FYI: CFPB Issues FDCPA Final Rule

The Consumer Financial Protection Bureau released its long-awaited final rule for the Fair Debt Collection Practices Act. The final rule is available at:  Link to Final Rule

 

The release of the rule promises to bring substantial changes in consumer debt collection practices. The release includes the rule and commentary for a total of 653 pages of text. The rule will be codified at 12 C.F.R. 1006 as Regulation F.

 

Importantly, the Final Rule, like the proposed rule, does not expand the scope of the persons or types of debt covered by the FDCPA.

 

The Final Rule becomes effective one year after the date of its publication in the Federal Register.  As of this writing, the publication has not yet occurred.  Therefore, the effective date will likely be sometime in November 2021.

 

There is much to discuss, but we can begin with 10 material changes from the proposed rule that deserve to be highlighted.

 

 

1. Changes in definitions.

 

The definition of "communicate" under 1006.2(d) was substantially revised. The proposed rule provided: "[a] debt collector does not convey information regarding a debt directly or indirectly to any person if the debt collector provides only a limited-content message ("LCM"), as defined in paragraph (j) of this section." This carve-out for LCMs has been deleted from the final rule and, in fact, the Official Interpretation includes LCMs as an example of what constitutes an "attempt to communicate."

 

"Consumer" as defined in 1006.2(e) was proposed to mean any natural person "living or deceased." The final rule strikes the reference to "living or deceased" and adds "[t]he Bureau may further define this term by regulation to clarify its application when the consumer is deceased."

 

The proposed rule would define a "consumer financial product or service debt," but this definition was removed from the final rule.

 

Much has changed with the LCM as defined in 1006.2(j).

 

The proposed rule defined it as a "message for a consumer." The final rule defines it as a voicemail message for a consumer and materially revises the required and optional information needed for LCMs. The final rule now requires the LCM include the business name of the debt collector, but the business name cannot indicate the debt collector is "in the business of debt collection."

 

The proposed rule required the LCM to include the consumer's name, and not only does the final rule strike the requirement, it does not permit its inclusion in the LCM "optional content."

 

The proposed rule would have allowed as optional content a "generic" statement that the LCM "relates to an account." This is stricken from the final rule.

 

 

2. Changes to rules governing email and text communication.

 

The final rule significantly revises the proposed rule and imposes new requirements on the use of emails and text messages.

 

The proposed rule allowed consumers to opt-out of e-communications "in writing." The "in writing" requirement is stricken from the final rule. However, the debt collector can establish "reasonable and simple" methods for consumers to opt-out.

 

The final rule also contains an "other law" exception and allows communication with a consumer who has opted out of, but only if "otherwise required by applicable law."

 

The employer-assigned email prohibition of section 1006.22(f)(3) has been modified. The proposed rule prohibited the use of such an email if the debt collector "knows or should know" it was issued by the employer. The final rule strikes "should know."

 

 

3. Changes to frequency caps.

 

Final rule 1006.14 keeps contact frequency caps applicable only to telephone calls and in addition to providing a presumption of compliance is now revised to include a presumption of non-compliance if the frequency cap is exceeded.

 

However, the exceptions to the call cap have been substantially revised from the proposed rule. The proposed rule provided that the following calls were excepted:

 

     (i) Made to respond to a request for information from such person; or

     (ii) Made with such person's prior consent given directly to the debt collector.

 

The final rule combines these two subsections in a new (i) which provides calls are excepted from the cap if "[p]laced with such person's prior consent given directly to the debt collector and within a period no longer than seven consecutive days after receiving the prior consent, with the date the debt collector receives prior consent counting as the first day of the seven-consecutive-day period."

 

The additional proposed exceptions, "Not connected to the dialed number; or placed to the persons described in § 1006.6(d)(1)(ii) through (vi)," remain substantially the same except they are renumbered as (ii) and (iii).

 

 

4. A new translated disclosures requirement.

 

The final rule introduces a new "Translated disclosures" requirement in 1006.18(e) pertaining to the disclosures required by 1692e(11). It requires the e(11) disclosures be given in the same language as the rest of the communication in which the disclosure is made and must be "complete and accurate."

 

 

5. No safe harbor for meaningful attorney involvement.

 

The proposed rule provided conditions under which attorney debt collectors could demonstrate meaningful involvement in debt collection litigation. This safe harbor is not contained in the final rule.

 

 

6. The proposed rule on collection of time-barred debt (1006.26) does not appear in the final rule.

 

 

7. Proposed rule 1006.30(a) concerning furnishing information to credit reporting agencies prior to communicating with the consumer has been stricken.

 

 

8. Revisions to rules on sale, transfer or placement of debt.

 

The final rule does not contain proposed rule 1006.30(b)(1)(i)(C), which would have prohibited the sale, transfer, or placement of debt for which an identity theft report was filed. The final rule does contain an allowance for secured claims in bankruptcy, which was not in the proposed rule.

 

 

9. No validation rules, including the alternative electronic method for delivery of notices.

 

All the validation provisions of section 1006.34 of the proposed rule are omitted from the final rule. This section had proposed model forms for use in satisfying the validation notice requirements of 1692g of the FDCPA as well as rules concerning the electronic delivery of validation notices.

 

 

10. Material change to 1006.42 – "Providing required disclosures."

 

Section 1006.42(b), "Requirements for certain disclosures provided electronically," is substantially revised for the final rule.

 

Unlike the proposed rule, the final rule expressly refers to 1692g(a) and appears to place restrictions on the delivery of the validation notice which do not now exist. This may be inadvertent due to the deletion of 1006.34 from the final rule.

 

The major difference is the proposed rule referred only to validation notices made within five days of the initial communication, while the final rule references the entire 1692g(a).

 

 

The most innovative parts of the proposed rule were the limited content message and section 1006.34 validation. And both did not fare well.

 

Key elements of the limited content message, provisions which would have made it a useful means of communication, were removed. And all of 1006.34 is deleted.

 

Moreover, although we see references to the use of email and electronic communications, what is there is neither innovative nor transformative. In fact, the final rule can be construed to impose new restrictions on electronic communications, and more risk.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 9th Cir Holds Single Website Visit Not Enough to Activate Change In Terms

The U.S. Court of Appeals for the Ninth Circuit recently affirmed a trial court's order compelling arbitration, holding that a single website visit by a consumer long after she entered into a contract with a credit reporting agency ("CRA") that contained a change-of-terms provision did not bind the parties to changed terms in the updated contract, including exempting some claims from binding arbitration, because the consumer did not allege that she was aware of the changed terms as required to assent to the new terms.  

 

A copy of the opinion is available at:  Link to Opinion

 

In June 2014, a consumer bought a credit score service from the CRA that provided her with a credit score.  In July 2014, the consumer cancelled the agreement. 

 

The consumer next visited the CRA's website in 2018. When the consumer accessed the CRA's website in 2018, the CRA changed the arbitration provision of the terms to carve-out disputes "arising out of or relating to the" FCRA "or other state or federal laws relating to the information contained in your consumer disclosure or report, including but not limited to claims for alleged inaccuracies in your credit report or the information in your credit file." The terms provided that all other potential claims were subject to binding arbitration "to the fullest extent permitted by law."

 

The day after accessing the CRA's website in 2018, the consumer filed her putative class action complaint in the federal trial court for the Central trial of California seeking damages and injunctive relief for an alleged violation of the federal Fair Credit Reporting Act ("FCRA") provision that requires consumer reporting agencies that provide credit scores to "supply the consumer with a credit score that . . . assists the consumer in understanding the credit scoring assessment of the credit behavior of the consumer[.]" 15 U.S.C. § 1681g(f)(7)(A).  The Complaint also alleged that the CRA violated California and Florida Unfair Competition Laws due to allegedly unfair and deceptive practices in marketing the credit score service.

 

In response to the complaint, the CRA moved to compel arbitration of the consumer's claims. 

 

The trial court granted the motion to compel arbitration, but held that the 2018 contract terms applied because the 2014 contract "assumed assent to new terms based on the consumer's use of the" CRA's website. 

 

The trial court also concluded that the consumer's claims did not fall within the contract's arbitration carve-out because her claims did not arise out of the "information contained in [her] consumer disclosure or report," as defined by FCRA.

 

The trial court also determined that the consumer's claims were not exempt from arbitration under McGill v. Citibank, N.A., 393 P.3d 85, 94 (Cal. 2017), which held that  "a provision in any contract . . . that purports to waive, in all fora, the statutory right to seek public injunctive relief under the [California Unfair Competition Law (UCL)] . . . is invalid and unenforceable under California law," because the consumer did not seek "public injunctive relief."

 

This appeal followed.

 

Initially, the CRA disagreed that the 2018 terms controlled arguing that a "mere website visit" after the consumer ended their business relationship did not "activate" a change to the prior agreed terms because the consumer did not review and assent to the new terms.

 

The consumer argued that the trial court correctly applied the 2018 terms, but erred when in compelled arbitration despite the McGill rule, because the contract prohibits public injunctive relief and because she sought public injunctive relief.

 

The Ninth Circuit began its analysis by noting that the consumer agreed to the initial contract terms, but never agreed to the terms that the CRA later modified without notifying her.  The "basic rule of contract law" provides that "[a] contract exists where the parties assent to the same thing in the same sense, so that their minds meet." 17A Am. Jur. 2d Contracts § 30 (August 2020 Update).

 

As such, the Ninth Circuit held that "for changes in terms to be binding pursuant to a change-of-terms provision in the original contract, both parties to the contract — not just the drafting party — must have notice of the change in contract terms."

 

As the party seeking to enforce the contract, the consumer has the burden to prove that the all the elements of a valid contract are present — including mutual assent.  The Ninth Circuit noted that the record did not contain any allegations or evidence that the consumer had notice of the changed terms.  Thus, the Ninth Circuit held that the consumer failed to meet her burden to demonstrate "that the 2018 terms constituted a valid contract between the parties, so the 2014 terms apply."

 

The 2014 contract terms required the parties to submit all disputes "to arbitration to the fullest extent allowed by law."  Under McGill, a contract that waives a party's right to public injunctive relief in court is not enforceable under California law so the Ninth Circuit analyzed whether the 2014 terms wrongly prohibited judicial resolution of claims seeking public injunctive relief, or prohibited judicial access to the consumer's claim.

 

The Ninth Circuit determined that the 2014 agreement does not prohibit judicial resolution of claims seeking public injunctive relief because it only subjects claims to arbitration "to the fullest extent allowed by law—which would presumably exclude claims for public injunctive relief in California."  This comports with the law and does not render the arbitration provision facially unenforceable.

 

Moreover, the consumer must allege that she has Article III standing before she may seek public injunctive relief in federal court.  The complaint here fails to allege the threat of future harm that is required for Article III standing when seeking public injunctive relief in federal court. Thus, the McGill rule does not preclude arbitrating the consumer's California UCL claim.

 

Therefore, the Ninth Circuit held that the consumers' claims may be arbitrated under the 2014 contract terms.  The new change-of-terms provision did not bind the parties because both parties did not "have notice that the terms have changed and an opportunity to review the changes."  Because the consumer did not allege that she reviewed the 2018 changed terms, the changed terms did not create a valid contract between the parties. 

 

Finally, the 2014 contract allowed courts to resolve public injunctive relief claims, but the consumer lacked Article III standing to maintain this claim. 

 

Thus, the Ninth Circuit affirmed the trial court's judgment.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

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