Thursday, November 19, 2020

The Final Debt Collection Rule is Here and Focuses on Communication Methods – Here’s What You Need to Know

 

On October 30, 2020, the CFPB published its long awaited Final Debt Collection Rule (the “Rule”) which is intended to interpret the federal Fair Debt Collection Practices Act (the “FDCPA”) and clarify how new communication technologies can be used in compliance with the FDCPA.  As an unexpected twist, the CFPB has delayed publishing its final rules as to validation notices and time barred debt disclosures and has indicated that those provisions will be published in December. 

What’s Not Included in the Rule?

            The Rule leaves for another day the final versions of Sections 1006.26 (Collection of Time Barred Debt), 1006.34 (Notice of Validation of Debts) and the Safe Harbor Model Forms.  The proposed rule and supplemental proposed rule included new provisions as to time barred debt and validation notices.  These provisions are still under consideration by the CFPB and are anticipated to be published in December.  The final provisions are widely expected to include mandatory disclosures in addition to those already required by 15 U.S.C. §1692g(a).  Those additional mandatory disclosures are likely to include:

·         Disclosures as to time barred debt or debt that can be revived by payment; and

·         Additional validation information, including a tabular itemization of the amount of the debt from its itemization date and a response section which allows the consumer to dispute the debt by simply checking a prescribed number of boxes as to the basis of the dispute.

When Does the Rule Go Into Effect?

            The Rule will take effect  one year from its publication in the Federal Register.  As of the date this article was written, it has not yet been published.  It is therefore unlikely it will take effect until December 2021 or early 2022.

Who’s Covered?

            While the proposed rule provided some concern as to whether it would cover first party creditors, the final version of the Rule expressly states it applies only to “debt collectors” as that term is defined in the FDCPA.  First party creditors, however, need to be mindful of the CFPB’s warning that the Rule is not intended to address whether activities performed by entities not subject to the FDCPA would violate other statutes, including the unfair, deceptive or abusive act provisions found in the Dodd-Frank Act.  

What’s Included in the Rule?

            The bulk of the Rule addresses communications between the consumer and the debt collector.  The Rule expands significantly on the provisions of the FDCPA while attempting to clarify how debt collectors can use new communication technologies which were not in place when the FDCPA was enacted including email, voice mail and text messages.  Focusing on those communication technologies, the Rule establishes rules for engaging in communications with consumers and identifies certain policies and procedures that if implemented, would create safe harbors from FDCPA violations for debt collectors.  Of particular note, the Rule contains a robust Official Commentary which includes sample language for such things as opt out notices.  While the Rule will not take effect until some time towards the end of 2021 or early 2022, compliance departments should begin aligning their policies, procedures, letters and scripts with the Rule now in anticipation of its effective date.

            Attempts to Communicate vs. Communications

            Generally speaking, the Rule attempts to distinguish between attempts to communicate and actual communication. “Attempts to communicate” are any acts to initiate a communication about a debt and include leaving “limited contact messages.” 

            “Limited Content Messages” are a new concept introduced by the Rule in its definitional section (1006.1) and are intended to provide a safe way for debt collectors to leave non-substantive messages for a consumer requesting a return call while not inadvertently disclosing the debt to third parties.  The Rule and its Comments make clear that Limited Content Messages are not communications regarding a debt.  To qualify as a Limited Content Message, the message must be left by voice mail and only contain the specified limited content set forth explicitly in Section 1006.1(j). Those familiar with the proposed rule should note that while the proposed rule allowed for limited content messages via text message and orally, the final version of the Rule does not.  Similarly, while the proposed rule included the identification of the consumer as an allowed component of the Limited Content Message, the Rule as finalized does not.  Instead, a Limited Content Message can only include: (a) a business name for the debt collector that does not indicate that the debt collector is in the debt collection business; (b) a request that the consumer reply to the message; (c) the name or names of one or more natural persons whom the consumer can contact; (d) a telephone number or numbers the consumer can use to reply to the debt collector; and (e) certain very limited and specified optional content.  Communications are distinguished as they convey information regarding a debt.

Time and Place

          With the advent of new technologies, preventing communications at a time and place which is known or should be known to be inconvenient has become challenging for debt collectors.  The Rule attempts to address these challenges in Section 1006.6 and its Official Comments.  Section 1006.6 provides that an inconvenient time for communication with the consumer is before 8:00 AM and 9:00 PM local time at the consumer’s location.  The Official Comments further clarify that if the debt collector has ambiguous information as to the consumer’s location, then in the absence of information to the contrary, the debt collector may assume a time that is convenient in all time zones at which the debt collector’s information indicates the consumer may be located.  The Official Comments additionally attempt to provide debt collectors with guidance in circumstances in which the debt collector needs additional clarity or information from the consumer by allowing the debt collector to ask follow-up questions regarding a convenient time and place.  Additionally, the Rule makes clear that no particular words are necessary for a consumer to indicate a time and place are inconvenient.

          Use of Electronic Communications and a Safe Harbor

          The Rule allows for the use of email and text message communications and sets forth procedures which provide the debt collector with a safe harbor if followed.  Specifically, Section 1006(d)(4) allows for email communications to the consumer: first, by allowing the use of an email address the consumer has either used to communicate with the debt collector (and has not subsequently opted out) or the consumer has provided prior express consent to use and second, by allowing an email address used previously by the creditor or a prior debt collector subject to certain limitations and conditions.  Section 1006(d)(5) allows for text messaging subject to similar conditions.  Section 1006.6 further requires debt collectors allow consumers to opt out of electronic communications and further requires debt collectors provide a clear and conspicuous statement describing a “reasonable and simple method” for opting out.  The CFPB has indicated that it is currently finalizing provisions that will require debt collectors to provide consumers with, among other things, a reasonable and simple method to opt out of electronic communications and to control the time, place and medium for communications.  Presumably, these provisions will be included in the December supplement to the Rule.

            Frequency and a Safe Harbor

          Section 1692d(5) of the FDCPA prohibits a debt collector from causing a telephone to ring and from engaging a person in telephone conversations repeatedly or continuously with the intent to annoy, abuse, or harass.  As compared to the proposed rule, the final rule is more restrictive.  Section 1006.14 establishes a bright line by placing numeric limitations on the placing of telephone calls.  In its final version, the Rule creates presumptions of compliance and violation.  Generally, and subject to certain very limited exceptions, a debt collector is presumed to have violated the provision if: (a) it places telephone calls to a particular person in connection with a particular debt more than seven times within seven consecutive days; or (b) after having had a telephone conversation with a particular person regarding a particular debt, makes a call within seven days of that conversation.  The converse is also true.  The debt collector is presumed to have complied if it stays within the call frequency limitations.

            It should be noted that the exceptions presented in the final version of the Rule are more limited than those that were originally proposed. In particular, the Rule clarifies that any prior consent provided by a consumer for follow up communications expires within seven days of being provided.

            Unfair or Unconscionable Means

          Section 1006.22 interprets and implements Section 1692f of the FDCPA which contains a non-exhaustive list of unfair or unconscionable means to collect a debt.  Section 1006.22 adds new prohibitions on communications using certain media.  Section 1006.22(f)(3) prohibits communicating or attempting to communicate with a consumer using an email address that the debt collector knows is provided to the consumer by his employer unless the consumer provided the email address to the debt collector or a prior debt collector and the consumer has not subsequently opted out.

What’s Next?

            As with any rulemaking, it’s not over until the fat lady sings.  Depending upon the final outcome of the 2020 election, Congress may consider legislative proposals to walk back certain provisions of the Rule and potentially, overturn the Rule using the Congressional Review Act if the Democrats seize control of both the House and the Senate.  It remains to be seen how the continued effects of the pandemic will impact any legislative effort to circumvent the Rule.

            Additionally, there is more to come from the CFPB.  In December, the CFPB plans to release the remainder of the Rule, this time focusing on disclosures.  Additionally, the CFPB is looking at additional interventions, including the debt collector’s obligations to substantiate debts.  In any event, compliance departments should begin carefully reviewing the Rule and its Official Comments and aligning their policies, procedures, media content and scripts to conform with the Rule and take advantage of the safe harbors contained within the Rule. 


Friday, May 1, 2020

Sixth Circuit Examines Who is a Debt Collector for Purposes of FDCPA Section 1692(f)(6)


By Anna Claire Turpin



The Sixth Circuit Court of Appeals recently explored the limitations of Section 1692(f)(6) and held that a property preservation and maintenance company was not a debt collector for purposes of that section.  The opinion highlights the importance that principal purpose and timing have on this limited provision of the FDCPA. Thompson v. Five Bros. Mortg. Co., 2020 U.S. App. LEXIS 2881  (6th Cir. Jan. 27, 2020).



In Thompson, the consumer alleged that Defendant, a property preservation and maintenance company, violated 15 U.S.C. §1692f(6) by dispossessing her of her personal property when there was no legal right to possession.  Central to the court’s determination was whether the defendant was a debt collector for the limited purposes set forth in Section 1692(f)(6).  More specifically, the “central inquiry … is whether the principal purpose of Five Brothers’ business is the enforcement of security interests.”  Thompson, 2020 U.S. App. LEXIS, 2881 at *5.



The facts, as pleaded by the plaintiff, became integral to the Court’s reasoning and emphasize the importance that careful pleading and timing can play in FDCPA cases. Plaintiff, a consumer, defaulted on the mortgage for her home. The mortgagee, the bank, pursued a nonjudicial foreclosure of the property. Pursuant to state law, the bank held a sheriff’s sale at which it purchased the property, leaving a deficiency. The plaintiff failed to redeem the property during the statutory redemption period. After the redemption period ended and title passed to the bank, the defendant, a property-preservation and maintenance company that was hired by the bank, entered the property for the first time.  The defendant attempted to contact the plaintiff to post notices on the property that the bank had foreclosed the property and advising her of certain rights available. After no contact from the plaintiff, the defendant informed the bank that the property was vacant, and began to secure the property by performing maintenance and clearing the property, including removing belongings and changing the locks. The plaintiff alleged that the defendant violated 15 U.S.C. §1692f(6) by dispossessing her of her property when there was no legal right to possession.



PRINCIPAL PURPOSE.  Under the FDCPA, for the limited purposes set forth in §1692f(6), a “debt collector includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.” 15 U.S.C. §1692(a)(6) (emphasis added).   While the parties disputed “whether, in the abstract, a property-preservation company that secures and maintains properties on behalf of a mortgagee during non-judicial foreclosure proceedings can be said to the in the business of enforcing security interests,” the Court did not reach that issue because the Plaintiff did not allege nor offer evidence as to Defendant’s general practices.



TIMING IS EVERYTHING.  Instead, the Court considered the defendant’s practices as they specifically related to its  actions in this case: Defendant entered the property and began to clear and secure the property after the foreclosure proceedings had ended and title had passed to the bank. Because the redemption period had ended prior to defendant’s involvement, the plaintiff’s rights in property had already been extinguished. Furthermore, the Court reasoned that the fact that the bank was entitled to a deficiency judgment did not change the result because there was no evidence that Defendant would take part in that action, nor was there evidence that Defendant’s “principal purpose” was to do so. The Court was further persuaded by the fact that the right to seek a deficiency judgment stems from the promissory note and does not relate to the enforcement of a security interest.



Based on that reasoning, the Court held that the defendant, did not meet the definition under 15 U.S.C. §1692f(6) and affirmed the district court's judgment in favor of the defendant.



Anna Claire Turpin is a member of Smith Debnam’s Consumer Financial Services Litigation and Compliance team.




Saturday, April 25, 2020

North Carolina Department of Insurance Extends Deferral Period

The North Carolina Department of Insurance has extended its previous order which activated the payment deferral provisions of N.C.Gen. Stat. 58-2-46.  The Order would have expired April 26th and has been extended an additional thirty (30) days through and including May 27, 2020.  A copy of the Extended Order can be found here.  

Additionally, in response to the number of questions posed with respect to the obligations of collection agencies and others licensed by the North Carolina Department of Insurance, the Department has now published  a list of FAQs.  Collection agencies should be mindful that the North Carolina Collection Agency Act encompasses to the collection of commercial, as well as consumer debts, and that this Order, by extension, applies similarly. The FAQs make clear:
  •  There is no affirmative duty on collection agencies to send a mass mailing to debtors offering deferrals.  Instead, it is "up to the customer" to contact the collection agency to discuss options.  If, however, a collection agency contacts a debtor to discuss repayment, the agency is affirmatively obligated to advise the customer of the option to defer payment for 30 days.
  • A request for deferment acts as a cease and desist for the 30 day period.  "Not just payments are deferred; ANY collection activity should cease for 30 days should the customer request a deferral."
  • The Order and Extended Order apply to all payments, including those required by payment plans, ACHs and credit card repayment agreements. If the customer requests the deferments, the collection agency should cease all collection payment, including collection according to pre-arranged ACHs, credit card payments and other pre-arranged agreements for the 30 day period.
  • While the Order and Extended Order do not generally apply to law firms and attorneys collecting debt, the Order and Extended Order do apply to law firms and attorneys to the extent they are seeking to collect payments under insurance contracts or policies.  In those instances, the law firm or attorney "must delay collection activities on behalf of its clients during the deferral period.
Collection agencies and others impacted by the Order and Extended Order should continue to check periodically for further extensions of the Order.

Tuesday, March 31, 2020

North Carolina Department of Insurance Amends COVID-19 Order

On March 30th, Commissioner Mike Causey amended his March 27th Order regarding COVID-19 to provide for thirty days rather than sixty days.  The Order will now expire April 26th. A copy of the Amended Order can be found here.  Aside from the change in the Order's expiration date, the Order remains in effect as originally reported yesterday.  

The DOI Order notes the emergency conditions in the state and invokes the provisions of N.C. Gen. Stat. § 58-2-46 (1)-(3). N.C. Gen. Stat. § 58-2-46(2) requires collection agencies and debt buyers to give their customers the option of deferring premium or debt payments[.]” The DOI Order designates the entire state as the affected geographic area, so consumers located anywhere in the state must be given the option to defer payments. Further, Chapter 58 of the General Statutes broadly defines “consumers” to include businesses, so the mandate applies equally to traditional consumer debt (that incurred for personal, family or household debt) and commercial debt. 

Additionally, the NCDOI has confirmed that licensed entities are not required to preemptively notify "consumers" of the waiver option but do have an obligation to offer the deferred payment to "consumers" when discussing payment. The option to defer payments must be given for payments that are due through and including the time period covered by the DOI Order as amended. Subsection 2 goes on to state that the deferral period “shall be 30 days from the last day the premium or debt payment may be made under the terms of the policy or contract.” While this statutory section is open to (at least) a few possible interpretations, we believe the best reading is that the option to defer must be given until at least April 26, 2020, when the DOI Order is currently set to expire. If a consumer elects to defer a payment, the deferral must be granted and the new payment date should be set 30 days after the original payment date. 

Monday, March 30, 2020

Governor Cooper and Dept of Insurance Issue COVID-19 Orders Affecting Debt Collection Agencies, Others


By: Caren Enloe and Zachary Dunn



In response to the rapidly developing COVID-19 pandemic, North Carolina Governor Roy Cooper issued an order on March 27, 2020 requiring all people in the state to stay in their homes “except as permitted in” the order. In a related move, the Department of Insurance invoked statutory powers which require collection agencies and others licensed and regulated by the Department of Insurance to offer their customers the option to defer debt payments. Both orders are effective statewide and have the potential to affect business operations for the time being. The basics of each order are discussed in more detail below.



Stay at Home Order

The Stay at Home Order, available here, applies statewide and requires all persons present in North Carolina to stay in their homes except for certain specified essential purposes.  The Order additionally only allows certain specified essential businesses to remain physically open. The Order takes effect at 5:00pm Monday, March 30, 2020.



As far as financial institutions and debt collectors are concerned, there are two definitions of “Essential Businesses” which may apply and therefore allow employees to physically report to work:



Businesses that Meet Social Distancing Requirements: The Stay at Home Order exempts businesses that “conduct operations while maintaining Social Distancing Requirements” between and among its employees and customers. Social Distancing Requirements, in turn, is defined in the Stay at Home Order as

·         Maintaining at least six (6) feet distancing from other individuals;

·         Washing hands using soap and water for at least twenty (20) seconds as frequently as possible or the use of hand sanitizer;

·         Regularly cleaning high-touch surfaces; and

·         Facilitating online or remote access by customers if possible.



Financial and Insurance Institutions: The Stay at Home Order also exempts a large array of financial and insurance institutions, including “bank, currency exchanges, consumer lenders” and “affiliates of financial institutions.” While debt collectors and creditors are not specifically included on the enumerated list, this section of the order is broadly worded and arguably may include those businesses. However, whether this section applies would likely be fact specific.



Please note that the Order allows for local orders which are more restrictive and those entities with physical operations in North Carolina should verify whether or not a local order is in place which contains additional restrictions.  Please be aware that violation of the Stay at Home Order is a Class 2 misdemeanor.



Department of Insurance Order

The Department of Insurance, which regulates debt collectors, debt buyers, and insurance companies in North Carolina, also issued a state-wide order last Friday, available here. The DOI Order notes the emergency conditions in the state and invokes the provisions of N.C. Gen. Stat. § 58-2-46 (1)-(3). The order currently expires May 26, 2020.



N.C. Gen. Stat. § 58-2-46(2) requires collection agencies and debt buyers to give debtors the option of deferring debt payments[.]” The DOI Order designates the entire state as the affected geographic area, so consumers located anywhere in the state must be given the option to defer payments. Further, Chapter 58 of the General Statutes broadly defines “consumers” to include businesses, so the mandate applies equally to traditional consumer debt (that incurred for personal, family or household debt) and commercial debt.



The option to defer payments must be given for payments that are due through and including the time period covered by the DOI Order. Subsection 2 goes on to state that the deferral period “shall be 30 days from the last day the premium or debt payment may be made under the terms of the policy or contract.” While this statutory section is open to (at least) a few possible interpretations, we believe the best reading is that the option to defer must be given until at least May 26, 2020, when the DOI Order is currently set to expire. If a consumer elects to defer a payment, the deferral must be granted and the new payment date should be set 30 days after the original payment date. However, if that new payment date is still within the time period during which the DOI Order is in effect – i.e. is before May 26, 2020 – the new payment date should be extended to May 26, 2020.



Key Takeaways

The Stay at Home Order and DOI Order are focused on different very subjects, but both have the potential to affect business operations. While working from home is likely the best option if feasible, businesses may be able to stay open if they can fit within one of the exceptions in the Stay at Home Order. However, interpretation and enforcement of the order is still very much up in the air, and violation risks a Class 2 misdemeanor penalty. If you have any doubts, we recommend contacting your attorney to discuss.



The DOI Order requires debt collectors give debtors, both commercial and individuals, the option to defer debt payments until (at least) May 26, 2020. While neither the DOI Order nor N.C. Gen. Stat. § 58-2-46(2) explicitly require notification of the option to defer to consumers, notification of the option to defer is likely the safest course of action and should be built into all current scripts and correspondence.


Wednesday, March 4, 2020

House Passes Bill to Provide Additional Protections to FDCPA for Servicemembers


The House has passed a bipartisan bill that amends the FDCPA to provide additional protections to servicemembers.  The bill, H.R. 5003, amends 15 U.S.C. §§1692c and f to add provisions regarding communications to servicemembers, their dependents, and those discharged within the past year ("covered persons").  The bill proposes to amend Section 1692c, which addresses communications in connection with debt collection to prohibit debt collectors in connection with the collection of any debt of a covered person from threatening with a reduction in rank, a revocation of security clearance or military prosecution. The bill proposes to similarly amend Section 1692f to consider such representations made to covered persons as being an unfair debt collection practice.  The bill has been forwarded to the Senate’s Committee on Banking, Housing and Urban Affairs for further consideration.