REGULATING DEBT COLLECTION

______________________________________________________
By:

Christopher K. Odinet1
Roederick C. White, Sr.2

Abstract
Debt collection. It often starts as a late night call carrying threats
of being thrown in prison, ruin at the workplace, and trouble for the
family unless you pay up. While the law actually prohibits some of
these tactics, most consumers do not know their legal rights, which
leave much to be desired, or fail to exercise them when faced with
the harassing practices of some debt collectors. Moreover, the debt
collection industry as a wholeboth massive and sophisticated
lacks the incentives to self-police or internally punish bad actors. In
July 2016 the Consumer Financial Protection Bureau released a
proposal aimed at overhauling the entire debt collection industry
both as to how collectors interact with consumers and how debts are
bought and sold. Consumer protection groups have lauded the new
rules as a win for average Americans, while consumer credit firms
caution that some of the provisions go too far and risk crippling the
collection industry, which would have an adverse effect on the
ability of people to obtain the type of everyday credit that makes the
wheels of the economy turn. This Article explores the proposed rules
and critiques the places where they fall short or go too far, as well
as considers future developments and issues that will arise from
their enactment.
Table of Contents
INTRODUCTION ................................................................................ 2
I. DEBT COLLECTION/BUYING IN THE UNITED STATES ................... 5
A. Overview of the Industry ........................................................ 5
B. Contemporary Issues .............................................................. 9
II. SUMMARY AND CRITIQUE OF THE THE CFPBS PROPOSAL ....... 11
A. Addressing the Integrity of Consumer Information .............. 12
1. Reasonable Debt Substantiation ....................................... 12

1

Horatio C. Thompson Endowed Assistant Professor of Law, Southern

University Law Center, Baton Rouge, LA; 2016-2018 Louisiana Bar Foundation
Scholar-in-Residence; Faculty Scholar, American College of Real Estate Lawyers.
2
Vice Chancellor for Academic and Student Affairs and Charles Hatfield
Endowed Professor of Law, Southern University Law Center, Baton Rouge, LA.

2. Better Transmission of Consumer Data ............................ 17

3. Debt Verification and Credit Reporting ............................ 18
B. Requiring New Consumer Disclosures................................ 20
1. Beware of Litigation ......................................................... 20
2. Time-Barred Debt Collection No More ............................ 21
C. Changing Consumer Communication Methods ................... 24
1. Frequency and Form ......................................................... 25
2. Time, Place, and Manner .................................................. 27
3. Debt of the Dead ............................................................... 31
D. Regulating Debt Collection Administration......................... 32
1. Market Transactions.......................................................... 32
2. Records Retention ............................................................. 34
III. POSSIBLE FUTURE ISSUES AND DEVELOPMENTS ..................... 34
A. Regulation of Original Creditors ......................................... 34
B. Indirect Regulation ............................................................... 36
C. Chain of Title Due Diligence ............................................... 36
CONCLUSION.................................................................................. 37
INTRODUCTION
Debt collection has long been the source of much
discussionboth legal and politicalin the United States.3 From
upholding the legitimate rights of creditors seeking paying to
protecting debtors in distress from abusive practices, debt collection
is a major subject of conversation in consumer finance circles. 4
When creditors are able to collect debts efficiency and effectively

3

Steve Fraser, The Politics of Debt in America, THE NATION (Jan. 29, 2013); see
also Consumers Union & East Bay Community Law Center: Rachel Terp &
Lauren Bowne, PAST DUE: Why Debt Collection Practices and the Debt Buying
Industry
Need
Reform
Now
(Jan.
2011),
http://consumersunion.org/pdf/Past_Due_Report_2011.pdf.
4
See, e.g., Brianna Gallo, One Time to Sue: The Case for a Uniform Statute of
Limitations for Consumers to Due Under the Fair Debt Collection Practices Act,
84 FORDHAM L. REV. 1653 (2016); Michael A. DeNiro, Note, Hijacked Consent:
Debt Collection and the Telephone Consumer Protection Act, 100 CORNELL L.
REV. 493 (2015); Alan S. Kaplinsky & Christopher J. Willis, The CFPB
Addresses Civil Investigations, Enforcement, Debt Collection and Student Loan
Servicing, 67 CONSUMER FIN. L.Q. REP. 182 (2013); Bill Arnold, The Debt Collections Made Human (2012); TERESA A. SULLIVAN, ELIZABETH WARREN,
& JAY LAWRENCE WESTBROOK, THE FRAGILE MIDDLE CLASS: AMERICANS IN
DEBT (2008); Dali Jimnez, Dirty Debts Sold Dirt Cheap, 52 HARV. J. ON LEGIS.
41 (2015).

the cost of borrowing is reduced.5 This, in turn, benefits borrowers

seeking access to consumer credit. 6 Often, however, it is not the
original creditor that ends up seeking to collect the debt once there
is a default.7 Instead, it is frequently a third party, entirely foreign to
the borrower, that ends up seeking payment. Indeed, a tremendous
market has developed for companies that purchase debt at a
discounted rate from the original creditor and then act to collect the
debt themselves or who enter into agreements with the original
creditor to collect the debt of its behalf in exchange for a
commission.8 These individuals are known as debt collectors.9
Under federal law a debt collector is defined as any
individual who, through any form of interstate commerce, is in the
principal business of collecting debts or is one who regularly
collects or attempts to collect (whether directly or indirectly) debts
owed.10 While this may seem to include any and all creditors, the
term does not include (among other things) the creditor who
originated the debt nor the purchaser of such debt if, at the time of
the purchase, there was no default.11 Thus, the bank that made the
loan to the consumer and then tries to collect on that loan once the
consumer fails to pay is not considered a debt collector even
though it is trying to collect on a debt owed. But if the bank, after
the default, sells the loan to Buyer, Inc. who then seeks to enforce
the obligation to pay, we now have a debt collector in the legal

5

Todd Zywicki & Chad Reese, The Unintended Consequences of CFPB Debt
Reform,
REAL
CLEAR
MARKETS
(Nov.
18,
2015),
http://www.realclearmarkets.com/articles/2015/11/18/the_unintended_conseque
nces_of_cfpb_debt_reform_101889.html; Clinton W. Francis, Practice, Strategy,
and Institution: Debt Collection in the English Common-Law Courts, 1740-1840,
80 NW. U. L. REV. 807 (1986).
6
See id.
7
See generally Ronald J. Mann, Bankruptcy Reform and the Sweat Box of
Credit Card Debt, 2007 U. ILL. L. REV. 375, 391 (2007); Federal Trade
Commission: Repairing a Broken System: Protecting Consumers in Debt
Collection Litigation and Arbitration (2009).
8
See generally The Association of Credit and Collection Professionals (last
visited Aug. 28, 2016), http://www.acainternational.org; Federal Trade
Commission: The Structure and Practices of the Debt Buying Industry (January
2013), https://www.ftc.gov/sites/default/files/documents/reports/structure-andpractices-debt-buying-industry/debtbuyingreport.pdf; JAKE HALPERN, BAD
PAPER: CHASING DEBT FROM WALL STREET TO THE UNDERWORLD (2014).
9
See Jimnez, supra, note _.
10
15 USC 1692a(6) (2010).
11
15 USC 1692a(6)(F) (2010).

sense. Similarly, a third party engaged by a creditor to collect the

debt on their behalf is considered a debt collector.
Some argue debt collectors are necessary in order to keep
access to consumer credit going, 12 while others assert that the
practices that pervade the debt collection industry invite frequent
abuse and injustice. 13 On July 28, 2016 the Consumer Financial
Protection Bureau (the CFPB or the bureau) released a proposal
aimed at issuing the first-ever set of regulations under the Fair Debt
Collection Practices Act (FDCPA),14 as well as under a number of
other statutes affected by the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010.15 In essence, the CFPB seeks to
give a complete overhaul to the way debt collection is regulated in
the United States, mainly through clarifying existing rules and
imposing new ones that further restrict the ways the industry can

12

Christina Digani, Debt Collectors Respond to Your Top Complaints, ABC

NEWS (Mar. 26, 2014) (Collecting a consumer debt isn't an enjoyable experience
for either party involved, but it's necessary, the organization said. And it's more
complicated than you may think.).
13
Editorial: Bad Debt Collectors and Their Prey, N.Y. TIMES (Nov. 17, 2015)
(All states have laws that are intended to prevent debt collectors from driving
families into destitution. But those laws, some of which date to the distant past,
have been rendered ineffective by debt collectors using new and devious ways to
win court judgments that allow them to seize debtors paychecks or bank
accounts.); see Jimnez, supra note _; see Mann, supra note _; Emanuel J.
Turnbull, Account Stated Resurrected: The Fiction of Implied Assent in Consumer
Debt Collection, 38 VT.
L. REV. 339 (2013); Judith Fox, Do We Have a Debt Collection Crisis? Some
Cautionary Tales of Debt Collection in Indiana, 24 LOY. CONSUMER L. REV. 355
(2012); Mary Spector, Debts, Defaults, and Details: Exploring the Impact of Debt
Collection Litigation on Consumers and Courts, 6 VA. L. & BUS. REV. 258 (2011);
Sam Glover, Has
the Flood of Debt Collection Lawsuits Swept Away Minnesotans Due Process
Rights?, 35 WM. MITCHELL L. REV. 1116 (2009).
14
15 U.S.C. 1692-1692p (2010).
15
Yuka Hayashi, CFPB Unveils Overhaul of Debt Collection, WSJ (July 28,
2016). See also Consumer Financial Protection Bureau: Small Business Review
Panel for Debt Collector and Debt Buyer RulemakingOutline of Proposals
Under Consideration and Alternatives Considered (July 28, 2016),
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved
=0ahUKEwjh1uHi2OTOAhVP0GMKHbHRDgUQFggcMAA&url=http%3A%
2F%2Ffiles.consumerfinance.gov%2Ff%2Fdocuments%2F20160727_cfpb_Outl
ine_of_proposals.pdf&usg=AFQjCNGVdsF64I9LQNzyteDwqZj16Kkl4g&sig2
=q_TG_u-DwdRPcXhAHqulEA&bvm=bv.131286987,d.eWE
[hereinafter
CFPB Proposal].

interact with consumer debtors and transact in debt portfolios.16 This

Article gives an overview of the proposed regulations, examines
their impact on those operating in the American consumer credit
market, and discuses possible future issues and developments that
may result.
I. DEBT COLLECTION/BUYING IN THE UNITED STATES
A prerequisite to appreciating the significance of the CFPBs
current proposal is an understanding of how the debt collection
industry is structured and operates in the United States. Indeed,
while most consumer debtors go about their day paying their bills
and making purchases on credit, there exists an enormous
substructure that underpins these transactions.17 This section gives
an overview of the debt collection industry, and debt buying in
particular, as well as discusses some of the contemporary critiques
of the system that led to the CFPBs decision to promulgate new
rules to govern this important, but often hidden sector.
A. Overview of the Industry
The foundation of the debt buying and collection industry is
simple. A consumer and a creditor enters into a transaction whereby
he receives funds in order to make a purchase.18 In exchange for the
funds, the consumer will repay the amounts, plus interest, to the
creditor over a set period of time.19 The law provides a number of
mechanisms whereby the creditor can collect on a debt if the
consumer refuses or cannot pay.20 As noted above, the theory is that
if there is an efficient and effective way for creditors to collect debts
they will be more likely to extend credit to others seeking it and will

16

See CFPB Proposal, supra note _.

See Jimnez, supra note _.
18
See Federal Trade Commission: The Structure and Practices of the Debt Buying
Industry
11-12
(January
2013),
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved
=0ahUKEwjXrMfa7fPOAhUGpB4KHZ2sC1EQFggcMAA&url=https%3A%2F
%2Fwww.ftc.gov%2Fsites%2Fdefault%2Ffiles%2Fdocuments%2Freports%2Fs
tructure-and-practices-debt-buyingindustry%2Fdebtbuyingreport.pdf&usg=AFQjCNF6GF7pTz2iP_MZAUHNigk
6nR8r0Q&sig2=hNM2lxymgaaFM5D8wme9cQ&bvm=bv.131783435,d.eWE
[hereinafter FTC Report].
19
Id.
20
See id.
17

do so on more favorable terms.21 More consumers with access to

credit can make more purchases, which is ostensibly good for the
economy.22
In the simplest model, the creditor who extends the credit is
also the one who enforces collection as against the debtor. 23 But
often creditors will hire a third party with expertise in collection to
do that work for them.24 This is usually done because the creditor,
while ready and able to extend credit to borrowers, does not
necessarily have the skills and infrastructure in place to collect the
debt in a way that makes the effort worth it.25 Third party firms that
provide these types of services (i.e., debt collectors) are adept at
navigating the legal rules for enforcement and often have
technology and processes that make collection efforts easier and
more cost-effective.26
In yet another scenario, the original creditor does not collect
the debt itself (or even through a third party debt collector), but
rather sells the debt to someone elsecalled a debt buyer.27 Then,
the debt buyer may itself collect the debt or engage a third party debt
collector to do it on the debt buyers behalf.28 This practice of selling
debts has its origins in the savings and loan crisis in the 1980s when
the federal government created the Resolution Trust Company to
take control of and liquidate a number of failed financial
institutions.29 The RTC sold off the debt of these failed institutions

21

See generally Tullio Jappelli, Marco Pagano, & Magda Bianco, Courts and
Banks: Effects of Judicial Enforcement on Credit Markets, 37 J. MONEY, CREDIT,
& BANKING 223 (2005); Luc Laeven & Giovanni Majnoni, Does Judicial
Efficiency Lower the Cost of Credit?, 29 J. BANKING & FIN. 1791 (2005).
22
Kauffman Foundation: Access to Credit Remains a Challenge for Entrepreneurs
Despite Improving Economy (Feb. 23, 2015); Board of Governors of the Federal
Reserve System: Report on the Economic Well-Being of U.S. Households in 2014
(last visited Sept. 3, 2016), http://www.federalreserve.gov/econresdata/2015economic-well-being-of-us-households-in-2014-banking-credit-access-creditusage.htm.
23
See FTC Report, supra note _, at 11.
24
See id.
25
See id.
26
Id.
27
See id. at 12.
28
Id.
29
See id. (citing Robert J. Andrews, Debt Collection Agencies in the US,
IBISWORLD INDUS. REP. 56144, at 14 (2010); Timothy E. Goldsmith & Natalie
Martin, Testing Materiality Under the UnFair Practice Acts: What Information

to third parties.30 The transactions proved to be so successful for the

debt buyers that a market quickly developed for the buying of
consumer debt from many different types of creditors.31 Today it is
not unusual for a portfolio of debt to change hands multiple times
through the course of many sales. 32 According to studies, many
banks and originating creditors use third party collectors
immediately after a default and, when collection is not successful,
sell the debt to a third party altogether.33 In the case of credit card
debt, banks have an obligation under federal law to charge-off
defaulted amounts after a certain amount of time has passed.34 This
means that after the requisite period of time has expired, the bank
can continue to try to collect on the debt but it cannot continue to
account for that debt on its books for purposes of meeting federal
bank capital requirements.35 However, by selling the debt to third
parties the banks can then use the purchase money as an asset for
meeting federal capital supply requirements. 36 This creates yet
another powerful incentive for banks to sell credit card debt on a
routine basis after a delinquency.37
The debt buying and collection system is based on achieving
a number of economies. Creditor may be owed a total of $1 million
from a number of different consumer debtors, but may lack the
resources to collect it efficiency. Creditor may then sell the debt to
Debt Buyer at a discount (for instance, at .40 on the dollar).38 That

Matters When Collecting Time-Barred Debts?, 64 CONSUMER FIN. L.Q. REP. 372,
725 (2010)).
30
Id. See also Jessica Silver-Greenberg, Boom in Debt Buying Fuels Another
Boomin Lawsuits, N.Y. TIMES (Nov. 1, 2010).
31
See FTC Report, supra note _, at 12.
32
See generally Center for Responsible Lending: Lisa Stifler and Leslie Parrish,
Debt Collection & Debt BuyingThe State of Lending in America & its Impact
on U.S. Households (April 2014) [hereinafter CFRL Debt Collection Report].
33
FTC Report, supra note _, at 12.
34
Id. at 13.
35
Id.
36
See id.
37
Id. See also Mark D. Erickson, When Selling Charged-Off Loans and Leases
Makes Smart Sense, ABF JOURNAL (July/August 2011).
38
See generally The Impact of Third-Party Debt Collection on the U.S. National
and State Economies in 2013, i-ii (July 2014) (prepared by Ernst & Young for
ACA International-the Association of Credit and Collection Professionals),
http://www.wacollectors.org/Media/Default/PDFs/_images_21594_impactecono
mies2014.pdf [hereinafter Ernst & Young Report]; see also Jimnez, supra note
_, at n.4 ((On average, debt buyers
paid 4.0 cents for each dollar of debt.).

means Creditor will walk away with $400,000. While that is

certainly less than the full $1 million, it may nevertheless make
Creditor better off than if he would have sought to collect the debt
himself and incurred substantial expenses in attorneys fees, court
costs, and human capital trying to do so. Now, Debt Buyer, who has
the requisite expertise, can seek to collect on the $1 million. Even if
Debt Buyer is, in the end, only able to collect $700,000 of the total,
it will still make a profit of $300,000. Creditor and Debt Buyer both
walk away with money. Losses are diminished and credit continues
to flow into the pockets of consumers.
Before understanding the impact of the CFPBs proposed
regulations it is helpful to have a snapshot of the debt
collection/buying industry as a whole. As for debt collectors (those
third parties engaged by a creditor to carryout collection efforts),
according to the 2012 census there were about 4,000 firms in the
United States engaged in the primary business of collecting
payments for claims.39 About 95 percent of those firms have annual
receipts of $15 million or less, and are therefore considered small
businesses according to the CFPB.40 As for debt buyers (those who
purchase debt and may or may not carryout collection efforts on
their own behalf), the field is occupied by many firms, but the
majority of debt nation-wide is purchased by a number of large
players.41 According to a Federal Trade Commission study in 2008,
about nine debt buyers purchased over 76 percent of all consumer
debt sold that year. 42 In total, the CFPB states that there are
approximately 330 debt buyers in the United States.43
Debt collection is big business and often brings in big money.
In a 2013 report it was estimated that debt collectors recovered about
$55.2 billion in total debt that year, earning roughly $10.4 billion in
fees and related commissions. 44 The highest amount of debt was
collected in New York, Texas, California, Illinois, and Florida.45
Most of the debt collected (71 percent) was more than 90-days past

39

See id. at 36.

Id.
41
See FTC Report, supra note _, at 14.
42
See id. (citing Federal Reserve Bank of Philadelphia: Robert M. Hunt,
Overview of the Collection Industry, Presentation at the 207 FTC Debt Collection
Workshop 11 (Oct. 10, 2007)).
43
See CFPB Proposal, supra note _, at 36.
44
See Ernst & Young Report, supra note _, at i-ii.
45
Id. at i.
40

due, with the largest category of overall debt consisting of

healthcare related debt (about 38 percent).46 Student loan debt was
a runner-up, and credit card debt comprised about ten percent.47 In
2013 Debt collection agencies employed over 136,000 individuals,
consisting of over 128,000 fulltime employees, 6,600 part-timers,
and 1,600 workers on a contract-basis.48 Collectively for that year
debt collection firms paid about $724 million in federal taxes,
roughly $400 million at the state level, and $287 million in local
taxes.49
As noted above, while the term debt collector and debt buyer
are technically different, they have a common legal meaning. The
FDCPA uses a definition of debt collector that captures more than
just those third party firms that collect consumer debts on behalf of
their clients.50 It also captures those firms that purchase defaulted
consumer debt from the original creditor.51 Therefore, a debt buyer
(i.e., one who purchases debt from another) is nevertheless
considered a debt collector if the purchase of the consumer debt was
made after the consumer defaulted.52 Because of this, we use the
term debt collector throughout this Article in order to mean both
true debt collection agencies as well as those firms that purchase
debt and collect on their own behalf.53
B. Contemporary Issues
Over the course of the past several years the CFPB notes that
it has received a tremendous number of complaints in connection
with debt collection. 54 These have been echoed by a number of
government, advocacy, and consumer watchdog groups. 55 The

46

Id.
See id.
48
Id. at ii.
49
See id.
50
See 15 USC 1692a(6) (2010).
51
Id.
52
See generally
53
Importantly, those who collect on behalf of another and those who collect on
their own behalf are not considered debt collectors under the FDCPA if the debt
is commercial in nature. See 15 USC 1692a(6)(F) (2010).
54
See CFPB Proposal, supra note _, at 1.
55
See, e.g., Jake Halpern, Paper Boys: Inside the Dark, Labyrinthine, and
Extremely Lucrative World of Consumer Debt Collection, N.Y. TIMES (Aug. 15,
2014); CFRL Debt Collection Report, supra note _; Blake Ellis & Melanie Hicken,
The Secret World of Government Debt Collection, CNNMONEY (Feb. 17, 2015);
47

bureau states that since it began operating in 2011 it has filed 25 debt
collection lawsuits and, in connection with this litigation, has sought
hundreds of millions in restitution to consumers and the imposition
of significant civil penalties. 56 For this same period the Federal
Trade Commission launched 40 cases involving unfair or deceptive
practices against debt collection firms. 57 Indeed, the FTC reports
that over the years it has received more complaints regarding
consumer debt collection than on any other matter.58
The CFPB reports that of the 200,000 complaints it has
received in 2015 regarding debt collection, the chief complaint had
to do with attempts to collect debts that were not owed.59 Another
common complaint, so reports the bureau, has to do with harassment
by debt collectors or threats by collectors to take actions which the
law does not allow.60 Sharing personal debt information with third
parties and a failure to provide required information and notices also
rank high on their list.61 In the period between roughly 2011 and
2016 consumer individually filed over 50,000 lawsuits in federal
court against debt collectors on the basis of FDCA violations.62
Consumer complaints and lawsuits filed in connection with
such grievances can be distilled into a number of broad policy
considerations. A number of complaints deal with attempts to collect
a debt for which claims to the indebtedness are not substantiated by
any reasonable documentation. 63 In other words, collectors are
attempting to collect a debt for which they lack evidence as to the
validity of it. Consumers also complain that when information is
given to them regarding the debt, it is incorrect, incomplete, or

Paul Kiel & Annie Waldman, The Color of Debt: How Collection Suits Squeeze
Black Neighborhoods, PROPUBLICA (Oct. 8, 2015); Urban Institute: Caroline
Ratcliffe, Signe-Mary McKernan, Brett Theodos, & Emma Cancian Kalish,
Delinquent Debt in America (July 29, 2014); Neil L. Sobol, Protecting
Consumers From Zombie-Debt Collectors, 44 N.M. L. REV. 327 (2014); Nicole
F. Munro, Our Mini-Theme: Debt Collection Issues Reign in the Brace New
World of Consumer Finance Services, 2014 BUS. L. TODAY 1 (2014).
56
CFPB Proposal, supra note _, at 1.
57
Id.
58
See id. at 1-2.
59
Id. at 2.
60
See id. at 6-15.
61
Id. at 2.
62
Id. at 2-3.
63
Id. at 5-20; see also Cody Vitello, Debt Collectors Behaving Badly: A Guide to
Consumer Rights, 23 LOY. CONSUMER L. REV. 252 (2010).

10

confusing.64 Another significant point of criticism has to do with

attempts to enforce debt that is barred by the passage of time (i.e.,
the running of the state of limitations).65 Yet additional complaints
deal with the way collectors communicate with consumers in
furtherance of collecting the debt.66
In hearing these complaints, and with the input of those who
have conducted research in the area, as well as based on the bureaus
own research and litigation experience, the CFPB has issued a series
of significant proposed rules that would largely reshape the way in
which the debt collection industry operates in the United States. A
description and discussion of those proposals, as well as critiques of
them, is what follows.
II. SUMMARY AND CRITIQUE OF THE THE CFPBS PROPOSAL
The CFPBs proposal takes a two-pronged approachone
that can be viewed as addressing the horizontal aspects of debt
collection (between buyers and sellers of debt) and the other can be
viewed as speaking to the vertical aspects of debt collection
(between the collector and the consumer). It covers not only how
transactions involving the sale of debt operate, but also how
consumer information is handled, what disclosures are due to
consumers, and how collectors are to communicate with consumers
throughout the enforcement process. Some of the rules reflect
prevailing industry practices, while others seek to adopt the
practices of some as the now required norm for others. Moreover, in
a number of places the proposal imposes new (and sometimes
substantial) requirements on debt collectors. At different times the
CFPBs goals are more or less direct, variously leaving concepts
open-ended. Naturally, a major concern among those in the industry
is how these new regulations will affect the cost of doing business
particularly since the vast majority of debt collectors in the United
States are small firms.67

64

CFPB Proposal, supra note _, at 18-22.

See id. at 19; see also Charles V. Gall, Proceeding with Caution: Collecting
Time-Barred Debts, 56 CONSUMER FIN. L.Q. REP. 244 (2002),
66
CFPB Proposal, supra note _, at 23-34.
67
See CFPB Proposal, supra note _; see also Mann, supra note _; Jimenez, supra
note _.
65

11

The following gives an overview of the proposal, noting in

various places where issues will likely arise as to interpretation and
enforcement of the rules. In a number of places, the CFPB notes that
it is only considering a certain rule, rather than making a firm
statement now on how it will ultimately approach a certain issue.
These issues, as well as criticisms of the policy approaches that the
CFPB takes in certain instances, are noted below.
A. Addressing the Integrity of Consumer Information
The CFPB reports that the most common complaint it has
received relative to debt collection deals with bad consumer
information. 68 In other words, the allegation often involves a
consumer stating that a collector is attempting to enforce credit
rights against the wrong borrower or for the wrong amount.69 The
CFPB attributes these problems to a lack of accurate borrower
information being conveyed from the original creditor to the debt
collector at the time of the sale of the debt.70 Often the information
that is handed over is incomplete or confusing. 71 Because some
original creditors keep better records than others, the quality of the
data can vary greatly.72 This becomes all the more difficult when the
debt is passed to many debt collectors in a long chain of title.73
The CFPB believes these problems of correct consumer
information are tied, in part, to the inadequate notice requirements
provided under existing law, particularly the FDCPA.74 Thus, the
first and perhaps central part of the proposed regulations deals with
created an environment for better information integrityboth for
consumers and for debt collectors. The remedy for these problems
comes in three parts.

1. Reasonable Debt Substantiation

68

See CFPB Proposal, supra note _, at 5-6.

Id.
70
Id. at 6.
71
For an excellent discussion of the debt buying and selling process, see Jimenez,
supra note _.
72
See Jeff Horwitz, Bank of America Sold Card Debts to Collectors Despite
Faulty Records, THE AMERICAN BANKER (Mar. 29, 2012).
73
CFPB Proposal, supra note _, at 6.
74
Id.
69

12

The first part deals with requiring that the debt collector have
a reasonable foundation upon which to base the collection of the
debt.75 One might think of this as a counterpart to the ability-torepay requirement already in place for residential mortgage
originators 76 and being considered for small-value lenders. 77 In
other words, the collector must substantiate its claim that the debt is
due before proceeding against the debtor.78 How this process takes
place is, of course, where the real questions lie. As the CFPB
acknowledges, different types of debt call for different methods of
substantiation. 79 This is particularly true when the information
obtained by the collector is imperfect. The CFPB is looking to
identify warning signs that collectors should look for when
engaging in the substantiating process. Examples of warning signs
being considered include (i) when the debt described is not in a
clearly understandable form; (ii) when information about the debt is
presented in a way that is conflicting or improbable; (iii) when a
portion of the debt in the portfolio is absent or contains questionable
information when compared with similar accounts; or (iv) when a
material portion of the debt comprising the portfolio consists of
unresolved or disputed debt, particularly when compared to similar
portfolios.80
Some of these signs might be dismissed if additional support
can be obtained or representations and support from the original
creditors can be procured. 81 Should a collector encounter any of
these warning signs during their review of the portfolio, it would
have to engage in further investigations to obtain better information.
The CFPB notes that the standard would not require collectors to
confirm all the information they receive, but it also would not permit
collectors to ignore potential problems.82

75

Id. at 6-7.
Christopher K. Odinet, The Unfinished Business of Dodd-Frank: Reforming the
Mortgage Contract, SMU LAW REVIEW (forthcoming Spring 2017).
77
Christopher K. Odinet, Payday Lenders, Vehicle Title Loans, and Small-Value
Financing: The CFPBs Proposal to Regulate the Fringe Economy, 132 BANKING
L.J. 263 (2015).
78
CFPB Proposal, supra note _, at 7-8.
79
Id. at 8.
80
Id. at 8-9.
81
Id. at 9.
82
Id.
76

13

Thus, as long as there are no warning signs and as long as

the debt-seller makes representations of accuracy to the debt
collector, it is not necessary for the debtor collector to review the
documentation underlying the entire portfolio in order to meet the
substantiation requirement. 83 However, an issue that will likely
come up if this becomes law deals with the willingness of debtsellers (particularly collectors/buyers downstream of the original
creditor) to make affirmative representations of accuracy. As a
recent 2015 study by Professor Dali Jimnez notes, many sellers of
debt desire to transfer the debt while making few or no
representations as to the accuracy of the debt, title to it, or as to the
legality of the debt. 84 Rather, they would rather the debt-buyer
engage in its own due diligence and, as a sophisticated party, let the
buyer beware.85 But if debt collectors can only collect if they can
substantiate their basis for doing so, and if engaging in this process
involves, in part, representations by the debt-seller or creditor, then
there will likely be transactional concerns going forward. It could
ultimately harm the debt collection industry by causing original
creditors to shift to collecting their own debts. On the other hand, it
may just cause the industry to conform to a more transaction costintensive process moving forward. In the case of a creditor who uses
a debt collector to act on its behalf, since information from the
creditor will be important when it comes to the debt collectors
ability to substantiate the claim in the face of warning signs, we
might expect more dickering over the terms of engagement. The
same issue of terms of the deal and warranties given will be present
in instances where the debt is sold to the collector.
Another part of the warning sign analysis involves those
signs that appear after collection efforts have commenced. Rather
than missing information in the portfolio that was acquired, these
post-initial review warning signs would include (i) consumer
disputes regarding the debt; (ii) the inability to produce

83

See id.
For a database of consumer debt purchase agreements, see
http://www.daliejimenez.com; see also Jimnez, supra note __, at 55-63 (quoting
from a representative debt purchase agreement: Bank has not and does not
represent, warrant or covenant the nature, accuracy, completeness, enforceability
or validity of any of the Accounts and supporting documentation provided by
Bank to Buyer . . .).
85
See id. at 87 (discussing the use of reliance waivers, specific disclaimers of
representations and warranties, and big boy clauses in debt purchase
agreements.).
84

14

documentation regarding the debt once a dispute has been

commenced; or (iii) a large quantity of disputes with regard to the
debt in a single portfolio, compared to disputed debt percentages in
similar portfolios.86 In this way, collectors would be obligated to
continue to seek out and obtain additional documentation and
support throughout the collection process should any warning signs
arise.87
In the debt collection process consumers will sometimes
push back when confronted with collection efforts by disputing the
validity of the debt. The CFPB views this move by the consumer as
critical in its proposed regulatory framework. For a communication
from the debtor to be one that raises a dispute there would be no
magic words required, but rather any question or challenge as to the
validity of the debt would suffice. 88 The collectors ability to
proceed with collection efforts would then hinge on its ability to
make yet another reasonable substantiation as to the validity of the
debt with respect to the particular item that is disputed. The proposal
breaks this down by categories of disputes: generic disputes, wrong
amount disputes, wrong consumer disputes, and wrong collector
disputes.89 In addition to oral or other written notices of a dispute,
the consumer could select the type of dispute he is raising by
checking a box or making some other indication on the validation
notice (discussed below). 90 The collector would then have to
produce documentation to refute the claim and send that information
to the consumer. Thus, if the consumer disputes the amount due, the
collector would have to produce documentation that reasonably
substantiates the amount the collector is claiming before it could
proceed with collection efforts.91 Should the collector be unable to
reasonably substantiate its claim when faced with a consumer
dispute, then the collector would be barred from proceeding.92 That
would be equally true for any subsequent collector who acquires the
debt after the initial dispute is raised with the prior collector
thereby creating yet another transaction cost in sales of debts.93

86

CFPB Proposal, supra note _, at 9.

Id.
88
Id. at 10.
89
Id. at Appendix D.
90
Id.
91
Id. at 9.
92
Id. at 11.
93
Id.
87

15

The CFPB is also considering how it might limit the ability

of the collector to communicate with the debtor during periods of
dispute by allowing the collector to make requests and ask for
clarification without coming across as merely continuing collection
efforts. 94 Under current FDCPA law if a debtor sends a written
dispute to the creditor within 30-days of having received notice of
the debt, then the the collector must provide information relative to
the verification of the debt to the debtor (often called the validation
notice).95 The CFPB notes that unfortunately the contours of what
constitutes sufficient validation are ambiguous. 96 Courts have
interpreted this provision in a variety of ways.97 Thus, as part of the
CFPBs proposal it would specifically delineate the types of
information that a collector could provide and that would constitute
sufficient validation again, varying based on the generic or
specific nature of the dispute.98
The proposal might also include a requirement that if the
collector receives two written notices of dispute from the same
debtor and believes them to be duplicative, the collector would be
required to respond to the consumer and tell him of the duplication.99
Under current law a duplicative dispute notice does not require a
response. Lastly, the proposal may include some form of standard
disclosure language that debt collectors would have to affirmatively
give to debtors apprising them of their right to dispute the debt in
writing and thus be entitled to receive a written validation notice.100
This provision, while perhaps placing a greater burden on debt
collectors, could nonetheless produce a positive overall result by
ensuring that consumers are apprised of their right to have the debt
validated. As with many issues, most consumers do not know what

94

Id.
15 U.S.C. 1692g(b) (2010) (discussing validation of debts).
96
CFPB Proposal, supra note _, at 11.
97
See generally Graziano v. Harrison, 950 F. 2d 107 (3d Cir. 1991); Chaudhry v.
Gallerizzo, 174 F. 3d 394 (4th Cir. 1999); Homeowners Assn of Victoria Woods,
III, Inc. v. Incarnato, 778 N.Y.S. 2d 811 (N.Y. App. Div. 4th Dept 2004); Spears
v. Brennan, 745 N.E. 2d 862 (Ind. Ct. App. 2001), cf. Dunham v. Portfolio
Recovery Assocs., LLC, 2009 WL 3784236 (E.D. Ark. 2009), cf. Rudek v.
Frederick J. Hanna & Assocs., P.C., 2009 WL 385804 (E.D. Tenn. 2009); Thomas
v. Trott & Trott, P.C., 2011 WL 576666 (E.D. Mich. 2011); Mabry v. Ameriquest
Mortg. Co., 2010 WL 1052353 (E.D. Mich. 2010); Burgi v. Messerli & Kramer
PA, 2008 WL 4181732 (D. Minn. 2008).
98
See CFPB Proposal, supra note _, Appendix D.
99
See id. at 11.
100
Id.
95

16

their rights are under the FDCPA and are therefore unable to
exercise them.101
Lastly, the CFPB would require that any debt collector, prior
to commencing litigation against a debtor, would have to review a
prescribed amount of documentation to ensure that it had reasonable
support for the claims being brought against the consumer.102 The
CFPB notes that many consumers fail to defend themselves in
litigation, thus resulting in a default judgmentsometimes against
the wrong defendant or under incorrect pretenses. 103 Thus, the
bureau believes that placing a greater burden on debt collectors in
the run-up to filing a lawsuit would help alleviate undue burdens on
consumers.104

2. Better Transmission of Consumer Data

The next major portion of the proposal relative to integrity

of consumer information deals with the transmission of consumer
debt data from creditor to creditor.105 As mentioned above, it is often
the case that information is lost or is insufficiently presented when
documentation is handed over from the original creditor to the debt
collector or from debt collector to another debtor collector.106 Poor
information transfer can contribute to consumer abuse in the
collection process.107 To address this problem, the CFPB proposes

101

See generally Consumer Federation of America: Consumers Very Confused

About
Their
Rights
with
Telemarketers
(Mar.
6,
2013),
http://www.consumerfed.org/pdfs/Consumer_Telemarketing_Rights.pdf
102
CFPB Proposal, supra note _, at 12.
103
Id.
104
See id.
105
Id. at 13.
106
See generally Dan Trevas, Court Resolves How Federal Debt Collection and
State Consumer Sales Laws Impact Debt-Buyers and Collection Lawyers, OHIO
COURT NEWS (Jun. 16, 2016); Federal Reserve Bank of Boston: Peter Hollands,
Debt-Buyer
Lawsuits
and
Inaccurate
Data
(Mar.
13,
2014),
https://www.bostonfed.org/publications/communities-andbanking/2014/spring/debt-buyer-lawsuits-and-inaccurate-data.aspx.
107
Neighborhood Economic Development Advocacy Project: Debt Deception:
How Debt Buyers Abuse the Legal System to Prey on Lower- Income New
Yorkers
(May
2010),
http://www.nedap.org/pressroom/documents/DEBT_DECEPTION_FINAL_WE
B.pdf.

17

that before any collection activity can commence, the collector must
conduct an investigation as to prior collection activity.108
Further, if a creditor, subsequent to transfer of the debt to
another, obtained information from the consumer relative to the debt,
then that creditor (although no longer the owner of the debt) would
be obligated to pass that information along to the new owner.109 The
same obligation would exist in cases whether the collector returned
the debt to the selling-creditor (such as is often the case when a
consumer disputes the debt held by a collector in a portfolio).110
Information that would need to be passed along would include (i)
payments furnished by the debtor; (ii) notices regarding discharges
in bankruptcy; (iii) identify theft reports; (iv) notices of disputes as
to the validity of the debt; and (v) any information suggesting that
the assets or income of the debtor are exempt under the law from
seizure. 111 The theory behind this proposed rule is prevent the
compartmentalization of consumer information amid various parties
who may hold the debt over time. One complaint by consumers was
that while the consumer might have raised a dispute with Collector
A, it would have to raise the dispute all over again once the debt was
sold to Collector B. The requirement that Collector B would have to
ascertain Collector As collection activities, as well as the
requirement that Collector A would have to pass along to Collector
B any post-transfer information about the consumer, are both aimed
at ameliorating this problem.

3. Debt Verification and Credit Reporting

Lastly with regard to information integrity, the CFPB

believes that the information currently provided by debt collectors
under the FDCPAs validation notice requirement is too lax.112 The
bureaus proposal notes that often the validation notice only
contains the current amount due, without any back-up information
or support. 113 Better information would decrease downstream
interactions later, as well as better inform debtors on their legal
rights, so the CFPB notes.

108

See CFPB Report, supra note _, at 14.

See Appendix E.
110
Id. at 14.
111
See id. at 14-15.
112
Id. at 15.
113
Id.
109

18

Thus, under the proposal the validation notice would need to

contain a number of new items. These would include a description
of the debt, the merchant brand associated with the debt (i.e., the
name of the retailer or the credit card company), the name of the
creditor at the time the default occurred, and an itemized breakdown
of all principal, interest, and fees since the date of default, among
other information. 114 The proposal would also require that the
validation notice be accompanied by a statement of rights that would
contain information apprising the debtor of what legal rights he has
with regard to the collection of debt.115 Rights that would need to be
disclosed include the ability to dispute the debt, restrictions on
communications from the creditor, and limitations on enforcement
of rights as to exempt assets. 116 To make the process easier, the
CFPB is considering the promulgation of a model form for
validation and disclosure of the statement of rights that debt
collectors could use and thereby meet the new regulatory
requirements. 117 The CFPB is also at least considering the
possibility of requiring a second transmission of the statement of
rights be made by the debt collector to the consumer after a 180-day
period from the initial communication, on the notion that this will
ensure that the debtor is aware of his rights throughout the collection
process. 118 This proposed regulation might also entail that the
validation notice and the statement of rights come in a version for
Spanish-speaking consumers. This might involve a separate form or
a translation on the reverse side of an English-version of the
documentsthe final position on that matter is still under
deliberation.119
Lastly regarding the passage of information, the CFPB is
considering how to deal with what has become known as passive
collection or debt parking. 120 This is when the debt collector
reports information about the consumer to a credit reporting agency,
even though the debt may not be valid or the collector does not

114

Id. at Appendix F.
See id. at 15-16.
116
Id. at Appendix G.
117
Id. at 16.
118
Id.
119
Id. at 17.
120
Id. See also Gerri Dettweiler, Can a Debt Collector Come After Me If I Never
Got a Bill?, CREDIT.COM (June 23, 2015).
115

19

intend on proceeding with enforcement. 121 While often creditors

inform consumers prior to sending information to a credit agency,
there are many times when the consumer only finds out after the
information has been sent and the consumer is applying for a new
loan that requires the running of a credit report.122 The CFPB has
collected reports where debtors proceeded to pay the debt just to
have it removed from their credit report, even when the validity of
the debt was in dispute. 123 To address this problem, the CFPB
proposes a rule that would require creditors to inform consumers
prior to passing along any information to a credit reporting
agency.124
B. Requiring New Consumer Disclosures
Aside from an overhaul of the validation notice (already
required by the FDCPA) and the inclusion of the new statement of
rights notice, the CFPB is also considering two additional items that
deal with disclosure. The first addresses litigation matters and the
second deals with the possibility that the debt may no longer be
collectable due to the running of time.

1. Beware of Litigation

The first disclosure is one where the collector would have to

affirmative tell the debtor of its intent to sue. 125 The disclosure
would also have to state that the a judgment would be rendered
against the debtor if he did not mount a legal defense, and that the
debtor could obtain additional information about debt collection
litigation (including access to legal counsel) by going to the CFPBs
website.126 It is possible that model language could be developed,
although none is at this time.127 There are a couple of things that are
notable about this approach. In essence, it makes the plaintiff in a

121

See CFPB Report, supra note _, at 17; see also U.S. Department of the
Treasury: Termination of Collection Action, Write-off and Closeout/Cancellation
of
Indebtedness
(Mar.
2015),
https://fiscal.treasury.gov/fsservices/gov/debtColl/pdf/mfr/chapter7_Mar2015.pd
f.
122
CFPB Report, supra note _, at 17.
123
Id. at 18.
124
Id.
125
See id.
126
Id.
127
Id. at 19.

20

lawsuit into a bit of a helpdesk for the consumer. It requires that the
plaintiff point the consumer toward legal assistance resources and to
inform the consumer of the consequences of his failure to respond
to the complaint. Although on the other hand, aside from directing
the defendant to sources of information and counsel, most plaintiffs
send a demand letter prior to commencing litigation. Whether this
additional information actually helps a consumer, who may lack the
resources to engage legal counsel or even to obtain pro bono legal
services, seems a bit doubtful.128 Most consumers understand that
lawsuits have legal consequences.

2. Time-Barred Debt Collection No More

The second disclosure deals with what the CFPB calls timebarred debt and obsolete debt.129 After the statute of limitations has
run on the right to collect a debt then it is no longer enforceable.130
It is considered time-barred and thus obsolete. However, this fact
must usually be affirmatively raised by the defendant.131 Typically,
a court will not raise the issue on its own. Therefore, absent an
affirmative defense by the debtor, it is possible for a court to render
a judgment in favor of a creditor even when the right to collect is
stale.132 The concept of obsolete debt for credit reporting purposes
deals with a debt that is, typically, over seven years old and thus is
prohibited from appearing on a credit report in accordance with the
Fair Credit Reporting Act.133 Because the presence of a debt on a
credit report has such significant effects, the CFPB is concerned
with expired debt not being properly removed from such reports.134
To address these problems, the CFPB proposes that
collectors would have to give a time-barred disclosure whenever it

128

Micheal Zuckerman, Is There Such a Thing as an Affordable Lawyer?, THE

ATLANTIC (May 30, 2014).
129
CFPB Report, supra note _, at 19; Thomas R. Dominczyk, Time-Barred Debt:
Is it Now Uncollectible?, 33 NO. 8 BANKING & FIN. SERVICES POL'Y REP. 13
(2014).
130
CFPB Report, supra note _, at 19.
131
Id.
132
Michael E. Chaplin, Reviving Contract Claims Barred by the Statute of
Limitations: An Examination of the Legal and Ethical Foundation for Revival, 75
NOTRE DAME L. REV. 1571 (2000).
133
CFPB Report, supra note _, at 19.
134
Id.

21

tries to enforce a debt.135 The disclosure would be comprised of a

statement telling the consumer that the debt is no longer
enforceable.136 Whether collectors would always have to give this
disclosure (meaning they would have to always make a
determination) or whether they would only have to give the
disclosure when they had a reason to believe the debt was timebarred is still being considered by the CFPB.137 This disclosure may
come only at the time of the initial communications, or it may need
to be given additional times thereafter. 138 That too is being
considered.
As to those frequent instances where the debt is passed from
one collector to another, once a time-barred notice has been given
by one collector, if the debt is subsequently sold to another collector,
then that next collector would be bound by the first notice.139 In
other words, the time-barred letter has a binding effect on future
collectors. The subsequent collector would also have to give a timebarred letter in his initial communication and with any validation
notices.140
As to obsolete debts, it is also being proposed that a
disclosure be provided to consumers telling them whether a timebarred debt can appear on their credit report.141 This will likely be
included in the validation notice and might also involve the collector
giving the notice again at regular intervals throughout the collection
process.142
There are a few things to note here. First, this proposed
regulation would shift a fundamental aspect of civil procedure. As
mentioned, it is usually for the defendant to raise the issue of the
running of time on stale claims. Here, depending on which approach
is taken, the collector would have to make a determination as to
whether the debt is barred. And even if the collector would only have
to send the time-barred notice if it had reason to believe the debt was
barred, practically speaking all collectors would feel compelled to

135

Id. at 20.
Id.
137
See id.
138
Id.
139
Id. at 21.
140
Id.
141
See id.
142
Id.
136

22

make an independent determination lest they be found to have had

constructive knowledge and failed to sent the disclosure. The cost
of not providing the disclosure, and then having a court find that
there were sufficient facts to raise suspicion would be more than
enough to make all collectors take the more conservative approach.
The other piece that makes this regulation a bit puzzling is
that, although the collector might make a determination that the debt
is no longer payable, he may nevertheless proceed to collect. It
might make more sense for the CFPB to require that if a collector
determines that a debt is time-barred then he cannot proceed to
enforce it at all. However, that does not appear to be the approach
the bureau takes.
Another part of this proposed regulation deals with revival
of debts. Under some state law even a time-barred debt, once
partially paid, will be revived and again enforceable.143 The CFPB
states that it has found through its testing that consumers will often
pay a time-barred debt, believing that doing so will be beneficial to
them, when in fact it only causes more problems by resurrecting the
right to collect. 144 The CFPB is considering whether to prohibit
collectors from collecting on time-barred debts that can be revised
under state law unless they waive the right to sue on the debt.145
That means that if the debt is time-barred, the collector can still
pursue the debt but only if he promises not use the fact of the
consumers payment or acknowledgement of the debt as a reason to
try to collect the rest of the debt. There are a number of logical
inconsistencies here. The general idea presented by the disclosure of
time-barred debt is that consumers should be alerted to the issue but
that after this point the creditor can still pursue the debt. But now, if
state law would provide that the debt was resurrected by a partial
payment by the debtor, the creditor can only take the partial payment
if he waives his ability to go after the debtor for the remainder.146
This, in practice, this would seem to bar all creditors from
seeking payment from all debtors when the statute of limitations has
run on the debt. Indeed, the CFPBs multi-part proposal seems to
both allow the collection of time-barred debt, provided disclosures

143

See id. See also Champlin, supra note _.

CFPB Report, supra note _, at 21-22.
145
See id.
146
Id.
144

23

are made, and then simultaneously make the collection of timebarred debt impossible. In fact, the CFPBs proposal report even
notes that the bureau considered an outright ban on the sale of timebarred debt or an outright ban on the collection of such debt, but that
it ultimately decided against this course because the proposals
currently under consideration may adequately address the risks to
consumers posed by the sale and collection of time-barred debt.147
This response is quite unsatisfactory since, regardless of whether
one agrees with the wisdom of shifting the responsibility to assert
the statute of limitations on debt, a clear regulatory scheme that
articulates a federal policy in a straightforward manner is far better
than one that seeks to achieve that same policy ends through twists
and turns.
Lastly, the CFPB is considering an outright prohibition on
debt collectors accepting any form of payment on a time-barred debt
without first obtaining an acknowledgement from the debtor that the
debt is no longer due. 148 The clear question here is: why would
anyone ever do this? Other than through the acceptance of a payment
and receipt of the acknowledgment that is then ignored, a debt
collector would not want to go through the time and expense of
gambling on collecting the debt and sending the disclosure only to
then have to return the funds later or receive nothing in the first
instance. Again, it would seem more straightforward and consistent
with the general notion of protecting consumer debtors from the
collection of time-barred debt to outright prohibit its collection. The
round-about way of achieving this goals seems confusing and likely
to produce some level of economic wasteand litigation.
C. Changing Consumer Communication Methods
The final part of the overall proposal, and what the CFPB
reports as its second largest source of complaints deals, with how
debt collectors communicate and interact with consumers in the
course of attempting to enforce the right to collect the debt.149 The
FDCPA already imposes a number of requirements on debt
collectors when it comes to how they communicate with debtors.150
However, such communications are frequently the source of

147

See id.
Id.
149
Id. at 22.
150
Id.
148

24

grievances by consumers and even debt collectors say that the

regulatory requirements under the FDCPA often lead them to
inadvertently step into a trap.151
To remedy these issues, the CFPB proposes adopting a
multi-pronged approach to dealing with debt collection
communications. This includes the CFPB having more control over
the rhythm and channels of communications and to provide greater
regulatory certainty for all parties.152

1. Frequency and Form

A common scenario that comes to mind when one thinks of

debt collection is the constant stream of phone calls whereby the
collector harasses the debtor, either at home or at the workplace.153
Collectors report that they must call often because it frequently takes
many attempts prior to getting the right person on the phone. 154
Moreover, collectors state that since the FDCPA prohibits the
revealing of a persons debts to a third party collector almost never
leave a voicemail, for fear of running afoul of this rule.155 Therefore,
without the ability to leave messages the need to continue calling
persists.156
The CFPB proposes to open up the door to leaving messages
by stating in regulation that a voicemail which only conveys the
debtors name, the collectors name, and a toll-free method for
returning the call is not considered revealing the debt to a third
party.157 In other words, a message that meets this safe harbor will
be immune for later attack as being a violation of the FDCPA. The
CFPB hopes that this safe harbor-like method will cut down on the
frequent-caller problem.158
As to the actual frequency of calls, the CFPB proposes
placing a numerical cap on the number of times a collector can call
depending on whether the collector has actually made contact with

151

See id.
Id.
153
Id at 23;
154
Id. at 22.
155
See id.
156
Id.
157
Id. at 24.
158
Id.
152

25

the consumer (a concept that the proposal defines as a confirmed

consumer contact). 159 A confirmed consumer contact is when a
collector has communicated with the debtor about the debt.160 Such
a contact does not exist without a confirmation by the person
communicating with the collector that she is indeed the debtor being
sought.161 It is also not a confirmed consumer contact if the creditor
has reason to believe that the other person is mispresenting that she
is the debtor.162 The CFPB also intends to make the cap applicable
to all forms of communicationwhether by phone, text, or email.163
With regard to the actual caps, the CFPB is considering
either a bright-line cap (perhaps with some exceptions) or a number
that, once exceed, creates a presumption of harassment. 164 The
current proposal under consideration provides that if the collector
has not yet had a confirmed consumer contact, he may engage in
three attempts at communication per unique address or phone
number per week (but no more than a total of six attempts at
communication in that period). 165 If the collector has made a
confirmed consumer contact, he may engage in two attempts at
follow-up communication per unique address or phone number per
week (but no more than a total of three attempts at follow-up
communication in that period). 166 After a confirmed consumer
contact takes place, the collector is limited to just one live
communication with the consumer per week.167
It is uncertain as to whether this proposal will hold. The
CFPB is considering whether to take a per-consumer rather than a
per-account approach to the cap, as well as whether to allow the
contact cap to vary depending on the type of debt (i.e., healthcare,
student, credit card etc.).168 For larger debt collectors there will need
to be a number of controls put in place to ensure that attempts at
communication are accurate tracked to avoid violating the rule.

159

Id. at 25.
Id.
161
See id.
162
Id.
163
See id.
164
Id.
165
Id. at 26.
166
Id.
167
See id.
168
Id. at 27.
160

26

Still to the issue of communications, the CFPB is looking to

also limit the number of times a debt collector can contact third
parties. Debt collectors will often contact third parties in an effort to
locate and contact the debtor. However, there are numerous stories
of instances where unscrupulous debt collector called third parties
to encourage them to pay the consumers debt or otherwise harass
the consumer to pay.169 The caps for third party communications
would provide that, prior to a confirmed consumer contact, the
collector is limited on a per-week basis to three attempted
communications per unique address or phone number per third party
(with a total limit of six per week per third party). 170 After a
confirmed consumer contact the collector may not contact any third
parties.171 Prior to a confirmed consumer contact, a collector may
only have one single live communication per third party (and that is
total, not on a weekly basis). 172 Obviously after a confirmed
consumer contact, there can be no live commutations with third
parties.173
This process may cut back on the abusive practice of calling
the debtors place of work or other family members even when the
collector has been in contact with the consumer. Further, the limits
in place prior to such consumer contact may dissuade a collector
from being too liberal with the number of third parties he contacts.
Nevertheless, debt collection companies will need to be more
careful in tracking their agents communications with consumers. It
is likely that technology will play a major role in helping manage
the administrative burdens resulting from these communication
limitations.

2. Time, Place, and Manner

The current provisions of the FDCPA already place

restrictions on when and where collectors can engage with

169

Id.; Herb Weisbaum, Debt Collectors Troll FacebookAre They Going Too
Far?,
NBCNEWS
(last
visited
Sept.
15,
2016),
http://www.nbcnews.com/id/42687734/ns/business-consumer_news/t/debtcollectors-troll-facebook-are-they-going-too-far/#.V9r-h2UomFc; Anne Fisher,
Bill Collectors Calling Your Boss? Heres What to Do, FORTUNE (Aug. 28, 2014),
http://fortune.com/2014/08/28/bill-collectors-boss-workplace/.
170
CFPB Report, supra note _, at 28.
171
Id.
172
See id.
173
Id.

27

consumers regarding outstanding debts. 174 The statute takes a

general and a more prescriptive approach by both requiring that
collectors avoid inconvenient or unusually timed communications
with the consumer and also strictly prohibiting communications
after 8:00 am and before 9:00 pm. 175 The CFPB reports that
consumers complain that despite these restrictions they frequently
hear from collectors at inconvenient hours and locations. 176
Moreover, collectors assert that the FDCPAs rules are not wellsuited to forms of communication beyond phone calls (such as
emails, text messages, and the like).177
The bureaus proposal takes a number of steps to try to
address the time, place, and manner complaints of both sides. First,
consent as to time, place, and manner of communications by the
consumer to one creditor does not constitute consent of the same to
any future holders of the debt. 178 Thus, just because consumer
agreed that Creditor A could call him at his office during lunchtime
hours does not mean that Creditor B, who subsequently comes to
own the debt, may take similar measures.
On the collectors side, the proposal seeks to clarify the law
to state that when a collector has information about a debtor that
would indicate she is located in multiple places the collector is
entitled to view a time as convenient for statutory purposes if it
would be convenient in all of the locations in which the collector has
information about the debtor.179 Thus, if the collector has a mobile
number (with one area code) and a land line (with a different area
code), then the collector could not violate the time-period limitations
in the FDCPA if he avoided calling during the prohibited periods for
both area codes.180 One criticism of this is that if the locations are
far enough away and theres a number of pieces of location
information in the hands of the collector, then it might become quite
onerous to make a perfect, global determination as to convenience
in all locales. 181 It might be a better idea to state that where the
collector has multiple pieces of location information about a debtor

174

See id.
Id.
176
See id.
177
Id.
178
See id.
179
Id. at 29.
180
Id.
181
See id.
175

28

that the collector could contact the debtor, per that piece of
information, when the time would be convenient under FDCPA for
that location. In other words, a location-by-location approach based
on the information in hand. The collector could communicate with
the consumer via the mobile number during convenient times
pursuant to the information relative to that mobile number (i.e., like
the area code/time zone), even if another piece of information (like
a street address in a different time zone) might indicate that it would
not be convenient as to that information.
The proposal also tries to address the timing of when
electronic messages can be sent. As noted above, one of the current
criticisms of the FDCPA is that it really contemplates a world of
telephone calls, rather than electronic communications. While the
proposal acknowledges that a consumer may not actually check or
read an email for a long period of time after it is sent, the proposal
seeks to clarify the law by marking the timing of electronic
communications to the moment of its transmission.182 Thus, even
though a person may be sleeping and unable to receive a message in
the middle of the night, transmission of that email in the middle of
the night would violate the regulation. This result, considering the
ways in which consumers can turn off their phones or alerts as to
incoming messages, comes across as a bit arcane. On the other hand,
it produces greater certainty than what currently exists with regard
to the convenience timing of electronic transmissions.
Another aspect of the time, place, and manner portion of the
proposed regulation deals with where the communications can be
sent. In other words, in what types of consumer-related locations can
attempts to contact the consumer be made. One of the major
complaints made by consumers is that collectors try to call them at
their place of employment and this becomes damaging to their
reputation when a co-worked is the one who receives the
communication (either inadvertently or through a switchboard
line).183 The proposal seeks to deal with this issue by making certain
locations presumptively off-limits. 184 These include (i) medical
facilities; (ii) places of worship; (iii) places of burial or grieving; (iv)
childcare or daycare centers.185 The notion behind this is that since

182

Id.
See id.
184
Id.
185
See id.
183

29

the FDCPA prohibits attempts to collect at places that are

inconvenient to the debtor, the prescribed locations listed here are
all likely locations where the debtor would find collection
communications inconvenient. 186 To the benefit of collectors,
however, the presumption only applies if the collector knows or has
reason to know that the consumer is located in one of these
locations. 187 He is not obligated to investigate as to the location
absent some alerting evidence.188
Obviously since most communications are made via cell
phones from collectors located at quite a distance from the consumer
it is likely there will be much dispute over when these new rules are
violated. The multitude of instances in which communications are
made with consumers when they are located in various places,
without necessarily any actual knowledge by the collector but with
at least some hint of constructive knowledge could lead to a great
deal of litigation. Lastly, with regard to location, the CFPB is open
to ideas about how to deal with service members who are located in
combat zones or are in the middle of hazardous duty service.189
Notably absent from this list of presumptively off-limits
location is the debtors place of employment (which is one of the
biggest complaints among debtors when it comes to collection
calls). 190 However, the CFPB is considering a prohibition on the
collectors ability to contact the debtor through her work emailat
least without her consent.191 This mostly has to do with a fear that,

186

Id.
Id. at 30.
188
Id.
189
See id.
190
Stop Collection Calls at Work, MONEY MANAGEMENT (Sept. 20, 2010); Scott
Hannah, Take Control and Stop Collection Calls & Creditor Harassment at Work,
THE PROVINCE (Nov. 10, 2014); National Consumer Law Center: Debt Collection
Communications: Protecting Consumers in the Digital Age 9 (Communications
at a consumers place of employment run the gamut from potentially causing the
consumers discharge because of the employers prohibition against receiving
such calls to being potentially embarrassing because of privacy reasons. Moreover,
evidence suggests that communications at a consumers place of employment are
inconvenient because the calls interrupt the consumers concentration. For
example, one study found that even brief interruptions resulted in twice as many
errors and another study reported that it takes an average of 25 minutes to resume
a task after interruption and an additional 15 minutes after that to regain the same
level of focus.).
191
CFPB Report, supra note _, at 31.
187

30

since employers generally have the power to review employees

emails, that debt information will be inadvertently disclosed to a
third party and therefore violate the FDCPA and, of course,
potentially result in adverse consequences for the consumer at
work.192

3. Debt of the Dead

How to deal with debts of a deceased person has been a big

point of discussion in debt collection circles. 193 The CFPBs
proposal also seeks to clarify that collectors do not run afoul of the
FDCPA when they speak to a decedent debtors surviving spouse,
parents if the decedent is a minor, and succession representatives or
executors.194 The only caveat to that is that the proposal will likely
involve a thirty-day waiting period from the date of death, so as to
take into account the grieving period before collection activities
commence or continue.195
The CFPB also notes that this waiting-period approach
seems to be the practice of many debt collectors across the country,
and thereby adopts a prevailing (and desirable) norm.196 There is
some thought being given by the CFPB to making this a sixty-day
waiting period instead.197

4. Waiver

There are many instances in practice and under the FDCPA

where the consumer may give his consent to being contacted at a
certain location, in a certain manner, and at a certain time. The

192

Id.
See generally Sid Kirchheimer, Paying the Debts of the Dead, AARP
BULLETIN (July 29, 2011); Arielle Pardes, Debt Collectors Make a Killing on the
Debts of the Dead, VICE.COM (Feb. 10, 2016); Federal Trade Commission: Debts
and
Deceased
Relatives
(last
visited
Sept.
15,
2016),
https://www.consumer.ftc.gov/articles/0081-debts-and-deceased-relatives
(After a relative dies, the last thing grieving family members want are calls from
debt collectors asking them to pay a loved one's debts. As a rule, those debts are
paid from the deceased person's estate.).
194
CFPB Report, supra note _, at 32.
195
Id. at 32.
196
Id. at 33.
197
Id.
193

31

proposed regulations contemplate that the debtor may give such

consent and thereby waive various restrictions on the collector.198
However, the CFPB is concerned with ensuring that when a
debtor gives such consent and thereby makes such a waiver that he
understands what he is doing.199 To that end, the proposal considers
whether a consent by the consumer as to one creditor should
necessarily constitute a consent to a subsequent creditor who
acquires the debt. 200 By requiring a separate consent for each
collector, the proposal seeks to give the consumer a chance to
reassess whether he should have given his consent in the first
place. 201 Second, the CFPB contemplates requiring collectors to
clearly disclose to a consumer when they are effectively consenting
to the waiver of a restriction and is considering whether collectors
should also be required to memorialize the consumers consent, such
as in writing or through a recording of the consent.202 Obviously this
could become somewhat burdensome on debt collectors when it
comes to disclosure, although it is likely that a system could be
worked out by the individual collector to ensure that the collectors
agent who makes contact has template language to read to the debtor.
The notion of memorializing the consent, however, could be more
cumbersome as it would increase the transaction cost of collecting
the debt. And third, the proposal seeks to solicit possible ways that
a consumer could revoke their consent (in globo or only to certain
prior authorizations) after it has been given.203
D. Regulating Debt Collection Administration
Last but not least the CFPB proposes creating a number of
rules relative to the administration of the debt collection market. In
other words, the bureau believes that more oversight into the actual
mechanics of debt sales might prove useful in preventing bad actor
collectors from skirting the consumer-based rules described above.

1. Market Transactions

198

Id. at 34.
Id.
200
See id.
201
Id.
202
See id.
203
Id. at 34-35.
199

32

The first piece of this framework deals with the buying and
selling of debts between parties. One possibility that the CFPB is
considering is whether to prohibit sales of debt to individuals that
are subject to some judicial or administrative order prohibiting them
from transacting in debt in the state where the consumer debtor
resides or to individuals who do not have a license to carry on debt
collect activities if such a license is required in the state where the
debtor resides.204 The CFPB notes that the purpose behind this rule
would be to keep debt out of the hands of those who cannot collect
on debts lawfully. 205 It is possible that the two categories of
prohibited buyers may be expanded or narrowed as the bureau
receives feedback on the proposal.206
From a due diligence standpoint, it might be difficult for a
debt seller to be certain that it is transferring the rights to an eligible
party under current industry practices.207 The original creditor may
hold debt owed by literally hundreds of debtors located in many
different jurisdictions. Before selling to a collector the creditor
would have to ensure that there were no issues regarding licensure
or administrative orders for the buyer in any of those jurisdictions in
order not to run afoul of the rule. This might be dealt with through
representations and warranties in the transfer documents, although
that might give cold comfort to the original creditorparticularly if
the penalty for transacting with a prohibited party is severe. The
current proposal being circulated by the bureau does not stipulated
the punishment for running afoul of the rule, other than presumably
constituting a violation of the FDCPA.
As a final note with regard to administration, the CFPB is
also considering a rule that would prohibit the transfer of debt to a
party (and the acceptance by such party) if either knows or should
know that the debt is no longer collectable, has been paid, has been
discharged in bankruptcy court, or has been generated as a result of
identity theft. 208 This too incorporates a higher degree of
investigation that what appears to be going on in these types of
transactions right now.209 Granted, the rule only applies when either

204

Id. at 35.
Id.
206
See id.
207
See Jimnez, supra note _; see also FTC Report, supra note _.
208
CFPB Report, supra note _, at 35.
209
Jimnez, supra note _;
205

33

knows or has a reason to know but to be safe most parties will

likely be hesitant to gamble and will therefore feel the need to
conduct independent (and sometimes extensive) investigations
therefore driving up the cost to the industry.

2. Records Retention

As with the CFPBs payday lending proposal, the proposal

being floated for debt collectors also contemplates mandatory
records retention.210 Specifically, a collector would have to maintain
documentation as to collection efforts for a period of three years
from the last date of communication.211 This would even include
communications that occurred in the course and scope of
litigation. 212 The definition of records, at least under this initial
proposal, is quite extensive. It would include not only the validation
notice and any related documents, but also all documents and
information that the collector used or relied upon to collect the debt
and any and all communications with the debtor (even some oral
communications).213
The extent to which collectors already keep records of their
interactions with consumer varies, so there is some value in bringing
everyone in line with the same practice. On the other hand, the cost
of doing business is bound to go up in light of the very expansive
scope of what records must be maintained.
III. POSSIBLE FUTURE ISSUES AND DEVELOPMENTS
Aside from the actual proposals themselves outlined above,
there are a number of other considerations that can be raised by the
regulations. Some of these areas are discussed below. Since
rulemaking on debt collection practices is still early in the process,
it remains to be seen if some or any of these issues will be addressed
on the front-end, or whether they will be left to manifest in the
implementation and enforcement process.
A. Regulation of Original Creditors

210

See Odinet, Payday Lending, supra note _.

CFPB Report, supra note _, at 35.
212
Id.
213
See id.
211

34

As noted above, the CFPBs proposal is intended to only

apply to debt collectors as they are defined in the FDCPA.
Notably, it does not apply to the original creditor or to those debt
buyers who purchase debt that is not yet in defaultwhether that
debt is still performing or whether payment is only delinquent.
Initially the CFPBs proposal was supposed to include so-called
first party creditors according to the notice of advance rulemaking released back in November 2013. 214 However, when the
actual proposal was released in July 2016 first party creditors were
not included. Now, the CFPB has stated that it will seek to regulate
original creditors and non-FDCPA debt collectors more broadly
in a separate proposal to come at a later date.215 The reason for the
change of direction is uncertain, although likely due to the
anticipation of serious opposition from large banks and financial
institutions that would fall into the first party creditor box.
The CFPB draws its power to regulate non-FDCPA creditors
from its broad authority under the Dodd-Frank Act to regulate
unfair, deceptive, or abusive acts or practices by any person
offering a consumer financial service.216 What such a regulation
will look like remains to be seen, although one might be able to draw
some inferences from the current proposal for debt collectors. One

214

See Advance Notice of Proposed Rulemaking, Debt Collection (Regulation F),

78
Fed.
Reg.
67847
(Nov.
12,
2013),
https://www.federalregister.gov/articles/2013/11/12/2013-26875/debtcollection-regulation-f (The Bureau can exercise the Dodd-Frank Act
rulemaking authority above with regard to any covered person or service
provider. Covered person is defined as (A) any person that engages in
offering or providing a consumer financial product or service; and (B) any affiliate
of a person described in subparagraph (A) if such affiliate acts as a service
provider to such person. Covered persons for purposes of the Dodd-Frank Act
includes first-party collectors and third-party collectors who are collecting or
attempting to collect on debts that arise out of consumer credit transactions.
Service provider is generally defined as any person that provides a material
service to a covered person in connection with the offering or provision by such
covered person of a consumer financial product or service.) (citations omitted).
215
Prepared Remarks of CFPB Director Richard Cordray on Field Hearing on
Debt Collection (July 28, 2016), http://www.consumerfinance.gov/aboutus/newsroom/prepared-remarks-cfpb-director-richard-cordray-field-hearingdebt-collection/ (Today we are considering proposals that would drastically
overhaul the debt collection market. Our rules would apply to third-party debt
collectors and to others covered by the Fair Debt Collection Practices Act,
including many debt buyers. As part of our overhaul, we also plan to address firstparty debt collectors soon, but on a separate track.).
216

35

question is whether the proposal for non-FDCPA

collectors/creditors will be as stringent as the one outlined above.
Assumedly some of the substantiation requirements will be less
important, since the original creditor is in a better position to know
of the nature and terms of the debt than a third party (whether a
collector or a buyer). Nevertheless, the substance of the compliance
process for original creditor substantiation might still impose a
greater burden than that which is the current industry norm.
B. Indirect Regulation
Still with regard to original creditors, although the proposal
above does not directly affect their operations and practices, there
are a number of indirect effects. For instance, in the new rules for
the transfer of information and data from the original creditor to the
debt buyer there are a number of measures which will absolutely
impose a compliance cost on original creditors. This will likely
mean that the form and format of how consumer debts are conveyed
to collectors and buyers will change or at least become more
prescribed.
Further, part of the proposal seeks to limit the types of parties
that can acquire debts. This will naturally create more due diligence
costs on original creditors when it comes to selecting debt buyers.
This may result in debt collection/buyer industry groups playing a
larger part in certifying or otherwise validating the eligibility of
certain parties, thereby giving original creditors a resource to use in
seeking out appropriate counterparties.
C. Chain of Title Due Diligence
Lastly, there are a number of places in the proposal that limit
the action of downstream collectors based on the activities or
knowledge of upstream parties. In other words, if Party A has
engaged with the debtor in a certain way or has certain knowledge
relative to the debtor or the debt then those facts alone can affect the
rights of subsequent holders of the debt. These flow-through
limitations along the chain of title are identified in various places
above, such as when dealing with disputes raised by consumers or
in waivers by consumers of certain communication methods. In
many places the standard being proposed is know or should have
knowna yardstick that can lead to a tremendous amount of

36

fishing expeditions in litigation between consumers and collectors.

How various holders of debt in a chain of transactions will handle
these limitationseither by adjusting practices or ceasing to allow
the debt to change hands frequentlywill be an interesting aspect
to follow.
CONCLUSION
The fair and efficient collection of debt remains an important
piece of ensuring consumers have access to credit markets. And, of
course, the need for clear regulations, based on research and
thoughtful legal analysis, is equally important to ensuring that any
such credit market operates in a way that is just and even-handed.
Whether the CFPBs proposal hits the mark on both of these goals
is debatable, but it is a step in the right direction. The proposal
certainly provides heightened protections, at least generally, for
consumers when it comes to their interactions with debt collectors.
The proposal also has the potential to provide much needed
clarification for debt collectors when it comes to complying with the
FDCPA. Indeed, since no agency has until 2010 had the authority to
issues rules for this federal statute, the result has been wide
divergence and confusion as different courts have interpreted its
provisions in different ways. The proposal also presents the
opportunity to bring the regulation of debt collection, particularly
when it comes to communication methods, into the twenty-first
century by being more compatible with todays technologies.
On the other hand, the increased compliance cost might drive
some players out of the market. Large debt collectors and buyers
may indeed be able to absorb the cost of compliance through
investment in monitoring, control systems, and protocols, but many
small businesses could struggle. Creating a monopoly for only the
largest players in the industry is a potential side-effect that
policymakers and advocates should be cognizant of as the rulemaking and eventual implementation process unfolds. Lastly, it will
be most interesting to see whether these more onus requirements on
debt collectors results in a tightening of consumer credit. If debt
collection becomes more difficult, and thus it is more difficult or
expensive to off load defaulted debt to collectors, then this may have
an effect on access to credit. Although, the imposition of the CFPBs

37

ability-to-repay rule 217 has not yet shown to have decreased

residential mortgage creditbut it may still be too early to tell.218
One thing is for certainjudging from the breath and depth of the
proposal, the CFPB has the debt collection industry in its scope, and
the bureau will likely seek to impose and enforce its ultimate scheme
quite aggressively.

217

Michael B. Mierzewski, Christopher L. Allen, Jeremy W. Hochberg, & Kevin

Hall, CFPB Finalizes Ability-to-Repay and Qualified Mortgage Rule, 130
BANKING L.J. 611 (2013); David Reiss, Message in a Mortgage: What Dodd
Franks Qualified Mortgage Tells Us About Ourselves, 31 REV. BANKING &
FIN. L. 717 (2012).
218
Board of Governors of the Federal Reserve: Neil Bhutta & Daniel Ringo,
Effects of the Ability to Repay and Qualified Mortgage Rules on the Mortgage
Market (Dec. 29, 2015) (We find evidence that some market outcomes were
affected by the new rules, but the estimated magnitudes of the responses are
small.).

38