Alston & Bird Consumer Finance Blog

Regulation F

Maryland Regulator Puts Lenders and Servicers on Notice Regarding the Assessment of So-Called “Convenience Fees”

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A&B Abstract:

On May 12, 2022, the Maryland Office of the Commissioner of Financial Regulation (the “OCFR”) issued an Industry Advisory (the “Advisory”) “put[ting] [the] industry on notice” of the recent decision issued by the 4th Circuit Court of Appeals in Ashly Alexander, et. al. v. Carrington Mortgage Services, LLC.  The Advisory directs lenders and servicers to review their practices in charging consumer borrowers loan payment fees (referred to herein as “convenience fees”) both to ensure on-going compliance with the law and to determine whether any improper fees have previously been assessed so that they can undertake appropriate reimbursements to affected borrowers.

The Carrington Decision

In Carrington, the 4th Circuit Court of Appeals held that the Maryland Consumer Debt Collection Act (“MCDCA”) incorporates §§ 804 through 812 of federal Fair Debt Collection Practices Act (“FDCPA”), including the FDCPA’s prohibition on “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law,” under § 808(1). Because Maryland law does not expressly permit or authorize the assessment of convenience fees, the court held that such fees must be expressly authorized by the loan documents in order to be permitted under § 808(1).

The Carrington court further clarified that the FDCPA’s substantive provisions apply to any person who meets the broad definition of a “collector” under the MCDCA, even if such person would not be considered a “debt collector” under the FDCPA. Notably, the FCDPA contains important exclusions from the definition of “debt collector”, such as when a person is collecting a debt that was obtained prior to default, or if the person collecting the debt was the original creditor.  On the other hand, as amended effective October 1, 2018, the MCDCA defines a “collector” broadly to include all persons collecting or attempting to collect an alleged debt arising out of a consumer transaction and does not provide for similar exclusions.  We discussed the Carrington decision in greater detail in a prior blog post.

The Advisory

The Advisory reminds Maryland “collectors” of the Carrington court’s ruling, that collecting fees on any form of loan payment violates the MCDCA if the fees are not set forth in the loan documents. As a result, Maryland lenders and servicers are cautioned “that any fee charged, whether for convenience or to recoup actual costs incurred by lenders and servicers for loan payments made through credit cards, debit cards, the automated clearing house (ACH), [or other payment methods], must be specifically authorized by the applicable loan documents.” The Advisory makes clear that “[i]f such a fee is not provided for in the applicable loan documents, it would be deemed illegal.” Further, attempts to circumvent this fee restriction by directing consumers to a payment platform associated with the lender or servicer that collects a loan payment fee or requiring consumers to amend their loan documents for the purposes of inserting such fees could also violate Maryland law.”

The Advisory anticipates that some lenders or servicers may discontinue offering certain payment options as a result of the Carrington decision. However, the Commissioner expressly requests that such lenders or servicers promptly notify their customers of such change and encourages lenders and servicers “to work with consumers to minimize the impact any change in payment options could have, including where possible, continuing such payment options without fees, especially when consumers are attempting to pay their obligations in a timely manner.”

Lenders and servicers are directed to review their records to determine whether any improper fees have previously been assessed and, if so, make appropriate reimbursements to affected borrowers. The OCFR intends to monitor the impact that the Carrington decision has on lender and servicer fee practices and lenders and servicers can expect a follow-up on this topic from the OCFR in the coming months.

Takeaway

The implications of the Carrington decision are numerous. First, lenders and servicers must immediately cease the collection of convenience fees from Maryland borrowers, unless such fees are expressly authorized by the loan documents. Lenders and servicers choosing to discontinue certain payment services as a result of the Carrington decision, must also ensure that affected consumers are promptly notified of such change.  In addition, lenders and servicers who meet the definition of a “collector” under the MCDCA must ensure compliance with §§ 804 through 812 of the federal FDCPA, regardless of whether they meet the FDCPA’s definition of a “debt collector.” Finally, while the Carrington decision was focused on the permissibility of convenience fees, we note that the court also held that “[t]he FDCPA’s far-reaching language [under § 808(1)] straightforwardly applies to the collection of ‘any amount.’” Thus, the implications of the Carrington decision go beyond convenience fees to arguably any other fee that is not expressly authorized by the loan documents or permitted by law, and we understand that Maryland regulators have informally indicated as much.  Accordingly, lenders and servicers should carefully review all fees that are, or may be, assessed to Maryland borrowers to ensure such fees are either expressly authorized by the loan documents or permitted by law.

A Closer Look at the CFPB’s Proposed Debt Collection Rules – Part Three: Important Details Relating to Disclosures and Debt Validation Notices

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A&B Abstract

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

In part one of this series, 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.  This post summarizes the key provisions of the Proposed Rule relating to debt collectors’ disclosures to consumers. These include provisions relating to key proposed disclosures, namely the requirements relating to debt validation notices, and the electronic provision of required disclosures.

Background

Section 809(a) of the FDCPA requires that within five days after the initial communication with the consumer in connection with the collection of any debt, a debt collector must provide the consumer with a validation notice (unless the required information is contained in the initial communication, or the consumer has paid the debt). The statute requires the notice to include:

  • The amount of the debt;
  • The name of the creditor to whom the debt is owed;
  • A statement that unless the consumer disputes the validity of the debt (or any portion thereof) within 30 days after receipt of the notice, the debt collector will assume the debt to be valid;
  • A statement that if the consumer notifies the debt collector in writing during the 30-day period that the debt (or any portion thereof) is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer, and the debt collector will mail the consumer a copy of the verification or judgment; and
  • A statement that, upon the consumer’s request within the 30-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

Proposed Debt Validation Notice Requirements

To address perceived inadequacies in the processes relating to validation and verification, the Bureau has proposed Section 1006.34 to clarify what validation information debt collectors must provide to consumers.

First, the Proposed Rule would clarify that a debt collector may satisfy the initial disclosure requirement by sending a consumer a validation notice that satisfies the delivery requirements of proposed Section 1006.42(a): (1) in the initial communication; or (2) within five days thereafter.  However, as under Section 809(a), the disclosure requirement does not apply if the consumer has paid the debt prior to the time the notice is required to be sent.  As these provisions are largely consistent with the statute, they do not appear to present significant challenges for implementation.

Second, the Proposed Rule would require the validation information to be “clear and conspicuous,” which the CFPB would define consistent with how that term is used in other consumer financial services laws and implementing regulations.  Accordingly, for a disclosure to satisfy the standard, it would have to be: (1) readily understandable; (2) for a written or electronic disclosure, in a location and type size that are readily noticeable to consumers; and (3) for and oral disclosure, given at a volume and speed that are sufficient for a consumer to hear and comprehend it.

Third, the Proposed Rule would require a debt collector to include in the validation notice information about the debt that would be sufficient to enable the consumer to identify, and determine whether they owe, the debt.  Specifically, such information would include:

  • the consumer’s name and mailing address, which would have to be the most complete information the debt collector obtained from the creditor or another source;
  • the name of the creditor, which the CFPB proposes to make the creditor as of the itemization date;
  • the account number;
  • the amount of the debt;
  • information about consumer protections, including the right to dispute a debt and to request the name and address of the original creditor, as provided under Section 809(b) of the FDCPA; and
  • a consumer response form that a consumer may use to exercise such rights (e.g., submitting a dispute or requesting original creditor information), which would include express elective statements that a consumer could use to ensure that debt collectors provide the appropriate information.

Fourth, to comply with the validation disclosure requirements of Section 809(a) of the FDCPA and 12 C.F.R. § 1006.34 of the Proposed Rule, the CFPB has proposed a Model Validation Form (B-3).  The Bureau would permit a debt collector to adjust the content, format and placement of certain validation information within the model form, provided that the resulting disclosures are substantially similar to the model.

Disclosure of the Amount of Debt

The proposed requirements relating to the amount of the debt are worth note.  First, the Proposed Rule would require a debt collector to disclose both: (1) the current amount of the debt; and (2) the amount of the debt as of the “itemization date.”  The amount would have to be presented in tabular format, and reflect interest, fees, payments, and credits (or, if applicable, a disclosure that no interest, fees, payments, or credits were assessed or applied to a debt).  The Bureau has requested comment on whether the itemization should be more detailed, whether itemization is practicable for all categories of debt, and whether the proposed itemization would cause conflicts with other applicable laws and requirements.

Second, the Proposed Rule would define the “itemization date” as any of the following reference dates on which the debt collector can ascertain the amount of the debt: (1) the last statement date; (2) the charge-off date; (3) the last payment date; or (4) the transaction date;  Notably, while the Proposed Rule would allow a debt collector flexibility in determining which reference date to choose as the “itemization date,” it would require a debt collector to use the same date consistently for disclosures for that same consumer, to ensure that changes in the reference do not undermine the Bureau’s purpose of providing clear and consistent information in disclosures under proposed Section 1006.34.  Additionally, debt collectors would have to take care to identify the creditor as of the chosen itemization date.  The CFPB has requested comments on whether: (1) the proposed definition of “itemization date” will facilitate disclosure, (2) would capture all debt types; (3) whether additional clarification is needed; and (4) whether the potential reference dates should be ordered in a hierarchy in order to improve consumer understanding of the required disclosures.

Third, the Proposed Rule includes special disclosure requirements for the amount of the debt for debt collectors collecting mortgage debt that is subject to Regulation Z, 12 C.F.R. § 1026.41.  Given that that regulation requires the delivery of regular periodic statements that includes itemized fee information, the CFPB’s proposal reflects that for such loans the “amount of the debt” information that would otherwise be required under the Proposed Rule would already be delivered to consumers.  Accordingly, the Proposed Rule would permit a debt collector collecting a mortgage debt subject to the periodic statements requirement of Regulation Z a copy of the most recent periodic statement provided to the consumer at the same time as the validation notice, and refer to the periodic statement in the notice, in order to satisfy the itemization requirement.  In doing so, the Proposed Rule would provide flexibility to mortgage servicers in complying with the “amount due” itemization requirement.  The Bureau is requesting comment on how this exemption would apply to servicers exempt from the periodic statement requirement (e.g., for borrowers in bankruptcy).  However, we note that the periodic statement requirements also do not apply to open-end and reverse mortgage loans.  Thus, it appears that servicers of open-end and reverse mortgage loans would not be given the same flexibility in complying with the “amount due” itemization requirement.  In addition, it is unclear whether the provision of a periodic statement, in lieu of the itemized amount due, could create borrower confusion to the extent the amount listed on the periodic statement materially differs from the “current amount of the debt,” which must continue to be disclosed.

Proposed Validation Period Requirements

In addition to the validation notice requirements discussed above, Section 809 of the FDCPA requires a debt collector to satisfy certain requirements if a consumer, within the 30-day validation period: (1) disputes a debt; or (2) requests the name and address of the original creditor.  To ensure that consumers can take advantage of this protection, the Proposed Rule would require a debt collector to disclose to a consumer the date on which the verification right expires (i.e., the date on which the 30-day period ends).

The Proposed Rule would define the validation period as beginning on the date on which a debt collector provides the validation information, and ending 30 days after the consumer receives or is assumed to receive such information.  Under the Proposed Rule, the latter date would be any date that is at least five business days (excluding Saturdays, Sundays, and legal public holidays) after the debt collector provides the validation information.  If a consumer does not receive the original validation notice, and the debt collector sends a subsequent notice, the Proposed Rule would calculate the validation period from the date of receipt (or assumed receipt) of the subsequent notice.

The Bureau is seeking comment on how debt collectors determine the end of the validation period, and on whether the timing presumption should be modified (including to account for differences in mail versus electronic delivery).

Proposed Provisions Relating to Translation of Disclosures

To address concerns regarding LEP consumers, the Proposed Rule would include provisions relating to the translation of information from validation notices.

Specifically, the Bureau proposes to permit a debt collector to include in a validation notice optional information (in Spanish) on how a consumer may request the notice in Spanish, if the debt collector chooses to provide a Spanish-language translation.  To determine the potential impact of this provision, the CFPB has requested comments on: (1) debt collectors’ current Spanish-language, and other non-English language, collection activities; (2) examples of supplemental Spanish-language instructions to request a translated validation notice; and (3) the benefits and risks of such an approach.

Further, the Proposed Rule would allow a debt collector to provide a translation of the validation notice in any language other than English if the debt collector: (1) also sends an English-language validation notice in the same transmittal; or (2) previously sent an English-language validation notice.  This provision of the proposal recognizes, but does not mirror, obligations that may arise under state law regarding the provision of translated documents to LEP consumers.  By declining to mandate multiple translations, the Bureau’s proposal would avoid imposing significant costs on debt collectors who may not deal with significant LEP populations.  However, the Bureau is seeking comment on whether a debt collector should be required to provide a translated non-English validation notice (in a language other than Spanish) at the request of the consumer.  Such a requirement could expand the cost of compliance with the Proposed Rule, particularly for debt collectors whose exposure to LEP consumers is more limited.

Electronic Disclosure Requirements

To recognize the role that electronic communications play in debt collection activities, the Proposed Rule would:

  • Permit debt collectors to include electronic contact information (website and email address) in the validation notice;
  • If a debt collector sends a validation notice electronically, require the debt collector to include a statement regarding how a consumer can take responsive actions (e.g., disputing the debt) electronically, and permit the debt collector to include such information in a disclosure that is not provided electronically;
  • Require a debt collector to provide required disclosures in a manner that is reasonably expected to provide actual notice and in a form that the consumer can keep and access later; and
  • If a debt collector provides required disclosures electronically, mandate compliance with the federal E-SIGN Act or equivalent processes.

The Bureau is giving particular consideration to how consumers might respond to electronic validation notices.  Specifically, the Proposed Rule considers how a debt collector may include prompts and hyperlinks in validation notices to facilitate consumer responses.  The former director of the Federal Trade Commission’s Bureau of Consumer Protection, David Vladeck, recently published an opinion article in which he highlighted several cybersecurity concerns related to the permissible use of hyperlinks under the Proposed Rule.  Specifically, the former director noted that:

Encouraging use of hyperlinks by unknown parties undermines government warnings about the risks of doing so and exposes consumers to criminal exploitation. Scammers pushing links with viruses, malware, and identity theft scams are almost certain to impersonate debt collectors. Consumers will face a catch-22: Click and risk a virus or a scam, or don’t click and miss potentially legitimate information about why a debt collector is going after you and how to dispute the debt.

In light of the risks highlighted by the former director, and other consumer advocates, it is unclear whether the Proposed Rule’s provisions on the use of hyperlinks will make their way into a Final Rule.

Takeaway

While the Proposed Rule would provide debt collectors some flexibility in determining how to comply with the validation notice requirements, the scope of issues on which the Bureau has requested comment in connection with these provisions leaves open the possibility that the new requirements could be significantly more burdensome to implement. As parts four and five of this blog series will discuss in greater depth, the final requirements that the Proposed Rule would impose, and its nuances, are important to note for debt collectors.

A Closer Look at the CFPB’s Proposed Debt Collection Rules – Part Two: Communications

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A&B Abstract:

This blog post is part two 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.

This post summarizes the key provisions of the Proposed Rule relating to debt collector communications with consumers. These include communications-related provisions regarding:

  • Electronic communications safe-harbor;
  • Opt-out notice requirement;
  • Time and place restrictions;
  • Workplace email addresses;
  • Social media platform communications;
  • Communication media restrictions;
  • “Limited-content” messages; and
  • Telephone call frequency limits.

This post also describes potential issues with certain communications provisions of the Proposed Rule, including uncertainty in scope, application, and operational considerations. The Bureau is currently accepting public comment on the Proposed Rule.

Electronic Communications Safe-Harbor

The FDCPA generally provides that debt collectors may not, without the prior consent of the consumer, communicate in connection with the collection of any debt with any person other than the consumer (15 USC 1692c). However, in the event a debt collector unintentionally violates this rule, FDCPA section 813(c) provides that a debt collector can avoid liability by showing that the violation was not intentional, resulted from a bona fide error, and that it occurred even though the debt collector maintained reasonable procedures designed to avoid the error.

The Proposed Rule applies these concepts expressly to electronic communications, and provides a 3rd-party communication “safe harbor” (12 CFR 1006.6(d)(3)) that sets forth procedures for debt collectors to avoid liability when they unintentionally communicate with an unauthorized third party about a consumer’s debt when trying to communicate with the consumer by email or text message.

This safe harbor would apply when a debt collector maintains procedures that are “reasonably adapted” to avoid an error in sending an email or text message that would result in a violation of the FDCPA’s prohibition against unauthorized 3rd party communications. Specifically, such procedures must include steps to “reasonably confirm and document” that the debt collector electronically communicated with the consumer using one of 3 types of contact information:

  1. An email address or phone number that the consumer recently used to contact the debt collector for purposes other than opting out of electronic communications; or
  2. A non-work email address or a non-work phone number, if the debt collector notified the consumer that it might use that email address or phone number for debt collection communications (and provides certain other disclosures set forth in the rule); or
  3. A non-work email address or a non-work phone number that the creditor or a prior debt collector obtained from the consumer to communicate about the debt if, before the debt was placed with the collector, the creditor or prior collector recently sent communications to that email address or phone number, and the consumer did not request that such address or number cease being used.

The debt collector must also have taken additional steps to prevent communications using an email address or phone number that the debt collector knows has previously led to an unauthorized disclosure to a 3rd party.

Notably, to be protected from liability under this safe harbor, a debt collector would need to show, by a preponderance of the evidence, that the debt collector’s disclosure to the third party was unintentional and that the debt collector did, in fact, maintain the specified procedures.

There are potential issues with this proposal however. For example, it is unclear how Regulation F’s rules regarding electronic communications would interact with other communication regulations such as the Telephone Consumer Protection Act (“TCPA”). It would be helpful for the CFPB to provide guidance on whether Regulation F is meant to supersede TCPA requirements to the extent they are inconsistent. It is also unclear how the CFPB views alternative communication channels such as app-based (push) notifications. That is, would these notifications be treated the same as text messages or emails? Or like phone calls? Or some separate standard since the consumer may be granting authorization when they install the app?

Opt-Out Notice

The Proposed Rule also includes an “opt-out notice” rule (12 CFR 1006.6(e)) which requires that emails, text messages, and other electronic communications include clear and conspicuous instructions for how the consumer can opt-out of receiving such communications.

This rule was designed to limit the frequency of electronic communications sent by debt collectors (since the telephone call frequency limit described in 12 CFR 1006.14(b) wouldn’t apply to emails or text messages), and also to limit any associated costs such communications might impart to consumers. This rule would also prohibit debt collectors from conditioning the opt-out on the payment of any fee or the consumer providing any information other than the email address or phone number they are opting-out.

One potential area of uncertainty regarding the opt-out requirement is what form the opt-out procedure must actually take. That is, while the rule states that the procedure must be described in electronic communications, and the CFPB has noted that a consumer should be able to, “with minimal effort and cost, stop the debt collector from sending further written electronic communications,” the Proposed Rule does not specify any standard for what the collector’s opt-out procedure must look like in terms of the specific steps the consumer must take to opt out. For instance, can a debt collector require that opt-out requests be in writing? Or can they require consumers to call a certain phone number? And would the customer be required to specify one or all electronic communications be subject to the opt-out? The CFPB has requested comments on this proposed rule that may provide insight on these questions.

Time and Place Restrictions

The FDCPA prohibits debt collectors from communicating or attempting to communicate with consumers at times or places that the collector “knows or should know” are inconvenient.  The Proposed Rule regarding time and place restrictions (12 CFR 1006.6(b)(1)) clarifies that calls to mobile phones, as well as text messages and emails, are subject to this prohibition. The CFPB interprets this prohibition to mean that a time before 8:00 a.m. and after 9:00 p.m. local time at the consumer’s location is per se inconvenient, unless the debt collector has knowledge of circumstances to the contrary.

Moreover, the CFPB’s commentary on this proposed rule seeks to clarify two points of ambiguity in the FDCPA rule. First, the CFPB notes that, for purposes of determining the time of an electronic communication under this rule, a communication occurs when the debt collector initiates or sends it, not when the consumer receives or views it. Second, the rule would provide a safe harbor where a debt collector has conflicting or ambiguous information regarding a consumer’s location, such as phone numbers with area codes located in different time zones, or a phone number with an area code and a physical address that are inconsistent. Specifically, under this proposal, the debt collector would not violate the prohibition on communicating at inconvenient times if it communicated with the consumer at a time that would be convenient in all of the locations where the debt collector’s information indicated the consumer might be located. For example, in the time zones related to a consumer’s residence, as well as their mobile phone area code.

However, there are also potential issues with this proposed rule. The first is that the “knows or should know” standard is subjective, and it would be very difficult for debt collectors to interpret subjective consumer statements regarding when and where they do not want to be contacted. For example, if a consumer tells the collector not to communicate with them “at school,” it is unclear what period of time that would cover, since a consumer might only attend classes at night or on certain days of the week. Similarly, it is unclear how debt collectors should approach contacting servicemembers on active duty; that is, where a creditor or debt collector has received active duty orders as part of a request for protections under the Servicemember’s Civil Relief Act, should the debt collector assume that any communication with a servicemember is inconvenient while on active duty? Or is the presumption in favor of attempting to communicate with such servicemembers to notify them of potential issues with their accounts, assuming such contact is made between 8:00 a.m. and 9:00 p.m. local time where the servicemember indicated they are based?

A second issue arises where debts are assigned or transferred. The proposed rule states that a collector should know that communications at any times or places previously identified by the consumer as inconvenient are prohibited. This would place a substantial burden on creditors and servicers to transfer that information along as debts are assigned or transferred during the debt collections process.

Workplace Email Addresses

Regulation F also proposes a rule regarding communications to a consumer’s workplace email address (12 CFR 1006.22(f)(3)). Under this proposed rule, debt collectors are prohibited from contacting a consumer using an email address that the debt collector knows or should know is provided by the consumer’s employer, unless the debt collector has received either: (i) prior consent to use that email address, or (ii) an email from that email address, directly from the consumer. However, a consumer’s prior consent to receive email on their work account from a creditor would not transfer to a debt collector.

The CFPB explained that emails are prohibited where the debt collector can reasonably anticipate that they might be opened and read by someone other than the consumer, and warned that that many employers have a legal right to read messages sent or received by employees on their work email accounts.

We believe the CFPB should provide clarification on several aspects of this proposed rule, including:

  • the circumstances under which a debt collector would be deemed to “know or should know” that the debt collector is emailing a consumer’s work email address and, if so, what circumstances should indicate to a debt collector that an email address is a work email address;
  • what, exactly, constitutes prior consent? For example, if a consumer provides a work email address on their loan application, it is unclear whether that would be considered consent, or whether additional disclosures or consents would be required; and
  • whether this rule would apply only to email contacts with the actual person obligated to pay a debt, or whether it should be broadened to apply to such person’s spouse, parent, guardian, or executor, since the proposed definition of “consumer” under 12 CFR 1006.6(a) includes such persons.

Moreover, because this proposed rule prohibits workplace emails when the debt collector knows that the employer bars its employees from receiving them, this would impose a significant burden on debt collectors since, in order to comply with this requirement, they would need to maintain a database of employers who prohibit such communications, and then block communications to emails on that list.

Social Media Platforms

Regulation F also proposes a rule regulating debt collectors’ communications through social media (12 CFR 1006.22(f)(4)). This proposed rule would prohibit a debt collector from communicating with a consumer in connection with the collection of a debt via social media platform, if such communication is viewable by a person other than the consumer (or certain other persons exempted from this rule).

The CFPB noted that this rule aims to prevent: (1) unauthorized communications with 3rd parties, (2) consumer privacy violations, and (3) harassing, oppressing, or abusing consumers.

It is presumed, though not expressly provided in the text of the proposed rule, that social media communications that are not viewable by third parties, such as those sent through private messaging functions, are not prohibited by this rule. However, there is some risk in this presumption because although such private messages are typically meant only for the targeted individual, it is possible they could be seen or heard by third parties, such as employers or family members, as is the case with other forms of communication (like voicemails). It remains to be seen how the CFPB will reconcile this. One approach to avoid this issue might be for debt collectors to limit the content of such messages to what is permitted under the proposed “limited-content message” definition, described below. However, it is also unclear if such limited-content messages sent via social media – whether public or private – would be deemed “communications” for purposes of the social media communication restrictions, as opposed to in the voicemail context, since the message would likely contain information identifying the sender, as is the case with email.

Communication Media Restrictions

The Proposed Rule’s “prohibited communication media” provision (12 CFR 1006.14(h)) would prohibit debt collectors from communicating with a consumer through any medium that the consumer has requested the debt collector not use. The CFPB explained that once a consumer has requested that a debt collector not use a specific medium to communicate with them, it may be considered harassment, oppression, or abuse of the consumer for the debt collector to continue using that same medium.

There are, however, two exceptions to this rule: First, if a consumer opts out of receiving electronic communications from a debt collector in writing, the debt collector may reply once to confirm the consumer’s request to opt out, provided that the reply contains no information other than a statement confirming the consumer’s request. Second, if a consumer initiates contact with a debt collector using an address or a phone number that the consumer previously requested the debt collector not use, the debt collector may respond once to that consumer-initiated communication (though it is unclear what, if any, restrictions apply to that one response).

A potential issue with implementing this rule is that there may be circumstances where applicable law requires the debt collector to communicate with the consumer only through one specific medium, and does not offer an alternative medium that would be compliant. The Bureau has requested comment with regard to such laws, and whether additional clarification is needed regarding the delivery of legally required communications through a specific medium of communication where the consumer has requested that the debt collector not use that medium.

Limited-Content Message

One of the more interesting and noteworthy proposals under Regulation F is the creation of a “Limited-Content Message” safe harbor, which may resolve the long-standing “Voice Mail Paradox.”

By way of brief background, the voicemail paradox emerged due to the conflict between, on the one hand, the FDCPA requirement that debt collectors provide – in “communications” with consumers – a “mini-Miranda” disclosure identifying themselves as debt collectors, and on the other hand, the FDCPA prohibition against disclosing debt information to 3rd parties. For example, if a debt collector provides no mini-Miranda disclosure in a voicemail message to a consumer when required, it would expose itself to liability; but at the same time, if the debt collector did provide the mini-Miranda disclosure in the voicemail, and a third party overhears that information, the rule prohibiting 3rd party communication may be violated. Federal courts are currently split on how to resolve this issue.

This proposed definition of “Limited-Content Message” (12 CFR 1006.2(j)) provides a possible resolution to the paradox because the limited-content message would not, by definition, be considered a “communication” at all; and therefore, no mini-Miranda disclosure would be required under the FDCPA, and if the message was seen or heard by a third party, it would not constitute a prohibited third-party disclosure.

Specifically, the proposed limited-content message must include all of the following: the consumer’s name, a request that the consumer reply to the message, the name or names of one or more natural persons whom the consumer can contact in reply, a telephone number that the consumer can use to reply, and, if delivered electronically, a disclosure explaining how the consumer can opt-out from receiving such messages.

Additionally, a limited-content message may optionally include one or more of the following: a salutation, the date and time of the message, a generic statement that the message relates to an account, and suggested dates and times for the consumer to reply to the message. Under the CFPB’s interpretation, none of these items, individually or collectively, would convey that the consumer owes a debt or other information regarding a debt.

The CFPB has requested comment on numerous aspects of the limited-content message proposal, including:

  • whether any of the content permitted under this proposed rule should, in fact, be interpreted as conveying information regarding a debt;
  • whether allowing a limited-content message to include a generic statement that the message relates to an “account” raises a risk that the message would convey information about a debt to a third party, or whether there is an alternative statement that would minimize such risk; and
  • whether there is sufficient information required or permitted in the limited-content message to prompt consumers to respond, and if not, what additional information could be included in the message that would not cause the message to constitute a “communication.”

While this safe harbor does present a potential resolution to the voicemail paradox, there has been some industry concern over whether consumers will be less likely to respond to limited-content messages when they don’t know the name of the company trying to reach them. That is, even if the agent provides their personal name as required under the limited content message guidelines, the consumer would still not know the company who is trying to reach them, or the purpose of the call, so they may be less likely to respond. This also gives rise to a concern over whether consumers who do return these calls will complain of being misled or deceived when they return the call and find out it was a debt collection call.

It is also unclear how caller ID functions may have an impact on the limited-content message provisions, since caller IDs may display the debt collection agency’s name, and such information would fall outside of the limited content permitted under the proposed rule. Notably, limited-content messages are not permitted via email, because the sender’s email address may disclose its identity, so it is not clear why a caller ID identification would be treated differently. Moreover, it is unclear how the limited-content message safe harbor would interact with state laws that require certain disclosures be contained in all debt collector communications with consumers. It is possible that industry comments – which are currently being submitted to the CFPB – may address these concerns.

Telephone Call Frequency Limits

Finally, Regulation F also proposes a rule limiting the number of telephone calls a debt collector may place to a consumer about a particular debt, and making a violation of such limit a per se violation of the FDCPA’s prohibition on repetitive or continuous calling, and the Dodd-Frank Act’s UDAP provisions (12 CFR 1006.14(b)). Specifically, this call frequency limit would prohibit debt collectors from:

  • calling a consumer about a particular debt more than seven times within a seven-day period; or
  • engaging in more than one telephone conversation with a consumer about a particular debt within a seven-day period.

Notably, the Bureau does not propose subjecting email, text messages, or other electronic communications to the proposed frequency limits – it would apply only to telephone calls.

There are also certain types of phone calls excluded from the proposed frequency limits which do not count toward, and are permitted in excess of, such limits. In particular:

  1. calls made to respond to a request for information from the consumer;
  2. calls made with the consumer’s prior consent given directly to the debt collector;
  3. calls that are not connected to the dialed number; or
  4. calls with the consumer’s attorney; a consumer reporting agency; the creditor; the creditor’s attorney; or the debt collector’s attorney.

The CFPB has left open several questions regarding the proposed call frequency limits, to which we expect industry participants to respond during the comment period. These include:

  • whether the frequency limit should be set at seven calls to a particular consumer within seven days, or whether that limit should be higher or lower;
  • whether the frequency of calls should be measured on a per-week basis as currently proposed, or some alternate time period such as a daily or monthly limit;
  • whether calls placed about a particular debt to different telephone numbers associated with the same consumer should be counted together in aggregate for purposes of determining whether a debt collector has exceeded the proposed call frequency limit; and
  • whether the frequency limits should be applied on a per-debt, rather than on a per-consumer, basis. For example, under the current proposed rule, a debt collector who is attempting to collect two debts from the same consumer can permissibly place up to 14 calls in one week to that consumer.

 

Part 3 of this blog series on Regulation F will address proposed requirements regarding disclosures and other debt collector conduct.