Compliance Blog

On December 18, the Consumer Financial Protection Bureau (CFPB) issued a second debt collection final rule. The first debt collection final rule was published in the Federal Register in November. The NAFCU compliance team blogged twice about the first final rule earlier this year. The blogs covered what constitutes a communication and a limited-content message under the rule. They also provided some background about the final rule (e.g., in general the rulemaking applied to third-party debt collectors rather than credit unions collecting their own debts). NAFCU also issued a final regulation that addressed the first rulemaking in more detail than the two blogs. The blogs and the final regulation explained the scope and coverage of the Fair Debt Collection Practices Act (FDCPA) and the debt collection final rules and why credit unions, even though they may not be FDCPA debt collectors, may need to know how these rules work.

The final rule does four main things. It explains that deceased persons are covered consumers under Regulation F. It also addresses time-barred debt, passive collections, and debt validation notices.

Deceased Persons are Consumers

The rule clarifies that the definition of a consumer under Regulation F includes deceased individuals. This effectively extends the protections set forth in Regulation F to individuals authorized to act on behalf of a deceased consumer’s estate. For example, the CFPB noted that an executor, administrator, or personal representative would be a consumer for the purposes of the debt validation notice rule. The CFPB also explained that the prohibition in section 1006.22(f)(4) against communicating or attempting to communicate with a person in connection with the collection of a debt by social media if it can be viewed by the public or the person’s contacts applies to deceased persons.

Time-Barred Debt Prohibition

The rule implements a strict liability regime with respect to time-barred debt. Under the final rule, a debt collector is prohibited from taking or threatening to take legal action against a consumer to collect a time-barred debt. The proposed rule predicated liability on whether a debt collector knew or should know that a debt was time-barred, but the CFPB ultimately determined that a strict liability standard was more consistent with the FDCPA’s prohibitions against deception. In other words, the rule is violated if a debt collector takes or threatens to take legal action on a time-barred debt regardless of whether the debt collector knows if the debt is time-barred.

In creating this strict liability standard, the CFPB defined what constitutes a statute of limitations and time-barred debt for purposes of the rule. Statute of limitations is defined as “the period prescribed by applicable law for bringing a legal action against the consumer to collect a debt.” Time-barred debt is defined as “a debt for which the applicable statute of limitations has expired.” The CFPB, however, declined to provide further guidance about what constitutes the applicable law that determines which statute of limitations might apply so debt collectors may need to look to the governing contracts or state law to make this determination.

While the rule prohibits taking legal action to collect a time-barred debt, the CFPB explained that the rule does not prohibit debt collectors from using other practices to collect time-barred debt as long as state law permits the collection of time-barred debt. The CFPB also included an exception for filing proofs of claim in bankruptcy cases.

The CFPB declined to finalize the proposed disclosures relating to time-barred debt. That said, the CFPB noted that (1) disclosures may be helpful in making sure that a debt collector avoids engaging in certain conduct prohibited by the FDCPA (e.g., not using deceptive or unfair means to collect a debt, etc.), and (2) certain state laws may require debt collectors to provide disclosures about time-barred debt.

Passive Collections

The rule addresses passive collections, which is described in the rule as the practice of furnishing information about a debt to a consumer reporting agency before having any communications with the consumer about a debt. Before a debt collector can furnish information to a consumer reporting agency, the rule requires that a debt collector speak to a consumer about the debt, either in person or by phone, or mail or send an electronic message to a consumer about the debt and wait a reasonable period of time to allow for the debt collector to receive notification whether the message went undelivered. The official commentary notes that 14 days constitutes a reasonable period of time under the rule. If the debt collector receives notification within the reasonable period that the letter or message was not delivered, the debt collector cannot furnish information until the debt collector either speaks to the consumer about the debt or sends another message and the debt collector is not notified within the reasonable period that the message went undelivered.

The rule, however, specifically creates an exception for “a debt collector’s furnishing of information about a debt to a check verification consumer reporting agency.” The CFPB noted that this was consistent with certain state laws addressing passive collections that carve out exceptions for these types of reports or only apply in the context of credit.

Debt Validation Notices

The final rule notes that “FDCPA section 809(a) generally requires a debt collector to provide certain information to a consumer either at the time that, or shortly after, the debt collector first communicates with the consumer in connection with the collection of a debt.” This is commonly known as the validation notice. The bulk of the final rule examines the requirements for validation notices. The rule explains that the validation notice is required in the initial communication with a consumer or within five days of that initial communication unless the consumer has paid the debt within that five-day period. The rule describes the type of content required in the validation notice, including information about the debt, information about FDCPA consumer protections (i.e., the right to dispute the debt or request the identity of the original creditor within a certain time period), how a consumer can respond to the validation notice, etc.

The final rule includes a model form that debt collectors can use to comply with the validation notice requirements in the rule. While use of the model form is not required, a debt collector that uses the model form or a form that is substantially similar to the model form receives safe harbor protection. The final rule also describes certain optional disclosures that can be made through the validation notice without losing the protection of the safe harbor.

The final rule also contains some discussion about record retention requirements and the relation of Regulation F to state laws. It also amends some of the parts of Regulation F that were implemented through the previous rule to address parts of Regulation F that were finalized in this rulemaking. As with the previous final rule, this final rule will be effective November 30, 2021. The CFPB noted that debt collectors may choose to comply with the final rule before then, but the safe harbors described in this final rule are not available until after the effective date. NAFCU members should also keep an eye out for our forthcoming final regulation.

Programming Note. NAFCU will close at noon on Thursday, and NAFCU will be closed on Friday for New Year’s Day. We'll be back to blogging on Monday.