Proposed Changes to Collection Practices Could Affect First-Party Creditors

The Consumer Finance Protection Bureau has issued a Notice of Proposed Rulemaking (NPRM) to the Fair Debt Collection Practices Act (FDCPA) and, while the proposal is geared toward third-party collectors, first-party creditors will need to make changes as well, Stefanie Jackman, a partner at Ballard Spahr, told Powersports Finance.

“Some of the proposals, if enacted as they currently stand, could find their way into the first party,” Jackson said. “Some of the areas where I think we could see that are, for instance, the contact frequency limitation. You could see that impacting the first-party space through CFPB exams and oversight activities. For some creditors, that’s not going to be a big deal. They might already only call once every couple of days. They have a light touch, but others have a much heavier touch, particularly in some of the subprime lending niches.”

The new proposal was issued to protect consumers from harassment by debt collectors and includes limits on the number of calls debt collectors may place to reach consumers. The proposal states that collectors would be able to attempt to call a consumer seven times per week. If a conversation takes place, then the collector must wait a week before making another attempt.

Additionally, the proposal addresses the definition of limited-content messages, which is a message a collector can leave for a consumer. The message must include things like the consumer’s name and a contact number that they can reach to reply to the message.

“The limited-content message is another huge thing for third and first parties,” Jackson said. “If [the message] strictly complies with the requirements of the rule for what must be in a limited-content message and doesn’t include anything that can’t be, then it would be exempt from being deemed a collection communication. What that means is, if the third party overhears it, there’s no liability and lots of states have applicable first-party prohibitions on disclosing a debt to a third party.”

The FDCPA typically does not cover first-party creditors, but some states have expanded the act so that it does affect those creditors. “It could inform how courts and regulators in those states interpret those laws,” Jackson noted.

How creditors remain compliant with the proposal will depend on the size of the company and the infrastructure that it has in place. “I suspect everyone, without exception, will have to make some adjustments, just the degree will vary based on their level of sophistication,” Jackson added.

The FDCPA has not been updated since it was enacted in 1977, so the new proposal brings “a whole new world” to debt collection, Jackson noted.

Now that the NPRM has been issued, it likely won’t be enforceable until 2021. A comment period will run for 90 days, which could be further extended by 60 days. Then, the CFPB needs to review the comments and any changes it wants to make to the proposal. Once the edited proposal is published, which likely won’t be until next year, the rule would not be effective and enforceable until one year later.

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