Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger spoke at length about the bureau’s newly published notice of proposed rulemaking (NPRM) intended to provide clarity about regulations on debt collectors during a town hall-style meeting at the University of Pennsylvania in Philadelphia.
The event included a panel of CFPB officials, credit and collections professionals, consumer advocates and attorneys sharing their thoughts on various provisions of the proposed rule.
“Clear rules of the road where consumers know their rights and debt collectors know their limitations are a step towards fulfilling the intent of the law,” Kraninger said. “The practice of debt collection predates the use of money. Debt collection is an important part of the credit ecosystem, and there is no doubt that a healthy credit ecosystem is vital to the lives of most Americans.”
A main focus of the proposed rule is to stipulate “when, where and how often” debt collectors can contact consumers about debts, Kraninger said.
“The proposed rule makes clear that collectors must honor requests to stop certain channels of communication so that a consumer can simply say, ‘Never text me,’ and the collector must comply,” Kraninger said.
She noted that the FDCPA, at more than 40 years old, is out of step with developments in the way people communicate and use technology.
Kraninger noted that, shortly after releasing the NPRM, the CFPB began disputing reports that its rule would allow debt collectors to send consumers unlimited texts and emails.
The NPRM does not define the parameters that would constitute harassment, oppression or abuse by a debt collector, although those standards have been informed over the years through enforcement actions and case law.
By requiring consumers to opt-out of communications via certain channels, the NPRM proposes to put the onus on consumers to let the collectors know they do not want to be contacted by text, email or another channel. That is in contrast to the bureau’s previous stance that consumers should be given the option opt-in for such communications before any occur.
In addition to Kraninger, the CFPB also was represented on the panel by CFPB Deputy Director Brian Johnson, CFPB Policy Associate Director Thomas Pahl and CFPB Associate Director David Silberman, who moderated the panel.
Debating the call limit
Various panelists who spoke during the town hall had different views on the proposal’s limit of seven calls per week per debt.
Mark Neeb, CEO of the industry trade association ACA International (ACA), called the bureau’s proposed cap on weekly call cap “arbitrary” and not in consumers’ best interests, arguing that it could make creditors more likely to pursue litigation to settle debts because it would be harder to get ahold of them.
“We don’t believe that one size fits all in debt collection,” Neeb said. “The number of times needed to connect with a consumer may vary depending on the market, the type of debt, the age of debt and the extent to which it’s been worked, etc. So arbitrarily limiting phone contacts does not really serve consumers in our mind. The ability to connect with a consumer is in their best interest and impeding this will likely force creditors to turn to litigation or credit reporting instead.”
Neeb also wanted to examine the research on which the bureau based the seven-call limit. He pointed out that the bureau has acknowledged that the number is a “rough approximation” based on simulation research done as part of its cost-benefit analysis. He stated that the bureau relied on certain assumptions and data provided by one debt collector and is not necessarily representative of all debt collectors in the marketplace.
Jan Stieger of the debt buyer trade association Receivables Management Association International, noted that debts collectors are tasked with collecting often are connected to several phone numbers and may need to make several calls and more than a week just to determine which number is the best one for reaching a consumer.
Arguing that CFPB rulemakers should lower the weekly limit on collection calls, CFPB Advisory Board member Patricia Hasson, the president and executive director at Clarifi, raised the point that consumers often do not answer calls to their cellphones from numbers they do not recognize, meaning that increasing the number of calls a collector is permitted to make a moot point.
As opposed to allowing collectors to make seven calls a week per debt, April Kuehnhoff, a staff attorney with the National Consumer Law Center (NCLC), stated her organization’s recommendation that the weekly call cap be set at three calls per collector. NCLC also believes that communications via all contact channels should be capped in that manner and that once a collector has made contact in a given week, they should not be able to contact that person again within that week.
“Being able to stop calls to a particular communication channel, whether it be phone calls or other types of communication channels, we continue to believe is very important,” Kuehnhoff said.
Regarding the provision affording consumers the right to opt-out of certain channels of communication, Kuehnhoff asked how consumers will know they have the right to do so given that the NPRM does not include the “statement of rights” that was written into the bureau’s 2016 outline of proposed debt collection rules.
Hasson said she is concerned that “there will be ways that are found around” opt-out requirements, noting a recent experience she had trying to unsubscribe from certain notifications, only to get an email days later with the content she tried to opt-out of receiving.
“The consumer should be in control of their phone and of their email and should have the option to say ‘yes, you can do that,’ ” she said.
Defining harassment, consumer rights
Discussing when collection calls become harassment, Michael Froehlich, a managing attorney at Community Legal Service of Philadelphia, brought up a case he was familiar with in which a consumer tasked with choosing between paying her mortgage and paying on her student loan debt chose to pay her mortgage so she could keep her house. All the while, she continued to get calls from collectors regarding the student loan debt, as well as others she owed.
“If you don’t have the money, you don’t have the money,” Froehlich said. “For her, the 10th call is not going to change that, and the 20th call is not going to change that, and the 30th call is not going to change that, and the 50th call, and the 56th call is not going to change that.”
He added, “At what point does communication just become harassment? I would argue that seven calls a week per debt, per account, crosses the line between communication and just outright unnecessary harassment.”
Kuehnoff noted her organization’s concerns about the rule’s allowance of collectors to send texts and emails to consumers without their prior consent and that it would undermine consumer privacy protections by, for example, permitting limited-content messages to be left with third parties that might handle communications with consumers.
Getting on the same page
Stieger noted that she and most debt collectors recognize the consumers generally do not get into debt with the intention of not repaying it. That being said, she asserted that consumers, whether they want to or not, have an obligation to communicate with creditors about resolving legitimate debt they owe.
“I would say that in the U.S. credit-based economy that credit is a privilege and not a right,” she said. “And with a privilege comes some responsibility. So when a consumer ends up with a defaulted account or in debt collection, there is some obligation to communicate with the person who is collecting a legitimate debt.”
There are elements of the proposed rule that may help consumers recognize debts they are obligated to repay easier than in the past.
One such element is in the proposed model for how collectors must itemize debt, Stieger noted, describing the data item stating that collectors must list brands associated with a certain debts. She explained that consumers often do not recognize certain debts because they know it by a different name, such as in circumstances when they have credit card branded by a retailer. Consumers often forget that such cards are issued by a bank, not the retailer itself, and do not immediately make the association when they get a debt notice with the bank’s name instead of the retailer’s.
Providing more clarity of this nature, as well as through the use of “plain language” instead of statutory language, is among the main goals Kraninger pointed to in her opening remarks.
“Debt collectors must already provide certain information either in their initial communication or within five days of their first communication about the debt and consumer’s rights,” Kraninger said. “But our research indicates that this information is not always sufficient or clear to consumers. So our proposal would enhance the information that consumers receive from collectors.”
To that end, the bureau proposed to mandate that collectors provide an itemization of debt being collected “to make it more recognizable to consumers and plain language information about how a consumer may respond.”
Pahl explained that to ensure that the FDCPA statute was fully implemented, along with applicable court decisions, the bureau made a conscious effort to track much of the statutory language in the rule verbatim.
Time-barred debt
Froehlich said the NPRM could weaken protections against the collection of time-barred debt, at least in Pennsylvania and in the Third Circuit where he practices law, because of ambiguities it contains.
He explained that in Pennsylvania, it currently is illegal, per the FDCPA, to file a lawsuit or to threaten to file a lawsuit to collect on a time-barred debt. Plaintiffs need only to establish that the debt is time-barred, under current standards, to prove their case. In the proposed rule the CFPB states that collectors cannot collect on debt they knew, or should have known, was barred by the statute of limitations.
“I don’t want to overstate this but it almost grants immunity to debt collectors who sue on these debts and incentivizes debt buyers and debt collectors to know less about the debt that they’re purchasing, not more,” Froehlich said, adding that the lawyers such as himself would have to prove the state of mind of a collector, in addition to the debt being time-barred, to take action for a client under the proposed rule.
Complaint volume
Kraninger noted that debt collection, historically, has been subject to more complaints than any other financial product or service.
Stieger said she would expect the volume of debt collection complaints to go down as a result of increased clarity on “what the rules of the game are” provided by the proposed rule.
Hasson disagreed with Stieger, stating that she is not confident that consumers would understand all of the new rules proposed by the bureau and that, rather than going down, the volume of debt collection complaints could go up.
Kuehnhoff noted that, given that, based on data her organization received from the Federal Trade Commission (FTC) that showed call volume as the No. 1 most complained about topics associated with the collection, she would expect those types of complaints to continue to come in at a similar pace or grow.
Challenges to rulemaking
Stephanie Eidelman, CEO of insideARM, a trade publication covering credit and collections topics, said there are conflicting views of the debt collection landscape. Consumers advocates tend to focus on the issues brought up in complaints about debt collection whereas debt collectors come from the perspective of, although most debtors honestly want to resolve their debts, there are some who want to “game the system” and others who truly cannot repay their debts.
Eidelman said that there are certain unique challenges facing regulators in making effective debt collection rulemaking, stemming from conflicting viewpoints and conflicting demands from consumers.
“This different view of the landscape is a real disconnect, which has led to a very complicated situation for those tasked with sorting it out and, in my humble opinion, is probably part of why debt collection rulemaking has taken so many years,” Eidelman said. “Rules should absolutely protect those most vulnerable and they should also not create an undue impediment for the majority.”
Another difficult thing to reconcile, Eidelman noted, is the simultaneous demand for privacy and transparency in the modern world. She noted that people tend to want to know who is contacting them and why, yet debt collectors are required to take steps to hide elements that might give a consumer that information in the name of privacy.
“This one industry is really in quite a new Catch-22 situation that didn’t used to exist,” Eidelman said, noting that, although she understands how a high volume of calls or messages could be a problem, the ability for a debt collector to leave a message explaining the reason they are contacting a consumer could cut down on that volume.
“I think that privacy vs. transparency discussion is huge on a lot of fronts,” she added.