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Collections Compliance: the Laws that Govern the Collections Industry

A bill marked "PAST DUE", loose change, a pen, and a calculator

Fri, 05/01/2020 - 13:53

Both telemarketing and debt collection are, quite literally, risky businesses. Both fields are highly regulated, governed by complex legislation, and subject to potentially expensive penalties and litigation. Compliance in either field is complicated enough on its own but compliance for debt collectors who use telephone solicitation in order to conduct their business imposes difficulties to an extent beyond the mere sum of the complexities of either field on its own.

Telephone solicitation for the purposes of debt collection requires maintaining compliance with four different, interrelated laws. The Telephone Consumer Protection Act (TCPA) and the Fair Debt Collection Practices Act (FDCPA) have specific rules directly relevant to telemarketing collections; while the Fair Credit Reporting Act (FCRA) and the Truth In Lending Act (TILA) apply to the credit industry more generally. This article will explain the relevant rules and exemptions for each law as well as provide some best practices.

Telephone Consumer Protection Act (TCPA)

Overseen by the Federal Communications Commission (FCC), the Telephone Consumer Protection Act is the primary federal law governing telephone solicitations, including all manner of telephone, fax, and text message solicitations. The TCPA regulates both telemarketing and debt collection.

Noncompliance with the TCPA can result in having to pay awards from $500 for a negligent violation, and up to $1,500 per willful violation. The TCPA creates a private right of action, meaning plaintiffs can seek redress in small claims court, state or federal district court, either alone or in class actions.

Rules

While the TCPA and its long history of related FCC orders and court precedents cover a variety of telemarketing restrictions, these are the ones that are relevant for the purposes of collections telemarketing:

  • Call Time Restrictions – Telemarketers should only call between 8 a.m. and 9 p.m. according to the call recipient’s local time. Some states have laws mandating stricter call time restrictions.
  • Consent – Solicitors are prohibited from using an Automatic Telephone Dialing System (ATDS) to contact phone numbers at which the recipient may be charged for the call—primarily cell phones but also pagers, VoIP, and faxes—without prior express consent (or written consent for telemarketers). For the purposes of debt collection, courts have generally accepted the argument that a consumer gives prior express consent if they provide their phone number as a part of the transaction that resulted in the debt being owed.
  • Right Party – Consent is associated with the called party, not necessarily the phone number. If a phone number is reassigned from one person to another, any consent previously acquired for that number becomes invalid, and any calls made to that number could be TCPA violations.

Exemptions

In July 2015, the FCC issued a TCPA Omnibus Declaratory Ruling and Order that overhauled and updated a number of aspects of the statute. Among the changes was a debt exemption that permitted automated calls to cellphones when the calls were for the collection of government-backed debt such as a student loan.

However, in 2019, the Fourth Circuit found this exemption to be unconstitutional on free speech grounds. In fact, in finding the exemption to be a content-based restriction that favored a select group, the court nearly invalidated the TCPA as a whole. The court was able to avoid invalidating the entire statute only by severing the “flawed exemption” from the rest of the TCPA.

The TCPA contains a clause exempting calls made for “emergency purposes”—“calls made necessary in any situation affecting the health and safety of consumers”—from the statute’s ATDS prohibitions. In March 2020, the FCC released a Declaratory Ruling that invoked this exemption for certain calls relating to the COVID-19 crisis. The Commission applied that exemption to a vary narrow set of institutions and calling purposes, restricting it to “hospitals, health care providers, state and local health officials, and other government officials… [who need to] communicate information about the novel coronavirus as well as mitigation measures.”

In April, Kathleen Kraninger, the Director of the Consumer Financial Protection Bureau (CFPB), sent a letter to FCC Chairman Ajit Pai requesting that the Commission expand the interpretation of the exemption “to allow financial institutions to make certain automated calls to alert their customers to certain relief options related to the COVID-19 pandemic without violating the Telephone Consumer Protection Act (TCPA).” This request obviously has consequences for the debt collection industry. Pai has yet to respond.

Fair Debt Collection Practices Act (FDCPA)

The Fair Debt Collection Practices Act was originally passed in 1977 but was significantly amended as a part of the legislative reforms instituted by the Dodd-Frank Act of 2010. Enforced by the CFPB, the FDCPA enumerates restrictions for the behavior of third-party debt collectors who collect on debts owed to another person or entity. Debt collectors who violate the FDCPA can be sued in state or federal court for damages and legal fees within one year of the violation(s).

Rules

As it governs debt collection practices, the FDCPA provides a number of rules that telemarketers who collect debt as third-party debt collectors must follow:

  • Call Time Restrictions – A debt collector should not contact a debtor before 8 a.m. or after 9 p.m. (according to the debtor’s local time) unless they have made an arrangement with the debtor to call outside those hours.
  • Honoring Workplace Opt-Outs – A debt collector may attempt to reach a debtor at their place of work as well as their home. But if the debtor informs the debt collector to stop contacting their workplace, either verbally or in writing, the debt collector must honor that request.
  • Honoring Home Phone Opt-Outs – Debtors can also request that debt collectors not call their home phones. But they must send this request in the form of a letter.
  • Restrictions Against Harassment – Debt collectors are not allowed to threaten bodily harm or arrest, and are prohibited from using profane or obscene language.
  • Restrictions Against Unfair Practices – Debt collectors are not allowed to use abusive, unfair, or deceptive practices in order to collect debts.
  • Restrictions Against False Lawsuit Threats – Debt collectors are prohibited from threatening to sue a debtor unless they intend to follow through on that threat.

Did You Know?

If a third-party debt collector does not have accurate contact information for a debtor, they may contact the debtor’s relatives, neighbors, or associates in order to obtain that contact information. However, the debt collector is prohibited from revealing any information about the debt, including its very existence, to anybody other than the debtor or their spouse. Also, the debt collector must not attempt to contact any of these third parties more than once each.

CFPB Debt Collection Overhaul

In May 2019, the CFPB released a Notice of Proposed Rulemaking (NPRM) regarding increased regulation of the debt collection industry. The NPRM proposes changes involving how frequently debt collectors are allowed to contact debtors, what sort of information they can share in voicemail messages, and restrictions on the sale of certain kinds of debts.

The NPRM follows the CFPB’s 2016 Outline of Proposals. That Outline was a significantly more robust suite of proposed changes, illustrating the effect of politics on CFPB rules and policies. The Director of the CFPB is a presidential appointee, making the agency particularly sensitive to the policy preferences of the current presidential administration. The 2016 Outline was developed and presented by Obama appointee Richard Codray. Director Codray was notably more pro-regulation that the Trump-appointed Mick Mulvaney and Kathleen Kraninger, who are responsible for the NPRM.

The final CFPB rule on debt collection is unlikely to be finalized before the autumn of 2020, meaning it could be further influenced by broader political currents. As a result, the specific changes remain to be determined. But some form of new CFPB rules will change how the FDCPA is enforced in the coming years.

Another change to the FDCPA proposed by the CFPB could allow debt collectors to send unlimited text messages, emails, and private messages on social media. The public comment period ended in September 2019 and a final decision on this rule change, known as Regulation F, could come some time in 2020.

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act is the primary federal law covering the rules on the collection and reporting of consumer credit information. It was passed into law in 1970. It is enforced by the Federal Trade Commission (FTC) and CFPB. Because the world of credit reporting intersects with the world of debt collection, compliance with the FCRA in an essential practice for debt collectors.

The FCRA sets rules on how credit bureaus can obtain consumer credit information, how long they can store that information, who they can share that information with, and what sort of information they can collect. The FCRA allows credit bureaus to collect the following kinds of information:

  • Bill payment history
  • Loan history
  • Current debts
  • Employment information
  • Bankruptcy history
  • Child support payment history
  • Arrest history

Truth In Lending Act (TILA)

First enacted into law in 1968, the Truth In Lending Act governs the way lenders and creditors disclose information about their financial goods and services to consumers. Initially overseen by the Federal Reserve Board, the TILA has been enforced by the CFPB since 2011.

As with the FCRA, the TILA is less a statute directly governing debt collection and more a law that debt collectors must heed more generally. The TILA’s provisions cover most sorts of consumer credit—such as home mortgages, car loans, credit cards, and equity lines of credit—which are the sorts of credit that can lead to debt collection.

Best Practices for Collections Compliance

Don’t call known litigators and serial plaintiffs
The easiest way to avoid a lawsuit is to not contact the people who are most likely to sue. TCPA, FDCPA, and FCRA litigators and professional plaintiffs can find their way onto your call lists (litigators can have debts just like anyone else). The best defense is to remove these predatory individuals from all calling lists before reaching out.

Know You’re Calling the Right Party
Verify your consent with the called party by confirming their current contact information.

Get a Third-Party Compliance Provider
When you’re in a high-risk category like debt collection, it is not enough to just have legal counsel. It is critical to have a compliance provider on your side. You will save money, avoid headaches, and prevent brand damage.