Key Considerations for Home Mortgage Debt Collectors under the Consumer Financial Protection Bureau’s Final Rule

By Bryan M. Mull

Bryan M. Mull is a member of Gordon Feinblatt LLC in Baltimore, Maryland.

Enacted in 1978, the Fair Debt Collection Practices Act (the FDCPA) has long loomed over the debt collection industry, governing the collection of consumer debt. The FDCPA is implicated when a “debt collector” pursues collection from a residential tenant, home mortgage borrower, or other consumer or debtor protected by the Act. While the FDCPA generally does not govern creditors attempting to collect their own debts, it does generally extend to collection agencies, debt buyers, collection lawyers, and mortgage servicing companies that obtain servicing rights after default, among other others. Residential real estate transactions are often the most significant debts that a consumer incurs. Most observers expect mortgage delinquencies to spike in the wake of COVID-19, so debt collectors in this space would be well advised to acquaint themselves with the FDCPA, especially if the debt collector’s jurisdiction requires the use of judicial foreclosure procedure.

Last year the Consumer Financial Protection Bureau (CFPB) issued its long-awaited final rule implementing the FDCPA via amendments to Regulation F (12 C.F.R. part 1006) in two parts.

The first part of the final rule, issued on October 30, 2020, largely focuses on communications between debt collectors and consumers. Notably, the final rule directly addresses more modern forms of communication, such as text messaging, emails, and social media. Highlights from the final rule include:

• Safe Harbor for Limited-Content Messages—The final rule creates a “limited-content message” that is not considered a communication under the FDCPA. Notably, this allows a debt collector to leave a voicemail that encourages the debtor to return a call, without disclosing sensitive information that may otherwise trigger an FDCPA violation.

• Email and Text Messages—Debt collectors may use email or text messages, but the emails and text messages must include instructions for a reasonable and simple method for consumers to opt out of receiving further emails or text messages.

• Social Media—Debt collectors cannot use social media to contact a consumer if such a communication can be viewed by the public or the consumer’s social media contacts. Debt collectors may contact a consumer through a direct message that is not visible on the consumer’s social media platform.

• Call Frequency—A debt collector is presumed to violate the FDCPA’s prohibition on repeated telephone calls if the debt collector calls a consumer more than seven times within a seven-day period or within seven days after engaging in a telephone conversation with the consumer.

• Record Retention—A debt collector must maintain records of compliance or noncompliance from the date that the debt collector begins collection activity on a debt until three years after the debt collector’s last collection activity on the debt. Debt collectors must retain telephone call recordings for three years after the dates of the telephone calls.

The second part of the final rule, issued on December 18, 2020, focuses on validation notices, passive debt collection, and time-barred debt. Highlights from the second part of the final rule include:

• Validation Notices—The FDCPA generally requires a debt collector to provide a debt validation notice either in its initial communication with a consumer or shortly thereafter. The final rule provides a model form collectors may use as a safe harbor. Under certain circumstances, debt collectors may provide the validation notice electronically. Among other things, the validation notice must provide an itemization of the current amount of the debt as of an “itemization date” reference point (e.g., last statement date, chargeoff date, and last payment date).

• Passive Debt Collection—Passive debt collection refers to the practice of reporting debt collection information to credit reporting agencies without first attempting to notify the consumer about the debt. The final rule prohibits this practice, requiring that a debt collector must either speak to a consumer or wait a reasonable period of time (14 days) after sending a written message to the consumer about the debt to receive a notice of inability to deliver the notice before furnishing information to a credit reporting agency. If the collector receives a notice of inability to deliver the notice, it must resubmit the debt information to the consumer before furnishing information to a credit reporting agency.

• Time-Barred Debt—The final rule prohibits debt collectors from bringing or threatening to bring a legal action to collect a debt that is barred by applicable statute of limitations. This rule sets forth a strict liability standard for these violations. The final rule does not prohibit the filing of a proof of claim in a consumer’s bankruptcy case with respect to a time-barred debt.

In October 2021, the CFPB issued guidance in the form of Frequently Asked Questions (FAQs) pertaining to debt collectors’ telephonic communications under the rule. Among other things, the FAQs address required and optional information for “limitedcontent messages” and clarify that so-called Zortman voicemails (i.e., “we have an important message from [company’s name] . . . this is a call from a debt collector . . . please call [company’s telephone number]”) do not qualify as limited-content messages.

The FAQs also address the rule’s call frequency presumptions. Under the rule, a debt collector is presumed to violate the prohibition against repeated or continuous telephone calls or conversations if the debt collector places a telephone call to a particular person in connection with the collection of a particular debt more than seven times within seven consecutive calendar days, or within a period of seven consecutive calendar days after having had a telephone conversation with the person in connection with the collection of such debt.

Among other things, the FAQs clarify that the above presumption generally applies on a per-debt basis rather than a per-consumer basis (e.g., a consumer with two debts in collection could receive 14 calls from a debt collector in a week—seven for each debt). Also, the FAQs also clarify that if a consumer initiates a call, this does not count toward the call frequency limitations, but that a conversation initiated by a consumer’s call would count toward the conversation frequency limitations. Debt collectors should review the FAQs, as well as the CFPB’s small entity compliance guide, for insight into how the CFPB intends to apply the final rule in practice.

The final rule became effective on November 30, 2021.

Conclusion

The final rule sets out several safe harbors that should guide debt collectors as they review their policies and oversight systems. Debt collectors should also pay careful attention to the model form validation notice and consider revising their notices accordingly. Debt collectors should also review their policies for evaluating any applicable statute of limitations.

Published in Probate & Property, Volume 36, No 1 © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.