State AGs Taking Prominent Role in Debt Collection Law Reform

Perhaps it was in anticipation of future changes to the Fair Debt Collection Practices Act (FDCPA) that prompted Massachusetts State Attorney General Martha Coakley to propose new debt collection regulations for her state. Maybe it was Elizabeth Warren’s call for state attorneys general to help the new Consumer Financial Protection Bureau formulate new consumer protection policies.

Whatever the reason, Coakley’s proposed debt collection regulation could be the beginning of an onslaught of new regulation and rulemaking set to hit the accounts receivable management industry, backed by the new Consumer Financial Protection (“State Lawmakers Expected to Target Debt Collection Industry,” Jan. 27). The CFPB will be the ARM industry’s new chief regulator when it officially opens in July.

The Dodd-Frank Wall Street Reform and Consumer Protection Act redefined the relationship between federal agencies and state enforcers, giving state AGs the power to enforce certain provisions of the law and related regulations in court. AGs may even initiate a case, and a vote by a majority of the states could force the CFPB to consider adopting new regulation, though the Bureau has the ultimate discretion to hand down regulation.

Warren, who was tapped by President Obama to start up the CFPB, said she wants state AGs to help formulate new policies and already has compiled a group of state AGs to work with her on some issues. Some of those issues likely will include identifying and updating federal debt collection rules, given that the Bureau was granted rulemaking authority over the FDCPA, though only Congress has the power to change the letter of the law.

“Clearly one of the intents behind [Dodd-Frank] is to develop a closer relationship between states and the bureau,” said David Cherner, ACA International’s corporate counsel and director of state government affairs. “We are going to work with the AGs and the bureau.  But regardless of the bureau’s rulemaking authority, they will be looking at rules based on a federal law that is outdated.”

Like some other state AGs, Coakley’s proposed Massachusetts regulations address disclosures regarding time-barred debt and timely responses to a consumer’s request for debt verification. But Coakley is the only state AG so far to consider modern communication technology in establishing new debt collection rules.

Coakley’s proposal would allow debt collectors to contact debtors via cell phone or text messaging if the debtor provides the contact information and if the consumer doesn’t have to pay anything to receive the call or text. The proposed regulation limits the number of communications debt collectors may have with debtors via these communications methods in a seven or 30 day period. But the ability to communicate using these formats is something the ARM industry has long wanted.

Coakley also wants to expand the definition of “creditor” to include debt buyers, whether they actively collect the debt or pay someone else to do it, and require collection agencies and attorneys to comply with consumers request for debt verification within five days.

Barbara Sinsley, spokeswoman for the DBA International – a large trade group for debt buyers — said it benefits consumers if creditors have similar duties as debt buyers and debt collectors. However, the standards must take into account other laws such as Truth in Lending and the National Bank Act, she said.

Meanwhile, Ken Wilson, managing partner for Massachusetts law firm Lustig, Glaser & Wilson PC, anticipates that attorneys will oppose the five-day time frame to provide validation documents because it conflicts with the current 30-day time frame they are allowed to gather documents in civil proceedings.

Wilson does applaud Coakley’s decision to consider newer communication technologies in developing new rules for debt collectors. However given the uncertainty on the federal level, and the various interpretations of FDCPA in courts, Wilson said he still doesn’t believe it’s safe to use those technologies.

“I wouldn’t text a consumer even if the consumer gave me permission to do so, because it’s unclear under federal law if it’s permissible,” said Wilson, who also is president of Massachusetts Creditors’ Bar Association.

If Coakley’s regulations are approved, Wilson said debt collection agencies that opt to use the newer technologies might not run afoul of Massachusetts law, but may violate the FDCPA. “The FDCPA will continue to be the rule book or playbook for our industry that people need to abide by,” he said.

That doesn’t mean Coakley or any other AG that issues regulation that attempts to modernize debt collections is premature in addressing the issue. Wilson said the FDCPA doesn’t preempt state law if state law gives consumers more protection.

Cherner said ACA and its state units have had a lot of positive outreach with state AGs in the past few years and is eager to work with the CFPB to address proposals that are in the best interest of consumers while being clear, consistent and balanced.  He noted that ACA was notified of Coakley’s regulation proposals before they were made public.

“We had some advance notice and will meet with the office to talk about concerns,” Cherner said.

With new regulations sure to come, Cherner urged members to read all information the ACA puts out. “It’s important to keep apprised of what’s going on. We need to continue to increase membership participation at the local level,” he said.