Understanding debt collection regulations

Collecting a debt is often more complicated than it may appear, especially with the glut of state and federal regulations impacting the debt collection industry. Two of the most prominent debt collection regulations affecting the industry are the Telephone Consumer Protection Act and Fair Debt Collection Practices Act, both of which have seen enforcement expansions in recent years.

Below is a brief summary of how the regulations impact debt collectors, as well as recent changes that may affect their enforcement.

The Telephone Consumer Protection Act of 1991 (TCPA) regulates telephone solicitations calls, auto-dialed calls, prerecorded calls, text messages, and unsolicited faxes.

The act prohibits making a non-emergency call using an “automatic telephone dialing system” (ATDS) and without the recipient’s prior express consent to:

  • Cell phones, paging services, or any service “for which the called party is charged for the call” or
  • Residential telephone lines using an artificial or prerecorded voice to deliver a message, unless one or more exemptions apply

The TCPA defines an ATDS as equipment that has the capacity to:

  • Store or produce telephone numbers to be called, using a random or sequential number generator and
  • Dial such numbers

“Prior express consent,” required for any calls to cell phones regulated under the TCPA, does not have a clear statutory definition, but is instead defined through numerous court rulings and decisions by the Federal Communications Commission (FCC).

In general, debt collectors have obtained consent if the recipient provided his or her wireless number to the creditor and “such number was provided during the transaction that resulted in the debt owed.”

Although the TCPA does not explicitly discuss the topic, a number of courts have ruled that consent may be revoked by the recipient at any time, either verbally or in writing.

If an organization violates the TCPA, the act creates a civil cause of action allowing the recipient to recover damages from the organization in the amount of the actual monetary loss suffered by the recipient or $500 for each violation, whichever is greater. If the violation is found to be willful, the recipient may recover three times the regular damages.

In addition, the FCC and state attorneys general may also enforce the TCPA. However, before the FCC can impose monetary penalties under the act to a party without an FCC license or authorization, it must first issue a citation warning the party of as much.

On July 10, 2015, the FCC released Declaratory Ruling and Order FCC 15-72.

The order interpreted the TCPA to make a number of changes to how it is understood and enforced.

First, text messages fall under the act’s definition of “calls.”

Next, the order clarified that consumers may revoke their consent to receive calls and text messages sent from ATDS in any reasonable way, at any time.

In addition, consent is no longer “inherited” from reassigned phone numbers. That is, after a single call to a reassigned number, callers must stop calling that number if it no longer belongs to their intended recipient.

Finally, the order interprets the definition of an ATDS very broadly, finding that “capacity” as used within the statutory definition refers not only to a device’s present capability, but also to its potential functionalities.

Furthermore, the order found that an ATDS need not be presently using a random or sequential number generator to fall within the ambit of the statute.

The changes noted here are not exhaustive, and organizations are encouraged to refer to the FCC’s website to read the full text of the order.

The Fair Debt Collection Practices Act (FDCPA) is currently enforced by the Consumer Financial Protection Bureau (CFPB), an agency created by the 2010 Dodd-Frank Act.

In addition to the FDCPA, the CFPB is responsible for enforcing a number of other federal statutes, including the Fair Credit Reporting Act and the Truth in Lending Act.

The CFPB has the authority to prescribe rules pertaining to the statutes it enforces to identify “unlawful, unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.”

What is particularly relevant to debt collection agencies and departments is that the bureau is the first agency with the authority to issue substantive rules for debt collection under the FDCPA – an authority that the CFPB has exercised on numerous occasions already.

The bureau is currently considering substantive rules to reshape the debt collection market. In spite of the dramatic shift in the political identity of the executive branch, this rulemaking process is likely to press forward to completion.

On July 28, 2016, the CFPB announced it was considering several proposals that would overhaul the debt collection market in a number of different ways.

Specifically, debt collectors would be required to:

1. Verify the debt they are attempting to collect before beginning collection, including substantiating the debt and confirming they have sufficient information about the debtor and the debt itself;

2. Limit their communication attempts to six per week through any point of contact before they have reached the debtor; and

3. Include more specific details about the debt in initial collection notices, including whether the debt is too old for a lawsuit. In addition, the notices would be required to include a “tear-off” portion that debtors could use to dispute the debt.

If a debtor disputes a debt under the proposed rules, the collector would be required to provide a written debt report substantiating the debt. The collector may not resume its collecting activities until the report is sent.

Furthermore, a collector may not collect on a debt transferred from another collector with an unresolved dispute until the dispute is resolved. The proposed rules are more extensive than the outline provided here, and they continually evolve. Organizations should take steps to not only familiarize themselves with the state of the debt collection regulations affecting their respective markets as they exist today, but also to review the proposals poised to shake up those regulations in the future.

1 47 U.S.C. § 227 (b)
2 47 U.S.C. § 227(a)(1)
3 Baisden v. Credit Adjustments, Inc., 813 F.3d 338 (6th Cir. 2016).
4 Gager v. Dell Financial Services, LLC, 727 F.3d 265 (3d Cir. 2013); Osorio v. State Farm Bank, F.S.B., 746 F.3d 1242 (11th Cir. 2014).
6 12 U.S. Code § 5531 (b)
7 CPG analysis for the year 2015 and YTD 2016.