Archives for November 2020

As we all took our first pass at reading through the 653-page-long release of the Consumer Financial Protection Bureau’s (Bureau or CFPB) final debt collection rule, most of our eyes immediately went to sections that cause complexity in implementation and practicality. That’s a natural reaction for a businessperson trying to identify how to comply with a regulation as robust as this. However, it’s also important to take a step back and look at the rule as a whole. Doing so, it’s impossible to ignore the many things that the Bureau got right. Below is a list of just a few.

1. Safe harbors, but not restrictions

For a long time, the industry has been asking the Bureau to provide clear rules of the road on how to comply with the Fair Debt Collection Practices Act (FDCPA), especially in the light of the non-stop FDCPA litigation that debt collectors face in their day-to-day business. How is a debt collector suppose to email a consumer? What phrasing should be used to provide a specific disclosure? So on and so forth.

What the Bureau did with its final rule is, arguably, better than that: it provided instructions on how to obtain safe harbors but refrained from restricting compliance solely to what is outlined. In other words, the rule provides one way to comply and get a safe harbor, but leaves flexibility for debt collectors whose business might require something else. They’d lose the safe harbor, but that doesn’t mean it can’t be compliant.

Let’s take, for example, the email and text message provisions. One of the Bureau’s big concerns regarding these new electronic forms of communication is the risk of third-party disclosure, specifically in the context of text messages since mobile phone numbers are reassigned at an alarmingly high rate. The Bureau laid out several procedures which, if followed, would provide debt collectors safe harbor from third-party disclosure in the form of a bona fide error defense. 

However, the Bureau repeatedly states throughout the preamble of the final rule that the procedures they outlined are not the sole way to comply with the FDCPA:

• “Although the Bureau is not finalizing notice-and-opt-out or prior-use safe habor procedures for text messages, the Bureau notes that the final rule does not prohibit debt collectors from communicating with consumers by text message outside of the safe harbor.” (p. 205.)
• “To the extent a debt collector regards the limitations in § 1006.6(d)(4)(ii)(E) as overbroad—because, for example, it does not cover a debt collector who sends an email to an ‘.edu’ address—the Bureau reiterates that a debt collector may communicate by email without following the procedures in § 1006.6(d)(4)(ii). Such a debt collector would, however, lose the protection of the safe harbor (unless the debt collector’s use of the email address otherwise satisfies the requirements of § 1006.6(d)(3)).” (P. 200.)

What does this mean in plain English?

• If a debt collector follows the outlined procedures, then it gets what amounts to a de facto finding that its procedures are reasonable to prevent third-party disclosure for the purposes of the bona fide error defense. Meaning, the judge or jury cannot find that such procedures are unreasonable.
• A debt collector may deviate from the outlined procedures, but they would lose that de facto finding that its procedures were reasonable. Instead, if sued, the debt collector would have to prove that the procedures were reasonable and leave the decision in the hands of a judge or jury.

Guardrails if you want them, but not a prohibition on deviations that would have the same intended result.

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2. Handoff letter passing the account from the creditor to the debt collector

I’m a highly-educated person and, prior to joining the industry, it never occurred to me that anyone other than the bank could ever contact me about any of my accounts. So it’s understandable that consumers can get confused when this happens, especially when they are contacted by a company whose name they don’t know and a telephone number they don’t recognize. 

One great concept introduced in the final rules that will tremendously assist consumers—and the debt collectors who are trying to convince consumers that they are legitimate and not scammers—is the concept of the handoff letter. While this concept only applies to the use of an email address that the consumer provided to the creditor, it is one that will make the transition much simpler for consumers, something that the Consumer Relations Consortium has been advocating for a while.

In the context of the final rule, if a debt collector wants to take advantage of the safe harbor against third-party disclosure by sending an email to a consumer at an email address that the consumer provided to the creditor, one of the requirements to do so is that the creditor must have sent a handoff letter to the consumer at least 35 days prior to the debt collector using that email address. Among other things, the handoff letter must be sent by the creditor and must “clearly and conspicuously” disclose that the debt has or will be transferred to the debt collector.

The first thought on everybody’s mind is that, because this requires action on the part of the creditor, the industry is out of luck. I challenge this view, as creditors have the same goal as debt collectors: collect the right amount from the right person as efficiently as possible. If they can take steps that don’t overly burden them to help this process, they likely will.

While this method proposes to limit the risk of third-party disclosure, it does something more: it puts the consumer on notice that someone other than the creditor will be contacting him or her about the account, and it lists the name of the debt collector in question. That way, when the debt collector emails or otherwise tries to communicate with the consumer, the consumer will be more comfortable and less likely to think that the communication is spam or fraud. Considering the scorpion dance that occurs when debt collectors attempt to communicate with consumers—specifically, to ensure they are speaking to the correct person—the handoff letter will prove itself invaluable.

3. E-SIGN’s consumer-consent goes the way of the dodo, at least for validation notices

In the preamble of the final rule, the Bureau very clearly states in footnote 584:

FDCPA section 809(a) permits the validation notice information to be contained in the initial communication. In turn, FDCPA section 807(11) indicates that the initial communication with the consumer may be oral. Accordingly, the Bureau interprets the FDCPA as not requiring that the validation notice information be provided in writing when it is contained in the initial communication.

Then, in fn 585, the Bureau states:

The E-SIGN Act’s consumer-consent requirements apply only when a “statute, regulation, or other rule of law” requires that a disclosure be provided in writing. . . Because the Bureau has determined that the FDCPA does not require that the validation notice information be provided in writing when it is contained in the initial communication (see previous footnote) and the Bureau is not imposing such a requirement through Regulation F, the Bureau has also determined that the E-SIGN Act’s consumer-consent requirements do not apply to electronic delivery of the validation notice information when it is contained in the initial communication.

Despite the little conundrum that my colleague wrote about last week, these are very important footnotes. While it’s believed that the Bureau intended to imply this in the Notice of Proposed Rulemaking, it was not very clearly stated and led to some confusion for the industry. The Bureau has now done one better: they explicitly state that E-SIGN does not apply to the validation notice. 

While some debt collectors send a validation notice letter only after they have been able to reach the consumer by phone, many send the initial validation letter (soon-to-be email) immediately once the account is placed. Usually, this is due to non-negotiable creditor-client requirements. One of the benefits of sending emails—other than communicating with consumers through their preferred communication method—is that sending an email is much more cost-efficient than sending a physical letter. If the consumer-consent portion of E-SIGN applied to validation notices, it would have likely wiped out that efficiency and the adoption of email in the debt collection process and instead we’d be stuck with a New York-like requirement that, in practice, destroys the practicality of using email. The Bureau recognized this and decided to provide clarification to ensure a different result.

4. Consumer preference is king

The debt collection experience is, by its very nature, a downer—most people don’t set out to fall behind on their obligations. Anything that makes the debt collection experience smoother is better, and one such thing is communicating with a consumer through their preferred method. It’s more comfortable for the consumer, and it’s helpful for debt collectors because the consumer is not caught off guard and is likely in a better state of mind if they are contacted according to their preference. If one thing is clear throughout the final rule, it is that consumer preference is king. There are exceptions, of course. For example, while a consumer can request that a debt collector not use a specific method of communication to contact them, the debt collector is permitted to do so if required by applicable law. Whether it’s where, how, or when the consumer is contacted—or whether the consumer is contacted at all—the choice lies in the hand of the consumer to the highest extent practicably.

In the Notice of Proposed Rule-Making, the Consumer Financial Protection Bureau (CFPB or BCFP) appeared to be exploring providing “safe harbor” provisions for validation notices sent in the body of an email or electronic communication.

(Throughout this article, I’ll pause every now and again to define terms. You can skip the definitions if you don’t need them; however, this is a 600+ page document and some people are new to the industry.)

safe harbor: This is a provision of any statute or regulation that states that certain conduct/action will be deemed not to violate a given rule. If there is safe harbor language in a law, statute, or regulation, it means you cannot be succesfully sued on that activity.

validation notice: Outlines what the debt is, how much you owe and other information. This is going to get confusing, though, because the CFPB introduced a weird wrinkle that I’m getting to.

However, in its published Final Rule, the CFPB has decided not to “finalize the safe harbor for email delivery of the validation notice information within the initial communication.” (p 440.)

What does this mean?

Great question. It means that if you email a consumer their initial validation notice, you are not protected if that consumer files a Fair Debt Collection Practices Act (FDCPA) claim against you for violating 1692(g) of the FDCPA.

FDCPA & the CFPB: The CFPB is a regulatory body created by the Dodd–Frank Wall Street Reform and Consumer Protection Act. The CFPB oversees implementation of the FDCPA.

A lot of this has to do with how the Bureau has decided to view email and electronic communications. The Bureau gives priority to written and post-mailed communications from a debt collector because of something called the “common-law mailbox rule.” This comes from a United States Supreme Court decision in 1884: “The rule is well settled that if a letter properly directed is proved to have been either put into the post-office or delivered to the postman, it is presumed, from the known course of business in the post-office department, that it reached its destination at the regular time, and was received by the person to whom it was addressed.” (Cf Castillo v. State of Texas, for example.)

The Bureau does not believe that email has the same guarantee of delivery. And, in the Final Rule, it even makes explicit in a footnote (fn 579 on page 437) that “quantitative testing completed by the Bureau after publication of the proposal shows consumer preference for receiving validation notices through the mail and less consumer willingness to receive validation notices by email or text message.”

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What is protected then?

This is where things get…weird. And it’s why I asked you to open to page 438 of the Final Rule.

Page 438 contains a section called “Safe harbor for validation notices sent in the body of an electronic initial-communication.” It is not the rule itself, but describes the Bureau’s thinking and decision-making process.

Page 440 is where I, personally, started pulling my hair out.

1) “The Bureau has determined that the FDCPA does not require the validation notice information to be provided in writing when it is contained in the initial communication.”

Fine. If you are reading this the way I am reading this, it sounds like a validation notice can be “delivered” to a consumer over the phone if the initial communication with the consumer is a phone call. You would, of course, need to make sure that, when providing the validation notice orally, you cover all the points that would have been written in a letter.

But.

The FDCPA does require that “Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice.” (1692(g)(a))

And there we have my first confusion: Is the validation notice required to be mailed if it was delivered to the consumer in the first phone call? In the Final Rule, the CFPB seems to be saying — or, rather, literally writes — “the FDCPA does not require the validation notice information to be provided in writing when it is contained in the initial communication.”

2) “the initial communication with the consumer may be oral”

The Bureau, in its Final Rule, in a footnote on page 440 (fn 584), even says:

FDCPA section 809(a) permits the validation notice information to be contained in the initial communication. In turn, FDCPA section 807(11) indicates that the initial communication with the consumer may be oral. Accordingly, the Bureau interprets the FDCPA as not requiring that the validation notice information be provided in writing when it is contained in the initial communication.

So, if the initial communication is oral, and that oral commuincation delivers the validation notice, it would seem that a collector would not have to send a letter within the 5-day window in the FDCPA.

3) “validation notice information (whether or not contained in the initial communication) is a disclosure required by the FDCPA”

This takes us to 1006.42(a)(1) of the Final Rule:

A debt collector who sends disclosures required by the Act and this part in writing or electronically must do so in a manner that is reasonably expected to provide actual notice, and in a form that the consumer may keep and access later.

(p. 584.)

And if we look back on page 440, we read, “The Bureau also has determined that the validation notice information (whether or not contained in the initial communication) is a disclosure required by the FDCPA.”

And because the validation notice is a disclosure, the Bureau says this triggers 1006.42(a)(1), which requires that a disclosure be provided “in a form that the consumer may keep and access later.”

Which would seem to counter the Bureau’s position that the FDCPA allows for validation notices to be given orally, since an oral communication, by its nature, unless both parties record it, is not in a form a consumer could “keep and access later.”

What does provide a consumer a form that can be kept and accessed later is…an email. Which the Final Rule has decided not to afford safe harbor.

Hey, Mike: Does it get even more convoluted?

It sure does! I’m glad you asked.

Here is the Bureau’s reasoning for not affording safe harbor protections for email communications — besides the fact that consumer groups aren’t keen on it:

However, because email communications in general are not widely used in debt collection currently, the Bureau lacks evidence to show that a debt collector sending an email pursuant to the proposed safe harbor would have a reasonable expectation of actual notice to the consumer. The Bureau is thus declining to finalize the proposed safe harbor.

The reason the Bureau doesn’t have the data or evidence about email communication is because it has not easily allowed email communication. And because it hasn’t allowed it, it is tough to get the data. And because they don’t have the data, they don’t allow it. (What if I just kept writing this forever and ever and this is what Hell is for me?)

What do we do then?

Don’t email initial validation notices.

But we’re emailing validation notices

Then make sure the platform you’re using for emails has extensive analytics and alerts you when a consumer has not only opened the email, but clicked whatever they are supposed to click. If you don’t track this, then you can’t claim that you provided the written notice to the consumer within the 5-day window mandated by the FDCPA.

And yet, I’d still caution you on emailing validation notices under the New Rule, even if it’s allowed (however convolutedly), because of the 5-day provision on when a collection agency needs to mail a validation notice and when a consumer can reasonably expect to receive it. (Let’s also keep in mind that things are still not running as usual at the Post Office.) 

But you just spent quite a while telling us that we could do that orally?

There are a lot of things you can do orally. But the safest oral thing to do here is: not to deliver the validation notice orally and think you’re in the clear. Which is frustrating because the Bureau’s language is unclear, contradictory, and poorly reasoned.

Is there any good news?

The heat death of the universe might bring sweet relief to all of us.

—–

This article originally appeared in insideARM’s weekly newsletter, Compliance Weekly. If you’re not a subscriber to this free newsletter, you can do so here: Compliance Weekly Subscription

Editor’s Note: This article, authored by Christopher Willis and Stefanie Jackman of Ballard Spahr, previously appeared on Ballard Spahr’s CFPB Monitor and is re-published here with permission.

Part 1 of the CFPB’s final debt collection rule, which was released on October 30, applies only to “debt collectors” as defined by the FDCPA, as was the case with the proposed rule released in May 2019. Creditors were justifiably concerned about the impacts of the proposed rule on them, but how do they fare under the final rule?

First, let’s discuss creditors’ fears that the rule would be applied to them by the CFPB through the Bureau’s UDAAP authority. The CFPB has done a couple of things to reassure creditors in this regard. While the proposed rule relied on the Bureau’s UDAAP authority for certain provisions, the final rule does not – it is predicated solely on the FDCPA. The Bureau also noted that it “declines to expand the rule to apply to first-party debt collectors who are not FDCPA debt collectors,” and noted that “the Bureau did not solicit feedback on whether or how such provisions should apply to first-party debt collectors.” In addition, in discussing the call frequency restrictions in the final rule, the Bureau drew a distinction between creditors and FDCPA debt collectors:

The Bureau understands commenters’ concerns that conduct the Bureau deemed to be prohibited by the FDCPA and Dodd-Frank when undertaken by FDCPA debt collectors could be construed also to be prohibited when undertaken by other entities collecting debts, even if they are not FDCPA debt collectors.  In response to commenters’ concerns, the Bureau notes … that the FDCPA recognizes the special sensitivity of communications by FDCPA debt collectors relative to communications by creditors, and, therefore, the FDCPA provides protections for consumers receiving such communications from debt collectors but not creditors.

But the Bureau stopped well short of promising that it would never apply any aspect of the final rules to creditors, and indeed noted explicitly that it “declines to clarify whether any particular actions taken by a first-party debt collector who is not an FDCPA debt collector would constitute an unfair, deceptive or abusive practice under Dodd-Frank section 1031.” Elsewhere, the Bureau states that where it has identified conduct that violates the FDCPA, the Bureau does not take a position on whether such practices also would constitute an unfair, deceptive or abusive act or practice under section 1031 of the Dodd-Frank Act.”

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What’s more, the CFPB did not comment on (and really could not comment on) what states may choose to do in terms of incorporating elements of the final rule into state laws that apply to creditors. So where does this leave creditors?  Probably somewhat, but not completely, reassured. And still asking the question of what portions of the final rule, if any, they should adopt as a best practice to avoid UDAAP violations.

In addition to the prospect of some portions of the final rule being applied to their internal collection operations, the final rule also has important implications for how creditors interact with debt collection agencies. In particular, the rule provides a safe harbor method for allowing debt collectors to communicate with consumers via e-mail, but a creditor must send a notice to the consumers involved and give them a 35-day opt-out right before providing the email address to the debt collector. And in addition, the email addresses are only transferable (in terms of consent) to the debt collector if they are on a domain that is available to the general public. This means creditors may be required, by practical necessity, to run these notice-and-opt-out campaigns, and to scrub email addresses to identify domains that are generally available to the public, as opposed to others. Both of these will be new processes that creditors do not currently undertake.

Creditors and debt collectors together will also have to make decisions about whether to conduct activities that appear to be permitted by the final rule, but as to which there is no guidance or safe harbor. For example, the rule leaves open the possibility of the creditor transferring consent to text messaging from a creditor to debt collector, but does not provide a safe harbor mechanism for doing so. Likewise, the rule is silent about whether E-SIGN consent given to a creditor could be transferred to a debt collector. The CFPB noted in numerous places in the rulemaking release that debt collectors have the option of operating outside of the safe harbors in the final rule – e.g., “[a]lthough the Bureau is not finalizing notice-and-opt-out or prior-use safe harbor procedures for text messages, the Bureau notes that the final rule does not prohibit debt collectors from communicating with consumers by text message outside of the safe harbor.” It will be interesting to see if creditors and debt collectors are willing to take the risk of experimentation outside these safe harbors.

The CFPB is planning to release part 2 of the final rule in December, and this part will contain the new provisions relating to validation notices. The proposed rule would impose several obligations on creditors related to validation notices, such as providing itemizations of credits and charges after the “itemization date.” Stay tuned for our coverage of part 2 when it is released later this year.

Finally, of course, creditors will need to incorporate the elements of the final rule into their oversight of debt collectors, including ensuring that e-mails and text messages are sent only at convenient times; monitoring to see if mini-Miranda warnings are given in every language in which a debt collection communication occurs; monitoring call frequency under the presumptive limits in the final rule; and monitoring for the potential for harassment from aggregated contact attempts across all communication channels.

So, although the final rule applies unambiguously only to FDCPA debt collectors, there are significant implications for creditors, both in terms of their internal collection operations and with respect to their relationships with debt collectors. The one-year compliance period for the final rule should be a period of intense effort by creditors to be prepared to handle these impacts.

MADISON, Wisc. — State is pleased to announce the promotion of Beth Conklin to Director of Training and Organizational Development. Joining State in 2016, Conklin previously served as an Account Executive, managing several key State accounts. 

She brings more than 25 years of credit and collections industry experience as a collector and production manager before leading training and compliance departments for two large agencies.

Conklin holds the Trainer Specialist (TSP), Collection Compliance Officer (CCCO) and Certified Instructor designations from the American Collectors Association International (ACA). She was honored by ACA with the Fred Kirschner Award in both 2013 and 2015 as well as the ACA Certified Instructor of the Year for 2012 and 2016. She has contributed to multiple magazine articles, been recognized as one of 32 Top Collection Professionals in the industry in 2014 & 2018 and serves on the ACA Education Council.

“Beth brings a multi-faceted professional background to this position,” said Tim Haag, State’s president. “She began her career on the phone as a collector and has progressively gained production experience in addition to being a recognized expert in revenue cycle compliance and training. Having spent the last four years as the primary point of contact for many State clients, she is perfectly positioned to help the State team even better serve our clients and their patients.”

“I am looking forward to combining my experience in training, compliance, client services and patient-friendly collections to help our entire team provide outstanding service to healthcare providers and their patients,” said Conklin.

About State

State improves the financial picture for healthcare providers by delivering increased financial results while ensuring a positive patient experience. Rooted in a tradition of ethics, integrity and innovation since 1949, State uses data analytics to drive performance and speech analytics with ongoing training to ensure patient satisfaction. A family-owned company now in its third generation of leadership, State assists healthcare organizations with services spanning the complete revenue cycle including Pre-Service Financial Clearance, Early Out Self-Pay Resolution, Insurance Follow-Up and Bad Debt Collection. To learn more visit: www.statecollectionservice.com.

Of all the items proposed in the Consumer Financial Protection Bureau’s (Bureau or CFPB) Notice of Proposed Rulemaking (NPRM), the ability to request advisory opinions was one that created a lot of hope for debt collectors. In a world where collection organizations are constantly bombarded with compliance questions—mainly due to a prolific and creative plaintiffs’ bar—this section felt like a bright light. However, with the changes the Bureau made in the final rule, is the advisory opinion option now more of a pipe dream?

In the NPRM, the advisory opinion section of Appendix C specifically listed to whom debt collectors should send requests and pertinent information. In contrast, the final rule states that debt collectors may submit requests for advisory opinions through one of the Bureau’s already-established advisory opinion programs.

Seems like a harmless change of wording, right? Not quite.

The CFPB’s pilot advisory opinion program 

In June of this year, the Bureau launched its pilot advisory opinion program, which is likely the resource the final rule intends debt collectors to use. In its introduction of the program, the Bureau provides a list of factors that will be considered to determine whether it would accept a request for an advisory opinion.

To determine whether an advisory opinion is appropriate, the CFPB will weigh certain factors, such as:

• The issue in question has been noted during prior CFPB examinations as one that could benefit from regulatory clarity;
• The issue is of substantive importance or impact, or whose clarification would provide significant benefit; 
• The issue relates to an ambiguity that has not already been addressed by the CFPB through an interpretive rule or other authoritative sources. 

Issues that factor against the appropriateness of an advisory opinion include:

• That the issue is subject to an ongoing investigation or enforcement action;
• That the issue is subject to ongoing rulemaking;
• The issue is better-suited for the notice-and-comment process;
• The issue could be addressed through a compliance aid; 
• There is clear precedent already available to the public on the issue.

What does this mean for debt collection advisory opinions?

If the pilot program is how the Bureau intends debt collectors to request advisory opinions, it appears that the industry has an uphill battle. In light of the final rule and the process used to get here, several of the factors weigh against the Bureau accepting debt collector requests.

First, we now have this massive “interpretive rule” on debt collection that took the Bureau 7 years to sort-of complete (with the remainder coming in December 2020). This was a long and arduous process for the Bureau, with a lot of back-and-forth between the agency, the industry, and consumer advocates. In other words, the Bureau already expended a lot of effort on providing us the final rule, and this might weigh against putting further effort into debt collector advisory opinion requests unless it is something desperately in need of clarification.

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Second, despite the voluminous feedback from industry, which informed the Bureau that its proposed rule was ambiguous in certain respects and included many requests for further clarity, the Bureau went ahead and released the final rule as we now have it—clarifying some things but making others even more confusing than they were before. If this was the Bureau’s response to requests for further clarity, can we rely on the advisory opinion program to do better? Will the Bureau think that they already responded to these requests raised in the rule comment period, and not want to answer them again?

Third, what if the CFPB decides that enforcement actions are the way to go with some of these issues? Take, for example, the meaningful attorney involvement issue. There was a whole section in the NPRM on meaningful attorney involvement that was deleted from the final rule. However, the CFPB mentioned that it believes the FDCPA provides the groundwork for the concept of meaningful attorney involvement, and the Bureau does not anticipate a stop to the lawsuits on the issue (p. 361 of the final rule)—could they also mean their own enforcement lawsuits?

We all very clearly remember when Weltman, Weinberg, & Reis (WWR) successfully defended itself against the CFPB’s enforcement action related to this issue back in mid-2018. The win was a landslide: not only did the jury find in WWR’s favor, so did the judge in a separate decision. Shortly after this loss, the CFPB filed another lawsuit against a different collection law firm on this issue.

In conclusion, only time will tell

At the end of the day, we’ll find out how welcoming the Bureau is to industry advisory opinion requests once the first such requests are submitted. While the final rule provides some clarity, there are also significant deviations from what was proposed in the NPRM, and there are now many open questions waiting for answers.

New York, N.Y. — The national charity, RIP Medical Debt, the only U.S. charity to pioneer medical debt abolishment across the U.S., has announced that its co-founder, Jerry Ashton, will be stepping down from his position as Director of Education and Engagement while remaining on the board of directors.

“I feel blessed to have had this extraordinary opportunity over the past almost seven years to be surrounded by a team of amazing people and to help RIP realize its goals,” Jerry said. “I am sure their future efforts will eclipse our earlier successes ten-fold over the coming years.”

The genesis of RIP Medical Debt, a national nonprofit which leverages donated funds to erase billions of dollars of medical debt for millions of struggling Americans, lays squarely at Jerry’s feet.

A former Navy journalist and veteran, Jerry’s interest was piqued by crowds gathering in Zuccotti Park during the early days of the Occupy Wall Street movement. After learning about one working group’s desire to pay off medical debts for struggling people as an act of social good, an idea started to germinate. Instead of collecting on unpayable medical debt, why not focus on abolishing that burden instead?

With four decades of experience in the credit and collections industry, he was an excellent candidate to act as a “change agent;” many of his customers over those years included healthcare professionals and practices.

Jerry enlisted his friend and fellow industry executive, Craig Antico, to join him in providing technical and advisory support to the Occupy group. As the attention of the occupiers shifted and the movement dissipated, Jerry and Craig committed to address the medical debt issue on their own. In 2014, they partnered in incorporating RIP Medical Debt as a 501(c)(3) charity. 

“Without Jerry, RIP Medical Debt simply wouldn’t exist. I – and I’m sure the millions of Americans that have opened a yellow RIP envelope in grateful disbelief – thank Jerry for his service and vision,” shares RIP’s Executive Director Allison Sesso. 

From helping John Oliver abolish $15 million of medical debt on his HBO Show, Last Week Tonight in 2016 to the nonprofit wiping out $3 billion to date in unpayable medical debt, Jerry’s inspiration has helped create a strong and lasting institution for the organization’s loyal donors and major corporate partners.   

About RIP Medical Debt

Since being founded in 2014 by two former debt collectors, RIP Medical Debt has acquired, and abolished, more than $2.5 billion of oppressive medical debt, helping over 1.5 million individuals get out from under the burden of crushing medical debt. On average, one dollar donated to RIP forgives $100 of medical debt, empowering every donor to have an outsized impact. To learn more, visit https://ripmedicaldebt.org/ 

With the Consumer Financial Protection Bureau’s (CFPB or Bureau) release of its final debt collection rule on Friday, everyone is wondering the same thing: how does the final rule compare to the proposed draft included in the Notice of Proposed Rulemaking (NPRM)? We at insideARM have two resources for you:

1. We created this redline document that compares the language of the final rule to the rule proposed in the NPRM.
2. We are hosting a webinar today at 1PM Eastern focusing on what changed, what didn’t, and what to do about it. You can register here. 

The redline document is a very interesting read. You can see exactly what the CFPB changed (including specific word choices), kept the same, reserved, or deleted altogether. Check out some of the highlights below.

Editor’s Note: We are, admittedly, still slogging through the 653-page document, so the information below is based solely on the redline of the actual rule language, we’ll provide updates if we later find that the commentary clarifies some of these items.

Email Procedures—Simplified, or Not?

Remember that really long section of the NPRM that outlined reasonable procedures for emailing disclosures, as well as alternative procedures to do the same? This NPRM section talked a lot about the E-SIGN act, types of things that need to be included in the subject line of an email, and so forth. 

This entire section was deleted. Instead, the final rule simply states that E-SIGN must be followed.

The question then remains: will this be something that the Bureau will address in more detail in the December rule, or is the Bureau bowing out of trying to provide complex procedures and, instead, letting debt collectors figure it out themselves—not providing more clarity as we had all hoped for?

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The Know/Should Know Standard for Employer Email

While the Bureau kept the know/should know standard in certain sections of the final rule, it very clearly relaxed the standard as it applies to whether or not a debt collector knows they are emailing a work address for the consumer. The final rule maintains its restrictions against contacting a consumer at work if it’s inconvenient, and it provides certain restrictions about which domains a debt collector can email (e.g., they can use emails with publicly-available domains, such as gmail.com, unless they know that it is provided by an employer), but the Bureau is drawing a line in the sand when it comes to knowing whether an email is work-related.

Now, instead of knows/should know, the standard is simply “knows.” The Bureau adds in its commentary that it does not expect debt collectors to do a line-by-line, account-by-account manual review of email addresses to check if they are employer-provided.

Limited-Content Messages: Only for Voicemails, Not for Texts/Emails

Who would have thought that a single word could completely change the way a section of a rule reads and applies? For the limited-content message (LCM) section of the rule, that word is “voicemail.” In the NPRM, the LCM section referenced only “messages,” whereas the final rule specifies that an LCM is a “voicemail message.” That means that LCMs for text messages and emails are dead.

However, the final rule allows the debt collector to leave its company name in the LCM so long as the name does not indicate that the company is in the debt collection business.

Some Fun and Peculiar Word Change Choices

Sometimes, word choices are the most important thing—especially when it comes to laws and regulations, which are scrutinized with fine-tooth combs by attorneys on all sides of the aisle. With the redline document, it’s easy to see specific areas where the Bureau re-thought or clarified provisions by their change in word choice. Some examples include:

• Verification of Debt: When it comes to a debt collector responding to verification requests, the rule now uses the term “sends verification” rather than “provides verification.”
• Inconvenient Time/Place: Sometimes, it’s hard to tell a consumers’ location based on information in the account placement. In the NPRM, the Bureau states what the debt collection should do if it is “unable to determine” the consumer’s location. The final rule changes this terminology—the rule now states what the debt collector should do “if the collector has conflicting or ambiguous information” about the location of the consumer. 
• Sales/Transfers/Placements: The Bureau clarified the language it used when dealing with transferring or placing accounts. Now, instead of just “transfer” or “placement,” we have “transfer for consideration” and “placement for collection.”

Very Clear Signs that the Final Rule is a Living Document

The Bureau included several little nuggets that suggest they are open to reviewing and providing further clarity and safe harbors as they become necessary. For example, in the section regarding overshadowing, the final rule adds that Bureau “may provide by regulation a safe harbor for debt collectors when they use certain Bureau-approved disclosures.” Does this mean that the industry might get some safe harbor settlement offer language at some point in the future? We sure hope so, seeing as settlement offers tend to be a target for litigation by “frequent filer” plaintiffs’ counsel.

There’s the whole advisory opinion section too, but the full scope of that will be addressed in a future article.

Validation Notice—Eerily Missing (But We Know Its on the Way)

As the CFPB notes early in the final rule commentary, it intends to release an additional rule in December 2020 that will deal specifically with disclosures. One such reserved disclosure is the validation notice, including the model form that we saw in the NPRM. While we know that rules related to this are coming in the future, it is very eery to see the entire section on the validation notice redlined out. 

Effective Dates—Will They Be Staggered?

One other interesting thing to note is the concept of effective dates. The final rule released on Friday states that it will be effective one year from publication in the Federal Register (this has not yet happened, likely to come this or next week). However, it’s important to note that this rule does not include the sections on disclosures. Will the December rule have a similar one-year-from-publication effective date? If so, will the implementation periods be staggered? It’s fine either way, but it’s something to be aware of.

CHESAPEAKE, VA — Spring Oaks Capital, LLC has hired Catherine Calko as Director of Audit and Compliance.  In this role, Catherine will lead the day to day operations of our audit and compliance programs and report to General Counsel and Chief Compliance Officer Andrew Blady.  Catherine, an attorney, joins Spring Oaks Capital after an extensive career in compliance with both Bank of America and Wells Fargo.  Catherine also served as an Assistant Attorney General with the Ohio Attorney General’s Office. Catherine earned her law degree with the University of Akron and her undergraduate degree at Bowling Green. Catherine is a frequent panelist with the National Creditors Bar Association speaking on various industry compliance issues.    

“I am excited and honored to join the team at Spring Oaks Capital.  I look forward to working with the rest of the company’s leadership as we grow to one of the premier tech-oriented debt buying companies in the country” stated Ms. Calko.  Mr. Blady stated, “We are thrilled to add this talented individual to our team as part of our commitment to have best in class compliance.”   Spring Oaks Capital’s Chief Operating Officer Jason Collins remarked, “I couldn’t be more excited to add Catherine to our talented team.  Catherine and I worked closely together for many years. Her knowledge and experience will be invaluable as we continue to build out an industry best compliance program.”

About Spring Oaks Capital, LLC

Spring Oaks Capital is an innovative and technology-focused consumer debt purchasing company spearheaded by four of the most credible industry executives, who hold decades of experience at some of the largest debt buyers, collection firms, and financial institutions in the United States. Leveraging an innovative portfolio acquisition strategy, leading-edge technology, and a differentiated culture, Spring Oaks Capital is poised to overhaul this legacy sector by building an innovative, refreshing and equitable vision that provides positive optionality around consumer debt obligations.

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Seven years, two presidents, and three agency directors later, the Consumer Financial Protection Bureau’s (CFPB) long-awaited final debt collection rule—also known as Regulation F—is finally here. The CFPB released the final rule this afternoon. Below is a quick summary of hot-button issues for the industry.

Implementation

Before getting into the nitty-gritty of the rule’s content, there’s a more pressing question that should be answered first. By when does your organization have to be compliant with the new rule? According to the document, the rule becomes effective one year after it is published in the Federal Register. insideARM will monitor the Federal Register and provide an update when the rule is officially published. 

Electronic Communications

One of the most-discussed—and most debated—topics from the Notice of Proposed Rulemaking (NPRM) was the groundwork laid to allow debt collectors to communicate with consumers through electronic means. This was applauded by the industry, as it is a way to reach consumers through their preferred communication medium, given that the CFPB itself found the majority of consumers prefer to be contacted via email.

So, what does the final rule look like in regards to email and text messages? They are allowed, and procedures are laid out. And, to send required disclosures via electronic methods, there does seem to be talk of the E-SIGN Act. We’ll provide further detail on electronic communications once we’ve had a chance to dig deeper into it.

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Model Validation Notice

In the NPRM, the CFPB provided a model validation notice form which, if used, would act as a safe harbor for debt collectors. The thought behind the model notice was appreciated—finally, something debt collectors can implement to protect them from what has been a constant rush of FDCPA lawsuits alleging that the validation letter violated the FDCPA in one way or another. Digging into the weeds, however, many industry groups pointed out the practical issues with the model notice (including the Consumer Relations Consortium, whose comments can be found here).

So, what did the CFPB do with the model notice? Were industry concerns taken into account? Well, we don’t know. The CFPB punted the issue, stating that it will release another final rule specifically related to disclosures in December 2020. 

Contact Caps With a Twist

The CFPB caused ripples on both sides of the aisle with its NPRM regarding how often debt collectors may communicate with consumers. The industry frowned on the telephonic communication caps, but applauded the ability to freely use electronic means of communication. Consumer advocate frowned all around: they didn’t like the contact caps (too many calls) nor the lack of a cap for electronic communications.

What was the outcome? The CFPB issued their proposed call cap: 7 calls within a 7 day period, and then once every 7 days after that. However, the cap is no longer a bright-line rule. There is now a rebuttable presumption—7 or fewer calls is presumed lawful, more than 7 calls is presumed unlawful, but either way, the presumption can be rebutted by evidence of harassment.

As for electronic communications, the CFPB did not extend a specific numerical limit of communications. Instead, the standards of prohibitions on harassment and abuse apply.

Time-Barred Debt Disclosures

Initially left as a placeholder, the CFPB released a supplemental NPRM specifically related to time-barred debts. Everybody wondered if the time-barred debt provision would be ready in time to be released along with the remainder of the final rules. Ends up, it wasn’t. The time-barred debt portion of the rules is set to be released at a later date.

insideARM Perspective

It’s hard to believe that we are actually here, final rule in hand. It’s been one heck of a journey, and a tremendous effort on the part of the CFPB—and all those who provided input throughout the process—to get to this point.

Ultimately, the rule does (for the most part) what the industry has wanted for a long, long time: it lays out clear rules of the road for debt collectors. Or, at least, clearer rules of the road than we’ve had before.

The iA Institute, via its leadership of the Consumer Relations Consortium, has been honored to participate in the process of gathering stakeholders, engaging in meaningful dialogue with CFPB representatives and consumer advocates, giving thoughtful consideration to dozens of issues, and proposing solutions. We extend our appreciation to our many members who devoted countless hours over the last 7 years to arrive at this milestone. We came a very long way.

Editor’s note: This article is provided through a partnership between insideARM and Squire Patton Boggs LLP, which provides a steady stream of timely, insightful and entertaining takes on TCPAWorld.com of the ever-evolving, never-a-dull-moment Telephone Consumer Protection Act. Squire Patton Boggs LLP—and all insideARM articles—are protected by copyright. All rights are reserved. 

Among the seemingly hundreds of controversies brewing in TCPAWorld, one asks whether a consumer can face a counterclaim for collection of a debt in a TCPA suit brought against a loan servicer or collector for purportedly illegal calls. While the issue seems straightforward—the debtor owes the money and the defendant should be able to collect (or at least offset) the amount owed on the contract in the TCPA suit—many courts have refused to permit such counterclaims fearing that offensive action by a TCPA defendant might somehow “chill” consumer protection lawsuits.

Weird.

Well, in a recent case, the Northern District of California applied the “majority rule” and common sense (IMO) by allowing a counterclaim to proceed. In Nalan v. Access Fin., Case No. 5:20-cv-02785-EJD, 2020 U.S. Dist. LEXIS 198836 (N.D. Cal.  October 23, 2020), the Plaintiff (allegedly) stopped paying for his car and received collection calls as a result. The Plaintiff sued the collector, who responded with a counterclaim for the $1,778.00 it was (allegedly) owed.

The Plaintiff responded by moving to dismiss the counterclaim asserting a lack of jurisdiction. The Court was unpersuaded and found that the debt and the phone calls arose out of the same nexus of operative facts:  

Here, both Plaintiff’s and Access’ claims are related to the underlying automobile loan debt owed by Plaintiff to Access. These claims may be fairly classified as part of the same “case or controversy” and therefore, the Court may exercise supplemental jurisdiction over Access’ counterclaim pursuant to 28 U.S.C. § 1367(a).

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This is a great case to keep handy as Defendants often disdain the prospect of facing a lawsuit from a consumer that has failed to pay their obligations and yet is looking for a windfall under the TCPA. At least pursuing a counterclaim allows the parties to equalize their position between one another and reduce all burdens and obligations to a single judgment. Plus, this tactic can be a great class action killer.