The ability of debt collectors to use text messages and emails to track down consumers who owe debts will be addressed in an upcoming proposal by the Consumer Financial Protection Bureau, according to sources familiar with the plan.
Debt collectors and trade groups that have met with CFPB Director Kathy Kraninger said the bureau will look at developing regulatory policy for modern communication practices including text messaging and emails that were not invented when the Federal Debt Collection Practices Act went into effect.
The CFPB signaled in October that it would address such issues as “communication practices and consumer disclosures” as part of a plan to revamp debt collection practices. Its proposal is expected within the next few weeks.
Debt collectors and debt buyers say the 42-year-old law has not kept pace with technology.
“There has not been any incremental effort to keep up with technology and the law dates back to 1977 when they were still talking about using telegrams,” said Jan Stieger, executive director of the Receivables Management Association International, a trade group. “It’s hard to say that voicemail is a new technology at this point.”
The CFPB is expected to ask for input on the use of text and email in collecting debts, and how often collectors should be able to contact consumers. Consumer disclosures also are expected to be a centerpiece of the CFPB’s plan, which is likely to be broad and less prescriptive than past proposals.
“They are going to be careful about having an open-ended notice to kick off the rulemaking, and they will gather all the data before coming out with a final rule,” said Quyen Truong, a partner at Stroock & Stroock & Lavan and a former CFPB assistant director and deputy general counsel. “In the long run, there likely will be attempts to use email and text because the industry and consumer groups have wanted to get more guidance as those become more convenient ways to reach consumers.”
Using email and texts would benefit large publicly traded companies that buy and sell debts globally, allowing them to cut call-center costs and ramp up collections.
“We plan to continue our dialogue with lawmakers and regulators relating to clearing a path for digital engagement in the U.S. collection space,” Kevin P. Stevenson, the president and CEO of PRA Group, told investors on a fourth-quarter earnings call. "We are in full support of the creation and uniform enforcement of one set of rules in order to level the playing field across the industry. We're actively working with state and federal legislators and regulators to make sure the rules get written, are fair and any unintended consequences will be identified and understood."
Though few expect the CFPB’s proposal to include a cap on the frequency of consumer calls or contacts, the CFPB under Republican leadership may leave open the possibility of putting additional restrictions on collectors, Truong said.
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The CFPB's work on a debt collection rule has drawn less attention than the agency's more high-profile revamp of the agency's payday lending regulation.
But with a debt collection proposal expected out as early as next month, battle lines already have been drawn by industry and consumer groups.
Advocates have asked the CFPB to limit debt collectors to
“We don’t believe there is a magic number” for how often a debt collector can contact a consumer, said Leah Dempsey, a vice president and senior counsel at the trade group ACA International. “We’re not saying people should be contacted an unlimited number of times. I think it really depends on what kind of data would support it and if there is quantitative research.”
Currently there are no restrictions on the frequency of debt collector contacts with consumers. The FDCPA specifies that debt collectors “refrain from using abusive debt collection practices,” and restricts certain practices such as contacting debtors at work and after hours.
Debt collectors also are seeking a safe harbor from litigation for short voicemail messages that do not mention debts or collection attempts that would not trigger a disclosure requirement.
“I’m looking for clarity and safe harbors,” Stieger said. “Tell us the rules and we’ll play by them.”
The CFPB has struggled to come up with a rulemaking for the $11.5 billion industry in part because the law applies only to third-party debt collectors. Banks and first-party creditors that are responsible for the accuracy of information on consumer debts were excluded from the FDCPA.
In 2017, Cordray attempted to
Third-party debt collectors still have to verify a debt, but whether the amount is accurate and which consumer owes the debt is likely to remain a contentious issue.
The CFPB hit the two largest debt collectors with consent orders in 2015 claiming they used deceptive tactics to pressure consumers to pay debts based on unreliable data and sought to collect time-barred debts that were past the applicable statute of limitations.
Encore Capital Group was fined $10 million and had to pay up to $42 million in refunds. The agency also stopped the company from collecting on more than $125 million in debts. Meanwhile, PRA Group, formerly known as Portfolio Recovery Associates, paid an $8 million fine and $19 million in consumer refunds.
Debt collection problems are the leading source of consumer complaints to the CFPB, which received roughly 81,500 debt collection complaints in 2018. More than 40% of complaints were about attempts to collect on a debt that was not owed, according to a
But the industry has been pushing back against the CFPB's complaint data. If the CFPB imposes call caps or contact restrictions that are not backed up by research, some trade groups already are suggesting the bureau could face a legal challenge under the Administration Procedure Act after a rule is finalized.
Joann Needleman, a leader of Clark Hill’s consumer financial services regulatory group, said roughly 30,000 of the complaints filed with the CFPB against debt collectors in 2018 were sent to other regulators, typically because they involved nonfinancial products such as cellphones or internet service providers.
"If you look at the total number of complaints sent to [debt collection] companies, the amount is 5,500," she said. “Part of an association’s defense would be to point to the data and say they’re changing the whole industry based on 5,500 complaints. It’s going to be hard for them to approve that.”
