The Consumer Financial Protection Bureau (CFPB) outlined new proposals regarding debt collection practices in July, including important limitations that will impact banks and other debt collectors. Financial institutions should proactively factor these proposals into their strategic planning around debt collections. Not only will a proactive approach help guarantee regulatory compliance, it could also help ensure debt collection efficiency and profitability going forward.
Additional Documentation Requirements
Any company engaged in debt collection will need to provide documentation concerning the details of the debt and why the organization has a legitimate reason to pursue collection. The CFPB proposals lay out several new requirements for the information debt collectors must possess, including the full name of the debtor, their last known address, last known telephone number, account number, date of default, amount owed at default, and the date and amount of any payment or credit that was paid after default.
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The new proposals also require additional disclosures about consumer rights when sending debt collection notifications. For instance, the CFPB proposals would require those attempting to collect on very old debts to inform the consumer if the debt is, in fact, so old that it can no longer be the basis of a lawsuit.
Less Consumer Contact and the Need for Dispute Resolution
The CFPB proposals would also limit the number of attempts to contact a consumer to a maximum of six per week, and make it easier for the consumer to restrict the means by which debt collectors may contact them. Debt collectors must also wait 30 days after a debtor passes away before communicating with certain parties, such as the debtor’s surviving spouse. Consumers can submit complaints and disputes faster, too, and they have the potential to delay collections for a longer period of time.
If a consumer disputes a debt, collectors must cease collection attempts until they successfully resolve that dispute and confirm their validity in pursuing it. That not only applies to the lender that originated the debt, but to others who may subsequently acquire the uncollected debt. If an original lender sells or transfers a debt without resolving a dispute, for example, whatever organization acquires that debt cannot initiate any attempts at collection until the parties resolve the dispute.
What Banks Need to Consider Next
If the CFPB finalizes the proposed rules as they stand today, they could significantly affect liquidity in the market for third-party debt, and any purchasers of debt should know that they might need to delay collection for a significant amount of time. To avoid missteps and inefficient pursuit of debts, banks should shore up their data collection and maintenance processes, and plan to do more advance work before trying to collect a debt. Otherwise, banks risk wasting valuable time and resources pursuing debts that .could prove difficult or impossible to collect.
Before buying debt, directly pursuing debt, or hiring a debt collection agency, banks may need to “scrub” their debt collection files to update them, validate their legitimacy, and ensure compliance with the CFPB proposals. For most banks and other collectors, that will naturally require a greater commitment of human resources as well as more organization and planning when engaging in debt collection activities.