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A Closer Look at the CFPB’s Proposed Debt Collection Rules – Part Five: The Devil is in the Details, Purgatory is what is Left Unsaid

BY: Nanci Weissgold

A&B Abstract

This blog post is part five of a five-part series examining the Consumer Financial Protection Bureau’s (the “CFPB” or “Bureau”) proposed rule amending Regulation F (the “Proposed Rule”), which implements the Fair Debt Collection Practices Act (“FDCPA”) to prescribe rules governing the activities of debt collectors.

The idiom “the devil is in the details” refers to catching something hidden in the details. At 538 pages, there is a lot to catch.  The prior four blog posts described the requirements of the Proposed Rule.  In part one, we provided a brief overview of the FDCPA and the Proposed Rule’s most impactful provisions.  In part two, we summarized the key provisions of the Proposed Rule relating to debt collector communications with consumers.  In part three, we summarized the key provisions of the Proposed Rule relating to debt collectors’ disclosures to consumers.  In part four, we discussed certain additional conduct provisions under the Proposed Rule, such as provisions relating to decedent debt, the collection of time-barred debt, credit reporting restrictions, and restrictions on a debt collector’s ability to transfer, sell, or place a debt for collection.  This post examines noteworthy issues that the Proposed Rule does not address, such as:

  • Clarification of the definition of “debt collector” under the FDCPA and the scope of certain exemptions from that definition
  • Implications for first party collectors
  • Ability to pass through actual third-party convenience fees
  • Implications of phone recordings, in light of the Proposed Rule’s record retention requirements
  • Interplay with state debt collection laws

Clarification of the Definition of, and Exemptions from, the Term “Debt Collector”

The purpose of the Proposed Rule is to prescribe Federal rules governing the activities of debt collectors, as that term is defined in the FDCPA.  A debt collector under the FDCPA is any person: (i) “who uses instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts” (the “principal purpose” prong), or (ii) “who regularly collects, or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due to another” (the “regularly collects” prong). The FDCPA also includes several exclusions from this definition.  Other than specifying that the term “debt collector” excludes certain private entities that operate certain bad check enforcement programs, the Proposed Rule restates the statutory definition of “debt collector” without addressing certain key issues that have been subject to uncertainty for far too long.  By way of example:

  • Who is a debt buyer and are all purchasers of loans or servicing rights debt collectors?   In the case of Henson v. Santander Consumer USA, the Supreme Court recently examined whether someone who purchased a whole loan while it was already in default would be considered a debt collector. The Court concluded that such an entity would not be a debt collector because the debt would not be “owed” to another.  The Court explicitly avoided ruling on whether such an entity that purchases defaulted debt could meet the principal purpose prong of the definition of debt collector.  As a result, questions remain on the application of the definition of debt collector to debt buyers.  Equally unclear is the application of this definition to servicers and subservicers who do not own the whole loan but service the loan for another entity.  While the Proposed Rule does not address such important issues, the preamble notes “[c]onsistent with the Court’s holding in Henson, the proposed definition thus could include a debt buyer collecting debts that it purchased and owned, if the debt buyer either met the ‘principal purpose’ prong of the definition or regularly collected or attempted to collect debts owed by others, in addition to collecting debts that it purchased and owned.”
  • Meaning of “in default.”  Under the FDCPA, the term debt collector excludes “any person collecting or attempting to collect any debt owed or due, or asserted to be owed or due to another, to the extent such debt collection activity . . . concerns a debt that was not in default at the time such person obtained it.”  The important phrase “in default” is not defined under the FDCPA. An influential FTC staff opinion letter from 2002 opined that whether a debt is “in default” is generally controlled by the terms of the contract creating the debt and applicable state and federal law but “in the absence of a contractual definition or conclusive state or federal law, a creditor’s reasonable written guidelines may be used to determine when an account is “in default.” In the context of mortgage servicing, the CFPB recognized in the preamble to its mortgage servicing rules that servicers may distinguish loans that are delinquent from loans in default (“[s]ervicers may use different definitions of ‘delinquency’ for operational purposes.  Servicers may also use different or additional terminology when referring borrowers who are late or behind on their payments – for example, servicers may refer to borrowers as “past due” or “in default” and may distinguish between borrowers who are “delinquent and seriously delinquent”).  It is not clear why the Bureau declined to clarify a key term such as “in default” in the Proposed Rule.
  • Scope of “de facto employee.”  The FDCPA also excludes from the definition of the term debt collector “any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor.”  That influential 2002 FTC staff opinion letter opined the de facto employee exemption is limited to “those collection agency employees who are treated essentially the same as creditor employees. . .Whether the agency employees – working on the creditor’s premises or on the agency’s premises – are treated enough like creditor employees to become de facto employees of the creditor will depend on the degree of control and supervision exercised by the creditor over the agency employees’ collection activity, and how similar that control and supervision is to that exercised by the creditor over its own employees.”  Twice the CFPB has referred to this FTC staff opinion letter.  It is, thus, unclear why the CFPB does not address this known issue.

First Party Collectors

The Dodd-Frank Act amended the FDCPA to provide the Bureau with substantial rulemaking authority “with respect to the collection of debts by debt collectors.”  This is the primary authority upon which the Bureau has promulgated the Proposed Rule.  In addition, the Dodd-Frank Act provides the Bureau with the authority to prescribe rules applicable to prevent unfair, deceptive or abusive acts or practices (“UDAAP”) by “covered persons”.  “Covered persons” includes persons who are engaging in offering or providing a consumer financial product or service.  As noted in the preamble to Regulation F, “[c]overed persons under the Dodd-Frank Act thus include many FDCPA-covered debt collectors, as well as many creditors and their servicers who are collecting debt related to a consumer financial product or service.”  Several requirements in the Proposed Rule are promulgated under the Bureau’s UDAAP authority.  By way of example, with respect to a debt collector who is collecting a consumer financial product or service debt, Proposed Rule 1006.14 provides that it is an unfair act or practice place telephone calls or engage any person in telephone conversations repeatedly or continuously in connection with the collection of such debt, such that the natural consequence is to harass, oppress or abuse any person at the called number.  The Bureau proposes to set the frequency limit at 7 telephone calls within 7 consecutive days to a particular person about a particular debt.  The CFPB believes that such a limit bears a reasonable relationship to prevent an unfair practice. Would telephone calls in excess of the 7 calls within 7 consecutive day limit constitute an unfair act or practice if engaged in by persons other than FDCPA-debt collectors?  The Bureau, unfortunately, declined to say, thus leaving open the question of what, if anything, in the Proposed Rule could be relevant to first party creditors and their servicers.

Convenience Fees

There has been an uptick in consumer class actions following the CFPB’s guidance on Pay by Phone Fees (Compliance Bulletin 2017-01).  Both the FDCPA and the Proposed Rule provide that a debt collector cannot use unfair or unconscionable means to collect or attempt to collect any debt including the collecting of any amount unless such amount is expressly authorized by the agreement creating the debt or permitted by law. It is unfortunate that the CFPB elected not to provide clarification on the application of this restriction to convenience fees, as intimated in its Small Business Regulatory Enforcement Fairness Act (“SBREFA”) report.  That report notes that the CFPB considered two potential clarifications.  First, consistent with Compliance Bulleting 2017-01, the Bureau considered providing that incidental fees, including payment method convenience fees would be permissible only if: (a) state law expressly permits them, or (b) the customer expressly agreed to them in the contract that created the underlying debt and state law neither expressly permits nor prohibits the fee,  The Bureau further considered clarifying that fees charged in full by, and paid directly to, a third party payment processor, would not be collected directly or indirectly by the collector and would not be covered by the rule.  It is not clear why such clarifications did not make it into the Proposed Rule.

Record Retention

Proposed 1006.100 requires a debt collector to retain evidence of compliance with the Proposed Rule starting on the date that the debt collector begins collection activity on a debt and extending until three years after (i) the debt collector’s last communication or attempted communication in connection with the collection of the debt, or (ii) the debt is settled, discharged, or transferred to the debt owner or another debt collector.  The commentary to the Proposed Rule provides that debt collectors are not required to record telephone calls.  However, a debt collector must retain recordings if the recordings are “evidence of compliance.”  Does this mean that collectors who record phone calls for a short period of time for quality control purposes would now be required to maintain such recordings for the 3-year record retention period?  Moreover, what else is required to maintain “evidence of compliance”? Would it encompass all records the debt collector relied upon for the information in the validation notice and to support claims of indebtedness, such as the information the debt collector obtained before beginning to collect and the records the debt collector relied upon in responding to a dispute?  Would it encompass all records related to the debt collector’s interactions with the consumer, such as written and oral communications to and from the consumer, individual collection notes or communications in litigation?

State Debt Collection Laws

Mirroring the FDCPA, proposed section 1006.104 provides that “[n]either the [FDCPA] nor the corresponding provisions of this part annul, alter, affect, or exempt any person subject to the provisions of the [FDCPA] or the corresponding provisions of this part from complying with the laws of any state with respect to debt collection practices, except to the extent that those laws are inconsistent with any provisions of the [FDCPA] or the corresponding provisions of this part, and then only to the extent of the inconsistency.”  Moreover, the Proposed Rule provides that a State law is not inconsistent if the protection such law affords any consumer is greater than the protection provided by the FDCPA or the Proposed Rule.

State debt collection laws vary.  Approximately 30 states mandate licensure or registration of collection agencies and impose practice restrictions.  Three states impose more minimal notification requirements before operating as a collection agency.  Five states have no licensing/notification requirements but impose practice requirements.  Thirteen states require neither licensure or notification requirements nor impose agency-specific practice restrictions.  Three municipalities also have collection agency laws.  Some of these laws apply to debts not covered by the FDCPA such as original creditor debts or loans acquired when current that subsequently go into default.  States may have more extensive disclosure requirements or restrictive communication requirements.

One of the stated purposes of the FDCPA is to promote consistent action to protect consumers against debt collection abuses.  This, apparently, does not include consistent regulation of debt collectors, as it appears that so long as it isn’t inconsistent, state regulation above and beyond the FDCPA is acceptable.


The Proposed Rule reflects the investment of significant time and consideration by the Bureau and an attempt to address some of the most significant issues facing the debt collection industry as it adapts to modern collection practices.  However, a number of important issues remain unresolved.  As a result, debt collectors and other industry stakeholders must pay close attention both to what is in the Proposed Rule and what is not.

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