Last week, the CFPB issued five action letters for consumers to use as debt collection tools. Now that we have had an opportunity to look more closely at the letters, it is apparent that the letters will cause headaches not only for third-party debt collectors and debt buyers, but also for creditors collecting their own debts and servicers collecting debts that were current when servicing began.
The letters deal with the following situations when a consumer:
- Needs more information about a debt the collector has told the consumer that he or she owes
- Wants to dispute the debt and for the collector to prove the consumer’s responsibility for the debt or stop communication
- Wants to restrict how and when a collector can contact the consumer
- Has hired a lawyer
- Wants the collector to stop any and all contact
As an initial matter, while the letters appear intended for use by consumers in corresponding with third-party debt collectors and debt buyers who are subject to the Fair Debt Collection Practices Act (FDCPA), it is likely that consumers will use these letter when dealing with anyone, including creditors and servicers, attempting to collecting debts. Indeed, the CFPB’s blog post announcing the letters’ release creates confusion about their intended use. The CFPB’s introduction states that “[b]anks and other creditors may collect their own debts” and “[a]ny entity that is subject to the Consumer Financial Protection Act of 2010 is legally required to refrain from committing unfair, deceptive, or abusive acts or practices that would violate the Act.”
Various federal consumer financial laws, such as TILA billing dispute provisions, FCRA consumer report dispute provisions and RESPA qualified written request provisions, establish specific procedures for consumers to follow when seeking additional information about or disputing debts. However, in the absence of clear guidance from the CFPB, consumers may incorrectly view the action letters as substitutes for following such required procedures. Such consumer confusion is likely to result in consumer dissatisfaction directed at creditors and servicers (for not responding as consumers may have expected) and the filing of unfounded complaints against creditors and servicers. Creditors and servicers will need to determine how to appropriately handle such letters (such as the letters seeking to restrict or stop contact) without triggering any potential liability.
Even when received by debt collectors and debt buyers, however, the letters will present significant challenges. In particular, the letter to be used when a consumer is seeking more information makes extensive, indiscriminate demands of the recipient. (As we previously observed, that letter may be based on a template prepared by a plaintiffs’ class action law firm.)
Most notably, the letter asks: “Have you made a determination that this debt is within the statute of limitations applicable to it? Tell me when you think the statute of limitations expires for this debt, and how you determined that.” These requests have no counterpart in the FDCPA (or elsewhere) and their purpose is simply to induce the collector to tell the debtor how long to stall to avoid litigation.
In addition, the letter requests extensive amounts of information without regard to whether the particular consumer sending the letter wants or needs such information. For example, while the FDCPA’s validation procedures give consumers the option of requesting the name and address of the original creditor, the CFPB’s letter assumes every consumer using the letter wants such information. The letter also asks for detailed information about the account that, in effect, seems to represent an indirect attempt by the CFPB to impose specific documentation requirements on persons collecting debts.
While improving consumers’ understanding of their FDCPA rights is a legitimate CFPB goal, the provision of the action letters without adequate guidance to consumers or sufficient consideration of the impact of such letters on the recipients does not serve the interest of consumers or industry.