Regulatory Updates

There are now some new changes to the debt collection requirements in Texas. On September 1, 2019, we saw an amendment to the requirements for debt buyers. This goes back to June 14, 2019, when Texas Governor Greg Abbot signed HB 996. This signing amends Chapter 392 of the Texas Finance Code, which deals with debt collection.

While it’s a State amendment, it begs the question of whether we’re about to see an influx of new requirements in other states when it comes to buying debt and third-party debt collection.

Consumer Finance Monitor reports that the bill “prohibits a debt buyer from commencing an action against or initiating arbitration with a consumer for the purpose of collecting a consumer debt after the statute of limitations has expired”.

What is a debt buyer?

As with any amendment, you can expect clear definitions of what the different terms refer to. In the case of the Chapter 392 amendment, a debt buyer refers to:

“a person who purchases or otherwise acquires a consumer debt from a creditor or other subsequent owner of the consumer debt, regardless of whether the person collects the consumer debt, hires a third party to collect the consumer debt, or hires an attorney to pursue collection litigation in connection with the consumer debt.”

However, this definition isn’t completely straightforward, as the Texas House Bill 996 specifically underlines that the definition does not cover:

“(A) a person who acquires in-default or charged-off debt that is incidental to the purchase of a portfolio that predominantly consists of consumer debt that has not been charged off; or

(B) a check services company that acquires the right to collect on a paper or electronic negotiable instrument, including an Automated Clearing House (ACH) authorization to debit an account that has not been processed.”

The first of the two excluded definitions deserves some additional attention. It refers to charged-off debt. We need to define “charged-off debt” in order to assess the significance of this. “Charged-off debt” means a consumer debt that a creditor has determined to be a loss or expense to the creditor instead of an asset.

What can we take away from this amendment?

A far as we can deduce, the terms ‘debt buyers’ and ‘third-party debt collectors’ only technically apply to the acquisition and/or collection of debts that are still in effect and are not written off as a loss by the original debt holders.

In other words, you can’t start initiating arbitration or attempting actions to collect on debts that are past their statute of limitations.

Furthermore, a payment or oral or written affirmation of the consumer debt does not revive the debt. If the debt is to be revived, the debt buyer or third-party debt collector needs to provide a specified notice in the initial written communication with the consumer.

Clearly, this adds to the complexity of collecting on debts past their statute of limitations. It will be interesting to see how this shapes up and whether this demonstrates a new shift in debt collection practices.

Please note

We are not attorneys and cannot provide legal advice. This article is not a legal opinion. You should consult a qualified attorney with any pertinent questions.

Further debt collection industry updates

For more information related to this specific amendment, please see:

• Texas amends debt collection law to add new requirements for debt buyers
• Texas House Bill 996

Related collection industry news:

• TCPA debt collection exception held unconstitutional by the Ninth Circuit
• Consumer Financial Protection Bureau proposes new regulations: The Fair Debt Collection Practices Act

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There are new developments coming out of the U.S. Court of Appeals for the Ninth Circuit as the debt collection exception is held as unconstitutional. No doubt many of you are very familiar, if not somewhat familiar, with the Telephone Consumer Protection Act (TCPA). Most commonly, it focuses on the fair and prohibited use of an Automatic Telephone Dialing System (ATDS) in communicating with, or contacting, individuals without prior written consent. Primarily, it pertains to marketing phone calls or text.

In June, in the case of Duguid vs Facebook, the Ninth Circuit filed their submitted arguments that pertain to the commonly referred to “debt collection exception,” to the TCPA, in which the exception was found to be unconstitutional. The argument being that the language of the debt collection exception is entirely content-based, and is therefore in contradiction with the First Amendment. Subsequent arguments laid before the Ninth Circuit, as to the purpose and validity of the exception failed to impress the judges.

The Ninth Circuit, in other words, “held that the[editor’s note] 2015 amendment to the TCPA excepting calls ‘made solely to collect a debt owed to’ the United States government was invalid.”

You can read the full arguments and accounts by the Ninth Circuit panel here.

Context for the severance of the debt collection exception and reaffirmation of the definition of ATDS

The context of this debt collection related development is actually relatively far removed. The connectivity to the debt collection exception, and debt collection in general, is more through tools and software than it is by industry.

During a Court of Appeals for a putative class action against a large social networking site for alleged use of ATDS, a Ninth Circuit panel affirmed the largely held definition of an ATDS. This definition is based on the decision in Marks v. Crunch San Diego, which states that an ATDS is “equipment which has the capacity to – (1) to store numbers to be called or (2) to produce numbers to be called, using a random or sequential number generator – and to dial such numbers automatically.”

In the Ninth Circuit panel’s conclusory argument, they found that the U.S. government did not have sufficient ground to maintain the debt collection exception to the TCPA. To be clear, the debt collection exception relates to calls “made solely to collect a debt owed to or guaranteed by the United States.” The reasoning of the panel was that an automated phone call, text, or other communication for the purpose of collecting federal debt is just as disruptive to- and equally breaches the privacy of – U.S. citizens as any other form of automated communication with any other message. Therefore, the exception is inherently content-based, and is subsequently contrary to the First Amendment.

The results and additional rebuttals to the government’s arguments

The Ninth Circuit panel severed the federal debt collection exception from the TCPA after finding it content-based. This effectively declared that, while the debt collection exception may indeed be unconstitutional, the TCPA bill and regulations as a whole are untouched and remain in effect.

Furthermore, the court also rejected the government’s alternate interest in “protecting the public fisc,” as the exception was far from effective at retaining the interests of individuals’ privacy while furthering the interest of protecting the public fisc.

You can see a more detailed account of the Ninth Circuit panel and their arguments here.

What the severance of the debt collection exception means to collection agencies

Most debt collection agencies have little cause for concern, as the debt collection exception directly relates to third-party agencies that collect debt on behalf of the federal government. However, it should serve as a reminder, especially if you frequently use ATDS’ to place calls or send texts for debt collection purposes.

The interpretation of the law as it relates to the fair use of ATDS does vary from state to state, court to court. In other words, it’s certainly worth taking a second look and thinking things over before diving in with using automatic telephone dialing systems.

After all, it’s not long ago since we discussed new interpretations of the Fair Debt Collection Practices Act (FDCPA).

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There is substantial news in the debt collection market as the Consumer Financial Protection Bureau (CFPB) recently proposed new regulations as to the rights of debtors and the limitations of collectors. It comes in the form of implementing new understandings of the Fair Debt Collection Practices Act (FDCPA) of 1977.

The CFPB is the governing body that interprets the FDCPA, as of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (also known as the Dodd-Frank Act).

As Consumer Finance reports, the new proposed implementation is aiming to address new technologies and means of communication that have arisen since the Fair Debt Collection Practices Act was signed into law in 1977, specifically looking at the rights of consumers and the limitations of collectors agencies.

The CFPB is open to views regarding the Fair Debt Collection Practices Act

A statement from Kathleen L. Kraninger, CFPB Director, reads: “The Bureau is taking the next step in the rulemaking process to ensure we have clear rules of the road where consumers know their rights and debt collectors know their limitations.” She continued, saying: “As the CFPB moves to modernize the legal regime for debt collection, we are keenly interested in hearing all views so that we can develop a final rule that takes into account the feedback received.”

The purpose and some details of the rule proposal

While we’ve touched upon the overarching goals of the rule proposal, let’s take a slightly more detailed look.

Clearly defined rule limiting the number of call attempts

The CFPB proposal will establish a clearly defined rule limiting the number of call attempts and telephone conversations.

The new, proposed rule will by and large limit debt collectors to seven attempts by telephone per week to reach a consumer about a specific debt. After successfully reaching the debtor and having a conversation over the phone, the debt collector cannot call the consumer again within the following 7 days.

Clarifying disclosures and consumer protection requirements

Clarify certain consumer-facing debt collection disclosures relating to consumer protection requirements.

The proposed rule requires debt collectors to send consumers a disclosure with information about the debt consumer protections and other relevant information. The proposal would require the disclosure to include a “tear-off” that consumers could send back to the debt collector to respond to the collection attempt. The information debt collectors would need to send could include:

• An itemization of the debt
• Plain-language information about how a consumer may respond to a collection attempt
• Plain-language information about how a consumer may dispute the debt.

Clarifying lawful means of communication

The CFPB aims to clarify what means of communication between debt collectors and debtors is allowed.

The proposed rule to the Fair Debt Collection Practices Act would clarify how debt collectors may lawfully communicate with consumers using newer communication technologies, such as:

• voicemails
• emails
• text messages

This would protect consumers who do not wish to receive such communications. For example, they will be able to unsubscribe to future communications through such methods. The proposed rule would also clarify how collectors may electronically provide the required disclosures. There are further restrictions and specifications you can read here.

Statute of limitations and prohibiting suits and threats of a suit

The new regulation aims to prohibit suits, and threats of a suit, on time-barred debts and require communication before credit reporting.

The proposed rule would prohibit a debt collector from suing or threatening to sue a consumer in order to collect a debt if the debt collector knows or should know that the statute of limitations has expired. The proposed rule to the Fair Debt Collection Practices Act also would prohibit a debt collector from furnishing information about a debt to a consumer reporting agency. That is, unless the debt collector informs the consumer of the debt.

As we mentioned earlier, the CFPB is open to views by the public. You can submit written feedback on the proposed rule. They will carefully consider the feedback before issuing a final regulation.

For more information about the Fair Debt Collection Practices Act: You can read the rule proposal in full here.

Need assistance taking debt collector credit card payments?

AcceptDebtPayments.com is a website dedicated to assisting debt collection companies both large and small with effective, simple to manage credit card processing. We offer payment gateway services that work with your collection agency’s existing software platforms – along with a simple “pay your bill here” buttons that are easily added to nearly any existing site. You can read more about what we do here.