Attorney Caren Enloe provides a quick overview of the CFPB’s proposed debt collection rules and their implications for the ARM industry.
Zachary Dunn: 0:02
Hello and welcome to the first episode of the Creditors' Corner Legal Talk presented by Smith Debnam Narron Drake Saintsing & Myers, LLP. My name is Zachary Dunn, and I'm an associate in the firm's Consumer Financial Services Litigation and Compliance Group. Before we begin, I do want to note that the information provided in this podcast does not and is not intended to constitute legal advice. Instead, all information and content are intended for general informational purposes only. Listeners should contact their attorney to obtain advice with respect to any particular legal matter. With that out of the way, we'll turn our attention to this week's topic, which is the proposed debt collection rule published by the CFPB. Our guest to discuss this important topic is Caren Enloe, who leads Smith Debnam's. Consumer Financial Services compliance team. Hello, Caren,
Caren Enloe: 0:53
Zachary Dunn: 0:54
How are you?
Caren Enloe: 0:54
Zachary Dunn: 0:57
I'm excited to talk about this important topic. Let's just jump right in. Um, the CFPB has published its proposed debt collection rule. What are the major points creditors and debt collectors should be focused on?
Caren Enloe: 1:10
Well, the debt collection rule was published on May 21st of 2019, and when the comment period closed there were over 9800 comments that had been posted. So you can imagine it's getting a lot of play with everybody and everybody think on both sides of the aisle, and different interest groups are very excited about this. Or very unhappy, depending on their perspective. Um, it's lengthy. It's about 500 pages if you read it on the C F P B site, which is comprised of section by section analysis as well as the rules proposed comments. But here are some of the high points of it. It introduces for the first time this concept of a limited content message on and takes messages out of the context of being a communication under the FDCPA. Or the Fair Debt Fair Debt Collection Practices Act. Another big thing in the rule is what's called the frequency rules that are set out, which I call the 777 rule. We'll talk about this I'm sure in a minute or two. The debt validation requirements are also very different than what you find in 15 U. S. C. Section 1692 g, And they're now proposing a model form for debt validation, which has its good and bad points. I know we're gonna cover that in a different podcast, so we won't talk about that too much today. But it's something that listeners definitely need to be aware of. And finally, one of the major themes of the debt collection rule is introducing 21st century technology to debt collection.
Zachary Dunn: 2:37
Boy, that's nice.
Caren Enloe: 2:38
It isn't. It's not. And we can talk of how some of the issues with it. It proposes to allow for electronic communications, which, in and of themselves, present a lot of problems.
Zachary Dunn: 2:49
Yeah, a lot of new ground to cover their I'm sure. Um, what's a limited content message? This is completely new, right?
Caren Enloe: 2:57
Oh, this is completely new. So what? What's happened is back in 1996 there was this case that came out Eastern District in New York. In that case, the debt collector left this message identifying himself. This isn't an exact message."Hi, this is Joe calling from ABC Debt Collection Agency, and I'm calling for Joe Smith. I need to tell you that this communications attempt to collect a debt and any information will be attained for that purpose." Well, what's wrong with that? Well, there's a couple things. One is that that telephone message is heard by a third party. Then there's an inadvertent and violation of the FDCPA by allowing a third party to be communicated with regarding the debt. The second thing with it is, how the heck can you leave a message that complies with the FDCPA if you don't disclose that it's an attempt to collect a debt, you've got to get in the mini Miranda. So how do you get mini Miranda on a voicemail message and not risk the inadvertent disclosure of the debt to a third party?
Zachary Dunn: 3:57
That's a conundrum. How does the new rule deal with that?
Caren Enloe: 4:01
Well, it's kind of neat. It urges this concept of a limited content message. And it says that limited content messages are not communications under the FDCPA because they're not a communication regarding the debt. It's defined in 1006.2 J and what it allows a and it's just telephone messages and interesting text messages, believe or not, allows a debt collector to leave a message that has a very limited content. Hence the name a limited content message. But that limited content message can only include the consumer's name, a request that the consumer reply to the message and the name or names of one or more natural persons whom the consumer can contact to reply to the message, a telephone number that they can use to reply the message. And, um, that's about it. And then it gives some options. You can say hi, you can give a salutation that's always helpful. The day and time in the message and a generic statement that the message relates to an account. So you can imagine that this is really, really new. So what this means is you can call and say "Hi, this is Zach Dunn calling for Joe Smith. Joe, can you please give me a call back at this number regarding an account." You can say that.
Zachary Dunn: 5:16
Right.. and so it gives debt collectors the ability to leave a message without violating or potentially violating the FDCPA.
Caren Enloe: 5:26
It does. Interestingly, it doesn't apply to e mails. And if you looked at some of the comments that's something that the comments have suggested that it be expanded to include. Consumer groups obviously are very upset about this, but the purpose of this is after ... What happened is that collectors got very sensitive about leaving messages and just quit leaving them at all. So what you have with all these hang up calls happening and you have this increase of telephone communication? So you get all these hang up messages. He actually had more calls going out, because they couldn't leave a message without violating the FDCPA one way or another. And it's called a ...choice... But that's the phrase that the courts have used to describe it. There's 40 cases that have dealt with this issue that have opinions on it. You can imagine if there's 40 that have opinions on it - how many hundreds were settled before they even got to court... this is a big deal, and this is new and it's groundbreaking and only applies to telephone messages. But the interesting thing about too is you don't identify who the debt collector is. You won't say Smith Debnam - you would say it's Zach Dunn.
Zachary Dunn: 6:27
Right. Just use the collector's name. Now, if I recall correctly, call frequency was a point of emphasis in the .... I believe that I'm pronouncing that correctly. All right. Is this proposal better or worse...?
Caren Enloe: 6:42
Oh, I think it's much better. And so just back up a little bit... in 2016 the CFPB required to consult with small businesses on impact of any proposed any potential rules. And this ...panel was meeting in August 2016 and prior to that meeting with the CFPB. The CFPB proposed kind of an outline of what they thought the rule might look like at that time, and it was pretty onerous on call limitations. But what the new rule does is in 10 6.14 I believe is it kind of sets out two things in it. One is this concept that the debt collector can call seven times or make 7 attempts to call seven times in a seven day period, per consumer per debt. One limited exception of that is on student loan accounts. If you have several student loans that are tied to the same account number that counts as a single account. So, for instance, if we have two groups in the same law firm, one that's collecting on consumer credit card debt and one that's collecting on foreclosure debt, we both know that the clients are requiring that that information only be made available to people who have a reason to know. So, for instance, the foreclosure folks may not know about the credit card debt, and if they're both making phone calls for whatever reason potential is that you have multiple calls coming in from the same law firm. But under this rule, each of those debts could have seven calls to a person in seven days, and so that provision has gotten a lot of play from a lot of different interested parties. - a lot of creditors, collection agencies are upset - they don't think that's high enough. They don't think there should be a limitation that it should just follow the rules strictly. A lot of consumers think that that's way too many. Because you know, if you have anyone who tends to have debt tends to have more than one debt. And so if you're getting multiple calls times seven in seven days, you know if you have a lot of debts that are delinquent, you could have 21 calls in a seven day period. Again, these attempts to collect these are not necessarily calls that are going through. We'll talk about that in a second. So the other piece of that 777 that was the 1st 77 There's 1/3 7 The 3rd 7 is after you've actually communicated, then you cannot call again for seven days. The problem with this provision and this provision has also received a lot of concerns primarily coming from attorneys groups is in the course of litigation, once you have connected with them under the rule. - what it provides is that there are certain exceptions to that seven that you can call again in that seven day period if it's made to respond to requests from information for that person.
Zachary Dunn: 9:23
Just to be clear, this is under the NPRM, not under the... panels.
Caren Enloe: 9:29
Yeah, this is sorry. Yeah, this is under 10 A 6.14 or you can do it, there's another exception, if it's made with the prior consent given directly by the debt collector or you're not connected to the number. What does that mean? It doesn't mean that you hung up the phone. That means you got the DDT thing going on. So those were really great exceptions. There's all makes sense. But what about the case where you get a call? Hey, Joe Smith. 9192223333 Click. Can you respond to that in that seven day period? And, arguably, you can't because that's not an expressed request to call. It's not prior consent being given directly to the debt collector, and it's not made to respond to a request for information.
Zachary Dunn: 10:12
Yeah, there's some gray area.
Caren Enloe: 10:13
There's a gray area. Let me give you another gray area. Let's now talk about this. You're in litigation and it's a collection case and you're on your an attorney collecting on a debt and the consumer is pro se, does not have counsel, and you need to reach that consumer, maybe your're getting ready to foreclose on their house, and you need to reach them. Maybe you're doing loss mitigation. Maybe there's a settlement that's out there, that you all are trying to get settled, and they haven't given you expressed consent to call them, and you're not calling necessarily to request a piece of information or to respond to requests for information. You may have an issue. Because that's seven days. And so that's one of the interesting things about this. One of the other interesting things about this provision is the majority of the proposed rule is being proposed under their authority under the FDCPA. There are four provisions under this rule that are being proposed under Dodd-Frank as an unfair in after practice. This frequency provision is one of those. So where this comes into play is for persons that are collecting on consumer services or consumer financial products are covered under Dodd Frank. For that, this provision, it takes out the with intent provisions of the FDCPA. If you look at the FDCPA and this provision, this is tracking 1692D5, which has with intent to harass...
Zachary Dunn: 11:55
So, taking out the with intent would almost be akin to strict liability.
Caren Enloe: 12:00
We already have strict liability under the FDCPA right, but this is taking it even, this is like super strict liability. And so they're concerned with that provision is that now potentially having some implications for first party creditors. So this is a hot button topic.
Zachary Dunn: 12:19
Um, now moving on to a slightly different topic. Let's talk a little bit about debt validation. I know that we're gonna cover it in another podcast in depth. But just generally, what will the model form accomplish?
Caren Enloe: 12:31
Well, the model form is gonna provide a safe harbor. Um, that's the intent of it. Okay, It's provides a safe harbor. But what it really does is this going it really is going to create a whole lot of frivolous disputes. Um, and we'll talk about this. I know that, Jerry and are gonna talk about this on another podcast but part of the problem with this is you have to check the box form, so if you have a dispute, you check the box. I speak this debt. I do not owe this debt without providing any sort of meaningful information, and it's in a box. It's like an inch and 1/2 by an inch.
Zachary Dunn: 13:10
so there's no real room to leave any information.
Caren Enloe: 13:13
There really isn't. They say you can write on the back, and that's very helpful. But who's going to if they're not required to? And so the concern from industry is this is going to generate a whole lot of fruitless disputes.
Zachary Dunn: 13:25
So in short, you don't think that it accomplishes the goal that it was set out to accomplish.
Caren Enloe: 13:30
You know, I think it's great to have when I think, you know, there's so many letter cases that are coming out right now. I think it's good that there is going to be a safe harbor. The question is getting that form right and the form as it is now isn't right. The form suggests things, requires things that are not set out in 1692 G, which is the validation section of the FDCPA. And so it's another expansion to get a lot and this is under Dodd Frank as well. So it's another expansion of what the FDCPA says versus what the CFPB is proposing.
Zachary Dunn: 14:05
Great. Um, electronic communications were a point of emphasis for the debt collection rules. Can you talk a little bit about that?
Caren Enloe: 14:14
I can. I don't know that I wanna. But I will.
Zachary Dunn: 14:17
Caren Enloe: 14:18
Well, so there's really kind of two things that happens there. And you gotta kind of get from time periods. If you look at the time period from when the initial communication goes out under 1692G where you give your validation notice and then the dispute in the response to dispute. You're required to go under the E Sign act and E Sign act requires that a lot of disclosures...they require a lot of information. Um, it requires you get that back from the consumer before you send these out. Here's the problem. If you have to send out your debt validation within five days of your initial communication with the consumer. How the heck are you an implement that under the E sign act?
Zachary Dunn: 15:06
it's gonna be tough.
Caren Enloe: 15:07
It's gonna be tough. Now the creditor can get it for you in advance but talking to creditor clients of ours and others that are first party, they're saying that they'd have to be changing a lot of their E-sign on procedures in order to do this because you're gonna have to make sure that you're checking all the boxes on the technology end. So this provision is not generating a lot of excitement or while that's gonna really help us out from from the credit industry. Another thing that becomes interesting is when we get past that period of time, when we're talking about in there in the course of the collections and we get over there and we're looking at them were under 1006.6 and what what it does with that is it allows consumer to consent to certain communications to be made electronically, and that provision is a lot better. It provides basically, uh, reasonable procedures for email and text messages. So basically what it's laying out for you is if you have these procedures in place and you screw up, then it's modified error. So its kind of setting this out, and it basically allows in general terms that if the consumer recently used an email address or in the case of a text message, a telephone number to communicate with the debt collector then they can respond to it unless they did it for purposes walking out. You have these opt-out provisions now. Um, and so you know, and there's some other exceptions ...that's kind of whole genesis of it. You gotta be really careful with work email addresses. But it does even contemplate that with a work email address, .if the consumer has contacted the debt collector through it that they can, they can respond to it, which is kind of interesting. Also, it's looking really kind of at it as a course of dealing that makes a lot of sense to me where I get why have the issues when we get these electronic communications were talking about it is, if the consumer sends an email to someone and that person is out of the office, they they send a cease and desist and say, you know, quit contacting me. You gotta quit like that right immediately, Right immediately. And so when you're dealing with electronic communications and instant gratification, you're gonna have to make a lot of changes to your policies and procedures and operating operational guidelines in order to be able to comply with that. So collector A is on vacation, and they get they get email from the consumer saying, Hey, I want you guys to cease and desist contacting me. Well, they're on vacation. Well, maybe collector B is taking up that file. That email hasn't been opened from Collector A yet. Right
Zachary Dunn: 17:48
Is on vacation.
Caren Enloe: 17:49
Yeah. So collector B makes a call that is that. Is that a violation of cease and Desist? It is.
Caren Enloe: 17:54
It is by the letter of the law.
Caren Enloe: 17:56
...and the proposed rules. And the section by section analysis suggests that that wants that cease and desist is deemed received when it is sent. Yeah, And so that's what we're gonna have a lot of issues coming up. So, you know, you haven't asked, but I'll tell you what I think we're headed because I'm sure you really want to know is as we look at this and moving forward. Comments have just closed. They've got six months to go through them. I would think that a lot is gonna be really interesting cause we're coming up to what, an election year, Right? Right. We have a lot of changes that happen. So chances are this rule is 95% in its final form and it's going to go through. What could happen is that we get a change in administration and we change from a Republican administration to a Democratic administration. We may get some pushback. There's a case pending in front of US Supreme Court that is dealing with the constitutionality again of the CFPB. So there's a lot of things that are in play. There's a lot of things that are in flux. My gut feeling is we're going to get a proposed, uh, we're gonna get a final debt collection rule because everyone wants it. Technology has changed so much since the FDCPA was enacted in 1977
Zachary Dunn: 19:09
just really needs to be updated for a modern time. It does, in part what these rules are trying to get out.
Caren Enloe: 19:15
Yeah, but what really would've been more effective is a modernization act for the FDCPA. And that's not what we got. What we got was was I think, some things that are well intended but aren't necessarily getting it done.
Zachary Dunn: 19:27
Well, well, I didn't ask you about that. But a question. I think I will start asking is is there anything that you would like to say on the subject that I haven't asked you about? Is there anything that we haven't covered?
Caren Enloe: 19:37
There's so much we haven't covered. But to be honest and to be fair about, it takes about 90 minutes to do it. And I don't think we have that much time today, So we'll come back and talk about another time. How's that? We'll come back and talk about meaningful involvement sometime.
Zachary Dunn: 19:49
Well, that sounds great. I think that's fodder for another podcast.
Caren Enloe: 19:53
Sounds great. Thanks for having me.
Zachary Dunn: 19:54
Thank you. Thank you for being a part of the podcast. And thank you for listening to, uh, Creditors Corner Legal Talk presented by Smith Debnam Narron Drake Saintsing & Myers.