[Federal Register Volume 85, Number 42 (Tuesday, March 3, 2020)]
[Proposed Rules]
[Pages 12672-12702]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03838]
[[Page 12671]]
Vol. 85
Tuesday,
No. 42
March 3, 2020
Part II
Bureau of Consumer Financial Protection
-----------------------------------------------------------------------
12 CFR Part 1006
Debt Collection Practices (Regulation F); Proposed Rule
Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 /
Proposed Rules
[[Page 12672]]
-----------------------------------------------------------------------
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1006
[Docket No. CFPB-2020-0010]
RIN 3170-AA41
Debt Collection Practices (Regulation F)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supplemental notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Bureau of Consumer Financial Protection (Bureau) proposes
to amend Regulation F, which implements the Fair Debt Collection
Practices Act (FDCPA) and currently contains the procedures for State
application for exemption from the provisions of the FDCPA. On May 21,
2019, the Bureau published in the Federal Register a proposed rule (May
2019 Proposed Rule) that would prescribe Federal rules governing the
activities of debt collectors, as that term is defined in the FDCPA.
This proposal supplements the May 2019 Proposed Rule by proposing to
require debt collectors to make certain disclosures when collecting
time-barred debts.
DATES: Comments must be received on or before May 4, 2020.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2020-
0010 or RIN 3170-AA41, by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected]. Include Docket
No. CFPB-2020-0010 or RIN 3170-AA41 in the subject line of the email.
Mail/Hand Delivery/Courier: Comment Intake, Bureau of
Consumer Financial Protection, 1700 G Street NW, Washington, DC 20552.
Instructions: The Bureau encourages the early submission of
comments. All submissions should include the agency name and docket
number or Regulatory Information Number (RIN) for this rulemaking.
Because paper mail in the Washington, DC area and at the Bureau is
subject to delay, commenters are encouraged to submit comments
electronically. In general, all comments received will be posted
without change to http://www.regulations.gov. In addition, comments
will be available for public inspection and copying at 1700 G Street
NW, Washington, DC 20552, on official business days between the hours
of 10:00 a.m. and 5:00 p.m. Eastern Time. You can make an appointment
to inspect the documents by telephoning 202-435-9169.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Proprietary or sensitive personal information, such as account numbers,
Social Security numbers, or names of other individuals, should not be
included. Comments will not be edited to remove any identifying or
contact information.
FOR FURTHER INFORMATION CONTACT: Seth Caffrey, Courtney Jean, or
Kristin McPartland, Senior Counsels, Office of Regulations, at 202-435-
7700. If you require this document in an alternative electronic format,
please contact [email protected].
SUPPLEMENTARY INFORMATION:
I. Summary of the Proposed Rule
The Bureau proposes to amend Regulation F, which implements the
FDCPA, to require debt collectors, as that term is defined in the
FDCPA,\1\ to make certain disclosures when collecting time-barred
debts. Time-barred debts are debts for which the applicable statute of
limitations has expired. The Bureau proposes to require a debt
collector collecting a debt that the debt collector knows or should
know is time barred to disclose: (1) That the law limits how long the
consumer can be sued for a debt and that, because of the age of the
debt, the debt collector will not sue the consumer to collect it; and
(2) if the debt collector's right to bring a legal action against the
consumer to collect the debt can be revived under applicable law, the
fact that revival can occur and the circumstances in which it can
occur. The Bureau proposes model language and forms that debt
collectors could use to comply with the proposed disclosure
requirements.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 1692-1692p. This proposal would cover the same
universe of debt collectors as the May 2019 Proposed Rule, i.e.,
only FDCPA-covered debt collectors. 15 U.S.C. 1692a(6). Creditors
therefore would only have to comply to the extent they are FDCPA-
covered debt collectors.
---------------------------------------------------------------------------
The Bureau proposes that the effective date of the final rule would
be one year after the final rule is published in the Federal Register.
The Bureau requests comment on this proposed effective date.
II. Background
A. In General
Statutes of limitations establish time limits for bringing suit on
legal claims.\2\ They serve several purposes.\3\ First, statutes of
limitations advance a defendant's interest in repose. That is, they
reflect the legislative judgment that it is ``unjust to fail to put the
adversary on notice to defend within a specified period of time.'' \4\
Second, statutes of limitations eliminate stale claims. That is, they
protect defendants and the courts from having to deal with cases in
which ``the search for truth may be seriously impaired by the loss of
evidence, whether by death or disappearance of witnesses, fading
memories, disappearance of documents, or otherwise.'' \5\ Third,
statutes of limitations provide ``certainty about a plaintiff's
opportunity for recovery and a defendant's potential liabilities.'' \6\
---------------------------------------------------------------------------
\2\ See generally Lozano v. Montoya Alvarez, 572 U.S. 1, 14
(2014).
\3\ See generally Rotella v. Wood, 528 U.S. 549, 555 (2000)
(identifying ``the basic policies of all limitations provisions'' as
``repose, elimination of stale claims, and certainty'').
\4\ United States v. Kubrick, 444 U.S. 111, 117 (1979).
\5\ Id.
\6\ Young v. United States, 535 U.S. 43, 47 (2002) (quoting
Rotella, 528 U.S. at 555).
---------------------------------------------------------------------------
A time-barred debt is a debt for which the applicable statute of
limitations has expired. For most debts, State law supplies the
applicable statute of limitations.\7\ The length of the limitations
period varies by State and debt type. Most statutes of limitations
applicable to debt collection claims are between three and six years,
although some are as long as 15 years.\8\
---------------------------------------------------------------------------
\7\ Federal law sometimes establishes the statute of
limitations. For example, legal actions to recover certain
telecommunications debt are subject to a statute of limitations set
by Federal law. See 47 U.S.C. 415(a).
\8\ See Fed. Trade Comm'n, The Structure and Practices of the
Debt Buying Industry, at 42 (Jan. 2013), https://www.ftc.gov/sites/default/files/documents/reports/structure-and-practices-debt-buying-industry/debtbuyingreport.pdf (hereinafter FTC Debt Buying Report).
---------------------------------------------------------------------------
Currently, in most States, expiration of the statute of
limitations, if raised by the consumer as an affirmative defense,
precludes the debt collector from recovering on the debt through
litigation,\9\ but it does not extinguish the debt itself.\10\ In these
jurisdictions, a
[[Page 12673]]
debt collector may use non-litigation means, such as letters and
telephone calls, to collect a time-barred debt, as long as those means
do not violate the FDCPA or other laws. As courts have recognized, a
consumer who cannot be sued on a debt may still feel a moral obligation
to pay.\11\ In addition, a consumer may pay a time-barred debt
believing that doing so will improve the consumer's credit report.\12\
---------------------------------------------------------------------------
\9\ As a result, many courts have held that suing or threatening
to sue on time-barred debts is an unfair or deceptive practice under
the FDCPA. See, e.g., Pantoja v. Portfolio Recovery Assocs., LLC,
852 F.3d 679, 683 (7th Cir. 2017) (noting that ``a debt collector
violates the [FDCPA] by suing to collect a time-barred debt after
the statute of limitations has run and bars the suit''); Crawford v.
LVNV Funding, LLC, 758 F.3d 1254, 1259 (11th Cir. 2014) (``Federal
circuit and district courts have uniformly held that a debt
collector's . . . filing a time-barred suit in state court to
recover [a time-barred] debt violates [the FDCPA].''). The Bureau's
May 2019 Proposed Rule would prohibit debt collectors from suing or
threatening to sue consumers to collect debts the debt collectors
know or should know are time barred. See 84 FR 23274, 23327-29,
23403 (May 21, 2019).
\10\ In Mississippi and Wisconsin, debts are extinguished when
the applicable statute of limitations expires. See Miss. Code Ann.
15-1-3 (``The completion of the period of limitation prescribed to
bar any action, shall defeat and extinguish the right as well as the
remedy.''); Wis. Stat. Ann. 893.05 (``When the period within which
an action may be commenced on a Wisconsin cause of action has
expired, the right is extinguished as well as the remedy.''). North
Carolina prohibits a ``debt buyer'' from collecting or attempting to
collect a debt when the debt buyer ``knows, or reasonably should
know, that such collection is barred by the applicable statute of
limitations.'' N.C. Gen. Stat. 58-70-115(4).
\11\ See, e.g., Pantoja, 852 F.3d at 684 (``The creditor retains
the right to appeal to the debtor to honor the debt out of a sense
of moral obligation even if the legal obligation can no longer be
enforced in court.''); Buchanan v. Northland Grp., Inc., 776 F.3d
393, 399 (6th Cir. 2015) (``Legal defenses are not moral defenses .
. . [a]nd a creditor remains free, in the absence of a bankruptcy
order or something comparable preventing it from trying to collect
the debt, to let the debtor know what the debt is and to ask her to
pay it.''); McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th
Cir. 2014) (``[S]ome people might consider full debt re-payment a
moral obligation, even though the legal remedy for the debt has been
extinguished.'').
\12\ Section 605(a)(4) of the Fair Credit Reporting Act
generally establishes a seven-year period for reporting information
about accounts placed for collection; after this period has elapsed,
the debt generally cannot appear on a consumer report. 15 U.S.C.
1681c(a)(4). Because the statute of limitations on a debt collection
claim is less than seven years in some States, it is possible for a
time-barred debt to appear on a consumer's credit report.
---------------------------------------------------------------------------
In many States, a debt collector's right to sue on a time-barred
debt can be ``revived'' if certain conditions are met. Revival
extinguishes the consumer's right to raise expiration of the statute of
limitations as an affirmative defense to litigation; that is, it
revives the debt collector's right to sue to collect the debt. There
are generally two circumstances in which State laws permit revival.
First, in some States, a consumer's partial payment on a time-barred
debt revives the debt collector's right to sue.\13\ One possible theory
underlying these laws is that a partial payment ``is an acknowledgement
of the existence of the indebtedness, which raises an implied promise
to continue the obligation and to pay the balance.'' \14\ Second, in
some States, a consumer's written acknowledgement of a time-barred debt
revives the debt collector's right to sue.\15\ One possible theory
underlying these laws is that a written acknowledgement ``raises a new
promise by the debtor to pay [the] existing debt'' and is ``enforceable
because it is supported by the existing legal duty of the promisor.''
\16\
---------------------------------------------------------------------------
\13\ See, e.g., Buchanan, 776 F.3d at 399 (applying Michigan
law).
\14\ Young v. Sorenson, 121 Cal. Rptr. 236, 237 (Ct. App. 1975).
\15\ See, e.g., Pariot v. Portfolio Recovery Assocs., LLC, No.
2:18-cv-09614-SJO, 2019 WL 2635586, at *3 (C.D. Cal. June 25, 2019)
(applying California law).
\16\ United States v. Glens Falls Ins. Co., 546 F. Supp. 643,
645 (N.D.N.Y. 1982).
---------------------------------------------------------------------------
B. Market for Time-Barred Debt
As discussed in the May 2019 Proposed Rule, the debt collection
industry includes creditors, third-party debt collectors, debt buyers,
and a variety of service providers.\17\ A creditor to whom a debt is
owed may collect the debt itself, send the account to a third-party
debt collector to recover on the debt in the third-party debt
collector's name, or sell the debt to a debt buyer.\18\ By the time a
debt becomes time barred (i.e., after three to six years for many
debts) it may have been placed with multiple third-party debt
collectors, or purchased and sold by multiple debt buyers.
---------------------------------------------------------------------------
\17\ See 84 FR 23274, 23276-77 (May 21, 2019).
\18\ Id. at 23277.
---------------------------------------------------------------------------
The cost to purchase a debt generally decreases over time as the
probability of recovering on the debt also decreases.\19\ Because of
their age and the general unavailability of litigation as a collection
method, time-barred debts typically are available for purchase at a
discount off face value.\20\ In analyzing whether, and for what price,
to purchase a portfolio of debts, debt buyers commonly consider the
prevalence of time-barred debts in the portfolio.\21\ The Bureau is
unaware of any formal studies of the size of the market for collection
of time-barred debts.\22\
---------------------------------------------------------------------------
\19\ See FTC Debt Buying Report, supra note 8, at 23-24; Bureau
of Consumer Fin. Prot., Market Snapshot: Online Debt Sales, at 11
(Jan. 2017), https://www.consumerfinance.gov/documents/2249/201701_cfpb_Online-Debt-Sales-Report.pdf (hereinafter CFPB Online
Debt Sales Report).
\20\ See, e.g., FTC Debt Buying Report, supra note 8, at 23-24;
CFPB Online Debt Sales Report, supra note 19, at 10.
\21\ FTC Debt Buying Report, supra note 8, at 21.
\22\ See David E. Reid, Out-of-Statute Debt: What is a Smart,
Balanced, and Responsible Approach, at 5 n.6 (Receivables Mgmt.
Ass'n Int'l, White Paper, 2015), https://rmassociation.org/wp-content/uploads/2017/04/RMA_Whitepaper_OOS.pdf (noting challenge of
developing a reliable methodology for estimating size of time-barred
debt market).
---------------------------------------------------------------------------
C. Consumer Protection Concerns Regarding Collection of Time-Barred
Debt
The collection of time-barred debt through non-litigation means can
pose consumer protection concerns. Consumers unfamiliar with statutes
of limitations may take away from a debt collector's attempt to collect
a time-barred debt the misleading impression that the debt is legally
enforceable--even if the debt collector does not explicitly threaten
litigation. A consumer with the misimpression that a time-barred debt
is enforceable in court may pay or prioritize that debt over another
debt or expense, in the mistaken belief that doing so is necessary to
avoid litigation. The consumer may, in turn, have less money to pay
another debt on which the consumer can be sued, or to pay other
expenses, such as household necessities. In the many States that permit
revival, a consumer who makes a partial payment on a time-barred debt
or acknowledges the debt in writing may revive the debt collector's
right to sue.
Some States have attempted to address these consumer protection
concerns by imposing disclosure requirements on debt collectors. In
these jurisdictions, a debt collector may not collect a time-barred
debt without disclosing to the consumer that the debt is time
barred.\23\ Although their wording varies, State-mandated time-barred
debt disclosures typically inform the consumer that the law limits how
long a consumer can be sued on a debt, and that the debt collector
cannot or will not sue to collect the debt.\24\ Some States also
require debt collectors to disclose the circumstances in which the
right to sue on a time-barred debt can be revived.\25\
---------------------------------------------------------------------------
\23\ See, e.g., Cal. Civ. Code 1788.14(d); Conn. Gen. Stat. 36a-
805(a)(14); Mass. Code Regs., tit. 940, 7.07(24); N.M. Admin. Code
12.2.12.9; N.Y. Comp. Codes R. & Regs., tit. 23, 1.3; N.C. Gen.
Stat. 58-70-115(1); Tex. Fin. Code Ann. 392-307(e); 6 Vt. Code R.
031-004-Rule-CF 104.05; 6 Vt. Code R. 3-2-103:CP 104.05(a); W. Va.
Code 46a-2-128(f).
\24\ For example, California law requires debt collectors to
disclose, in relevant part, the following in the first written
communication with a debtor after the debt has become time barred:
``The law limits how long you can be sued on a debt. Because of the
age of your debt, we will not sue you for it.'' Cal. Civ. Code
1788.14(d).
\25\ For example, New Mexico law provides, in relevant part,
that it is an unfair or deceptive trade practice for a debt
collector to collect or attempt to collect a debt that the debt
collector knows or has reason to know is time barred unless the debt
collector makes required time-barred debt and revival disclosures.
New Mexico provides the following safe harbor disclosure:
We are required by New Mexico Attorney General rule to notify
you of the following information. This information is not legal
advice: This debt may be too old for you to be sued on it in court.
If it is too old, you can't be required to pay it through a lawsuit.
You can renew the debt and start the time for the filing of a
lawsuit against you to collect the debt if you do any of the
following: Make any payment of the debt; sign a paper in which you
admit that you owe the debt or in which you make a new promise to
pay; sign a paper in which you give up (``waive'') your right to
stop the debt collector from suing you in court to collect the debt.
N.M. Admin. Code 12.2.12.9. See also, e.g., Mass Code Regs.,
tit. 94, 7.07(24); N.M. Admin. Code 12.2.12.9; N.Y. Comp. Codes R. &
Regs., tit. 23, 1.3; N.C. Gen. Stat. 58-70-115(1); 6 Vt. Code R. 3-
2-103:CP 104.05(a).
---------------------------------------------------------------------------
[[Page 12674]]
Federal regulators also have highlighted the consumer protection
concerns associated with time-barred debts. For example, the Federal
Trade Commission (FTC) has published several reports on the debt
collection industry, each recognizing the potential that consumers may
be misled by the collection of time-barred debts.\26\ In addition, the
FTC and the Bureau have filed amicus briefs addressing the collection
of time-barred debt.\27\ The FTC and the Bureau also have brought
enforcement actions against debt collectors who violated the FDCPA when
collecting time-barred debts; the injunctive relief in those cases
sometimes required the debt collector to make time-barred debt
disclosures.\28\
---------------------------------------------------------------------------
\26\ See FTC Debt Buying Report, supra note 8, at 44-49; Fed.
Trade Comm'n, Repairing a Broken System: Protecting Consumers in
Debt Collection Litigation and Arbitration (July 2010), at 22-31,
https://www.ftc.gov/sites/default/files/documents/reports/federal-trade-commission-bureau-consumer-protection-staff-report-repairing-broken-system-protecting/debtcollectionreport.pdf; Fed Trade Comm'n,
Collecting Consumer Debts: The Challenges of Change (Feb. 2009), at
62-65, https://www.ftc.gov/sites/default/files/documents/reports/collecting-consumer-debts-challenges-change-federal-trade-commission-workshop-report/dcwr.pdf.
\27\ See, e.g., Brief of Amici Curiae, Buchanan v. Northland
Grp., Inc., No. 13-2523 (6th Cir. Mar. 5, 2014), https://www.consumerfinance.gov/f/201403_cfpb_amicus-brief_buchanan-v-northland-group-inc.pdf; Brief of Amici Curiae, Delgado v. Capital
Mgmt. Servs., LP, No. 13-2030 (7th Cir. Aug. 14, 2013), https://www.consumerfinance.gov/f/201309_cfpb_agency-brief_12-cv-04057.pdf.
\28\ See, e.g., In re Encore Capital Grp., Inc., Bureau of
Consumer Fin. Prot., File No. 2015-CFPB-0022 (Sept. 9, 2015), at 17;
In re Portfolio Recovery Assocs. LLC, Bureau of Consumer Fin. Prot.,
File No. 2015-CFPB-0023 (Sept. 9, 2015), at 15; United States v.
Asset Acceptance, LLC, No. 8:12-cv-182 (M.D. Fla. filed Jan. 30,
2012).
---------------------------------------------------------------------------
Courts generally have agreed that a debt collector violates the
FDCPA when its statements would mislead an unsophisticated consumer to
believe that a time-barred debt is legally enforceable, regardless of
whether the debt collector expressly threatens litigation.\29\ In
addition, courts generally have agreed that a debt collector can use
disclosures to correct misleading impressions relating to a debt's
enforceability and the possibility of revival that arise from the debt
collector's attempt to collect a time-barred debt.\30\ Some courts have
found that a debt collector who seeks payment on a time-barred debt
without disclosing the debt's unenforceability (and, where applicable,
the possibility of revival) may violate the FDCPA, but whether a
particular communication is misleading in violation of the FDCPA raises
a question of fact.\31\ Other courts have held that a debt collector
who offers a settlement or seeks payment on a time-barred debt without
disclosing the debt's unenforceability (and, where applicable, the
possibility of revival) violates the FDCPA as a matter of law.\32\ Some
courts have provided debt collectors with model disclosure
language,\33\ while others have not.\34\
---------------------------------------------------------------------------
\29\ See, e.g., Holzman v. Malcolm S. Gerald & Assocs., 920 F.3d
1264, 1271 (11th Cir. 2019); Tatis v. Allied Interstate, LLC, 882
F.3d 422, 429 (3d Cir. 2018); Daugherty v. Convergent Outsourcing
Inc., 836 F.3d 507, 509 (5th Cir. 2016); Buchanan v. Northland Grp.,
Inc., 776 F.3d 393, 398-99 (6th Cir. 2015).
\30\ See, e.g., Holzman, 920 F.3d at 1272-73; Pantoja v.
Portfolio Recovery Assocs., LLC, 852 F.3d 679, 685-86 (7th Cir.
2017); Daugherty, 836 F.3d at 513; Buchanan, 776 F.3d at 399-400.
\31\ See, e.g., Holzman, 920 F.3d at 1269; Daugherty, 836 F.3d
at 513; Buchanan, 776 F.3d at 397-99.
\32\ See, e.g., Pantoja, 852 F.3d at 682-83, 685-86; Manuel v.
Merchants & Prof'l Credit Bureau, Inc., No. 1:18-cv-226-DAE, 2019 WL
3713750, at *9 (W.D. Tex. Aug. 5, 2019); Schafer v. Allied
Interstate LLC, No. 1:17-cv-233, 2019 WL 2710272, at *10 (W.D. Mich.
June 28, 2019).
\33\ See, e.g., Buchanan, 776 F.3d at 400.
\34\ See, e.g., Tatis, 882 F.3d at 430; Pantoja, 852 F.3d at
682-83, 685-86.
---------------------------------------------------------------------------
Given the current state of the law, some consumers may not receive
a disclosure about the time-barred status of a debt in collection,
while others may receive a disclosure containing language that varies
based on jurisdiction. In addition, debt collectors may be unclear
about their disclosure obligations when collecting time-barred debt
through non-litigation means. The lack of clarity may be especially
acute in jurisdictions where courts have not considered whether the law
requires disclosures or have not provided model disclosure language.
Even in jurisdictions with State-law disclosure requirements, debt
collectors may not know whether providing such disclosures is
sufficient to comply with the FDCPA.
III. The Rulemaking Process
Before publishing the May 2019 Proposed Rule, the Bureau engaged in
outreach regarding numerous debt collection topics, including time-
barred debt. The May 2019 Proposed Rule described the scope of that
outreach, which also has informed the development of this proposed
rule.\35\ Of particular note, the Bureau has met with stakeholders
including consumer advocates, debt collection trade associations,
industry participants, academics with expertise in debt collection,
Federal prudential regulators, and other Federal and State consumer
protection regulators. The Bureau also has drawn on information
gathered through the more formal outreach described below.
---------------------------------------------------------------------------
\35\ 84 FR 23274, 23278-81 (May 21, 2019).
---------------------------------------------------------------------------
A. 2013 Advance Notice of Proposed Rulemaking
The Bureau issued an Advance Notice of Proposed Rulemaking (ANPRM)
regarding debt collection in November 2013.\36\ The ANPRM sought
information about an array of debt collection practices, including the
use of disclosures, such as time-barred debt disclosures, in debt
collection. Among other things, the Bureau requested comment on whether
a debt collector should be required to disclose that a debt is time
barred; that the debt collector cannot lawfully sue to collect it; and
that, if applicable under State law, a consumer's partial payment
revives the debt collector's right to sue for the entire amount.\37\
---------------------------------------------------------------------------
\36\ 78 FR 67848 (Nov. 12, 2013).
\37\ Id. at 67876.
---------------------------------------------------------------------------
The Bureau received more than 23,000 comments in response to the
ANPRM, including nearly 400 non-form comments submitted by consumers,
consumer advocates, debt collection industry participants and trade
associations, legal groups including law school clinics, State
Attorneys General, and other stakeholders. Some consumer advocates,
legal groups, and State Attorneys General supported banning the
collection of time-barred debts. Some consumer advocates, legal groups,
and one industry commenter also supported prohibiting revival.
A number of commenters addressed the merits of time-barred debt
disclosures. Consumer advocates and State Attorneys General supported
disclosures that would inform consumers when debt collectors are
collecting time-barred debt and, if applicable, about the possibility
of revival. With a few exceptions, industry commenters generally
opposed such disclosures. Some industry commenters favored a disclosure
that would provide consumers general information about statutes of
limitations but that would not require debt collectors to provide
information about the time-barred status of particular debts.
B. Qualitative Consumer Testing
In 2014, the Bureau contracted with a third-party vendor, Fors
Marsh Group (FMG), to assist with developing, and to conduct
qualitative consumer testing of, debt collection disclosures for
consumers, including disclosures regarding time-barred debt and
revival. The Bureau sought insight into
[[Page 12675]]
consumers' understanding of time-barred debt and revival, as well as
whether and how time-barred debt and revival disclosures might, if
included on the validation notice, affect consumers' ability to make
decisions. As described in the May 2019 Proposed Rule, the Bureau's
qualitative testing took place during 2014 and 2015 and consisted of
five focus group discussions and two rounds of 30 one-on-one interviews
with consumers.\38\
---------------------------------------------------------------------------
\38\ 84 FR 23274, 23279 (May 21, 2019).
---------------------------------------------------------------------------
The focus group discussions were designed to assess consumers'
thoughts about debt collectors and debt collection, to evaluate
consumers' perceptions of disclosures provided by debt collectors, and
to measure consumers' understanding of their rights in debt collection,
including with respect to time-barred debt. The first round of one-on-
one interviews (i.e., cognitive testing) was designed to assess how
consumers might interact with different versions of a validation
notice, and how consumers' behavior might differ after reading the
forms. Regarding time-barred debt, participants were shown two
different versions of time-barred debt and revival disclosures and were
asked to respond to a survey with Likert-scale questions.\39\ The
second round of one-on-one interviews (i.e., usability testing) also
was designed to assess consumers' understanding of different validation
notices and to evaluate how each of the notices, which contained one of
several different time-barred debt disclosures and, in certain cases,
revival disclosures, might affect consumer behavior. During this
testing, participants responded to researchers' comprehension questions
and engaged in additional testing activities.\40\
---------------------------------------------------------------------------
\39\ A Likert-scale is a commonly used research scale that asks
respondents to specify their level of agreement or disagreement with
a series of statements.
\40\ Reports prepared by FMG regarding each phase of the
qualitative testing, as well as a report summarizing all of the
qualitative testing, were published on the Bureau's website when the
May 2019 Proposed Rule was issued. See Fors Marsh Grp., Debt
Collection Focus Groups (Aug. 2014), https://files.consumerfinance.gov/f/documents/cfpb_debtcollection_fmg-focus-group-report.pdf (hereinafter FMG Focus Group Report); Fors Marsh
Grp., Debt Collection Cognitive Interviews (n.d.), https://files.consumerfinance.gov/f/documents/cfpb_debtcollection_fmg-cognitive-report.pdf (hereinafter FMG Cognitive Report); Fors Marsh
Grp., Debt Collection User Experience Study (Feb. 2016), https://files.consumerfinance.gov/f/documents/cfpb_debtcollection_fmg-usability-report.pdf (hereinafter FMG Usability Report); Fors Marsh
Grp., Debt Collection Validation Notice Research: Summary of Focus
Groups, Cognitive Interviews, and User Experience Testing (Feb.
2016), https://files.consumerfinance.gov/f/documents/cfpb_debtcollection_fmg-summary-report.pdf (hereinafter FMG Summary
Report).
---------------------------------------------------------------------------
As discussed in the May 2019 Proposed Rule, the Bureau's
qualitative testing found that consumers often are uncertain about
their rights concerning time-barred debt.\41\ Focus group participants
said that knowing a debt is time barred is helpful and important
information. Many participants said that knowing that a debt was time
barred (and thus better understanding the risk of a lawsuit regarding
that debt) would affect their decision-making regarding payments.\42\
In particular, many participants said they would be less likely to pay
or prioritize a debt they knew was time barred.\43\ The qualitative
testing also suggested that a plain-language disclosure could help
consumers understand their rights with respect to time-barred debt. For
example, nearly all participants in the Bureau's qualitative testing
who were provided with a disclosure stating, ``Because of the age of
this debt, we cannot sue you for it'' understood that they could not be
sued on the debt.\44\ However, the Bureau's qualitative testing also
suggested that it could be challenging to develop an effective revival
disclosure, in part because consumers find the concept of revival
counterintuitive--that is, consumers believe that making a payment
should avert the negative consequences of nonpayment, which is in
tension with being subject to the risk of a lawsuit.\45\
---------------------------------------------------------------------------
\41\ See 84 FR 23274, 23328 (May 21, 2019). See also FMG Focus
Group Report, supra note 40, at 9-10; FMG Cognitive Report, supra
note 40, at 36-37; FMG Summary Report, supra note 40, at 35-36.
\42\ FMG Summary Report, supra note 40, at 35.
\43\ FMG Focus Group Report, supra note 40, at 9-10; FMG
Cognitive Report, supra note 40, at 36; FMG Usability Report, supra
note 40, at 75, 78, 80-81; FMG Summary Report, supra note 40, at 35-
36.
\44\ FMG Usability Report, supra note 40, at 74, 77.
\45\ Id. at 74-75, 77; FMG Summary Report, supra note 40, at 37.
See also United States v. Asset Acceptance, LLC, No. 8:12-cv-182, at
] 34 (M.D. Fla. filed Jan. 30, 2012).
---------------------------------------------------------------------------
C. Small Business Review Panel
As discussed in the May 2019 Proposed Rule, in August 2016, the
Bureau convened a Small Business Review Panel (Small Business Review
Panel or Panel) with the Chief Counsel for Advocacy of the Small
Business Administration and the Administrator of the Office of
Information and Regulatory Affairs with the Office of Management and
Budget (OMB).\46\ As part of that process, the Bureau prepared an
outline of proposals under consideration and the alternatives
considered (Small Business Review Panel Outline or Outline).\47\
---------------------------------------------------------------------------
\46\ The Small Business Regulatory Enforcement Fairness Act of
1996 (SBREFA), as amended by section 1100G(a) of the Dodd-Frank Act,
requires the Bureau to convene a Small Business Review Panel before
proposing a rule that may have a substantial economic impact on a
significant number of small entities. See Public Law 104-121, tit.
II, 110 Stat. 847, 857 (1996) (as amended by Pub. L. 110-28, section
8302 (2007)).
\47\ Bureau of Consumer Fin. Prot., Small Business Review Panel
for Debt Collector and Debt Buyer Rulemaking: Outline of Proposals
Under Consideration and Alternatives Considered (July 2016), https://files.consumerfinance.gov/f/documents/20160727_cfpb_Outline_of_proposals.pdf (hereinafter Small Business
Review Panel Outline or Outline).
---------------------------------------------------------------------------
Among other topics, the Small Business Review Panel Outline
discussed consumer protection concerns regarding time-barred debt and a
proposal under consideration to require disclosures in connection with
the collection of such debt. The Outline noted that the Bureau was
considering requiring debt collectors collecting on time-barred debt to
provide a brief, plain-language statement informing the consumer that,
because of the age of the debt, the debt collector could not sue to
recover it. The Bureau also was considering proposing that a time-
barred debt disclosure made by one debt collector would bind subsequent
debt collectors who, in turn, would have to provide the disclosure to
the consumer.\48\ The Outline noted that the Bureau was considering how
frequently debt collectors should be required to provide any such time-
barred debt disclosures (i.e., in the validation notice only, or in
other oral or written communications with the consumer) and whether to
require such disclosures only when the debt collector knew or should
have known that the debt was time barred.\49\ The Outline also noted
that the Bureau was considering a proposal to prohibit debt collectors
from collecting time-barred debt that could be revived under State law
unless they waived the right to sue on the debt.\50\
---------------------------------------------------------------------------
\48\ Id. at 20-21.
\49\ Id.
\50\ Id. at 21.
---------------------------------------------------------------------------
The Bureau participated in telephone conferences and a full-day
outreach meeting to receive feedback on the Outline from the small
entity representatives participating in the Panel process. After
gathering information from the small entity representatives, the Panel
issued a Small Business Review Panel Report (Report), which set forth
findings and recommendations regarding the Bureau's proposals under
consideration.\51\ The Report noted that
[[Page 12676]]
some small entity representatives expressed concern about the proposal
under consideration to require time-barred debt disclosures. Those
small entity representatives stated that it can be difficult to
determine whether debt is time barred, and they feared potential
lawsuits if good faith determinations about a debt's time-barred status
proved wrong.\52\ One such small entity representative recommended that
a debt collector should not be liable for failing to provide a time-
barred debt disclosure if the debt collector made a good-faith
determination, after appropriate consideration, that the statute of
limitations for that debt had not yet expired.\53\ Another small entity
representative said that a time-barred debt disclosure could mislead a
consumer into believing that the consumer no longer had any obligation
to pay the debt.\54\ Regarding the Bureau's proposal under
consideration to require waiver of revival in certain circumstances,
one small entity representative predicted that, if the Bureau limited
the circumstances in which debt collectors could sue on revived debts,
creditors would be less motivated to negotiate prolonged repayment
plans and more motivated to sue consumers before the statute of
limitations expired. The Bureau has considered the Small Business
Review Panel's findings and recommendations in preparing this proposal
and also discusses them in part V.
---------------------------------------------------------------------------
\51\ See 84 FR 23274, 23281 (May 21, 2019). The Small Business
Review Panel Report is part of the administrative record in this
rulemaking and is available to the public on the Bureau's website.
See generally Bureau of Consumer Fin. Prot., U.S. Small Bus. Admin.,
& Office of Mgmt. & Budget, Final Report of the Small Business
Review Panel on the CFPB's Proposals Under Consideration for the
Debt Collector and Debt Buying Rulemaking (Oct. 2016), https://files.consumerfinance.gov/f/documents/cfpb_debt-collector-debt-buyer_SBREFA-report.pdf (hereinafter Small Business Review Panel
Report or Report).
\52\ Small Business Review Panel Report, supra note 51, at 25.
\53\ Id. at appendix A (comment of Levy & Associates, LLC).
\54\ Id. at 25.
---------------------------------------------------------------------------
D. 2019 Notice of Proposed Rulemaking
In May 2019 the Bureau published a proposed rule to amend
Regulation F, 12 CFR part 1006.\55\ The May 2019 Proposed Rule would
amend Regulation F to prescribe Federal rules governing the activities
of debt collectors, as that term is defined in the FDCPA.
---------------------------------------------------------------------------
\55\ 84 FR 23274 (May 21, 2019).
---------------------------------------------------------------------------
Among other things, the Bureau proposed to interpret and apply
FDCPA section 807's prohibitions on false or misleading
representations, including by prohibiting a debt collector from suing
or threatening to sue a consumer to collect a debt that the debt
collector ``knows or should know'' is time barred.\56\ The Bureau
proposed the ``know or should know'' standard in response to feedback
received during the SBREFA process about the complexity of determining
whether the statute of limitations for a particular debt has
expired.\57\ The Bureau stated that, while debt collectors often will
know, or can readily determine, whether the statute of limitations has
expired, there may be some instances in which debt collectors may be
uncertain whether it has expired even after undertaking a reasonable
investigation. The Bureau noted that this could occur when, for
example, the case law in a State is unclear as to which statute of
limitations applies to a particular type of debt. The Bureau also
acknowledged, however, that it could be difficult to determine whether
a ``know or should know'' standard has been met. The Bureau requested
comment on the merits of using that standard, as opposed to a ``strict
liability'' standard under which collectors would be liable for suing
or threatening to sue on time-barred debt even if they neither knew nor
should have known that a debt was time barred.\58\
---------------------------------------------------------------------------
\56\ Id. at 23327-29, 23403 (proposing 12 CFR 1006.26(b) to
provide that ``[a] debt collector must not bring or threaten to
bring a legal action against a consumer to collect a debt that the
debt collector knows or should know is a time-barred debt'').
\57\ See part III.C, supra.
\58\ 84 FR 23274, 23329 (May 21, 2019).
---------------------------------------------------------------------------
The May 2019 Proposed Rule also stated that the Bureau was likely
to propose that debt collectors must provide disclosures to consumers
when collecting time-barred debt. The proposal noted that, before
issuing any such proposal, the Bureau intended to conduct additional
consumer testing of possible time-barred debt and revival disclosures,
and that the Bureau would publish the results of such testing for
public comment.\59\ That testing is now complete and is summarized in
part III.E. The May 2019 Proposed Rule reserved proposed 12 CFR
1006.26(c) and appendix B for any requirements for time-barred debt and
revival disclosures.\60\
---------------------------------------------------------------------------
\59\ Id.
\60\ Id.
---------------------------------------------------------------------------
The comment period for the May 2019 Proposed Rule closed on
September 18, 2019,\61\ and the Bureau received over 14,000 public
comments.\62\ A large number of comments addressed time-barred debt and
the Bureau's proposed prohibition regarding suits and threats of suit
on time-barred debt, including the proposed ``know or should know''
standard and alternatives for regulating the collection of time-barred
debt, such as prohibiting the collection of such debt altogether. The
Bureau is undertaking a complete review of the comments as part of the
process of taking final action on the May 2019 Proposed Rule. The
Bureau cross-references provisions of the May 2019 Proposed Rule
throughout this proposal.
---------------------------------------------------------------------------
\61\ 84 FR 37806 (Aug. 2, 2019).
\62\ See Regulations.gov, Debt Collection Practices (Regulation
F) Docket Folder Summary, https://www.regulations.gov/docket?D=CFPB-2019-0022 (last visited Feb. 18, 2020).
---------------------------------------------------------------------------
E. Quantitative Consumer Testing
To obtain additional information about consumer comprehension and
decision-making in response to sample debt collection disclosures
relating to time-barred debt, in 2017 the Bureau contracted with ICF
International, Inc. (ICF) to conduct a web survey of approximately
8,000 individuals possessing a broad range of demographic
characteristics.\63\ This quantitative testing concluded in late
September 2019, and the Bureau \64\ and ICF \65\ have published
detailed reports summarizing the testing methodology and results. The
Bureau summarizes the results below and welcomes feedback on the full
reports, as published on the Bureau's website.
---------------------------------------------------------------------------
\63\ OMB approved the Bureau's request to conduct the survey on
May 7, 2019. See Office of Mgmt. & Budget, Office of Information and
Regulatory Affairs, ICR--OIRA Conclusion, https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201902-3170-001# (last visited Feb. 18,
2020).
\64\ See Bureau of Consumer Fin. Prot., Disclosure of Time-
Barred Debt and Revival: Findings from the CFPB's Quantitative
Disclosure Testing (Feb. 2020), https://files.consumerfinance.gov/f/documents/cfpb_debt-collection-quantitative-disclosure-testing_report.pdf (hereinafter CFPB Quantitative Testing Report).
\65\ See ICF Int'l, Inc., Quantitative Survey Testing of Model
Disclosure Clauses and Forms for Debt Collection: Methodology Report
(Jan. 21, 2020), https://files.consumerfinance.gov/f/documents/cfpb_icf_debt-survey_methodology-report.pdf.
---------------------------------------------------------------------------
Respondents to the web survey were provided one of two versions of
a vignette in which a consumer incurred debt to purchase a couch. In
one version, the purchase occurred three years ago; in the other, it
occurred 10 years ago. Respondents were told that the consumer had not
paid off the debt and had received a validation notice from a debt
collector.
Respondents were randomly shown one of 11 different versions of a
validation notice. Two versions served as control conditions. One
control was designed to resemble validation notices that some debt
collectors use today (Status Quo Notice). The other control was the
Bureau's model validation notice as proposed in the May 2019 Proposed
Rule (Model Notice).\66\ Neither of the control notices contained a
time-barred debt or revival disclosure.
[[Page 12677]]
Of the remaining nine tested notices, four contained variations of a
time-barred debt disclosure added to the Bureau's model notice (TBD
Notices), and five contained variations of both a time-barred debt
disclosure and a revival disclosure added to the Bureau's model notice
(TBD with Revival Notices).\67\ The survey used these various TBD
Notices and TBD with Revival Notices to test whether and how consumers'
understanding of time-barred debt and revival concepts changed with
differently worded disclosures.
---------------------------------------------------------------------------
\66\ See CFPB Quantitative Testing Report, supra note 64, at 6-
9.
\67\ See id.
---------------------------------------------------------------------------
After viewing their assigned validation notice, respondents
answered a series of questions designed primarily to measure their
understanding of time-barred debt and revival disclosures (or their
understanding of time-barred debt and revival concepts without such
disclosures). Respondents were asked whether, based on what they read
in the notice, they thought a debt collector would be legally allowed
to sue the consumer to collect the debt if the consumer: (1) Ignored
the notice and took no action; (2) made a payment; (3) sent the debt
collector a letter acknowledging the debt; (4) called the debt
collector acknowledging the debt; or (5) mailed in the tear-off portion
of the validation notice to dispute the debt.
As discussed further in part V, the quantitative testing results
generally indicate that, in connection with the collection of a time-
barred debt, and at least in a testing environment, a validation notice
without a time-barred debt disclosure can leave consumers with the
misleading impression that debt collectors would be legally allowed to
sue to collect the debt.\68\ Time-barred debt disclosures, whether
alone or with a revival disclosure, generally appear to correct this
misimpression. On the other hand, the quantitative testing results
indicate that a time-barred debt disclosure alone (i.e., without a
revival disclosure) could lead consumers in revival States to believe
that debt collectors are legally allowed to sue in fewer circumstances
than they in fact are. Revival disclosures generally appear to clarify
the circumstances in which the debt collector's right to sue can be
revived.\69\
---------------------------------------------------------------------------
\68\ Throughout this proposal, the Bureau refers to time-barred
debts as not ``legally enforceable'' or states that debt collectors
are not ``legally allowed to sue'' to collect them. The Bureau uses
these shorthand phrases to reflect the current state of the law,
i.e., that the statute of limitations generally is an affirmative
defense to a lawsuit on time-barred debt and, as a result, courts
have concluded that suits or threats of suit on time-barred debt
violate the FDCPA. See supra note 9. As noted, the Bureau's May 2019
Proposed Rule also would prohibit debt collectors from suing or
threatening to sue to collect debts that the debt collectors know or
should know are time barred. Id.
\69\ See CFPB Quantitative Testing Report, supra note 64, at 4.
---------------------------------------------------------------------------
IV. Legal Authority
The Bureau issues this supplemental proposal pursuant to its
authority under the FDCPA and the Dodd-Frank Act. As amended by the
Dodd-Frank Act, FDCPA section 814(d) provides that the Bureau ``may
prescribe rules with respect to the collection of debts by debt
collectors,'' as defined in the FDCPA.\70\
---------------------------------------------------------------------------
\70\ 15 U.S.C. 1692l(d).
---------------------------------------------------------------------------
Section 1022(a) of the Dodd-Frank Act provides that ``[t]he Bureau
is authorized to exercise its authorities under Federal consumer
financial law to administer, enforce, and otherwise implement the
provisions of Federal consumer financial law.'' \71\ Section 1022(b)(1)
of the Dodd-Frank Act provides that the Director may prescribe rules
and issue orders and guidance, as may be necessary or appropriate to
enable the Bureau to administer and carry out the purposes and
objectives of the Federal consumer financial laws, and to prevent
evasions thereof.\72\ ``Federal consumer financial law'' includes title
X of the Dodd-Frank Act and the FDCPA.\73\
---------------------------------------------------------------------------
\71\ 12 U.S.C. 5512(a).
\72\ 12 U.S.C. 5512(b)(1).
\73\ 12 U.S.C. 5481(12)(H), (14).
---------------------------------------------------------------------------
A. FDCPA Sections 807 and 808
The Bureau issues this proposal pursuant to its authority to
interpret FDCPA sections 807 \74\ and 808.\75\ FDCPA section 807
generally prohibits a debt collector from ``us[ing] any false,
deceptive, or misleading representation or means in connection with the
collection of any debt,'' \76\ and then lists, without limiting the
general prohibition, 16 examples of conduct that violate the
section.\77\ Similarly, FDCPA section 808 generally prohibits a debt
collector from ``us[ing] unfair or unconscionable means to collect or
attempt to collect any debt,'' and then lists, without limiting the
general prohibition, eight examples of conduct that violate the
section.\78\
---------------------------------------------------------------------------
\74\ 15 U.S.C. 1692e.
\75\ 15 U.S.C. 1692f.
\76\ 15 U.S.C. 1692e.
\77\ 15 U.S.C. 1692e(1)-(16).
\78\ 15 U.S.C. 1692f.
---------------------------------------------------------------------------
The Bureau proposes to interpret FDCPA sections 807 and 808
consistent with the approach proposed in the May 2019 Proposed Rule for
interpreting FDCPA sections 806 through 808.\79\ That is, the Bureau
proposes to interpret FDCPA sections 807 and 808 in light of: (1) The
FDCPA's language and purpose; (2) the general types of conduct
prohibited by sections 807 and 808 and, where relevant, the specific
examples enumerated in those sections; and (3) judicial precedent.\80\
---------------------------------------------------------------------------
\79\ 84 FR 23274, 23281-82 (May 21, 2019).
\80\ Id. at 23281-83.
---------------------------------------------------------------------------
In particular, the Bureau notes that FDCPA section 807's and 808's
examples of prohibited conduct do not ``limit[ ] the general
application'' of the general prohibitions set forth in those sections.
Accordingly, the Bureau may prohibit conduct that the specific examples
do not address if the conduct violates the general prohibitions. In
addition, the Bureau uses the specific examples to inform its
understanding of the general prohibitions.\81\ The Bureau also
interprets FDCPA sections 807 and 808 in light of the significant body
of existing court decisions interpreting those sections, including
cases discussing the collection of time-barred debt.\82\ Finally,
consistent with the majority of courts, the Bureau proposes to
interpret FDCPA sections 807 and 808 to incorporate an objective,
``unsophisticated'' or ``least sophisticated'' consumer standard.\83\
---------------------------------------------------------------------------
\81\ Id. at 23282.
\82\ Id. See, e.g., Holzman v. Malcolm S. Gerald & Assocs., 920
F.3d 1264 (11th Cir. 2019); Tatis v. Allied Interstate, LLC, 882
F.3d 422 (3rd Cir. 2018); Pantoja v. Portfolio Recovery Assocs.,
LLC, 852 F.3d 679 (7th Cir. 2017); Daugherty v. Convergent
Outsourcing Inc., 836 F.3d 507 (5th Cir. 2016); Buchanan v.
Northland Grp., Inc., 776 F.3d 393 (6th Cir. 2015); McMahon v. LVNV
Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014).
\83\ 84 FR 23282 (May 21, 2019).
---------------------------------------------------------------------------
B. Dodd-Frank Act Section 1032
The Bureau also issues this proposal pursuant to its authority
under Dodd-Frank Act section 1032. Dodd-Frank Act section 1032(a)
provides that the Bureau may prescribe rules to ensure that the
features of any consumer financial product or service, ``both initially
and over the term of the product or service,'' are ``fully, accurately,
and effectively disclosed to consumers in a manner that permits
consumers to understand the costs, benefits, and risks associated with
the product or service, in light of the facts and circumstances.'' \84\
Under Dodd-Frank Act section 1032(a), the Bureau is empowered to
prescribe rules regarding the disclosure of the ``features'' of
consumer financial products and services generally. Accordingly, the
Bureau may prescribe rules containing disclosure requirements even if
other Federal consumer financial laws do not specifically require
disclosure of such features. Dodd-Frank Act section
[[Page 12678]]
1032(b)(1) provides that ``any final rule prescribed by the Bureau
under this section requiring disclosures may include a model form that
may be used at the option of the covered person for provision of the
required disclosures.'' \85\ Dodd-Frank Act section 1032(b)(2) provides
that such a model form ``shall contain a clear and conspicuous
disclosure that at a minimum--(A) uses plain language comprehensible to
consumers; (B) contains a clear format and design, such as an easily
readable type font; and (C) succinctly explains the information that
must be communicated to the consumer.'' \86\ Dodd-Frank Act section
1032(b)(3) provides that any such model form ``shall be validated
through consumer testing.'' \87\
---------------------------------------------------------------------------
\84\ 12 U.S.C. 5532(a).
\85\ 12 U.S.C. 5532(b)(1).
\86\ 12 U.S.C. 5532(b)(2).
\87\ 12 U.S.C. 5532(b)(3).
---------------------------------------------------------------------------
Dodd-Frank Act section 1032(c) provides that, in prescribing rules
pursuant to Dodd-Frank Act section 1032, the Bureau ``shall consider
available evidence about consumer awareness, understanding of, and
responses to disclosures or communications about the risks, costs, and
benefits of consumer financial products or services.'' \88\ Dodd-Frank
Act section 1032(d) provides that ``[a]ny covered person that uses a
model form included with a rule issued under this section shall be
deemed to be in compliance with the disclosure requirements of this
section with respect to such model form.'' \89\
---------------------------------------------------------------------------
\88\ 12 U.S.C. 5532(c).
\89\ 12 U.S.C. 5532(d).
---------------------------------------------------------------------------
V. Section-by-Section Analysis
Section 1006.26 Collection of Time-Barred Debts
26(c) Disclosures Required
For the reasons discussed below, the Bureau proposes Sec.
1006.26(c) to require debt collectors who are collecting debts that
they know or should know are time barred to provide time-barred debt
disclosures and, if applicable, revival disclosures to consumers.
Proposed Sec. 1006.26(c)(1) and (2) sets forth content and timing
requirements, and proposed Sec. 1006.26(c)(3) sets forth formatting
requirements and a safe harbor for making the disclosures.
The Bureau proposes Sec. 1006.26(c) pursuant to its authority
under FDCPA section 814(d) to prescribe rules with respect to the
collection of debts by debt collectors, and pursuant to its authority
to interpret FDCPA section 807. The Bureau proposes to interpret FDCPA
section 807's prohibition on using ``any false, deceptive, or
misleading representation or means in connection with the collection of
any debt'' to require debt collectors to make time-barred debt
disclosures and, if applicable, revival disclosures to consumers
because, as discussed below, a debt collector's attempt to collect a
time-barred debt is likely to give a consumer the false impression that
the debt is legally enforceable. This false impression, as also
discussed below, is likely to affect a consumer's decision whether to
pay or prioritize the debt. Thus, when a debt collector collects a
time-barred debt without disclosing that the debt is time barred, the
debt collector may misrepresent the character or le gal status of the
debt, which FDCPA section 807(2)(A) specifically prohibits.
The Bureau also proposes Sec. 1006.26(c) pursuant to its authority
under section 1032(a) of the Dodd-Frank Act. As discussed in part IV,
Dodd-Frank Act section 1032(a) provides that the Bureau may prescribe
rules to ensure that the features of any consumer financial product or
service, ``both initially and over the term of the product or
service,'' are ``fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances.'' Under Dodd-Frank Act section 1002(5) and
(15)(A)(x), collecting debt related to any consumer financial product
or service is itself a consumer financial product or service.
Dodd-Frank Act section 1032(c) provides that, in prescribing rules
pursuant to section 1032 of the Dodd-Frank Act, the Bureau ``shall
consider available evidence about consumer awareness, understanding of,
and responses to disclosures or communications about the risks, costs,
and benefits of consumer financial products or services.'' Accordingly,
in developing proposed Sec. 1006.26(c), the Bureau has considered
consumer complaints, industry disclosure practices, and other evidence
about consumer awareness, understanding of, and responses to
disclosures or communications about the risks, costs, and benefits of
consumer financial products or services. The Bureau has also considered
the evidence developed through its consumer testing.
The Bureau proposes Sec. 1006.26(c) on the theory that a debt's
status as time barred is a feature of debt collection. Knowing that a
debt is time barred may help a consumer understand the costs, benefits,
and risks associated with paying or not paying a debt. For the reasons
described below, the Bureau believes that requiring debt collectors to
clearly and conspicuously disclose to consumers when a debt is time
barred and, if applicable, when revival may occur, using disclosures
substantially similar to those set forth on the model forms in proposed
appendices B-4 through B-7, may ensure that the features of debt
collection are fully, accurately, and effectively disclosed to
consumers.
26(c)(1) In General
As discussed in part II.C, the non-litigation collection of time-
barred debt can raise concerns about consumer deception. If a debt
collector attempts to collect a debt, the consumer may take away the
impression that the debt collector is legally allowed to sue to collect
it.\90\ For time-barred debts, this impression would be false, and this
false impression is likely to affect a consumer's decision whether to
pay or prioritize a time-barred debt.
---------------------------------------------------------------------------
\90\ See FTC Debt Buying Report, supra note 8, at 46-47 (``When
collectors attempt to recover on debts, in many circumstances, such
efforts may convey or imply to consumers that the collectors could
sue them if they do not pay.''). See also, e.g., Holzman v. Malcolm
S. Gerald & Assocs., Inc., 920 F.3d 1264, 1272 (11th Cir. 2019);
Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679, 683-84
(7th Cir. 2017).
---------------------------------------------------------------------------
As summarized in part III.E, the Bureau's quantitative testing
results suggest that, without a disclosure, many consumers are likely
to believe that a debt collector is legally allowed to sue to collect a
time-barred debt. For example, as discussed in the Bureau's
Quantitative Testing Report, one survey question asked respondents
whether, based on what they read in a sample validation notice, they
thought the debt collector would be legally allowed to sue the debtor
if the debtor ignored the notice and took no action. For the time-
barred debts described in the testing scenarios, the correct answer to
this question was ``no,'' the debt collector would not be legally
allowed to sue. However, over 60 percent of respondents who saw either
a Status Quo or Model Notice (i.e., a validation notice without a time-
barred debt disclosure) got this question wrong and replied that the
debt collector would be legally allowed to sue.\91\
---------------------------------------------------------------------------
\91\ CFPB Quantitative Testing Report, supra note 64, at 17-18.
---------------------------------------------------------------------------
This false impression could affect a consumer's decision whether to
pay or prioritize a debt. For example, a different survey question
asked respondents how likely they would be, if they were the debtor,
either to make a full or partial payment on the debt or to ignore the
validation notice and not
[[Page 12679]]
respond to it. Respondents who saw a validation notice with no time-
barred debt disclosure were more likely than respondents who saw a
validation notice with such a disclosure to say that they were ``very
likely'' to make a full or partial payment and that they were ``very
unlikely'' to ignore the notice.\92\ These results reflect responses to
hypotheticals in a testing environment, but they indicate that, if a
consumer has the misimpression that a debt collector can sue to enforce
a time-barred debt, the consumer may be more likely to pay or
prioritize that debt than if the consumer knew that doing so was not
necessary to avoid litigation. Consumers, of course, may choose to pay
time-barred debts for any number of reasons, including moral ones \93\
or in the belief that doing so will improve their credit reports.\94\
However, the Bureau believes that consumers are harmed to the extent
that they decide to pay or prioritize time-barred debts over other
debts or expenses such as household necessities because of a false
understanding that they can be sued.
---------------------------------------------------------------------------
\92\ Id. at 28-29. The Bureau's qualitative consumer testing and
other research also suggests that knowing whether a debt is time
barred, and that debt collectors cannot enforce time-barred debts in
court, may affect a consumer's decision-making with respect to the
debt. Participants in the Bureau's consumer testing said that
knowing a debt is time barred is important and would affect their
decision-making. In particular, many participants said they would be
less likely to pay or prioritize a debt they knew was time barred.
FMG Focus Group Report, supra note 40, at 9-10; FMG Cognitive
Report, supra note 40, at 36; FMG Usability Report, supra note 40,
at 75, 78, 80-81; FMG Summary Report, supra note 40, at 35-36. See
also Timothy E. Goldsmith & Nathalie Martin, Testing Materiality
Under the Unfair Practices Acts: What Information Matters Collecting
Time-Barred Debts? 64 Consumer Fin. L. Q. Rep. 372, at 377-80
(2010).
\93\ See, e.g., Pantoja, 852 F.3d at 684; Buchanan v. Northland
Grp., Inc., 776 F.3d 393, 399 (6th Cir. 2015); McMahon v. LVNV
Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014).
\94\ See supra note 12.
---------------------------------------------------------------------------
As discussed in part II.C., several jurisdictions already require
debt collectors to inform consumers if a debt is time barred,\95\ and
some debt collectors also must provide such disclosures as a result of
consent agreements with law enforcement agencies, including the Bureau
and the FTC.\96\ The Bureau's quantitative testing supports the
conclusion that such a time-barred debt disclosure can, in fact, help
to correct the misimpression that a debt collector would be legally
allowed to sue to collect a time-barred debt. As noted, over 60 percent
of respondents who were shown a validation notice without a time-barred
debt disclosure answered incorrectly when asked whether, based on what
they read in the notice, the debt collector would be legally allowed to
sue to collect the time-barred debt if the debtor ignored the notice
and took no action. By contrast, over 60 percent of respondents who
received either a TBD or TBD with Revival Notice (i.e., a validation
notice with a time-barred debt disclosure) answered this question
correctly.\97\
---------------------------------------------------------------------------
\95\ See, e.g., Cal. Civ. Code 1788.52(d)(3); Conn. Gen. Stat.
36a-805(a)(14); Mass. Code Regs., tit. 940, 7.07(24); N.M. Code. R.
12.2.12.9(A); N.Y. Comp. Codes R. & Regs., tit. 23, 1.3; New York
City, N.Y., Rules, tit. 6, 2-191(a); W. Va. Code 46a-2-128(f).
\96\ For example, the Bureau has brought enforcement actions
alleging that debt collectors violated the FDCPA by sending letters
containing time-limited ``settlement'' offers that failed to
disclose that the debt was time barred and therefore too old for
litigation. Consent Order at ]] 65-69, In re Encore Capital Grp.,
Inc., Bureau of Consumer Fin. Prot., File No. 2015-CFPB-0022 (Sept.
9, 2015), https://files.consumerfinance.gov/f/201509_cfpb_consent-order-encore-capital-group.pdf; Consent Order at ]] 56-59, In re
Portfolio Recovery Assocs., LLC, Bureau of Consumer Fin. Prot., File
No. 2015-CFPB-0023 (Sept. 9, 2015), https://files.consumerfinance.gov/f/201509_cfpb_consent-order-portfolio-recovery-associates-llc.pdf. Similarly, the FTC has brought an
enforcement action alleging that a debt collector's collection of
time-barred debts violated the FDCPA where the debt collector failed
to disclose that the debts were time-barred and that the debt
collector's right to sue could be revived. Complaint ]] 30-34, 56-
58, United States v. Asset Acceptance, LLC, No. 8:12-cv-182 (M.D.
Fla. Jan. 30, 2012), https://www.ftc.gov/sites/default/files/documents/cases/2012/01/120130assetcmpt.pdf. The consent orders that
resolved Encore, Portfolio Recovery, and Asset Acceptance required
the debt collectors in those cases to make time-barred debt
disclosures. Encore Consent Order at ] 133; Portfolio Recovery
Consent Order at ] 126; Asset Acceptance Consent Decree at Sec. IV,
https://www.ftc.gov/sites/default/files/documents/cases/2012/01/120131assetconsent.pdf.
\97\ CFPB Quantitative Testing Report, supra note 64, at 17-18.
The Bureau's qualitative testing supports the same conclusion.
Nearly all participants in the Bureau's consumer testing who were
provided with a disclosure stating, ``Because of the age of this
debt, we cannot sue you for it'' understood that they could not be
sued on the debt. FMG Usability Report, supra note 40, at 74, 77.
---------------------------------------------------------------------------
Although the Bureau's quantitative testing found that a time-barred
debt disclosure tended to correct the misimpression that a debt
collector would be legally allowed to sue to collect a time-barred
debt, the testing also revealed that, in States with revival laws, an
unqualified time-barred debt disclosure could create its own risk of a
consumer taking away a false, material impression. Specifically, the
Bureau's quantitative testing found that a time-barred debt disclosure
alone (i.e., without a revival disclosure) could lead consumers in
revival States to believe that debt collectors are able to legally sue
them on time-barred debt in fewer circumstances than they in fact
are.\98\ As discussed in the Bureau's Quantitative Testing Report, two
survey questions asked respondents whether, based on what they read in
a sample validation notice, they thought the debt collector would be
legally allowed to sue the debtor if the debtor either made a payment
or acknowledged the debt in writing. For the time-barred debts
described in the testing scenarios, the correct answer to these
questions was ``yes,'' the debt collector would be legally allowed to
sue. However, more than 60 percent of respondents who saw a TBD Notice
(i.e., a validation notice with an unqualified time-barred debt
disclosure) replied incorrectly that the debt collector would not be
legally allowed to sue.\99\
---------------------------------------------------------------------------
\98\ As discussed in part II, in ``revival jurisdictions,'' if
consumers either make partial payments on time-barred debts or
acknowledge time-barred debts in writing (or both), debt collectors
once again would be legally allowed to sue to collect the debts. If
a debt collector makes an unqualified time-barred debt disclosure to
a consumer in a revival jurisdiction, that disclosure would be false
for a consumer whose conduct revived the debt.
\99\ CFPB Quantitative Testing Report, supra note 64, at 18-20.
Although respondents who received no time-barred debt disclosure at
all also tended to answer these questions incorrectly, respondents
who received an unqualified time-barred debt disclosure were even
more likely to answer these questions incorrectly. Id. These results
suggest that an unqualified time-barred debt disclosure could
mislead consumers for those scenarios.
---------------------------------------------------------------------------
As with the false impression that debt collectors legally are
allowed to sue to collect a time-barred debt even if the consumer takes
no action, the false impression that debt collectors are not legally
allowed to sue even if the consumer makes a payment or acknowledges the
debt in writing could affect a consumer's decision whether to pay or
prioritize time-barred debts. The Bureau's quantitative testing
suggests that, in revival jurisdictions, a time-barred debt disclosure
accompanied by a revival disclosure may help to correct this
misimpression. When respondents were asked whether, based on what they
read in the notice, the debt collector would be legally allowed to sue
to collect the time-barred debt if the consumer either made a payment
or acknowledged the debt in writing, about 70 percent and 60 percent of
respondents, respectively, who received both a time-barred debt and
revival disclosure answered correctly that the debt collector would be
legally allowed to sue.\100\
---------------------------------------------------------------------------
\100\ Id.
---------------------------------------------------------------------------
To address the likelihood that consumers may be deceived by the
non-litigation collection of time-barred debt, and pursuant to its
authority under FDCPA sections 814(d) and 807 and Dodd-Frank Act
section 1032, the Bureau proposes Sec. 1006.26(c)(1) to require debt
collectors who are collecting time-barred debt to provide
[[Page 12680]]
certain disclosures to consumers.\101\ Specifically, proposed Sec.
1006.26(c)(1) would provide that a debt collector who knows or should
know that a debt is time barred when the debt collector makes the
initial communication as defined in Sec. 1006.34(b)(2) must, in that
initial communication, and on any validation notice required by Sec.
1006.34(a)(1)(i)(B), clearly and conspicuously provide time-barred debt
and, if applicable, revival disclosures to consumers.\102\
---------------------------------------------------------------------------
\101\ The requirements of proposed Sec. 1006.26(c)(1) therefore
would apply to FDCPA-covered debt collectors collecting debt, as
that term is defined in FDCPA section 803(5), regardless of whether
the debt is a consumer financial product or service debt, as that
term is defined in the May 2019 Proposed Rule. See 84 FR 23274,
23399 (May 21, 2019). Consumer financial product or service debts
would include, for example, debts related to consumer mortgage loans
or credit cards. Id. at 23286.
\102\ The required disclosures are discussed in the section-by-
section analysis of proposed Sec. 1006.26(c)(1)(i) and (ii).
Proposed Sec. 1006.34(c)(2)(xi), discussed below, would amend the
validation notice provisions of the May 2019 Proposed Rule to
reflect the disclosures that would be required by proposed Sec.
1006.26(c)(1).
---------------------------------------------------------------------------
Proposed Sec. 1006.26(c)(1) would require the time-barred debt
and, if applicable, revival disclosures to be made regarding debts that
the debt collector ``knows or should know'' are time barred. As
discussed in the May 2019 Proposed Rule and in part III.D, determining
whether the statute of limitations for a particular debt has expired
can, in certain cases, be a complex undertaking, and debt collectors
may be uncertain about whether a particular statute of limitations has
passed even after conducting a reasonable investigation.\103\ For this
reason, the May 2019 Proposed Rule proposed to prohibit debt collectors
from suing or threatening to sue to collect debts if they ``know or
should know'' that the statute of limitations has expired.\104\ In
response to the May 2019 Proposed Rule, the Bureau received a large
number of comments regarding this knowledge standard. In general,
industry commenters favored a ``know or should know'' standard, while
consumer advocates favored a ``strict liability'' standard.\105\ The
Bureau is analyzing those comments as part of the process of finalizing
the May 2019 Proposed Rule. For consistency with that proposal, the
Bureau proposes to require disclosures under Sec. 1006.26(c)(1) only
if the debt collector knows or should know that the debt is time
barred.
---------------------------------------------------------------------------
\103\ See 84 FR 23274, 23329 (May 21, 2019) (determining whether
the statute of limitations has expired may involve analyzing which
statute of limitations applies, when the statute of limitations
began to run, and whether the statute of limitations has been tolled
or reset).
\104\ Id. at 23328-29, 23403. A debt collector would violate
FDCPA section 807's prohibition on deception and, if finalized,
Sec. 1006.18 in the May 2019 Proposed Rule, by providing the Sec.
1006.26(c)(1) disclosures if the debt collector later sues or
threatens to sue to collect the debt. The Bureau requests comment on
whether the final rule should indicate in rule text or commentary
that this would be a violation.
\105\ Under a ``strict liability'' standard, for example, a debt
collector would violate the proposed prohibition against suits or
threats of suit if the debt collector sued or threatened to sue to
collect a debt that a court later determined was time barred, even
if the debt collector had investigated and reasonably concluded that
the debt was not time barred. This could occur, for example, if
State law applies different statutes of limitations to different
types of debts, and if a court later determined that a debt
collector had applied the wrong provision in determining whether the
debt was time barred, notwithstanding a reasonable investigation.
---------------------------------------------------------------------------
Proposed Sec. 1006.26(c)(1) also would require the time-barred
debt and, if applicable, revival disclosures to be made clearly and
conspicuously. The Bureau proposes this standard to help ensure that
consumers take away a truthful, non-misleading impression. A disclosure
that is not clear and conspicuous will not be effective in conveying
this impression, defeating the disclosure's purpose. Proposed comment
26(c)(1)-1 would clarify that ``clearly and conspicuously'' for
purposes of Sec. 1006.26(c)(1) means the same thing as ``clear and
conspicuous'' as the Bureau proposed to define that term in Sec.
1006.34(b)(1) in the May 2019 Proposed Rule.\106\ That standard, in
turn, is based on the standard used in other consumer financial
services laws and their implementing regulations, including Regulation
E Subpart B (Remittance Transfers).\107\
---------------------------------------------------------------------------
\106\ Proposed Sec. 1006.34(b)(1) defines ``clear and
conspicuous'' to mean ``disclosures that are readily
understandable.'' In the case of written and electronic disclosures,
``the location and type size also must be readily noticeable to
consumers.'' In the case of oral disclosures, ``the disclosures also
must be given at a volume and speed sufficient for the consumer to
hear and comprehend them.''
\107\ Regulation E, 12 CFR 1005.31.
---------------------------------------------------------------------------
Proposed Sec. 1006.26(c)(1) also would require the time-barred
debt and, if applicable, revival disclosures to be made in the initial
communication as defined in Sec. 1006.34(b)(2), and on any validation
notice required by Sec. 1006.34(a)(1)(i)(B).\108\ Proposed Sec.
1006.26(c)(1) would require a debt collector to provide the disclosures
in these communications because, without the disclosures, the debt
collector may convey a misleading impression about the legal
enforceability of the time-barred debt. In addition, requiring the
disclosures at the time that the debt collector first communicates with
the consumer in connection with the collection of the debt and on any
required validation notice should ensure that consumers receive
information regarding the debt's legal enforceability at a time when
they may be evaluating their rights and obligations regarding the debt,
including whether to pay or prioritize it over other debts. Proposed
comment 26(c)(1)-2 would clarify that a debt collector who sends a
validation notice in the initial communication pursuant to Sec.
1006.34(a)(1)(i)(A) complies with Sec. 1006.26(c)(1) by providing the
required disclosures on the validation notice.
---------------------------------------------------------------------------
\108\ The Bureau proposes to use the same definition of
``initial communication'' proposed in the May 2019 Proposed Rule.
See 84 FR 23274, 23404 (May 21, 2019) (proposing 12 CFR part
1006.34(b)(2) to define ``initial communication'' in to mean ``the
first time that, in connection with the collection of a debt, a debt
collector conveys information, directly or indirectly, regarding the
debt to the consumer,'' other than certain communications required
by law or made in the form of a formal pleasing in a civil action).
---------------------------------------------------------------------------
Some stakeholders, including consumers, consumer groups, and others
who commented on the May 2019 Proposed Rule, have urged the Bureau to
prevent the risk of deception by prohibiting the collection of time-
barred debt and banning revival. These stakeholders assert, among other
things, that concepts like statutes of limitations and revival are too
complicated to disclose to consumers effectively. As discussed above,
however, the Bureau's quantitative testing results suggest that
disclosures can be effective in preventing the deception associated
with the collection of time-barred debts and that, therefore,
prohibiting the collection of time-barred debt and banning revival are
not necessary to prevent deception. In addition, banning the collection
of time-barred debt could have unintended consequences for consumers,
such as increased litigation before expiration of the statute of
limitations. Because disclosures may adequately address the risks to
consumers, the Bureau proposes to require disclosures rather than to
prohibit the collection of time-barred debt and ban revival.
The Bureau requests comment on proposed Sec. 1006.26(c)(1) and its
related commentary. In particular, the Bureau requests comment on the
merits of using a ``know or should know'' standard versus a ``strict
liability'' standard for determining when debt collectors must provide
time-barred debt and revival disclosures. The Bureau also requests
comment on the merits of using, as an alternative, a ``strict
liability'' standard with a safe harbor for debt collectors who provide
the disclosures when they
[[Page 12681]]
neither knew nor should have known the debt was time-barred.
The Bureau also requests comment on: (1) Whether knowing if a debt
is time barred affects or is likely to affect a consumer's conduct
relating to the debt; (2) the frequency with which debt collectors
should be required to provide required disclosures, including the basis
for requiring more or less frequent disclosures; (3) whether additional
guidance is needed to address situations in which a validation notice
might be re-issued voluntarily because, for example, the consumer
requests a copy or a translation; (4) debt collectors' current
practices with respect to disclosing whether a debt is time barred and
the circumstances, if any, in which revival can occur; and (5) debt
collectors' current practices with respect to revival, including
whether and how frequently they sue to collect debts when the right to
do so has been revived.
26(c)(1)(i)
Proposed Sec. 1006.26(c)(1)(i) sets forth the disclosure that debt
collectors would be required to provide when collecting debts that they
know or should know are time barred. Proposed Sec. 1006.26(c)(1)(i)
would require debt collectors to disclose that the law limits how long
the consumer can be sued for a debt and that, because of the age of the
debt, the debt collector will not sue the consumer to collect it. The
disclosure would be required to be substantially similar to the
disclosure shown on proposed Model Form B-4 in appendix B, and debt
collectors could comply by using that model form (or, if making the
disclosure other than on a validation notice, by using the relevant
language from that model form).\109\
---------------------------------------------------------------------------
\109\ See the section-by-section analysis of proposed Sec.
1006.26(c)(3) regarding proposed requirements for the form and
delivery of the required disclosures.
---------------------------------------------------------------------------
As discussed in the Bureau's Quantitative Testing Report, the
Bureau tested alternative versions of this time-barred debt disclosure,
including two that used the phrase ``will not sue'' and two that used
the phrase ``cannot sue.'' A disclosure that uses the phrase ``will not
sue'' may be more accurate than a disclosure that uses the phrase
``cannot sue.'' A disclosure that uses the phrase ``cannot sue'' may
imply that a debt collector has definitively determined that the debt
is time barred and that all subsequent collectors thus would reach the
same conclusion. By contrast, a ``will not sue'' disclosure merely
represents that the debt collector believes that the debt is time
barred, not that the debt collector has definitely determined that it
is time barred; it may not actually be the case that the debt is, or
that a subsequent collector would conclude that the debt is, time
barred.\110\ The Bureau's testing showed no consistent differences in
consumer understanding between the ``will not sue'' and ``cannot sue''
disclosures.\111\
---------------------------------------------------------------------------
\110\ For this reason, a debt collector who provides the
proposed Sec. 1006.26(c)(1) disclosures after undertaking a
reasonable inquiry and concluding that a debt is time barred would
not be liable under either the FDCPA or Regulation F for having made
the disclosures even if it is determined later that the debt
collector's conclusion about the debt's time-barred status was
incorrect, as long as the debt collector honors the disclosures by
not suing.
\111\ CFPB Quantitative Testing Report, supra note 64, at 22-23.
---------------------------------------------------------------------------
As discussed in part III.C, during the SBREFA process, the Bureau
was considering a proposal to require a debt collector who was
collecting a time-barred debt to disclose that, because of the age of
the debt, the debt collector ``cannot sue to recover it.'' \112\
Several small entity representatives expressed concern that the
disclosure under consideration could constitute legal advice, or that
consumers who received the disclosures could construe them as legal
advice and ask the debt collector follow-up questions about the debt's
legal status. Some industry commenters to the Bureau's ANPR expressed
similar concerns. As noted, the Bureau does not believe that the ``will
not sue'' disclosure described in proposed Sec. 1006.26(c)(1)(i)
constitutes legal advice. It is neither a statement of what the law is
nor advice to consumers as to what they should or should not do.
Instead, it is a statement of what the collector will do. In addition,
nothing in the Bureau's proposal would require a debt collector to
provide legal advice to a consumer who requests it. The Bureau requests
comment on proposed Sec. 1006.26(c)(1)(i) and on the burden of making
a time-barred debt determination for debt collectors who do not sue to
collect debts.
---------------------------------------------------------------------------
\112\ Small Business Review Panel Outline, supra note 47, at 20.
---------------------------------------------------------------------------
26(c)(1)(ii)
Proposed Sec. 1006.26(c)(1)(ii) sets forth an additional
disclosure that debt collectors would be required to provide when
collecting debts that they know or should know are time barred if,
under applicable law, the debt collector's right to bring a legal
against the consumer could be revived. Under proposed Sec.
1006.26(c)(1)(ii), debt collectors would be required to disclose the
fact that revival can occur and the circumstances in which it can
occur. The disclosure would be required to be substantially similar to
those shown on proposed Model Forms B-5 through B-7 in appendix B, and
debt collectors could comply by using those model forms, as applicable
(or, if making the disclosure other than on a validation notice, by
using the relevant language from the model forms).\113\ Proposed
comment 26(c)(1)(ii)-1 would clarify that, to satisfy the disclosure
requirement in proposed Sec. 1006.26(c)(1)(ii), a debt collector would
be required to determine which State's law applies and the
circumstances, if any, in which that law would permit revival.
---------------------------------------------------------------------------
\113\ See the section-by-section analysis of proposed Sec.
1006.26(c)(3) regarding proposed requirements for the form and
delivery of the required disclosures.
---------------------------------------------------------------------------
The Bureau requests comment on proposed Sec. 1006.26(c)(1)(ii) and
on comment 26(c)(1)(ii)-1. The Bureau specifically requests comment on
the burden of requiring all debt collectors to determine, when
collecting debt that they know or should know is time barred, which
State's law applies and the circumstances, if any, under which that law
would permit revival. The Bureau also specifically requests comment on
the burden of making these determinations under a strict liability
standard. The Bureau recognizes that some debt collectors do not sue to
collect any debts (including revived debts) and that some debts may be
clearly time barred under any applicable State law. The Bureau requests
comment on the burden in such circumstances of requiring debt
collectors to conduct the inquiry that would be required to satisfy
proposed Sec. 1006.26(c)(1)(ii) (i.e., to make a disclosure that
reflects the applicable State's revival law).
26(c)(2) Additional Circumstances in Which Disclosures Are Required
A debt may become time barred after a debt collector's initial
communication with the consumer or after the debt collector sends the
consumer any validation notice required by Sec. 1006.34(a)(1)(i)(B).
This could happen, for example, if a debt collector begins collecting a
debt soon before the statute of limitations expires, and collection
activities continue after expiration. This also could happen if a debt
collector begins collecting a debt before the statute of limitations
expires, warehouses the debt, and resumes collection activities after
expiration. Relatedly, it may be the case that a debt collector who
does not know, and should not know, that a debt is time barred when
making the initial communication with the consumer or
[[Page 12682]]
when sending the consumer any validation notice required by Sec.
1006.34(a)(1)(i)(B) later knows, or should know, that the debt was, in
fact, time barred.
As discussed, the Bureau's quantitative testing results indicate
that, without disclosure, few consumers are likely to recognize that a
debt collector is not legally allowed to sue to collect a time-barred
debt. The quantitative testing results also indicate that an
unqualified time-barred debt disclosure provided in a revival State may
create a risk of consumer misunderstanding about revival. For these
reasons, and pursuant to its authority under FDCPA sections 814(d) and
807 and Dodd-Frank Act section 1032(a), the Bureau proposes Sec.
1006.26(c)(2) to specify additional circumstances in which debt
collectors would be required to provide time-barred debt and, if
applicable, revival disclosures.\114\
---------------------------------------------------------------------------
\114\ The requirements of proposed Sec. 1006.26(c)(2) therefore
would apply to FDCPA-covered debt collectors collecting debt, as
that term is defined in FDCPA section 803(5), regardless of whether
the debt is a consumer financial product or service debt, as that
term is defined in the May 2019 Proposed Rule. See 84 FR 23274,
23399 (May 21, 2019). Consumer financial product or service debts
would include, for example, debts related to consumer mortgage loans
or credit cards. Id. at 23286.
---------------------------------------------------------------------------
Proposed Sec. 1006.26(c)(2)(i) would require a debt collector who
knows or should know that a debt has become time barred after the
initial communication as defined in Sec. 1006.34(b)(2) but before the
debt collector has sent any validation notice required by Sec.
1006.34(a)(1)(i)(B) to provide the disclosures required by Sec.
1006.26(c)(1) in the debt collector's first communication, if any, with
the consumer on or after the date on which the debt collector knows or
should know that the debt has become time barred, and on any validation
notice required by Sec. 1006.34(a)(1)(i)(B). In addition, proposed
Sec. 1006.26(c)(2)(i) would require a debt collector who knows or
should know that a debt has become time barred after the debt collector
has made the initial communication as defined in Sec. 1006.34(b)(2)
and has sent any validation notice required by Sec.
1006.34(a)(1)(i)(B) to provide the disclosures required by Sec.
1006.26(c)(1) in the debt collector's first communication, if any, with
the consumer on or after the date on which the debt collector knows or
should know that the debt became time barred. Proposed comments
26(c)(2)(i)-1 and -2 provide examples illustrating the rule.
Proposed Sec. 1006.26(c)(2)(ii) would require a debt collector who
neither knows nor should know that a time-barred debt is time barred
when the debt collector makes the initial communication as defined in
Sec. 1006.34(b)(2), but who knows or should know that the debt is time
barred before the debt collector has sent any validation notice
required by Sec. 1006.34(a)(1)(i)(B), to provide the disclosures
required by Sec. 1006.26(c)(1) in the debt collector's first
communication, if any, with the consumer on or after the date on which
the debt collector knows or should know that the debt is time barred,
and on any validation notice required by Sec. 1006.34(a)(1)(i)(B). In
addition, proposed Sec. 1006.26(c)(2)(ii) would require a debt
collector who neither knows nor should know that a time-barred debt is
time barred when the debt collector makes the initial communication as
defined in Sec. 1006.34(b)(2) and sends any validation notice required
by Sec. 1006.34(a)(1)(i)(B), but who later knows or should know that
the debt is time barred, to provide the disclosures required by Sec.
1006.26(c)(1) in the debt collector's first communication, if any, with
the consumer on or after the date on which the debt collector knows or
should know that the debt was time barred. Proposed comments
26(c)(2)(ii)-1 and -2 provide examples illustrating the rule.
The Bureau requests comment on proposed Sec. 1006.26(c)(2). In
particular, the Bureau requests comment on the knowledge standard that
should apply for determining when disclosures would be required under
proposed 1006.26(c)(2).\115\ In addition, the Bureau requests comment
on whether, if the first communication after a debt becomes time barred
(or after the debt collector knows or should know that the debt is time
barred) is oral, the debt collector should also be required to provide
the disclosures in the first subsequent written communication.
---------------------------------------------------------------------------
\115\ See the request for comment regarding the knowledge
standard in the section-by-section analysis of proposed
1006.26(c)(1).
---------------------------------------------------------------------------
26(c)(3) Form and Delivery of Disclosures
26(c)(3)(i) In General
The Bureau has developed a series of model forms featuring the
disclosures that would be required by proposed Sec. 1006.26(c)(1).
Under proposed Sec. 1006.26(c)(3)(i), the required disclosures would
need to be substantially similar to those shown on the model forms, and
under proposed Sec. 1006.26(c)(3)(ii), debt collectors would receive a
safe harbor for using the model forms (or, when applicable, for
providing the disclosures shown on the model forms).
Proposed Model Form B-4 is a validation notice that includes a
time-barred debt disclosure, for use by debt collectors providing only
the disclosure required under Sec. 1006.26(c)(1)(i) (i.e., if the
right to bring a legal action against the consumer on a time-barred
debt cannot be revived under applicable law). The disclosure on
proposed Model Form B-4 reads as follows: ``The law limits how long you
can be sued for a debt. Because of the age of this debt, we will not
sue you for it.''
Proposed Model Forms B-5 through B-7 are validation notices that
include time-barred debt and revival disclosures, for use by debt
collectors providing the disclosures required under Sec.
1006.26(c)(1)(i) and (ii). The proposed model forms contain revival
disclosures tailored to the different circumstances in which time-
barred debts could be revived under applicable law. Specifically:
The disclosure on proposed Model Form B-5 provides: ``The
law limits how long you can be sued for a debt. If you do nothing or
speak to us about this debt, we will not sue you to collect it. This is
because the debt is too old. BUT if you make a payment or acknowledge
in writing that you owe this debt, then we can sue you to collect it.''
Proposed Model Form B-5 would be for use by debt collectors collecting
time-barred debts if applicable law permits revival when a consumer
makes a payment or acknowledges the debt in writing.\116\
---------------------------------------------------------------------------
\116\ Although what constitutes a written acknowledgement
sufficient to trigger revival may differ by State, proposed Model
Form B-5 is drafted at a level of generality meant to accommodate
debt collectors in all jurisdictions where written acknowledgement
revives the debt collector's right to sue.
---------------------------------------------------------------------------
The disclosure on proposed Model Form B-6 provides: ``The
law limits how long you can be sued for a debt. If you do nothing or
speak to us about this debt, we will not sue you to collect it. This is
because the debt is too old. BUT if you make a payment, then we can sue
you to collect it.'' Proposed Model Form B-6 would be for use by debt
collectors collecting time-barred debts if applicable law permits
revival only when a consumer makes a payment.
The disclosure on proposed Model Form B-7 provides: ``The
law limits how long you can be sued for a debt. If you do nothing or
speak to us about this debt, we will not sue you to collect it. This is
because the debt is too old. BUT if you acknowledge in writing that you
owe this debt, then we can sue you to collect it.'' Proposed Model Form
B-7
[[Page 12683]]
would be for use by debt collectors if applicable law permits revival
only when a consumer acknowledges the debt in writing.\117\
---------------------------------------------------------------------------
\117\ Proposed Model Form B-7, like proposed Model Form B-5, is
drafted at a level of generality meant to accommodate debt
collectors in all written-acknowledgement jurisdictions.
---------------------------------------------------------------------------
As described in part III.B, the Bureau tested multiple written
time-barred debt and revival disclosures. In proposing Model Forms B-4
through B-7, the Bureau generally has selected the disclosures that,
based on testing results, consumers would be most likely to
understand.\118\ Regarding revival, the Bureau selected the disclosure
that respondents most understood when asked whether the debt collector
would legally be allowed to sue to collect the debt if the debtor did
nothing, made a payment, or wrote to the debt collector to acknowledge
the debt. However, the Bureau notes that this disclosure underperformed
other tested revival disclosures when respondents were asked whether
the debt collector would legally be allowed to sue if the debtor called
the debt collector to acknowledge the debt.\119\ As tested, the first
sentence of the selected revival disclosure read, ``If you do nothing
in response to this notice, we will not sue you to collect this debt.''
Based on the testing results, the Bureau believes that this phrasing
could lead consumers who receive such a revival disclosure to have the
false impression that communicating with a debt collector by telephone
would revive the debt collector's right to sue and thus make the
consumer reluctant to communicate. To clarify that communicating with a
debt collector by telephone would not revive the debt collector's right
to sue, the first sentence of the revival disclosures on proposed Model
Forms B-5 through B-7 also includes the phrase ``or speak to us.''
---------------------------------------------------------------------------
\118\ CFPB Quantitative Testing Report, supra note 64, at 22-25.
\119\ CFPB Quantitative Testing Report, supra note 64, at 24-25.
---------------------------------------------------------------------------
As noted, the Bureau's quantitative testing tested respondents'
understanding of written disclosures included on validation notices.
For this reason, the time-barred debt and revival disclosures described
what would or would not happen if the consumer took various actions in
response ``to this notice.'' However, proposed Sec. 1006.26(c)(1) and
(2) would require time-barred debt and revival disclosures in certain
oral communications. To ensure that the disclosure on the proposed
model forms will be appropriate whether provided in writing or orally
(and whether on a validation notice or not), the Bureau also proposes
to include the phrase ``about this debt'' instead of the tested
language ``in response to this notice.'' Based on the Bureau's
quantitative testing, and with these slight adjustments, the Bureau
believes that the model forms effectively disclose the information
described in proposed Sec. 1006.26(c)(1) and (2).
For these reasons, and pursuant to its authority under FDCPA
sections 814(d) and 807 and Dodd-Frank Act section 1032, the Bureau
proposes Sec. 1006.26(c)(3)(i) to require that, when debt collectors
provide the disclosures required by Sec. 1006.26(c)(1) on a validation
notice, the content, format, and placement of the disclosures must be
substantially similar to such disclosures on Model Forms B-4 through B-
7 in appendix B, as applicable. Proposed Sec. 1006.26(c)(3)(i) also
would require that, when the disclosures required by Sec.
1006.26(c)(1) are provided orally or in a written communication that is
not a validation notice, the content must be substantially similar to
such disclosures on Model Forms B-4 through B-7 in appendix B, as
applicable.
As already discussed, some jurisdictions require debt collectors to
make disclosures, including on validation notices, when collecting
time-barred debt. Proposed comment 26(c)(3)(i)-1 would clarify that,
when providing the disclosures required by Sec. 1006.26(c)(1) on a
validation notice, a debt collector who uses a validation notice that
is otherwise substantially similar to Model Forms B-4 through B-7, as
applicable, may include any disclosures required by other applicable
law on the reverse of the validation notice and will continue to be in
compliance with the requirements of proposed Sec. 1006.26(c)(1) and
(3)(i). The proposed comment also provides an example of a disclosure
required by other applicable law.
The Bureau requests comment on proposed Sec. 1006.26(c)(3)(i) and
on comment 26(c)(3)(i)-1, including on conflicts that might arise
between the Bureau's proposed model forms and other disclosures
required by applicable law. In particular, the Bureau requests comment
on whether proposed Sec. 1006.26(c)(3)(i)--and proposed Model Forms B-
4 through B-7--would allow debt collectors to comply with other
applicable law, including on whether any jurisdictions require time-
barred debt or revival disclosures to be included on the front of the
validation notice and whether, if so, it is possible for a debt
collector to comply with both the Bureau's proposal and any such State
laws. The Bureau also requests comment and any supporting data on
whether consumers who receive both Federal and State time-barred debt
(and, if applicable, revival) disclosures on a validation notice may be
confused by the dual disclosures.
26(c)(3)(ii) Safe Harbor
Model forms that provide a safe harbor may benefit both consumers
and debt collectors. A model form that has been tested with consumers
may effectively disclose the information required by proposed Sec.
1006.26(c)(1) in a manner that prevents deception and permits consumers
to understand the costs, benefits, and risks associated with the
collection of time-barred debts. A model form may also provide debt
collectors with protection from liability that could arise if they
developed and used their own forms. During the SBREFA process, small
entity representatives encouraged the Bureau to develop model forms and
safe harbors, emphasizing that model forms can promote efficiency and
predictability by reducing legal risk.\120\ Because of the potential
benefits to consumers and debt collectors, the Bureau has developed
proposed Model Forms B-4 through B-7 in appendix B.
---------------------------------------------------------------------------
\120\ See, e.g., Small Business Review Panel Report, supra note
51, at 22.
---------------------------------------------------------------------------
As described above, proposed Model Forms B-4 through B-7 were
developed over multiple rounds of consumer testing, and, based on this
testing, the Bureau believes that they effectively disclose the
information described in proposed Sec. 1006.26(c)(1). For these
reasons, under proposed Sec. 1006.26(c)(3)(ii) a debt collector who
uses Model Forms B-4 through B-7 in appendix B, as applicable, to
provide the disclosures required by Sec. 1006.26(c)(1) in a validation
notice would receive a safe harbor for compliance with the requirements
of Sec. 1006.26(c)(1) and (3)(i). In addition, under proposed Sec.
1006.26(c)(3)(ii) a debt collector who uses the relevant content of
Model Forms B-4 through B-7, as applicable, to provide the disclosures
required by Sec. 1006.26(c)(1) orally or in a written communication
that is not a validation notice would receive a safe harbor for
compliance with the requirements of Sec. 1006.26(c)(1) and (3)(i).
Proposed comment 26(c)(3)(ii)-1 explains that, although the use of
Model Forms B-4 through B-7 is not required, a debt collector who uses
the applicable model form complies with the requirements of Sec.
1006.26(c)(1) and (3)(i). The comment also would clarify what it means
for a debt collector to use the ``applicable'' model form. For
[[Page 12684]]
example, if under applicable law only a payment on a time-barred debt
revives a debt collector's right to bring a legal action against the
consumer to collect the debt, a debt collector who uses Model Form B-6,
which refers to payment but not written acknowledgement, to provide the
disclosure on the validation notice would comply with the requirements
of Sec. 1006.26(c)(1) and (3)(i). Proposed comment 26(c)(3)(ii)-2
would clarify that a debt collector who uses Model Forms B-4 through B-
7, as applicable, may include any disclosures required by other
applicable law on the reverse of the validation notice and will
continue to be in compliance with the requirements of proposed Sec.
1006.26(c)(1) and (3)(i).
The Bureau proposes Model Forms B-4 through B-7 pursuant to its
authority under section 1032(b) of the Dodd-Frank Act. As discussed in
part IV, section 1032(b)(1) of the Dodd-Frank Act provides that ``any
final rule prescribed by the Bureau under [section 1032] requiring
disclosures may include a model form that may be used at the option of
the covered person for provision of the required disclosures.'' Section
1032(b)(2) of the Dodd-Frank Act provides certain minimum criteria that
any such model form must meet, and section 1032(b)(3) of the Dodd-Frank
Act requires the Bureau to validate any such model form through
consumer testing.
Consistent with the Bureau's authority under Dodd-Frank Act section
1032(b)(1), the Bureau believes that proposed Model Forms B-4 through
B-7 use plain language comprehensible to consumers, contain a clear
format and design, such as easily readable type font, and succinctly
explain the information that must be communicated to consumers. As
discussed above, the Bureau has developed these model forms after
consumer testing and believes that making them available would help
ensure that the disclosures required by proposed Sec. 1006.26(c)(1)
are provided to consumers effectively, while also minimizing the burden
on debt collectors who would otherwise need to develop their own
disclosures.
The Bureau requests comment on proposed Sec. 1006.26(c)(3)(ii) and
on proposed comments 26(c)(3)(ii)-1 and -2. In particular, the Bureau
requests comment on the content, format, and design of proposed Model
Forms B-4 through B-7. The Bureau also requests comment on whether the
two conditions described on the model forms--payment and written
acknowledgement--capture all circumstances in which State law permits
revival.
26(c)(3)(iii) Delivery
Proposed Sec. 1006.26(c)(3)(iii) would state that, when providing
the disclosures required by proposed Sec. 1006.26(c)(1) on a
validation notice or a written communication that is not a validation
notice, a debt collector must do so in a manner permitted by proposed
Sec. 1006.42. As discussed in the May 2019 Proposed Rule, proposed
Sec. 1006.42(a)(1) generally would require a debt collector who
provides disclosures required by Regulation F in writing or
electronically to do so in a manner that is reasonably expected to
provide actual notice and in a form that the consumer may keep and
access later.\121\ Proposed Sec. 1006.42(b) through (e) in the May
2019 Proposed Rule explain how debt collectors may provide required
notices to consumers by email or text message.\122\
---------------------------------------------------------------------------
\121\ See 84 FR 23274, 23355-57 (May 21, 2019). The May 2019
Proposed Rule would except from this requirement two disclosures
that would be required to accompany all written debt collection
communications (even relatively routine ones), on the theory that
subjecting them to proposed Sec. 1006.42(a)(1) likely would impose
an unnecessary burden on debt collectors with little corresponding
benefit to consumers. Id. The disclosures that proposed Sec.
1006.26(c) would require would accompany at most two of the debt
collector's communications, so there is no similar basis to except
them from proposed Sec. 1006.42(a)(1).
\122\ See id. at 23357-67. As discussed in the May 2019 Proposed
Rule, the Bureau proposed Sec. 1006.42(b) through (d) based, in
part, on its authority under the Electronic Communications in Global
and National Commerce Act (E-SIGN Act). Id.; see also id. at 23285
(describing Bureau's E-SIGN Act authority).
---------------------------------------------------------------------------
The Bureau proposes Sec. 1006.26(c)(3)(iii) as an interpretation
of FDCPA section 808's prohibition on using unfair or unconscionable
means to collect a debt. It may be unfair or unconscionable under FDCPA
section 808 for a debt collector to deliver a disclosure using a method
that is not reasonably expected to provide actual notice to the
consumer or that does not allow the consumer to retain the disclosure
and access it later. If debt collectors deliver disclosures in a manner
that does not meet these standards, consumers may not receive required
information or have it available for future reference, potentially
leading them to take different actions with respect to debts than they
otherwise would have. A debt collector's decision to provide a required
disclosure in a manner not reasonably expected to provide actual notice
or in a form that the consumer cannot keep and access later is outside
of a consumer's control; therefore, a consumer cannot reasonably avoid
the injury caused by a debt collector who provides a required
disclosure in such a manner or form. Providing required disclosures in
a manner not reasonably expected to provide actual notice or in a form
that the consumer cannot keep and access later could effectively thwart
the rule's disclosure provisions. Thus, whatever benefits debt
collectors may receive from such conduct do not appear to be outweighed
by the costs to consumers.
In addition, to the extent proposed Sec. 1006.26(c)(3)(iii)
applies to the provision of disclosures on a validation notice, the
Bureau proposes Sec. 1006.26(c)(3)(iii) to implement and interpret
FDCPA section 809(a) and (b) and pursuant to its authority under FDCPA
section 814(d) to prescribe rules with respect to the collection of
debts by debt collectors.\123\ The Bureau requests comment on proposed
Sec. 1006.26(c)(3)(iii).
---------------------------------------------------------------------------
\123\ Id. at 23356.
---------------------------------------------------------------------------
26(c)(3)(iv) Translated Disclosures
As discussed, the disclosures that proposed Sec. 1006.26(c)(1)
would require may help resolve consumer uncertainty related to the
collection of time-barred debts and enable consumers to make more
informed choices about whether to pay or prioritize such debts. Because
some consumers do not speak or understand English, some debt collectors
communicate with consumers in languages other than English. Consumers
who are unable to communicate in English would benefit from receiving
translated versions of the disclosures. At the same time, requiring
debt collectors to identify such consumers and provide accurate
translations in the myriad languages that consumers speak may impose a
significant burden on industry. If a debt collector chooses to
communicate with a consumer in a non-English language, however, this
burden may be reduced. Such a debt collector has already identified the
consumer's language preference and exhibited a willingness to
communicate in that language. Although preparing accurate translations
of the disclosures described in proposed Sec. 1006.26(c)(1) may be
challenging in some circumstances, requiring a debt collector who
communicates in a non-English language to provide the disclosures in
that language may prevent deception and help ensure that the
disclosures are effective for more consumers.\124\
---------------------------------------------------------------------------
\124\ Proposed Sec. 1006.34(e) in the May 2019 Proposed Rule
also would require the translation of any such disclosures provided
on a validation notice that is translated into a language other than
English. See id. at 23405 (permitting a debt collector who also
sends an English-language validation notice in the same
communication, or who has already provided an English-language
validation notice, to ``send the consumer a validation notice
completely and accurately translated into any language'').
---------------------------------------------------------------------------
[[Page 12685]]
For these reasons, and pursuant to the Bureau's authority under
FDCPA section 814(d) and Dodd-Frank Act section 1032(a), proposed Sec.
1006.26(c)(3)(iv) would require a debt collector to make the
disclosures that would be required by proposed Sec. 1006.26(c)(1) in
the same language or languages used for the rest of the communication
in which the disclosures are conveyed. Proposed Sec. 1006.26(c)(3)(iv)
also would require that any translation of the disclosures that would
be required by Sec. 1006.26(c)(1) be complete and accurate. Proposed
comment 26(c)(3)(iv)-1 provides illustrative examples, the second of
which illustrates the application of proposed Sec. 1006.26(c)(3)(iv)
to communications that take place in multiple languages. Proposed
comment 26(c)(3)(iv)-2 would clarify that the language of a disclosure
obtained from the Bureau's website is considered a complete and
accurate translation, although debt collectors are permitted to use
other translations so long as those translations are complete and
accurate. The Bureau requests comment on proposed Sec.
1006.26(c)(3)(iv).
Section 1006.34 Notice for Validation of Debts
34(c) Validation Information
34(c)(2) Information About the Debt
34(c)(2)(xi)
In the May 2019 Proposed Rule, the Bureau proposed Sec. 1006.34(a)
to require debt collectors to provide consumers with specified
validation information, either by sending the consumer a validation
notice in the initial communication, as defined in proposed Sec.
1006.34(b)(2), or within five days of that initial communication, or by
providing the information orally in the initial communication.\125\
Proposed Sec. 1006.34(c) in the May 2019 Proposed Rule set forth the
required validation information, with proposed Sec. 1006.34(c)(2)
specifying the information that debt collectors would be required to
provide about the debt being collected.\126\ Because the time-barred
debt and revival disclosures described in Sec. 1006.26(c)(1) and (2)
represent information about the debt that debt collectors would be
required to include, as applicable, on validation notices, the Bureau
proposes to include the disclosures in the list of validation
information in Sec. 1006.34(c)(2). Specifically, the Bureau proposes
Sec. 1006.34(c)(2)(xi) to provide that validation information includes
a time-barred debt disclosure, or a time-barred debt and a revival
disclosure, if the debt collector determines after a reasonable
investigation that such disclosures are required by Sec. 1006.26(c).
Thus, a debt collector who provides the proposed Sec. 1006.26(c)
disclosures after undertaking a reasonable inquiry and concluding that
the disclosures are required would not violate proposed Sec. 1006.34
for having made the disclosures even if it is determined later that
such disclosures were not required. For the reasons discussed in the
section-by-section analysis of proposed Sec. 1006.26(c)(1), the Bureau
proposes Sec. 1006.34(c)(2)(xi) pursuant to its authority under FDCPA
sections 814(d) and 807 and Dodd-Frank Act section 1032(a). The Bureau
requests comment on proposed Sec. 1006.34(c)(2)(xi).
---------------------------------------------------------------------------
\125\ Id. at 23404.
\126\ Id.
---------------------------------------------------------------------------
VI. Dodd-Frank Act Section 1022(b) Analysis
A. Overview
In developing the supplemental proposed rule, the Bureau has
considered its potential benefits, costs, and impacts.\127\ The Bureau
requests comment on the preliminary analysis presented below as well as
submissions of additional data that could inform the Bureau's analysis
of the benefits, costs, and impacts.
---------------------------------------------------------------------------
\127\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
requires the Bureau to consider the potential benefits and costs of
the regulation to consumers and covered persons, including the
potential reduction of access by consumers to consumer financial
products and services; the impact of proposed rule on insured
depository institutions and insured credit unions with less than $10
billion in total assets as described in section 1026 of the Dodd-
Frank Act; and the impact on consumers in rural areas.
---------------------------------------------------------------------------
Debt collectors play a critical role in markets for consumer
financial products and services. Credit markets function because
lenders expect that borrowers will pay them back. In consumer credit
markets, if borrowers fail to repay what they owe per the terms of
their loan agreement, creditors often engage debt collectors to attempt
to recover amounts owed, whether through the court system or through
less formal requests for repayment.
The supplemental proposal would require debt collectors to make
certain disclosures when attempting to collect time-barred debt. The
new requirements would provide benefits to consumers by helping to
correct the misimpression that consumers might have that debt
collectors can legally sue to collect time-barred debts. Correcting
this misimpression can help consumers because a better understanding of
whether they can be sued could be important in deciding how to
prioritize time-barred debts relative to other debts or expenses such
as household necessities. The requirements would also impose costs on
debt collectors who would need to determine for each debt whether the
disclosures are required and to provide the disclosures when
appropriate. The disclosures could also reduce debt collector revenue
because consumers who receive such disclosures might be less willing to
repay time-barred debts. In addition to these effects, there could be
indirect impacts on credit markets. This is because, if the proposal
were to increase costs for debt collectors or reduce repayment of time-
barred debt, it would reduce the expected return to lending. This could
lead lenders to increase interest rates and other costs to borrowers
and to restrict availability of credit, particularly to higher-risk
borrowers.\128\
---------------------------------------------------------------------------
\128\ See 84 FR 23274, 23371-72, 23389-91 (May 21, 2019).
---------------------------------------------------------------------------
In developing the supplemental proposed rule, the Bureau has
consulted, or offered to consult with, the appropriate prudential
regulators and other Federal agencies, including regarding consistency
with any prudential, market, or systemic objectives administered by
such agencies.
B. Provisions To Be Analyzed
The analysis below considers the potential benefits, costs, and
impacts to consumers and covered persons of the supplemental proposal,
which would require debt collectors who are collecting debts that they
know or should know are time barred to provide time-barred debt
disclosures and, if applicable, revival disclosures to consumers.
C. Data Limitations and Quantification of Benefits, Costs, and Impacts
The discussion in this part VI relies on publicly available
information as well as information the Bureau has obtained. The Bureau
engaged a contractor to conduct qualitative and quantitative testing to
evaluate consumers' understanding of time-barred debt and revival and
of disclosures about time-barred debt and revival. Specifically, the
Bureau conducted 54 qualitative one-on-one interviews with consumers
between April 2017 and April 2019, in order to refine the disclosures.
The Bureau then
[[Page 12686]]
conducted an online survey designed to assess the effectiveness of
time-barred debt and revival disclosures. The online survey, completed
in September of 2019, surveyed 8,011 consumers--66 percent of whom had
debt collection experience--and used random assignment to study the
effect of receiving a time-barred debt disclosure alone, or time-barred
debt and revival disclosures together, on consumer comprehension of
time-barred debt and revival.\129\
---------------------------------------------------------------------------
\129\ See CFPB Quantitative Testing Report, supra note 64. The
survey results provide important information on consumer
comprehension of disclosures about time-barred debt; however, as
further discussed in the Testing Results Report, effects observed in
a controlled setting such as the survey may differ from those
observed in practice.
---------------------------------------------------------------------------
The Bureau also relies on the results of its 2015 Survey of
Consumer Views on Debt, which provided the first comprehensive and
nationally representative data on consumers' experiences and
preferences related to debt collection.\130\ In addition, the Bureau
relies on its Consumer Credit Panel (CCP) to understand potential
benefits and costs to consumers of the proposed rule.\131\ To better
understand potential effects on industry of potential requirements,
such as those in the proposed rule, the Bureau has engaged in
significant outreach, including the CFPB Debt Collections Operations
Study.\132\ In July 2016, the Bureau consulted with small entities as
part of the SBREFA process and obtained important information on the
potential impacts of proposals that the Bureau was considering at the
time, including disclosures regarding a debt's time-barred status.\133\
---------------------------------------------------------------------------
\130\ Bureau of Consumer Fin. Prot., Consumer Experiences with
Debt Collection: Findings from the CFPB's Survey of Consumer Views
on Debt (Jan. 2017), https://www.consumerfinance.gov/data-research/research-reports/consumer-experiences-debt-collection-findings-cfpbs-survey-consumer-views-debt/.
\131\ For more information about Bureau data sources, see
Sources and Uses of Data at the Bureau of Consumer Financial
Protection (Sept. 2018), https://www.consumerfinance.gov/data-research/research-reports/sources-and-uses-data-bureau-consumer-financial-protection/.
\132\ See Bureau of Consumer Fin. Prot., Study of Third-Party
Debt Collection Operations (July 2016), https://www.consumerfinance.gov/documents/755/20160727_cfpb_Third_Party_Debt_Collection_Operations_Study.pdf
(hereinafter CFPB Debt Collection Operations Study).
\133\ See Small Business Review Panel Report, supra note 51.
---------------------------------------------------------------------------
The sources described above, together with other sources of
information and the Bureau's market knowledge, form the basis for the
Bureau's consideration of the likely impacts of the supplemental
proposed rule. The Bureau provides the best estimates possible of the
potential benefits and costs to consumers and covered persons of this
proposal given available data. However, available data sources
generally do not permit the Bureau to quantify, in dollar terms, how
particular proposed provisions will affect consumers. With respect to
industry impacts, much of the Bureau's existing data come from
qualitative input from debt collectors and other entities that operate
in the debt collection market rather than from representative sampling
that would allow the Bureau to estimate total benefits and costs.
The Bureau's discussion in this part generally considers the
benefits, costs, and impacts of the supplemental proposal through the
first 10 years after the potential effective date. The Bureau generally
anticipates that any one-time costs to covered persons of coming into
compliance with the supplemental proposal would be borne before or
during the first year after the effective date. Ongoing benefits and
costs would likely vary from year to year in accordance with the amount
of time-barred debt collected in any year. The Bureau does not have any
basis at this time to predict how that amount will vary during future
years.
General economic principles and the Bureau's expertise in consumer
financial markets, together with the data and findings that are
available, provide insight into the potential benefits, costs, and
impacts of the supplemental proposed rule. Where possible, the Bureau
has made quantitative estimates based on these principles and the data
available. Some benefits and costs, however, are not amenable to
quantification, or are not quantifiable given the data available to the
Bureau. The Bureau provides a qualitative discussion of those benefits,
costs, and impacts. The Bureau requests additional data or studies that
could help quantify the benefits and costs to consumers and covered
persons of the supplemental proposed rule.
D. Baseline for Analysis
In evaluating the potential benefits, costs, and impacts of the
supplemental proposal, the Bureau takes as a baseline the current legal
framework governing debt collection. This includes debt collector
practices as they currently exist, responding to the requirements of
the FDCPA as currently interpreted by courts and law enforcement
agencies, other Federal laws, and the rules and statutory requirements
promulgated by the States.\134\ In the consideration of potential
benefits, costs, and impacts below, the Bureau discusses its
understanding of practices in the debt collection market under this
baseline and how those practices would change under the proposal.
---------------------------------------------------------------------------
\134\ These requirements, and the specificity of the
requirements, may vary depending upon the jurisdiction in which the
collection occurs. For example, as discussed in part II.C, certain
States require specific disclosure language be provided when
collecting time-barred debt.
---------------------------------------------------------------------------
E. Coverage of Proposal
The proposed rule would apply to debt collectors as defined in the
FDCPA, as further discussed in the May 2019 Proposed Rule.\135\
Creditors that collect on debts they own generally would not be
affected directly by the proposal because they typically are not debt
collectors for purposes of the FDCPA. Creditors, however, may
experience indirect effects if debt collectors' costs increase and if
those costs are passed on to creditors.
---------------------------------------------------------------------------
\135\ See 84 FR 23274, 23372 (May 21, 2019).
---------------------------------------------------------------------------
F. Potential Benefits and Costs to Consumers and Covered Persons
Proposed Sec. 1006.26(c) would require debt collectors who are
collecting debts that they know or should know are time barred to
provide time-barred debt disclosures and, if applicable, revival
disclosures to consumers. Proposed model forms B-4 through B-7 include
the disclosures that debt collectors could use to comply with the
disclosure requirements of proposed Sec. 1006.26(c).
Potential benefits and costs to consumers. The proposed time-barred
debt and revival disclosures would benefit consumers by providing them
with information that may be important when deciding how to respond to
a request for payment. A debt collector's attempt to collect a time-
barred debt may give a consumer the impression that the debt is legally
enforceable--an impression that is false for time-barred debts. A
consumer who takes away from the collection attempt that he or she
will, or could, be sued for a time-barred debt may place greater
priority on paying that debt than if he or she knew that the debt
collector could not sue. Furthermore, a consumer who is unaware of the
actions that would trigger revival may revive the debt collector's
right to sue, for example by making a partial payment.
The consumer benefits of the proposed time-barred debt and revival
disclosures depend on a number of factors, including: (i) How
frequently debt collectors attempt to collect debt that is time barred;
(ii) what consumers already understand about debts' time-barred status
and how much the proposed disclosures would improve
[[Page 12687]]
their understanding about time-barred debt and revival; and (iii) the
value to consumers of gaining a better understanding of time-barred
debt and revival and making better-informed decisions as a result. The
Bureau cannot fully quantify each of these factors, although the Bureau
has research and other data that are relevant to the potential extent
of these benefits.
First, regarding the frequency with which debt collectors attempt
to collect time-barred debt, the Bureau is not aware of representative
data showing how much debt collection activity involves time-barred
debt. There is evidence that some debt collectors contact a substantial
share of consumers to attempt to collect time-barred debt. For example,
a 2013 FTC report notes that most statutes of limitations are between
three and six years and estimates that, for certain large debt buyers,
about a third of debt purchased was at least three years old, and 12
percent of debt purchased was at least six years old.\136\ On the other
hand, some contingency collection agencies have told the Bureau that
they do not collect any debt that is time barred. Variation in State
statutes of limitations makes quantification of the number of debts
that are time barred difficult; some States consider debts time barred
if they are three years from charge off, while others use longer
periods, such as seven or 15 years, to demarcate time-barred debt. The
Bureau has estimated that at least 49 million consumers are contacted
by a third-party debt collector each year about a debt in
collection.\137\ Even if only a relatively small fraction of those
consumers' debts were time barred, it could still mean that debt
collectors contact millions of consumers each year about time-barred
debts.
---------------------------------------------------------------------------
\136\ FTC Debt Buying Report, supra note 8, at 43. The same
study estimates that, even for debts that are at least 15 years old,
these debt buyers attempted to collect the debt at least 29 percent
of the time. Id. at B-12.
\137\ See 84 FR 23274, 23384 (May 21, 2019).
---------------------------------------------------------------------------
Second, the Bureau has some evidence that consumers do not have a
clear understanding of what constitutes time-barred debt and the
implications of having a debt that is time barred. In focus groups the
Bureau observed in developing the proposed disclosures, for example,
consumers expressed erroneous beliefs about if debts are time barred,
if they can be sued for time-barred debt, and if time-barred debt can
appear on their credit report.\138\ As an example, one consumer said
``I think you're forgiven after twenty years.'' Additionally, as
discussed in the Quantitative Testing Report, without a disclosure,
most consumers believe they can be sued for a debt even if it is old
enough to be time barred in most jurisdictions. When asked if a debt
collector could sue to collect a debt if the debtor did nothing in
response to the collection notice for a ten-year-old debt, about 65
percent of respondents who read a notice about a debt that did not
include a time-barred debt disclosure incorrectly reported that the
debt collector was legally allowed to sue to collect the debt.\139\
Being presented with a disclosure explaining that a debt is time barred
largely corrected this misunderstanding: Approximately 65 percent of
respondents who were randomly assigned a notice containing a time-
barred debt disclosure (with or without a revival disclosure) correctly
stated that they could not be sued on the debt.\140\
---------------------------------------------------------------------------
\138\ FMG Focus Group Report, supra note 40, at 9-10.
\139\ CFPB Quantitative Testing Report, supra note 64, at
appendix table 8. The length of the limitations period generally
varies by State and debt type. Most statutes of limitations
applicable to debt collection claims are between three and six
years, and therefore a ten-year-old debt is likely to be time-barred
in most states.
\140\ Id.
---------------------------------------------------------------------------
Similarly, the Bureau has evidence to suggest that consumers do not
understand the actions that trigger revival of a debt collector's right
to sue on a time-barred debt. In focus groups, participants in general
were confused about actions that would trigger revival, in particular
finding it surprising that making a payment made them susceptible to
being sued. One participant said, ``Why would they punish me for trying
to make a payment?'' \141\ The Bureau's quantitative research findings
are consistent with this. Of the respondents who did not receive a
disclosure informing them of the actions that trigger revival, fewer
than 20 percent correctly reported that the debt collector is legally
allowed to sue the debtor if the debtor makes a partial payment, and
fewer than 20 percent correctly reported that a debt collector is
legally allowed to sue if the debtor sends a letter acknowledging the
debt as theirs.\142\ In contrast, once a revival disclosure was
provided, about 70 percent of respondents reported correctly that the
debtor can be sued after making a partial payment, and about 58 percent
reported correctly that the debtor can be sued after writing to the
debt collector to acknowledge the debt as theirs.\143\ This research
suggests that consumers generally do not understand that making a
partial payment or writing a debt collector to acknowledge a time-
barred debt can trigger revival of a debt collector's right to sue to
collect the debt, but that a revival disclosure can substantially
improve understanding of the implications of these actions.
---------------------------------------------------------------------------
\141\ FMG Cognitive Report, supra note 40, at 35-36.
\142\ CFPB Quantitative Testing Report, supra note 64, at
appendix tables 9-10. These results compare respondents who received
a time-barred debt with revival disclosure to respondents who
received either a time-barred debt disclosure that did not mention
revival or no time-barred debt disclosure at all.
\143\ Id.
---------------------------------------------------------------------------
Finally, the Bureau has evidence that, if consumers know that debts
are time barred, that knowledge is likely to affect their conduct
relating to the debts. Consumers in focus groups expressed that it was
important to know that a debt was time barred. The Bureau's
Quantitative Testing Report indicates that, for many respondents,
understanding a debt's time-barred status and revival could affect
their choice of what to do about a debt under some circumstances.
Respondents who were shown a time-barred debt and revival disclosure
were more likely to say that they would ignore the debt, and less
likely to say that they would make a payment on the debt, than
respondents who did not see a disclosure or who saw a time-barred debt
disclosure without a revival disclosure.\144\ These differences were
statistically significant and relatively large in magnitude. For
example, of respondents who saw either a time-barred debt disclosure
without revival or no time-barred debt disclosure, about 31 to 38
percent said they would be ``very likely'' to make a full or partial
payment on a hypothetical debt, whereas about 23 percent of respondents
who saw the a time-barred debt with revival disclosure said they would
be ``very likely'' to pay.\145\ The fact that many respondents who saw
a time-barred debt with revival disclosure said they would make
different choices suggests that, for consumers such as these
respondents, the information in the proposed disclosure is valuable in
making choices.
---------------------------------------------------------------------------
\144\ Id. at 28-30. Respondents were asked about a hypothetical
debt and told that ``while it would not be easy, [the respondent]
probably could find a way to come up with money to pay the debt.''
The survey results thus more closely reflect consumer choices in
that situation than situations in which consumers are either more or
less able to repay.
\145\ Id. at appendix table 23.
---------------------------------------------------------------------------
The Bureau is unaware of data that could be used to estimate the
frequency with which debt collectors in fact sue or threaten to sue on
revived debt. Industry representatives state that many debt collectors
choose not to sue or threaten to sue on time-barred debt even if the
consumer takes action to revive the right
[[Page 12688]]
to sue, and one major trade association composed largely of debt buyers
has established standards that prohibit its members from suing or
threatening to sue on time-barred debt even if the right to sue has
been revived.\146\ However, the Bureau does not know what share of
time-barred debts are collected by debt collectors following such a
policy. The benefits of the revival disclosures in the supplemental
proposal may be limited if few debt collectors in fact sue or threaten
to sue after the right to do so has been revived.
---------------------------------------------------------------------------
\146\ Receivables Mgmt. Ass'n Int'l, Receivables Management
Certification Program, at 32 (Jan. 2018), https://rmassociation.org/wp-content/uploads/2018/02/Certification-Policy-version-6.0-FINAL-20180119.pdf (``A Certified Company shall not knowingly bring or
imply that it has the ability to bring a lawsuit on a debt that is
beyond the applicable statute of limitations, even if state law
revives the limitations period when a payment is received after the
expiration of the statute.'')
---------------------------------------------------------------------------
The estimates above suggest that the proposed time-barred debt and
revival disclosures could benefit some consumers, but the Bureau
expects this benefit could vary based on current State law and the
practices of particular debt collectors. The Bureau understands, for
example, that some debt collectors, when attempting to collect time-
barred debt, currently disclose to consumers that they cannot sue to
collect the debt.\147\ Moreover, certain jurisdictions, including
California and New York, require debt collectors to make time-barred
debt disclosures, and in some cases revival disclosures, in at least
some circumstances. The benefits of the proposed disclosures may be
limited where similar disclosures are already being provided.
---------------------------------------------------------------------------
\147\ Some debt collectors also must provide such disclosures as
a result of consent agreements with law enforcement agencies,
including the Bureau and the FTC. See supra note 96.
---------------------------------------------------------------------------
The proposed disclosures could have costs to consumers if they lead
to mistaken beliefs about the consequences of consumers' actions. Some
results of the Bureau's quantitative testing suggest that a revival
disclosure could lead some consumers to overgeneralize the actions that
can make them susceptible to lawsuit. In the Bureau's quantitative
testing, about 45 percent of respondents who saw the revival disclosure
incorrectly reported that the debt collector is legally allowed to sue
the debtor to collect time-barred debt if the debtor calls to
acknowledge the debt as theirs, relative to about 17 percent of
respondents who saw no disclosure about time-barred debt or revival and
about 9 percent of respondents who saw a time-barred debt disclosure
without revival.\148\ As discussed in the section-by-section analysis
of proposed Sec. 1006.26(c)(3)(i), the Bureau has made a small change
to the content of the disclosures on proposed Model Forms B-5 through
B-7 (i.e., the proposed model forms containing revival language),
specifically mentioning that the debt collector will not sue if the
consumer does nothing or speaks to the debt collector about the debt,
to attempt to reduce the risk of this type of overgeneralization.
---------------------------------------------------------------------------
\148\ CFPB Quantitative Testing Report, supra note 64, at
appendix table 11.
---------------------------------------------------------------------------
Another potential cost to consumers could arise if the proposed
disclosures make debt collectors more likely to sue consumers before a
debt becomes time-barred. The Bureau's research provides some evidence
that consumers may be less likely to pay debts that they know are time
barred, as discussed below in the Bureau's consideration of costs to
covered persons. Requiring debt collectors to disclose that a debt is
time barred may therefore reduce the number of time-barred debts that
are paid. Knowing that a consumer is less likely to pay a time-barred
debt may make debt collectors more likely to pursue litigation prior to
a debt reaching the statute of limitations, which could impose costs on
some consumers. However, as described below, the available evidence
suggests that, in practice, time-barred debt disclosures in use today
do not lead to a material reduction in the aggregate rate at which
time-barred debt is repaid, which in turn suggests that there would not
be a large increase in litigation. The Bureau requests data and other
evidence that would permit it to better estimate any such effects.
Potential benefits and costs to covered persons. The supplemental
proposal would require debt collectors who attempt to collect time-
barred debt to provide new disclosures in certain communications with
consumers. This could impose one-time costs for systems that identify
whether a debt is time barred and whether (and if so, when) it is
subject to revival, and it may impose ongoing costs both to determine
whether debts are time barred and to make disclosures when appropriate.
To quantify costs of the proposal to covered persons, the Bureau
would need to estimate the number of debt collectors who collect time-
barred debt, the number of time-barred accounts they collect, the cost
to such debt collectors of determining whether a debt is time barred
and whether and when it can be revived, and the cost of making the
proposed disclosures when appropriate. The Bureau does not have
representative data that permit it to estimate the number of debt
collectors who collect time-barred accounts or the number of time-
barred accounts they collect. The Bureau understands based on industry
outreach that many debt collectors do not collect time-barred accounts.
Even debt collectors who do not regularly collect time-barred debt
might need to review systems to ensure that they are not communicating
about time-barred debts without providing the appropriate proposed
disclosure in circumstances when they are required; however, as
discussed below, the Bureau expects that the burden of the proposed
provision on such debt collectors would be lower than for debt
collectors who regularly collect time-barred accounts.
Among those debt collectors who do regularly attempt to collect
time-barred accounts, the Bureau understands that some currently
disclose to consumers that they cannot sue to collect the debt.
Moreover, debt collectors who are collecting debt in certain
jurisdictions, such as California and New York, already must make such
disclosures in at least some circumstances. Also, debt collectors who
litigate accounts must know whether an account is time barred to avoid
threatening to sue or suing on time-barred accounts in violation of the
FDCPA as interpreted by existing FDCPA case law. Thus, some debt
collectors, particularly ones that collect nationwide or that engage in
litigation, already have a process in place for identifying time-barred
accounts and, where they do attempt to collect time-barred debt, for
providing disclosures to consumers about the time-barred status of such
accounts.\149\
---------------------------------------------------------------------------
\149\ Consistent with this, the FTC found that debt buyers
commonly consider the prevalence of time-barred debt when bidding on
portfolios of debt, suggesting that debt buyers and sellers of debt
regularly determine whether debts are time barred. See FTC Debt
Buying Report, supra note 8, at 21.
---------------------------------------------------------------------------
The Bureau understands that determining whether an account is time
barred is not always straightforward, particularly for debt collectors
operating in a range of jurisdictions. Different States have different
statutes of limitations for different types of debt.\150\ Which statute
applies depends on questions such as where the consumer resides and the
nature of the credit contract, as well as which State's law a court
applies to a given case. As noted above, many debt collectors already
must make decisions about a debt's time-barred status to determine
whether a lawsuit is permissible or, in certain
[[Page 12689]]
States, whether particular disclosures are required. Even for these
debt collectors, however, the proposed rule would increase the
importance of making the correct determination. The Bureau anticipates
that some collection agencies and debt buyers would incur legal and
programming costs to develop a system to identify time-barred accounts
and incorporate the determination into the collection management
system.\151\ These costs could be mitigated somewhat by the proposed
rule's ``know or should know'' standard for the debt's time-barred
status, which could reduce the likelihood that debt collectors would be
held liable for failing to identify time-barred debt. Debt collectors
would also incur costs to train staff to answer consumer questions
about the proposed disclosures and to incorporate information about the
new disclosures into their systems for managing communication with
consumers.
---------------------------------------------------------------------------
\150\ Small Business Review Panel Report, supra note 51, at 25.
\151\ The Bureau understands that many debt collectors who
currently track the time-barred status of debts to comply with
existing requirements are able to categorize debts as time barred in
an automated way. In part, this may require debt collectors to take
a conservative approach of erring in favor of categorizing debt as
time barred in cases where there might be doubt as to a debt's time-
barred status and where a detailed fact-specific inquiry about a
particular account would be costly.
---------------------------------------------------------------------------
Debt collectors could also incur ongoing costs of determining
whether debts are time barred. Debt collectors would need to update
systems from time to time to reflect changes in State laws regarding
statutes of limitations and might need to perform new legal analyses
when facing novel questions of law or fact, such as when beginning to
collect debt from consumers in a particular jurisdiction for the first
time.
For accounts that are identified as time barred, debt collectors
would need to make disclosures with certain written and oral
communications. This would impose direct costs to make the disclosures
and potentially indirect costs because consumers may be less likely to
pay debts after being informed that those debts are time barred.
Debt collectors most often initiate communication with consumers by
letter, meaning that most disclosures required by the proposal would be
made in writing.\152\ The Bureau does not anticipate that debt
collectors would incur substantial ongoing costs to provide the
proposed disclosures in written materials because required disclosures
could be automatically included in written materials when applicable.
---------------------------------------------------------------------------
\152\ CFPB Debt Collection Operations Study, supra note 132, at
28.
---------------------------------------------------------------------------
Some debt collectors call consumers before sending any written
material and would need to make any required disclosure orally in their
first communication with the consumer. For oral communications, the
Bureau anticipates that debt collectors or their vendors would adjust
collection management systems to identify disclosures that must be made
and prompt debt collector employees to make oral disclosures when
required. The required disclosure would increase the length of each
conversation about a time-barred debt by perhaps 5 to 10 seconds,
though if consumers have questions about the disclosure, this could
lengthen some calls considerably. If the disclosure lengthens initial
calls to collect a time-barred debt by 15 seconds on average, given an
assumed average labor cost of $22 per hour for debt collectors, this
would cost approximately $0.09 per call.\153\
---------------------------------------------------------------------------
\153\ Id. at 17.
---------------------------------------------------------------------------
Costs may also increase if debt collectors and creditors increase
monitoring of calls regarding time-barred debt to ensure compliance.
Many debt collectors currently audit telephone conversations, either by
listening to a sample of calls or by using automated voice-recognition
software, to ensure that individual debt collectors comply with
applicable law and other standards. A new required disclosure for time-
barred debt could increase the cost of such monitoring, by adding to
the list of items that must be audited.
The Bureau believes that many consumers are unaware of the statute
of limitations or may not know whether it has expired for their debt.
As discussed above, the Bureau's quantitative survey suggests that some
consumers might not repay a debt if they know they cannot be sued,
although others may repay regardless.\154\ While the Bureau's
quantitative research findings show that about 44 percent of
respondents who viewed a time-barred debt with revival disclosure
indicated they would be ``very unlikely'' to pay, about 32 percent
answered they would be likely or very likely to pay (indicated either a
4 or 5 on a 5-point scale where 5 was ``very likely'').\155\ In
contrast, about 18 to 26 percent of consumers who did not see the
revival disclosure said they would be ``very unlikely'' to pay, and
about 54 to 56 percent of these consumers said they would be likely or
very likely to repay.\156\
---------------------------------------------------------------------------
\154\ CFPB Quantitative Testing Report, supra note 64, at 28-30.
In addition, another study found that, when told they could not be
sued, 34 percent of participants reflecting on a hypothetical
scenario said they would decline to pay relative to 6 percent who
were not told they could not be sued. FTC Debt Buying Report, supra
note 8, at 47.
\155\ CFPB Quantitative Testing Report, supra note 64, at
appendix table 23.
\156\ Id. The likelihood that consumers choose to repay actual
debts is likely to be different than the rate at which survey
respondents said they would repay debt in a hypothetical situation,
but the survey findings do suggest that time-barred debt and revival
disclosures will affect some consumers' repayment decisions.
---------------------------------------------------------------------------
These survey results reflect responses to a hypothetical question
by respondents who were being asked specifically about a debt's time-
barred status. They suggest that the proposed disclosures can affect
consumers' decisions about whether to repay under certain
circumstances. The degree to which the proposed disclosures would
affect repayment of time-barred debt in aggregate depends on a number
of other factors, including the extent to which debt collectors
actively attempt to collect time-barred debts, whether debt collectors
are able to contact consumers, and whether consumers are willing and
able to repay debts. To better understand the effect of time-barred
debt disclosures on aggregate real-world collections activity, the
Bureau examined credit report data from the CCP. As noted above, some
debt collectors already provide time-barred debt disclosures; some do
so voluntarily, while others are required by State law or a consent
order to do so. While the Bureau has no data regarding debt collectors
who voluntarily provide time-barred debt disclosures, the Bureau has
some data in the CCP regarding the effects of disclosures mandated by
State laws. The Bureau analyzed whether a likely time-barred
collections tradeline in the CCP has a lower probability of being paid
if there is a State-mandated time-barred debt disclosure requirement in
effect. To determine whether a collections tradeline is likely past the
State statute of limitations, the Bureau used the same procedure as in
its analysis of the effects of prohibiting threats of suit on time-
barred debt in the May 2019 Proposed Rule.\157\ The Bureau identified
nine States with laws or regulations mandating some kind of time-barred
debt disclosure: California,\158\ Connecticut,\159\ Massachusetts,\160\
Nevada,\161\ New
[[Page 12690]]
Mexico,\162\ New York,\163\ North Carolina,\164\ Vermont,\165\ and West
Virginia.\166\
---------------------------------------------------------------------------
\157\ See 84 FR 23274, 23381-82 (May 21, 2019).
\158\ Cal. Civ. Code 1788.52(d). This law only applies to debt
buyers, and so the Bureau only considered California debts to have a
disclosure required if the CCP data indicate that the debt was held
by a debt buyer.
\159\ Conn. Gen. Stat. 36a-805(a)(14).
\160\ Mass Code Regs., tit. 904, 7.07(24).
\161\ Nev. Rev. Stat. 649.332(2). This regulation only applies
to ``hospital'' debt. The Bureau only considered Nevada debts to
have a disclosure required if the CCP data indicate that the
tradeline was related to a medical debt.
\162\ N.M. Admin. Code 12.2.12.9.
\163\ N.Y. Comp. Codes R. & Regs. tit. 23, 1.3.
\164\ N.C. Gen. Stat. 58-70-115.
\165\ 6 Code of Vt. Rules 031-004-Rule CF 104.05.
\166\ W. Va. Code 46a-2-128(f).
---------------------------------------------------------------------------
The Bureau calculated the hazard rate of payment over time in
collections--that is, the probability of payment occurring after a
given number of months, conditional on no payment occurring before--for
all collections tradelines in the CCP. The Bureau also calculated the
hazard rate separately for tradelines belonging to consumers residing
in a State where a time-barred debt disclosure would have been required
after the expiration of the statute of limitations, and for tradelines
belonging to consumers residing in States that did not have these
requirements.\167\ The Bureau then calculated the average hazard rate
based on the number of months before or after the probable expiration
of the applicable statute of limitations, again with separate
calculations for loans with and without a State-mandated time-barred
debt disclosure. This calculation is plotted in Figure 1, below.\168\
The hazard of payment declines steadily over the year leading up to the
probable expiration of the statute of limitations and continues to
decline at roughly the same rate afterwards, with the rate of decline
flattening out slowly over time. If the requirement to make a time-
barred debt disclosure significantly affects payment rates, one would
expect the hazard rate in States with disclosures to diverge downward
from the rate in States without disclosures following the probable
expiration of the State statute of limitations. In fact, although prior
to the probable expiration of the State statute of limitations the
hazard of payment declines slightly faster in States with time-barred
debt disclosures than in States that do not require disclosure, the
slope flattens out more following the probable expiration of the
statute of limitations in States with disclosures, compared to States
without. This suggests that time-barred debt disclosures in these
States have not resulted in a large drop in the aggregate likelihood
that consumers pay time-barred debts, although it is still consistent
with the possibility that repayment rates are reduced for certain types
of debt or for consumers in certain situations.
---------------------------------------------------------------------------
\167\ The calculations rely on the assumption that debts owed by
consumers who reside in a given State are governed by the statute of
limitations in that State and that consumers in that State receive
disclosures mandated by the law of that State. Note that some of the
States in question passed their laws or regulations mandating a
time-barred debt disclosure during the sample period studied by the
Bureau. Specifically, California's law became effective January 1,
2014; Connecticut's law became effective October 1, 2013;
Massachusetts' regulation became effective March 2, 2012; Nevada's
law became effective June 13, 2007; New Mexico's law became
effective March 15, 2011; New York's regulation became effective
December 1, 2014; North Carolina's law became effective October 1,
2009; Vermont's law became effective January 1, 1976; and West
Virginia's law became effective June 6, 2014. The CCP data used in
the Bureau's analysis covers the period from 2005 to 2018. For
purposes of this analysis, the Bureau excluded debts belonging to
consumers in States that eventually mandated time-barred debt
disclosures if the probable expiration of the statute of limitations
occurred before the disclosure became effective.
\168\ The overall level of the hazard rate in the figure is
quite low--on the order of two-tenths of 1 percent. This is to be
expected given the monthly nature of the series. Although around 10
percent of all collections tradelines eventually show some evidence
of payment, the proportion that do so in any given month is quite
low.
[GRAPHIC] [TIFF OMITTED] TP03MR20.002
Thus, while the requirement to provide the proposed disclosures
would likely impose some costs on covered persons, the Bureau does not
expect that the proposed disclosures would have large effects on
aggregate collections revenue.
Alternatives considered. The Bureau considered alternative
proposals regarding time-barred debt and revival, including those
considered as part of the SBREFA process. In the Small Business Review
Panel Outline, the Bureau considered an alternative that would also
require debt collectors to
[[Page 12691]]
provide a disclosure when collecting time-barred debt but would
prohibit debt collectors from collecting on time-barred debt that can
be revived unless they waive the right to sue on the debt. Under the
requirement considered, subsequent debt collectors would be bound by
the disclosure made by any previous debt collectors. Such a requirement
could have benefits for consumers relative to the supplemental
proposal, because it would mean debt would generally not be revived
regardless of whether consumers read and understood a disclosure about
revival. Similarly, this alternative would be more burdensome for debt
collectors than the proposed requirement because it would prevent them
from suing to recover debts when the consumer had taken actions that
revive the debts. However, the differences in consumer benefits and in
debt collector costs from this alternative could be quite small
assuming that, as industry has claimed, collectors do not in fact sue
to recover debts that have been revived.
The Bureau also considered requiring a time-barred debt disclosure
without requiring any disclosure about revival. Such a requirement
could be less burdensome for small entities under some circumstances.
However, the Bureau's quantitative disclosure testing indicates that
many consumers who view a time-barred debt disclosure without a
disclosure about revival fail to understand that certain actions they
take could revive the debt.\169\
---------------------------------------------------------------------------
\169\ See CFPB Quantitative Testing Report, supra note 64, at
16-25.
---------------------------------------------------------------------------
G. Potential Reduction of Access by Consumers to Consumer Financial
Products and Services
Economic theory indicates that it is possible for changes in debt
collection rules, such as those contained in this supplemental
proposal, to affect consumers' access to credit. Under economic theory,
creditors should decide to extend credit based on the discounted
expected value of the revenue stream from that extension of credit.
This entails considering the possibility that the consumer will
ultimately default and expected payments will decrease. If the proposed
rule were to increase collection costs or reduce revenue collected from
time-barred debt, then this would reduce the return to lending, which
in theory could lead lenders to increase the cost of lending, restrict
availability of credit, or both.
As discussed in the May 2019 Proposed Rule, the Bureau has
considered the available empirical data and research on the effect of
State debt collection laws on the price and availability of
credit.\170\ That research shows that State debt collection laws affect
the price and availability of credit in ways that theory would predict,
but that effects are relatively small even for changes in State laws
that are likely more significant than the disclosures in this proposed
rule.\171\ In light of that research and the CCP analysis above, the
Bureau concludes that the disclosures in the proposed rule are unlikely
to cause any significant reduction in access to consumer credit. The
Bureau requests comment on this conclusion and data that can provide
insights into the impact of the proposed disclosures on the price and
availability of credit.
---------------------------------------------------------------------------
\170\ See 84 FR 23274, 23389-91 (May 21, 2019).
\171\ For example, one study found that additional State
regulations on debt collectors' conduct caused the success rate of a
credit inquiry to decline by less than 0.02 percentage points off a
base rate of about 43 percent. See 84 FR 23274, 23389-90 (May 21,
2019).
---------------------------------------------------------------------------
H. Potential Specific Impacts of the Proposed Rule
1. Depository Institutions and Credit Unions With $10 Billion or Less
in Total Assets, as Described in Section 1026
Depository institutions and credit unions are generally not debt
collectors under the FDCPA and therefore would not be covered under the
proposal. Creditors could experience indirect effects from the proposal
to the extent they hire FDCPA-covered debt collectors or sell debt in
default to such debt collectors. Such creditors could experience higher
costs if debt collectors' costs increase and if debt collectors are
able to pass those costs on to creditors. The Bureau understands that
many depository institutions and credit unions with $10 billion or less
in total assets rely on FDCPA-covered debt collectors to collect
uncollected amounts, but the Bureau does not have data indicating
whether such institutions are more or less likely than other creditors
to do so. The Bureau requests additional data and other information
about potential benefits and costs of the proposal for these
institutions.
2. Impact of the Proposed Provisions on Consumers in Rural Areas
Consumers in rural areas may experience benefits from the
supplemental proposed rule that are different in certain respects from
the benefits experienced by consumers in general. For example,
consumers in rural areas may be more likely to borrow from small local
banks and credit unions that may be less likely to outsource debt
collection to FDCPA-covered debt collectors. The Bureau does not have
any information to suggest that consumers in rural areas are more or
less likely than other consumers to have time-barred debt or to benefit
from disclosures about time-barred debt. The Bureau will further
consider the impact of the proposed rule on consumers in rural areas.
The Bureau therefore asks interested parties to provide data, research
results, and other factual information on the impact of the proposed
rule on consumers in rural areas.
I. Request for Information
The Bureau will further consider the benefits, costs, and impacts
of the proposed provisions, and any modifications to the proposed
provisions made in response to comments, before finalizing the
proposal. As noted above, there are a number of areas in which
additional information would allow the Bureau to better estimate the
benefits, costs, and impacts of this proposal and more fully inform the
rulemaking. The Bureau asks interested parties to provide comment or
data on various aspects of the proposed rule, as detailed in the
section-by-section analysis. Information provided by interested parties
regarding these and other aspects of the proposed rule may be
considered in the analysis of the benefits, costs, and impacts of the
final rule. The Bureau specifically requests precise cost or
operational data that would permit it to better evaluate the potential
implementation costs and ongoing operational costs imposed by the
proposed provisions.
VII. Regulatory Flexibility Analysis
Under section 603(a) of the Regulatory Flexibility Act (RFA), an
initial regulatory flexibility analysis (IRFA) ``shall describe the
impact of the proposed rule on small entities.'' \172\ Section 603(b)
of the RFA sets forth the required elements of the IRFA. Section
603(b)(1) requires a description of the reasons agency action is being
considered.\173\ Section 603(b)(2) requires a succinct statement of the
objectives of, and the legal basis for, the proposed rule.\174\ Section
603(b)(3) requires a description of and, where feasible, an estimate of
the number of small entities to which the proposed rule will
apply.\175\ Section 603(b)(4) requires a description of the projected
[[Page 12692]]
reporting, recordkeeping, and other compliance requirements of the
proposed rule, including an estimate of the classes of small entities
that will be subject to the requirement and the types of professional
skills necessary for the preparation of the report or record.\176\
Section 603(b)(5) requires identifying, to the extent practicable, all
relevant Federal rules which may duplicate, overlap, or conflict with
the proposed rule.\177\ Section 603(c) requires a description of any
significant alternatives to the proposed rule that accomplish the
stated objectives of applicable statutes and that minimize any
significant economic impact of the proposed rule on small
entities.\178\ Finally, section 603(d)(1) requires a description of any
projected increase in the cost of credit for small entities, a
description of any significant alternatives to the proposed rule that
accomplish the stated objectives of applicable statutes and that
minimize any increase in the cost of credit for small entities (if such
an increase in the cost of credit is projected), and a description of
the advice and recommendations of representatives of small entities
relating to the cost of credit issues.\179\
---------------------------------------------------------------------------
\172\ 5 U.S.C. 603(a).
\173\ 5 U.S.C. 603(b)(1).
\174\ 5 U.S.C. 603(b)(2).
\175\ 5 U.S.C. 603(b)(3).
\176\ 5 U.S.C. 603(b)(4).
\177\ 5 U.S.C. 603(b)(5).
\178\ 5 U.S.C. 603(c).
\179\ 5 U.S.C. 603(d)(1).
---------------------------------------------------------------------------
A. Description of the Reasons Why Agency Action Is Being Considered
The Bureau is issuing this supplemental proposed rule to implement
and interpret the FDCPA, particularly with respect to debt collection
communication and disclosures regarding time-barred debts and revival.
As discussed in part V, the Bureau believes that the supplemental
proposed rule would provide additional clarity about the FDCPA's
requirements to debt collectors and consumers and help ensure that the
features of debt collection are fully, accurately, and effectively
disclosed to consumers.
B. Statement of the Objectives of, and Legal Basis for, the Proposed
Rule
As discussed in part IV, the Bureau issues this supplemental
proposal pursuant to its authority under the FDCPA and the Dodd-Frank
Act. The objectives of the supplemental proposed rule are to clarify
and implement the FDCPA's provisions and to further the FDCPA's goals
of eliminating abusive debt collection practices and ensuring that debt
collectors who refrain from abusive debt collection practices are not
competitively disadvantaged.\180\ As the first Federal agency with
authority under the FDCPA to prescribe substantive rules with respect
to the collection of debts by debt collectors, the Bureau proposes
consumer disclosure requirements to provide greater clarity for both
consumers and industry participants as to the information they must
provide consumers to comply with the law. The Bureau intends that these
clarifications will help to eliminate abusive debt collection practices
and ensure that debt collectors who refrain from abusive debt
collection practices are not competitively disadvantaged.\181\
---------------------------------------------------------------------------
\180\ See 15 U.S.C. 1692(e).
\181\ See id.
---------------------------------------------------------------------------
As amended by the Dodd-Frank Act, FDCPA section 814(d) provides
that the Bureau may ``prescribe rules with respect to the collection of
debts by debt collectors,'' as that term is defined in the FDCPA.\182\
Section 1022(a) of the Dodd-Frank Act provides that ``[t]he Bureau is
authorized to exercise its authorities under Federal consumer financial
law to administer, enforce, and otherwise implement the provisions of
Federal consumer financial law.'' \183\ ``Federal consumer financial
law'' includes title X of the Dodd-Frank Act and the FDCPA. The legal
basis for the proposed rule is discussed in detail in the legal
authority analysis in part IV and in the section-by-section analysis in
part V.
---------------------------------------------------------------------------
\182\ 15 U.S.C. 1692l(d).
\183\ 12 U.S.C. 5512(a).
---------------------------------------------------------------------------
C. Description and, Where Feasible, Provision of an Estimate of the
Number of Small Entities to Which the Proposed Rule Will Apply
As discussed in the Small Business Review Panel Report, for the
purposes of assessing the impacts of the supplemental proposed rule on
small entities, ``small entities'' is defined in the RFA to include
small businesses, small nonprofit organizations, and small government
jurisdictions.\184\ A ``small business'' is determined by application
of SBA regulations in reference to the North American Industry
Classification System (NAICS) classifications and size standards.\185\
Under such standards, the Small Business Review Panel (Panel)
identified four categories of small entities that may be subject to the
proposed provisions: Collection agencies (NAICS 561440) with annual
receipts at or below the SBA size standard (currently $16.5 million),
debt buyers (NAICS 522298) with annual receipts at or below the size
standard (currently $41.5 million), collection law firms (NAICS 54110)
with annual receipts at or below the size standard (currently $12
million), and servicers who acquire accounts in default. These
servicers include depository institutions (NAICS 522110, 522120, and
522130) with assets at or below the size standard (currently $600
million) or non-depository institutions (NAICS 522390) with annual
receipts at or below the size standard (currently $22 million). The
Panel did not meet with small nonprofit organizations or small
government jurisdictions.\186\
---------------------------------------------------------------------------
\184\ 5 U.S.C. 601(6).
\185\ The current SBA size standards are found on SBA's website,
http://www.sba.gov/content/table-small-business-size-standards.
\186\ Small Business Review Panel Report, supra note 51, at 29.
---------------------------------------------------------------------------
The following table provides the Bureau's estimate of the number
and types of entities that may be affected by the proposed provisions:
Table 1--Estimated Number of Affected Entities and Small Entities by Category
----------------------------------------------------------------------------------------------------------------
Estimated total
Small entity number of debt Estimated number
Category NAICS threshold collectors within of small entity
category debt collectors
----------------------------------------------------------------------------------------------------------------
Collection agencies............. 561440............. $16.5 million in 9,000 8,800
annual receipts.
Debt buyers..................... 522298............. $41.5 million in 330 300
annual receipts.
Collection law firms............ 541110............. $12.0 million in 1,000 950
annual receipts.
Loan servicers.................. 522110, 522120, and $600 million in 700 200
522130 annual receipts
(depositories); for depository
522390 (non- institutions;
depositories. $22.0 million or
less for non-
depositories.
----------------------------------------------------------------------------------------------------------------
[[Page 12693]]
Descriptions of the four categories:
Collection agencies. The Census Bureau defines ``collection
agencies'' (NAICS code 561440) as ``establishments primarily engaged in
collecting payments for claims and remitting payments collected to
their clients.'' \187\ According to the Census Bureau, in 2012 (the
most recent year for which detailed data are available), there were
approximately 4,000 collection agencies with paid employees in the
United States. Of these, the Bureau estimates that 3,800 collection
agencies have $15.0 million or less in annual receipts and are
therefore small entities.\188\ Census Bureau estimates indicate that in
2012 there were also more than 5,000 collection agencies without
employees, all of which are presumably small entities.
---------------------------------------------------------------------------
\187\ As defined by the Census Bureau, collection agencies
include entities that collect only commercial debt, and the proposed
rule would apply only to debt collectors of consumer debt. However,
the Bureau understands that relatively few collection agencies
collect only commercial debt.
\188\ The Census Bureau estimates average annual receipts of
$95,000 per employee for collection agencies. Given this, the Bureau
assumes that all firms with fewer than 100 employees and
approximately one-half of the firms with 100 to 499 employees are
small entities, which implies approximately 3,800 firms.
---------------------------------------------------------------------------
Debt buyers. Debt buyers purchase delinquent accounts and attempt
to collect amounts owed, either themselves or through agents. The
Bureau estimates that there are approximately 330 debt buyers in the
United States, and that a substantial majority of these are small
entities.\189\ Many debt buyers--particularly those that are small
entities--also collect debt on behalf of other debt owners.\190\
---------------------------------------------------------------------------
\189\ The Receivables Management Association, the largest trade
group for debt buyers, states that it has approximately 300 debt
buyer members and believes that 90 percent of debt buyers are
current members.
\190\ The Bureau understands that debt buyers are generally
nondepositories that specialize in debt buying and, in some cases,
debt collection. The Bureau expects that debt buyers that are not
collection agencies would be classified by the Census Bureau under
``all other nondepository credit intermediation'' (NAICS Code
522298).
---------------------------------------------------------------------------
Collection law firms. The Bureau estimates that there are 1,000 law
firms in the United States that either have as their principal purpose
the collection of consumer debt or regularly collect consumer debt owed
to others, so that the proposed rule would apply to them. The Bureau
estimates that 95 percent of such law firms are small entities.\191\
---------------------------------------------------------------------------
\191\ The primary trade association for collection attorneys,
the National Creditors Bar Association (NCBA), states that it has
approximately 600 law firm members, 95 percent of which are small
entities. The Bureau estimates that approximately 60 percent of law
firms that collect debt are NCBA members and that a similar fraction
of non-member law firms are small entities.
---------------------------------------------------------------------------
Loan servicers. Loan servicers would be covered by the proposed
rule if they are covered by the FDCPA because, among other things, they
acquire the right to service loans already in default.\192\ The Bureau
believes that this is most likely to occur with regard to companies
that service mortgage loans or student loans. The Bureau estimates that
approximately 200 such mortgage servicers may be small entities and
that few, if any, student loan servicers that would be covered by the
proposed rule are small.\193\
---------------------------------------------------------------------------
\192\ The Bureau expects that loan servicers are generally
classified under NAICS code 522390, ``Other Activities Related to
Credit Intermediation.'' Some depository institutions (NAICS codes
522110, 522120, and 522130) also service loans for others and may be
covered by the proposed rule.
\193\ Based on the December 2015 Call Report data as compiled by
SNL Financial (with respect to insured depositories) and December
2015 data from the Nationwide Mortgage Licensing System and Registry
(with respect to non-depositories), the Bureau estimates that there
are approximately 9,000 small entities engaged in mortgage
servicing, of which approximately 100 service more than 5,000 loans.
See 81 FR 72160, 72363 (Oct. 19, 2016). The Bureau's estimate is
based on the assumption that all those servicing more than 5,000
loans may acquire servicing of loans when loans are in default and
that at most 100 of those servicing 5,000 loans or fewer acquire
servicing of loans when loans are in default.
---------------------------------------------------------------------------
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements of the Proposed Rule, Including an Estimate of Classes of
Small Entities That Will Be Subject to the Requirements and the Type of
Professional Skills Necessary for the Preparation of the Report or
Record
The supplemental proposed rule would not impose new reporting or
recordkeeping requirements, but it would impose new compliance
requirements on small entities subject to the proposal.\194\ The
proposed requirements and the costs associated with them are discussed
below.
---------------------------------------------------------------------------
\194\ While the supplemental proposed rule does not include new
recordkeeping requirements, the Bureau notes that, by introducing a
new compliance requirement, the supplemental proposed rule may
increase the cost of complying with recordkeeping requirements
proposed in the May 2019 Proposed Rule. This is because debt
collectors would need to retain evidence of compliance with any
additional compliance requirement.
---------------------------------------------------------------------------
In evaluating the potential impacts of the proposal on small
entities, the Bureau takes as a baseline the current legal framework
governing debt collection. This includes debt collector practices as
they currently exist, responding to the requirements of the FDCPA as
currently interpreted by courts and law enforcement agencies, other
Federal laws, and the rules and statutory requirements promulgated by
the States. This baseline represents the status quo from which the
impacts of this proposal will be evaluated.
The Bureau requests comment on the estimated impacts on small
entities discussed below and solicits data and analysis that would
supplement the quantitative estimates discussed below or provide
quantitative estimates of benefits, costs, or impacts for which there
are currently only qualitative discussions.
The discussion here is confined to the direct costs to small
entities of complying with the requirements of the supplemental
proposed rule, if finalized. Other impacts, such as the impacts of
disclosures about time-barred debt on consumers' repayment decisions,
are discussed in part VI. The Bureau believes that, except where
otherwise noted, the impacts discussed in part VI would apply to small
entities.
The supplemental proposal would require small entity debt
collectors that attempt to collect time-barred debt to provide new
disclosures in certain communications with consumers. This could impose
one-time costs for systems that identify whether a debt is time barred
and whether (and if so, when) it is subject to revival, and it may
impose ongoing costs both to determine whether debts are time barred
and to make disclosures when appropriate.
To quantify costs of the proposal to small entities, the Bureau
would need to estimate the number of small entity debt collectors that
collect time-barred debt, the number of time-barred accounts they
collect, the cost to such debt collectors of determining whether a debt
is time barred and whether and when it can be revived, and the cost of
making the proposed disclosures when appropriate. The Bureau does not
have representative data that permit it to estimate the number of small
entity debt collectors that collect time-barred accounts or the number
of time-barred accounts they collect. The Bureau understands based on
industry outreach that many debt collectors do not collect time-barred
accounts. Even debt collectors that do not regularly collect time-
barred debt might need to review systems to ensure that they are not
communicating about time-barred debts without providing the appropriate
proposed disclosure in circumstances when they are required; however,
the Bureau expects that the burden of the proposed provision on such
debt collectors would be lower than for debt collectors that regularly
collect time-barred accounts.
Among those debt collectors that do regularly attempt to collect
time-barred accounts, the Bureau understands that
[[Page 12694]]
some currently disclose to consumers that they cannot sue to collect
the debt. Moreover, debt collectors who are collecting debt in certain
jurisdictions, such as California and New York, already must make such
disclosures in at least some circumstances. Also, debt collectors that
litigate accounts must know whether an account is time barred to avoid
threatening to sue or suing on time-barred accounts in violation of the
FDCPA as interpreted by existing FDCPA case law. Thus, some debt
collectors, particularly ones that collect nationwide or that engage in
litigation, already have a process in place for identifying time-barred
accounts and, where they do attempt to collect time-barred debt, for
providing disclosures to consumers about the time-barred status of such
accounts.\195\
---------------------------------------------------------------------------
\195\ Consistent with this, the FTC found that debt buyers
commonly consider the prevalence of time-barred debt when bidding on
portfolios of debt, suggesting that debt buyers and sellers of debt
regularly determine whether debts are time barred. See FTC Debt
Buying Report, supra note 8, at 21.
---------------------------------------------------------------------------
The Bureau understands that determining whether an account is time
barred is not always straightforward, particularly for debt collectors
that operate in a range of jurisdictions. Different States have
different statutes of limitations for different types of debt.\196\
Which statute applies depends on questions such as where the consumer
resides and the nature of the credit contract, as well as which State's
law a court applies to a given case. As noted above, many debt
collectors already must make decisions about a debt's time-barred
status to determine whether a lawsuit is permissible or, in certain
States, whether particular disclosures are required. Even for these
debt collectors, however, the proposed rule would increase the
importance of making the correct determination. The Bureau anticipates
that some collection agencies and debt buyers would incur legal and
programming costs to develop a system to identify time-barred accounts
and incorporate the determination into the collection management
system. These costs could be mitigated somewhat by the proposed rule's
``know or should know'' standard for the debt's time-barred status,
which could reduce the likelihood that debt collectors would be held
liable for failing to identify time-barred debt. Debt collectors would
also incur costs to train staff to answer consumer questions about the
proposed disclosures and to incorporate information about the new
disclosures into their systems for managing communication with
consumers.
---------------------------------------------------------------------------
\196\ Small Business Review Panel Report, supra note 51, at 25.
---------------------------------------------------------------------------
Debt collectors could also incur ongoing costs of determining
whether debts are time barred. Debt collectors would need to update
systems from time to time to reflect changes in State laws regarding
statutes of limitations and might need to perform new legal analyses
when facing fact patterns that are new to their business, such as when
beginning to collect debt from consumers in a particular jurisdiction
for the first time.
For accounts that are identified as time barred, debt collectors
would need to make disclosures with certain written and oral
communications. This would impose direct costs to make the disclosures
and potentially indirect costs because consumers may be less likely to
pay debts after being informed that those debts are time barred.
Debt collectors most often initiate communication with consumers by
letter, meaning that the majority of disclosures required by the
proposal would be made in writing.\197\ The Bureau does not anticipate
that debt collectors would incur substantial ongoing costs to provide
the proposed disclosures in written materials because required
disclosures could be automatically included in written materials when
applicable.
---------------------------------------------------------------------------
\197\ CFPB Debt Collection Operations Study, supra note 132, at
28.
---------------------------------------------------------------------------
Some debt collectors call consumers before sending any written
material and would need to make any required disclosure orally in their
first communication with the consumer. For oral communications, the
Bureau anticipates that debt collectors or their vendors would adjust
collection management systems to identify disclosures that must be made
and prompt debt collector employees to make oral disclosures when
required. The required disclosure would increase the length of each
conversation about a time-barred debt by perhaps 5 to 10 seconds,
though if consumers have questions about the disclosure, this could
lengthen some calls considerably. If the disclosure lengthens initial
calls to collect a time-barred debt by 15 seconds on average, given an
assumed average debt collector labor cost of $22 per hour, this would
cost approximately $0.09 per call.\198\
---------------------------------------------------------------------------
\198\ Id. at 17.
---------------------------------------------------------------------------
Costs may also increase if debt collectors and creditors increase
monitoring of calls regarding time-barred debt to ensure compliance.
Many debt collectors currently audit telephone conversations, either by
listening to a sample of calls or by using automated voice-recognition
software, to ensure that individual debt collectors comply with
applicable law and other standards. A new required disclosure for time-
barred debt could increase the cost of such monitoring, by adding to
the list of items that must be audited.
E. Identification, to the Extent Practicable, of All Relevant Federal
Rules That May Duplicate, Overlap, or Conflict With the Proposed Rule
Certain other Federal laws and regulations include requirements
that apply to FDCPA-covered debt collectors. However, consistent with
the findings of the Panel, the Bureau is not aware of any other Federal
regulations that currently duplicate, overlap, or conflict with the
proposed rule.
The Bureau requests comment on the intersection between the
proposed rule and other Federal laws and regulations. The Bureau
specifically requests comment on conflicts that may arise between the
proposed rule and other Federal laws and regulations and methods to
minimize such conflicts to the extent they exist.
F. Description of Any Significant Alternatives to the Proposed Rule
That Accomplish the Stated Objectives of the Applicable Statutes and
Minimize Any Significant Economic Impact of the Proposed Rule on Small
Entities
Section 603(c) of the RFA requires the Bureau to describe in the
IRFA any significant alternatives to the proposed rule that accomplish
the stated objectives of applicable statutes and that minimize any
significant economic impact of the proposed rule on small
entities.\199\ In developing the proposed rule, the Bureau has
considered alternative provisions and believes that none of the
alternatives considered would be as effective at accomplishing the
stated objectives of the FDCPA and the applicable provisions of title X
of the Dodd-Frank Act while minimizing the impact of the proposed rule
on small entities.\200\
---------------------------------------------------------------------------
\199\ 5 U.S.C. 603(c).
\200\ Certain alternatives, including those suggested by
commenters, are discussed in part V above.
---------------------------------------------------------------------------
In developing the proposal, the Bureau considered a number of
alternatives, including those considered as part of the SBREFA process.
In the Small Business Review Panel Outline, the Bureau considered an
alternative that would also require debt collectors to provide a
disclosure when collecting time-barred debt but would prohibit debt
collectors from collecting on time-barred debt that can be revived
unless
[[Page 12695]]
they waive the right to sue on the debt. Under the requirement
considered, subsequent debt collectors would be bound by the disclosure
made by any previous debt collectors. The Bureau believes that such a
requirement would be more burdensome for small entities than the
proposed requirement.
The Bureau also considered requiring a time-barred debt disclosure
without requiring any disclosure about revival. Such a requirement
could be less burdensome for small entities under some circumstances.
However, the Bureau's quantitative disclosure testing indicates that
many consumers who view a time-barred debt disclosure without a
disclosure about revival fail to understand that certain actions they
take could revive the debt.\201\
---------------------------------------------------------------------------
\201\ See CFPB Quantitative Testing Report, supra note 64, at
17-24.
---------------------------------------------------------------------------
G. Discussion of Impact on Cost of Credit for Small Entities
Section 603(d) of the RFA requires the Bureau to consult with small
entities regarding the potential impact of the proposed rule on the
cost of credit for small entities and related matters.\202\ To satisfy
these statutory requirements, the Bureau provided notification to the
Chief Counsel for Advocacy of the Small Business Administration (Chief
Counsel) that the Bureau would collect the advice and recommendations
of the same small entity representatives identified in consultation
with the Chief Counsel through the SBREFA process concerning any
projected impact and the proposed rule on the cost of credit for small
entities. The Bureau sought to collect the advice and recommendations
of the small entity representatives during the Small Business Review
Panel meeting regarding the potential impact on the cost of business
credit because, as small debt collectors with credit needs, the small
entity representatives could provide valuable input on any such impact
related to the proposed rule.
---------------------------------------------------------------------------
\202\ 5 U.S.C. 603(d).
---------------------------------------------------------------------------
The Bureau's Small Business Review Panel Outline asked small entity
representatives to comment on how the proposals under consideration
would affect the cost of credit to small entities. The Bureau believes
that the disclosures in the supplemental proposal will have little
impact on the cost of credit to small entities. The Bureau does
recognize that consumer credit could become more expensive and less
available as a result of requirements that restrict the collection of
debt; however, the Bureau does not anticipate that the requirements of
this supplemental proposal would have any significant impact on the
cost or availability of consumer credit. Many small entities affected
by the disclosures in the supplemental proposal use consumer credit as
a source of credit and may, therefore, see costs rise if consumer
credit availability decreases. The Bureau does not expect this to be a
large effect and does not anticipate measurable impact.
During the SBREFA process, several small entity representatives
said that the proposals under consideration at that time, which
included time-barred debt disclosures among several other proposals,
could have an impact on the cost of credit for them and for their small
business clients. Some small entity representatives said that they use
lines of credit in their business and that regulations that raise their
costs or reduce their revenue could mean they are unable to meet
covenants in their loan agreements, causing lenders to reduce access to
capital or increase their borrowing costs.
VIII. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA),\203\ Federal
agencies are generally required to seek approval from the Office of
Management and Budget (OMB) for information collection requirements
prior to implementation. Under the PRA, the Bureau may not conduct or
sponsor, and, notwithstanding any other provision of law, a person is
not required to respond to, an information collection unless the
information collection displays a valid control number assigned by OMB.
---------------------------------------------------------------------------
\203\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
As part of its continuing effort to reduce paperwork and respondent
burden, the Bureau conducts a preclearance consultation program to
provide the general public and Federal agencies with an opportunity to
comment on the information collection requirements in accordance with
the PRA. This helps ensure that the public understands the Bureau's
requirements or instructions, respondents can provide the requested
data in the desired format, reporting burden (time and financial
resources) is minimized, collection instruments are clearly understood,
and the Bureau can properly assess the impact of collection
requirements on respondents.
The supplemental proposed rule would amend 12 CFR part 1006
(Regulation F), which implements the FDCPA. The Bureau's OMB control
number for Regulation F is 3170-0056. This supplemental proposed rule
along with the May 2019 Proposed Rule would revise the information
collection requirements contained in Regulation F that OMB has approved
under that OMB control number.
The supplemental proposal would require a new information
collection requirement under Regulation F, in proposed Sec. 1006.26
regarding time-barred debts, which would require debt collectors to
provide a particular disclosure in certain communications when
attempting to collect time-barred debt.
This information collection would be required to provide benefits
for consumers and would be mandatory. Because the Bureau does not
collect any information, no issue of confidentiality arises. The likely
respondents would be for-profit businesses that are FDCPA-covered debt
collectors.
The collection of information contained in this supplemental
proposed rule, and identified as such, has been submitted to OMB for
review under section 3507(d) of the PRA. A complete description of the
information collection requirement, including the burden estimate
methods, is provided in the information collection request (ICR) that
the Bureau has submitted to OMB under the requirements of the PRA.
Please send your comments to the Office of Information and Regulatory
Affairs, OMB, Attention: Desk Officer for the Bureau of Consumer
Financial Protection. Send these comments by email to
[email protected] or by fax to (202) 395-6974. If you wish to
share your comments with the Bureau, please send a copy of these
comments as described in the Addresses section above. The ICR submitted
to OMB requesting approval under the PRA for the information collection
requirements contained herein is available at www.regulations.gov as
well as on OMB's public-facing docket at www.reginfo.gov.
Title of Collection: Regulation F: Fair Debt Collection Practices
Act.
OMB Control Number: 3170-0056.
Type of Review: Revision of a currently approved collection.
Affected Public: Private Sector.
Estimated Number of Respondents: 12,027.\204\
---------------------------------------------------------------------------
\204\ The Bureau shares enforcement authority under the FDCPA
with the Federal Trade Commission. To avoid double-counting, the
Bureau allocates to itself half of the estimated paperwork burden
under the proposed rule by dividing the burden hours even between
the agencies. However, since the Bureau has joint authority over the
respondents themselves, the Bureau retains the entity count of all
affected respondents as shown above.
---------------------------------------------------------------------------
[[Page 12696]]
Estimated Total Annual Burden Hours: 2,360,000.\205\
---------------------------------------------------------------------------
\205\ The Bureau's share of burden hours for this rule is
1,180,000 hours including 150,000 hours of burden that would be
added by the new information collections added by the supplemental
proposed rule.
---------------------------------------------------------------------------
Comments are invited on: (a) Whether the collection of information
is necessary for the proper performance of the functions of the Bureau,
including whether the information will have practical utility; (b) the
accuracy of the Bureau's estimate of the burden of the collection of
information, including the validity of the methods and the assumptions
used; (c) ways to enhance the quality, utility, and clarity of the
information to be collected; and (d) ways to minimize the burden of the
collection of information on respondents, including through the use of
automated collection techniques or other forms of information
technology. Comments submitted in response to this supplemental
proposal will be summarized and/or included in the request for OMB
approval. All comments will become a matter of public record.
If applicable, the notice of final rule will display the control
number assigned by OMB to any information collection requirements
proposed herein and adopted in the final rule.
List of Subjects in 12 CFR Part 1006
Administrative practice and procedure, Consumer protection, Credit,
Debt collection, Intergovernmental relations.
Authority and Issuance
For the reasons set forth above, the Bureau proposes that
Regulation F, 12 CFR part 1006, as proposed to be amended on May 21,
2019 (84 FR 23274), be further amended as follows:
PART 1006--DEBT COLLECTION PRACTICES (REGULATION F)
0
1. The authority citation for part 1006 continues to read as follows:
Authority: 12 U.S.C. 5512, 5514(b), 5531, 5532; 15 U.S.C.
1692l(d), 1692o, 7004.
Subpart B--Rules for FDCPA Debt Collectors
0
2. Section 1006.26 is amended by adding paragraph (c) to read as
follows:
Sec. 1006.26 Collection of time-barred debts.
* * * * *
(c) Disclosures required. (1) In general. A debt collector who
knows or should know that a debt is time barred when the debt collector
makes the initial communication as defined in Sec. 1006.34(b)(2) must,
in that initial communication and on any validation notice required by
Sec. 1006.34(a)(1)(i)(B), clearly and conspicuously disclose:
(i) That the law limits how long the consumer can be sued for a
debt and that, because of the age of the debt, the debt collector will
not sue the consumer to collect it; and
(ii) If, under applicable law, the debt collector's right to bring
a legal action against the consumer can be revived, the fact that
revival can occur and the circumstances in which it can occur.
(2) Additional circumstances in which disclosures are required. (i)
Debts that become time barred. A debt collector who knows or should
know that a debt has become time barred after the debt collector has
made the initial communication as defined in Sec. 1006.34(b)(2) but
before the debt collector has sent any validation notice required by
Sec. 1006.34(a)(1)(i)(B) must provide the disclosures required by
paragraph (c)(1) of this section in the debt collector's first
communication, if any, with the consumer on or after the date on which
the debt collector knows or should know that the debt became time
barred, and on any validation notice required by Sec.
1006.34(a)(1)(i)(B). A debt collector who knows or should know that a
debt has become time barred after the debt collector has made the
initial communication as defined in Sec. 1006.34(b)(2) and has sent
any validation notice required by Sec. 1006.34(a)(1)(i)(B) must
provide the disclosures required by paragraph (c)(1) of this section in
the debt collector's first communication, if any, with the consumer on
or after the date on which the debt collector knows or should know that
the debt became time barred.
(ii) Change in debt collector's knowledge. A debt collector who
neither knows nor should know that a time-barred debt is time barred
when the debt collector makes the initial communication as defined in
Sec. 1006.34(b)(2), but who knows or should know that the debt is time
barred before the debt collector has sent any validation notice
required by Sec. 1006.34(a)(1)(i)(B), must provide the disclosures
required by paragraph (c)(1) of this section in the debt collector's
first communication, if any, with the consumer on or after the date on
which the debt collector knows or should know that the debt is time
barred, and on any validation notice required by Sec.
1006.34(a)(1)(i)(B). A debt collector who neither knows nor should know
that a time-barred debt is time barred when the debt collector makes
the initial communication as defined in Sec. 1006.34(b)(2) and sends
any validation notice required by Sec. 1006.34(a)(1)(i)(B), but who
later knows or should know that the debt is time barred, must provide
the disclosures required by paragraph (c)(1) of this section in the
debt collector's first communication, if any, with the consumer on or
after the date on which the debt collector knows or should know that
the debt was time barred.
(3) Form and delivery of disclosures. (i) In general. When provided
on a validation notice, the content, format, and placement of the
disclosures required by paragraph (c)(1) of this section must be
substantially similar to such disclosures on Model Form B-4, B-5, B-6,
or B-7 in appendix B of this part, as applicable. When provided orally
or in a written communication that is not a validation notice, the
content of the disclosures required by paragraph (c)(1) of this section
must be substantially similar to such disclosures on Model Form B-4, B-
5, B-6, or B-7 in appendix B of this part, as applicable.
(ii) Safe harbor. When providing the disclosures required by
paragraph (c)(1) of this section on a validation notice, a debt
collector who uses Model Form B-4, B-5, B-6, or B-7 in appendix B of
this part, as applicable, complies with the requirements of paragraphs
(c)(1) and (3)(i) of this section. When providing the disclosures
required by paragraph (c)(1) of this section orally or in a written
communication that is not a validation notice, a debt collector who
uses the relevant content of Model Form B-4, B-5, B-6, or B-7, as
applicable, complies with the requirements of paragraphs (c)(1) and
(3)(i) of this section.
(iii) Delivery. When providing the disclosures required by
paragraph (c)(1) of this section on a validation notice or a written
communication that is not a validation notice, a debt collector must do
so in a manner permitted by Sec. 1006.42.
(iv) Translated disclosures. A debt collector must make the
disclosures required by paragraph (c)(1) of this section in the same
language or languages used for the rest of the communication in which
the disclosures are conveyed. Any translation of the required
disclosures must be complete and accurate.
0
3. Section 1006.34 is amended by adding paragraph (c)(2)(xi) to read as
follows:
Sec. 1006.34 Notice for validation of debts.
* * * * *
(c) * * *
(2) * * *
(xi) A time-barred debt disclosure, or a time-barred debt and a
revival
[[Page 12697]]
disclosure, if the debt collector determines after a reasonable
investigation that such disclosures are required by Sec. 1006.26(c).
* * * * *
0
4. Appendix B to part 1006 is amended by adding B-4 through B-7 to read
as follows:
Appendix B to Part 1006--Model Forms and Clauses
* * * * *
BILLING CODE 4810-AM-P
B-4 Model Form for Time-Barred Debt Disclosure Sec. 1006.26
[GRAPHIC] [TIFF OMITTED] TP03MR20.003
[[Page 12698]]
B-5 Model Form for Time-Barred Debt and Revival Disclosure (Payment and
Written Acknowledgement) Sec. 1006.26
[GRAPHIC] [TIFF OMITTED] TP03MR20.004
[[Page 12699]]
B-6 Model Form for Time-Barred Debt and Revival Disclosure (Payment)
Sec. 1006.26
[GRAPHIC] [TIFF OMITTED] TP03MR20.005
[[Page 12700]]
B-7 Model Form for Time-Barred Debt and Revival Disclosure (Written
Acknowledgement) Sec. 1006.26
[GRAPHIC] [TIFF OMITTED] TP03MR20.006
BILLING CODE 4810-AM-C
[[Page 12701]]
0
5. In Supplement I to Part 1006--Official Interpretations, new Section
1006.26--Collection of Time-Barred Debt is added to read as follows:
Section 1006.26--Collection of Time-Barred Debt
26(c) Disclosures required.
26(c)(1) In general.
1. Clearly and conspicuously. The disclosures required by Sec.
1006.26(c)(1) must be provided clearly and conspicuously. The term
``clear and conspicuous'' is defined in Sec. 1006.34(b)(1).
2. Validation notice in initial communication. The disclosures
required by Sec. 1006.26(c)(1) must be provided in the initial
communication as defined in Sec. 1006.34(b)(2) and on any validation
notice required by Sec. 1006.34(a)(1)(i)(B). A debt collector who
sends a validation notice in the initial communication pursuant to
Sec. 1006.34(a)(1)(i)(A) complies with Sec. 1006.26(c)(1) by
providing the required disclosures on the validation notice.
Paragraph 26(c)(1)(ii).
1. Revival disclosures. If a debt collector's right to bring a
legal action against a consumer to collect a debt can be revived under
applicable law, Sec. 1006.26(c)(1)(ii) requires a debt collector who
collects a debt that the debt collector knows or should know is time
barred to disclose the fact that revival can occur and the
circumstances in which it can occur. To satisfy the Sec.
1006.26(c)(1)(ii) disclosure requirement, a debt collector first must
determine which State's law applies and the circumstances under which
that State permits revival, if any. Then, for example, if a debt
collector determines that applicable State law permits revival only if
the consumer makes a payment, the debt collector must provide the time-
barred debt and revival disclosure shown on Model Form B-6 in appendix
B of this part, or a substantially similar disclosure. If, on the other
hand, a debt collector determines that applicable State law does not
permit revival Sec. 1006.26(c)(1)(ii) does not apply and the debt
collector must provide the time-barred debt disclosure shown on Model
Form B-4 in appendix B of this part, or a substantially similar
disclosure.
26(c)(2) Additional circumstances in which disclosures are
required.
26(c)(2)(i) Debts that become time barred.
1. Debts that become time barred after the debt collector has made
the initial communication but before the debt collector has sent the
validation notice. Under Sec. 1006.26(c)(2)(i), a debt collector who
knows or should know that a debt has become time barred after the debt
collector has made the initial communication as defined in Sec.
1006.34(b)(2) but before the debt collector has sent any validation
notice required by Sec. 1006.34(a)(1)(i)(B) must provide the
disclosures required by Sec. 1006.26(c)(1) in the debt collector's
first communication, if any, with the consumer on or after the date on
which the debt collector knows or should know that the debt became time
barred, and on any validation notice required by Sec.
1006.34(a)(1)(i)(B). The following example illustrates the rule:
i. A creditor hires ABC debt collector to collect a debt that ABC
debt collector knows will become time barred on June 30. ABC debt
collector's initial communication with the consumer takes place by
telephone on June 27. ABC debt collector's next communication with the
consumer takes place by telephone on July 1. Under Sec.
1006.26(c)(2)(i), ABC debt collector must provide the disclosures
required by Sec. 1006.26(c)(1) in that telephone conversation. The
following day, ABC debt collector sends a validation notice to the
consumer. Under Sec. 1006.26(c)(2)(i), the validation notice must
include the disclosures required by Sec. 1006.26(c)(1).
2. Debts that become time barred after the debt collector has made
the initial communication and has sent the validation notice. Under
Sec. 1006.26(c)(2)(i), a debt collector who knows or should know that
a debt has become time barred after the debt collector has made the
initial communication as defined in Sec. 1006.34(b)(2) and has sent
any validation notice required by Sec. 1006.34(a)(1)(i)(B) must
provide the disclosures required by Sec. 1006.26(c)(1) in the debt
collector's first communication, if any, with the consumer on or after
the date on which the debt collector knows or should know that the debt
became time barred. The following example illustrates the rule:
i. A creditor hires ABC debt collector to collect a debt. ABC debt
collector knows that the applicable statute of limitations will expire
in one month and promptly sends the consumer a validation notice, which
is the debt collector's initial communication with the consumer. The
next communication between ABC debt collector and the consumer takes
place over the telephone two weeks after the statute of limitations has
expired. Under Sec. 1006.26(c)(2)(i), ABC debt collector must provide
the disclosures required by Sec. 1006.26(c)(1) in that telephone
communication.
26(c)(2)(ii) Change in debt collector's knowledge.
1. Change in debt collector's knowledge after the debt collector
has made the initial communication but before the debt collector has
sent the validation notice. Under Sec. 1006.26(c)(2)(ii), a debt
collector who neither knows nor should know that a time-barred debt is
time barred when the debt collector makes the initial communication as
defined in Sec. 1006.34(b)(2), but who knows or should know that the
debt is time barred before the debt collector has sent any validation
notice required by Sec. 1006.34(a)(1)(i)(B), must provide the
disclosures required by Sec. 1006.26(c)(1) in the debt collector's
first communication, if any, with the consumer on or after the date on
which the debt collector knows or should know that the debt is time
barred, and on any validation notice required by Sec.
1006.34(a)(1)(i)(B). The following example illustrates the rule.
i. A creditor hires ABC debt collector to collect a debt. Although
the debt is time barred, ABC debt collector neither knows nor should
know that the debt is time barred. ABC debt collector has an initial
communication with the consumer that does not include the disclosures
required by Sec. 1006.26(c)(1). Because ABC debt collector neither
knew nor should have known that the debt was time barred, ABC debt
collector has not violated Sec. 1006.26(c)(1). The next day, before
sending the validation notice required by Sec. 1006.34(a)(1)(i)(B),
ABC debt collector learns that the debt was, in fact, time barred at
the time of the initial communication. Under Sec. 1006.26(c)(2)(ii),
ABC debt collector must provide the disclosures required by Sec.
1006.26(c)(1) in its next communication, if any, with the consumer, and
on any validation notice required by Sec. 1006.34(a)(1)(i)(B).
2. Change in debt collector's knowledge after the debt collector
has made the initial communication and has sent the validation notice.
Under Sec. 1006.26(c)(2)(ii), a debt collector who neither knows nor
should know that a time-barred debt is time barred when the debt
collector makes the initial communication as defined in Sec.
1006.34(b)(2) and sends any validation notice required by Sec.
1006.34(a)(1)(i)(B), but who later knows or should know that the debt
is time barred, must provide the disclosures required by Sec.
1006.26(c)(1) in the debt collector's first communication, if any, with
the consumer on or after the date on which the debt collector knows or
should
[[Page 12702]]
know that the debt was time barred. The following example illustrates
the rule:
i. A creditor hires ABC debt collector to collect a debt. Although
the debt is time barred, ABC debt collector neither knows nor should
know that the debt is time barred. ABC debt collector has an initial
communication with the consumer and sends a validation notice to the
consumer, neither of which includes the disclosures required by Sec.
1006.26(c)(1). Because ABC debt collector neither knew nor should have
known that the debt was time barred, ABC debt collector has not
violated Sec. 1006.26(c)(1). Several weeks later, however, ABC debt
collector learns that the debt was, in fact, time barred when ABC debt
collector sent the validation notice. Under Sec. 1006.26(c)(2)(ii),
ABC debt collector must provide the disclosures required by Sec.
1006.26(c)(1) in its next communication, if any, with the consumer.
26(c)(3) Form and delivery of disclosures.
26(c)(3)(i) In general.
1. Disclosures required by other applicable law. Section
1006.26(c)(3)(i) requires that, when provided on a validation notice,
the content, format, and placement of the disclosures required by Sec.
1006.26(c)(1) must be substantially similar to such disclosures on
Model Form B-4, B-5, B-6, or B-7 in appendix B of this part, as
applicable. A debt collector who uses a validation notice that
otherwise is substantially similar to Model Form B-4, B-5, B-6, or B-7,
as applicable, may include any additional disclosures required by other
applicable law on the reverse of the validation notice and will
continue to be in compliance with the requirements of Sec.
1006.26(c)(1) and (3)(i). Disclosures required by other applicable law
may include, for example, a State law requirement to disclose that a
debt is time barred or that a debt collector's right to bring a legal
action on a time-barred debt can be revived. See comments 26(c)(3)(ii)-
2 and 34(d)(3)(iv)-1 for further guidance concerning disclosures
required by other applicable law.
26(c)(3)(ii) Safe harbor.
1. Safe harbor provided by use of model form. Although the use of
Model Form B-4, B-5, B-6, or B-7 in appendix B of this part is not
required, a debt collector who uses the applicable model form complies
with the requirements of Sec. 1006.26(c)(1) and (3)(i). For example,
if under applicable law only a payment on a time-barred debt revives a
debt collector's right to bring a legal action against the consumer to
collect the debt, a debt collector who uses Model Form B-6, which
refers to payment but not written acknowledgement, to provide the
disclosure on the validation notice complies with the requirements of
Sec. 1006.26(c)(1) and (3)(i).
2. Disclosures required by other applicable law. When providing the
disclosures required by Sec. 1006.26(c)(1) on a validation notice, a
debt collector who uses Model Form B-4, B-5, B-6, or B-7 in appendix B
of this part, as applicable, may include any additional disclosures
required by other applicable law on the reverse of the validation
notice and will continue to be in compliance with the requirements of
Sec. 1006.26(c)(1) and (3)(i). See comments 26(c)(3)(i)-1 and
34(d)(3)(iv)-1 for further guidance concerning disclosures required by
other applicable law.
26(c)(3)(iv) Translated disclosures.
1. Examples. Section 1006.26(c)(3)(iv) provides that a debt
collector must make the disclosures required by Sec. 1006.26(c)(1) in
the same language or languages used for the rest of the communication
in which they are conveyed. The following examples illustrate the rule:
i. ABC debt collector is collecting time-barred debt. ABC debt
collector's initial communication with the consumer takes place in
Spanish. Under Sec. 1006.26(c)(1), the initial communication must
contain the disclosures described in that section, as applicable. Under
Sec. 1006.26(c)(3)(iv), ABC debt collector must provide the
disclosures in Spanish.
ii. XYZ debt collector is collecting a time-barred debt. XYZ debt
collector's initial communication with the consumer takes place partly
in English and partly in Spanish. Under Sec. 1006.26(c)(1), the
initial communication must contain the disclosures described in that
section, as applicable. Under Sec. 1006.26(c)(3)(iv), XYZ debt
collector must provide the disclosures in both Spanish and English.
2. Complete and accurate translation. Under Sec.
1006.26(e)(3)(iv), any translation of the disclosures required by Sec.
1006.26(c)(1) must be complete and accurate. The language of a
disclosure that a debt collector obtains from the Bureau's website is
considered a complete and accurate translation, although debt
collectors are permitted to use other translations so long as they are
complete and accurate.
Dated: February 13, 2020.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2020-03838 Filed 3-2-20; 8:45 am]
BILLING CODE 4810-AM-P