The Bureau of Consumer Financial Protection has been busy making headlines on the subject of fair debt collection practices. There was the April 7th announcement of a proposal to delay the effective date of the two Debt Collection Practices Rules (Regulation F) that were scheduled to take effect on November 30, 2021. The Bureau is proposing to delay the effective date of the Debt Collection Practices Rule changes that apply to third-party debt collectors, including the requirements that apply to time-barred debts to January 29, 2022. On April 19th, the Bureau issued an interim final rule that requires debt collectors to provide written notice to tenants of their eviction moratorium rights under the Center for Disease Control (CDC) eviction moratorium. That interim final rule was issued with only a two-week notice prior to the May 3, 2021, effective date. On April 6th, the Bureau issued a Consent Order against a California debt collector for violating the Fair Debt Collection Practices Act (FDCPA), specifically for mailing notices to consumers that falsely represented that the consumers would be sued if they did not pay the debts. The debt collector was required to pay compensation to consumer victims totaling $860,000, plus a $2,200 civil money penalty (reduced due to the debt collector’s financial circumstances).
These developments all come on the heels of the Bureau’s March 22nd release of the 2020 annual report to Congress on the FDCPA, which summarizes the Bureau’s and Federal Trade Commission’s efforts to enforce the Act. The report also highlights the debt collection complaint data, which reveals that the Bureau received 82,700 debt collection-related complaints in 2020 (a 10 percent increase over 2019). The Bureau’s debt collection complaints involved both first-party and third-party debt collectors. Forty-nine percent of those complaints allegedly involved attempts to collect debts that were not owed.
While the FDCPA and the Bureau’s Debt Collection Practices Rule (Regulation F) apply to third party debt collectors, and the Bureau’s Consent Order involved a third-party debt collector who violated provisions of the FDCPA, creditors who collect their own debts should not be complacent when it comes to fair debt collection practices. Creditors should keep in mind:
- There are ways in which creditors can become subject to the FDCPA and Regulation F if they collect debts under an assumed name
- Many of the provisions of the FDCPA and Regulation F can also be considered unfair, deceptive, or abusive acts or practices under both Federal law and many state laws
- The Bureau may not be far removed from promulgating a fair debt collection practices regulation that also applies to first-party debt collectors
How a Creditor Can Become a Debt Collector under the FDCPA and Regulation F
Regulation F employs the Fair Debt Collection Practices Act definition of “debt collector” (at least for now). A debt collector is subject to Regulation F if they use any instrumentality of interstate commerce or mail in any business, the principal purpose of which is the collection of debts, or if they regularly collect or attempt to collect debts owed or due to another. Creditors who collect their own debts are not covered. However, a debt collector may also include a creditor who collects its own debts using any name other than its own name that would indicate that a third person is collecting or attempting to collect the debt.
Creditors must ensure that they are not using any name other than their own name or any fictitious name when collecting debts, which could confuse borrowers. For example, if First National Bank is collecting its own debt, collecting the debt in the name of “First Collection Services” would probably not be a suitable name to use to collect a consumer debt, because a reasonable consumer may not be able to conclude that the two entities are related or equivalent. However, “First National Bank Collection Department” would be sufficiently clear.
If a creditor meets the definition of debt collector under the Act and Regulation, all of the provisions of the FDCPA and Regulation F would apply to its consumer collection activities.
Practices & Conduct to Avoid
Even when a creditor is not a covered debt collector under the FDCPA or Regulation F, many of the prohibited practices under Regulation F and the FDCPA can also be considered unfair, deceptive, or abusive under Federal law and/or state laws. The regulators take the position that institutions that fail to adhere to the standards set forth in the FDCPA in their debt collection practices may be found in violation of the FTC Act for unfair, deceptive, or abusive acts or practices (UDAAPs).
Regulation F proscribes debt collection practices that largely follow the framework of the FDCPA. Certain communication practices are prohibited. Certain conduct is deemed oppressive, unfair, or abusive. Certain representations to consumers are considered deceptive or misleading.
New Twist on FDPA Provisions
Regulation F contains a few noted amplifications on the FDCPA requirements:
- Limits on further communications – In addition to the prohibition against all further communications with the consumer upon written request, a collector must also honor a consumer’s request to cease communications through a specified medium of communications upon request (telephone, text, email, etc.).
- Reasonable procedures for email and text communications – The Bureau has added procedures to Regulation F that provide a safe harbor to debt collectors for reasonable procedures for unintentional communications with third parties via email and text (forms of communication that were not contemplated in the 1977 FDCPA). A debt collector can avoid a bona fide third party communication error if its procedures include steps for reasonably confirming and documenting that it communicated with the consumer by sending an email or text to an address or phone number permitted under the regulation and the consumer did not opt out of communications or withdrawn consent for its use.
- Call frequency limits – The Bureau has placed a number on the definition of “repeatedly or continuously placing telephone calls to harass, annoy or abuse” consumers for debt collection purposes. The Bureau has also created a complicated set of exceptions and rebuttable presumption standard to adhere to. While creditors collecting their own debts may not be subject to the call frequency limits of Regulation F at this time, it may be a standard that evolves into a best practice or non-abusive conduct.
- Social Media – In 1977, when the FDCPA was enacted, social media was yet to be conceived. FDCPA was written with telephones, letters, and even telegrams in mind. Regulation F addresses social media by applying standards that are similar to those for postcards and envelopes. The Regulation also includes “reasonable procedures for email and text message communications.”
- Definition of “Consumer” – The Bureau has expanded the scope of the definition of consumer for purposes of coverage of the communications provisions of Regulation F to include confirmed successors in interest. Regulation F contains some new prohibited practices that are not also found in FDCPA.
Will the Bureau Expand Regulation F Coverage?
There is some speculation that at least part of the reason for the Bureau’s delay of the effective date of Regulation F is to consider the possibility of expanding its coverage to include first-party debt collectors. After all, it does not fit with the Bureau’s most recent history that it merely wants to provide a beneficial reprieve to the debt collection industry and allow additional time for them to achieve compliance with the new regulation.
Fair Debt Collection Practices (Chart)
ACTION STEPS
- Internal collection activities should be free of any unfair, deceptive and abusive collection practices. The FDCPA and Regulation F provide a roadmap to collection practices that may fall within the scope of UDAAP.
- Your financial institution may still have exposure under state fair debt collection practices statutes that apply. Consider any state or local laws that cover your collection practices.
- Vendor management continues to be crucial. Monitor the activities of any third-party debt collectors and maintain contractual agreements that require compliance with applicable laws and regulations.
- Verify that your institution is not unknowingly finding itself covered under Regulation F as a debt collector by using a name other than its own to collect its own debts. Forms, emails, and verbal communications should be reviewed.
Copyright © 2021 Compliance Action. Originally appeared in Compliance Action Vol. 25, No. 12, 4/28/2021
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