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DFPI launches debt collection investigation
On January 19, California’s Department of Financial Protection and Innovation (DFPI) announced the issuance of subpoenas to a dozen debt collection companies as part of its investigation into consumer complaints about alleged unlawful, unfair, deceptive, or abusive debt collection practices. This is DFPI’s first significant action since the California Consumer Financial Protection Law—which, among other things, expanded DFPI’s UDAAP authority by adding a prohibition on “abusive” acts or practices to California law—went into effect January 1 (covered by a Buckley Special Alert). According to DFPI, consumers across the country have filed complaints against the companies, alleging the debt collectors make repeated phone calls, fail to validate debts, and threaten to sue consumers for debts they do not owe. DFPI notes that the state’s new Debt Collection Licensing Act (enacted last September and covered by InfoBytes here) requires a person engaging in the business of debt collecting in the state of California to be licensed and provides for the regulation and oversight of debt collectors by the agency.
Colorado enacts bill modifying limits on certain debt collection activity
On January 21, the Colorado governor signed SB 21-002, which modifies certain limitations on debt collection activity enacted in SB 20-211 (previously discussed here). Among other things, the bill extends, through June 1, 2021, the prohibition on a judgment creditor from initiating a new extraordinary collection action (i.e., a garnishment, attachment, levy, or execution to collect or enforce a judgment on a debt) unless and until specified requirements are met. These requirements include providing at least 10 days advance written notice to the debtor of their right to temporarily suspend the collection action if they are facing financial hardship due to the Covid-19 emergency.
CFPB issues debt collection small entity compliance guide
On January 15, the CFPB issued a small entity compliance guide summarizing the Bureau’s debt collection rule. As previously covered by InfoBytes, the Bureau issued a final rule last October amending Regulation F, which implements the Fair Debt Collection Practices Act (FDCPA), to address debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. The guide provides a detailed summary of the October final rule’s substantive prohibitions and requirements, as well as a summary of key interpretations and clarifications of the FDCPA. The Bureau noted, however, that the current small entity compliance guide does not discuss (unless specifically noted otherwise) the CFPB’s final rule issued in December (covered by InfoBytes here), which clarified consumer disclosure requirements, provided a model validation notice, and addressed required actions prior to furnishing and prohibitions concerning the collection of time-barred debt. Updates will be made to the small entity compliance guide at a later date to include provisions related to the December final rule.
Illinois reissues and extends several Covid-19 executive orders
On January 8, the governor of Illinois issued Executive Order 2021-01 extending numerous executive orders through February 6, 2021 (previously covered here, here, here, here, and here). Among other things, the order extends: (i) Executive Order 2020-07 regarding in-person meeting requirements, (ii) Executive Order 2020-23 regarding actions by individuals licensed by the Illinois Department of Financial and Professional Regulation engaged in disaster response, (iii) Executive Order 2020-25 regarding garnishment and wage deductions (previously covered here), (iv) Executive Order 2020-30 regarding residential evictions (previously covered here and here).
Washington extends garnishment protection to federal stimulus payments
On January 4, Washington Governor Jay Inslee issued a proclamation, extending the state’s moratorium on garnishments related to consumer debts (previously covered here, here, here and here,) and adding federal stimulus payments to the list of funds that are protected from garnishment. Protected funds already included state and federal unemployment payments. These protections were set to expire by January 19 until the governor issued an additional proclamation, extending the moratorium “until the termination of the Covid-19 State of Emergency or until rescinded.”
CFPB finalizes debt collection disclosure rules
On December 18, the CFPB issued a final rule amending Regulation F, which implements the Fair Debt Collection Practices Act, clarifying the information debt collectors must provide to consumers at the outset of collection communications and providing a model validation notice containing such information. (See also the Bureau’s Executive Summary.) The final rule also prohibits debt collectors from bringing or threatening to bring legal action against a consumer to collect time-barred debt, and requires debt collectors to take certain actions before furnishing information about a consumer’s debt to a consumer reporting agencies (CRA). Among other things, the final rule addresses the following:
- Validation notice. The final rule clarifies that debt collectors may provide “clear and conspicuous” debt validation notices in writing or electronically when commencing debt collection communications. Validation notices must include a statement indicating that the communication is from a debt collector, along with additional information such as itemization-related information, the current amount of debt, consumer protection information, and information for consumers who may choose to dispute the debt or take other actions. The final rule also outlines optional content that debt collectors may choose to include while retaining the safe harbor for using the model notice, provided that “the optional content is no more prominent than the required content.” The final rule also revises the definition of “consumer” used in a separate final rule issued by the Bureau at the end of October (covered by InfoBytes here). The December final rule’s definition now includes both living and deceased consumers.
- Safe harbor for model validation notices. Debt collectors who choose to use the model validation notice are in compliance with the final rule’s content requirements. Additionally, the use of a model validation notice would not be considered a violation of the prohibition on conduct that “overshadows” a consumer’s rights during the validation period. The final rule outlines additional safe harbors, and provides examples where a safe harbor generally will not apply. Notably, the safe harbor does not cover validation notice delivery methods and timing requirements.
- Translations. Debt collectors who choose to provide validation notices in other languages must also include an English-language notice in the same communication.
- Credit reporting. The final rule requires debt collectors to either speak to a consumer in person, send an email or letter, or try to speak with a consumer by telephone before furnishing any information to a CRA. Communications sent via email or letter will require a 14 day waiting period to allow for a “reasonable period of time” to receive a notice of undeliverability.
- Time-barred debt. The final rule prohibits debt collectors from suing or threatening to sue consumers when attempting to collect time-barred debt. Proofs of claim filed in connection with a bankruptcy proceeding are not included in this prohibition.
The final rule takes effect November 30, 2021.
More information from Buckley on the details of the newest debt collection final rule will be available soon.
8th Circuit vacates FDCPA judgment against debt buyer
On December 14, the U.S. Court of Appeals for the Eighth Circuit vacated a $4,000 judgment in favor of a consumer in an FDCPA action against a debt buyer (defendant), concluding that while the defendant qualifies as a debt collector, the actions of the subsequent debt collector cannot be imputed to the defendant. According to the opinion, the defendant brought a collection action against a consumer, which was dismissed by the district court after the consumer retained an attorney and the defendant failed to respond to the consumer’s dismissal motion. The defendant subsequently hired a collection agency to collect on the debt but failed to inform the collection agency that the consumer had previous retained an attorney. After the collection agency sent a settlement offer to the consumer, the consumer filed an action against the defendant alleging violations of the FDCPA and the Arkansas Fair Debt Collection Practices Act (AFDCPA) for contacting her directly when she was represented by an attorney. The district court granted partial summary judgment in favor of the consumer, concluding, among other things, that the defendant (i) qualified as a debt collector under federal and state law; (ii) the defendant was acting as an agent of the collection agency; and (ii) the defendant is liable for the violations arising out of the collection agency’s contact with the consumer. The consumer accepted a $4,000 offer of judgment, and the district court entered final judgment.
On appeal, the 8th Circuit agreed that the defendant qualified as a debt collector under the FDCPA and the AFDCPA, but determined that the consumer “did not present sufficient evidence to establish that [the collection agency]’s actions may be imputed to [the defendant] as a matter of law.” Specifically, the appellate court concluded that in order to establish the defendant’s liability under the FDCPA, the consumer needed to show that the defendant was responsible for the collection agency’s action. Because it was established that the collection agency did not know that the consumer was represented by an attorney, the appellate court noted that the consumer “cannot prevail against [the defendant] on a theory of vicarious liability,” and instead, must prove that an agency relationship existed for direct liability. Because the consumer failed to put into evidence an agreement between the defendant and the collection agency and the district court failed to address the agency relationship, the appellate court concluded the district court erred in granting partial summary judgment and vacated the $4,000 judgment and remanded the case.
Court denies arbitration bid in tribal loan usury action
On December 10, the U.S. District Court for the Middle District of Florida denied a motion to compel arbitration filed by a collection company and its chief operations officer (collectively, “defendants”), ruling that the arbitration agreements are “unconscionable” and therefore “unenforceable” because of the conditions under which borrowers agreed to arbitrate their claims. According to the order, the plaintiffs received lines of credit from an online lending company purportedly owned by a federally recognized Louisiana tribe. After defaulting on their payments, the defendants purchased the past-due accounts and commenced collection efforts. The plaintiffs sued, alleging the defendants’ collection efforts violated the FDCPA and Florida’s Consumer Collection Practices Act (FCCPA) because the defendants knew the loans they were trying to collect were usurious and unenforceable under Florida law. The defendants moved to compel arbitration based on the arbitration agreement in the tribal lender’s line-of-credit agreement, and filed—in the alternative—motions for judgment on the pleadings.
The court ruled, among other things, that while the plaintiffs agreed to arbitrate all disputes when they took out their online payday loans, the “proposed arbitration proceeding strips Plaintiffs of the ability to vindicate any of their substantive state-law claims or rights,” and that, moreover, “the setup is a scheme to hide behind tribal immunity and commit illegal usury in violation of Florida and Louisiana law.” The court also granted in part and denied in part the defendants’ motions for judgment on the pleadings. First, in denying in part, the court ruled that because the “tribal choice-of-law provision in the [tribal lender’s] account terms is invalid,” the plaintiffs’ accounts are subject to Florida law. Therefore, because Florida law is applicable to the plaintiffs’ accounts, they present valid causes of action under the FDCPA and FCCPA. The court, however, ruled that the plaintiffs seemed to “conflate Defendants’ communications to facilitate the collection of the outstanding debts with a communication demanding payment,” pointing out that FDCPA Section 1692c(b) only punishes that latter, which “does not include communications to a third-party collection agency.”
Illinois reissues and extends several Covid-19 executive orders
On December 11, the governor of Illinois issued Executive Order 2020-74, which extends several executive orders through January 9, 2021 (previously covered here, here, here, and here). Among other things, the order extends: (i) Executive Order 2020-07 regarding in-person meeting requirements, (ii) Executive Order 2020-23 regarding actions by individuals licensed by the Illinois Department of Financial and Professional Regulation engaged in disaster response, (iii) Executive Order 2020-25 regarding garnishment and wage deductions (previously covered here), (iv) Executive Order 2020-30 regarding residential evictions (previously covered here and here), and (v) Executive Order 2020-72 regarding the residential eviction moratorium (previously covered here, here, here, and here).
CFPB releases fall 2020 rulemaking agenda
On December 11, the CFPB released its fall 2020 rulemaking agenda. According to a Bureau announcement, the information details the regulatory matters that the Bureau “expect[s] to focus on” between November 2020 and November 2021. The announcement notes that the Bureau will also continue to monitor the need for further actions related to the ongoing Covid-19 emergency. In addition to the rulemaking activities already completed by the Bureau this fall, the agenda highlights other regulatory activities planned, including:
- Debt Collection. The Bureau notes that it expects to issue a final rule in December 2020 addressing, among other things, disclosures related to validation notices and time-barred debt (proposal covered by a Buckley Special Alert here).
- LIBOR Transition. The Bureau notes that it anticipates publishing the final rulemaking (proposal covered by InfoBytes here) on the LIBOR transition later than the original January 2021 target identified in the Unified Agenda, due to the November 30 announcement by UK regulatory authorities that they are considering extending the availability of US$ LIBOR for legacy loan contracts until June 2023, instead of the end of 2021.
- FIRREA. The Bureau notes that, together with the Federal Reserve Board, OCC, FDIC, NCUA, and FHFA, it will continue to develop a proposed rule to implement the automated valuation model (AVM) amendments made by the Dodd-Frank Act to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) concerning appraisals.
- Mortgage Servicing. The Bureau notes that it intends to issue an NPRM in spring 2021 to consider amendments to the Bureau’s mortgage servicing rules to address actions required of servicers working with borrowers affected by natural disasters or other emergencies. The Bureau notes that comments to the interim final rule issued in June 2020, amending aspects of the mortgage servicing rules to address the exigencies of Covid-19 (covered by InfoBytes here), suggest that the rules may need additional updates to address natural disasters or other emergencies.
- HMDA. The Bureau states that two rulemakings are planned, including (i) a proposed rule that follows up on a May 2019 advanced notice of proposed rulemaking, which sought information on the costs and benefits of reporting certain data points under HMDA and coverage of certain business or commercial purpose loans (covered by InfoBytes here); and (ii) a proposed rule addressing the public disclosure of HMDA data.