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.

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. 

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.

CFPB Turns its Attention to Prepaid Products and North Carolina

The CFPB issued its Monthly Report this week. The report is a high level snapshot of trends in consumer complaints and provides a summary of the volume of complaints by product category, by company and by state. Additionally, each month it highlights a product type and a geographic area. This month’s report highlights prepaid card products and emphasizes the CFPB’s concern for the unbanked and underbanked population. Cordray noted that for the unbanked and underbanked, “prepaid products are a vital source of financial security.”  CFPB Monthly Complaint Snapshot Highlights Prepaid Product Complaints.

 

NATIONAL OUTLOOK. Each month, the Report breaks down complaint volume by product looking at a three month average and comparing the same to the prior year. Student loan complaints showed the greatest percentage increase when compared to the same period of 2015, increasing 96% over last year.  As has been the case in prior months, the Report continues to indicate that the three products yielding the highest volume of complaints on a month to month basis are debt collection, mortgage and credit reporting.  Together, they represent about 63% of all complaints submitted in September.

 

FEATURED PRODUCT OR SERVICE. This month’s report focuses on prepaid cards which, aside from “other financial service”, comprise the smallest percentage of complaints received by the CFPB for September and continue to remain toward the bottom of the list overall.  Put simply, prepaid product complaints make up less than 1% of all complaints received by the CFPB.

 

The most common issues identified by consumers are managing, opening or closing an account and unauthorized transactions or other transaction issues. Specifically, 

 

• According to the report, consumers complained of questionable transactions being posted to their prepaid cards and claimed their cards were cancelled without notification after they submitted a dispute;
   

• Consumers also reported difficulty using prepaid cards after purchase and being asked to submit validating documentation; and
   
• Consumers also complained about receiving prepaid cards as a refund, but being unable to activate the card, access the funds or both.  

NORTH CAROLINA. As it does every month, the Report spotlights a geographic area.  This month, the Report shined its bright light on North Carolina and the complaint trends for both the state and the Charlotte metropolitan area.  For perspective, only about 3% of all complaints received by the CFPB originate in North Carolina.  The most complained of products and services mirror the national picture with mortgage, debt collection and credit reporting comprising the vast majority of all complaints.  As noted by the CFPB, the rate of mortgage related complaints is slightly higher than the national average and it is the most frequently complained of product in North Carolina.

North Carolina Provides Some Clarification and Relief on Debt Collection

In a move which provides clarification and more consistency with the FDCPA but widens the gap as to the treatment of collection agencies and non-collection agency debt collectors, North Carolina has modified its Debt Collection Act (the “NCDCA”) to conform more closely to the FDCPA regarding third party communications. 

North Carolina has a bifurcated statutory scheme with respect to its collection statutes.  Chapter 58 of the North Carolina General Statutes regulates the collection efforts of collection agencies and debt buyers.  Chapter 75 of the General Statutes regulates all others engaged in debt collection, including original creditors.  The modifications to the statute, which were enacted on August 5, 2015 and took effect immediately, are with respect to Chapter 75 only and provide clarification primarily as to what contact with third parties is appropriate.  No similar amendment has been provided to Chapter 58 as of this date.

As things stand now, third party communication rules in North Carolina are as follows:

FOR COLLECTION AGENCIES/DEBT BUYERS:

The third party contact rules are codified in the North Carolina Collection Agency Act (the “NCCAA”) at N.C.G.S. §58-70-105 and prohibit communication with any person other than the debtor or his attorney except:

• With the permission of the debtor or his attorney;

• To persons employed by the collection agency, to a credit reporting agency, to a person or business employed to collect the debt on behalf of the creditor, or to a person who makes a legitimate request for the information;
• To the spouse (or one who stands in place of the spouse) of the debtor, or to the parent or guardian of the debtor if the debtor is a minor;

• For the sole purpose of locating the debtor, if no indication of indebtedness is made; and
• Through legal process.

Collection agencies and debt buyers operating in North Carolina should be aware that the NCCAA applies not only to the collection of consumer debt but also to the collection of commercial debt.

FOR OTHERS INCLUDING ORIGINAL CREDITORS:

Unlike the NCCAA, the NCDCA only applies to consumer debt which is defined as being any debt incurred for personal, family, household, or agricultural purposes. The third party contact rules are codified at N.C.G.S. §75-53.  As amended, debt collectors (which include original creditors) are prohibited from communicating with any person other than the debtor or his attorney except:

• To designated third parties with written permission of the debtor or his attorney;
• To persons employed by the debt collector, to a credit reporting agency, to a third party employed to collect the debt on behalf of the creditor or a person who makes a legitimate request for the information;
• To the spouse (or one who stands in place of the spouse), or to the parent or guardian of the debtor if the debtor is a minor and lives in the same household with the parent;
• For the purposes of location information about the debt as long as no indication of the indebtedness is made.

There are three key amendments to the statute as to third party communications:

• Contact to third parties is permissible where the debtor or his attorney provides written permission.  Written permission can now be provided prior to default.
   
• A bona fide error defense is now available with respect to communications to parents, guardians and spouses.  As amended, the statute provides that if the debt collector has a good faith belief that the communication to the spouse, parent or guardian is within the exception set forth above, the communication shall not be in violation of the exception.  Where this is likely to come into play are instances where the contact information provided by the debtor is the phone number, address of the spouse or parent but the debtor is no longer married to the spouse or the debtor has moved out of the family home.  Creditors should be aware, however, that if the debtor is no longer a minor, the good faith exception as to parental contact is not likely to apply.
   
• The amendment also sets forth the acceptable scope and frequency of location information communications.  The amendments:
  • Prohibit disclosure of the debt;
  • Require the debt collection to “identify himself or herself, state that he or she is attempting to confirm or correct location information about the debtor, and, only if expressly requested to do so, identify his or her employer;
  • Prohibit stating that the debtor owes a debt;
  • Prohibit communication with any particular person more than once a week or a total of three times during any 30 day period unless requested to do so by the person.

The statute additionally provides clarification that under the NCCAA, creditors and other non-collection agency/debt buyer debt collectors are allowed to collect their filing fees and other court costs.

CFPB Issues Monthy Complaint Report

Today,  the CFPB issued its monthly report of consumer complaints.  The report is a high level snapshot of trends in consumer complaints. The Report provides a summary of the volume of complaints by product category, by company and by state.  Additionally, it highlights a product type and a geographic area.  This month’s report highlights credit reporting.  Here are the highlights:

• Complaint Volume by Product
  • The Report breaks down complaint volume by product looking at a three month average and comparing the same to 2014. 
  • Surprisingly, debt collection (while still having the largest volume of complaints) continued to show a decrease in complaint volume for May-July 2015 compared to the same period of 2014;
  • Consumer loan and credit reporting showed the largest increase in complaints for May-July 2015 when compared to April-June 2014;
  • Not surprisingly, the three products which yielded the highest volume of complaints for April-June 2015 were debt collection, mortgage and credit reporting;
  • When reviewing products on a month over month basis, credit reporting complaints showed the greatest month over month increase while mortgage complaints showed the greatest month over month decrease;
  • Debt collection complaints represented approximately 1/3 of the complaints submitted in July; and
  • The states showing the highest rate of increase for May-July 2015 over the same period of 2014 are Hawaii, Maine, Georgia and North Carolina, all showing an increase of at least 33%.
     
• Highlighted Product: Credit Reporting
  • This month’s report highlights credit reporting complaints;
  • The overwhelming most common credit reporting complaint in July was incorrect information on credit reports (77% of all credit reporting complaints);
  • The CFPB report indicates that these complaints frequently involved accounts in collection for which the consumer complained were not accurately reflecting the status of the collection;
  • The CFPB report also noted consumer frustratinwith access to their credit reports due to "rigorous identity authentication" requirements; and 
  • The majority of credit reporting complaints are against national consumer reporting agencies rather than the furnisher of information.

CFPB Publishes its Spring 2015 Rulemaking Agenda

Last week, the CFPB published its Spring 2015 Rulemaking Agenda.  While very few definitive dates were provided, the Agenda does give some insight as to an expected time frame for several hot button issues:

Payday Lending:   As they indicated in their Outline of Proposals, the CFPB has convened a Small Business Panel and anticipates issuing a proposed rule in late 2015.

Auto Lending Larger Participants:  The CFPB has indicated that they intend to finalize a proposal early this summer to define “larger participants” in the auto lending market.

Prepaid Financial Products:  The CFPB expects to issue a final rule in early 2016.

Mortgage Servicing Rules:  The CFPB expects to issue a final rule in the spring of 2016.

Mortgage Reform for Smaller Creditors Serving Rural or Underserved Areas: A final rule is expected in the fall of 2015.

By the same token, there are several hot button issues for which no definitive time frame was provided:

Arbitration:  The CFPB has not committed to rule making only indicating that they are reviewing feedback that they have received and “considering whether rules governing arbitration clauses may be warranted.”

Debt Collection:  Many of us have anticipated that a proposed rule would be issued in 2015.  The CFPB has not committed to any such time line. Prerule activities are now anticipated to continue until the end of the year.   The CFPB indicates that they are obtaining responses to a consumer survey and are involved in qualitative testing to “determine what information would be useful for consumers to have about debt collection and how that information should be provided to them.”

Overdrafts:  No time frame has been provided.  The CFPB indicates that they are continuing to conduct additional research to assess whether rulemaking is warranted. 

North Carolina Senate Introduces Bill to Provide Private Rights of Action for Inaccurate Credit Reporting

The North Carolina Senate has introduced a bill which will create a private right of action for inaccurate credit reporting. Senate Bill 357 proposes to include new provisions to both Chapters 58 and 75.  The proposed bill will provide a private right of action to consumers when a creditor, collection agency, or debt buyer fails to correct inaccurate information in a credit report after receiving notice of a dispute directly from a consumer.  The bill provides two provisions, one directed to those collecting debt on their own behalf and one directed to collection agencies and debt buyers. 

The Bill proposes amendments to Article 2 of Chapter 75 (the “North Carolina Debt Collection Act”) and Article 70 of Chapter 58.  It provides as follows:

§75-57. Duty to correct incorrect information reported to credit reporting agencies.

A debt collector shall have a duty to verify the accuracy of, and to correct any incorrect information in, any report made by the debt collector to a credit reporting agency upon notification by a consumer that the information is incorrect. Failure to comply with this section within 60 days of receipt of written notification from a consumer that the debt collector has included inaccurate information in a report to a credit reporting agency shall be an unfair and deceptive trade practice under G.S. §75-1.1.

§58-70-170. Duty to correct incorrect information reported to credit reporting agencies.

A collection agency shall have a duty to verify the accuracy of, and to correct any incorrect information in, any report made by the collection agency to a credit reporting agency upon notification by a debtor that the information is incorrect. Failure to comply with this section within 60 days of receipt of written notification from a debtor that the collection agency has included inaccurate information in a report to a credit reporting agency shall be an unfair and deceptive trade practice under G.S. 75-1.1.

The federal Fair Credit Reporting Act likewise requires that data furnishers provide correct information to credit reporting agencies and correct inaccurate information. It, however, does not provide a private right of action when the consumer directly disputes inaccurate or incomplete information with the data furnisher.  See 15 U.S.C. §1681s-2(a)(2) and (c)(1).  Directly in conflict with the FCRA, the proposed North Carolina legislation appears to provide a private right of action under those circumstances.

Analysis of proposed N.C.G.S. §75-57 and its Impact on Original Credit Furnishers:

In its simplest terms, Article 2 of Chapter 75 applies to creditors collecting consumer debts on their own behalf.   See N.C.G.S. §75-50.  Article 2 of Chapter 75 provides consumers with a private right of action and provides for the recovery of actual damages and statutory civil penalties of $500-$4,000 per violation.  If passed, Section 57 will provide a private right of action in instances where a consumer directly disputes an item on its credit report with the creditor/furnisher.  The provision is problematic because: (a) it provides no guidance as to what would constitute a reasonable investigation; (b) it provides no definition or fleshing out of what constitutes “notice” by the consumer; and (c) it ignores the reality that, while credit furnishers may request information on a credit report be updated, the credit reporting agencies themselves are the only entities that can correct the credit report.  Proposed Section 57 would apply to banks, credit card companies, finance companies and other creditors who furnish information to credit reporting agencies regarding consumers.

Analysis of proposed N.C.G.S. §58-70-170 and its Impact on Collection Agencies and Debt Buyers:

The implications for collection agencies and debt buyers are largely the same as set forth above. Adding to those issues, however, the bill is unclear as to whether there is a private right of action and if so, the measure of damages.  In its current form, Article 70 only addresses liability and private rights of action for violations of Part 3 of Article 70.  As drafted, proposed N.C.G.S. §58-70-170 is added as Part 6 of Article 70.  As there is no provision in existing Article 70 which will address the measure of damages, the proposed provision leaves open the measure of damages, as well as whether or not a private right of action is even available.

Adding to these concerns is the question of whether this legislation is preempted by the FCRA.  We strongly suggest this is the case.  The FCRA expressly provides that “[n]o requirement or prohibition may be imposed under the laws of any State with respect to any subject matter regulated under section 1681s-2…of this title, relating to the responsibilities of persons who furnish information to consumer reporting agencies” except for states which previously received a carve out (specifically, Massachusetts and California).  15 U.S.C. §1681t (b)(1)(F);  see also Ross v. Fed. Deposit Ins. Corp., 625 F.3d 808, 812 (4th Cir. 2010).   The proposed bill is directly in conflict with this provision.

The Bill’s primary sponsor is Stan Bingham, representing District 33.  The Bill has bi-partisan support from Senators Brent Jackson, Michael V. Lee, Gladys A. Robinson and Joyce Waddell.  The Bill passed its first reading on March 24, 2015 and has been referred to committee.  If passed, the legislation will take effect October 1, 2015.