CFPB’s Proposal for Collection of Decedent Debt: a Misguided Approach

This article previously appeared on Ballard Spahr’s CFPB Monitor and is re-published here with permission.

Gary Becker

This blog post is the first of two on the proposals being considered by the CFPB regarding the collection of decedent debt.  In part two, I share my thoughts on the CFPB’s proposal to prohibit debt collector contact with informal representatives. You can read that post here.

Some background.  The CFPB has been sending signals for quite some time that it finds fault with decedent debt collection.  In its November 2014 report, “A Snapshot of Debt Collection Complaints Submitted by Older Consumers,” there is a reference to an older widow who sadly became upset during a phone call she placed to a collection agency.  The woman’s narrative did not indicate that the collector she talked to said anything wrong.  The CFPB’s underlying data for the period that was covered by the Snapshot had so few complaints about decedent debt collection that the category did not even register a slice on the Snapshot’s illustrative complaint pie chart.  It is thus somewhat remarkable that in the materials accompanying the CFPB’s outline of its debt collection proposals for the SBREFA panel, the CFPB reported that a survey it conducted just a few months later showed that of the consumers responding to the survey who had been contacted about a debt in collection, six percent reported they had been contacted about a decedent debt.

In an earlier blog post, I criticized the CFPB for failing to make any attempt at external validation of its complaints.  There is also reason to question the validity of its data on decedent debt.  Given that, for the reasons explained below, there is so little collection of decedent debts, it’s hard to believe that even a weighted sample of consumers who had a 60-day delinquency, a reported collection or both, would include that many consumers who had been contacted about decedent debt.

If someone were to review the approximately 10,000 FDCPA cases that are filed each year, he or she would find that there are very few lawsuits brought against collectors of decedent debt. The reason there are so few lawsuits is simple.  Those engaged in decedent debt collection are made aware daily that many consider the task distasteful.  Collectors operate knowing that a single misstep, never mind a violation of law, can result in bad press, a loss of business, investigations by regulators and attorneys general, and even the intervention of elected officials.  And collectors of decedent debt know that surviving spouses, personal representatives, administrators, and executors often have ready access to lawyers.  These factors mandate the exercise of restraint at every point.

Despite these facts, the debt collection proposals being considered by the CFPB would both upend the FTC’s successful and well-settled 2011 enforcement policy for the collection of decedent debt and destroy the ability of consumers to resolve estates through informal methods.  In developing its “Statement of Policy Regarding Communications in Connection with the Collection of Decedents’ Debts,” the FTC spent over a year investigating the decedent debt collection industry and conducting a comprehensive survey of state probate law.  (In fact, I have been told by two former senior FTC officials that they consider the Statement of Policy to be one of the best examples of guidance the FTC has ever produced.)

30-day hold. The proposals being considered by the CFPB would impose a 30-day hold on all collection contacts after the date of a consumer’s death.  The FTC considered and rejected this idea because it found that there was no significant incidence of contact by collectors immediately following a debtor’s death.  Contrary to common perception, there is no database that gives collectors (or anyone else) immediate information about recent deaths.  The FTC noted that it typically takes a significant period of time—weeks or even months for a creditor to learn of a debtor’s death and then it takes even more time for the creditor to transfer the account to an agency that specializes in decedent debt collection.

Many of the agencies that collect decedent debt have their own internal holds on some classes of accounts.  But a mandated 30-day hold is unlikely to be a universal solution for all creditors and collectors.  It is also unlikely to benefit survivors and estate administrators because it ignores the common fact that family members universally want quick resolution of a decedent’s financial matters.  Ask any probate judge and one will quickly learn that the most frequent complaint about the estate process is that it takes too long.

The 30-day hold will also create fertile ground for litigants to raise technical violations.  The collector who mistakenly sends a letter that is received on day 29 becomes a target. There are cases that occur daily where the consumer is alive at the time the debt goes to collection but dies while has his or her spouse is working with the collector towards resolution of the debt.  Would the CFPB place even common decency on hold, thereby exposing a collector who calls the spouse to express condolences to potential liability for a technical violation?

The proposed 30-day hold does not account for the fact that, under the FDCPA, many spouses have dual status.  A spouse who is a co-signer on a loan or lives in a community property state is a “consumer” under Section 803(3) of the FDCPA because that person has a legal obligation to pay the debt.  The spouse is also simultaneously a “consumer” under FDCPA Section 805(d) because the FDCPA includes a person’s spouse as a “consumer” with whom a collector can discuss that person’s debts.  Under the proposed rule, it appears that even where a surviving spouse has a legal obligation to pay the debt, collectors would be prohibited from contacting the surviving spouse for 30 days.