- New stuff!
- Changes in UCCC amounts effective 7/1/19
- CFPB’s Spring 2019 Regulatory Agenda
By Andy Zavoina
The Fair Debt Collection Practices Act (FDCPA) is a new hot topic. I’ve already heard you thinking. “but that affects third party collectors and I’m collecting only debts owed to us, so it doesn’t apply.” But that may not be the case very soon. The FDCPA has been with us since 1977 and the “collection landscape” has been through a complete transformation since then. Answering machines were not yet popular, and no one thought about email, voicemail and text messaging. On top of that the lending landscape is greatly different as well. Technologies have changed, cultures have changed, and the existing rules are antiquated. When there was a question that tried to apply 1977 rules to a twenty-first century situation, many debtors and collectors turned to the courts for answers, because there was no federal authority writing rules under the FDCPA or “owning” them. The Federal Trade Commission issued interpretations, but they were not binding, and court rulings were not consistent, adding to the confusion on all sides.
The Consumer Financial Protection Bureau (CFPB) was assigned authority under the Dodd-Frank Act to address this issue and they published an interim rule in 2011 (made final in 2016) that covered the process for states to apply for exemption from the federal statute based on the existence of a similar state law or regulation. The Bureau also issued an advance notice of proposed rulemaking asking for information on debt collection procedures (the comment period and an extension expired in February 2014). Now, in 2019, we get proposed rules intended to update the FDCPA regulation, but we must recognize these first proposals are informed by comments that are already at least five years old (and by the Bureau’s experience in regulating – and litigating in the debt collection space. It is a slow pace by which we’ve reached this proposal, but it’s time to make a hole on your bookshelf or hard drive for Regulation F, as that is the FDCPA’s new home.
Many readers will also recall most banks could ignore the law and those early proposals because they were all directed at third party debt collectors working debts owed to others, like those your bank may send out. The CFPB had planned to later release a second version which would be similar but directed at first party collectors. Then the dominant parties in Washington changed and that second version was put on the shelf and retired. Many bankers breathed a sigh of relief believing they had dodged a bullet at a time when they were dealing with major changes in lending regulations.
Another task the CFPB has is to handle complaints from consumers. Consistently, when reports are compiled about these complaints, debt collection issues rank in the top two and historically is the number one complaint from consumers. Yes, I hear you, deadbeats will complain to try and get out of their debts. But there are far too many cases of collectors attempting to collect more money than is owed and on debts for which the person is not obligated to pay for one reason or another. The sheer volume of complaints tells everyone the system is broken and needs to be fixed. On May 21, 2019, round three started and we have a serious contender in this proposal which is open for comment through August 19, 2019.
Here is the rub. The advance copy of the new proposal is 538 pages long and you will not want to read it for entertainment no matter how much of a page turner it is. [The official Federal Register (single-spaced, small print) publication of the proposal is 145 pages of small print!] The proposal still defines a debt collector as a third-party collector and some bankers will stop there, because that means the proposed rule will not apply to them.
But it will, and here is why. Regulatory agencies and debtor’s attorneys have many arrows in their quivers, and they will shoot you where it hurts – right in the wallet — with whichever penalty works and costs you the most. We have seen this with other cases such as Regulation E. Some banks disclose that they follow Regulation E but then impose additional requirements. This is deceptive, and this is when the violation can be considered an Unfair, Deceptive or Abusive Act or Practice (UDAAP). The FDCPA proposal defines certain actions as abusive and deceptive and when, as a matter of law, an action is defined as such, you can reasonably anticipate those practices to then be enforced as UDAAP violations – even against first-party creditors. And this is one reason why banks should be familiar with the proposal and consider submitting a comment letter on issues management feels strongly about.
Another reason is that the bank will be in a better position to arrange for debts owed to them to be collected by third parties when it knows the rules up front and has, for example, complied with E-SIGN rules so that electronic communications are already approved by the debtor. It is easier when making a loan to complete the E-SIGN requirements and authorizations than when collecting it. CFPB Director Kathleen L. Kraninger said, “As the CFPB moves to modernize the legal regime for debt collection, we are keenly interested in hearing all views so that we can develop a final rule that takes into account the feedback received.” The CFPB is willing to accept your thoughts on the proposal; consider offering them.
The CFPB exists to protect consumers and as noted above, it receives many thousands of complaints about debt collections. There is no gray area, the goal of this FDCPA proposal is to strengthen those consumer protections. When I started in banking, my primary function was that of debt collector. I remember well how debtors dodged my calls and I was not alone. One “war story” I heard from a hard-core third-party collector was about when he called a residence and a child answered. Parents dodging calls had their kids answer often. He was told Mommy was not home by the little girl so he proceeded to befriend her a bit and then asked if she could write down a phone number for her mommy. He told her step by step, find mommy’s purse and get her lipstick and write this number on the wall!
In a very big Servicemembers Civil Relief Act case, the debtor reported, “…he and his wife began receiving debt collection calls. They report that Chase was sometimes calling three times a day; calls were made between 4 and 6 a.m. …” The Federal Trade Commission reports common tactics debt collectors use include telling a debtor he or she 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 have 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 past due debts. These bad apples are the catalyst for the strengthening of the FDCPA. It is intended to protect debtors from harassment and provide better information and processes to dispute a debt.
To accomplish this, the proposal would set limits on the number of weekly calls debt collectors can make to the debtor and clarify how they can communicate with the debtor. Additionally, it requires them to provide certain additional information about the debt to the debtor as a means of validation. The proposal would establish bright-line rules as to telephone communication by limiting debt collectors to no more than seven weekly attempts to reach a consumer about a debt. Once they reach a consumer, the collectors may have just one telephone conversation per week with that consumer about the debt. The regulation would clarify a consumer is protected by requiring debt collectors to send the debtors specific disclosures about the debt and additional consumer protections. The proposal would also clarify how debt collectors can communicate with consumers via voicemails, emails and text messages, and how consumers who don’t want to receive such communication can opt out. The proposed regulation would prohibit collectors from suing on debts that they knew or should have known had expired. And collectors will be prohibited from reporting consumer debt to a credit bureau until after they have informed the consumer.
Early in the proposal it states, “The proposal focuses on debt collection communications and disclosures and also addresses related practices by debt collectors.” This is evidenced with regards to debt servicing requirements lenders are already familiar with which was a point of conflict some years ago between mortgage servicing disclosures and the FDCPA. RESPA and mortgage servicing requirements promote communication with a borrower as to where the loan is, whom to pay, when, etc. The CFPB wrote the mortgage servicing rules in a way that enables loan servicers to send required communications without violating the FDCPA. To do this, the CFPB included a variety of exceptions and alterations to the mortgage servicing rules to avoid FDCPA risk.
The servicing rules have been evolving throughout this FDCPA update process. The CFPB issued Bulletin 2013-12 clarifying the interactions between the servicing rules and the FDCPA. Most recently, the CFPB issued the 2016 amendments to the mortgage servicing rules (effective in 2017 and 2018), which narrowed certain of the FDCPA-related exceptions.
Along with the 2016 servicing rule amendments the CFPB issued an Interpretive Rule which provided a safe harbor from FDCPA liability for complying with certain servicing rules. In general terms, the Interpretive Rule stated that: (1) communicating with a confirmed successor-in-interest (CSII), in accordance with the rules, does not violate the FDCPA prohibition on third party collection communications; (2) certain early intervention communications with a delinquent borrower, despite an FDCPA cease communication request, does not violate that provision of the FDCPA; and (3) communicating with a consumer regarding loss mitigation, despite an FDCPA cease communication request, does not violate that provision of the FDCPA, if the dialogue was initiated by the consumer.
The mortgage-specific provisions of the proposed debt collections rules, in part, pick up where the Interpretive Rule left off.
To reinforce what was in the Interpretive Rule, this proposal includes a special definition of a “consumer” for purposes of § 1006.6 dealing with decedent debt accounts. Definitions are still in § 1006.2. In the Interpretive Rule, the CFPB took the position that the special definition of a “consumer,” for specific purposes includes a type of individuals with whom a servicer needs to communicate about the mortgage loan.
Under the proposal, these persons would be deemed a “consumer” as it relates to: (1) the prohibitions regarding unusual or inconvenient times or places; (2) the prohibitions regarding consumers represented by an attorney; (3) the prohibitions regarding a consumer’s place of employment; (4) the prohibitions on communication with a consumer after a refusal to pay or cease communication notice; (5) communications with third parties; and (6) opt-out notices for electronic communications or attempts to communicate. In addition, this special definition of “consumer,” applies to the prohibited communication media provisions in the new Section 1006.14(h).
Speaking of definitions, “debt” is generally defined as it is under the Act, but the proposal adds a new category of debt called a “Consumer Financial Product or Service Debt,” which is a term incorporated from the Dodd-Frank Act. The idea is that certain of the rules apply to “debts,” and others to “Consumer Financial Products or Service Debts”.
The proposal allows for alternate content in the validation notice for loans subject to the mortgage periodic statement requirement in Reg Z, (§ 1026.41). Validation notices issued for these mortgages can omit certain items including the itemization date, amount of debt on the itemization date and the itemization of the current amount of the debt in a tabular format. This content can only be omitted, however, if the debt collector provides a copy of the most recent periodic statement provided to the consumer in accordance with Reg Z along with the validation notice and refers to the periodic statement in the validation notice. The Official Staff Commentary in the proposal contains a sample. All other validation notice will still be required.
The proposal clarifies how debt collectors may use technology to communicate with the debtors. Many technologies are new as compared to the FDCPA, voicemail, email and text messages to be specific and were not originally addressed in 1977. While these may now be used under the proposal, the debtors will also be allowed to opt-out or “unsubscribe” as it is sometimes referred to. There have been court cases involving calling an old cell number as an example and that counting it as a “call” so there is a new safe harbor proposed for unintentional communications with third parties via email or text message. Collectors must avoid using communications means that debtors request not be used. This is not dissimilar to a debtor now saying to not call again but revert to mail or some other method. Calls to cell phones and electronic communications generally are subject to the FDCPA’s prohibition on communicating at unusual and inconvenient times and places and collectors may still not use a debtor’s email that is known, or should be known, to be provided by that debtor’s employer. As to social media, only private messaging systems may be used to contact a debtor.
As to electronic disclosures, collectors must provide disclosures which can be retained/stored by the debtor. E-SIGN rules must be followed to utilize e-disclosures, and E-SIGN compliance is more easily done in advance than by a collector unless the debtor wants to follow these procedures and use electronic media. The bank should take care to ensure its E-SIGN agreement is transferable and follows the loan if it is assigned to a third-party collector.
Spanish and other foreign language notices may be used. Collectors may include an option for debtors to request notices in Spanish. They may provide validation notices in any language, so long as it is accompanied by an English notice or such English notice was already provided.
The number of calls and conversations will now be limited as noted above. This relates to the consumer protection and reduction of harassment goals of the revisions. The CFPB studied data from its Debt Collection Consumer Survey to determine how many times debtors were being contacted and found 14 percent of the time it would be 8 or more times per week. This was an estimated 6.9 million debtors. Collectors will be allowed no more than seven telephonic attempts per week to reach a debtor about a specific debt. Once a telephone conversation between the collector and debtor takes place, the collector must wait at least a week before calling the debtor again. Making payment arrangements for two days after the call will not allow an exception. There appears to be no limit on the number of emails or text messages that may be sent.
The proposal defines how debt collectors can provide required disclosures electronically. Collectors would be required to provide consumers with a disclosure containing information about the debt and related consumer protections including, for example, an itemization of the debt and plain-language information about how a consumer may respond to a collection attempt, including by disputing the debt. Additionally, the proposal requires the disclosure to include a “tear-off” that consumers can send back to the collector to respond to the collection attempt.
Collectors will be prohibited from providing information about a debt to a credit reporting agency unless the collector has communicated information about the debt to the debtor by, for example, sending the consumer a letter.
There is a series of cases referred to in the proposal as the Foti line and under these a voicemail message from a collector must contain certain information referred to as the “mini-Miranda.” Because the message must include information about the debt, leaving messages with the mini-Miranda could lead to liability if a third party hears the message. The proposed rule provides that no information regarding a debt is conveyed and no FDCPA “communication” occurs when debt collectors convey only the individual debt collector’s name, the consumer’s name, and a toll-free method that the consumer can use to reply to the collector.
Some prohibited practices in the proposal include one of the most litigated problems, time-barred debts. Debts have an expiration date set by individual states. After that defined period the debt is no longer collectible. Collectors may not transfer debts they know or should know have been paid or settled, have been discharged in bankruptcy or are associated with an identity theft report. They may not sue or threaten suit on time-barred debts or debts the collector should know are out-of-statute and no longer collectible.
For more information formulated in a tabular format, the CFPB has published, “Fast facts: Proposed Debt Collection Rule” on its website.
By Pauli D. Loeffler
OBA Legal/Compliance team’s new intern
We are excited to welcome Roy Adams as our intern this summer. Roy is a student at Oklahoma City University’s School of Law and will graduate next May. Before attending law school, Roy coordinated and assisted state/federal regulators and independent auditors, conducted case analysis, identified unusual financial activities, and wrote SAR narratives as required by the federal regulation. He monitored and tracked AML/BSA high-risk accounts, conducted EDD, and is well-versed in CIP/KYC policy and procedure. Roy will be contributing both in answering your emails and writing articles for the OBA Legal Briefs. He’s already working on an article for next month’s Legal Briefs.
New OBA Legal Links content
In the March 2018 OBA Legal Briefs, I talked about the OBA’s website update and provided you with a list of Templates, Forms, and Charts available on the Legal Links page. Several more have been added in addition to other updated content. Check it out!
Changes in UCCC amounts effective 7/1/19
By Pauli D. Loeffler
Sec. 1-106 of the Oklahoma Uniform Consumer Credit Code in Title 14A (the “U3C”) makes certain dollar limits subject to change when there are changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers, compiled by the Bureau of Labor Statistics, U.S. Department of Labor. You can download and print the notification from the Oklahoma Department of Consumer Credit by clicking here.
It is also accessible on the OBA’s Legal Links page under Resources once you create an account with the OBA. You can access the Oklahoma Consumer Credit Code and the changes in dollar amounts for prior years from links on the Legal Links page as well.
Increased Late Fee
The maximum late fee that may be assessed on a consumer loan is the greater of (a) five percent of the unpaid amount of the installment or (b) the dollar amount provided by rule of the Administrator for this section pursuant to § 1-106. As of July 1, 2019, the amount provided under (b) will increase by $.50 to $26.00.
Late fees for consumer loans must be disclosed under both the UC3 and Reg Z. For a bank to be able to impose any late fee, the consumer must agree to it in writing. Any time a loan is originated, deferred or renewed, the bank is given the opportunity to obtain the borrower’s consent in writing to the increased late fee set by the Administrator of the Oklahoma Department of Consumer Credit. However, if a loan is already outstanding and is not being modified or renewed, a bank has no way to unilaterally increase the late fee amount if it states a specific amount in the loan agreement.
On the other hand, the bank may take advantage of an increase in the dollar amount for late fees if the late-fee disclosure is worded properly, such as:
“If any installment is not paid in full within ten (10) days after its scheduled due date, a late fee in an amount which is the greater of five percent (5%) of the unpaid amount of the payment or the maximum dollar amount established by rule of the Consumer Credit Administrator from time to time may be imposed.”
§ 3-508B Loans
Some banks make small consumer loans based on a special finance-charge method that combines an initial “acquisition charge” with monthly “installment account handling charges,” rather than using the provisions of § 3-508A with regard to maximum annual percentage rate. § 3-508A is the section containing provisions for a “blended” rate by tier amounts under (1)(a) as well as the alternative of using a flat 25% APR under (1)(b). § 3-508A is NOT subject to annual adjustment without statutory amendment.
The permitted principal amounts for § 3-508B is adjusting from $1,530.00 to $1,560.00 for loans consummated on and after July 1, 2019.
Sec. 3-508B provides an alternative method of imposing a finance charge to that provided for Sec. 3-508A loans. Late or deferral fees and convenience fees as well as convenience fees for electronic payments under § 3-508C are permitted, but other fees cannot be imposed. No insurance charges, application fees, documentation fees, processing fees, returned check fees, credit bureau fees, or any other kind of fee is allowed. No credit insurance even if it is voluntary can be sold in connection with in § 3-508B loans. If a lender wants or needs to sell credit insurance or to impose other normal loan charges in connection with a loan, it will have to use § 3-508A instead. Existing loans made under § 3-508B cannot be refinanced as or consolidated with or into § 3-508A loans, nor vice versa.
As indicated above, § 3-508B can be utilized only for loans not exceeding $1,560.00. Further, substantially equal monthly payments are required. The first scheduled payment cannot be due less than one (1) calendar month after the loan is made, and subsequent installments due at not less than 30-day intervals thereafter. The minimum term for loans is 60 days. The maximum number of installments allowed is 18 months calculated based on the loan amount as 1 month for each $10.00 for loan amounts between $155.95 and $364.00 and $20 for loan amounts between $364.01 – $1,560.00.
Lenders making § 3-508B loans should be careful and promptly change to the new dollar amount brackets, as well as the new permissible fees within each bracket for loans originated on and after July 1st. Because of peculiarities in how the bracket amounts are adjusted, using a chart with the old rates after June 30 may result in excess charges for certain small loans and violations of the U3C provisions.
Since §3-508B is “math intensive,” and the statute both online or in a print version does not show updated acquisition fees and handling fees, you will find a modified version of the statute with the 2019 amounts on the Legal Links page UCCC Section 3-508B – Effective July 1, 2019. Again, you will need to register an account with the OBA in order to access it.
The acquisition charge authorized under this statute is deemed to be earned at the time a loan is made and shall not be subject to refund. Provided, however, if the loan is prepaid in full, refinanced or consolidated within the first sixty (60) days, the acquisition charge will NOT be deemed fully earned and must be refunded pro rata at the rate of one-sixtieth (1/60) of the acquisition charge for each day from the date of the prepayment, refinancing or consolidation to the sixtieth day of the loan. The Department of Consumer Credit has published a Daily Acquisition Fee Refund Chart for 2019 and prior years with links on this page. Further, any if a loan is prepaid, the installment account handling charge shall also be subject to refund. A Monthly Refund Chart for handling charges for can be accessed on the page indicated above, as well as § 3-508B Loan Rate (APR) Table.
§ 3-511 Loans
I frequently get calls when lenders receive a warning from their loan origination systems that a loan may exceed the maximum interest rate. Nearly always, the banker says the interest rate does not exceed the alternative non-blended 25% rate allowed under § 3-508A according to their calculations. Usually, the cause for the red flag on the system is § 3-511. This is another section for which loan amounts may adjust annually. Here is the section with the amounts as effective for loans made on and after July 1, 2019, in bold type.
Supervised loans, not made pursuant to a revolving loan account, in which the principal loan amount is $5,200.00 or less and the rate of the loan finance charge calculated according to the actuarial method exceeds eighteen percent (18%) on the unpaid balances of the principal, shall be scheduled to be payable in substantially equal installments at equal periodic intervals except to the extent that the schedule of payments is adjusted to the seasonal or irregular income of the debtor; and
(a) over a period of not more than forty-nine (49) months if the principal is more than $1,560.00, or
(b) over a period of not more than thirty-seven (37) months if the principal is $1560.00 or less.
The reason the warning has popped up is due to the italicized language: The small dollar loan’s APR exceeds 18%, and it is either a single pay or interest-only with a balloon.
Dealer Paper “No Deficiency” Amount
If dealer paper is consumer-purpose and is secured by goods having an original cash price less than a certain dollar amount, and those goods are later repossessed or surrendered, the creditor cannot obtain a deficiency judgment if the collateral sells for less than the balance outstanding. This is covered in Section 5-103(2) of the U3C. This dollar amount was previously $5,100.00 and increases to $5,200.00 on July 1.
CFPB’s Spring 2019 Regulatory Agenda
by John S. Burnett
The CFPB recently announced the Spring 2019 updates to its regulatory agenda.
In the short term, the Bureau intends to issue an extension for the underwriting requirements compliance date in its Payday Loan rule. We’ll see what happens in the next few weeks.
Other items on the Agenda:
• December 2010 – proposed rule on public disclosure of HMDA data
• January 2020 — resume pre-rule work on data collection on women-owned, minority-owned, and small business lending
• Before November 2020 – Final determination on reconsideration (read: rescission) of the underwriting requirements of the Payday Loan rule.
• In pre-rulemaking stage: Rulemaking to bring “Property Assessed Clean Energy” (PACE) loans under the ability-to-repay and general civil liability provisions of the Truth in Lending Act.
• Further refinements to Regulation C implementing HMDA