Implications of the CFPB's new debt collection rules

The CFPB’s final rules on debt collection issued in October and December 2020 have left creditors and servicers wondering what to do with them. These rules were the result of a 7-year long process and represent the first major rulemaking under the Fair Debt Collection Practices Act (FDCPA) since the law’s inception over 40 years ago. Even with the rules finalized, as described in greater detail below, incoming CFPB leadership has questioned whether the final rules need to be further refined.

By definition, creditors and first-party servicers are excluded from coverage because they are not “debt collectors” under the FDCPA. But even then, creditors and servicers comply with many FDCPA requirements in large part due to longstanding CFPB guidance stating that entities that are not debt collectors could still violate consumer protection laws by engaging in conduct prohibited by the FDCPA. The CFPB’s powers to enforce such violations would not come through the FDCPA itself, but through the CFPB’s broad powers to prohibit unfair, deceptive, or abusive acts or practices (UDAAPs).

One of the notable requirements under the final rules effectively proposes 2 distinct limits on how often debt collectors can call consumers. Subject to limited exceptions, the final rules create a presumption that a debt collector violates the FDCPA if it (a) calls a person more than 7 times within 7 consecutive days; or (b) calls a person within 7 days of having a phone conversation with that person. These limits apply at the per-debt level, with the exception of student loans which may be aggregated by account number.

In the 1000+ pages of the rules’ text, the CFPB expressly refused to apply the new rules to creditors and first-party servicers or take a position on whether any conduct under the rules could give rise to a UDAAP. However, much could change between now and the rules’ effective date of November 30, 2021. The CFPB Director who issued the final rules, Kathy Kraninger, stepped down from her post at the request of the Biden administration in January and is expected to be succeeded by FTC Commissioner Rohit Chopra. On several occasions, FTC Commissioner Chopra has publicly expressed his views that the final rules don’t do enough to protect consumers from abusive debt collection practices. In particular, he has opined that the new phone call frequency limits “seem excessive” and has admonished the CFPB for failing to follow through with its plans to regulate first-party debt collection practices. Earlier this month, Acting CFPB Director Dave Uejio directed CFPB staff to explore options for preserving the status quo with respect to the debt collection rules, sending a strong signal that the final rules could be delayed until the CFPB implements more consumer-friendly requirements with FTC Commissioner Chopra at the helm.

With these developments, the risk is apparent that the CFPB under a new presidential administration will eventually apply at least some aspects of the final rules to creditors and first-party servicers. Prudent creditors and first-party servicers will need to assess the potential impact the final rules could have on their operations and whether, and the extent to which, they might proactively comply with some of the new requirements, at least as we understand them today.

At a time when applicable regulatory requirements appear uncertain and subject to swift amendment, more creditors and servicers are turning to Peach. Peach has developed a suite of services to help creditors and servicers achieve compliance with the complex web of requirements that apply to the servicing and collection of consumer purpose credit. For instance, Peach’s Compliance Guard - Rules module checks outbound servicing and collections-related communications against federal, state, and local laws that apply to creditors and servicers. The Compliance Guard - Rules module automates compliance for requirements under the FDCPA (including unusual time and place restrictions and limitations on third-party contacts) and already incorporates existing call frequency limits in jurisdictions that require them, such as Massachusetts and New York City. As part of the onboarding process, Peach presents creditors and servicers with its catalogue of pre-programmed business and legal rules, which in coordination with Peach, can be tailored to meet a company’s operational needs and risk tolerance. Once in action, Compliance Guard - Rules smartly selects applicable rules by loan type, licensure, servicer or creditor’s charter, and borrower’s state of residency. If the Compliance Guard - Rules module determines that a proposed communication would violate a legal or business requirement, it will recommend blocking the communication attempt.

If you’d like to learn more about how Peach can help creditors and servicers automate compliance, while providing a best-in-class servicing experience, email us at info@peachfinance.com.