As the only law firm small entity representative (SER) to participate in a second SBREFA panel, I came to the process with a certain level of comfort, but with preconceived notions of how the process would unfold. The first SBREFA panel in which we participated concerned the CFPB’s proposed arbitration rules. While the process was similar, the overall feel of the panel that convened on August 25, 2016 to engage the CFPB on Debt Collector and Debt Buyer Rulemaking was very different.
Of the nineteen SERs that convened from around the country, only four were law firms. Three of the law firm SERs were in the room, and one was participating on the panel via telephone. The panel consisted of three unique constituencies: debt buyers, collection agencies, and law firms.
Our approach when reviewing the voluminous documents and discussion topics focused on the theme of “clarity.” The law firms that are dedicated to compliance and the ethical treatment of consumers desire to follow the rules that will be ultimately adopted. In order to do that, however, the rules have to be absolutely clear. Rules that are ambiguous and arbitrary open law firms to regulatory sanctions as well as consumer litigation.
Law firms are uniquely situated as they compare to the other two SER classifications that were participating on this SBREFA panel. When it comes to another layer of CFPB rules, law firms are already governed by state court rules and state legislation that not only differ state to state, but from county to county. The message that all of the law firm SERs agreed on was that “one size does not fit all.”
We tried to illustrate the challenges imposed on the litigation process by the proposed rules regarding substantiation, initial dispute templates, and communications with consumers. We pointed out that the substantiation requirements, if enacted retroactively, could cause a plethora of problems, much like the problems faced by Maryland law firms following the retroactive application of Finch v. LVNV. Applying rules retroactively could expose law firms to significant litigation and render many judgments previously obtained void.
For law firms, the substantiation requirements would effectively supplant state rules regarding what information a litigant must have before filing suit, requiring higher standards than state procedural requirements. For example, Pa.R.C.P. 304 governs the forms of complaints, and requires that complaints be verified to state that the facts set forth in the complaint are true and correct to the best of the affiant’s knowledge, information, and belief. The proposed CFPB substantiation requirements would effectively eliminate the “to the best of the affiant’s knowledge, information and belief” and require that the affiant attest to the absolute accuracy of the information, with no safe harbor. Such rules, in turn, are likely to increase abuse of process and malicious prosecution claims where debt collection lawsuits are unsuccessful.
The draft rules anticipate consumer communication caps. While these caps may make sense in the collection agency space, they will cause serious challenges when applied to the litigation process. Court rules have strict deadlines for pleadings, responses, and trial dates. Restricting communication with consumers when a trial date is approaching not only affects the attorney’s ability to comply with court rules, but harms the consumer’s ability to resolve a case prior to trial. Open questions that were raised included:
- Will the cover letter to a pleading be considered a communication?
- Will process server attempts to serve a summons and complaint be counted as communication attempts?
- If an attorney meets with a consumer in court and agrees to a follow-up phone call with the consumer later that same day, is the follow-up phone call a second communication?
These are just a few of the concerns that would only affect collection law firms, and will have to be specifically addressed should the CFPB want “clarity” in the proposed rules.
Throughout the hearing, it was clear that the CFPB was receiving and considering the comments of the collection law firm SERs. The CFPB was clearly interested in gaining all perspectives, and seemed to recognize the challenges in applying a uniform set of debt collection rules to the litigation process.
I was excited to participate, and feel that the process to date has been worthwhile and well-thought out. We are hopeful that the comments made at the panel, and the written submissions due by September 9, 2016, will be seriously considered when the final rules are ultimately released.
It was clear that the CFPB is taking the law firm SERs’ input to heart. As I have been told, if you do not have a seat at the table, there is a good chance you are on the menu. It was a good feeling to have a seat at this table.
Read insideARM’s detailed coverage of the CFPB’s Outline of Proposed Rules
insideARM Perspective on CFPB Outline of Proposed Debt Collection Rules – Communication Part 1 (Contact frequency and voicemail messages)
insideARM Perspective on CFPB Outline of Proposed Debt Collection Rules – Communication Part 2 (General time, place, and manner restrictions; decedent debt; and consumer consent)
insideARM Perspective on CFPB Outline of Proposed Debt Collection Rules – Information Integrity (Data integrity, data transfer, substantiation, validation notice)
What Collectors Really Need to Know About the CFPB’s Proposed Rules - a podcast by Attorney John Rossman
Webinar: CFPB Rulemaking and Overview (August 16, repeated on August 18) – free for Compliance Professionals Forum members; $59 for others
Additional perspective to come.