The ARM industry waited in tense anticipation of the Consumer Financial Protection Bureau’s (CFPB) final rule for what seemed like an eternity. You probably spent significant time educating yourself on the proposed rule, and laying the groundwork to an extent, to prepare to comply.
Now that the final rule is here—due to take effect on November 30, 2021, with additional guidelines to be released by the end of this year—you’ll probably notice some curveballs you and your counsel didn’t see coming.
Recently, I joined a group of fellow attorneys for the insideARM webinar “The New CFPB Rule: What Changed, What Stayed the Same, and What to Do About It” (you can access on the on-demand recording here). We discussed our initial reactions to the final rule and delved into some of the big takeaways and implications for third-party collectors. Here’s a brief recap of our discussion.
Our Initial Impressions of the CFPB Final Rule
Members of the panel agreed that the final rule, as a whole, came as quite a shock. In some cases, the rule backs off the former proposed guidelines; in other cases, the rule introduces concepts we’ve not vetted as an industry.
Overall, there are more unknowns than there were in the proposed rule—making debt communications and compliance management trickier than we’d hoped.
Here are some general observations from the panelists:
- Email and text consent transfer provisions have been substantially reworked.
- The rebuttable presumption on call limitations (versus a safe harbor supporting a bona fide error defense) fails to resolve collectors’ and consumers’ concerns.
- Limited content messages have been rewritten such that their value may be extremely limited.
- The CFPB did include the procedures debt collectors must follow when obtaining email addresses or mobile numbers to support a bona fide error defense in the event of a claim the debt collector’s electronic message revealed the existence of the debt to a third party in violation of the Fair Debt Collection Practices Act (FDCPA).
- The rule seems rushed, as evidenced by the fact the CFPB did not have time to complete its work on the validation notice and time-barred debt disclosures and pushed the release of these rules to a later date in December.
“The reason we all wanted rules is that we wanted clarity. I’m not so sure we got the clarity.” – Joann Needleman, Clark Hill PLC
Despite the uncertainty the final rule leaves us with, there’s no reason to retreat from a digital communications strategy or even put it on hold. At the end of this post, I’ll provide some practical tips for the road ahead.
The CFPB Final Rule: 7 Big Takeaways for Third-Party Collectors
Here are some of the major highlights from the final rule: what it requires, and what it fails to address (at least for now, as we await December 2020 guidelines regarding disclosures, time-barred debts, consumer disclosures, etc.).
1. E-Sign will be table stakes.
In order to substitute the digital delivery of required disclosures and documents for snail mail, debt collectors will need to first obtain the consumer’s consent as required by paragraph C of the Electronic Signatures in Global and National Commerce Act (E-Sign).
Examples of disclosures and documents ripe for E-Sign compliance delivery include:
- The validation notice (if the validation information was NOT provided to the consumer in the initial communication);
- The name of the original creditor in response to a dispute;
- Verification information in response to a dispute; and
- The post-dated payment or postdated check notice.
Additional examples of disclosures and documents that could trigger E-Sign compliance as a condition of sending them to the consumer by way of email or text are anticipated in the December rollout of additional final rules from the CFPB.
2. Convenient time, place, and method of contact will require more effort.
The final rule requires debt collectors to honor any restrictions consumers place on the time, place, and method of communication in connection with the collection of a debt. If the consumer explains weekends are not convenient for them to discuss the debt, you are permitted to ask simple follow-up questions to clarify whether, for example, this restriction applies to all weekends, particular weekends, certain times of day during weekends, or at all times during weekends.
However, the rule doesn’t require debt collectors to make an independent inquiry as to the time, place, or method of communication the debt collector must apply in connection with the collection of a debt. In other words, your standard scripts will not need to include the question, “Is this a convenient time, place, or mode?” unless the consumer raises the issue.
If the consumer reaches out to you during a restricted time, you may respond on the condition that you use the same mode of communication the consumer used to contact you during the restricted time and respond to the consumer on the same day. You’ll need to track this activity closely in order to retain evidence of the consumer’s inbound communication and your outbound response as required by the new rule for restricted communications.
3. Relying on a creditor-provided email address may be the most significant advancement in the entire rule.
The new rule provides three ways a debt collector may obtain an email address for use in connection with the collection of a particular debt, should the debt collector want to take advantage of the new rule’s safe harbor against the inadvertent disclosure of a debt to an impermissible third party.
One of the three ways is particularly interesting. It requires the creditor to send a prior notice to the consumer explaining:
- The debt has been transferred to a collector (identified by name);
- The debt collector may use the email address to communicate with the consumer about the debt (and recite the email address);
- Third parties may see the collector’s emails if they have access to the email address;
- Instructions for a “reasonable and simple” method to opt out of email communications; and
- The date by which the consumer must opt out (at least 35 days after the notice is sent).
This option sets the debt collector up for success in two ways. First, it notifies the consumer of the name of the debt collector to which the debt will be assigned for collection. Second, it lays the foundation for the debt collector to send the validation notice within the four corners of the actual email (not a link or attachment) in its initial communication with the consumer.
4. Text message communications will become the new currency for successful debt collection.
The new rule provides four ways the debt collector may obtain a mobile number to use in connection with the collection of a particular debt.
Scenario A: Consumer uses the mobile number to communicate with the debt collector
- Consumer uses the mobile number within 60 days before the collector sends a text – A debt collector may use a mobile number to text the consumer about a particular debt if, within the 60 days before the debt collector sends its text message to the consumer, the consumer used that mobile number to communicate with the debt collector about that particular debt.
- Consumer uses the mobile number more than 60 days before the collector sends a text – A debt collector may use the mobile number the consumer used to communicate with the debt collector about a particular debt if: a) the consumer used the number to text the collector more than 60 days before the debt collector uses the number to text the consumer about the debt; and b) the debt collector uses a complete and accurate database to confirm that the phone number has not been reassigned from the consumer to another user since the date of the consumer’s text to the debt collector.
Scenario B: Consumer gives express consent
- Consent given within 60 days before the collector sends a text – A debt collector may use a mobile number to text the consumer about a particular debt if the consumer provides the debt collector with direct consent to use the number to collect a particular debt, and does so within the 60 days before the debt collector sends a text message to the consumer using such mobile number in connection with that particular debt.
- Consent given more than 60 days before the collector sends a text – A debt collector may use a mobile number to text the consumer about a particular debt: a) if the consumer provides the debt collector with direct consent to use a mobile number in connection with the collection of the debt more than 60 days before the debt collector uses the number to communicate with the consumer about the debt; and b) the debt collector uses a complete and accurate database to confirm the phone number has not been reassigned from the consumer to another user since the date the consumer provided the debt collector with direct consent.
Note: In all cases, the consumer’s revocation of consent overrides the debt collector’s right to rely on any of these procedures to obtain and use a particular mobile number.
5. Foti, Zortman, and the Limited Content Message will coexist.
In response to countless requests from the industry to resolve the legal conflicts associated with leaving voice mail messages (i.e., the Foti/Zortman conundrum), the CFPB adopted a Limited Content Message (LCM). While the new rule does not require debt collectors to use the LCM, it does lay out extremely specific requirements for using the LCM. The new rule does not forbid debt collectors from using either the Foti or the Zortman message, but debt collectors should understand that unlike the LCM, the Foti and the Zortman messages remain communications (as that term is defined in the FDCPA).
Although the stripped-down LCM message will not be considered a communication, it will count as an attempt to communicate. This means the LCM is exempt from the communication requirements of the FDCPA but remains subject to the call attempt restrictions of seven per seven consecutive days as provided in the new rule.
Be aware that if you don’t adhere to the strict content requirements of the LCM, the new rule will not protect you from claims alleging you disclosed a debt to a third party or you failed to meaningfully identify yourself as a debt collector.
6. Mini Miranda disclosures are more complicated.
The final rule includes a new requirement for the mini Miranda disclosure. Under the new rule, in addition to providing the full mini Miranda disclosure in the first communication, you must provide it in your first written communication if your initial communication was oral.
7. Opting out must be easy.
Per the final rule, consumers must be afforded a reasonable and simple method to opt out of electronic communications. For example, you cannot require a consumer to contact your office to request a form to unsubscribe. The CFPB believes that is too burdensome for the consumer. Instead, you’ll need to use a process as simple as Reply Stop or Reply Unsubscribe.
In addition, the CFPB makes clear that debt collectors must be able to confirm receipt of the consumer’s request to discontinue electronic communications in order to comply with standards promulgated by organizations such as the Cellular Telephone and Internet Association.
6 Practical Tips as You Prepare for CFPB Compliance
There’s a lot you’ll need to think about and prepare for in the run-up to November 2021. Here are a few practical tips in the meantime.
1. Read the CFPB final rule in full.
I can’t stress this enough: if you haven’t begun reading the final rule, now’s the time to start. Be sure to also read the supplements, which provide additional guidance and examples.
2. Hire an independent consultant to train your board and your senior leadership team.
Often times, in-house compliance resources are blinded by how agencies normally “do things,” drawing the line in terms of a challenging discussion or simply fearful of disrupting workflows. Outside consultants can speak freely and clearly about the new rule’s requirements and provide collection organizations with the clear support they need to make tough decisions over the course of the next year about their compliance management system.
3. Do not assume the new rule provides you with any protection at this time.
Be cautious about adopting processes permitted under the new rule that are not otherwise in effect today. Consult with independent legal counsel before doing so.
4. Start tracking the source of email addresses and mobile numbers.
Also be sure to track the terms under which consent was granted and passed to you, if at all.
“I think technology is really going to play a role in trying to satisfy this, but this is going to be key. It’s all about what the consumer wants. The consumer can change that on a dime, and how you’re going to track that and be able to cover that is going to be difficult.” – John Bedard, Bedard Law Group
5. Confirm you are using an integrated application so you are able to monitor the consumer experience in real time.
This means having up-to-the-minute information readily available to your agents concerning call volumes, conversation events, and call attempts; voice mail communications and contacts; use of the limited content message; and the frequency of text messages and email communications sent to the consumer in connection with the collection of a debt.
6. Adopt E-Sign today.
The law is clear, and there’s no need to wait to take advantage of the freedom E-Sign affords you when it comes to substituting the digital delivery of required disclosures and documents for first class USPS mail delivery.
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