Editor's Note: This article, authored by Christopher Willis and Stefanie Jackman of Ballard Spahr, previously appeared on Ballard Spahr’s CFPB Monitor and is re-published here with permission.
Part 1 of the CFPB’s final debt collection rule, which was released on October 30, applies only to “debt collectors” as defined by the FDCPA, as was the case with the proposed rule released in May 2019. Creditors were justifiably concerned about the impacts of the proposed rule on them, but how do they fare under the final rule?
First, let’s discuss creditors’ fears that the rule would be applied to them by the CFPB through the Bureau’s UDAAP authority. The CFPB has done a couple of things to reassure creditors in this regard. While the proposed rule relied on the Bureau’s UDAAP authority for certain provisions, the final rule does not – it is predicated solely on the FDCPA. The Bureau also noted that it “declines to expand the rule to apply to first-party debt collectors who are not FDCPA debt collectors,” and noted that “the Bureau did not solicit feedback on whether or how such provisions should apply to first-party debt collectors.” In addition, in discussing the call frequency restrictions in the final rule, the Bureau drew a distinction between creditors and FDCPA debt collectors:
The Bureau understands commenters’ concerns that conduct the Bureau deemed to be prohibited by the FDCPA and Dodd-Frank when undertaken by FDCPA debt collectors could be construed also to be prohibited when undertaken by other entities collecting debts, even if they are not FDCPA debt collectors. In response to commenters’ concerns, the Bureau notes … that the FDCPA recognizes the special sensitivity of communications by FDCPA debt collectors relative to communications by creditors, and, therefore, the FDCPA provides protections for consumers receiving such communications from debt collectors but not creditors.
But the Bureau stopped well short of promising that it would never apply any aspect of the final rules to creditors, and indeed noted explicitly that it “declines to clarify whether any particular actions taken by a first-party debt collector who is not an FDCPA debt collector would constitute an unfair, deceptive or abusive practice under Dodd-Frank section 1031.” Elsewhere, the Bureau states that where it has identified conduct that violates the FDCPA, the Bureau does not take a position on whether such practices also would constitute an unfair, deceptive or abusive act or practice under section 1031 of the Dodd-Frank Act.”
What’s more, the CFPB did not comment on (and really could not comment on) what states may choose to do in terms of incorporating elements of the final rule into state laws that apply to creditors. So where does this leave creditors? Probably somewhat, but not completely, reassured. And still asking the question of what portions of the final rule, if any, they should adopt as a best practice to avoid UDAAP violations.
In addition to the prospect of some portions of the final rule being applied to their internal collection operations, the final rule also has important implications for how creditors interact with debt collection agencies. In particular, the rule provides a safe harbor method for allowing debt collectors to communicate with consumers via e-mail, but a creditor must send a notice to the consumers involved and give them a 35-day opt-out right before providing the email address to the debt collector. And in addition, the email addresses are only transferable (in terms of consent) to the debt collector if they are on a domain that is available to the general public. This means creditors may be required, by practical necessity, to run these notice-and-opt-out campaigns, and to scrub email addresses to identify domains that are generally available to the public, as opposed to others. Both of these will be new processes that creditors do not currently undertake.
Creditors and debt collectors together will also have to make decisions about whether to conduct activities that appear to be permitted by the final rule, but as to which there is no guidance or safe harbor. For example, the rule leaves open the possibility of the creditor transferring consent to text messaging from a creditor to debt collector, but does not provide a safe harbor mechanism for doing so. Likewise, the rule is silent about whether E-SIGN consent given to a creditor could be transferred to a debt collector. The CFPB noted in numerous places in the rulemaking release that debt collectors have the option of operating outside of the safe harbors in the final rule – e.g., “[a]lthough the Bureau is not finalizing notice-and-opt-out or prior-use safe harbor procedures for text messages, the Bureau notes that the final rule does not prohibit debt collectors from communicating with consumers by text message outside of the safe harbor.” It will be interesting to see if creditors and debt collectors are willing to take the risk of experimentation outside these safe harbors.
The CFPB is planning to release part 2 of the final rule in December, and this part will contain the new provisions relating to validation notices. The proposed rule would impose several obligations on creditors related to validation notices, such as providing itemizations of credits and charges after the “itemization date.” Stay tuned for our coverage of part 2 when it is released later this year.
Finally, of course, creditors will need to incorporate the elements of the final rule into their oversight of debt collectors, including ensuring that e-mails and text messages are sent only at convenient times; monitoring to see if mini-Miranda warnings are given in every language in which a debt collection communication occurs; monitoring call frequency under the presumptive limits in the final rule; and monitoring for the potential for harassment from aggregated contact attempts across all communication channels.
So, although the final rule applies unambiguously only to FDCPA debt collectors, there are significant implications for creditors, both in terms of their internal collection operations and with respect to their relationships with debt collectors. The one-year compliance period for the final rule should be a period of intense effort by creditors to be prepared to handle these impacts.