December 3, 2015

CFPB Debt Collection Rules: Requirement to Maintain Original Account Records for Every Customer

The Consumer Financial Protection Bureau is preparing to release its proposed regulations on debt collection in the near future.  The structure and substance of these extensive regulations, and their impact on the financial services industry, have been the source of considerable speculation.  Two recent CFPB enforcement actions may shed some light on the Bureau's thinking as it finalizes its proposed rules on the specific information and documentation that is required to be transferred with all debt sales and placements.  More specifically, these enforcement actions reveal that the CFPB is likely to require third-party debt collectors to possess certain information about a debt prior to contacting a consumer.

The current regulatory framework does not set a national standard for the information and documents that a creditor must transfer when a consumer debt is placed with third-party collectors or sold to debt buyers.  Thus, although the information provided during the sale of debt varies between each set of buyers and sellers, it generally includes the name on the account, last known address, telephone number, date of birth, interest rate, the date of the last payment, current balance, and the date the account was opened.  The recent CFPB enforcement actions may serve as a preview for the regulations that the CFPB may impose in the future.  As discussed below, the CFPB's position in these enforcement actions implies that the final rules may require debt collectors to review the original, account-level documents before seeking to collect on a debt.

In September, the CFPB entered into settlement agreements with two of the country's largest debt buyers, Encore Capital Group (Encore) and Portfolio Recovery Associates (PRA), for violations of the Fair Debt Collections Practices Act, the Consumer Protection Act, and the Dodd-Frank Wall Street Reform.  In addition to imposing $18 million in penalties and ordering payment of more than $60 million in consumer refunds, the CFPB imposed a number of conduct requirements that these debt buyers must abide by moving forward.  One obligation imposed on Encore and PRA is a requirement to review "original account-level documentation" reflecting the consumer's name and claimed amount before filing collection lawsuits and, in most circumstances, before attempting to collect debt.  This original account-level documentation includes any document that a creditor provided to a consumer about a debt, a complete transactional history of that debt, and a copy of any judgment on that debt.  Additionally, prior to initiating any collection lawsuit, Encore and PRA are required to be in possession of a list of all prior owners of the debt and a certified copy of documents evidencing the transfer of ownership of the debt.

Although the CFPB's forthcoming regulations are currently in the "pre-rule" stage, consumer credit card companies have already expressed concerns that requiring debt sellers to provide, and debt buyers to maintain, original account-level documentation on consumer debt would be tremendously burdensome.  Consumer credit card companies have asked the CFPB to consider requiring debt collectors to possess certain information on consumer debts, rather than requiring them to possess the account-level documents themselves.  In addition to the costs associated with storing account-level data on all consumers, there would be increased privacy risks involved in the transfer and storage of personal financial documents.  The CFPB's position in these enforcement actions, i.e. requiring that PRA and Encore review original account-level documentation before collecting on a debt, could be an ominous sign for both first-party and third-party debt collectors as the CFPB drafts its regulations on debt collection practices.

As the industry anticipates the final rulemaking, the CFPB's enforcement activity may provide the most accurate glimpse into what the final rules will require.  We will continue to carefully monitor enforcement activity and the rulemaking process with respect to debt collection practices.  If you have any questions about this alert, please do not hesitate to contact the authors or your usual Drinker Biddle contact.

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