Completing a process long in the works, the Consumer Financial Protection Bureau (CFPB, or Bureau) has issued the second part of its final Debt Collection Rule (the December 2020 Rule). Spanning 354 pages including commentary and forms, the December 2020 Rule clarifies the requirements for validation notices, provides a safe harbor for using the rule’s model validation notice, and prohibits the practices of “passive collection” and threatening to sue or suing to collect time-barred debt. Notably, the December 2020 Rule does not include the time-barred debt disclosures proposed earlier.
What Happened
Enacted in 1977, the Fair Debt Collection Practices Act is intended to eliminate abusive debt collection practices by debt collectors, to ensure that debt collectors who follow the rules are not competitively disadvantaged and to promote consistent state action to protect consumers against debt collection abuses. The Dodd-Frank Act later empowered the CFPB to promulgate rules governing the debt collection industry. In 2019, the Bureau issued a proposed rule, and the first part of the final rule, 653 pages long, was finalized on October 30, 2020. We summarized Part I of the final rule here.
The principal focus of the new rule is on the debt validation notices the FDCPA requires creditors to provide at the outset of collection communications. It helpfully outlines the required content of the notices, including information about the debt and the debt collector, and the consumer’s rights and response options. It also addresses how the notices may be delivered, timing requirements and how long the debt collector must allow the consumer to dispute the debt before undertaking certain further activities. The rule provides a form for validation notices and a safe harbor for debt collectors who use it.
The rule goes on to prohibit the practice of “passive collecting,” i.e., furnishing negative credit information to consumer reporting agencies without first seeking to notify the consumer about the debt. The notification may be provided through a validation notice or by communicating with the consumer in person, by telephone, by mail or electronically. If the initial communication is by mail or electronically, the rule requires the creditor to wait a reasonable time (defined as at least 14 calendar days) to ensure that the communication is not returned as undeliverable before reporting commences.
With respect to time-barred debt, the final rule did not adopt the disclosure requirements proposed in the March 3, 2020 Supplemental Proposal, and instead simply prohibits debt collectors from threatening to sue, or suing, consumers on time-barred debt.
Why It Matters
“Today’s final rule provides clear rules of the road for debt collectors on how to disclose details about a consumer’s debt and informs consumers how they may respond to the collector, if they choose to do so,” said Director Kathleen L. Kraninger. “Our final rule reflects our commitment to ensuring that consumers are better informed; informed consumers are empowered consumers.” Industry compliance professionals crave certainty, and certainty likewise creates a level playing field. With today’s final rule, the CFPB continues a helpful trend, greatly enhanced during the Kraninger years, to accomplish both, and to reduce needless litigation.
We note, however, that both the December 2020 Rule and its October 2020 predecessor could be revisited if Director Kraninger is replaced in the new administration. Indeed, there already have been calls to do precisely that. As always, we will continue to monitor developments and keep you informed. If you have any questions, please contact any of the authors or the Manatt professional with whom you work.