CFPB Proposed Rule on Fair Debt Collection Practice Act (FDCPA)

1. CFPB Proposed Rule on Fair Debt Collection Practice Act (FDCPA) • Fred Lundquist • Vice President of Sales, ConServe • Aaron Chastain • Partner, Bradley LLP • Larry Laskey • Vice President and General Counsel, Windham Professionals • Kelly Lipinski • Member, McGlinchey Stafford

3. Call Frequency Limitations • Detailed Limitations interpreting Section 806(5) of the FDCPA. • Complying with the regulation shields the debt collector from liability under the statute (based on call frequency – no shield for other call-related harassment or abuse). • IMPORTANT NOTE: CFPB repeatedly emphasizes that it enacted the call frequency limitation rules under both its statutory authority to interpret the FDCPA and its authority to regulate unfair and deceptive practices under the Dodd-Frank Act. This means non-debt collectors can face civil monetary penalties for violations.

4. Call Frequency Limitations Statutory Language Alone New Bright-Line Rule Clear guidance creates opportunity for debt collectors to implement compliant practices with less risky of lengthy litigation. But, less wiggle room for mistakes. One call too many probably invites a meritorious lawsuit. • Courts decided what constituted “causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number” on a case-by-case basis • See, e.g., Jones v. Rash Curtis & Assoc., 2011 WL 2050195 (N.D. Cal. 2011) (189 calls in year not “harassment”); Krapf v. Nationwide Credit Inc., 2010 WL 2025323, at *3–4 (C.D. Cal. May 21, 2010) (finding a triable issue of fact where the plaintiff's call volume amounted to “a total of over 180 calls for the month of May alone”); Bassett v. I.C. Sys., Inc., 715 F. Supp. 2d 803, 810 (N.D. Ill. 2010)(denying the defendant's summary judgment motion where the defendant placed thirty-one calls to the plaintiff over a twelve day period)

5. Call Frequency Limitations • The Rule of Seven: • A debt collector may not place more than seven phone calls to a consumer in a rolling seven-day period. • Calls placed to a wrong number do not count against the frequency limit. • A debt collector must wait seven days after having a “telephone conversation” with the debtor before placing another call to the debtor.

6. Call Frequency Limitations • “Call” means “Call” • Limited content messages count against the frequency limit. • Texts, emails, or written correspondence does not. • Exceptions: • A debt collector may respond to a request for information from the debtor. • A debt collector may call in excess of seven times if given prior consent directly to the debt collector. • Calls that do not connect to the dialed number do not count against the limit. • Debt collectors may call the authorized third-parties concerning the debt.

7. Call Frequency Limitations • FOR EVERYONE ELSE: • Applies per debt per day BUT • Attempt to collect multiple debts complicates the analysis • Can agents discuss other debts? How will that be tracked? • For Student Loans • All debts serviced under single account number at the time they were placed with the collector are treated as a single debt.

8. Time and Place Restrictions • Cannot call at “unusual or inconvenient times or places” • Work phone number or email is presumptively inconvenient. • Before 8 am or after 9 pm local time. If location of the debtor is unknown, the collector must call during a time that would be reasonable in any reasonable time zone. • Have to respond to consumer demands about “this is not a good time,” can’t talk “at this time of day,” not “during these hours” • Have to be communicated to successor debt collector.

10. Limited Content Messages To borrower (or third party who answers) Orally, voicemail or text Eliminates “choosing risks” Attempt to communicate Reduces Impact of Call Restrictions? Use at Placement?

11. Debt Validation Notice: Itemization • New term and concept – itemization date • Options: last settlement date, charge-off date, last payment date or transaction date • Would offer greater flexibility than “charge-off” date, but will need to disclose account details associated with selected itemization date • DVN would include, among other items: • Account number associated with debt on itemization date • Amount of debt on the itemization date • Itemization of the current amount owed reflecting interest, fees, payments and credits since the itemization date

12. Model Itemization

13. Debt Validation Notice: Consumer Response • Segregated text that identifies potential consumer responses • Mandatory: Dispute prompt • I want to dispute the debt because I think • This is not my debt • The amount is wrong • Other (describe) • Mandatory: Original creditor information prompt • Optional: Payment prompt

14. Model Consumer Response

15. Proposed Model Form B-3 Debt collectors who use the model form comply with the DVN disclosure requirements

16. Responding to a Dispute • Upon receipt of a written (including electronic) dispute must: • Cease collection • Provide copy of verification of the debt or judgment • Then may resume collection • Special rule for duplicative disputes • Notify the consumer in writing that the dispute is duplicative with brief statement of the reason for the determination • Statement could be that the dispute is substantially similar to prior dispute and no new information was provided

17. FDCPA, ESIGN, and Electronic Communications FDCPA: “Written” Validation Notices ESIGN requires direct consent Exempts notice where creditor / prior PCA could have sent it Validation is “mailed” when it is “provided” FDCPA: suspend activity on written consumer dispute ESIGN does not require acceptance of electronic communications Disputes can be sent using means accepted by PCA

18. Electronically-Provided Validation Information And/Or Notice Conceptual Framework Reasonable expectation of actual notice Can keep and access later Which address/number? Direct E-SIGN consent or use creditor’s / prior PCA’s “Safe harbor” protection “Transferable” E-SIGN consent Other Components Identify purpose Monitor delivery Responsive format

19. Electronically-Provided Validation Information And/Or Notice “Initial” or “Five-Day” Notice Oral as initial communication Increased, and “clear and conspicuous,” disclosures Inbound response to “limited content” message Text as initial communication Need for link opt out Email as initial communication (without link) E-SIGN not applicable Issue is “reasonable expectation” Email or text five-day notice E-SIGN impact Need for link opt out

20. Creditor’s Role • Coordination of Efforts • Oversight Obligations • Information Transfer / Contractual Requirements • “Transition” Letter • UDAAP Foreshadowing?

21. Creditor’s Role (Continued) • Data integrity based on itemization date • Internal mapping of data to be passed to collection agencies • Electronic communication preferences and coordination with collectors • For third-party disclosure safe harbor, potentially notify consumer that the collector may use email or telephone number for collection communications and provide an opt-out right

22. Potential Effect on Creditors • Potential characterization as a “best practice” or benchmark for states • Increase in disputes and need to produce backup to collectors • Demand for additional representations and warranties and/or damages in service agreements based on errors in creditor-supplied data • Indirect increase in debt collector fees due to new obligations, which may increase creditor expenses • Risk of increased UDAP claims modeled on federal standards

23. What Isn’t in There? • Despite the hefty length of the rule, it left some of the statute’s text for the courts to interpret. • Most notably: Who is a Debt Collector? • Henson v. Santander Consumer USA, Inc., 582 U.S. ___, 137 S.Ct. 1718 (2017) (company that buys defaulted automobile loan debts and then attempts to collect debt is not a debt collector under 1692(a)(6)). • Barbato v. Greystone Alliance, L.L.C., 2019 WL 847920 (3d Cir. Feb. 22, 2019) (debt buyer of charged off consumer debts is a debt collector under the “principal purpose” prong, holding that “an entity that otherwise meets the ‘principal purpose’ definition cannot avoid [FDCPA] merely by hiring a third party to do its collecting.”)

24. What Isn’t in There? • Open Issues for Bankruptcy • Need to include the FDCPA “mini-Miranda” disclosure when it arguably conflicts with bankruptcy discharge information? • Authorization to speak with debtors directly when they are represented by bankruptcy counsel? • DVN / Notice of Servicing “Hole” • Can a debt collector make an initial communication before it acquires a debt?