1. DEBT COLLECTION and CFPB RULES
Presented by:
David A. Head, Esq.
July 2017

2. CFPB Debt Collection Rulemaking Update

3. CFPB Debt Collection Rulemaking Update
Recall
November 2013 – CFPB issued ANPR for debt collection
February 2014 – ANPR public comment period ended
2015 – Nationwide consumer survey related to consumer experience with collections
2015 – Consumer testing initiatives to determine what information is useful and how the information should be provided

4. CFPB Debt Collection Rulemaking Update
July 2016
Outline of Proposals under Consideration for Debt Collector and Debt Buyer Rulemaking
Announced that First-Party debt collection rules would be developed separately
Three primary issues
Contacting the right consumer for the right amount
Ensuring consumers understand the debt collection process and their rights
Ensuring consumers are treated with dignity and respect
August 2016 – SBREFA Hearing

5. CFPB Debt Collection Rulemaking Update
Fall 2016 Rulemaking Agenda
No significant update
Consumer Advisory Board Meeting – June 8, 2017
Fourth and final topic of Director Cordray’s opening remarks
Addressed Debt Collection Rulemaking and indicated the CFPB is moving forward quickly on a proposed rule for Third-Party Debt Collection and Debt Buying

6. CFPB Debt Collection Rulemaking Update
“RIGHT CONSUMER, RIGHT AMOUNT”
Separating this item to develop rules simultaneously for First-Party and Third-Party entities
First-Party creates the information about the debt and may use it to collect themselves
Third-Party receives information about the debt from the First-Party

7. Supreme Court FDCPA Decisions

8. Henson v. Santander Consumer USA Inc. – June 12, 2017
Issue – whether Santander qualified as a debt collector as defined in the FDCPA when it purchased defaulted auto loans from CitiFinancial and sought to collect the debts
SCOTUS Decision – No (9-0)

9. Henson v. Santander Consumer USA Inc.
FDCPA – 15 USC 1692a(6)
Debt collector is defined as anyone who’s “principal purpose is the collection of any debts, or who regularly collects or attempts to collect debts owed or due another.”
The court focused only on the second part of this definition
Court looked to the FDCPA’s plain language and was unwilling to “rewrite a constitutionally valid text under the banner of speculation about what Congress might have done”

10. Midland Funding, LLC v Johnson – May 15, 2017
Issue – does the filing of a proof of claim in a Ch. 13 bankruptcy proceeding where the statute of limitations has expired on the debt violate the FDCPA as false, deceptive, misleading, unconscionable, and unfair
Circuit split now resolved
SCOTUS Decision – No (5-3)

11. Midland Funding, LLC v Johnson
Claim is defined as a “right of payment” in the bankruptcy code
Typically state law determines whether there is a right of payment
Does state law indicates there is a right to payment even after the statute of limitations has expired?
If yes, then have a claim
If a claim is unenforceable, it will be disallowed
The running of the statute of limitations is an affirmative defense

12. Midland Funding, LLC v Johnson
The filing of a POC is not a civil lawsuit
Action initiated by the consumer to discharge debts
Bankruptcy Trustee is knowledgeable and has the burden of investigating claims
The FDCPA and the Bankruptcy Code serve separate purposes
To find the FDCPA applicable in this scenario would upset the Bankruptcy Code’s “delicate balance of a debtor’s protections and obligations”

13. Statute of Limitations - Ongoing Caution
The filing of a Proof of Claim in a bankruptcy proceeding is not the same as initiating a civil lawsuit
Collecting on out of statute debts continues to be difficult and full of traps

14. Other FDCPA Updates

15. Verification and CFPB Portal
Debt collector initiated collections on a tuition account
Debt was disputed via initially
Second request for verification submitted on the CFPB online portal
Collector’s letter responding to verification request was uploaded to the CFPB portal, rather than mailing it
Proper verification? District Court said “no”
Look to text of the FDCPA, not its spirit

16. Tax Consequence
Catch 22 – to mention or not to mention by debt collector
Creditors may require language similar to the following:
“This settlement may have tax consequences. Please consult your tax advisor.”
Recent rulings have been favorable to collectors in either direction, but it is still unsettled

17. Bona Fide Error Defense
Have policies and procedures in place
Document the policies and procedures
Train the policies and procedures
Follow the policies and procedures that are in place
Audit that the policies and procedures are being followed
If any one of the above is not done, then likely no bona fide error defense

18. Questions?

19. Thank You David A. Head Partner Consumer Collections,
Education Loan Collection &
Litigation Group
phone
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