that the consumer reply to the message, the name of the person to whom the consumer may contact to reply, a call-back telephone number, and instructions for unsubscribing from electronic communications like email or personal messaging. The email and personal messaging rule is new.
Furthermore, a limited content message may not include any other information apart from a greeting, the date and time of the message, a generic statement that the message relates to an account or personal business matter and suggested dates and times for the consumer to reply to the message.
Until this CFPB proposal, debt collection was loosely regulated by the federal government. Often the Courts and States filled the federal regulatory gaps. Still, regardless of what the Courts rules and States enacted, there are compliance holes that can only be plugged by nationwide rules.
To that end, the CFPB proposal requires debt collectors to retain records of compliance with the rules for at least three years from the date of the collector’s last debt collection, attempted communication, communication or from the date that the debt is settled, discharged, or transferred to the original debt owner or another debt collector. Records may be maintained on paper or electronically, as long as they can be reproduced timely and accurately. The records may be stored with a third party, as long as they can be accessed easily.
The Monkey doesn’t know whether the records retention requirement is intended to benefit consumers or the collections firms. Either way, over time it will be interesting to see how the retained records affects collections practices. The Monkey believes that retained records will be tools for the FTC in cases gross consumer abuse. Hopefully, this rule will strengthen consumer protections from fear of enforcement.
The sale, transfer, or placement for collection of a debt when the collector knows or should know that the debt has been paid, settled or discharged in bankruptcy is prohibited. This rule also extends to debts where identity theft was reported.
The Credit Monkey loves this rule too. When the Monkey practiced debtor/creditor law, the transfer of a debt between collectors to avoid responding to a validation request or bankruptcy discharge order was a constant irritant.
For example, Collection Company “A” sells a debt to Collection Company “B” when it receives a debt validation letter. By assigning the debt to another company, Collection Company “A” avoids writing off a debt it can’t validate while Collection Company “B” gets another debt it can try to collect. All the while, the consumer suffers continued and unwarranted collections attempts.
In the case of bankruptcy, Company “A” assigns a debt to Company “B” after it receives a Notice of Bankruptcy. The debt assignment date reported by Company “B” to the credit bureaus is after the bankruptcy filing date. Now that discharged debt has a chance of falling between the reporting cracks and could appear like a new debt not scheduled on the bankruptcy. Again, the consumer stays burdened with a debt that should be discharged.
Even more exasperatingly is trying to track down a third-party creditor who is assigned a stayed or discharged debt. Since Company “B” didn’t receive notice of the bankruptcy stay, it can continue with collection attempts despite the bankruptcy. The consumer or his/her lawyer must spend extra time and money tracking down Company “B” to enforce the bankruptcy stay or discharge.
The same circumstances occur when a settled debt is assigned. For example, Company “C” settles a debt with a consumer for fifty percent of the alleged amount owed. Company “C” is an unethical debt collector and sells the balance of the debt to Company “D”. Company “D” tries to collect the remainder of the debt even though Company “C” settled for fifty percent in full satisfaction of the debt.
The consumer is left in a lurch trying to prove he settled the debt. Proving settled debt can be difficult unless the consumer took the time to get the satisfaction in writing. Most consumers trust too much and don’t and don’t request the right information. As a result, they get in trouble.
The Restricted Transfer Rule attempts to prevent these and similar unethical collection schemes by prohibiting the transfer of discharge or settled debt. The Credit Monkey loves this rule.
The new rules prohibit suits or threats of suits on time-barred debts. “Time-barred debt is a term that describes a particular type of old, unpaid debt. Every state has a statute of limitations that limits how long a creditor can get a court judgment forcing payment. For credit card debt [and other debts], states’ statutes set limits of three to 10 years. Debt older than that is ‘time-barred debt.’” CreditCard.com. Click HERE to find the statute of limitations (usually called the “statute”) for your state.
Presently, the CFPB is surveying consumers to determine if any special disclosures about time-barred debt should be required when a debt collector attempts to collect old debt.
“SLOW DOWN CREDIT MONKEY. Take off your lawyer’s hat and explain that in plain English.” OK. Sorry. The Monkey will do better. He promises.
In plain English, consumers need to know that under the present rules, a debt collector can sue for an old debt even if the state’s statute has run. It is a common practice in the collections business. Such suits occur because in most states, it is the consumer who most use the statute as a defense (in legalese its called an “affirmative defense”). The statute does not proactively bar the suit itself.
In a time-barred suit the consumer loses regardless of its outcome. A consumer pays a lawyer to claim the affirmative defense. The consumer wins the case but loses because he/she pays legal fees.
A consumer defends himself/herself but loses for lack of legal sophistication. In other words, the consumer doesn’t know about the statute and how to assert its defense. Again, the consumer pays.
A third scenario happens most often. The consumer ignores the suit because he/she can’t afford an attorney and the debt collector takes a default judgment. (A default judgment is taken when a consumer doesn’t appear at a hearing or if the consumer does nothing to defend himself/herself in court.) If the consumer could afford an attorney, most likely he/she could afford to settle the debt. Again, the consumer loses.
The new rules prohibit debt collectors from filing time-barred suit. Thus, the state statutes would no longer be needed as affirmative defenses. The new rules alone would be a legal roadblock to unscrupulous debt collectors. The consumer has a chance to win.
The Credit Monkey loves this rule too. It should save struggling consumers hundreds of millions of dollars each year in legal fees and default judgments.
Alternative to E-Sign
Another CFPB proposal provides an alternative to the federal E-SIGN Act for sending disclosures electronically. Without getting overly technical, the alternative e-signature acknowledges the electronic receipt of the validation notice, original-creditor disclosure, and validation-information disclosure.
The alternative electronic acknowledgement does not create a legally binding contract between the collector and the alleged debtor. Therefore, the signature security level is reduced to what could be a simple mouse click box. For that, no special expensive encrypting software is required keeping the cost of collections low, and perhaps, giving consumers some leverage when negotiating a settlement.
Generally, an executor, administrator or personal representative is not liable for the bills of the estate. To become personally liable, the decedent’s representative must accept personal liability in writing. A good estate attorney will direct the decedent’s creditors to contact the attorney, not the executor. The lawyer will also advise the executor to sign nothing without legal review.
Despite legal advice to the contrary, executors still sign documents creating personal liability. Sometimes it’s because the executor doesn’t have legal counsel. Other times, it’s because executors don’t listen to their attorneys.
The proposed rules create protections for the unwary executor. Specifically, they clarify that an executor, administrator or personal representative is a “consumer” for purposes of the FDCPA. The bad news is that a debt collector may contact the executor to collect estate debt regardless of the demands of the attorney. The good news is the protections created by the new rules now extends to those representatives.
The Credit Monkey would like the CFPB to take this protection further and require debt collectors to disclose executor rights. That may be too much to ask because estate law can be complicated and varies significantly from state to state. Perhaps, any agreement with an executor, administrator or personal representative should require a provision in bold to SEEK LEGAL COUNSEL BEFORE EXECUTING.
Safe Harbor for Collectors
The new collection rules protect consumers. They also provide safe harbor procedures for debt collectors who unintentionally communicate with an unauthorized third party about a consumer’s debt when trying to communicate with the consumer by email or text message. In practice, the safe harbor procedures may be difficult because they will require complicated systems programming and record keeping.
According to Cornell University Law School, a safe harbor provision grants “protection from liability or penalty if certain conditions are met. A safe harbor provision may be included in statutes or regulations to give peace of mind to good-faith actors who might otherwise violate the law on technicalities beyond their reasonable control.”
Why create a safe harbor for collection agencies? The Monkey believes the purpose of this provision is to reduce litigation. The more extensive the rules, the greater opportunity for mistakes and accordingly, the instances of litigation rise. A safe harbor for collectors anticipates a log jam in the courts created by the new rules and provides a means to resolve the log jam before it happens.
Safe Harbor for Attorneys
A safe harbor provision is also included in the new rules for meaningful attorney involvement in debt collection litigation. The Monkey believes that lawyers should have safe harbor for the same reasons as debt collectors. It limits litigation.
The Credit Monkey doesn’t believe that most people will find advantage in waiting for the new rules when deciding about credit repaircredit repair or debt negotiation. The only thing that happens by waiting for the new rules is another nine months passes before starting the important task of credit repair. Under those circumstances, be like Nike, “Just do it.”
The Monkey hopes that his 15 New Rules for Debt Collector: How They Affect You will prepare you for the changes that are right around the corner.
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