On July 28, 2016, after an extended gestation period, the Consumer Financial Protection Bureau (CFPB) at long-last published its outline of proposals (the Outline) for the first ever federal regulations that would implement the Fair Debt Collection Practices Act of 1977, 15 U.S.C. §§ 1692-1692p (the FDCPA).¹

Prior to the advent of the Dodd-Frank Act in 2010 and the establishment of the CFPB, no federal agency had statutory authority to promulgate regulations to implement the FDCPA. Without such regulations, decades of voluminous enforcement actions by the Federal Trade Commission as well as private lawsuits have produced inconsistent interpretations of the FDCPA and raised vexing questions about the statute’s applicability in light of new communications technologies. To provide much needed clarity, Section 1089 of the Dodd-Frank Act amended the FDCPA to expressly authorize the CFPB to “prescribe rules with respect to the collection of debts by debt collectors.”

As its first step in this rulemaking process, the CFPB issued an advance notice of proposed rulemaking (the ANPR) in November 2013.²  In the ANPR, the CFPB posed 162 questions for public comment as to what issues its rulemaking should cover and what approaches it should take to address those issues. For example, the ANPR asked how the FDCPA’s restrictions on the times and places of debt collector communications should be interpreted in light of the emergence of cell phones, text messaging, and emails since Congress enacted the statute. The ANPR also raised concerns about the failures of creditors, debt buyers, and debt collectors to transfer important information about debts – such as histories of disputes about or payments made on the debts – when such debts are sold to other debt buyers or collected by other debt collectors. The ANPR furthermore expressed concerns about the practice of debt collectors attempting to collect debts that are no longer enforceable due to the expiration of applicable statutes of limitation. It questioned the efficacy of the debt validation notices prescribed by the FDCPA in informing consumers about their rights under the FDCPA. Finally, it raised the prospect of invoking the CFPB’s separate authority to prescribe rules that identify and prevent unfair, deceptive, or abusive acts and practices (UDAAPs) as a means of applying to first party creditors the prohibitions and restrictions that the FDCPA imposes only upon third party debt collectors. The CFPB received almost 400 public comments in response to the ANPR and a long period of silence ensued.

Now, more than two and a half years after the CFPB issued the ANPR, the CFPB has finally taken its next step in the rulemaking process by issuing the Outline. The principal features of the Outline are as follows.

1. Rules for First Party Creditors Will Not Be a Part of this Proceeding

Perhaps the most striking aspect of the Outline is the fact that its coverage excludes the collection practices of first party creditors. The extension of FDCPA prohibitions and restrictions to first party creditors would likely have constituted the most significant and controversial aspect of the rulemaking given that Congress carved first party creditors out of the FDCPA and only instructed the CFPB to prescribe rules that govern the conduct of “debt collectors.”

It is important to note, however, that the CFPB does not, in excluding creditors from this particular rulemaking, foreswear a future rulemaking that will cover them. Indeed, the CFPB states that it expects to convene another rulemaking proceeding during the next several months for this very purpose.

The CFPB asserts that efficiency is its reason for splitting its rulemaking into two parts. However, one may reasonably surmise that the CFPB was also concerned that if it had issued all of its debt collection rules in one proceeding, its rules governing debt collectors might have been held hostage in a fight with the large banks and other creditors over the propriety of rules applicable to them.

2. Substantiation of Debts

Among the issues that this Outline does address are perceived deficiencies in the information about debts that debt collectors receive from creditors and debt buyers³ that result in debt collectors contacting the wrong consumers, for the wrong amounts, or for debts that collectors are not entitled to collect. The Outline considers several proposals to address these issues.

First, the CFPB is considering a proposal that would require debt collectors to “substantiate” or possess a reasonable basis for their claims that consumers owe debts. Specifically, the CFPB is considering a proposal that debt collectors take certain steps to substantiate claims of indebtedness made initially, during the course of collections, and before filing litigation.

In part, this proposal would require debt collectors to review certain information about debts to look for warning signs as to the adequacy or accuracy of the information, such as the names, addresses, telephone numbers, and account numbers of consumers, the debt default dates, the amounts owed at default, and the chain of title for the debt. Warning signs may include the fact that information is not clearly understandable, that it is facially implausible or contradictory, or that a significant percentage of debt in the portfolio has missing or implausible information or unresolved disputes. The CFPB would then require debt collectors to take steps in response to any warning signs they detect.

Similarly, when consumers dispute their debts, the CFPB is contemplating requiring debt collectors to review copies of account-level documentation (rather than simply information) to verify the debts before they may proceed with collection attempts. The types of documentation that the debt collector would need to review would depend upon the nature of the dispute.

The CFPB is also considering a proposal that would require debt collectors, in response to disputes that consumers communicate to them orally, to inform consumers of their rights to obtain verification of their debt by submitting timely written disputes.

3. Requirements with Respect to the Transfer of Debts

Another issue that the Outline addresses is the fact that historical information about debts, including dispute and payment information, often does not travel downstream when debt is sold or transferred to new collectors. The CFPB believes that when such information does not travel with the debts, consumers can suffer harm in that the new debt buyers or collectors may force consumers to re-litigate old disputes or insist upon payments that consumers have already made on their debts. To address this issue, the CFPB would require certain information to transfer with debts, including information that could indicate that all or part of a debt is uncollectable (due, for example, to statutes of limitations) or is likely to lack sufficient substantiation. It would also require debt collectors to forward information about payments that consumers submitted, bankruptcy discharge notices, identity theft reports, disputes of the debts, or any assertion by consumers that their debts and assets are exempt from garnishment. The CFPB is also contemplating requiring the transfer of additional information, including but not limited to any times, places, or methods of communication that consumers state are inconvenient, the names of attorneys representing consumers in connection with their debts, whether the consumers’ employers prohibit them from receiving collection communications, and whether the consumers are active duty service members.

4. Validation Notices

The Outline expresses concern that existing validation notices that the FDCPA requires debt collectors to send to consumers upon collecting debts are inadequate to inform consumers about whether they, in fact, owe debts and if not, how to navigate the debt collection process. To help consumers in this regard, the CFPB is considering requiring debt collectors to provide consumers with an improved FDCPA validation notice and a Statement of Rights.

The enhanced notice would contain certain additional information, including the names and addresses of consumers, the names and addresses of debt collectors, descriptions of the debt types, the name of the merchant brands associated with the debt, the names of the creditors at the time of default, the account numbers, the amounts owed as of the default dates, the names of the current creditors, itemizations of interest, fees, payments, and credits since the default dates, and the amounts owed currently. Additionally, it would require a statement that informs consumers that if they submit timely written disputes, debt collectors must cease collection attempts until they verify the debts and notify consumers accordingly; the statement would also inform consumers that even if they fail to dispute their debts in a timely manner, then the debt collectors still must confirm that their information is correct before they resume their collections activities.

Furthermore, the enhanced notice would be required to include a tear-off portion that prompts consumers to specify whether they want to dispute their debts and if so, on what basis.

Lastly, the Outline contemplates requiring debt collectors to provide consumers with a one page statement of consumer rights that would state, in plain language, consumers’ rights under the FDCPA to stop debt collectors from contacting them at inconvenient times and places, to make written requests that debt collectors cease contacting them, and to dispute their debts. The statement of rights would also highlight the FDCPA’s restrictions on debt collector communications with third parties about debts, its prohibition against harassing, oppressive, or abusive debt collection tactics, and its prohibition against debt collectors making false or misleading representations to collect debts. Additionally, it would inform consumers of their rights under the Fair Credit Reporting Act and under state laws that restrict or prohibit wage garnishments. Finally, it would include a Spanish language statement that consumers may obtain a version of the document that is translated into Spanish on the CFPB’s website or from debt collectors.

5. Litigation Disclosures

In addition to the above, the CFPB would require debt collectors to provide consumers with a new disclosure in all written and oral communications in which they state or imply that they intend to sue consumers. The CFPB is considering requiring this disclosure because it is concerned that consumers do not comprehend the nature of debt collection litigation or its significance. The CFPB believes that ignorance or confusion about debt collection litigation often leads consumers to ignore it or settle it unnecessarily. The disclosure that the CFPB contemplates would inform consumers that debt collectors intend to sue them, that default judgments will ensue if such suits are not contested, and that additional information about debt collection litigation, including resources for obtaining legal assistance, is available on the CFPB’s website and through a CFPB telephone hotline.

6. Restrictions on the Collection of Time-Barred Debt

As noted earlier, the CFPB has long expressed concerns about the practice of debt collectors collecting, suing, or threatening to sue consumers to collect debts for which the applicable statutes of limitations have expired. The CFPB believes that these practices are often abusive in that consumers often do not understand the significance of statutes of limitation and debt collectors take advantage of consumers’ ignorance to pressure them to pay debts that are unenforceable.

To address these concerns, the CFPB is contemplating prohibiting suits and threats of suit on time-barred debt and, in states that provide for the revival of statutes of limitations under certain circumstances (such as when consumers acknowledge or make payments on time-barred debts), the CFPB is contemplating prohibiting debt collectors from collecting on time-barred debts unless they waive their rights to sue on those debts.

Furthermore, the CFPB is considering requiring debt collectors to affirmatively disclose to consumers, whenever they seek to collect time-barred debts, of the fact that such debts are time-barred and, when applicable, that those debts are no longer reportable to the credit reporting agencies. Debt collectors would also be prohibited from accepting payments on such debts unless they obtain from consumers written acknowledgments of having received the disclosures.

The CFPB is considering whether to make debt collectors strictly liable for assessing incorrectly that debts are time-barred. It is also considering binding downstream debt collectors to prior statements made by upstream debt collectors that debts are time-barred.

The CFPB notes that it considered, but decided not to propose, banning outright the sale of time-barred debts and the collection of time-barred debts. It states that it opted not to pursue these alternatives because of its concern about the unintended consequences of doing so. For example, it notes that these alternatives might have provided perverse incentives to debt collectors to sue consumers prior to the expiration of statutes of limitations.

7. Debt Collector Communications

In the Outline, the CFPB seeks to refine the manner in which debt collectors may communicate with consumers about their debts. The FDCPA restricts such communications, but the statute is ambiguous and seemingly contradictory in certain respects, creating much uncertainty. Moreover, as noted above, new communications technologies have emerged since the enactment of the FDCPA, and the CFPB seeks to use its regulations to apply the FDCPA to these technologies. The specific proposals that the CFPB discusses include the following.

a. Proposal to govern the leaving of messages

One aspect of the FDCPA which has been a source of much confusion and dispute is whether and under what circumstances it permits debt collectors to leave messages for consumers, including on answering machines or in voicemails, emails, or texts. On the one hand, the FDCPA requires debt collectors to identify themselves when they communicate with consumers about their debts. On the other hand, the FDCPA prohibits debt collectors from communicating with third parties about consumers’ debts, which would seemingly prohibit debt collectors from leaving messages if such messages may be heard or read by third parties.

To eliminate this confusion, the CFPB is considering a proposal that would expressly permit debt collectors to leave messages in limited circumstances without violating the FDCPA. The proposal would provide that no debt collection “communication” occurs when a debt collector leaves a message to the extent that the message conveys only the individual debt collector’s name (rather than the name of the debt collection company that employs the individual), the consumer’s name, and a toll-free method that the consumer can use to reply to the collector.

b. Proposal for Caller ID

To address concerns that debt collectors obscure their identities on caller ID and in emails, the CFPB is considering a proposal that would require debt collectors to display working, in-bound, toll-free telephone numbers to appear on caller ID screens of consumers as well as in the body of email messages.

c. Proposal to stop debt collectors from imposing unavoidable charges upon consumers when contacting them

The CFPB is considering a proposal to prohibit debt collectors from contacting consumers or third parties using any method that would result in such persons incurring unavoidable charges, such as charges for the receipt of text messages. As a practical matter, this proposal would require debt collectors that send text messages to use free-to-end-user services to do so. It would not impact telephone calls or emails, as the CFPB deems the charges associated with those communication methods to be avoidable by, say, not picking up the telephone or not opening emails until free Wi-Fi is available to do so.

d. Proposal to permit debt collectors to charge incidental fees under certain circumstances

The CFPB is considering clarifying that debt collectors may charge incidental fees, such as “convenience” fees for making electronic payments, only if they are expressly permitted by state law or, if state law does not prohibit such fees, the consumer expressly agreed to pay them by contract.

e. Proposal to restrict the frequency of collection contacts

Additionally, the CFPB is considering a detailed set of rules that would limit the frequency with which debt collectors may contact, or attempt to contact, consumers about their debts. The CFPB seeks to impose these rules to provide clarity as to how much collection activity is acceptable without constituting abuse or harassment under the FDCPA. The CFPB is seeking to establish different numerical restrictions on debt collection contact depending on whether they occur before or after collectors have successfully established contact with consumers.

The CFPB believes that prior to making contact with consumers, debt collectors may be justified in making numerous attempts to reach consumers through different phone numbers or different media. However, once debt collectors succeed in reaching consumers through particular numbers or means, the CFPB believes that debt collectors should not attempt to initiate contact as frequently or through all available means. Accordingly, the contemplated proposal would permit debt collectors to make up to three initial attempts per week to reach consumers at each of their unique addresses or telephone numbers and for each of the consumers’ accounts, with total contact attempts capped at six attempts per account, per week. Meanwhile, debt collectors could make up to two attempts each week to subsequently contact consumers at each of their unique addresses or phone numbers and for each of their accounts, with the total contact attempts capped at three attempts per account, per week, and the total number of live communications capped at one communication per account per week.

The CFPB also is pondering whether to apply these contact caps equally to all communication channels and whether to create separate limits per unique phone number or address as well as for total contacts per week.

Finally, the CFPB is considering imposing caps on the number of times when, as the FDCPA permits, debt collectors may contact or attempt to contact third parties to determine the locations of consumers who owe their clients debts.

f. Proposal to govern the time, place, and manner of debt collector contacts

Next, the CFPB seeks to flesh out the FDCPA’s prohibition against debt collectors collecting debts at unusual times or places or at times or places that debt collectors know or should know are inconvenient for consumers.

Specifically, the CFPB is pondering a proposal that would specify how debt collectors should ascertain consumers’ locations when they have conflicting information about those locations, such as cellphone numbers with area codes that are in different cities or states than are consumers’ home addresses. In these situations, and absent contrary knowledge, the CFPB would provide that debt collectors must determine that it would be convenient to contact consumers at any and all of the locations where the collectors’ information indicates that consumers might be.

Also under consideration is a proposal to designate certain categories of locations as presumptively inconvenient at which to contact consumers. These categories include: (1) medical facilities, such as hospitals, emergency rooms, and hospices; (2) places of worship; (3) places of burial or grieving, including funeral homes and cemeteries; and (4) day care or child care centers or facilities. The CFPB would not require debt collectors to affirmatively investigate whether consumers are at such locations before attempting to contact them, but the CFPB would prohibit debt collectors from ignoring information which indicates that consumers are, in fact, at such places.

It is noteworthy that the CFPB presently is not seeking to designate a consumer’s workplace as a presumptively inconvenient location. In explaining this decision, the CFPB noted that designating the workplace as inconvenient would unreasonably limit the periods of time in which debt collectors could contact consumers.

That said, the CFPB is considering a proposal that would generally prohibit debt collectors from attempting to contact consumers, without their consent, at email addresses that they know or should know are consumers’ workplace email addresses. The CFPB explains that emails sent to such addresses are at high risk of being read by third parties, including consumers’ supervisors and colleagues.

g. Regulations relating to deceased consumers

Finally with respect to debt collector communications, the Outline contemplates a proposal to clarify the situations in which it is permissible to collect the debts of a deceased consumer. Specifically, the Outline provides that it would be generally permissible for collectors to contact surviving spouses, parents of deceased minors, and individuals who are designated as personal representatives of an estate under state law. However, the CFPB is considering imposing a 30 day pause after consumers’ deaths before debt collectors may commence such contacts.

8. Prohibition on Transferring Debts to Certain Entities or in Certain Circumstances

Lastly, the CFPB is considering imposing obligations on sellers of debt to conduct due diligence on prospective buyers to ensure that they are reputable and are not engaging in unscrupulous practices. Specifically, the contemplated proposal would prohibit debt buyers from placing debt with, or selling debt to: (1) those subject to a judgment, order, or similar restriction prohibiting them from purchasing or collecting debt in the state in which the consumer resides; or (2) those that lack any license required to purchase or collect debt, as applicable, in the state in which the consumer resides.

_{¹ The CFPB issued this Outline pursuant to its obligation, under the Dodd-Frank Act, to convene a Small Business Regulatory Enforcement Fairness Act (SBREFA) panel prior to proposing rules that would impact small entities.  The Dodd-Frank Act requires the CFPB to convene a SBREFA panel of small business representatives whenever a substantial number of small businesses are likely impacted significantly by a rule that the CFPB is considering.  The purpose of a SBREFA panel is to advise the CFPB as to the potential economic impacts to small businesses of complying with the new rule as well as to suggest alternatives that would minimize this impact. Within 60 days of convening a SBREFA Panel, the CFPB must complete a report on the feedback it received during the panel and the CFPB must consider this feedback when it drafts the proposed rule. Once the CFPB publishes its proposed rule, it must place its SBREFA panel report in the rulemaking record.}

_{² CFPB, Advance Notice of Proposed Rulemaking, RIN 3170-AA41 (Nov. 5, 2013), available at http://files.consumerfinance.gov/f/201311_cfpb_anpr_debtcollection.pdf.}

_{³ Debt buyers are deemed to be subject to the FDCPA, even though they are not collecting debts for others, because their principal purpose in purchasing debts is to collect them.}