2020 In Review: Federal and State Activity in Consumer Debt Collection Regulation

During what was an extraordinary and difficult year, there was an abundance of activity at the state and federal levels and a good deal of it was driven by the present COVID-19 pandemic. Here is my take on some of the most significant regulatory activities from the past year in consumer debt collection that will continue to impact both consumers and creditors in the years to come.

Federal Activity

Regulation F of the Fair Debt Collection Practices Act

The Consumer Financial Protection Bureau released its proposed rule for the Fair Debt Collection Practices Act. The rule is scheduled to take effect Nov. 30, 2021. Missing from the final rule were several innovative procedures the Bureau had proposed to modernize the four-decade-old FDCPA. The final rule does provide some much-needed guidance on communicating with consumers electronically. Just last week the Bureau added new rules covering validation notices, credit reporting, and the treatment of consumer debt subject to an expired statute of limitations.

The final rule also includes presumptions related to the frequency of telephone calls placed by debt collectors to consumers. A presumption of a violation would apply to debt collectors that place more than seven telephone calls in seven consecutive days or within seven days after engaging in a telephone conversation. And these limits are imposed with respect to each debt (except in the case of student loans).

The “validation notice” received the anticipated model form but the Bureau dropped its proposal to allow debt collectors to deliver validation notices through an innovative electronic method and stuck with existing federal law.

And, when it comes to the collection of debt subject to an expired limitations period (“time-barred” debt), the final rule will continue with the strict liability approach. It dropped a proposal that would find a violation for initiating or threatening to initiate a lawsuit only when the debt collector “knows or should know” the limitations period pertaining to a debt has run. At the same time the Bureau jettisoned its planned model disclosures for written communications when collecting time-barred debt.

The Madden Fix

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) both issued final rules to “fix” the uncertainty created by the Second Circuit Court of Appeals’ 2015 decision in Madden v. Midland.

Section 1033 Rulemaking

The Consumer Financial Protection Bureau released its Advance Notice of Proposed Rulemaking (ANPR) on Oct. 22, seeking comment on 46 questions in nine categories surrounding consumer access to financial information under section 1033 of the 2010 Dodd-Frank Act (12 U.S.C. § 5533). Aside from defining the nature and scope of consumer data, how that data is aggregated, disseminated, and protected are all matters that can be addressed by the rulemaking.

It may be years before rules are released, if at all. But the impact of any rules would be significant. While the subject matter appears to be concerned with developing technologies and services (like FinTech and RegTech), any rule would also impact how consumer data is collected and used by the mature consumer financial services industry.

CFPB Policy Statement on Abusive Practices

On Jan. 24, the Consumer Financial Protection Bureau announced the long-awaited policy statement regarding the framework that it will use in enforcement activities related to the catch-all category of “abusiveness.”

CFPB Policy Statement for Credit Furnishing under CARES Act

On April 1, the CFPB issued a policy statement addressing the responsibility of furnishers under the CARES Act and describing the flexible approach the Bureau intends to take with respect to supervision and enforcement of the Fair Credit Reporting Act (FCRA) and Regulation V during the COVID-19 pandemic.

State Activity

The year began with several significant bills impacting the credit and collections industry, but the pandemic eventually shifted state-level attention away from any significant legislation with a few exceptions.

California Licensing

On Sept. 25, California Gov. Gavin Newsom signed into law the “Debt Collection Licensing Act.” The licensing provisions become operative Jan. 1, 2022, with the licenses to be issued by the Commissioner of Business Oversight.  Washington State also enacted legislation targeting “legal actions” by debt purchasers.

COVID-19 Measures

Most state activity involved emergency measures designed to restrict debt collection activities during the pandemic. Massachusetts Attorney General Maura Healey saw her emergency regulations struck down by a federal court. Nevada went as far as prohibiting debt collection communications and did not lift the restriction until June. Others have placed restrictions on wage, property and bank account garnishments, foreclosures and residential evictions.

Judgments and Small Claims Courts

Maine, a perennial topic in my year-end reviews, adopted legislation reducing the effective time period for judgments. I expect you will see similar legislation introduced in other states. Maine lawmakers also proposed, but did not enact, legislation restricting access to small claims courts for both creditors and debt purchasers.

Vermont has proposed to likewise amend its court rules to prohibit debt purchasers from filing lawsuits in its small claims courts. And in Nevada, the text of a bill has been prefiled that would limit any person from filing more than 15 cases a year in its small claims courts.

A Flurry of Activity in the Empire State

Numerous bills were introduced in New York proposing legislation governing credit reporting, licensing of debt collectors, and automated telephone calls. There was even a bill to allow the state to acquire consumer debt using its eminent domain powers for the purpose of canceling it. None of the bills passed.

However, I still expect to see significant activity in New York in 2021. It will likely pass legislation to reduce its statute of limitations for consumer debt to three years, with few exceptions. This would be significant since most consumer debts are tied to New York’s six-year limitations period for contracts. The legislation would not alter the four-year limitations period for debts arising under UCC Article 2 sales. I would not be surprised to see a licensing bill from either the governor or legislature.

Predictions

More than 300,000 Americans and over 1.7 million people worldwide have lost their lives to COVID-19 in 2020.  There is hope that new vaccines will bring an end to this pandemic, but the impacts it has caused are likely to be felt for some time. There remains significant pressure to restrain debt collection at the state and local level. It will likely take the form of increased exemptions afforded to judgment debtors and temporary suspensions of executions, garnishments, evictions and foreclosures. Similar pressure exists at the federal level, especially in the context of student loan debt and credit reporting.

There will be efforts to roll back the new FDCPA rules. And, because the FDCPA gives way to more restrictive state regulation, you should see several states introduce legislation designed to limit electronic communications and the frequency of telephone communications.

And of course, there is privacy legislation, decisional law, bankruptcy reform and state attorney general initiatives in the mix. My colleagues, Alan Hochheiser, Jessica Lesser, Eric Rosenkoetter and Tom Dominczyk (on the Second and Third Circuits), have covered each of these areas in more detail in articles published in The Consumer Financial Services Blog this week.

Wishing you all a Happy and Healthy 2021.