CFPB issues the final rule that revises the Fair Debt Collection Practices Act. The new rule is expected to define the debt collectors’ activities and actions consumers should take in response to their requests.
It seems that the new law will put a period in debt collection practices’ regulations instead of the long-time-present comma. So, now, it’s up to you to get ready for it.
Today, we will discuss the main guidelines for debt collectors and define an action plan to get ready for them.
What Does It Mean for Collectors?
The CFPB finalizes significant changes to the industry, making collections more transparent to all parties. It covers the collection process in the following consecutive aspects:
- Reminding the consumer about a debt
- Arbitration and sharing data with third parties
- Responding to collectors’ requests
- Collection methods
Reminding the Consumer about a Debt
When contacting a consumer, a collector should send them a validation notice. The notice should contain the debt details (including the debt amount and the creditor’s name) and describe actions the consumer may take in response (including the protective measures and the rights to request the original creditor’s info). The notice must be sent within five days from the initial contact. However, if that document was provided essentially during the initial communication, or the consumer has already paid the debt, the notice is no longer required.
The new rule clarifies the information about the debt and the consumer rights for provision in the validation notice and requires the collector to provide prompts to the consumer to dispute the debt, request information about the original creditor, or take other agreed-on actions. Under the rule, information disclosure is carried out in absolute compliance. Currently, validation notices contain little-to-no information about consumer debts, which may be a sufficient reason for the consumer not to recognize the debt at all.
Arbitration and Sharing Data with Third Parties
The rule prohibits collectors from suing or threatening to sue collectors with past-due accounts. Also, they can’t provide consumer debt information to third-party reporting agencies before reaching a certain agreement with the consumer about their debt.
Responding to Consumers’ Requests
The CFPB’s rule also clarifies how the collector may respond to consumers’ requests to provide the original creditor information if the original creditor and the current creditor are the same people.
If the consumer is deceased and the collector hasn’t previously provided any notice, the collector should provide that notice to the deceased consumer’s trustee.
If the consumer fails to pay in due time, the collector may send their information to the third-party collector to recover the debt in that collector’s name. At this point, the collector should stop communicating with the consumer and start negotiations with the third-party collector who is now responsible for paying off the debt.
The collector may change the collection strategy depending on such factors as the debt’s size and age and the collector’s assessment of the likelihood of a successful collection. For example, rather than trying to collect huge debts from consumers, which is likely to be a long shot, the collectors may opt for collecting comparatively smaller debts (such as medical, telecommunication, or utility ones) which have more chances of recovery.
Alternatively, collectors may go through litigation to collect debts. Some even try to collect debts from past-due accounts. The limitations period’s length depends on the corresponding state’s local legislation and the debt’s type itself. Typically, limitation periods range from three to six years, yet some reach up to 15 years in duration.
In most states, consumers use the expiration of the statute of limitations as a defense, and at this point, the collector can’t collect debts through litigation. Yet, that doesn’t mean that the debt is forgiven; rather, the collector may try using other means such as calls and emails to collect debt unless those violate FDCPA or other relevant laws.
Are you Ready for CFPB’s New Rule? Check yourself with the Following Steps
The CFPB final rules will come into effect on November 30, 2021, so it’s high time for you to start preparing for it. The transition to the new law will be smooth and painless as long as you follow this 10-step action plan we prepared for you.
Finalize all the required deliverables and voice track vendor. By the time the new rule is effective, you should update your system in test mode and prepare to go live. With the new law set in, launch software changes and complete the quality control process.
Good luck with reaching the new compliance!