Consumer Financial Protection Bureau Releases Proposed Debt Collection Regulations

The proposed regulations offer long-awaited clarifications of the boundaries of permissible debt collection activities, particularly with respect to certain “new” modes of communication such as email, text messages, and social media, which were not prevalent (or did not exist) when the FDCPA was passed in 1977. As discussed below, the proposed regulations also address (among other things) new frequency restrictions on telephonic communications, certain consequences of pursuing time-barred debts, and various amplifications to consumer notice and disclosure requirements.

Guidance on Communications

The proposed regulations clarify that email and text message communications are generally acceptable forms of debt collection media, provided they comply with other aspects of the regulatory scheme, including: giving notice to the consumer of the intended communication method and a reasonable period to “opt-out” from receiving such communications; directing any and all collection-related communications to a non-work email address or telephone number; and including in such communications a clear and conspicuous statement describing the methods by which the consumer can opt out from further communications.

A caveat to these requirements (in the debt collector’s favor) is introduced through a new term, the “limited-content message,” which by definition is not a “communication” to collect a debt under the FDCPA or Dodd-Frank. To qualify as a limited-content message, the message must include:

1. The consumer’s name;
2. A request that the consumer reply;
3. A telephone number that the consumer can use to reply;
4. The name of a person the consumer can contact when replying; and
5. For electronic messages, a disclosure explaining how the consumer can stop receiving messages through a particular medium.

In addition, the message may include:

6. A salutation;
7. The date and time of the message;
8. A generic statement that the message relates to an account; and
9. Suggested dates and times for the consumer to reply.

Notably, the inclusion of any other information, including but not limited to an account number, renders the message a communication to collect a debt subject to more stringent requirements. The CFPB has requested comments as to how these new rules will intersect with other Federal laws restricting debt collection activities, such as the Telephone Consumer Protection Act.

The proposed regulations distinguish among electronic messages in other ways as well. For example, a debt collector is not permitted to post communications or limited-content messages related to the collection of a debt on social media platforms (e.g., Twitter, LinkedIn, etc.) if they are viewable by anyone other than the consumer, the creditor, a consumer reporting agency, or counsel. A debt collector may, however, send the consumer a private message through a social media platform, provided that the message satisfies other applicable regulatory requirements.

Telephone calls are also treated differently under the proposed regulations, which impose frequency restrictions that debt collectors must follow in order to maintain compliance with the FDCPA and Dodd-Frank. Permissible telephone call frequency had been a longstanding issue. Now, subject to certain exceptions (and the above-noted intersection with other laws), a debt collector may not place a telephone call to a consumer in connection with a particular debt: (a) more than seven times within seven consecutive days; or (b) within a period of seven consecutive days after having had a telephone conversation with the persons in connection with collection of that debt.

In contrast, the proposed rule is silent as to frequency restrictions on electronic communications or limited-content messages. Questions concerning the appropriate frequency of email, text, and social media direct contact would continue to be evaluated under the more nebulous pre-prohibition in the FDCPA against harassment, oppression, and abuse of consumers in connection with the collection of a debt. The proposed regulations do, however, attempt to establish a bright line rule for the time of day restrictions on electronic communications, specifically that the time of transmission is when the message is triggered—not the time it is read.

CFPB Tackles Time-Barred Debts, Punts on Midland Funding

The status of so-called “time-barred debt” (a debt for which the applicable statute of limitations has expired) is not addressed directly by the FDCPA. This has led many creditors and debt collectors to pursue litigation and other efforts to collect time-barred debts, reasoning that: (a) the expiration of a statute of limitations generally does not extinguish a debt, and (b) it is generally incumbent upon the debtor to assert the statute of limitations as an affirmative defense. Nonetheless, courts have held that attempting to collect a time-barred debt may violate the FDCPA’s prohibitions on misleading representations and unfair practices. Further, some states have enacted laws requiring such collection attempts to include a statement that the debts may not be enforceable.

It is against this landscape that the CFPB’s proposed regulations now seek to make explicit that debt collectors are prohibited from bringing or threatening legal action against consumers for debts that they know or should know are time-barred. While helpful to an extent, the proposed regulations leave some important questions unanswered, including the status of collection efforts that do not threaten litigation. The CFPB has indicated that it will likely add a regulation requiring a disclosure to be made when collecting time-barred debt, but that it is reserving a decision on the issue until it receives additional feedback regarding the need for and content of such a disclosure.

In addition, the scope of the phrase, “legal action,” is unclear as used in the proposed regulation. Is it limited, for example, to the commencement of traditional civil litigation or does it extend to the filing of a proof of claim in a bankruptcy case? This ambiguity is troubling in light of the Supreme Court’s decision in Midland Funding, LLC v. Johnson, 137 S. Ct. 1407 (2017), that the filing of a time-barred proof of claim in a Chapter 13 bankruptcy does not violate the FDCPA. The CFPB’s commentary to the proposed regulation does not address the impact of Midland Funding or the extent, if any, to which the regulation applies in bankruptcy cases.

Clarity on Validation Notices

Another focal point of the proposed regulations is increased transparency in the requirements for consumer disclosures. The CFPB identified validation notices in particular for extensive regulatory treatment as to content, form, and delivery. The FDCPA requires debt collectors to furnish validation notices providing consumers with essential information concerning their rights and obligations with respect to impending debt collection efforts. The proposed regulations include substantial additional detail concerning the content and form of a validation notice, including new optional disclosures such as the ability of a consumer to request a Spanish translation. Also included is a proposed model form of validation notice and a safe-harbor for debt collectors that use the model form. Finally, and fitting with the overarching theme of modernizing debt collection practice to account for prevailing communication methods, the proposed regulations clarify the circumstances and parameters for electronic delivery of validation notices.

Request for Comments

The CFPB is soliciting comments to the proposed regulations for 90 days after the Notice of Proposed Rulemaking is published in the Federal Register. Further information concerning the comment submission process (pp. 1-2) and the proposed regulations as a whole (which start on p. 447) may be found by accessing the Notice of Proposed Rulemaking here.

Arent Fox’s Consumer Financial Services group will continue to monitor developments in this area. If you have any questions, please contact Jenny Lee, Steven S. Broadley, Justin A. Kesselman, or the Arent Fox professional who usually handles your matters.