The industry is preparing for the CFPB’s collection rules

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Banks, credit card companies, and debt collection agencies are pushing for a revision of federal debt collection rules and are ready to take advantage of unlimited contact with consumers via email and SMS.

But with the Consumer Financial Protection Bureau’s rules going into effect on November 30th, many creditors and collectors are scrambling to make changes that require a high degree of mutual coordination.

While the rules are not specific to banks and other lenders looking to collect debts, they do require technological changes and information sharing to allow outside debt collection agencies to use certain “safe havens” that protect them from legal liability issues.

The regulations allow collection agencies to call consumers up to seven times a week. But other regulations, including requirements that consumers receive a detailed list of their debts and be told how to opt out of electronic communications, are proving to be challenging.

“It’s a minor tsunami for creditors and collection agencies desperately trying to prepare for November 30th,” said Joann Needleman, attorney at Clark Hill law firm, which represents both creditors and collection agencies.

Debt collectors hope the regulations will reduce the thousands of lawsuits filed each year for alleged violations of the 1977 Fair Collection Practices Act. However, the rules have also raised concerns among creditors about the ongoing oversight and oversight requirements of third-party providers.

The new CFPB director Rohit Chopra, who is expected to be sworn in next week, swore Pursue aggressive enforcement actions against companies that harm consumers. Some experts believe that the CFPB will attempt to hold creditors working with third party debt collectors liable for “unfair, misleading, or abusive acts or practices” known as UDAAP claims.

“Given the current government, and in particular Director Chopra, there is potential for a perfect storm for the original creditors,” said Jonathan Pompan, partner and co-chair of the Consumer Financial Services practice group at law firm Venable. “What policies, procedures, and activities does the creditor undertake that may be covered by the rule to exploit the UDAAP claims potential? It will vary based on creditor practices, but it will range from calling frequency restrictions to notifications. “

The CFPB closed two collection rules last year under the former CFPB director Kathy Kraninger to amend Regulation F, which implements the FDCPA.

The office had suggested extending the compliance date for the rules by 60 days, however decided not to do it despite support for the delay from consumer advocates. Creditors and debt collection agencies assured that they would be ready to comply.

“There hasn’t been much industry interest in extending this deadline,” said April Kuehnhoff, an attorney employed by the National Consumer Law Center.

The office said so can offer additional guidance on collections for mortgage servicers faced with capacity constraints due to borrowers abandoning deferral plans.

the first collection rule focuses on texts and emails while the second clears disclosures and prohibits collectors from suing or threatening to sue consumers over statute-barred debt.

According to the new regulations, debt collection companies are obliged to provide understandable details and precise information about the due balance of a debt. For example, the regulations require collection agencies to disclose to the consumer the balance of the debt by a certain date (of which there are five options) and a list of all fees, interest, credits and other charges after that date. Consumers also need to be educated about their right to challenge a debt.

This is more information than consumers currently receive when collectors first communicate with them about a debt. Currently, collectors are sending a validation notice with just the debt amount plus other legal information.

Providing a breakdown of the debt proves to be a hurdle.

“The request for the validation notice is the most data-intensive,” said Pompan.

The CFPB has created a sample form that collectors can use to obtain a limited safe haven prior to legal proceedings. Collectors are required to provide accurate information in order to qualify and use of the sample form for the Validation Notice is not required as long as an alternative form is substantially similar.

The difficulty is that lenders must provide accurate information about a consumer’s debt to debt collection agencies, who must then ensure that the consumer is given the same information. Many see this as a tough task given the large number of accounts in the collection process.

“It’s not easy when you’re working on millions of accounts at the same time,” said Needleman.

Consumer advocates say the regulations give consumers additional rights, but fear that unlimited communication via email and SMS will lead to harassment and abuse.

A major benefit to consumers under the regulations is that if a consumer requests a collector to stop using a particular method of communication, the collector must stop using a particular method of communication, including phone calls, emails or SMS.

But the seven calls a week per debt limit could result in calls inundated for some highly indebted consumers.

“We’re really concerned about excessive phone calls, especially if you have consumers with medical debt who have multiple accounts in debt collection,” said Kuehnhoff of NCLC.

Another concern of consumer advocates is that the regulations allow collectors to submit verbal endorsements in an initial communication. The communications do not have to be in the language used by the consumer.

Consumer advocates have also spoken out against the unlimited use of email and text, and raised concerns about whether creditors and collectors have accurate contact information such as the consumer’s email address.

Consumers can opt out of such communications, but proponents question whether the right person is being contacted.

“Are [collectors] reach the right person or someone else who could be a third party? ”asked Kühnhoff. “If you do not obtain consent from the consumer, there is a concern as to whether this is really the correct e-mail address.”

The CFPB spent about eight years from start to finish making rules for modern communication. But the real work to implement the changes has only just begun.

“At the very least, seller oversight expectations require that creditors using debt collection agencies be familiar with the collection rules and all of its elements,” said Pompan.

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