CFPB Finalizes Two New Debt Collection Regulations

CFPB Finalizes Two New Debt Collection Regulations

INSIGHTi
CFPB Finalizes Two New Debt Collection
Regulations
February 3, 2021
The Consumer Financial Protection Bureau (CFPB) recently finalized two new regulations to implement
the Fair Debt Collection Practices Act (FDCPA; 15 U.S.C. §§1692-1692f), which seeks to “eliminate
abusive debt collection practices by debt collectors.” On November 30, 2020, the CFPB issued a final rule
on how debt collectors may communicate with consumers. On January 19, 2020, the CFPB published a
second rule clarifying what information debt collectors must disclose to consumers.
This Insight provides an overview of the debt collection market and its regulation and analyzes major
parts of the CFPB’s two new rules. For more information about debt collection, see CRS Report R46477,
The Debt Collection Market and Selected Policy Issues, by Cheryl R. Cooper.
Debt Collection Market and Regulation
When a consumer defaults on a debt, a third-party debt collector often collects the debt obligation rather
than the original lender. Lenders contract with debt collectors to col ect their debts. The U.S. debt
collection market is large and impacts many consumers. According to a CFPB survey, approximately one-
third of consumers with a credit bureau file reported being contacted by at least one lender or assigned
debt collector trying to collect on a debt in the previous year.
Debt collectors general y expect to collect only a fraction of the total value of any particular debt,
knowing that some consumers wil not pay back their debts in full. Therefore, both parties can negotiate
the amount and payment schedule of the debt. If a consumer does not settle a debt, the debt owner often
has several options, such as taking the collateral for secured loans (e.g., car, house) or garnishing a
consumer’s wages after obtaining a court order. Debt collectors have the option, but are not required, to
furnish information about the debt to credit bureaus.
Consumers do not choose the debt col ectors with whom they engage. Therefore, consumer protection
laws and regulations may be particularly consequential in this market. According to the CFPB, debt
collection is the consumer finance market with the second-most complaints, accounting for 21% of the
total complaints received in 2019.
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The FDCPA is the primary federal statute regulating the consumer debt collection market. It general y
applies only to debt collectors, not the original lenders. The FDCPA prohibits debt collectors from
engaging in certain types of conduct (such as misrepresentation or harassment) when seeking to collect
certain personal, family, or household debts from consumers and grants consumers the right to dispute or
stop some communications about an al eged debt. In addition, the FDCPA requires debt collectors to send
consumers notification that discloses certain information about their debts. The Dodd-Frank Wal Street
Reform and Consumer Protection Act (P.L. 111-203) granted the CFPB authority over the FDCPA, and it
became the first federal agency empowered to write regulations to implement the FDCPA.
CFPB’s Two FDCPA Regulations
In recent years, the CFPB has been actively engaged in rulemaking intended to clarify and update FDCPA
provisions. The following describes selected provisions of the CFPB’s two finalized rules, which have
received significant attention from stakeholders.
First Rule: Communication
The CFPB’s first regulation general y seeks to clarify appropriate communication tactics for debt
collectors. The rule general y limits debt collector phone cal s to seven times in a seven-day period and
prohibits debt collectors from making cal s within a week after speaking by phone to a consumer. A CFPB
survey, however, noted that most consumers considered four or more cal s per week too much contact.
Some consumer advocates take this as evidence that the phone cal limit should be lower, while industry
groups argue that a lower limit would be too restrictive, making it more difficult for them to contact
consumers.
The rule also clarifies that debt collectors can use newer technologies, such as email and text messages, to
communicate with consumers. Debt collectors are able to use these communication tools without limit;
however, the rule requires a reasonable and simple method for consumers to opt out of these types of
messages. Although some commentators believe that these new technologies could be convenient for
consumers and reduce debt collection costs, others argue that al owing debt collectors to send unlimited
emails and text messages could lead to consumer abuse.
Second Rule: Disclosure
The CFPB’s second regulation clarifies the information a debt collector must include in the disclosure it
sends to consumers at the onset of communication. It requires disclosure of certain information about the
debt and consumers’ rights in the debt collection process, such as how to dispute a debt. The regulation
also al ows a debt collector to obtain a “safe harbor” from liability by using a model validation notice.
Furthermore, the rule bars debt collectors from furnishing information about a debt to a credit bureau
before communicating with the consumer about the debt by phone or mail.
In addition, debt collectors are prohibited from suing or threatening to sue consumers in the case of time-
barred debts. Many states limit the length of time consumers can be sued on a debt after it goes into
collection. General y, the statute of limitations is between three and six years. Even though consumers are
no longer able to be sued on time-barred debts after this period elapses, in most states, debt col ectors can
continue to collect on these debts using other means (e.g., letters, phone cal s). Under certain conditions,
these debts can be revived. For example, in some states, if a consumer makes a partial payment on a debt
or acknowledges it in writing, a debt collector can sue on the debt after the statute of limitations has
expired. Some consumers may not be aware of these laws and therefore may unintentional y revive their
time-barred debts. The CFPB considered mandating a time-barred debt disclosure and found in its
research that disclosures can reduce the potential for deception for many consumers. However, the

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CFPB decided not to finalize a time-barred debt disclosure due to concerns about (1) debt collector
compliance costs incurred to determine whether a debt is time-barred and (2) whether the proposed
disclosure would effectively communicate a debt’s legal status to consumers.

Author Information

Cheryl R. Cooper

Analyst in Financial Economics

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