- Don’t ignore the FDCPA regulation coming November 30 (Part 1)
- New Stuff on Legal Links
Don’t ignore the FDCPA regulations
By John S. Burnett
The Consumer Financial Protection Bureau’s revisions to Regulation F become effective on November 30, 2021, less than a month from now. While on their face the rules in Reg F will apply to debt collectors who collect debts owed to other parties, there is plenty to be concerned about in the Fair Debt Collection Practices Act itself and in revised Reg F for first-party creditors, including banks, who handle their collection of debts owed to them in-house.
But first, some background.
The current rule
Until May 3, 2021, the current CFPB regulation implementing the Fair Debt Collection Practices Act (FDCPA, 15 U.S.C. 1692 et seq.) did not actually implement the statute. As originally written, the FDCPA did not provide for implementing regulations at all. Instead, the Federal Trade Commission was given enforcement authority, and any violation of the FDCPA was deemed an unfair or deceptive act or practice (UDAP) in violation of the Federal Trade Commission Act. The Federal Reserve Board, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation were given enforcement powers under the Federal Deposit Insurance Act, and the National Credit Union Administration was assigned enforcement responsibilities under the Federal Credit Union Act. Similar enforcement powers were granted to the Secretaries of Transportation and Agriculture.
Until May 3, 2021, 12 CFR Part 1006 (Regulation F), dealt only with procedures and criteria for states to apply to the Bureau for exemption of a class of debt collection practices within the applying state from the provisions of the FDCPA.
Subpart B added
On April 22, 2021, the CFPB published an interim final rule to add Subpart B to the regulation, with § 1006.9 (Debt Collection Practices in Connection with the Global COVID-19 Pandemic), which became effective May 3, 2021. This addition was made without the usual proposal, comment period, and final rule steps required under the Administrative Procedures Act due to the immediacy of the concerns the new section was issued to address.
Section 1006.9’s purpose is “to eliminate certain abusive debt collection practices by debt collectors related to the global COVID-19 pandemic, to ensure that debt collectors who refrain from using such abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against such debt collection abuses.” It remains effective during the effective period of the order issued by the Centers for Disease Control and Prevention titled Halt in Residential Evictions to Prevent the Further Spread of COVID–19 (86 FR 16731 (Mar. 31, 2021)), as extended. That order has expired, so Section 1006.9 is no longer effective.
The CFPB overhaul of Reg F
The Consumer Financial Protection Act of 2010 (CFPA, 12 U.S.C. 5561 et seq.), the portion of the Dodd-Frank Act that gave life to the Consumer Financial Protection Bureau and transferred the authority and responsibility for issuing regulations under a number of consumer protection statutes, included the FDCPA among the statutes for which the Bureau “may prescribe rules with respect to the collection of debts by debt collectors.”
The CFPB also has rulemaking authority to issue regulations for providers of financial products and services with regard to activity deemed by the Bureau to be “unfair, deceptive or abusive acts or practices” (UDAAP).
In May 2019, the Bureau issued proposed rules to implement provisions of the FDCPA. See 84 FR 23274. There was a comment period of 90 days.
The Bureau followed by issuing two final rules. The first (see 85 FR 76734 published on November 30, 2020 completely revised and reissued Regulation F, moving the existing provisions on state exemption applications to a new § 108 in a new Subpart D and new Appendix A. The second rule (see 87 FR 5766 published on January 19, 2021, finalized required disclosures by debt collectors and prohibited threats of suits or suits to collect time-barred debts under applicable statutes of limitations. The second rule also requires certain actions by debt collectors before furnishing information on a consumer’s debt to a consumer reporting agency.
Both of these final rules were to take effect on November 30, 2021. However, on April 19, 2021, the Bureau proposed delaying that date 60 days, to January 29, 2022. That proposal was withdrawn on July 30, 2021, leaving the effective date on November 30, 2021.
Frequently asked questions released
On October 1, 2021, the Bureau released frequently asked questions on limited-content messages and the call frequency provisions in the Debt Collection Rule. On October 29. 2021, additional FAQs were added to that document to address the validation information provisions in the Rule. As the Bureau compiles additional FAQs on the Rule, they will add them to the current FAQ document. You should check the link periodically to ensure you have the most current guidance from the CFPB.
Structure of the rule
The Regulation is set out in four subparts and three appendices (and Official Interpretations)—
• Subpart A includes the usual references to the legal authority for the regulation, its purpose and coverage. Persons covered by the rule include debt collectors, as defined in § 1006.2, except for motor vehicle dealers that are predominately engaged in the sale and/or leasing and servicing of motor vehicles.
• Subpart B comprises the substantive provisions of the regulation, providing rules for debt collectors. Much of this section of the rule focuses on communications.
• Subpart C is reserved.
• Subpart D includes miscellaneous requirements such as record retention, the relationship of the rule to state laws, and the provisions for state applications for exemption from portions of the regulation (due to similar state law requirements).
• Appendix A includes more detailed information and requirements for states seeking exemptions from portions of the regulation
• Appendix B includes Model Forms for compliance with the regulation
• Appendix C addresses the Bureau’s issuance of advisory opinions concerning the regulation (one such opinion was published at 81 FR 71977 on October 19. 2016
• Supplement I comprises Official Interpretations of the regulation by the CFPB. In the BankersOnline.com Regulations pages for Regulation F, these interpretations are broken out and included after the sections or paragraphs of regulatory text they interpret.
Applicability: “Debt collector”
Section 1006.2(a)(1) defines the term debt collector as “any person who uses any instrumentality of interstate commerce or mail in any business the principal purpose of which is the collection of debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due, or asserted to be owed or due, to another. … the term debt collector includes any creditor that, in the process of collecting its own debts, uses any name other than its own that would indicate that a third person is collecting or attempting to collect such debts. For purposes of § 1006.22(e), the term also includes any person who uses any instrumentality of interstate commerce or mail in any business the principal purpose of which is the enforcement of security interests.”
Does that make your bank a debt collector? It’s clear that if your bank does collection work on debts owed to someone else, your bank is a debt collector subject to the regulation. There are some technical exceptions, which we’ll review in a moment. Does your bank, when collecting its own debts, use any name other than its own in its communications that might suggest it is using a third person to collect its debts? If so, the language in bold text in the definition above should concern you, because using that other name pulls the bank directly under the regulation’s requirements.
What are the exceptions? Paragraph 1006.2(it)(2) lists exceptions to the debt collector definition.
(i) Any officer or employee of a creditor while the officer or employee is collecting debts for the creditor in the creditor’s name;
(ii) Any person while acting as a debt collector for another person if:
(A) The person acting as a debt collector does so only for persons with whom the person acting as a debt collector is related by common ownership or affiliated by corporate control; and
(B) The principal business of the person acting as a debt collector is not the collection of debts;
(iii) Any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of the officer’s or employee’s official duties;
(iv) Any person while serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt;
(v) Any nonprofit organization that, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in liquidating their debts by receiving payment from such consumers and distributing such amounts to creditors;
(vi) Any person collecting or attempting to collect any debt owed or due, or asserted to be owed or due to another, to the extent such debt collection activity:
(A) Is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement;
(B) Concerns a debt that such person originated;
(C) Concerns a debt that was not in default at the time such person obtained it; or
(D) Concerns a debt that such person obtained as a secured party in a commercial credit transaction involving the creditor; and
(vii) A private entity, to the extent such private entity is operating a bad check enforcement program that complies with section 818 of the Act.
Consider paragraph (ii) in bold print in that list. Can a holding company or affiliate do debt collection on behalf of its subsidiary banks or other affiliates? It would seem so, but the exemption would not apply if the affiliate’s principal business is debt collection.
Be wary of the reach of UDAAP
Any violation – by anyone collecting debts – of the requirements of Regulation F can be deemed an Unfair, Deceptive, or Abusive Act or Practice (UDAAP), even when the person doing the debt collection is collecting its own debts.
Prior to Dodd-Frank in 2010, the FTC primarily enforced the FDCPA and UDAP and there was often a cross-over. The FTC reported common tactics debt collectors would use included telling a debtor they had committed a crime like check fraud, and unless they paid the debt, they could be arrested, be sued, have their wages garnished and go to jail. Many collectors harassed debtors, even after being provided with evidence that the debts had already been paid off. Some would illegally contact family, friends, and employers about the past due debts. So, the final rule is very much about communications in connection with debt collection and prohibitions on harassment or abuse, false or misleading representations, and unfair practices in debt collection.
Let’s connect the dots. If your bank did something deemed unfair or abusive in the way it communicated with a borrower, and the FDCPA or Regulation F said it was a UDAAP issue, could an examiner say the bank, while not subject to FDCPA, is subject to UDAAP/UDAP and it did something categorized as a UDAAP/UDAP violation? It’s easy to see that connection.
And, of course, there is the always-present requirement for vendor due diligence if the bank has a third party collecting debts owed to the bank.
Attempt to communicate means any act to initiate a communication or other contact with any person through any medium, including by soliciting a response from such person. This is very broad and is all encompassing. It also includes “limited content messages” which is a defined term defined a few paragraphs below.
The act of initiating communication or contact about a debt is an attempt regardless of whether it is successful. Example – you dial the number of a past due borrower. Whether or not you reach them, that is logged as an attempt.
Communicate or communication means conveying information about a debt directly or indirectly to any person through any medium. Leaving a “limited content message” is not “conveying information.” Similarly communicating something such as a marketing message is not conveying information as it is not debt related.
Debt is any obligation of a consumer to pay money arising from a transaction in which the money, property, insurance, or services are primarily for personal, family, or household purposes.
Limited-content message means a message for a consumer that includes all of the content in (j)(1) and may include any of the optional content described in (j)(2), and it includes no other content.
(1) Required content. …includes all of the following:
(i) The caller’s business name which is not indicative that this is a debt collection call
(ii) A request that the consumer reply to the message;
(iii) The name of a person or persons whom the consumer can contact in reply;
(iv) A telephone number the consumer can use for the reply:
(2) Optional content. In addition to the content described, you may include one or more of the following:
(i) A salutation;
(ii) The date and time of the message;
(iii) Suggested dates and times for the consumer to reply to the message, and
(iv) A statement that the return call they can speak to any rep from the company.
These limited content messages may really come into play on voicemails. They are not “communications” which, as you will see, come with frequency limitations. A call to a third party is not a limited content message because it isn’t to the debtor, such as to a “will call” who accepts messages. This is ok to the debtor – “This is Andy Zavoina calling from Last National Bank. Please contact me or John Burnett at 1-800-555-1212.”
Consumer – any natural person, whether living or deceased, obligated or allegedly obligated to pay any debt. For purposes of § 1006.6 – Communications, the term consumer includes “persons” (and see below).
Persons is broad and includes natural persons, corporations, companies, associations, firms, partnerships, societies, and joint stock companies.
For purposes of this section (on Communications), the term consumer includes:
(1) The consumer’s spouse;
(2) The consumer’s parent, if the consumer is a minor;
(3) The consumer’s legal guardian;
(4) The executor or administrator of the consumer’s estate, if the consumer is deceased;
(5) A confirmed successor in interest, as defined in Regulation X, 12 CFR 1024.31, and Regulation Z, 12 CFR 1026.2(a)(27)(ii).
Communications with the consumer in general
We will discuss some exceptions in a moment, but there are restrictions in contacting a consumer.
§ 1006.6(b) says a debt collector must not communicate or attempt to communicate with a consumer to collect a debt as prohibited by paragraphs (b)(1) through (3):
(1). Prohibits collection communication with a consumer based on time and place that is:
(i) At any unusual time, Unless the collector knows different based on a schedule, before 8:00 a.m. and after 9:00 p.m. local time to the consumer is inconvenient;
There have been complaints when a cell phone is called, and the consumer is now in a different time zone. These cases place the burden on the collector to know where the consumer is. It is difficult and courts have not allowed much latitude.
(ii) At any unusual place, or at a place that the collector knows or should know is inconvenient.
It may have been mentioned not to call at a time when the consumer says he’ll be in a meeting, or during a religious service or funeral the collector knows the consumer will be at.
(2) Except as provided in paragraph (b)(4) [below]…, a debt collector must not communicate or attempt to communicate with a consumer in connection with the collection of any debt if the debt collector knows the consumer is represented by an attorney with respect to such debt and knows, or can readily ascertain, the attorney’s name and address, unless the attorney:
(i) Fails to respond within a reasonable period of time to a communication from the debt collector; or
(ii) Consents to the debt collector’s direct communication with the consumer.
(3). A collector must not communicate or attempt to communicate with a consumer in connection with the collection of any debt at the consumer’s place of employment, if the collector knows or has reason to know that the employer prohibits the consumer from receiving the communication.
Places like a plant, for example, have employees working assembly lines. It can be a big deal to have someone’s work interrupted to come to a telephone. The consumers employment could be in jeopardy. Typically, if the employee tells you not to call at work, you must oblige. If you know the employer’s policy is to restrict such calls, don’t call.
If the consumer requests they not be contacted at work, they generally cannot be but can be asked how and when they should be contacted. Under 1006.22(f)(3) – “Unfair or unconscionable means” prohibits sending an email to an address that the collector knows is provided by the consumer’s employer. There are some nuances that allow this if the consumer has used it with you on the debt. That’s under 1006.22(f)(3). [More on emails later.]
Exceptions to the prohibitions on contact
Section 1006.6(b)(4) includes a couple of exceptions to the prohibitions on time, place, attorney and employer prohibitions in §§ 1006.6(b)(1) – (3). The prohibitions do not apply in the case of (1) prior consent from the consumer given directly to the debt collector during a communication that was not in violation, and (2) with the express permission of a court.
Refusal to pay or “cease communication” notice
Section 1006.6(c)(1) provides that, with limited exceptions, if a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wants the debt collector to cease further communication with the consumer, the debt collector must not communicate or attempt to communicate further with the consumer with respect to such debt.
What are the exceptions?
This prohibition does not apply with a debt collector communicates or attempts to communicate further with respect to the debt—
(i) To advise the consumer that the debt collector’s further efforts are being terminated
(ii) To notify the consumer that the debt collector or creditor may invoke specified remedies that the debt collector or creditor ordinarily invokes
Do not make idle threats, but if repossession or foreclosure may be a remedy and it is used by the debt collector or creditor, you may indicate it will be considered. Small claims suits can also fit here.
(iii) Where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.
For example, if you must send a notice of intent to foreclose or repossess, it is allowed here.
Mortgage servicing exceptions.
The Official Interpretations to § 1006.6(c)(2) indicate that the written early intervention notice required by 12 CFR 1024.39(d)(3) falls within the exceptions to the cease communication provision. They also indicate that mortgage servicers who are subject to the FDCPA with respect to a mortgage loan is not liable under the FDCPA for complying with certain servicing rule provisions, including requirements to provide a consumer with disclosures regarding the forced placement of hazard insurance as required by 12 CFR 1024.37, a disclosure regarding an adjustable-rate mortgage’s initial interest rate adjustment as required by 12 CFR 1026.20(d), and a periodic statement for each billing cycle as required by 12 CFR 1026.41.
Prohibitions on communications with third parties
Section 1006.6(d)(1) includes a general prohibition on debt collector communications with third parties. Communications about the debt must only be with—
i. The consumer
ii. The consumer’s attorney
iii. A consumer reporting agency, if otherwise permitted by law
iv. The creditor
v. The creditor’s attorney, or
vi. The debt collector’s attorney
Exceptions: Section 1006.6(d)(2) includes these exceptions from those restrictions:
(i) For the purpose of acquiring location information, as provided in § 1006.10 (home address and telephone and place of employment)
(ii) With the prior consent of the consumer given directly to the debt collector;
(iii) With the express permission of a court of competent jurisdiction; or
(iv) As reasonably necessary to effectuate a post-judgment judicial remedy.
A case in point: the Eleventh Circuit Court of Appeals has held that a debt collector (as defined under the FDCPA) who transmits debtor information to a third party violates section 1692c(b) of the FDCPA, which prohibits debt collectors from communicating consumers’ personal information to third parties “in connection with the collection of any debt.” Hunstein v. Preferred Collection & Management Services, Inc., 994 F.3d 1341 (11th. Cir. 2021). If your bank farms out some of its collections to third-party collectors, part of your vendor due diligence should be verifying that the third party doesn’t contract out any part of that effort, including mailing services, etc.
Full disclosure: The Eleventh Circuit’s holding was made by a three-judge panel, from which one of the judges dissented. It is only binding in the states of Alabama, Florida, and Georgia, and the case was remanded back to the District Court to determine whether any unauthorized disclosure actually occurred, and whether the plaintiff is entitled to damages. Other cases involving debt collectors sharing debtor information with third parties are being brought in both federal and state courts. The issue should not be considered settled.
Communications via email and text
Sections 1006.6(d)(3) and (4) permit debt collectors to communicate with a debtor using an email address or phone number (for text messaging) recently used by the debtor regarding the debt unless the debtor subsequently opted out of using that address. But the debt collector may not use an email address or phone number that the debt collector knows has led to a prohibited disclosure of information. The debt collector must have procedures to ensure their use of email or text messaging remains compliant.
A collector who uses a specific email address, telephone number for text messages, or other electronic-medium address of a consumer must include in each such message a clear and conspicuous statement describing a reasonable and simple method by which the consumer can opt out of further electronic communications by the collector to that address or number. The collector may not require, directly or indirectly, that the consumer pay any fee to the collector or provide any information other than the consumer’s opt-out preferences and the email address, telephone number for text messages, or other electronic-medium address they do not want contact thru.
Assume that a debt collector sends a text message to a consumer’s mobile telephone number. The text message includes the following instruction: “Reply STOP to stop texts to this telephone number.” Assuming that it is readily noticeable and legible to consumers, this instruction constitutes a clear and conspicuous statement describing a reasonable and simple method to opt out.
Harassing, oppressive, or abusive conduct
Under § 1006.14(a) there is a general rule of conduct:
“A debt collector must not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of any debt, including, but not limited to, the conduct described in paragraphs 1006.14(b) through (h).”
b) Phone calls: Repeated or continuous calls prohibited. A collector violates this prohibition by placing a telephone call to a particular person in connection with collection of a particular debt either more than seven times within seven consecutive days, or within a period of seven consecutive days after having had a telephone conversation with the person in connection with the collection of that debt (the date of this conversation is the first day of the seven-day period).
Student loan debts: The term “particular debt” means all student loan debts that a consumer owns or allegedly owes that were serviced under a single account number at the time the debts were obtained by a debt collector.
Exclusions from frequency limits: Calls placed to a person do not count toward the frequency limits if they are (1) made with the person’s prior consent given directly to the debt collector within the last seven days; (2) not connected to the dialed number; or (3) with the consumer’s attorney, the creditor’s attorney, or the collector’s attorney.
Unconnected calls: A debt collector’s telephone call does not connect to the dialed number if, for example, the debt collector receives a busy signal or an indication that the dialed number is not in service. Conversely, a telephone call placed to a person counts toward the telephone call frequencies described in § 1006.14(b)(2)(i) if it connects to the dialed number, unless an exclusion in § 1006.14(b)(3) applies. A debt collector’s telephone call connects to the dialed number if, for example, the telephone call is answered, even if it subsequently drops; if the telephone call causes a telephone to ring at the dialed number but no one answers it; or if the telephone call is connected to a voicemail or other recorded message, even if it does not cause a telephone to ring and even if the debt collector is unable to leave a voicemail. [Comment 14(b)(3)(ii)-1]
c) Violence: A collector must not use or threaten violence or harm to a person, their reputation or property
d) Obscene language: A collector must not use obscene language or language deemed abusive to the listener or reader.
e) Debtor’s list: A collector must not publish a list of consumers who refuse to pay debts, except to a consumer reporting bureau
f) Coercive advertisements: A collector must not advertise for sale any debt to coerce payment of the debt.
g) Meaningful disclosure of identity: A collector must not place phone calls without meaningfully disclosing the caller’s identity, except as provided in § 1006.10 [when communicating with a person other than the consumer for the purpose of acquiring location information].
h) Prohibited communication media: Communication is prohibited with a consumer through a medium if the consumer has requested that it not be used. However, a collector may ask follow-up questions regarding preferred media to clarify statements by the person
If a consumer opts out in writing of receiving electronic communications from a collector, the collector may send a confirmation the consumer’s request to opt out, provided that the reply contains no information other than a statement confirming the consumer’s request;
If a consumer initiates contact with a debt collector using an address or a telephone number that the consumer previously said not to use, the collector may respond once using that. Or
If otherwise required by law, a collector may communicate about the collection of any debt through a medium of communication that the person has requested they not use [think required periodic statements].
To be continued
Our discussion of the new FDCPA regulation will conclude in our December 2021 Legal Briefs.
New stuff on Legal Links
By Pauli D. Loeffler
In response to legislative changes (see August, September, and October Legal Briefs), new and updated information and forms have been added to the OBA’s Legal Links web page under the Templates, Forms, and Charts. You will need to create an account through the My OBA Member Portal to gain access if you have already done so.
In response to the changes under Banking Code § 901, there is a summary of how PODs are paid based on whether the POD designations were made before November 1, 2021, as well as those made on and after that date.
With amendments to § 906 which deals with the use of an Affidavit of Heirs for deposits when there are no PODs, there is a new Affidavit form that incorporates statutory language regarding probates as well as an optional Indemnity and hold harmless clause.
Under the Miscellaneous subsection, there are links to all the statutes for both the Power of Attorney Act in Title 58 and for the Statutory Form Power of Attorney Act in Title 15. I have also provided a Power of Attorney Checklist you may find helpful when the bank receives a POA.