North Carolina Bankers Association - Carolina Banker Magazine, Fall 2020

In the fall of 2020, the Consumer Fi- nancial Protection Bureau (the “Bu- reau”) is expected to issue its final debt collection rule (the “Rule”), which will interpret the Fair Debt Collection Prac- tices Act (FDCPA) and impose new requirements upon debt collectors. While the Rule’s impacts are mostly limited to third-party debt collectors, portions of the Rule are likely to direct- ly or indirectly impact banks (particu- larly as it pertains to communications). Communication Frequency As proposed, Section 1006.14 of the Rule establishes a bright-line test for call frequency, which would apply to third-party debt collectors and poten- tially to first parties, including banks. As proposed, the Rule prohibits a debt col- lector from placing a telephone call to a particular person in connection with a particular debt either (a) more than sev- en times within seven consecutive days; or (b) within a period of seven consecu- tive days after having a telephone con- versation with the person in connection with the collection of such debt. This provision potentially will have both direct and indirect impacts for banks: Direct Impacts. Unless modified, the Rule places banks on notice that the Bureau considers it an unfair and de- ceptive practice to exceed the call lim- itations. Banks will need to examine the Rule carefully when it is finalized to determine whether modifications need to be made to internal call procedures and policies and to ensure that any calls to delinquent customers stay within the call limitations. This is likely to present particular impacts for special asset and loss mitigation groups attempting to provide early intervention to cure con- sumer delinquencies. Indirect Impacts. The Rule will in- directly impact banks working with third-party debt collectors. As part of their third-party vendor management, banks will need to revisit their collec- tion expectations and requirements to ensure their expectations are within the Rule’s parameters and to ensure vendor compliance. Forwarding Documentation Many banks either sell charged-off ac- counts to third party debt buyers or forward for collection charged off or delinquent claims to third party debt collectors (including law firms). Restrictions on Selling Accounts. Sec- tion 1006.30(b) prohibits the sale, trans- fer, or placement of debts if the debt collector knows or should know that the debt has been paid or settled, the debt has been discharged in bankrupt- cy, or an identity theft report was filed concerning the debt. Violation of this provision is also identified as an unfair act or practice under section 1031 of the Dodd-Frank Act, which indicates that the Bureau may intend to reach first-party creditors it regulates with this provision. This provision directly impacts banks. While this provision is similar to bank regulator guidelines, banks need to be aware that this is an additional layer of regulation for those regulated by the Bureau. Once the final Rule is published, banks are encouraged to review their document retention policies and for- warding contracts to ensure their selling guidelines and warranties are consistent with Section 1006.30 of the Rule. Documentation Provided to Third-Party Debt Collectors, Includ- ing Attorneys. Section 1006.34 offers the Bureau’s proposed interpretation of 15 U.S.C. §1692g(a) and imple- ments additional disclosure require- ments not found within the FDCPA, including the requirement of a tabu- lar itemization from the “itemization date.” The “itemization date” may be any one of four specified reference dates chosen by the debt collector: 1. The last statement date, which is the date of the recent period- ic statement, written account statement, or invoice provided to the consumer. 2. The charge-off date, which is the date the creditor charged off the account. 3. The last payment date, which is the date the last payment was applied to the debt. 4. The transaction date, which is the date of the transaction that gave rise to the debt. This provision will indirectly impact banks. Special asset and recovery The CFPB’s Debt Collection Rule and Communications: WHAT BANKS NEED TO KNOW Caren Enloe Partner, Smith Debnam (919) 250-2125 Landon Van Winkle Associate, Smith Debnam (919) 250-2212 Carolina Banker | Fall 2020 35 FEATURE CONTENT