Federal and state regulators have long focused on debt collection practices, but recent news and trends, including new leadership from the Consumer Financial Protection Bureau (CFPB), increased state regulatory powers, and developments in debt collection. application of the Covid-19 pandemic, will make it more difficult for third parties. debt collectors.
A surveillance and enforcement spotlight will also shine on companies collecting their own consumer debt.
Below, we share our key takeaways from recent developments and what to expect in the coming months.
Wave of lawsuits against debt collectors using vendors after Hunstein
The United States Court of Appeals for the Eleventh Circuit recently held to Hunstein v. Favorite collection and management. Serves. Inc. that the transmission of personal information by a debt collector to a third-party vendor is sufficient to make a claim under the Fair Debt Collections Practices Act (FDCPA) for violation of 15 USC 1692d (b) (prohibiting disclosure of debt with some thirds).
This ban was traditionally understood as intended to put an end to practices such as asking a debtor’s employer to pressure the debtor to pay their bills, but the Eleventh Circuit decision greatly expands that scope.
As the court acknowledged, this ruling has the potential to upend the status quo in the debt collection industry and dramatically increase FDCPA filings, as most debt collectors use vendors for part of the process. recovery.
The plaintiffs bar has already started filing class actions over this disruptive theory. We expect future cases to involve a myriad of third-party providers, including call centers and loaner services, to name a few.
Debt collectors should take a close look at their outsourcing practices and consider changes to integrate these activities internally, at least in the short term.
Courts remain divided on the standing position
Recent decisions by the FDCPA demonstrate that federal jurisdiction over the matter is no longer inevitable in a growing number of federal circuit courts of appeal. Courts remain divided on how to approach standing in the context of the FDCPA, and in particular whether complainants must allege actual damages to establish standing under Article III.
As a result, whether a claimant has standing under Article III varies considerably depending on the jurisdiction and the type of alleged violation, as well as factual and debtor specific issues, such as whether the debtor has actually lost. money as a result of a violation.
In some cases, plaintiffs have attempted to evade federal jurisdiction by denying that the actual damages remain in what are generally perceived to be more favorable state justice systems.
We expect the division between circuits and district courts to continue to deepen. In May, the Seventh Circuit (perhaps the most hostile to Article III in the FDCPA cases) practically pleaded with the Supreme Court for a ruling, and we expect it to do so in a year or two.
Watch out for CFPB
The CFPB released its long-awaited two-part debt collection final rule in the final months of 2020, but many uncertainties remain.
Several provisions drafted or supported by consumer groups and aimed at increasing the regulation of debt collection have been excluded from the final rule, which has raised many questions as to whether the current administration will reconsider the rule before it is ruled out. becomes effective.
The impact of the rule on owner-collectors also remains unclear. While not prima facie applicable to owner-collectors, the CFPB has left open the possibility that violations of the FDCPA may separately constitute unfair, deceptive, or abusive acts or practices (UDAAP), which may involve owner-collectors. .
The CFPB recently proposed to delay the effective date of the 60-day rule, possibly setting the stage for further changes to come.
New requirements for debt collectors in California
The California Debt Collection Licensing Act (CDCLA) comes into force on January 1, 2022, imposing new licensing requirements on first and third party debt collectors in California.
Subject to certain exemptions, the CDCLA requires a license from all debt collectors who engage in the debt collection business in California, even if the debt collector is not physically present in California. Although the CDCLA contains many license exemptions, it grants the California Department of Financial Protection and Innovation (DFPI) broad power to take action under the Rosenthal Fair Debt Collection Practices Act and the California Fair Debt Buying Act, including against license exempt entities.
Debt collectors who engage in collection business with California residents should carefully review the CDCLA and the recently proposed regulations issued by the DFPI to determine if they will need to obtain a license prior to the January 1 effective date. 2022.
And, as always, third-party debt collectors and homeowners must continue to be mindful of the much broader scope and reach of the California Rosenthal Act (compared to the FDCPA).
Strengthening of the application linked to the pandemic
The Covid-19 pandemic has sparked a new wave of enforcement activity at state and federal levels.
In recent months, the CFPB has made clear its goal of protecting consumers affected by the pandemic, including rescinding policy statements issued under the Trump administration to provide greater flexibility to financial institutions due to the pandemic and relying on its unfair, deceptive, or abusive acts and practices authority (UDAAP) to conduct pandemic-related law enforcement activities.
We expect the CFPB to continue to closely examine debt collectors in connection with alleged UDAAP violations related to the pandemic.
New CFPB director Rohit Chopra is also expected to increase enforcement oversight of student lenders and loan officers. And with the appointment of Richard Cordray as Director of Operations for Federal Student Aid, we expect increased coordination between the CFPB, the Federal Trade Commission, and the Department of Education.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
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Brett Natarelli is a partner of Manatt’s Chicago office and manages a range of litigation and provides compliance advice regarding mortgage origination and management issues.
Madelaine Newcomb is a Manatt Financial Services partner based in the Chicago office.