Debt Collection Practices (Regulation F), 12672-12702 [2020-03838]

Download as PDF 12672 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules BUREAU OF CONSUMER FINANCIAL PROTECTION 12 CFR Part 1006 [Docket No. CFPB–2020–0010] RIN 3170–AA41 Debt Collection Practices (Regulation F) Bureau of Consumer Financial Protection. ACTION: Supplemental notice of proposed rulemaking. AGENCY: The Bureau of Consumer Financial Protection (Bureau) proposes to amend Regulation F, which implements the Fair Debt Collection Practices Act (FDCPA) and currently contains the procedures for State application for exemption from the provisions of the FDCPA. On May 21, 2019, the Bureau published in the Federal Register a proposed rule (May 2019 Proposed Rule) that would prescribe Federal rules governing the activities of debt collectors, as that term is defined in the FDCPA. This proposal supplements the May 2019 Proposed Rule by proposing to require debt collectors to make certain disclosures when collecting time-barred debts. DATES: Comments must be received on or before May 4, 2020. ADDRESSES: You may submit comments, identified by Docket No. CFPB–2020– 0010 or RIN 3170–AA41, by any of the following methods: • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • Email: 2020-NPRM-DebtCollection@ cfpb.gov. Include Docket No. CFPB– 2020–0010 or RIN 3170–AA41 in the subject line of the email. • Mail/Hand Delivery/Courier: Comment Intake, Bureau of Consumer Financial Protection, 1700 G Street NW, Washington, DC 20552. Instructions: The Bureau encourages the early submission of comments. All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Because paper mail in the Washington, DC area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public inspection and copying at 1700 G Street NW, Washington, DC 20552, on official business days between the hours of 10:00 a.m. and 5:00 p.m. Eastern Time. You can make an appointment to lotter on DSKBCFDHB2PROD with PROPOSALS2 SUMMARY: VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 inspect the documents by telephoning 202–435–9169. All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Proprietary or sensitive personal information, such as account numbers, Social Security numbers, or names of other individuals, should not be included. Comments will not be edited to remove any identifying or contact information. FOR FURTHER INFORMATION CONTACT: Seth Caffrey, Courtney Jean, or Kristin McPartland, Senior Counsels, Office of Regulations, at 202–435–7700. If you require this document in an alternative electronic format, please contact CFPB_ accessibility@cfpb.gov. SUPPLEMENTARY INFORMATION: I. Summary of the Proposed Rule The Bureau proposes to amend Regulation F, which implements the FDCPA, to require debt collectors, as that term is defined in the FDCPA,1 to make certain disclosures when collecting time-barred debts. Timebarred debts are debts for which the applicable statute of limitations has expired. The Bureau proposes to require a debt collector collecting a debt that the debt collector knows or should know is time barred to disclose: (1) That the law limits how long the consumer can be sued for a debt and that, because of the age of the debt, the debt collector will not sue the consumer to collect it; and (2) if the debt collector’s right to bring a legal action against the consumer to collect the debt can be revived under applicable law, the fact that revival can occur and the circumstances in which it can occur. The Bureau proposes model language and forms that debt collectors could use to comply with the proposed disclosure requirements. The Bureau proposes that the effective date of the final rule would be one year after the final rule is published in the Federal Register. The Bureau requests comment on this proposed effective date. II. Background A. In General Statutes of limitations establish time limits for bringing suit on legal claims.2 They serve several purposes.3 First, 1 15 U.S.C. 1692–1692p. This proposal would cover the same universe of debt collectors as the May 2019 Proposed Rule, i.e., only FDCPA-covered debt collectors. 15 U.S.C. 1692a(6). Creditors therefore would only have to comply to the extent they are FDCPA-covered debt collectors. 2 See generally Lozano v. Montoya Alvarez, 572 U.S. 1, 14 (2014). 3 See generally Rotella v. Wood, 528 U.S. 549, 555 (2000) (identifying ‘‘the basic policies of all PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 statutes of limitations advance a defendant’s interest in repose. That is, they reflect the legislative judgment that it is ‘‘unjust to fail to put the adversary on notice to defend within a specified period of time.’’ 4 Second, statutes of limitations eliminate stale claims. That is, they protect defendants and the courts from having to deal with cases in which ‘‘the search for truth may be seriously impaired by the loss of evidence, whether by death or disappearance of witnesses, fading memories, disappearance of documents, or otherwise.’’ 5 Third, statutes of limitations provide ‘‘certainty about a plaintiff’s opportunity for recovery and a defendant’s potential liabilities.’’ 6 A time-barred debt is a debt for which the applicable statute of limitations has expired. For most debts, State law supplies the applicable statute of limitations.7 The length of the limitations period varies by State and debt type. Most statutes of limitations applicable to debt collection claims are between three and six years, although some are as long as 15 years.8 Currently, in most States, expiration of the statute of limitations, if raised by the consumer as an affirmative defense, precludes the debt collector from recovering on the debt through litigation,9 but it does not extinguish the debt itself.10 In these jurisdictions, a limitations provisions’’ as ‘‘repose, elimination of stale claims, and certainty’’). 4 United States v. Kubrick, 444 U.S. 111, 117 (1979). 5 Id. 6 Young v. United States, 535 U.S. 43, 47 (2002) (quoting Rotella, 528 U.S. at 555). 7 Federal law sometimes establishes the statute of limitations. For example, legal actions to recover certain telecommunications debt are subject to a statute of limitations set by Federal law. See 47 U.S.C. 415(a). 8 See Fed. Trade Comm’n, The Structure and Practices of the Debt Buying Industry, at 42 (Jan. 2013), https://www.ftc.gov/sites/default/files/ documents/reports/structure-and-practices-debtbuying-industry/debtbuyingreport.pdf (hereinafter FTC Debt Buying Report). 9 As a result, many courts have held that suing or threatening to sue on time-barred debts is an unfair or deceptive practice under the FDCPA. See, e.g., Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679, 683 (7th Cir. 2017) (noting that ‘‘a debt collector violates the [FDCPA] by suing to collect a time-barred debt after the statute of limitations has run and bars the suit’’); Crawford v. LVNV Funding, LLC, 758 F.3d 1254, 1259 (11th Cir. 2014) (‘‘Federal circuit and district courts have uniformly held that a debt collector’s . . . filing a time-barred suit in state court to recover [a time-barred] debt violates [the FDCPA].’’). The Bureau’s May 2019 Proposed Rule would prohibit debt collectors from suing or threatening to sue consumers to collect debts the debt collectors know or should know are time barred. See 84 FR 23274, 23327–29, 23403 (May 21, 2019). 10 In Mississippi and Wisconsin, debts are extinguished when the applicable statute of limitations expires. See Miss. Code Ann. 15–1–3 (‘‘The completion of the period of limitation E:\FR\FM\03MRP2.SGM 03MRP2 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules lotter on DSKBCFDHB2PROD with PROPOSALS2 debt collector may use non-litigation means, such as letters and telephone calls, to collect a time-barred debt, as long as those means do not violate the FDCPA or other laws. As courts have recognized, a consumer who cannot be sued on a debt may still feel a moral obligation to pay.11 In addition, a consumer may pay a time-barred debt believing that doing so will improve the consumer’s credit report.12 In many States, a debt collector’s right to sue on a time-barred debt can be ‘‘revived’’ if certain conditions are met. Revival extinguishes the consumer’s right to raise expiration of the statute of limitations as an affirmative defense to litigation; that is, it revives the debt collector’s right to sue to collect the debt. There are generally two circumstances in which State laws permit revival. First, in some States, a consumer’s partial payment on a timebarred debt revives the debt collector’s right to sue.13 One possible theory underlying these laws is that a partial payment ‘‘is an acknowledgement of the existence of the indebtedness, which raises an implied promise to continue the obligation and to pay the balance.’’ 14 Second, in some States, a consumer’s written acknowledgement of a time-barred debt revives the debt collector’s right to sue.15 One possible prescribed to bar any action, shall defeat and extinguish the right as well as the remedy.’’); Wis. Stat. Ann. 893.05 (‘‘When the period within which an action may be commenced on a Wisconsin cause of action has expired, the right is extinguished as well as the remedy.’’). North Carolina prohibits a ‘‘debt buyer’’ from collecting or attempting to collect a debt when the debt buyer ‘‘knows, or reasonably should know, that such collection is barred by the applicable statute of limitations.’’ N.C. Gen. Stat. 58–70–115(4). 11 See, e.g., Pantoja, 852 F.3d at 684 (‘‘The creditor retains the right to appeal to the debtor to honor the debt out of a sense of moral obligation even if the legal obligation can no longer be enforced in court.’’); Buchanan v. Northland Grp., Inc., 776 F.3d 393, 399 (6th Cir. 2015) (‘‘Legal defenses are not moral defenses . . . [a]nd a creditor remains free, in the absence of a bankruptcy order or something comparable preventing it from trying to collect the debt, to let the debtor know what the debt is and to ask her to pay it.’’); McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014) (‘‘[S]ome people might consider full debt re-payment a moral obligation, even though the legal remedy for the debt has been extinguished.’’). 12 Section 605(a)(4) of the Fair Credit Reporting Act generally establishes a seven-year period for reporting information about accounts placed for collection; after this period has elapsed, the debt generally cannot appear on a consumer report. 15 U.S.C. 1681c(a)(4). Because the statute of limitations on a debt collection claim is less than seven years in some States, it is possible for a timebarred debt to appear on a consumer’s credit report. 13 See, e.g., Buchanan, 776 F.3d at 399 (applying Michigan law). 14 Young v. Sorenson, 121 Cal. Rptr. 236, 237 (Ct. App. 1975). 15 See, e.g., Pariot v. Portfolio Recovery Assocs., LLC, No. 2:18–cv–09614–SJO, 2019 WL 2635586, at VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 theory underlying these laws is that a written acknowledgement ‘‘raises a new promise by the debtor to pay [the] existing debt’’ and is ‘‘enforceable because it is supported by the existing legal duty of the promisor.’’ 16 B. Market for Time-Barred Debt As discussed in the May 2019 Proposed Rule, the debt collection industry includes creditors, third-party debt collectors, debt buyers, and a variety of service providers.17 A creditor to whom a debt is owed may collect the debt itself, send the account to a thirdparty debt collector to recover on the debt in the third-party debt collector’s name, or sell the debt to a debt buyer.18 By the time a debt becomes time barred (i.e., after three to six years for many debts) it may have been placed with multiple third-party debt collectors, or purchased and sold by multiple debt buyers. The cost to purchase a debt generally decreases over time as the probability of recovering on the debt also decreases.19 Because of their age and the general unavailability of litigation as a collection method, time-barred debts typically are available for purchase at a discount off face value.20 In analyzing whether, and for what price, to purchase a portfolio of debts, debt buyers commonly consider the prevalence of time-barred debts in the portfolio.21 The Bureau is unaware of any formal studies of the size of the market for collection of time-barred debts.22 C. Consumer Protection Concerns Regarding Collection of Time-Barred Debt The collection of time-barred debt through non-litigation means can pose consumer protection concerns. Consumers unfamiliar with statutes of limitations may take away from a debt *3 (C.D. Cal. June 25, 2019) (applying California law). 16 United States v. Glens Falls Ins. Co., 546 F. Supp. 643, 645 (N.D.N.Y. 1982). 17 See 84 FR 23274, 23276–77 (May 21, 2019). 18 Id. at 23277. 19 See FTC Debt Buying Report, supra note 8, at 23–24; Bureau of Consumer Fin. Prot., Market Snapshot: Online Debt Sales, at 11 (Jan. 2017), https://www.consumerfinance.gov/documents/ 2249/201701_cfpb_Online-Debt-Sales-Report.pdf (hereinafter CFPB Online Debt Sales Report). 20 See, e.g., FTC Debt Buying Report, supra note 8, at 23–24; CFPB Online Debt Sales Report, supra note 19, at 10. 21 FTC Debt Buying Report, supra note 8, at 21. 22 See David E. Reid, Out-of-Statute Debt: What is a Smart, Balanced, and Responsible Approach, at 5 n.6 (Receivables Mgmt. Ass’n Int’l, White Paper, 2015), https://rmassociation.org/wp-content/ uploads/2017/04/RMA_Whitepaper_OOS.pdf (noting challenge of developing a reliable methodology for estimating size of time-barred debt market). PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 12673 collector’s attempt to collect a timebarred debt the misleading impression that the debt is legally enforceable— even if the debt collector does not explicitly threaten litigation. A consumer with the misimpression that a time-barred debt is enforceable in court may pay or prioritize that debt over another debt or expense, in the mistaken belief that doing so is necessary to avoid litigation. The consumer may, in turn, have less money to pay another debt on which the consumer can be sued, or to pay other expenses, such as household necessities. In the many States that permit revival, a consumer who makes a partial payment on a time-barred debt or acknowledges the debt in writing may revive the debt collector’s right to sue. Some States have attempted to address these consumer protection concerns by imposing disclosure requirements on debt collectors. In these jurisdictions, a debt collector may not collect a time-barred debt without disclosing to the consumer that the debt is time barred.23 Although their wording varies, State-mandated time-barred debt disclosures typically inform the consumer that the law limits how long a consumer can be sued on a debt, and that the debt collector cannot or will not sue to collect the debt.24 Some States also require debt collectors to disclose the circumstances in which the right to sue on a time-barred debt can be revived.25 23 See, e.g., Cal. Civ. Code 1788.14(d); Conn. Gen. Stat. 36a–805(a)(14); Mass. Code Regs., tit. 940, 7.07(24); N.M. Admin. Code 12.2.12.9; N.Y. Comp. Codes R. & Regs., tit. 23, 1.3; N.C. Gen. Stat. 58– 70–115(1); Tex. Fin. Code Ann. 392–307(e); 6 Vt. Code R. 031–004–Rule–CF 104.05; 6 Vt. Code R. 3–2–103:CP 104.05(a); W. Va. Code 46a–2–128(f). 24 For example, California law requires debt collectors to disclose, in relevant part, the following in the first written communication with a debtor after the debt has become time barred: ‘‘The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it.’’ Cal. Civ. Code 1788.14(d). 25 For example, New Mexico law provides, in relevant part, that it is an unfair or deceptive trade practice for a debt collector to collect or attempt to collect a debt that the debt collector knows or has reason to know is time barred unless the debt collector makes required time-barred debt and revival disclosures. New Mexico provides the following safe harbor disclosure: We are required by New Mexico Attorney General rule to notify you of the following information. This information is not legal advice: This debt may be too old for you to be sued on it in court. If it is too old, you can’t be required to pay it through a lawsuit. You can renew the debt and start the time for the filing of a lawsuit against you to collect the debt if you do any of the following: Make any payment of the debt; sign a paper in which you admit that you owe the debt or in which you make a new promise to pay; sign a paper in which you give up (‘‘waive’’) your right to stop the debt collector from suing you in court to collect the debt. E:\FR\FM\03MRP2.SGM Continued 03MRP2 12674 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules lotter on DSKBCFDHB2PROD with PROPOSALS2 Federal regulators also have highlighted the consumer protection concerns associated with time-barred debts. For example, the Federal Trade Commission (FTC) has published several reports on the debt collection industry, each recognizing the potential that consumers may be misled by the collection of time-barred debts.26 In addition, the FTC and the Bureau have filed amicus briefs addressing the collection of time-barred debt.27 The FTC and the Bureau also have brought enforcement actions against debt collectors who violated the FDCPA when collecting time-barred debts; the injunctive relief in those cases sometimes required the debt collector to make time-barred debt disclosures.28 Courts generally have agreed that a debt collector violates the FDCPA when its statements would mislead an unsophisticated consumer to believe that a time-barred debt is legally enforceable, regardless of whether the debt collector expressly threatens litigation.29 In addition, courts generally have agreed that a debt collector can use disclosures to correct misleading impressions relating to a debt’s enforceability and the possibility of revival that arise from the debt collector’s attempt to collect a timeN.M. Admin. Code 12.2.12.9. See also, e.g., Mass Code Regs., tit. 94, 7.07(24); N.M. Admin. Code 12.2.12.9; N.Y. Comp. Codes R. & Regs., tit. 23, 1.3; N.C. Gen. Stat. 58–70–115(1); 6 Vt. Code R. 3–2– 103:CP 104.05(a). 26 See FTC Debt Buying Report, supra note 8, at 44–49; Fed. Trade Comm’n, Repairing a Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration (July 2010), at 22–31, https://www.ftc.gov/sites/default/files/documents/ reports/federal-trade-commission-bureauconsumer-protection-staff-report-repairing-brokensystem-protecting/debtcollectionreport.pdf; Fed Trade Comm’n, Collecting Consumer Debts: The Challenges of Change (Feb. 2009), at 62–65, https:// www.ftc.gov/sites/default/files/documents/reports/ collecting-consumer-debts-challenges-changefederal-trade-commission-workshop-report/ dcwr.pdf. 27 See, e.g., Brief of Amici Curiae, Buchanan v. Northland Grp., Inc., No. 13–2523 (6th Cir. Mar. 5, 2014), https://www.consumerfinance.gov/f/201403_ cfpb_amicus-brief_buchanan-v-northland-groupinc.pdf; Brief of Amici Curiae, Delgado v. Capital Mgmt. Servs., LP, No. 13–2030 (7th Cir. Aug. 14, 2013), https://www.consumerfinance.gov/f/201309_ cfpb_agency-brief_12-cv-04057.pdf. 28 See, e.g., In re Encore Capital Grp., Inc., Bureau of Consumer Fin. Prot., File No. 2015–CFPB–0022 (Sept. 9, 2015), at 17; In re Portfolio Recovery Assocs. LLC, Bureau of Consumer Fin. Prot., File No. 2015–CFPB–0023 (Sept. 9, 2015), at 15; United States v. Asset Acceptance, LLC, No. 8:12–cv–182 (M.D. Fla. filed Jan. 30, 2012). 29 See, e.g., Holzman v. Malcolm S. Gerald & Assocs., 920 F.3d 1264, 1271 (11th Cir. 2019); Tatis v. Allied Interstate, LLC, 882 F.3d 422, 429 (3d Cir. 2018); Daugherty v. Convergent Outsourcing Inc., 836 F.3d 507, 509 (5th Cir. 2016); Buchanan v. Northland Grp., Inc., 776 F.3d 393, 398–99 (6th Cir. 2015). VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 barred debt.30 Some courts have found that a debt collector who seeks payment on a time-barred debt without disclosing the debt’s unenforceability (and, where applicable, the possibility of revival) may violate the FDCPA, but whether a particular communication is misleading in violation of the FDCPA raises a question of fact.31 Other courts have held that a debt collector who offers a settlement or seeks payment on a timebarred debt without disclosing the debt’s unenforceability (and, where applicable, the possibility of revival) violates the FDCPA as a matter of law.32 Some courts have provided debt collectors with model disclosure language,33 while others have not.34 Given the current state of the law, some consumers may not receive a disclosure about the time-barred status of a debt in collection, while others may receive a disclosure containing language that varies based on jurisdiction. In addition, debt collectors may be unclear about their disclosure obligations when collecting time-barred debt through nonlitigation means. The lack of clarity may be especially acute in jurisdictions where courts have not considered whether the law requires disclosures or have not provided model disclosure language. Even in jurisdictions with State-law disclosure requirements, debt collectors may not know whether providing such disclosures is sufficient to comply with the FDCPA. III. The Rulemaking Process Before publishing the May 2019 Proposed Rule, the Bureau engaged in outreach regarding numerous debt collection topics, including time-barred debt. The May 2019 Proposed Rule described the scope of that outreach, which also has informed the development of this proposed rule.35 Of particular note, the Bureau has met with stakeholders including consumer advocates, debt collection trade associations, industry participants, academics with expertise in debt collection, Federal prudential regulators, and other Federal and State 30 See, e.g., Holzman, 920 F.3d at 1272–73; Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679, 685–86 (7th Cir. 2017); Daugherty, 836 F.3d at 513; Buchanan, 776 F.3d at 399–400. 31 See, e.g., Holzman, 920 F.3d at 1269; Daugherty, 836 F.3d at 513; Buchanan, 776 F.3d at 397–99. 32 See, e.g., Pantoja, 852 F.3d at 682–83, 685–86; Manuel v. Merchants & Prof’l Credit Bureau, Inc., No. 1:18–cv–226–DAE, 2019 WL 3713750, at *9 (W.D. Tex. Aug. 5, 2019); Schafer v. Allied Interstate LLC, No. 1:17–cv–233, 2019 WL 2710272, at *10 (W.D. Mich. June 28, 2019). 33 See, e.g., Buchanan, 776 F.3d at 400. 34 See, e.g., Tatis, 882 F.3d at 430; Pantoja, 852 F.3d at 682–83, 685–86. 35 84 FR 23274, 23278–81 (May 21, 2019). PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 consumer protection regulators. The Bureau also has drawn on information gathered through the more formal outreach described below. A. 2013 Advance Notice of Proposed Rulemaking The Bureau issued an Advance Notice of Proposed Rulemaking (ANPRM) regarding debt collection in November 2013.36 The ANPRM sought information about an array of debt collection practices, including the use of disclosures, such as time-barred debt disclosures, in debt collection. Among other things, the Bureau requested comment on whether a debt collector should be required to disclose that a debt is time barred; that the debt collector cannot lawfully sue to collect it; and that, if applicable under State law, a consumer’s partial payment revives the debt collector’s right to sue for the entire amount.37 The Bureau received more than 23,000 comments in response to the ANPRM, including nearly 400 non-form comments submitted by consumers, consumer advocates, debt collection industry participants and trade associations, legal groups including law school clinics, State Attorneys General, and other stakeholders. Some consumer advocates, legal groups, and State Attorneys General supported banning the collection of time-barred debts. Some consumer advocates, legal groups, and one industry commenter also supported prohibiting revival. A number of commenters addressed the merits of time-barred debt disclosures. Consumer advocates and State Attorneys General supported disclosures that would inform consumers when debt collectors are collecting time-barred debt and, if applicable, about the possibility of revival. With a few exceptions, industry commenters generally opposed such disclosures. Some industry commenters favored a disclosure that would provide consumers general information about statutes of limitations but that would not require debt collectors to provide information about the time-barred status of particular debts. B. Qualitative Consumer Testing In 2014, the Bureau contracted with a third-party vendor, Fors Marsh Group (FMG), to assist with developing, and to conduct qualitative consumer testing of, debt collection disclosures for consumers, including disclosures regarding time-barred debt and revival. The Bureau sought insight into 36 78 37 Id. E:\FR\FM\03MRP2.SGM FR 67848 (Nov. 12, 2013). at 67876. 03MRP2 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules consumers’ understanding of timebarred debt and revival, as well as whether and how time-barred debt and revival disclosures might, if included on the validation notice, affect consumers’ ability to make decisions. As described in the May 2019 Proposed Rule, the Bureau’s qualitative testing took place during 2014 and 2015 and consisted of five focus group discussions and two rounds of 30 one-on-one interviews with consumers.38 The focus group discussions were designed to assess consumers’ thoughts about debt collectors and debt collection, to evaluate consumers’ perceptions of disclosures provided by debt collectors, and to measure consumers’ understanding of their rights in debt collection, including with respect to time-barred debt. The first round of one-on-one interviews (i.e., cognitive testing) was designed to assess how consumers might interact with different versions of a validation notice, and how consumers’ behavior might differ after reading the forms. Regarding time-barred debt, participants were shown two different versions of timebarred debt and revival disclosures and were asked to respond to a survey with Likert-scale questions.39 The second round of one-on-one interviews (i.e., usability testing) also was designed to assess consumers’ understanding of different validation notices and to evaluate how each of the notices, which contained one of several different timebarred debt disclosures and, in certain cases, revival disclosures, might affect consumer behavior. During this testing, participants responded to researchers’ comprehension questions and engaged in additional testing activities.40 38 84 FR 23274, 23279 (May 21, 2019). Likert-scale is a commonly used research scale that asks respondents to specify their level of agreement or disagreement with a series of statements. 40 Reports prepared by FMG regarding each phase of the qualitative testing, as well as a report summarizing all of the qualitative testing, were published on the Bureau’s website when the May 2019 Proposed Rule was issued. See Fors Marsh Grp., Debt Collection Focus Groups (Aug. 2014), https://files.consumerfinance.gov/f/documents/ cfpb_debtcollection_fmg-focus-group-report.pdf (hereinafter FMG Focus Group Report); Fors Marsh Grp., Debt Collection Cognitive Interviews (n.d.), https://files.consumerfinance.gov/f/documents/ cfpb_debtcollection_fmg-cognitive-report.pdf (hereinafter FMG Cognitive Report); Fors Marsh Grp., Debt Collection User Experience Study (Feb. 2016), https://files.consumerfinance.gov/f/ documents/cfpb_debtcollection_fmg-usabilityreport.pdf (hereinafter FMG Usability Report); Fors Marsh Grp., Debt Collection Validation Notice Research: Summary of Focus Groups, Cognitive Interviews, and User Experience Testing (Feb. 2016), https://files.consumerfinance.gov/f/ documents/cfpb_debtcollection_fmg-summaryreport.pdf (hereinafter FMG Summary Report). lotter on DSKBCFDHB2PROD with PROPOSALS2 39 A VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 As discussed in the May 2019 Proposed Rule, the Bureau’s qualitative testing found that consumers often are uncertain about their rights concerning time-barred debt.41 Focus group participants said that knowing a debt is time barred is helpful and important information. Many participants said that knowing that a debt was time barred (and thus better understanding the risk of a lawsuit regarding that debt) would affect their decision-making regarding payments.42 In particular, many participants said they would be less likely to pay or prioritize a debt they knew was time barred.43 The qualitative testing also suggested that a plainlanguage disclosure could help consumers understand their rights with respect to time-barred debt. For example, nearly all participants in the Bureau’s qualitative testing who were provided with a disclosure stating, ‘‘Because of the age of this debt, we cannot sue you for it’’ understood that they could not be sued on the debt.44 However, the Bureau’s qualitative testing also suggested that it could be challenging to develop an effective revival disclosure, in part because consumers find the concept of revival counterintuitive—that is, consumers believe that making a payment should avert the negative consequences of nonpayment, which is in tension with being subject to the risk of a lawsuit.45 C. Small Business Review Panel As discussed in the May 2019 Proposed Rule, in August 2016, the Bureau convened a Small Business Review Panel (Small Business Review Panel or Panel) with the Chief Counsel for Advocacy of the Small Business Administration and the Administrator of the Office of Information and Regulatory Affairs with the Office of Management and Budget (OMB).46 As part of that process, the Bureau 41 See 84 FR 23274, 23328 (May 21, 2019). See also FMG Focus Group Report, supra note 40, at 9– 10; FMG Cognitive Report, supra note 40, at 36–37; FMG Summary Report, supra note 40, at 35–36. 42 FMG Summary Report, supra note 40, at 35. 43 FMG Focus Group Report, supra note 40, at 9– 10; FMG Cognitive Report, supra note 40, at 36; FMG Usability Report, supra note 40, at 75, 78, 80– 81; FMG Summary Report, supra note 40, at 35–36. 44 FMG Usability Report, supra note 40, at 74, 77. 45 Id. at 74–75, 77; FMG Summary Report, supra note 40, at 37. See also United States v. Asset Acceptance, LLC, No. 8:12–cv–182, at ¶ 34 (M.D. Fla. filed Jan. 30, 2012). 46 The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), as amended by section 1100G(a) of the Dodd-Frank Act, requires the Bureau to convene a Small Business Review Panel before proposing a rule that may have a substantial economic impact on a significant number of small entities. See Public Law 104–121, tit. II, 110 Stat. 847, 857 (1996) (as amended by Pub. L. 110–28, section 8302 (2007)). PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 12675 prepared an outline of proposals under consideration and the alternatives considered (Small Business Review Panel Outline or Outline).47 Among other topics, the Small Business Review Panel Outline discussed consumer protection concerns regarding time-barred debt and a proposal under consideration to require disclosures in connection with the collection of such debt. The Outline noted that the Bureau was considering requiring debt collectors collecting on time-barred debt to provide a brief, plain-language statement informing the consumer that, because of the age of the debt, the debt collector could not sue to recover it. The Bureau also was considering proposing that a timebarred debt disclosure made by one debt collector would bind subsequent debt collectors who, in turn, would have to provide the disclosure to the consumer.48 The Outline noted that the Bureau was considering how frequently debt collectors should be required to provide any such time-barred debt disclosures (i.e., in the validation notice only, or in other oral or written communications with the consumer) and whether to require such disclosures only when the debt collector knew or should have known that the debt was time barred.49 The Outline also noted that the Bureau was considering a proposal to prohibit debt collectors from collecting time-barred debt that could be revived under State law unless they waived the right to sue on the debt.50 The Bureau participated in telephone conferences and a full-day outreach meeting to receive feedback on the Outline from the small entity representatives participating in the Panel process. After gathering information from the small entity representatives, the Panel issued a Small Business Review Panel Report (Report), which set forth findings and recommendations regarding the Bureau’s proposals under consideration.51 The Report noted that 47 Bureau of Consumer Fin. Prot., Small Business Review Panel for Debt Collector and Debt Buyer Rulemaking: Outline of Proposals Under Consideration and Alternatives Considered (July 2016), https://files.consumerfinance.gov/f/ documents/20160727_cfpb_Outline_of_ proposals.pdf (hereinafter Small Business Review Panel Outline or Outline). 48 Id. at 20–21. 49 Id. 50 Id. at 21. 51 See 84 FR 23274, 23281 (May 21, 2019). The Small Business Review Panel Report is part of the administrative record in this rulemaking and is available to the public on the Bureau’s website. See generally Bureau of Consumer Fin. Prot., U.S. Small Bus. Admin., & Office of Mgmt. & Budget, Final Report of the Small Business Review Panel on the E:\FR\FM\03MRP2.SGM Continued 03MRP2 12676 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules some small entity representatives expressed concern about the proposal under consideration to require timebarred debt disclosures. Those small entity representatives stated that it can be difficult to determine whether debt is time barred, and they feared potential lawsuits if good faith determinations about a debt’s time-barred status proved wrong.52 One such small entity representative recommended that a debt collector should not be liable for failing to provide a time-barred debt disclosure if the debt collector made a good-faith determination, after appropriate consideration, that the statute of limitations for that debt had not yet expired.53 Another small entity representative said that a time-barred debt disclosure could mislead a consumer into believing that the consumer no longer had any obligation to pay the debt.54 Regarding the Bureau’s proposal under consideration to require waiver of revival in certain circumstances, one small entity representative predicted that, if the Bureau limited the circumstances in which debt collectors could sue on revived debts, creditors would be less motivated to negotiate prolonged repayment plans and more motivated to sue consumers before the statute of limitations expired. The Bureau has considered the Small Business Review Panel’s findings and recommendations in preparing this proposal and also discusses them in part V. lotter on DSKBCFDHB2PROD with PROPOSALS2 D. 2019 Notice of Proposed Rulemaking In May 2019 the Bureau published a proposed rule to amend Regulation F, 12 CFR part 1006.55 The May 2019 Proposed Rule would amend Regulation F to prescribe Federal rules governing the activities of debt collectors, as that term is defined in the FDCPA. Among other things, the Bureau proposed to interpret and apply FDCPA section 807’s prohibitions on false or misleading representations, including by prohibiting a debt collector from suing or threatening to sue a consumer to collect a debt that the debt collector ‘‘knows or should know’’ is time barred.56 The Bureau proposed the CFPB’s Proposals Under Consideration for the Debt Collector and Debt Buying Rulemaking (Oct. 2016), https://files.consumerfinance.gov/f/documents/ cfpb_debt-collector-debt-buyer_SBREFA-report.pdf (hereinafter Small Business Review Panel Report or Report). 52 Small Business Review Panel Report, supra note 51, at 25. 53 Id. at appendix A (comment of Levy & Associates, LLC). 54 Id. at 25. 55 84 FR 23274 (May 21, 2019). 56 Id. at 23327–29, 23403 (proposing 12 CFR 1006.26(b) to provide that ‘‘[a] debt collector must VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 ‘‘know or should know’’ standard in response to feedback received during the SBREFA process about the complexity of determining whether the statute of limitations for a particular debt has expired.57 The Bureau stated that, while debt collectors often will know, or can readily determine, whether the statute of limitations has expired, there may be some instances in which debt collectors may be uncertain whether it has expired even after undertaking a reasonable investigation. The Bureau noted that this could occur when, for example, the case law in a State is unclear as to which statute of limitations applies to a particular type of debt. The Bureau also acknowledged, however, that it could be difficult to determine whether a ‘‘know or should know’’ standard has been met. The Bureau requested comment on the merits of using that standard, as opposed to a ‘‘strict liability’’ standard under which collectors would be liable for suing or threatening to sue on timebarred debt even if they neither knew nor should have known that a debt was time barred.58 The May 2019 Proposed Rule also stated that the Bureau was likely to propose that debt collectors must provide disclosures to consumers when collecting time-barred debt. The proposal noted that, before issuing any such proposal, the Bureau intended to conduct additional consumer testing of possible time-barred debt and revival disclosures, and that the Bureau would publish the results of such testing for public comment.59 That testing is now complete and is summarized in part III.E. The May 2019 Proposed Rule reserved proposed 12 CFR 1006.26(c) and appendix B for any requirements for time-barred debt and revival disclosures.60 The comment period for the May 2019 Proposed Rule closed on September 18, 2019,61 and the Bureau received over 14,000 public comments.62 A large number of comments addressed timebarred debt and the Bureau’s proposed prohibition regarding suits and threats of suit on time-barred debt, including the proposed ‘‘know or should know’’ standard and alternatives for regulating not bring or threaten to bring a legal action against a consumer to collect a debt that the debt collector knows or should know is a time-barred debt’’). 57 See part III.C, supra. 58 84 FR 23274, 23329 (May 21, 2019). 59 Id. 60 Id. 61 84 FR 37806 (Aug. 2, 2019). 62 See Regulations.gov, Debt Collection Practices (Regulation F) Docket Folder Summary, https:// www.regulations.gov/docket?D=CFPB-2019-0022 (last visited Feb. 18, 2020). PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 the collection of time-barred debt, such as prohibiting the collection of such debt altogether. The Bureau is undertaking a complete review of the comments as part of the process of taking final action on the May 2019 Proposed Rule. The Bureau crossreferences provisions of the May 2019 Proposed Rule throughout this proposal. E. Quantitative Consumer Testing To obtain additional information about consumer comprehension and decision-making in response to sample debt collection disclosures relating to time-barred debt, in 2017 the Bureau contracted with ICF International, Inc. (ICF) to conduct a web survey of approximately 8,000 individuals possessing a broad range of demographic characteristics.63 This quantitative testing concluded in late September 2019, and the Bureau 64 and ICF 65 have published detailed reports summarizing the testing methodology and results. The Bureau summarizes the results below and welcomes feedback on the full reports, as published on the Bureau’s website. Respondents to the web survey were provided one of two versions of a vignette in which a consumer incurred debt to purchase a couch. In one version, the purchase occurred three years ago; in the other, it occurred 10 years ago. Respondents were told that the consumer had not paid off the debt and had received a validation notice from a debt collector. Respondents were randomly shown one of 11 different versions of a validation notice. Two versions served as control conditions. One control was designed to resemble validation notices that some debt collectors use today (Status Quo Notice). The other control was the Bureau’s model validation notice as proposed in the May 2019 Proposed Rule (Model Notice).66 Neither of the control notices contained a time-barred debt or revival disclosure. 63 OMB approved the Bureau’s request to conduct the survey on May 7, 2019. See Office of Mgmt. & Budget, Office of Information and Regulatory Affairs, ICR—OIRA Conclusion, https:// www.reginfo.gov/public/do/PRAViewICR?ref_ nbr=201902-3170-001# (last visited Feb. 18, 2020). 64 See Bureau of Consumer Fin. Prot., Disclosure of Time-Barred Debt and Revival: Findings from the CFPB’s Quantitative Disclosure Testing (Feb. 2020), https://files.consumerfinance.gov/f/documents/ cfpb_debt-collection-quantitative-disclosuretesting_report.pdf (hereinafter CFPB Quantitative Testing Report). 65 See ICF Int’l, Inc., Quantitative Survey Testing of Model Disclosure Clauses and Forms for Debt Collection: Methodology Report (Jan. 21, 2020), https://files.consumerfinance.gov/f/documents/ cfpb_icf_debt-survey_methodology-report.pdf. 66 See CFPB Quantitative Testing Report, supra note 64, at 6–9. E:\FR\FM\03MRP2.SGM 03MRP2 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules Of the remaining nine tested notices, four contained variations of a timebarred debt disclosure added to the Bureau’s model notice (TBD Notices), and five contained variations of both a time-barred debt disclosure and a revival disclosure added to the Bureau’s model notice (TBD with Revival Notices).67 The survey used these various TBD Notices and TBD with Revival Notices to test whether and how consumers’ understanding of timebarred debt and revival concepts changed with differently worded disclosures. After viewing their assigned validation notice, respondents answered a series of questions designed primarily to measure their understanding of timebarred debt and revival disclosures (or their understanding of time-barred debt and revival concepts without such disclosures). Respondents were asked whether, based on what they read in the notice, they thought a debt collector would be legally allowed to sue the consumer to collect the debt if the consumer: (1) Ignored the notice and took no action; (2) made a payment; (3) sent the debt collector a letter acknowledging the debt; (4) called the debt collector acknowledging the debt; or (5) mailed in the tear-off portion of the validation notice to dispute the debt. As discussed further in part V, the quantitative testing results generally indicate that, in connection with the collection of a time-barred debt, and at least in a testing environment, a validation notice without a time-barred debt disclosure can leave consumers with the misleading impression that debt collectors would be legally allowed to sue to collect the debt.68 Time-barred debt disclosures, whether alone or with a revival disclosure, generally appear to correct this misimpression. On the other hand, the quantitative testing results indicate that a time-barred debt disclosure alone (i.e., without a revival disclosure) could lead consumers in revival States to believe that debt collectors are legally allowed to sue in fewer circumstances than they in fact are. Revival disclosures generally 67 See id. lotter on DSKBCFDHB2PROD with PROPOSALS2 68 Throughout this proposal, the Bureau refers to time-barred debts as not ‘‘legally enforceable’’ or states that debt collectors are not ‘‘legally allowed to sue’’ to collect them. The Bureau uses these shorthand phrases to reflect the current state of the law, i.e., that the statute of limitations generally is an affirmative defense to a lawsuit on time-barred debt and, as a result, courts have concluded that suits or threats of suit on time-barred debt violate the FDCPA. See supra note 9. As noted, the Bureau’s May 2019 Proposed Rule also would prohibit debt collectors from suing or threatening to sue to collect debts that the debt collectors know or should know are time barred. Id. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 appear to clarify the circumstances in which the debt collector’s right to sue can be revived.69 IV. Legal Authority The Bureau issues this supplemental proposal pursuant to its authority under the FDCPA and the Dodd-Frank Act. As amended by the Dodd-Frank Act, FDCPA section 814(d) provides that the Bureau ‘‘may prescribe rules with respect to the collection of debts by debt collectors,’’ as defined in the FDCPA.70 Section 1022(a) of the Dodd-Frank Act provides that ‘‘[t]he Bureau is authorized to exercise its authorities under Federal consumer financial law to administer, enforce, and otherwise implement the provisions of Federal consumer financial law.’’ 71 Section 1022(b)(1) of the Dodd-Frank Act provides that the Director may prescribe rules and issue orders and guidance, as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.72 ‘‘Federal consumer financial law’’ includes title X of the Dodd-Frank Act and the FDCPA.73 A. FDCPA Sections 807 and 808 The Bureau issues this proposal pursuant to its authority to interpret FDCPA sections 807 74 and 808.75 FDCPA section 807 generally prohibits a debt collector from ‘‘us[ing] any false, deceptive, or misleading representation or means in connection with the collection of any debt,’’ 76 and then lists, without limiting the general prohibition, 16 examples of conduct that violate the section.77 Similarly, FDCPA section 808 generally prohibits a debt collector from ‘‘us[ing] unfair or unconscionable means to collect or attempt to collect any debt,’’ and then lists, without limiting the general prohibition, eight examples of conduct that violate the section.78 The Bureau proposes to interpret FDCPA sections 807 and 808 consistent with the approach proposed in the May 2019 Proposed Rule for interpreting FDCPA sections 806 through 808.79 That is, the Bureau proposes to interpret 69 See CFPB Quantitative Testing Report, supra note 64, at 4. 70 15 U.S.C. 1692l(d). 71 12 U.S.C. 5512(a). 72 12 U.S.C. 5512(b)(1). 73 12 U.S.C. 5481(12)(H), (14). 74 15 U.S.C. 1692e. 75 15 U.S.C. 1692f. 76 15 U.S.C. 1692e. 77 15 U.S.C. 1692e(1)–(16). 78 15 U.S.C. 1692f. 79 84 FR 23274, 23281–82 (May 21, 2019). PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 12677 FDCPA sections 807 and 808 in light of: (1) The FDCPA’s language and purpose; (2) the general types of conduct prohibited by sections 807 and 808 and, where relevant, the specific examples enumerated in those sections; and (3) judicial precedent.80 In particular, the Bureau notes that FDCPA section 807’s and 808’s examples of prohibited conduct do not ‘‘limit[ ] the general application’’ of the general prohibitions set forth in those sections. Accordingly, the Bureau may prohibit conduct that the specific examples do not address if the conduct violates the general prohibitions. In addition, the Bureau uses the specific examples to inform its understanding of the general prohibitions.81 The Bureau also interprets FDCPA sections 807 and 808 in light of the significant body of existing court decisions interpreting those sections, including cases discussing the collection of time-barred debt.82 Finally, consistent with the majority of courts, the Bureau proposes to interpret FDCPA sections 807 and 808 to incorporate an objective, ‘‘unsophisticated’’ or ‘‘least sophisticated’’ consumer standard.83 B. Dodd-Frank Act Section 1032 The Bureau also issues this proposal pursuant to its authority under DoddFrank Act section 1032. Dodd-Frank Act section 1032(a) provides that the Bureau may prescribe rules to ensure that the features of any consumer financial product or service, ‘‘both initially and over the term of the product or service,’’ are ‘‘fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the product or service, in light of the facts and circumstances.’’ 84 Under Dodd-Frank Act section 1032(a), the Bureau is empowered to prescribe rules regarding the disclosure of the ‘‘features’’ of consumer financial products and services generally. Accordingly, the Bureau may prescribe rules containing disclosure requirements even if other Federal consumer financial laws do not specifically require disclosure of such features. Dodd-Frank Act section 80 Id. at 23281–83. at 23282. 82 Id. See, e.g., Holzman v. Malcolm S. Gerald & Assocs., 920 F.3d 1264 (11th Cir. 2019); Tatis v. Allied Interstate, LLC, 882 F.3d 422 (3rd Cir. 2018); Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679 (7th Cir. 2017); Daugherty v. Convergent Outsourcing Inc., 836 F.3d 507 (5th Cir. 2016); Buchanan v. Northland Grp., Inc., 776 F.3d 393 (6th Cir. 2015); McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014). 83 84 FR 23282 (May 21, 2019). 84 12 U.S.C. 5532(a). 81 Id. E:\FR\FM\03MRP2.SGM 03MRP2 12678 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules 1032(b)(1) provides that ‘‘any final rule prescribed by the Bureau under this section requiring disclosures may include a model form that may be used at the option of the covered person for provision of the required disclosures.’’ 85 Dodd-Frank Act section 1032(b)(2) provides that such a model form ‘‘shall contain a clear and conspicuous disclosure that at a minimum—(A) uses plain language comprehensible to consumers; (B) contains a clear format and design, such as an easily readable type font; and (C) succinctly explains the information that must be communicated to the consumer.’’ 86 Dodd-Frank Act section 1032(b)(3) provides that any such model form ‘‘shall be validated through consumer testing.’’ 87 Dodd-Frank Act section 1032(c) provides that, in prescribing rules pursuant to Dodd-Frank Act section 1032, the Bureau ‘‘shall consider available evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services.’’ 88 Dodd-Frank Act section 1032(d) provides that ‘‘[a]ny covered person that uses a model form included with a rule issued under this section shall be deemed to be in compliance with the disclosure requirements of this section with respect to such model form.’’ 89 V. Section-by-Section Analysis lotter on DSKBCFDHB2PROD with PROPOSALS2 Section 1006.26 Barred Debts Collection of Time- 26(c) Disclosures Required For the reasons discussed below, the Bureau proposes § 1006.26(c) to require debt collectors who are collecting debts that they know or should know are time barred to provide time-barred debt disclosures and, if applicable, revival disclosures to consumers. Proposed § 1006.26(c)(1) and (2) sets forth content and timing requirements, and proposed § 1006.26(c)(3) sets forth formatting requirements and a safe harbor for making the disclosures. The Bureau proposes § 1006.26(c) pursuant to its authority under FDCPA section 814(d) to prescribe rules with respect to the collection of debts by debt collectors, and pursuant to its authority to interpret FDCPA section 807. The Bureau proposes to interpret FDCPA section 807’s prohibition on using ‘‘any 85 12 U.S.C. 5532(b)(1). U.S.C. 5532(b)(2). 87 12 U.S.C. 5532(b)(3). 88 12 U.S.C. 5532(c). 89 12 U.S.C. 5532(d). 86 12 VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 false, deceptive, or misleading representation or means in connection with the collection of any debt’’ to require debt collectors to make timebarred debt disclosures and, if applicable, revival disclosures to consumers because, as discussed below, a debt collector’s attempt to collect a time-barred debt is likely to give a consumer the false impression that the debt is legally enforceable. This false impression, as also discussed below, is likely to affect a consumer’s decision whether to pay or prioritize the debt. Thus, when a debt collector collects a time-barred debt without disclosing that the debt is time barred, the debt collector may misrepresent the character or le gal status of the debt, which FDCPA section 807(2)(A) specifically prohibits. The Bureau also proposes § 1006.26(c) pursuant to its authority under section 1032(a) of the Dodd-Frank Act. As discussed in part IV, Dodd-Frank Act section 1032(a) provides that the Bureau may prescribe rules to ensure that the features of any consumer financial product or service, ‘‘both initially and over the term of the product or service,’’ are ‘‘fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the product or service, in light of the facts and circumstances.’’ Under DoddFrank Act section 1002(5) and (15)(A)(x), collecting debt related to any consumer financial product or service is itself a consumer financial product or service. Dodd-Frank Act section 1032(c) provides that, in prescribing rules pursuant to section 1032 of the DoddFrank Act, the Bureau ‘‘shall consider available evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services.’’ Accordingly, in developing proposed § 1006.26(c), the Bureau has considered consumer complaints, industry disclosure practices, and other evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services. The Bureau has also considered the evidence developed through its consumer testing. The Bureau proposes § 1006.26(c) on the theory that a debt’s status as time barred is a feature of debt collection. Knowing that a debt is time barred may help a consumer understand the costs, benefits, and risks associated with paying or not paying a debt. For the PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 reasons described below, the Bureau believes that requiring debt collectors to clearly and conspicuously disclose to consumers when a debt is time barred and, if applicable, when revival may occur, using disclosures substantially similar to those set forth on the model forms in proposed appendices B–4 through B–7, may ensure that the features of debt collection are fully, accurately, and effectively disclosed to consumers. 26(c)(1) In General As discussed in part II.C, the nonlitigation collection of time-barred debt can raise concerns about consumer deception. If a debt collector attempts to collect a debt, the consumer may take away the impression that the debt collector is legally allowed to sue to collect it.90 For time-barred debts, this impression would be false, and this false impression is likely to affect a consumer’s decision whether to pay or prioritize a time-barred debt. As summarized in part III.E, the Bureau’s quantitative testing results suggest that, without a disclosure, many consumers are likely to believe that a debt collector is legally allowed to sue to collect a time-barred debt. For example, as discussed in the Bureau’s Quantitative Testing Report, one survey question asked respondents whether, based on what they read in a sample validation notice, they thought the debt collector would be legally allowed to sue the debtor if the debtor ignored the notice and took no action. For the timebarred debts described in the testing scenarios, the correct answer to this question was ‘‘no,’’ the debt collector would not be legally allowed to sue. However, over 60 percent of respondents who saw either a Status Quo or Model Notice (i.e., a validation notice without a time-barred debt disclosure) got this question wrong and replied that the debt collector would be legally allowed to sue.91 This false impression could affect a consumer’s decision whether to pay or prioritize a debt. For example, a different survey question asked respondents how likely they would be, if they were the debtor, either to make a full or partial payment on the debt or to ignore the validation notice and not 90 See FTC Debt Buying Report, supra note 8, at 46–47 (‘‘When collectors attempt to recover on debts, in many circumstances, such efforts may convey or imply to consumers that the collectors could sue them if they do not pay.’’). See also, e.g., Holzman v. Malcolm S. Gerald & Assocs., Inc., 920 F.3d 1264, 1272 (11th Cir. 2019); Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679, 683– 84 (7th Cir. 2017). 91 CFPB Quantitative Testing Report, supra note 64, at 17–18. E:\FR\FM\03MRP2.SGM 03MRP2 lotter on DSKBCFDHB2PROD with PROPOSALS2 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules respond to it. Respondents who saw a validation notice with no time-barred debt disclosure were more likely than respondents who saw a validation notice with such a disclosure to say that they were ‘‘very likely’’ to make a full or partial payment and that they were ‘‘very unlikely’’ to ignore the notice.92 These results reflect responses to hypotheticals in a testing environment, but they indicate that, if a consumer has the misimpression that a debt collector can sue to enforce a time-barred debt, the consumer may be more likely to pay or prioritize that debt than if the consumer knew that doing so was not necessary to avoid litigation. Consumers, of course, may choose to pay time-barred debts for any number of reasons, including moral ones 93 or in the belief that doing so will improve their credit reports.94 However, the Bureau believes that consumers are harmed to the extent that they decide to pay or prioritize time-barred debts over other debts or expenses such as household necessities because of a false understanding that they can be sued. As discussed in part II.C., several jurisdictions already require debt collectors to inform consumers if a debt is time barred,95 and some debt collectors also must provide such disclosures as a result of consent agreements with law enforcement agencies, including the Bureau and the FTC.96 The Bureau’s quantitative testing supports the conclusion that such a time-barred debt disclosure can, in fact, help to correct the misimpression that a debt collector would be legally allowed to sue to collect a time-barred debt. As noted, over 60 percent of respondents who were shown a validation notice without a time-barred debt disclosure answered incorrectly when asked whether, based on what they read in the notice, the debt collector would be legally allowed to sue to collect the time-barred debt if the debtor ignored the notice and took no action. By contrast, over 60 percent of respondents who received either a TBD or TBD with Revival Notice (i.e., a validation notice with a time-barred debt disclosure) answered this question correctly.97 Although the Bureau’s quantitative testing found that a time-barred debt disclosure tended to correct the misimpression that a debt collector would be legally allowed to sue to collect a time-barred debt, the testing also revealed that, in States with revival laws, an unqualified time-barred debt disclosure could create its own risk of a consumer taking away a false, material impression. Specifically, the Bureau’s quantitative testing found that a timebarred debt disclosure alone (i.e., without a revival disclosure) could lead consumers in revival States to believe that debt collectors are able to legally sue them on time-barred debt in fewer circumstances than they in fact are.98 As 92 Id. at 28–29. The Bureau’s qualitative consumer testing and other research also suggests that knowing whether a debt is time barred, and that debt collectors cannot enforce time-barred debts in court, may affect a consumer’s decision-making with respect to the debt. Participants in the Bureau’s consumer testing said that knowing a debt is time barred is important and would affect their decision-making. In particular, many participants said they would be less likely to pay or prioritize a debt they knew was time barred. FMG Focus Group Report, supra note 40, at 9–10; FMG Cognitive Report, supra note 40, at 36; FMG Usability Report, supra note 40, at 75, 78, 80–81; FMG Summary Report, supra note 40, at 35–36. See also Timothy E. Goldsmith & Nathalie Martin, Testing Materiality Under the Unfair Practices Acts: What Information Matters Collecting Time-Barred Debts? 64 Consumer Fin. L. Q. Rep. 372, at 377– 80 (2010). 93 See, e.g., Pantoja, 852 F.3d at 684; Buchanan v. Northland Grp., Inc., 776 F.3d 393, 399 (6th Cir. 2015); McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014). 94 See supra note 12. 95 See, e.g., Cal. Civ. Code 1788.52(d)(3); Conn. Gen. Stat. 36a–805(a)(14); Mass. Code Regs., tit. 940, 7.07(24); N.M. Code. R. 12.2.12.9(A); N.Y. Comp. Codes R. & Regs., tit. 23, 1.3; New York City, N.Y., Rules, tit. 6, 2–191(a); W. Va. Code 46a–2–128(f). 96 For example, the Bureau has brought enforcement actions alleging that debt collectors violated the FDCPA by sending letters containing time-limited ‘‘settlement’’ offers that failed to disclose that the debt was time barred and therefore too old for litigation. Consent Order at ¶¶ 65–69, In re Encore Capital Grp., Inc., Bureau of Consumer Fin. Prot., File No. 2015–CFPB–0022 (Sept. 9, 2015), https://files.consumerfinance.gov/f/201509_ cfpb_consent-order-encore-capital-group.pdf; Consent Order at ¶¶ 56–59, In re Portfolio Recovery Assocs., LLC, Bureau of Consumer Fin. Prot., File No. 2015–CFPB–0023 (Sept. 9, 2015), https:// files.consumerfinance.gov/f/201509_cfpb_consentorder-portfolio-recovery-associates-llc.pdf. Similarly, the FTC has brought an enforcement action alleging that a debt collector’s collection of time-barred debts violated the FDCPA where the debt collector failed to disclose that the debts were time-barred and that the debt collector’s right to sue could be revived. Complaint ¶¶ 30–34, 56–58, United States v. Asset Acceptance, LLC, No. 8:12– cv–182 (M.D. Fla. Jan. 30, 2012), https:// www.ftc.gov/sites/default/files/documents/cases/ 2012/01/120130assetcmpt.pdf. The consent orders that resolved Encore, Portfolio Recovery, and Asset Acceptance required the debt collectors in those cases to make time-barred debt disclosures. Encore Consent Order at ¶ 133; Portfolio Recovery Consent Order at ¶ 126; Asset Acceptance Consent Decree at § IV, https://www.ftc.gov/sites/default/files/ documents/cases/2012/01/120131assetconsent.pdf. 97 CFPB Quantitative Testing Report, supra note 64, at 17–18. The Bureau’s qualitative testing supports the same conclusion. Nearly all participants in the Bureau’s consumer testing who were provided with a disclosure stating, ‘‘Because of the age of this debt, we cannot sue you for it’’ understood that they could not be sued on the debt. FMG Usability Report, supra note 40, at 74, 77. 98 As discussed in part II, in ‘‘revival jurisdictions,’’ if consumers either make partial payments on time-barred debts or acknowledge time-barred debts in writing (or both), debt collectors once again would be legally allowed to sue to collect the debts. If a debt collector makes VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 12679 discussed in the Bureau’s Quantitative Testing Report, two survey questions asked respondents whether, based on what they read in a sample validation notice, they thought the debt collector would be legally allowed to sue the debtor if the debtor either made a payment or acknowledged the debt in writing. For the time-barred debts described in the testing scenarios, the correct answer to these questions was ‘‘yes,’’ the debt collector would be legally allowed to sue. However, more than 60 percent of respondents who saw a TBD Notice (i.e., a validation notice with an unqualified time-barred debt disclosure) replied incorrectly that the debt collector would not be legally allowed to sue.99 As with the false impression that debt collectors legally are allowed to sue to collect a time-barred debt even if the consumer takes no action, the false impression that debt collectors are not legally allowed to sue even if the consumer makes a payment or acknowledges the debt in writing could affect a consumer’s decision whether to pay or prioritize time-barred debts. The Bureau’s quantitative testing suggests that, in revival jurisdictions, a timebarred debt disclosure accompanied by a revival disclosure may help to correct this misimpression. When respondents were asked whether, based on what they read in the notice, the debt collector would be legally allowed to sue to collect the time-barred debt if the consumer either made a payment or acknowledged the debt in writing, about 70 percent and 60 percent of respondents, respectively, who received both a time-barred debt and revival disclosure answered correctly that the debt collector would be legally allowed to sue.100 To address the likelihood that consumers may be deceived by the nonlitigation collection of time-barred debt, and pursuant to its authority under FDCPA sections 814(d) and 807 and Dodd-Frank Act section 1032, the Bureau proposes § 1006.26(c)(1) to require debt collectors who are collecting time-barred debt to provide an unqualified time-barred debt disclosure to a consumer in a revival jurisdiction, that disclosure would be false for a consumer whose conduct revived the debt. 99 CFPB Quantitative Testing Report, supra note 64, at 18–20. Although respondents who received no time-barred debt disclosure at all also tended to answer these questions incorrectly, respondents who received an unqualified time-barred debt disclosure were even more likely to answer these questions incorrectly. Id. These results suggest that an unqualified time-barred debt disclosure could mislead consumers for those scenarios. 100 Id. E:\FR\FM\03MRP2.SGM 03MRP2 12680 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules certain disclosures to consumers.101 Specifically, proposed § 1006.26(c)(1) would provide that a debt collector who knows or should know that a debt is time barred when the debt collector makes the initial communication as defined in § 1006.34(b)(2) must, in that initial communication, and on any validation notice required by § 1006.34(a)(1)(i)(B), clearly and conspicuously provide time-barred debt and, if applicable, revival disclosures to consumers.102 Proposed § 1006.26(c)(1) would require the time-barred debt and, if applicable, revival disclosures to be made regarding debts that the debt collector ‘‘knows or should know’’ are time barred. As discussed in the May 2019 Proposed Rule and in part III.D, determining whether the statute of limitations for a particular debt has expired can, in certain cases, be a complex undertaking, and debt collectors may be uncertain about whether a particular statute of limitations has passed even after conducting a reasonable investigation.103 For this reason, the May 2019 Proposed Rule proposed to prohibit debt collectors from suing or threatening to sue to collect debts if they ‘‘know or should know’’ that the statute of limitations has expired.104 In response to the May 2019 Proposed Rule, the Bureau received a large number of comments regarding this knowledge standard. In general, industry commenters favored a ‘‘know or should know’’ standard, while consumer advocates favored a ‘‘strict lotter on DSKBCFDHB2PROD with PROPOSALS2 101 The requirements of proposed § 1006.26(c)(1) therefore would apply to FDCPA-covered debt collectors collecting debt, as that term is defined in FDCPA section 803(5), regardless of whether the debt is a consumer financial product or service debt, as that term is defined in the May 2019 Proposed Rule. See 84 FR 23274, 23399 (May 21, 2019). Consumer financial product or service debts would include, for example, debts related to consumer mortgage loans or credit cards. Id. at 23286. 102 The required disclosures are discussed in the section-by-section analysis of proposed § 1006.26(c)(1)(i) and (ii). Proposed § 1006.34(c)(2)(xi), discussed below, would amend the validation notice provisions of the May 2019 Proposed Rule to reflect the disclosures that would be required by proposed § 1006.26(c)(1). 103 See 84 FR 23274, 23329 (May 21, 2019) (determining whether the statute of limitations has expired may involve analyzing which statute of limitations applies, when the statute of limitations began to run, and whether the statute of limitations has been tolled or reset). 104 Id. at 23328–29, 23403. A debt collector would violate FDCPA section 807’s prohibition on deception and, if finalized, § 1006.18 in the May 2019 Proposed Rule, by providing the § 1006.26(c)(1) disclosures if the debt collector later sues or threatens to sue to collect the debt. The Bureau requests comment on whether the final rule should indicate in rule text or commentary that this would be a violation. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 liability’’ standard.105 The Bureau is analyzing those comments as part of the process of finalizing the May 2019 Proposed Rule. For consistency with that proposal, the Bureau proposes to require disclosures under § 1006.26(c)(1) only if the debt collector knows or should know that the debt is time barred. Proposed § 1006.26(c)(1) also would require the time-barred debt and, if applicable, revival disclosures to be made clearly and conspicuously. The Bureau proposes this standard to help ensure that consumers take away a truthful, non-misleading impression. A disclosure that is not clear and conspicuous will not be effective in conveying this impression, defeating the disclosure’s purpose. Proposed comment 26(c)(1)–1 would clarify that ‘‘clearly and conspicuously’’ for purposes of § 1006.26(c)(1) means the same thing as ‘‘clear and conspicuous’’ as the Bureau proposed to define that term in § 1006.34(b)(1) in the May 2019 Proposed Rule.106 That standard, in turn, is based on the standard used in other consumer financial services laws and their implementing regulations, including Regulation E Subpart B (Remittance Transfers).107 Proposed § 1006.26(c)(1) also would require the time-barred debt and, if applicable, revival disclosures to be made in the initial communication as defined in § 1006.34(b)(2), and on any validation notice required by § 1006.34(a)(1)(i)(B).108 Proposed § 1006.26(c)(1) would require a debt 105 Under a ‘‘strict liability’’ standard, for example, a debt collector would violate the proposed prohibition against suits or threats of suit if the debt collector sued or threatened to sue to collect a debt that a court later determined was time barred, even if the debt collector had investigated and reasonably concluded that the debt was not time barred. This could occur, for example, if State law applies different statutes of limitations to different types of debts, and if a court later determined that a debt collector had applied the wrong provision in determining whether the debt was time barred, notwithstanding a reasonable investigation. 106 Proposed § 1006.34(b)(1) defines ‘‘clear and conspicuous’’ to mean ‘‘disclosures that are readily understandable.’’ In the case of written and electronic disclosures, ‘‘the location and type size also must be readily noticeable to consumers.’’ In the case of oral disclosures, ‘‘the disclosures also must be given at a volume and speed sufficient for the consumer to hear and comprehend them.’’ 107 Regulation E, 12 CFR 1005.31. 108 The Bureau proposes to use the same definition of ‘‘initial communication’’ proposed in the May 2019 Proposed Rule. See 84 FR 23274, 23404 (May 21, 2019) (proposing 12 CFR part 1006.34(b)(2) to define ‘‘initial communication’’ in to mean ‘‘the first time that, in connection with the collection of a debt, a debt collector conveys information, directly or indirectly, regarding the debt to the consumer,’’ other than certain communications required by law or made in the form of a formal pleasing in a civil action). PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 collector to provide the disclosures in these communications because, without the disclosures, the debt collector may convey a misleading impression about the legal enforceability of the timebarred debt. In addition, requiring the disclosures at the time that the debt collector first communicates with the consumer in connection with the collection of the debt and on any required validation notice should ensure that consumers receive information regarding the debt’s legal enforceability at a time when they may be evaluating their rights and obligations regarding the debt, including whether to pay or prioritize it over other debts. Proposed comment 26(c)(1)–2 would clarify that a debt collector who sends a validation notice in the initial communication pursuant to § 1006.34(a)(1)(i)(A) complies with § 1006.26(c)(1) by providing the required disclosures on the validation notice. Some stakeholders, including consumers, consumer groups, and others who commented on the May 2019 Proposed Rule, have urged the Bureau to prevent the risk of deception by prohibiting the collection of timebarred debt and banning revival. These stakeholders assert, among other things, that concepts like statutes of limitations and revival are too complicated to disclose to consumers effectively. As discussed above, however, the Bureau’s quantitative testing results suggest that disclosures can be effective in preventing the deception associated with the collection of time-barred debts and that, therefore, prohibiting the collection of time-barred debt and banning revival are not necessary to prevent deception. In addition, banning the collection of time-barred debt could have unintended consequences for consumers, such as increased litigation before expiration of the statute of limitations. Because disclosures may adequately address the risks to consumers, the Bureau proposes to require disclosures rather than to prohibit the collection of time-barred debt and ban revival. The Bureau requests comment on proposed § 1006.26(c)(1) and its related commentary. In particular, the Bureau requests comment on the merits of using a ‘‘know or should know’’ standard versus a ‘‘strict liability’’ standard for determining when debt collectors must provide time-barred debt and revival disclosures. The Bureau also requests comment on the merits of using, as an alternative, a ‘‘strict liability’’ standard with a safe harbor for debt collectors who provide the disclosures when they E:\FR\FM\03MRP2.SGM 03MRP2 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules neither knew nor should have known the debt was time-barred. The Bureau also requests comment on: (1) Whether knowing if a debt is time barred affects or is likely to affect a consumer’s conduct relating to the debt; (2) the frequency with which debt collectors should be required to provide required disclosures, including the basis for requiring more or less frequent disclosures; (3) whether additional guidance is needed to address situations in which a validation notice might be re-issued voluntarily because, for example, the consumer requests a copy or a translation; (4) debt collectors’ current practices with respect to disclosing whether a debt is time barred and the circumstances, if any, in which revival can occur; and (5) debt collectors’ current practices with respect to revival, including whether and how frequently they sue to collect debts when the right to do so has been revived. lotter on DSKBCFDHB2PROD with PROPOSALS2 26(c)(1)(i) Proposed § 1006.26(c)(1)(i) sets forth the disclosure that debt collectors would be required to provide when collecting debts that they know or should know are time barred. Proposed § 1006.26(c)(1)(i) would require debt collectors to disclose that the law limits how long the consumer can be sued for a debt and that, because of the age of the debt, the debt collector will not sue the consumer to collect it. The disclosure would be required to be substantially similar to the disclosure shown on proposed Model Form B–4 in appendix B, and debt collectors could comply by using that model form (or, if making the disclosure other than on a validation notice, by using the relevant language from that model form).109 As discussed in the Bureau’s Quantitative Testing Report, the Bureau tested alternative versions of this timebarred debt disclosure, including two that used the phrase ‘‘will not sue’’ and two that used the phrase ‘‘cannot sue.’’ A disclosure that uses the phrase ‘‘will not sue’’ may be more accurate than a disclosure that uses the phrase ‘‘cannot sue.’’ A disclosure that uses the phrase ‘‘cannot sue’’ may imply that a debt collector has definitively determined that the debt is time barred and that all subsequent collectors thus would reach the same conclusion. By contrast, a ‘‘will not sue’’ disclosure merely represents that the debt collector believes that the debt is time barred, not 109 See the section-by-section analysis of proposed § 1006.26(c)(3) regarding proposed requirements for the form and delivery of the required disclosures. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 that the debt collector has definitely determined that it is time barred; it may not actually be the case that the debt is, or that a subsequent collector would conclude that the debt is, time barred.110 The Bureau’s testing showed no consistent differences in consumer understanding between the ‘‘will not sue’’ and ‘‘cannot sue’’ disclosures.111 As discussed in part III.C, during the SBREFA process, the Bureau was considering a proposal to require a debt collector who was collecting a timebarred debt to disclose that, because of the age of the debt, the debt collector ‘‘cannot sue to recover it.’’ 112 Several small entity representatives expressed concern that the disclosure under consideration could constitute legal advice, or that consumers who received the disclosures could construe them as legal advice and ask the debt collector follow-up questions about the debt’s legal status. Some industry commenters to the Bureau’s ANPR expressed similar concerns. As noted, the Bureau does not believe that the ‘‘will not sue’’ disclosure described in proposed § 1006.26(c)(1)(i) constitutes legal advice. It is neither a statement of what the law is nor advice to consumers as to what they should or should not do. Instead, it is a statement of what the collector will do. In addition, nothing in the Bureau’s proposal would require a debt collector to provide legal advice to a consumer who requests it. The Bureau requests comment on proposed § 1006.26(c)(1)(i) and on the burden of making a time-barred debt determination for debt collectors who do not sue to collect debts. 26(c)(1)(ii) Proposed § 1006.26(c)(1)(ii) sets forth an additional disclosure that debt collectors would be required to provide when collecting debts that they know or should know are time barred if, under applicable law, the debt collector’s right to bring a legal against the consumer could be revived. Under proposed § 1006.26(c)(1)(ii), debt collectors would be required to disclose the fact that revival can occur and the circumstances in which it can occur. The disclosure would be required to be substantially 110 For this reason, a debt collector who provides the proposed § 1006.26(c)(1) disclosures after undertaking a reasonable inquiry and concluding that a debt is time barred would not be liable under either the FDCPA or Regulation F for having made the disclosures even if it is determined later that the debt collector’s conclusion about the debt’s timebarred status was incorrect, as long as the debt collector honors the disclosures by not suing. 111 CFPB Quantitative Testing Report, supra note 64, at 22–23. 112 Small Business Review Panel Outline, supra note 47, at 20. PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 12681 similar to those shown on proposed Model Forms B–5 through B–7 in appendix B, and debt collectors could comply by using those model forms, as applicable (or, if making the disclosure other than on a validation notice, by using the relevant language from the model forms).113 Proposed comment 26(c)(1)(ii)–1 would clarify that, to satisfy the disclosure requirement in proposed § 1006.26(c)(1)(ii), a debt collector would be required to determine which State’s law applies and the circumstances, if any, in which that law would permit revival. The Bureau requests comment on proposed § 1006.26(c)(1)(ii) and on comment 26(c)(1)(ii)–1. The Bureau specifically requests comment on the burden of requiring all debt collectors to determine, when collecting debt that they know or should know is time barred, which State’s law applies and the circumstances, if any, under which that law would permit revival. The Bureau also specifically requests comment on the burden of making these determinations under a strict liability standard. The Bureau recognizes that some debt collectors do not sue to collect any debts (including revived debts) and that some debts may be clearly time barred under any applicable State law. The Bureau requests comment on the burden in such circumstances of requiring debt collectors to conduct the inquiry that would be required to satisfy proposed § 1006.26(c)(1)(ii) (i.e., to make a disclosure that reflects the applicable State’s revival law). 26(c)(2) Additional Circumstances in Which Disclosures Are Required A debt may become time barred after a debt collector’s initial communication with the consumer or after the debt collector sends the consumer any validation notice required by § 1006.34(a)(1)(i)(B). This could happen, for example, if a debt collector begins collecting a debt soon before the statute of limitations expires, and collection activities continue after expiration. This also could happen if a debt collector begins collecting a debt before the statute of limitations expires, warehouses the debt, and resumes collection activities after expiration. Relatedly, it may be the case that a debt collector who does not know, and should not know, that a debt is time barred when making the initial communication with the consumer or 113 See the section-by-section analysis of proposed § 1006.26(c)(3) regarding proposed requirements for the form and delivery of the required disclosures. E:\FR\FM\03MRP2.SGM 03MRP2 12682 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules lotter on DSKBCFDHB2PROD with PROPOSALS2 when sending the consumer any validation notice required by § 1006.34(a)(1)(i)(B) later knows, or should know, that the debt was, in fact, time barred. As discussed, the Bureau’s quantitative testing results indicate that, without disclosure, few consumers are likely to recognize that a debt collector is not legally allowed to sue to collect a time-barred debt. The quantitative testing results also indicate that an unqualified time-barred debt disclosure provided in a revival State may create a risk of consumer misunderstanding about revival. For these reasons, and pursuant to its authority under FDCPA sections 814(d) and 807 and Dodd-Frank Act section 1032(a), the Bureau proposes § 1006.26(c)(2) to specify additional circumstances in which debt collectors would be required to provide time-barred debt and, if applicable, revival disclosures.114 Proposed § 1006.26(c)(2)(i) would require a debt collector who knows or should know that a debt has become time barred after the initial communication as defined in § 1006.34(b)(2) but before the debt collector has sent any validation notice required by § 1006.34(a)(1)(i)(B) to provide the disclosures required by § 1006.26(c)(1) in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should know that the debt has become time barred, and on any validation notice required by § 1006.34(a)(1)(i)(B). In addition, proposed § 1006.26(c)(2)(i) would require a debt collector who knows or should know that a debt has become time barred after the debt collector has made the initial communication as defined in § 1006.34(b)(2) and has sent any validation notice required by § 1006.34(a)(1)(i)(B) to provide the disclosures required by § 1006.26(c)(1) in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should know that the debt became time barred. Proposed comments 26(c)(2)(i)–1 and –2 provide examples illustrating the rule. Proposed § 1006.26(c)(2)(ii) would require a debt collector who neither 114 The requirements of proposed § 1006.26(c)(2) therefore would apply to FDCPA-covered debt collectors collecting debt, as that term is defined in FDCPA section 803(5), regardless of whether the debt is a consumer financial product or service debt, as that term is defined in the May 2019 Proposed Rule. See 84 FR 23274, 23399 (May 21, 2019). Consumer financial product or service debts would include, for example, debts related to consumer mortgage loans or credit cards. Id. at 23286. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 knows nor should know that a timebarred debt is time barred when the debt collector makes the initial communication as defined in § 1006.34(b)(2), but who knows or should know that the debt is time barred before the debt collector has sent any validation notice required by § 1006.34(a)(1)(i)(B), to provide the disclosures required by § 1006.26(c)(1) in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should know that the debt is time barred, and on any validation notice required by § 1006.34(a)(1)(i)(B). In addition, proposed § 1006.26(c)(2)(ii) would require a debt collector who neither knows nor should know that a timebarred debt is time barred when the debt collector makes the initial communication as defined in § 1006.34(b)(2) and sends any validation notice required by § 1006.34(a)(1)(i)(B), but who later knows or should know that the debt is time barred, to provide the disclosures required by § 1006.26(c)(1) in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should know that the debt was time barred. Proposed comments 26(c)(2)(ii)–1 and –2 provide examples illustrating the rule. The Bureau requests comment on proposed § 1006.26(c)(2). In particular, the Bureau requests comment on the knowledge standard that should apply for determining when disclosures would be required under proposed 1006.26(c)(2).115 In addition, the Bureau requests comment on whether, if the first communication after a debt becomes time barred (or after the debt collector knows or should know that the debt is time barred) is oral, the debt collector should also be required to provide the disclosures in the first subsequent written communication. 26(c)(3) Form and Delivery of Disclosures 26(c)(3)(i) In General The Bureau has developed a series of model forms featuring the disclosures that would be required by proposed § 1006.26(c)(1). Under proposed § 1006.26(c)(3)(i), the required disclosures would need to be substantially similar to those shown on the model forms, and under proposed § 1006.26(c)(3)(ii), debt collectors would receive a safe harbor for using the model 115 See the request for comment regarding the knowledge standard in the section-by-section analysis of proposed 1006.26(c)(1). PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 forms (or, when applicable, for providing the disclosures shown on the model forms). Proposed Model Form B–4 is a validation notice that includes a timebarred debt disclosure, for use by debt collectors providing only the disclosure required under § 1006.26(c)(1)(i) (i.e., if the right to bring a legal action against the consumer on a time-barred debt cannot be revived under applicable law). The disclosure on proposed Model Form B–4 reads as follows: ‘‘The law limits how long you can be sued for a debt. Because of the age of this debt, we will not sue you for it.’’ Proposed Model Forms B–5 through B–7 are validation notices that include time-barred debt and revival disclosures, for use by debt collectors providing the disclosures required under § 1006.26(c)(1)(i) and (ii). The proposed model forms contain revival disclosures tailored to the different circumstances in which time-barred debts could be revived under applicable law. Specifically: • The disclosure on proposed Model Form B–5 provides: ‘‘The law limits how long you can be sued for a debt. If you do nothing or speak to us about this debt, we will not sue you to collect it. This is because the debt is too old. BUT if you make a payment or acknowledge in writing that you owe this debt, then we can sue you to collect it.’’ Proposed Model Form B–5 would be for use by debt collectors collecting time-barred debts if applicable law permits revival when a consumer makes a payment or acknowledges the debt in writing.116 • The disclosure on proposed Model Form B–6 provides: ‘‘The law limits how long you can be sued for a debt. If you do nothing or speak to us about this debt, we will not sue you to collect it. This is because the debt is too old. BUT if you make a payment, then we can sue you to collect it.’’ Proposed Model Form B–6 would be for use by debt collectors collecting time-barred debts if applicable law permits revival only when a consumer makes a payment. • The disclosure on proposed Model Form B–7 provides: ‘‘The law limits how long you can be sued for a debt. If you do nothing or speak to us about this debt, we will not sue you to collect it. This is because the debt is too old. BUT if you acknowledge in writing that you owe this debt, then we can sue you to collect it.’’ Proposed Model Form B–7 116 Although what constitutes a written acknowledgement sufficient to trigger revival may differ by State, proposed Model Form B–5 is drafted at a level of generality meant to accommodate debt collectors in all jurisdictions where written acknowledgement revives the debt collector’s right to sue. E:\FR\FM\03MRP2.SGM 03MRP2 lotter on DSKBCFDHB2PROD with PROPOSALS2 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules would be for use by debt collectors if applicable law permits revival only when a consumer acknowledges the debt in writing.117 As described in part III.B, the Bureau tested multiple written time-barred debt and revival disclosures. In proposing Model Forms B–4 through B–7, the Bureau generally has selected the disclosures that, based on testing results, consumers would be most likely to understand.118 Regarding revival, the Bureau selected the disclosure that respondents most understood when asked whether the debt collector would legally be allowed to sue to collect the debt if the debtor did nothing, made a payment, or wrote to the debt collector to acknowledge the debt. However, the Bureau notes that this disclosure underperformed other tested revival disclosures when respondents were asked whether the debt collector would legally be allowed to sue if the debtor called the debt collector to acknowledge the debt.119 As tested, the first sentence of the selected revival disclosure read, ‘‘If you do nothing in response to this notice, we will not sue you to collect this debt.’’ Based on the testing results, the Bureau believes that this phrasing could lead consumers who receive such a revival disclosure to have the false impression that communicating with a debt collector by telephone would revive the debt collector’s right to sue and thus make the consumer reluctant to communicate. To clarify that communicating with a debt collector by telephone would not revive the debt collector’s right to sue, the first sentence of the revival disclosures on proposed Model Forms B–5 through B–7 also includes the phrase ‘‘or speak to us.’’ As noted, the Bureau’s quantitative testing tested respondents’ understanding of written disclosures included on validation notices. For this reason, the time-barred debt and revival disclosures described what would or would not happen if the consumer took various actions in response ‘‘to this notice.’’ However, proposed § 1006.26(c)(1) and (2) would require time-barred debt and revival disclosures in certain oral communications. To ensure that the disclosure on the proposed model forms will be appropriate whether provided in writing or orally (and whether on a validation notice or not), the Bureau also proposes 117 Proposed Model Form B–7, like proposed Model Form B–5, is drafted at a level of generality meant to accommodate debt collectors in all written-acknowledgement jurisdictions. 118 CFPB Quantitative Testing Report, supra note 64, at 22–25. 119 CFPB Quantitative Testing Report, supra note 64, at 24–25. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 to include the phrase ‘‘about this debt’’ instead of the tested language ‘‘in response to this notice.’’ Based on the Bureau’s quantitative testing, and with these slight adjustments, the Bureau believes that the model forms effectively disclose the information described in proposed § 1006.26(c)(1) and (2). For these reasons, and pursuant to its authority under FDCPA sections 814(d) and 807 and Dodd-Frank Act section 1032, the Bureau proposes § 1006.26(c)(3)(i) to require that, when debt collectors provide the disclosures required by § 1006.26(c)(1) on a validation notice, the content, format, and placement of the disclosures must be substantially similar to such disclosures on Model Forms B–4 through B–7 in appendix B, as applicable. Proposed § 1006.26(c)(3)(i) also would require that, when the disclosures required by § 1006.26(c)(1) are provided orally or in a written communication that is not a validation notice, the content must be substantially similar to such disclosures on Model Forms B–4 through B–7 in appendix B, as applicable. As already discussed, some jurisdictions require debt collectors to make disclosures, including on validation notices, when collecting time-barred debt. Proposed comment 26(c)(3)(i)–1 would clarify that, when providing the disclosures required by § 1006.26(c)(1) on a validation notice, a debt collector who uses a validation notice that is otherwise substantially similar to Model Forms B–4 through B– 7, as applicable, may include any disclosures required by other applicable law on the reverse of the validation notice and will continue to be in compliance with the requirements of proposed § 1006.26(c)(1) and (3)(i). The proposed comment also provides an example of a disclosure required by other applicable law. The Bureau requests comment on proposed § 1006.26(c)(3)(i) and on comment 26(c)(3)(i)–1, including on conflicts that might arise between the Bureau’s proposed model forms and other disclosures required by applicable law. In particular, the Bureau requests comment on whether proposed § 1006.26(c)(3)(i)—and proposed Model Forms B–4 through B–7—would allow debt collectors to comply with other applicable law, including on whether any jurisdictions require time-barred debt or revival disclosures to be included on the front of the validation notice and whether, if so, it is possible for a debt collector to comply with both the Bureau’s proposal and any such State laws. The Bureau also requests comment and any supporting data on PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 12683 whether consumers who receive both Federal and State time-barred debt (and, if applicable, revival) disclosures on a validation notice may be confused by the dual disclosures. 26(c)(3)(ii) Safe Harbor Model forms that provide a safe harbor may benefit both consumers and debt collectors. A model form that has been tested with consumers may effectively disclose the information required by proposed § 1006.26(c)(1) in a manner that prevents deception and permits consumers to understand the costs, benefits, and risks associated with the collection of time-barred debts. A model form may also provide debt collectors with protection from liability that could arise if they developed and used their own forms. During the SBREFA process, small entity representatives encouraged the Bureau to develop model forms and safe harbors, emphasizing that model forms can promote efficiency and predictability by reducing legal risk.120 Because of the potential benefits to consumers and debt collectors, the Bureau has developed proposed Model Forms B–4 through B–7 in appendix B. As described above, proposed Model Forms B–4 through B–7 were developed over multiple rounds of consumer testing, and, based on this testing, the Bureau believes that they effectively disclose the information described in proposed § 1006.26(c)(1). For these reasons, under proposed § 1006.26(c)(3)(ii) a debt collector who uses Model Forms B–4 through B–7 in appendix B, as applicable, to provide the disclosures required by § 1006.26(c)(1) in a validation notice would receive a safe harbor for compliance with the requirements of § 1006.26(c)(1) and (3)(i). In addition, under proposed § 1006.26(c)(3)(ii) a debt collector who uses the relevant content of Model Forms B–4 through B–7, as applicable, to provide the disclosures required by § 1006.26(c)(1) orally or in a written communication that is not a validation notice would receive a safe harbor for compliance with the requirements of § 1006.26(c)(1) and (3)(i). Proposed comment 26(c)(3)(ii)–1 explains that, although the use of Model Forms B–4 through B–7 is not required, a debt collector who uses the applicable model form complies with the requirements of § 1006.26(c)(1) and (3)(i). The comment also would clarify what it means for a debt collector to use the ‘‘applicable’’ model form. For 120 See, e.g., Small Business Review Panel Report, supra note 51, at 22. E:\FR\FM\03MRP2.SGM 03MRP2 lotter on DSKBCFDHB2PROD with PROPOSALS2 12684 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules example, if under applicable law only a payment on a time-barred debt revives a debt collector’s right to bring a legal action against the consumer to collect the debt, a debt collector who uses Model Form B–6, which refers to payment but not written acknowledgement, to provide the disclosure on the validation notice would comply with the requirements of § 1006.26(c)(1) and (3)(i). Proposed comment 26(c)(3)(ii)–2 would clarify that a debt collector who uses Model Forms B–4 through B–7, as applicable, may include any disclosures required by other applicable law on the reverse of the validation notice and will continue to be in compliance with the requirements of proposed § 1006.26(c)(1) and (3)(i). The Bureau proposes Model Forms B– 4 through B–7 pursuant to its authority under section 1032(b) of the Dodd-Frank Act. As discussed in part IV, section 1032(b)(1) of the Dodd-Frank Act provides that ‘‘any final rule prescribed by the Bureau under [section 1032] requiring disclosures may include a model form that may be used at the option of the covered person for provision of the required disclosures.’’ Section 1032(b)(2) of the Dodd-Frank Act provides certain minimum criteria that any such model form must meet, and section 1032(b)(3) of the DoddFrank Act requires the Bureau to validate any such model form through consumer testing. Consistent with the Bureau’s authority under Dodd-Frank Act section 1032(b)(1), the Bureau believes that proposed Model Forms B–4 through B– 7 use plain language comprehensible to consumers, contain a clear format and design, such as easily readable type font, and succinctly explain the information that must be communicated to consumers. As discussed above, the Bureau has developed these model forms after consumer testing and believes that making them available would help ensure that the disclosures required by proposed § 1006.26(c)(1) are provided to consumers effectively, while also minimizing the burden on debt collectors who would otherwise need to develop their own disclosures. The Bureau requests comment on proposed § 1006.26(c)(3)(ii) and on proposed comments 26(c)(3)(ii)–1 and –2. In particular, the Bureau requests comment on the content, format, and design of proposed Model Forms B–4 through B–7. The Bureau also requests comment on whether the two conditions described on the model forms—payment and written acknowledgement—capture all circumstances in which State law permits revival. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 26(c)(3)(iii) Delivery Proposed § 1006.26(c)(3)(iii) would state that, when providing the disclosures required by proposed § 1006.26(c)(1) on a validation notice or a written communication that is not a validation notice, a debt collector must do so in a manner permitted by proposed § 1006.42. As discussed in the May 2019 Proposed Rule, proposed § 1006.42(a)(1) generally would require a debt collector who provides disclosures required by Regulation F in writing or electronically to do so in a manner that is reasonably expected to provide actual notice and in a form that the consumer may keep and access later.121 Proposed § 1006.42(b) through (e) in the May 2019 Proposed Rule explain how debt collectors may provide required notices to consumers by email or text message.122 The Bureau proposes § 1006.26(c)(3)(iii) as an interpretation of FDCPA section 808’s prohibition on using unfair or unconscionable means to collect a debt. It may be unfair or unconscionable under FDCPA section 808 for a debt collector to deliver a disclosure using a method that is not reasonably expected to provide actual notice to the consumer or that does not allow the consumer to retain the disclosure and access it later. If debt collectors deliver disclosures in a manner that does not meet these standards, consumers may not receive required information or have it available for future reference, potentially leading them to take different actions with respect to debts than they otherwise would have. A debt collector’s decision to provide a required disclosure in a manner not reasonably expected to provide actual notice or in a form that the consumer cannot keep and access later is outside of a consumer’s control; therefore, a consumer cannot reasonably avoid the injury caused by a debt collector who provides a required disclosure in such a manner or form. 121 See 84 FR 23274, 23355–57 (May 21, 2019). The May 2019 Proposed Rule would except from this requirement two disclosures that would be required to accompany all written debt collection communications (even relatively routine ones), on the theory that subjecting them to proposed § 1006.42(a)(1) likely would impose an unnecessary burden on debt collectors with little corresponding benefit to consumers. Id. The disclosures that proposed § 1006.26(c) would require would accompany at most two of the debt collector’s communications, so there is no similar basis to except them from proposed § 1006.42(a)(1). 122 See id. at 23357–67. As discussed in the May 2019 Proposed Rule, the Bureau proposed § 1006.42(b) through (d) based, in part, on its authority under the Electronic Communications in Global and National Commerce Act (E–SIGN Act). Id.; see also id. at 23285 (describing Bureau’s E– SIGN Act authority). PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 Providing required disclosures in a manner not reasonably expected to provide actual notice or in a form that the consumer cannot keep and access later could effectively thwart the rule’s disclosure provisions. Thus, whatever benefits debt collectors may receive from such conduct do not appear to be outweighed by the costs to consumers. In addition, to the extent proposed § 1006.26(c)(3)(iii) applies to the provision of disclosures on a validation notice, the Bureau proposes § 1006.26(c)(3)(iii) to implement and interpret FDCPA section 809(a) and (b) and pursuant to its authority under FDCPA section 814(d) to prescribe rules with respect to the collection of debts by debt collectors.123 The Bureau requests comment on proposed § 1006.26(c)(3)(iii). 26(c)(3)(iv) Translated Disclosures As discussed, the disclosures that proposed § 1006.26(c)(1) would require may help resolve consumer uncertainty related to the collection of time-barred debts and enable consumers to make more informed choices about whether to pay or prioritize such debts. Because some consumers do not speak or understand English, some debt collectors communicate with consumers in languages other than English. Consumers who are unable to communicate in English would benefit from receiving translated versions of the disclosures. At the same time, requiring debt collectors to identify such consumers and provide accurate translations in the myriad languages that consumers speak may impose a significant burden on industry. If a debt collector chooses to communicate with a consumer in a non-English language, however, this burden may be reduced. Such a debt collector has already identified the consumer’s language preference and exhibited a willingness to communicate in that language. Although preparing accurate translations of the disclosures described in proposed § 1006.26(c)(1) may be challenging in some circumstances, requiring a debt collector who communicates in a non-English language to provide the disclosures in that language may prevent deception and help ensure that the disclosures are effective for more consumers.124 123 Id. at 23356. § 1006.34(e) in the May 2019 Proposed Rule also would require the translation of any such disclosures provided on a validation notice that is translated into a language other than English. See id. at 23405 (permitting a debt collector who also sends an English-language validation notice in the same communication, or who has already provided an English-language validation 124 Proposed E:\FR\FM\03MRP2.SGM 03MRP2 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules For these reasons, and pursuant to the Bureau’s authority under FDCPA section 814(d) and Dodd-Frank Act section 1032(a), proposed § 1006.26(c)(3)(iv) would require a debt collector to make the disclosures that would be required by proposed § 1006.26(c)(1) in the same language or languages used for the rest of the communication in which the disclosures are conveyed. Proposed § 1006.26(c)(3)(iv) also would require that any translation of the disclosures that would be required by § 1006.26(c)(1) be complete and accurate. Proposed comment 26(c)(3)(iv)–1 provides illustrative examples, the second of which illustrates the application of proposed § 1006.26(c)(3)(iv) to communications that take place in multiple languages. Proposed comment 26(c)(3)(iv)–2 would clarify that the language of a disclosure obtained from the Bureau’s website is considered a complete and accurate translation, although debt collectors are permitted to use other translations so long as those translations are complete and accurate. The Bureau requests comment on proposed § 1006.26(c)(3)(iv). Section 1006.34 Notice for Validation of Debts 34(c) Validation Information lotter on DSKBCFDHB2PROD with PROPOSALS2 34(c)(2) Information About the Debt 34(c)(2)(xi) In the May 2019 Proposed Rule, the Bureau proposed § 1006.34(a) to require debt collectors to provide consumers with specified validation information, either by sending the consumer a validation notice in the initial communication, as defined in proposed § 1006.34(b)(2), or within five days of that initial communication, or by providing the information orally in the initial communication.125 Proposed § 1006.34(c) in the May 2019 Proposed Rule set forth the required validation information, with proposed § 1006.34(c)(2) specifying the information that debt collectors would be required to provide about the debt being collected.126 Because the timebarred debt and revival disclosures described in § 1006.26(c)(1) and (2) represent information about the debt that debt collectors would be required to include, as applicable, on validation notices, the Bureau proposes to include the disclosures in the list of validation notice, to ‘‘send the consumer a validation notice completely and accurately translated into any language’’). 125 Id. at 23404. 126 Id. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 information in § 1006.34(c)(2). Specifically, the Bureau proposes § 1006.34(c)(2)(xi) to provide that validation information includes a timebarred debt disclosure, or a time-barred debt and a revival disclosure, if the debt collector determines after a reasonable investigation that such disclosures are required by § 1006.26(c). Thus, a debt collector who provides the proposed § 1006.26(c) disclosures after undertaking a reasonable inquiry and concluding that the disclosures are required would not violate proposed § 1006.34 for having made the disclosures even if it is determined later that such disclosures were not required. For the reasons discussed in the sectionby-section analysis of proposed § 1006.26(c)(1), the Bureau proposes § 1006.34(c)(2)(xi) pursuant to its authority under FDCPA sections 814(d) and 807 and Dodd-Frank Act section 1032(a). The Bureau requests comment on proposed § 1006.34(c)(2)(xi). VI. Dodd-Frank Act Section 1022(b) Analysis A. Overview In developing the supplemental proposed rule, the Bureau has considered its potential benefits, costs, and impacts.127 The Bureau requests comment on the preliminary analysis presented below as well as submissions of additional data that could inform the Bureau’s analysis of the benefits, costs, and impacts. Debt collectors play a critical role in markets for consumer financial products and services. Credit markets function because lenders expect that borrowers will pay them back. In consumer credit markets, if borrowers fail to repay what they owe per the terms of their loan agreement, creditors often engage debt collectors to attempt to recover amounts owed, whether through the court system or through less formal requests for repayment. The supplemental proposal would require debt collectors to make certain disclosures when attempting to collect time-barred debt. The new requirements would provide benefits to consumers by helping to correct the misimpression that consumers might have that debt collectors can legally sue to collect time127 Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act requires the Bureau to consider the potential benefits and costs of the regulation to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products and services; the impact of proposed rule on insured depository institutions and insured credit unions with less than $10 billion in total assets as described in section 1026 of the Dodd-Frank Act; and the impact on consumers in rural areas. PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 12685 barred debts. Correcting this misimpression can help consumers because a better understanding of whether they can be sued could be important in deciding how to prioritize time-barred debts relative to other debts or expenses such as household necessities. The requirements would also impose costs on debt collectors who would need to determine for each debt whether the disclosures are required and to provide the disclosures when appropriate. The disclosures could also reduce debt collector revenue because consumers who receive such disclosures might be less willing to repay time-barred debts. In addition to these effects, there could be indirect impacts on credit markets. This is because, if the proposal were to increase costs for debt collectors or reduce repayment of time-barred debt, it would reduce the expected return to lending. This could lead lenders to increase interest rates and other costs to borrowers and to restrict availability of credit, particularly to higher-risk borrowers.128 In developing the supplemental proposed rule, the Bureau has consulted, or offered to consult with, the appropriate prudential regulators and other Federal agencies, including regarding consistency with any prudential, market, or systemic objectives administered by such agencies. B. Provisions To Be Analyzed The analysis below considers the potential benefits, costs, and impacts to consumers and covered persons of the supplemental proposal, which would require debt collectors who are collecting debts that they know or should know are time barred to provide time-barred debt disclosures and, if applicable, revival disclosures to consumers. C. Data Limitations and Quantification of Benefits, Costs, and Impacts The discussion in this part VI relies on publicly available information as well as information the Bureau has obtained. The Bureau engaged a contractor to conduct qualitative and quantitative testing to evaluate consumers’ understanding of timebarred debt and revival and of disclosures about time-barred debt and revival. Specifically, the Bureau conducted 54 qualitative one-on-one interviews with consumers between April 2017 and April 2019, in order to refine the disclosures. The Bureau then 128 See 84 FR 23274, 23371–72, 23389–91 (May 21, 2019). E:\FR\FM\03MRP2.SGM 03MRP2 12686 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules lotter on DSKBCFDHB2PROD with PROPOSALS2 conducted an online survey designed to assess the effectiveness of time-barred debt and revival disclosures. The online survey, completed in September of 2019, surveyed 8,011 consumers—66 percent of whom had debt collection experience—and used random assignment to study the effect of receiving a time-barred debt disclosure alone, or time-barred debt and revival disclosures together, on consumer comprehension of time-barred debt and revival.129 The Bureau also relies on the results of its 2015 Survey of Consumer Views on Debt, which provided the first comprehensive and nationally representative data on consumers’ experiences and preferences related to debt collection.130 In addition, the Bureau relies on its Consumer Credit Panel (CCP) to understand potential benefits and costs to consumers of the proposed rule.131 To better understand potential effects on industry of potential requirements, such as those in the proposed rule, the Bureau has engaged in significant outreach, including the CFPB Debt Collections Operations Study.132 In July 2016, the Bureau consulted with small entities as part of the SBREFA process and obtained important information on the potential impacts of proposals that the Bureau was considering at the time, including disclosures regarding a debt’s timebarred status.133 The sources described above, together with other sources of information and the Bureau’s market knowledge, form the basis for the Bureau’s consideration of the likely impacts of the supplemental proposed rule. The Bureau provides the best estimates possible of the potential benefits and 129 See CFPB Quantitative Testing Report, supra note 64. The survey results provide important information on consumer comprehension of disclosures about time-barred debt; however, as further discussed in the Testing Results Report, effects observed in a controlled setting such as the survey may differ from those observed in practice. 130 Bureau of Consumer Fin. Prot., Consumer Experiences with Debt Collection: Findings from the CFPB’s Survey of Consumer Views on Debt (Jan. 2017), https://www.consumerfinance.gov/dataresearch/research-reports/consumer-experiencesdebt-collection-findings-cfpbs-survey-consumerviews-debt/. 131 For more information about Bureau data sources, see Sources and Uses of Data at the Bureau of Consumer Financial Protection (Sept. 2018), https://www.consumerfinance.gov/data-research/ research-reports/sources-and-uses-data-bureauconsumer-financial-protection/. 132 See Bureau of Consumer Fin. Prot., Study of Third-Party Debt Collection Operations (July 2016), https://www.consumerfinance.gov/documents/755/ 20160727_cfpb_Third_Party_Debt_Collection_ Operations_Study.pdf (hereinafter CFPB Debt Collection Operations Study). 133 See Small Business Review Panel Report, supra note 51. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 costs to consumers and covered persons of this proposal given available data. However, available data sources generally do not permit the Bureau to quantify, in dollar terms, how particular proposed provisions will affect consumers. With respect to industry impacts, much of the Bureau’s existing data come from qualitative input from debt collectors and other entities that operate in the debt collection market rather than from representative sampling that would allow the Bureau to estimate total benefits and costs. The Bureau’s discussion in this part generally considers the benefits, costs, and impacts of the supplemental proposal through the first 10 years after the potential effective date. The Bureau generally anticipates that any one-time costs to covered persons of coming into compliance with the supplemental proposal would be borne before or during the first year after the effective date. Ongoing benefits and costs would likely vary from year to year in accordance with the amount of timebarred debt collected in any year. The Bureau does not have any basis at this time to predict how that amount will vary during future years. General economic principles and the Bureau’s expertise in consumer financial markets, together with the data and findings that are available, provide insight into the potential benefits, costs, and impacts of the supplemental proposed rule. Where possible, the Bureau has made quantitative estimates based on these principles and the data available. Some benefits and costs, however, are not amenable to quantification, or are not quantifiable given the data available to the Bureau. The Bureau provides a qualitative discussion of those benefits, costs, and impacts. The Bureau requests additional data or studies that could help quantify the benefits and costs to consumers and covered persons of the supplemental proposed rule. D. Baseline for Analysis In evaluating the potential benefits, costs, and impacts of the supplemental proposal, the Bureau takes as a baseline the current legal framework governing debt collection. This includes debt collector practices as they currently exist, responding to the requirements of the FDCPA as currently interpreted by courts and law enforcement agencies, other Federal laws, and the rules and statutory requirements promulgated by the States.134 In the consideration of 134 These requirements, and the specificity of the requirements, may vary depending upon the jurisdiction in which the collection occurs. For PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 potential benefits, costs, and impacts below, the Bureau discusses its understanding of practices in the debt collection market under this baseline and how those practices would change under the proposal. E. Coverage of Proposal The proposed rule would apply to debt collectors as defined in the FDCPA, as further discussed in the May 2019 Proposed Rule.135 Creditors that collect on debts they own generally would not be affected directly by the proposal because they typically are not debt collectors for purposes of the FDCPA. Creditors, however, may experience indirect effects if debt collectors’ costs increase and if those costs are passed on to creditors. F. Potential Benefits and Costs to Consumers and Covered Persons Proposed § 1006.26(c) would require debt collectors who are collecting debts that they know or should know are time barred to provide time-barred debt disclosures and, if applicable, revival disclosures to consumers. Proposed model forms B–4 through B–7 include the disclosures that debt collectors could use to comply with the disclosure requirements of proposed § 1006.26(c). Potential benefits and costs to consumers. The proposed time-barred debt and revival disclosures would benefit consumers by providing them with information that may be important when deciding how to respond to a request for payment. A debt collector’s attempt to collect a time-barred debt may give a consumer the impression that the debt is legally enforceable—an impression that is false for time-barred debts. A consumer who takes away from the collection attempt that he or she will, or could, be sued for a time-barred debt may place greater priority on paying that debt than if he or she knew that the debt collector could not sue. Furthermore, a consumer who is unaware of the actions that would trigger revival may revive the debt collector’s right to sue, for example by making a partial payment. The consumer benefits of the proposed time-barred debt and revival disclosures depend on a number of factors, including: (i) How frequently debt collectors attempt to collect debt that is time barred; (ii) what consumers already understand about debts’ timebarred status and how much the proposed disclosures would improve example, as discussed in part II.C, certain States require specific disclosure language be provided when collecting time-barred debt. 135 See 84 FR 23274, 23372 (May 21, 2019). E:\FR\FM\03MRP2.SGM 03MRP2 lotter on DSKBCFDHB2PROD with PROPOSALS2 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules their understanding about time-barred debt and revival; and (iii) the value to consumers of gaining a better understanding of time-barred debt and revival and making better-informed decisions as a result. The Bureau cannot fully quantify each of these factors, although the Bureau has research and other data that are relevant to the potential extent of these benefits. First, regarding the frequency with which debt collectors attempt to collect time-barred debt, the Bureau is not aware of representative data showing how much debt collection activity involves time-barred debt. There is evidence that some debt collectors contact a substantial share of consumers to attempt to collect time-barred debt. For example, a 2013 FTC report notes that most statutes of limitations are between three and six years and estimates that, for certain large debt buyers, about a third of debt purchased was at least three years old, and 12 percent of debt purchased was at least six years old.136 On the other hand, some contingency collection agencies have told the Bureau that they do not collect any debt that is time barred. Variation in State statutes of limitations makes quantification of the number of debts that are time barred difficult; some States consider debts time barred if they are three years from charge off, while others use longer periods, such as seven or 15 years, to demarcate time-barred debt. The Bureau has estimated that at least 49 million consumers are contacted by a third-party debt collector each year about a debt in collection.137 Even if only a relatively small fraction of those consumers’ debts were time barred, it could still mean that debt collectors contact millions of consumers each year about time-barred debts. Second, the Bureau has some evidence that consumers do not have a clear understanding of what constitutes time-barred debt and the implications of having a debt that is time barred. In focus groups the Bureau observed in developing the proposed disclosures, for example, consumers expressed erroneous beliefs about if debts are time barred, if they can be sued for timebarred debt, and if time-barred debt can appear on their credit report.138 As an example, one consumer said ‘‘I think you’re forgiven after twenty years.’’ Additionally, as discussed in the 136 FTC Debt Buying Report, supra note 8, at 43. The same study estimates that, even for debts that are at least 15 years old, these debt buyers attempted to collect the debt at least 29 percent of the time. Id. at B–12. 137 See 84 FR 23274, 23384 (May 21, 2019). 138 FMG Focus Group Report, supra note 40, at 9– 10. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 Quantitative Testing Report, without a disclosure, most consumers believe they can be sued for a debt even if it is old enough to be time barred in most jurisdictions. When asked if a debt collector could sue to collect a debt if the debtor did nothing in response to the collection notice for a ten-year-old debt, about 65 percent of respondents who read a notice about a debt that did not include a time-barred debt disclosure incorrectly reported that the debt collector was legally allowed to sue to collect the debt.139 Being presented with a disclosure explaining that a debt is time barred largely corrected this misunderstanding: Approximately 65 percent of respondents who were randomly assigned a notice containing a time-barred debt disclosure (with or without a revival disclosure) correctly stated that they could not be sued on the debt.140 Similarly, the Bureau has evidence to suggest that consumers do not understand the actions that trigger revival of a debt collector’s right to sue on a time-barred debt. In focus groups, participants in general were confused about actions that would trigger revival, in particular finding it surprising that making a payment made them susceptible to being sued. One participant said, ‘‘Why would they punish me for trying to make a payment?’’ 141 The Bureau’s quantitative research findings are consistent with this. Of the respondents who did not receive a disclosure informing them of the actions that trigger revival, fewer than 20 percent correctly reported that the debt collector is legally allowed to sue the debtor if the debtor makes a partial payment, and fewer than 20 percent correctly reported that a debt collector is legally allowed to sue if the debtor sends a letter acknowledging the debt as theirs.142 In contrast, once a revival disclosure was provided, about 70 percent of respondents reported correctly that the debtor can be sued after making a partial payment, and about 58 percent reported correctly that the debtor can be sued after writing to 139 CFPB Quantitative Testing Report, supra note 64, at appendix table 8. The length of the limitations period generally varies by State and debt type. Most statutes of limitations applicable to debt collection claims are between three and six years, and therefore a ten-year-old debt is likely to be time-barred in most states. 140 Id. 141 FMG Cognitive Report, supra note 40, at 35– 36. 142 CFPB Quantitative Testing Report, supra note 64, at appendix tables 9–10. These results compare respondents who received a time-barred debt with revival disclosure to respondents who received either a time-barred debt disclosure that did not mention revival or no time-barred debt disclosure at all. PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 12687 the debt collector to acknowledge the debt as theirs.143 This research suggests that consumers generally do not understand that making a partial payment or writing a debt collector to acknowledge a time-barred debt can trigger revival of a debt collector’s right to sue to collect the debt, but that a revival disclosure can substantially improve understanding of the implications of these actions. Finally, the Bureau has evidence that, if consumers know that debts are time barred, that knowledge is likely to affect their conduct relating to the debts. Consumers in focus groups expressed that it was important to know that a debt was time barred. The Bureau’s Quantitative Testing Report indicates that, for many respondents, understanding a debt’s time-barred status and revival could affect their choice of what to do about a debt under some circumstances. Respondents who were shown a time-barred debt and revival disclosure were more likely to say that they would ignore the debt, and less likely to say that they would make a payment on the debt, than respondents who did not see a disclosure or who saw a time-barred debt disclosure without a revival disclosure.144 These differences were statistically significant and relatively large in magnitude. For example, of respondents who saw either a timebarred debt disclosure without revival or no time-barred debt disclosure, about 31 to 38 percent said they would be ‘‘very likely’’ to make a full or partial payment on a hypothetical debt, whereas about 23 percent of respondents who saw the a time-barred debt with revival disclosure said they would be ‘‘very likely’’ to pay.145 The fact that many respondents who saw a time-barred debt with revival disclosure said they would make different choices suggests that, for consumers such as these respondents, the information in the proposed disclosure is valuable in making choices. The Bureau is unaware of data that could be used to estimate the frequency with which debt collectors in fact sue or threaten to sue on revived debt. Industry representatives state that many debt collectors choose not to sue or threaten to sue on time-barred debt even if the consumer takes action to revive the right 143 Id. 144 Id. at 28–30. Respondents were asked about a hypothetical debt and told that ‘‘while it would not be easy, [the respondent] probably could find a way to come up with money to pay the debt.’’ The survey results thus more closely reflect consumer choices in that situation than situations in which consumers are either more or less able to repay. 145 Id. at appendix table 23. E:\FR\FM\03MRP2.SGM 03MRP2 12688 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules lotter on DSKBCFDHB2PROD with PROPOSALS2 to sue, and one major trade association composed largely of debt buyers has established standards that prohibit its members from suing or threatening to sue on time-barred debt even if the right to sue has been revived.146 However, the Bureau does not know what share of time-barred debts are collected by debt collectors following such a policy. The benefits of the revival disclosures in the supplemental proposal may be limited if few debt collectors in fact sue or threaten to sue after the right to do so has been revived. The estimates above suggest that the proposed time-barred debt and revival disclosures could benefit some consumers, but the Bureau expects this benefit could vary based on current State law and the practices of particular debt collectors. The Bureau understands, for example, that some debt collectors, when attempting to collect time-barred debt, currently disclose to consumers that they cannot sue to collect the debt.147 Moreover, certain jurisdictions, including California and New York, require debt collectors to make time-barred debt disclosures, and in some cases revival disclosures, in at least some circumstances. The benefits of the proposed disclosures may be limited where similar disclosures are already being provided. The proposed disclosures could have costs to consumers if they lead to mistaken beliefs about the consequences of consumers’ actions. Some results of the Bureau’s quantitative testing suggest that a revival disclosure could lead some consumers to overgeneralize the actions that can make them susceptible to lawsuit. In the Bureau’s quantitative testing, about 45 percent of respondents who saw the revival disclosure incorrectly reported that the debt collector is legally allowed to sue the debtor to collect time-barred debt if the debtor calls to acknowledge the debt as theirs, relative to about 17 percent of respondents who saw no disclosure about time-barred debt or revival and about 9 percent of respondents who saw a time-barred debt disclosure without 146 Receivables Mgmt. Ass’n Int’l, Receivables Management Certification Program, at 32 (Jan. 2018), https://rmassociation.org/wp-content/ uploads/2018/02/Certification-Policy-version-6.0FINAL-20180119.pdf (‘‘A Certified Company shall not knowingly bring or imply that it has the ability to bring a lawsuit on a debt that is beyond the applicable statute of limitations, even if state law revives the limitations period when a payment is received after the expiration of the statute.’’) 147 Some debt collectors also must provide such disclosures as a result of consent agreements with law enforcement agencies, including the Bureau and the FTC. See supra note 96. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 revival.148 As discussed in the sectionby-section analysis of proposed § 1006.26(c)(3)(i), the Bureau has made a small change to the content of the disclosures on proposed Model Forms B–5 through B–7 (i.e., the proposed model forms containing revival language), specifically mentioning that the debt collector will not sue if the consumer does nothing or speaks to the debt collector about the debt, to attempt to reduce the risk of this type of overgeneralization. Another potential cost to consumers could arise if the proposed disclosures make debt collectors more likely to sue consumers before a debt becomes timebarred. The Bureau’s research provides some evidence that consumers may be less likely to pay debts that they know are time barred, as discussed below in the Bureau’s consideration of costs to covered persons. Requiring debt collectors to disclose that a debt is time barred may therefore reduce the number of time-barred debts that are paid. Knowing that a consumer is less likely to pay a time-barred debt may make debt collectors more likely to pursue litigation prior to a debt reaching the statute of limitations, which could impose costs on some consumers. However, as described below, the available evidence suggests that, in practice, time-barred debt disclosures in use today do not lead to a material reduction in the aggregate rate at which time-barred debt is repaid, which in turn suggests that there would not be a large increase in litigation. The Bureau requests data and other evidence that would permit it to better estimate any such effects. Potential benefits and costs to covered persons. The supplemental proposal would require debt collectors who attempt to collect time-barred debt to provide new disclosures in certain communications with consumers. This could impose one-time costs for systems that identify whether a debt is time barred and whether (and if so, when) it is subject to revival, and it may impose ongoing costs both to determine whether debts are time barred and to make disclosures when appropriate. To quantify costs of the proposal to covered persons, the Bureau would need to estimate the number of debt collectors who collect time-barred debt, the number of time-barred accounts they collect, the cost to such debt collectors of determining whether a debt is time barred and whether and when it can be revived, and the cost of making the proposed disclosures when appropriate. 148 CFPB Quantitative Testing Report, supra note 64, at appendix table 11. PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 The Bureau does not have representative data that permit it to estimate the number of debt collectors who collect time-barred accounts or the number of time-barred accounts they collect. The Bureau understands based on industry outreach that many debt collectors do not collect time-barred accounts. Even debt collectors who do not regularly collect time-barred debt might need to review systems to ensure that they are not communicating about time-barred debts without providing the appropriate proposed disclosure in circumstances when they are required; however, as discussed below, the Bureau expects that the burden of the proposed provision on such debt collectors would be lower than for debt collectors who regularly collect timebarred accounts. Among those debt collectors who do regularly attempt to collect time-barred accounts, the Bureau understands that some currently disclose to consumers that they cannot sue to collect the debt. Moreover, debt collectors who are collecting debt in certain jurisdictions, such as California and New York, already must make such disclosures in at least some circumstances. Also, debt collectors who litigate accounts must know whether an account is time barred to avoid threatening to sue or suing on time-barred accounts in violation of the FDCPA as interpreted by existing FDCPA case law. Thus, some debt collectors, particularly ones that collect nationwide or that engage in litigation, already have a process in place for identifying time-barred accounts and, where they do attempt to collect timebarred debt, for providing disclosures to consumers about the time-barred status of such accounts.149 The Bureau understands that determining whether an account is time barred is not always straightforward, particularly for debt collectors operating in a range of jurisdictions. Different States have different statutes of limitations for different types of debt.150 Which statute applies depends on questions such as where the consumer resides and the nature of the credit contract, as well as which State’s law a court applies to a given case. As noted above, many debt collectors already must make decisions about a debt’s time-barred status to determine whether a lawsuit is permissible or, in certain 149 Consistent with this, the FTC found that debt buyers commonly consider the prevalence of timebarred debt when bidding on portfolios of debt, suggesting that debt buyers and sellers of debt regularly determine whether debts are time barred. See FTC Debt Buying Report, supra note 8, at 21. 150 Small Business Review Panel Report, supra note 51, at 25. E:\FR\FM\03MRP2.SGM 03MRP2 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules lotter on DSKBCFDHB2PROD with PROPOSALS2 States, whether particular disclosures are required. Even for these debt collectors, however, the proposed rule would increase the importance of making the correct determination. The Bureau anticipates that some collection agencies and debt buyers would incur legal and programming costs to develop a system to identify time-barred accounts and incorporate the determination into the collection management system.151 These costs could be mitigated somewhat by the proposed rule’s ‘‘know or should know’’ standard for the debt’s time-barred status, which could reduce the likelihood that debt collectors would be held liable for failing to identify timebarred debt. Debt collectors would also incur costs to train staff to answer consumer questions about the proposed disclosures and to incorporate information about the new disclosures into their systems for managing communication with consumers. Debt collectors could also incur ongoing costs of determining whether debts are time barred. Debt collectors would need to update systems from time to time to reflect changes in State laws regarding statutes of limitations and might need to perform new legal analyses when facing novel questions of law or fact, such as when beginning to collect debt from consumers in a particular jurisdiction for the first time. For accounts that are identified as time barred, debt collectors would need to make disclosures with certain written and oral communications. This would impose direct costs to make the disclosures and potentially indirect costs because consumers may be less likely to pay debts after being informed that those debts are time barred. Debt collectors most often initiate communication with consumers by letter, meaning that most disclosures required by the proposal would be made in writing.152 The Bureau does not anticipate that debt collectors would incur substantial ongoing costs to provide the proposed disclosures in written materials because required disclosures could be automatically 151 The Bureau understands that many debt collectors who currently track the time-barred status of debts to comply with existing requirements are able to categorize debts as time barred in an automated way. In part, this may require debt collectors to take a conservative approach of erring in favor of categorizing debt as time barred in cases where there might be doubt as to a debt’s time-barred status and where a detailed fact-specific inquiry about a particular account would be costly. 152 CFPB Debt Collection Operations Study, supra note 132, at 28. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 included in written materials when applicable. Some debt collectors call consumers before sending any written material and would need to make any required disclosure orally in their first communication with the consumer. For oral communications, the Bureau anticipates that debt collectors or their vendors would adjust collection management systems to identify disclosures that must be made and prompt debt collector employees to make oral disclosures when required. The required disclosure would increase the length of each conversation about a time-barred debt by perhaps 5 to 10 seconds, though if consumers have questions about the disclosure, this could lengthen some calls considerably. If the disclosure lengthens initial calls to collect a time-barred debt by 15 seconds on average, given an assumed average labor cost of $22 per hour for debt collectors, this would cost approximately $0.09 per call.153 Costs may also increase if debt collectors and creditors increase monitoring of calls regarding timebarred debt to ensure compliance. Many debt collectors currently audit telephone conversations, either by listening to a sample of calls or by using automated voice-recognition software, to ensure that individual debt collectors comply with applicable law and other standards. A new required disclosure for time-barred debt could increase the cost of such monitoring, by adding to the list of items that must be audited. The Bureau believes that many consumers are unaware of the statute of limitations or may not know whether it has expired for their debt. As discussed above, the Bureau’s quantitative survey suggests that some consumers might not repay a debt if they know they cannot be sued, although others may repay regardless.154 While the Bureau’s quantitative research findings show that about 44 percent of respondents who viewed a time-barred debt with revival disclosure indicated they would be ‘‘very unlikely’’ to pay, about 32 percent answered they would be likely or very likely to pay (indicated either a 4 or 5 on a 5-point scale where 5 was ‘‘very likely’’).155 In contrast, about 18 to 26 percent of consumers who did not see 153 Id. at 17. Quantitative Testing Report, supra note 64, at 28–30. In addition, another study found that, when told they could not be sued, 34 percent of participants reflecting on a hypothetical scenario said they would decline to pay relative to 6 percent who were not told they could not be sued. FTC Debt Buying Report, supra note 8, at 47. 155 CFPB Quantitative Testing Report, supra note 64, at appendix table 23. 154 CFPB PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 12689 the revival disclosure said they would be ‘‘very unlikely’’ to pay, and about 54 to 56 percent of these consumers said they would be likely or very likely to repay.156 These survey results reflect responses to a hypothetical question by respondents who were being asked specifically about a debt’s time-barred status. They suggest that the proposed disclosures can affect consumers’ decisions about whether to repay under certain circumstances. The degree to which the proposed disclosures would affect repayment of time-barred debt in aggregate depends on a number of other factors, including the extent to which debt collectors actively attempt to collect time-barred debts, whether debt collectors are able to contact consumers, and whether consumers are willing and able to repay debts. To better understand the effect of time-barred debt disclosures on aggregate real-world collections activity, the Bureau examined credit report data from the CCP. As noted above, some debt collectors already provide time-barred debt disclosures; some do so voluntarily, while others are required by State law or a consent order to do so. While the Bureau has no data regarding debt collectors who voluntarily provide time-barred debt disclosures, the Bureau has some data in the CCP regarding the effects of disclosures mandated by State laws. The Bureau analyzed whether a likely time-barred collections tradeline in the CCP has a lower probability of being paid if there is a State-mandated time-barred debt disclosure requirement in effect. To determine whether a collections tradeline is likely past the State statute of limitations, the Bureau used the same procedure as in its analysis of the effects of prohibiting threats of suit on time-barred debt in the May 2019 Proposed Rule.157 The Bureau identified nine States with laws or regulations mandating some kind of time-barred debt disclosure: California,158 Connecticut,159 Massachusetts,160 Nevada,161 New 156 Id. The likelihood that consumers choose to repay actual debts is likely to be different than the rate at which survey respondents said they would repay debt in a hypothetical situation, but the survey findings do suggest that time-barred debt and revival disclosures will affect some consumers’ repayment decisions. 157 See 84 FR 23274, 23381–82 (May 21, 2019). 158 Cal. Civ. Code 1788.52(d). This law only applies to debt buyers, and so the Bureau only considered California debts to have a disclosure required if the CCP data indicate that the debt was held by a debt buyer. 159 Conn. Gen. Stat. 36a–805(a)(14). 160 Mass Code Regs., tit. 904, 7.07(24). 161 Nev. Rev. Stat. 649.332(2). This regulation only applies to ‘‘hospital’’ debt. The Bureau only E:\FR\FM\03MRP2.SGM Continued 03MRP2 12690 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules Mexico,162 New York,163 North Carolina,164 Vermont,165 and West Virginia.166 The Bureau calculated the hazard rate of payment over time in collections— that is, the probability of payment occurring after a given number of months, conditional on no payment occurring before—for all collections tradelines in the CCP. The Bureau also calculated the hazard rate separately for tradelines belonging to consumers residing in a State where a time-barred debt disclosure would have been required after the expiration of the statute of limitations, and for tradelines belonging to consumers residing in States that did not have these requirements.167 The Bureau then calculated the average hazard rate based on the number of months before or after the probable expiration of the applicable statute of limitations, again with separate calculations for loans with and without a State-mandated time-barred debt disclosure. This calculation is plotted in Figure 1, below.168 The hazard of payment declines steadily over the year leading up to the probable expiration of the statute of limitations and continues to decline at roughly the same rate afterwards, with the rate of decline flattening out slowly over time. If the requirement to make a time-barred debt disclosure significantly affects payment rates, one would expect the hazard rate in States with disclosures to diverge downward from the rate in States without disclosures following the probable expiration of the State statute States with No TBO Disclosure ,0015-·r ·12 ···"--·T ·---···· of limitations. In fact, although prior to the probable expiration of the State statute of limitations the hazard of payment declines slightly faster in States with time-barred debt disclosures than in States that do not require disclosure, the slope flattens out more following the probable expiration of the statute of limitations in States with disclosures, compared to States without. This suggests that time-barred debt disclosures in these States have not resulted in a large drop in the aggregate likelihood that consumers pay timebarred debts, although it is still consistent with the possibility that repayment rates are reduced for certain types of debt or for consumers in certain situations. States with TBO Disclosure Required --·•·---r ·· ·--·· ··"-- r· ···-· ··---••·r -9 -6 -3 r·· .. 0 .. ..... r-. -· .. - .... 'I 6 9 12 Thus, while the requirement to provide the proposed disclosures would likely impose some costs on covered persons, the Bureau does not expect that the proposed disclosures would have large effects on aggregate collections revenue. Alternatives considered. The Bureau considered alternative proposals regarding time-barred debt and revival, including those considered as part of the SBREFA process. In the Small Business Review Panel Outline, the Bureau considered an alternative that would also require debt collectors to considered Nevada debts to have a disclosure required if the CCP data indicate that the tradeline was related to a medical debt. 162 N.M. Admin. Code 12.2.12.9. 163 N.Y. Comp. Codes R. & Regs. tit. 23, 1.3. 164 N.C. Gen. Stat. 58–70–115. 165 6 Code of Vt. Rules 031–004–Rule CF 104.05. 166 W. Va. Code 46a–2–128(f). 167 The calculations rely on the assumption that debts owed by consumers who reside in a given State are governed by the statute of limitations in that State and that consumers in that State receive disclosures mandated by the law of that State. Note that some of the States in question passed their laws or regulations mandating a time-barred debt disclosure during the sample period studied by the Bureau. Specifically, California’s law became effective January 1, 2014; Connecticut’s law became effective October 1, 2013; Massachusetts’ regulation became effective March 2, 2012; Nevada’s law became effective June 13, 2007; New Mexico’s law became effective March 15, 2011; New York’s regulation became effective December 1, 2014; North Carolina’s law became effective October 1, 2009; Vermont’s law became effective January 1, 1976; and West Virginia’s law became effective June 6, 2014. The CCP data used in the Bureau’s analysis covers the period from 2005 to 2018. For purposes of this analysis, the Bureau excluded debts belonging to consumers in States that eventually mandated time-barred debt disclosures if the probable expiration of the statute of limitations occurred before the disclosure became effective. 168 The overall level of the hazard rate in the figure is quite low—on the order of two-tenths of 1 percent. This is to be expected given the monthly nature of the series. Although around 10 percent of all collections tradelines eventually show some evidence of payment, the proportion that do so in any given month is quite low. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 E:\FR\FM\03MRP2.SGM 03MRP2 EP03MR20.002</GPH> lotter on DSKBCFDHB2PROD with PROPOSALS2 Months Since Probable Expiration of Statute of Limitations Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules lotter on DSKBCFDHB2PROD with PROPOSALS2 provide a disclosure when collecting time-barred debt but would prohibit debt collectors from collecting on timebarred debt that can be revived unless they waive the right to sue on the debt. Under the requirement considered, subsequent debt collectors would be bound by the disclosure made by any previous debt collectors. Such a requirement could have benefits for consumers relative to the supplemental proposal, because it would mean debt would generally not be revived regardless of whether consumers read and understood a disclosure about revival. Similarly, this alternative would be more burdensome for debt collectors than the proposed requirement because it would prevent them from suing to recover debts when the consumer had taken actions that revive the debts. However, the differences in consumer benefits and in debt collector costs from this alternative could be quite small assuming that, as industry has claimed, collectors do not in fact sue to recover debts that have been revived. The Bureau also considered requiring a time-barred debt disclosure without requiring any disclosure about revival. Such a requirement could be less burdensome for small entities under some circumstances. However, the Bureau’s quantitative disclosure testing indicates that many consumers who view a time-barred debt disclosure without a disclosure about revival fail to understand that certain actions they take could revive the debt.169 G. Potential Reduction of Access by Consumers to Consumer Financial Products and Services Economic theory indicates that it is possible for changes in debt collection rules, such as those contained in this supplemental proposal, to affect consumers’ access to credit. Under economic theory, creditors should decide to extend credit based on the discounted expected value of the revenue stream from that extension of credit. This entails considering the possibility that the consumer will ultimately default and expected payments will decrease. If the proposed rule were to increase collection costs or reduce revenue collected from timebarred debt, then this would reduce the return to lending, which in theory could lead lenders to increase the cost of lending, restrict availability of credit, or both. As discussed in the May 2019 Proposed Rule, the Bureau has considered the available empirical data 169 See CFPB Quantitative Testing Report, supra note 64, at 16–25. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 and research on the effect of State debt collection laws on the price and availability of credit.170 That research shows that State debt collection laws affect the price and availability of credit in ways that theory would predict, but that effects are relatively small even for changes in State laws that are likely more significant than the disclosures in this proposed rule.171 In light of that research and the CCP analysis above, the Bureau concludes that the disclosures in the proposed rule are unlikely to cause any significant reduction in access to consumer credit. The Bureau requests comment on this conclusion and data that can provide insights into the impact of the proposed disclosures on the price and availability of credit. H. Potential Specific Impacts of the Proposed Rule 1. Depository Institutions and Credit Unions With $10 Billion or Less in Total Assets, as Described in Section 1026 Depository institutions and credit unions are generally not debt collectors under the FDCPA and therefore would not be covered under the proposal. Creditors could experience indirect effects from the proposal to the extent they hire FDCPA-covered debt collectors or sell debt in default to such debt collectors. Such creditors could experience higher costs if debt collectors’ costs increase and if debt collectors are able to pass those costs on to creditors. The Bureau understands that many depository institutions and credit unions with $10 billion or less in total assets rely on FDCPA-covered debt collectors to collect uncollected amounts, but the Bureau does not have data indicating whether such institutions are more or less likely than other creditors to do so. The Bureau requests additional data and other information about potential benefits and costs of the proposal for these institutions. 2. Impact of the Proposed Provisions on Consumers in Rural Areas Consumers in rural areas may experience benefits from the supplemental proposed rule that are different in certain respects from the benefits experienced by consumers in general. For example, consumers in rural areas may be more likely to borrow from small local banks and credit 170 See 84 FR 23274, 23389–91 (May 21, 2019). example, one study found that additional State regulations on debt collectors’ conduct caused the success rate of a credit inquiry to decline by less than 0.02 percentage points off a base rate of about 43 percent. See 84 FR 23274, 23389–90 (May 21, 2019). 171 For PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 12691 unions that may be less likely to outsource debt collection to FDCPAcovered debt collectors. The Bureau does not have any information to suggest that consumers in rural areas are more or less likely than other consumers to have time-barred debt or to benefit from disclosures about time-barred debt. The Bureau will further consider the impact of the proposed rule on consumers in rural areas. The Bureau therefore asks interested parties to provide data, research results, and other factual information on the impact of the proposed rule on consumers in rural areas. I. Request for Information The Bureau will further consider the benefits, costs, and impacts of the proposed provisions, and any modifications to the proposed provisions made in response to comments, before finalizing the proposal. As noted above, there are a number of areas in which additional information would allow the Bureau to better estimate the benefits, costs, and impacts of this proposal and more fully inform the rulemaking. The Bureau asks interested parties to provide comment or data on various aspects of the proposed rule, as detailed in the section-by-section analysis. Information provided by interested parties regarding these and other aspects of the proposed rule may be considered in the analysis of the benefits, costs, and impacts of the final rule. The Bureau specifically requests precise cost or operational data that would permit it to better evaluate the potential implementation costs and ongoing operational costs imposed by the proposed provisions. VII. Regulatory Flexibility Analysis Under section 603(a) of the Regulatory Flexibility Act (RFA), an initial regulatory flexibility analysis (IRFA) ‘‘shall describe the impact of the proposed rule on small entities.’’ 172 Section 603(b) of the RFA sets forth the required elements of the IRFA. Section 603(b)(1) requires a description of the reasons agency action is being considered.173 Section 603(b)(2) requires a succinct statement of the objectives of, and the legal basis for, the proposed rule.174 Section 603(b)(3) requires a description of and, where feasible, an estimate of the number of small entities to which the proposed rule will apply.175 Section 603(b)(4) requires a description of the projected 172 5 U.S.C. 603(a). U.S.C. 603(b)(1). 174 5 U.S.C. 603(b)(2). 175 5 U.S.C. 603(b)(3). 173 5 E:\FR\FM\03MRP2.SGM 03MRP2 12692 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules reporting, recordkeeping, and other compliance requirements of the proposed rule, including an estimate of the classes of small entities that will be subject to the requirement and the types of professional skills necessary for the preparation of the report or record.176 Section 603(b)(5) requires identifying, to the extent practicable, all relevant Federal rules which may duplicate, overlap, or conflict with the proposed rule.177 Section 603(c) requires a description of any significant alternatives to the proposed rule that accomplish the stated objectives of applicable statutes and that minimize any significant economic impact of the proposed rule on small entities.178 Finally, section 603(d)(1) requires a description of any projected increase in the cost of credit for small entities, a description of any significant alternatives to the proposed rule that accomplish the stated objectives of applicable statutes and that minimize any increase in the cost of credit for small entities (if such an increase in the cost of credit is projected), and a description of the advice and recommendations of representatives of small entities relating to the cost of credit issues.179 A. Description of the Reasons Why Agency Action Is Being Considered The Bureau is issuing this supplemental proposed rule to implement and interpret the FDCPA, particularly with respect to debt collection communication and disclosures regarding time-barred debts and revival. As discussed in part V, the Bureau believes that the supplemental proposed rule would provide additional clarity about the FDCPA’s requirements to debt collectors and consumers and help ensure that the features of debt collection are fully, accurately, and effectively disclosed to consumers. B. Statement of the Objectives of, and Legal Basis for, the Proposed Rule and in the section-by-section analysis in part V. As discussed in part IV, the Bureau issues this supplemental proposal pursuant to its authority under the FDCPA and the Dodd-Frank Act. The objectives of the supplemental proposed rule are to clarify and implement the FDCPA’s provisions and to further the FDCPA’s goals of eliminating abusive debt collection practices and ensuring that debt collectors who refrain from abusive debt collection practices are not competitively disadvantaged.180 As the first Federal agency with authority under the FDCPA to prescribe substantive rules with respect to the collection of debts by debt collectors, the Bureau proposes consumer disclosure requirements to provide greater clarity for both consumers and industry participants as to the information they must provide consumers to comply with the law. The Bureau intends that these clarifications will help to eliminate abusive debt collection practices and ensure that debt collectors who refrain from abusive debt collection practices are not competitively disadvantaged.181 As amended by the Dodd-Frank Act, FDCPA section 814(d) provides that the Bureau may ‘‘prescribe rules with respect to the collection of debts by debt collectors,’’ as that term is defined in the FDCPA.182 Section 1022(a) of the Dodd-Frank Act provides that ‘‘[t]he Bureau is authorized to exercise its authorities under Federal consumer financial law to administer, enforce, and otherwise implement the provisions of Federal consumer financial law.’’ 183 ‘‘Federal consumer financial law’’ includes title X of the Dodd-Frank Act and the FDCPA. The legal basis for the proposed rule is discussed in detail in the legal authority analysis in part IV C. Description and, Where Feasible, Provision of an Estimate of the Number of Small Entities to Which the Proposed Rule Will Apply As discussed in the Small Business Review Panel Report, for the purposes of assessing the impacts of the supplemental proposed rule on small entities, ‘‘small entities’’ is defined in the RFA to include small businesses, small nonprofit organizations, and small government jurisdictions.184 A ‘‘small business’’ is determined by application of SBA regulations in reference to the North American Industry Classification System (NAICS) classifications and size standards.185 Under such standards, the Small Business Review Panel (Panel) identified four categories of small entities that may be subject to the proposed provisions: Collection agencies (NAICS 561440) with annual receipts at or below the SBA size standard (currently $16.5 million), debt buyers (NAICS 522298) with annual receipts at or below the size standard (currently $41.5 million), collection law firms (NAICS 54110) with annual receipts at or below the size standard (currently $12 million), and servicers who acquire accounts in default. These servicers include depository institutions (NAICS 522110, 522120, and 522130) with assets at or below the size standard (currently $600 million) or nondepository institutions (NAICS 522390) with annual receipts at or below the size standard (currently $22 million). The Panel did not meet with small nonprofit organizations or small government jurisdictions.186 The following table provides the Bureau’s estimate of the number and types of entities that may be affected by the proposed provisions: lotter on DSKBCFDHB2PROD with PROPOSALS2 TABLE 1—ESTIMATED NUMBER OF AFFECTED ENTITIES AND SMALL ENTITIES BY CATEGORY Category NAICS Collection agencies .................... Debt buyers ................................ Collection law firms .................... Loan servicers ............................ 561440 ....................................... 522298 ....................................... 541110 ....................................... 522110, 522120, and 522130 (depositories); 522390 (nondepositories. 176 5 181 See 177 5 U.S.C. 603(b)(4). U.S.C. 603(b)(5). 178 5 U.S.C. 603(c). 179 5 U.S.C. 603(d)(1). 180 See 15 U.S.C. 1692(e). 182 15 VerDate Sep<11>2014 19:01 Mar 02, 2020 $16.5 million in annual receipts $41.5 million in annual receipts $12.0 million in annual receipts $600 million in annual receipts for depository institutions; $22.0 million or less for nondepositories. id. U.S.C. 1692l(d). 183 12 U.S.C. 5512(a). 184 5 U.S.C. 601(6). Jkt 250001 PO 00000 Frm 00022 Estimated total number of debt collectors within category Small entity threshold Fmt 4701 9,000 330 1,000 700 Estimated number of small entity debt collectors 8,800 300 950 200 185 The current SBA size standards are found on SBA’s website, http://www.sba.gov/content/tablesmall-business-size-standards. 186 Small Business Review Panel Report, supra note 51, at 29. Sfmt 4702 E:\FR\FM\03MRP2.SGM 03MRP2 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules lotter on DSKBCFDHB2PROD with PROPOSALS2 Descriptions of the four categories: Collection agencies. The Census Bureau defines ‘‘collection agencies’’ (NAICS code 561440) as ‘‘establishments primarily engaged in collecting payments for claims and remitting payments collected to their clients.’’ 187 According to the Census Bureau, in 2012 (the most recent year for which detailed data are available), there were approximately 4,000 collection agencies with paid employees in the United States. Of these, the Bureau estimates that 3,800 collection agencies have $15.0 million or less in annual receipts and are therefore small entities.188 Census Bureau estimates indicate that in 2012 there were also more than 5,000 collection agencies without employees, all of which are presumably small entities. Debt buyers. Debt buyers purchase delinquent accounts and attempt to collect amounts owed, either themselves or through agents. The Bureau estimates that there are approximately 330 debt buyers in the United States, and that a substantial majority of these are small entities.189 Many debt buyers— particularly those that are small entities—also collect debt on behalf of other debt owners.190 Collection law firms. The Bureau estimates that there are 1,000 law firms in the United States that either have as their principal purpose the collection of consumer debt or regularly collect consumer debt owed to others, so that the proposed rule would apply to them. The Bureau estimates that 95 percent of such law firms are small entities.191 187 As defined by the Census Bureau, collection agencies include entities that collect only commercial debt, and the proposed rule would apply only to debt collectors of consumer debt. However, the Bureau understands that relatively few collection agencies collect only commercial debt. 188 The Census Bureau estimates average annual receipts of $95,000 per employee for collection agencies. Given this, the Bureau assumes that all firms with fewer than 100 employees and approximately one-half of the firms with 100 to 499 employees are small entities, which implies approximately 3,800 firms. 189 The Receivables Management Association, the largest trade group for debt buyers, states that it has approximately 300 debt buyer members and believes that 90 percent of debt buyers are current members. 190 The Bureau understands that debt buyers are generally nondepositories that specialize in debt buying and, in some cases, debt collection. The Bureau expects that debt buyers that are not collection agencies would be classified by the Census Bureau under ‘‘all other nondepository credit intermediation’’ (NAICS Code 522298). 191 The primary trade association for collection attorneys, the National Creditors Bar Association (NCBA), states that it has approximately 600 law firm members, 95 percent of which are small entities. The Bureau estimates that approximately 60 percent of law firms that collect debt are NCBA VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 Loan servicers. Loan servicers would be covered by the proposed rule if they are covered by the FDCPA because, among other things, they acquire the right to service loans already in default.192 The Bureau believes that this is most likely to occur with regard to companies that service mortgage loans or student loans. The Bureau estimates that approximately 200 such mortgage servicers may be small entities and that few, if any, student loan servicers that would be covered by the proposed rule are small.193 D. Projected Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed Rule, Including an Estimate of Classes of Small Entities That Will Be Subject to the Requirements and the Type of Professional Skills Necessary for the Preparation of the Report or Record The supplemental proposed rule would not impose new reporting or recordkeeping requirements, but it would impose new compliance requirements on small entities subject to the proposal.194 The proposed requirements and the costs associated with them are discussed below. In evaluating the potential impacts of the proposal on small entities, the Bureau takes as a baseline the current legal framework governing debt collection. This includes debt collector practices as they currently exist, responding to the requirements of the FDCPA as currently interpreted by courts and law enforcement agencies, other Federal laws, and the rules and statutory requirements promulgated by members and that a similar fraction of non-member law firms are small entities. 192 The Bureau expects that loan servicers are generally classified under NAICS code 522390, ‘‘Other Activities Related to Credit Intermediation.’’ Some depository institutions (NAICS codes 522110, 522120, and 522130) also service loans for others and may be covered by the proposed rule. 193 Based on the December 2015 Call Report data as compiled by SNL Financial (with respect to insured depositories) and December 2015 data from the Nationwide Mortgage Licensing System and Registry (with respect to non-depositories), the Bureau estimates that there are approximately 9,000 small entities engaged in mortgage servicing, of which approximately 100 service more than 5,000 loans. See 81 FR 72160, 72363 (Oct. 19, 2016). The Bureau’s estimate is based on the assumption that all those servicing more than 5,000 loans may acquire servicing of loans when loans are in default and that at most 100 of those servicing 5,000 loans or fewer acquire servicing of loans when loans are in default. 194 While the supplemental proposed rule does not include new recordkeeping requirements, the Bureau notes that, by introducing a new compliance requirement, the supplemental proposed rule may increase the cost of complying with recordkeeping requirements proposed in the May 2019 Proposed Rule. This is because debt collectors would need to retain evidence of compliance with any additional compliance requirement. PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 12693 the States. This baseline represents the status quo from which the impacts of this proposal will be evaluated. The Bureau requests comment on the estimated impacts on small entities discussed below and solicits data and analysis that would supplement the quantitative estimates discussed below or provide quantitative estimates of benefits, costs, or impacts for which there are currently only qualitative discussions. The discussion here is confined to the direct costs to small entities of complying with the requirements of the supplemental proposed rule, if finalized. Other impacts, such as the impacts of disclosures about time-barred debt on consumers’ repayment decisions, are discussed in part VI. The Bureau believes that, except where otherwise noted, the impacts discussed in part VI would apply to small entities. The supplemental proposal would require small entity debt collectors that attempt to collect time-barred debt to provide new disclosures in certain communications with consumers. This could impose one-time costs for systems that identify whether a debt is time barred and whether (and if so, when) it is subject to revival, and it may impose ongoing costs both to determine whether debts are time barred and to make disclosures when appropriate. To quantify costs of the proposal to small entities, the Bureau would need to estimate the number of small entity debt collectors that collect time-barred debt, the number of time-barred accounts they collect, the cost to such debt collectors of determining whether a debt is time barred and whether and when it can be revived, and the cost of making the proposed disclosures when appropriate. The Bureau does not have representative data that permit it to estimate the number of small entity debt collectors that collect time-barred accounts or the number of time-barred accounts they collect. The Bureau understands based on industry outreach that many debt collectors do not collect time-barred accounts. Even debt collectors that do not regularly collect time-barred debt might need to review systems to ensure that they are not communicating about time-barred debts without providing the appropriate proposed disclosure in circumstances when they are required; however, the Bureau expects that the burden of the proposed provision on such debt collectors would be lower than for debt collectors that regularly collect timebarred accounts. Among those debt collectors that do regularly attempt to collect time-barred accounts, the Bureau understands that E:\FR\FM\03MRP2.SGM 03MRP2 lotter on DSKBCFDHB2PROD with PROPOSALS2 12694 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules some currently disclose to consumers that they cannot sue to collect the debt. Moreover, debt collectors who are collecting debt in certain jurisdictions, such as California and New York, already must make such disclosures in at least some circumstances. Also, debt collectors that litigate accounts must know whether an account is time barred to avoid threatening to sue or suing on time-barred accounts in violation of the FDCPA as interpreted by existing FDCPA case law. Thus, some debt collectors, particularly ones that collect nationwide or that engage in litigation, already have a process in place for identifying time-barred accounts and, where they do attempt to collect timebarred debt, for providing disclosures to consumers about the time-barred status of such accounts.195 The Bureau understands that determining whether an account is time barred is not always straightforward, particularly for debt collectors that operate in a range of jurisdictions. Different States have different statutes of limitations for different types of debt.196 Which statute applies depends on questions such as where the consumer resides and the nature of the credit contract, as well as which State’s law a court applies to a given case. As noted above, many debt collectors already must make decisions about a debt’s time-barred status to determine whether a lawsuit is permissible or, in certain States, whether particular disclosures are required. Even for these debt collectors, however, the proposed rule would increase the importance of making the correct determination. The Bureau anticipates that some collection agencies and debt buyers would incur legal and programming costs to develop a system to identify time-barred accounts and incorporate the determination into the collection management system. These costs could be mitigated somewhat by the proposed rule’s ‘‘know or should know’’ standard for the debt’s time-barred status, which could reduce the likelihood that debt collectors would be held liable for failing to identify time-barred debt. Debt collectors would also incur costs to train staff to answer consumer questions about the proposed disclosures and to incorporate information about the new disclosures into their systems for 195 Consistent with this, the FTC found that debt buyers commonly consider the prevalence of timebarred debt when bidding on portfolios of debt, suggesting that debt buyers and sellers of debt regularly determine whether debts are time barred. See FTC Debt Buying Report, supra note 8, at 21. 196 Small Business Review Panel Report, supra note 51, at 25. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 managing communication with consumers. Debt collectors could also incur ongoing costs of determining whether debts are time barred. Debt collectors would need to update systems from time to time to reflect changes in State laws regarding statutes of limitations and might need to perform new legal analyses when facing fact patterns that are new to their business, such as when beginning to collect debt from consumers in a particular jurisdiction for the first time. For accounts that are identified as time barred, debt collectors would need to make disclosures with certain written and oral communications. This would impose direct costs to make the disclosures and potentially indirect costs because consumers may be less likely to pay debts after being informed that those debts are time barred. Debt collectors most often initiate communication with consumers by letter, meaning that the majority of disclosures required by the proposal would be made in writing.197 The Bureau does not anticipate that debt collectors would incur substantial ongoing costs to provide the proposed disclosures in written materials because required disclosures could be automatically included in written materials when applicable. Some debt collectors call consumers before sending any written material and would need to make any required disclosure orally in their first communication with the consumer. For oral communications, the Bureau anticipates that debt collectors or their vendors would adjust collection management systems to identify disclosures that must be made and prompt debt collector employees to make oral disclosures when required. The required disclosure would increase the length of each conversation about a time-barred debt by perhaps 5 to 10 seconds, though if consumers have questions about the disclosure, this could lengthen some calls considerably. If the disclosure lengthens initial calls to collect a time-barred debt by 15 seconds on average, given an assumed average debt collector labor cost of $22 per hour, this would cost approximately $0.09 per call.198 Costs may also increase if debt collectors and creditors increase monitoring of calls regarding timebarred debt to ensure compliance. Many debt collectors currently audit telephone conversations, either by 197 CFPB Debt Collection Operations Study, supra note 132, at 28. 198 Id. at 17. PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 listening to a sample of calls or by using automated voice-recognition software, to ensure that individual debt collectors comply with applicable law and other standards. A new required disclosure for time-barred debt could increase the cost of such monitoring, by adding to the list of items that must be audited. E. Identification, to the Extent Practicable, of All Relevant Federal Rules That May Duplicate, Overlap, or Conflict With the Proposed Rule Certain other Federal laws and regulations include requirements that apply to FDCPA-covered debt collectors. However, consistent with the findings of the Panel, the Bureau is not aware of any other Federal regulations that currently duplicate, overlap, or conflict with the proposed rule. The Bureau requests comment on the intersection between the proposed rule and other Federal laws and regulations. The Bureau specifically requests comment on conflicts that may arise between the proposed rule and other Federal laws and regulations and methods to minimize such conflicts to the extent they exist. F. Description of Any Significant Alternatives to the Proposed Rule That Accomplish the Stated Objectives of the Applicable Statutes and Minimize Any Significant Economic Impact of the Proposed Rule on Small Entities Section 603(c) of the RFA requires the Bureau to describe in the IRFA any significant alternatives to the proposed rule that accomplish the stated objectives of applicable statutes and that minimize any significant economic impact of the proposed rule on small entities.199 In developing the proposed rule, the Bureau has considered alternative provisions and believes that none of the alternatives considered would be as effective at accomplishing the stated objectives of the FDCPA and the applicable provisions of title X of the Dodd-Frank Act while minimizing the impact of the proposed rule on small entities.200 In developing the proposal, the Bureau considered a number of alternatives, including those considered as part of the SBREFA process. In the Small Business Review Panel Outline, the Bureau considered an alternative that would also require debt collectors to provide a disclosure when collecting time-barred debt but would prohibit debt collectors from collecting on timebarred debt that can be revived unless 199 5 U.S.C. 603(c). alternatives, including those suggested by commenters, are discussed in part V above. 200 Certain E:\FR\FM\03MRP2.SGM 03MRP2 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules lotter on DSKBCFDHB2PROD with PROPOSALS2 they waive the right to sue on the debt. Under the requirement considered, subsequent debt collectors would be bound by the disclosure made by any previous debt collectors. The Bureau believes that such a requirement would be more burdensome for small entities than the proposed requirement. The Bureau also considered requiring a time-barred debt disclosure without requiring any disclosure about revival. Such a requirement could be less burdensome for small entities under some circumstances. However, the Bureau’s quantitative disclosure testing indicates that many consumers who view a time-barred debt disclosure without a disclosure about revival fail to understand that certain actions they take could revive the debt.201 G. Discussion of Impact on Cost of Credit for Small Entities Section 603(d) of the RFA requires the Bureau to consult with small entities regarding the potential impact of the proposed rule on the cost of credit for small entities and related matters.202 To satisfy these statutory requirements, the Bureau provided notification to the Chief Counsel for Advocacy of the Small Business Administration (Chief Counsel) that the Bureau would collect the advice and recommendations of the same small entity representatives identified in consultation with the Chief Counsel through the SBREFA process concerning any projected impact and the proposed rule on the cost of credit for small entities. The Bureau sought to collect the advice and recommendations of the small entity representatives during the Small Business Review Panel meeting regarding the potential impact on the cost of business credit because, as small debt collectors with credit needs, the small entity representatives could provide valuable input on any such impact related to the proposed rule. The Bureau’s Small Business Review Panel Outline asked small entity representatives to comment on how the proposals under consideration would affect the cost of credit to small entities. The Bureau believes that the disclosures in the supplemental proposal will have little impact on the cost of credit to small entities. The Bureau does recognize that consumer credit could become more expensive and less available as a result of requirements that restrict the collection of debt; however, the Bureau does not anticipate that the requirements of this supplemental 201 See CFPB Quantitative Testing Report, supra note 64, at 17–24. 202 5 U.S.C. 603(d). VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 proposal would have any significant impact on the cost or availability of consumer credit. Many small entities affected by the disclosures in the supplemental proposal use consumer credit as a source of credit and may, therefore, see costs rise if consumer credit availability decreases. The Bureau does not expect this to be a large effect and does not anticipate measurable impact. During the SBREFA process, several small entity representatives said that the proposals under consideration at that time, which included time-barred debt disclosures among several other proposals, could have an impact on the cost of credit for them and for their small business clients. Some small entity representatives said that they use lines of credit in their business and that regulations that raise their costs or reduce their revenue could mean they are unable to meet covenants in their loan agreements, causing lenders to reduce access to capital or increase their borrowing costs. VIII. Paperwork Reduction Act Under the Paperwork Reduction Act of 1995 (PRA),203 Federal agencies are generally required to seek approval from the Office of Management and Budget (OMB) for information collection requirements prior to implementation. Under the PRA, the Bureau may not conduct or sponsor, and, notwithstanding any other provision of law, a person is not required to respond to, an information collection unless the information collection displays a valid control number assigned by OMB. As part of its continuing effort to reduce paperwork and respondent burden, the Bureau conducts a preclearance consultation program to provide the general public and Federal agencies with an opportunity to comment on the information collection requirements in accordance with the PRA. This helps ensure that the public understands the Bureau’s requirements or instructions, respondents can provide the requested data in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the Bureau can properly assess the impact of collection requirements on respondents. The supplemental proposed rule would amend 12 CFR part 1006 (Regulation F), which implements the FDCPA. The Bureau’s OMB control number for Regulation F is 3170–0056. This supplemental proposed rule along with the May 2019 Proposed Rule 203 44 PO 00000 U.S.C. 3501 et seq. Frm 00025 Fmt 4701 Sfmt 4702 12695 would revise the information collection requirements contained in Regulation F that OMB has approved under that OMB control number. The supplemental proposal would require a new information collection requirement under Regulation F, in proposed § 1006.26 regarding timebarred debts, which would require debt collectors to provide a particular disclosure in certain communications when attempting to collect time-barred debt. This information collection would be required to provide benefits for consumers and would be mandatory. Because the Bureau does not collect any information, no issue of confidentiality arises. The likely respondents would be for-profit businesses that are FDCPAcovered debt collectors. The collection of information contained in this supplemental proposed rule, and identified as such, has been submitted to OMB for review under section 3507(d) of the PRA. A complete description of the information collection requirement, including the burden estimate methods, is provided in the information collection request (ICR) that the Bureau has submitted to OMB under the requirements of the PRA. Please send your comments to the Office of Information and Regulatory Affairs, OMB, Attention: Desk Officer for the Bureau of Consumer Financial Protection. Send these comments by email to oira_submission@omb.eop.gov or by fax to (202) 395–6974. If you wish to share your comments with the Bureau, please send a copy of these comments as described in the Addresses section above. The ICR submitted to OMB requesting approval under the PRA for the information collection requirements contained herein is available at www.regulations.gov as well as on OMB’s public-facing docket at www.reginfo.gov. Title of Collection: Regulation F: Fair Debt Collection Practices Act. OMB Control Number: 3170–0056. Type of Review: Revision of a currently approved collection. Affected Public: Private Sector. Estimated Number of Respondents: 12,027.204 204 The Bureau shares enforcement authority under the FDCPA with the Federal Trade Commission. To avoid double-counting, the Bureau allocates to itself half of the estimated paperwork burden under the proposed rule by dividing the burden hours even between the agencies. However, since the Bureau has joint authority over the respondents themselves, the Bureau retains the entity count of all affected respondents as shown above. E:\FR\FM\03MRP2.SGM 03MRP2 12696 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules Estimated Total Annual Burden Hours: 2,360,000.205 Comments are invited on: (a) Whether the collection of information is necessary for the proper performance of the functions of the Bureau, including whether the information will have practical utility; (b) the accuracy of the Bureau’s estimate of the burden of the collection of information, including the validity of the methods and the assumptions used; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Comments submitted in response to this supplemental proposal will be summarized and/or included in the request for OMB approval. All comments will become a matter of public record. If applicable, the notice of final rule will display the control number assigned by OMB to any information collection requirements proposed herein and adopted in the final rule. List of Subjects in 12 CFR Part 1006 Administrative practice and procedure, Consumer protection, Credit, Debt collection, Intergovernmental relations. Authority and Issuance For the reasons set forth above, the Bureau proposes that Regulation F, 12 CFR part 1006, as proposed to be amended on May 21, 2019 (84 FR 23274), be further amended as follows: PART 1006—DEBT COLLECTION PRACTICES (REGULATION F) 1. The authority citation for part 1006 continues to read as follows: ■ Authority: 12 U.S.C. 5512, 5514(b), 5531, 5532; 15 U.S.C. 1692l(d), 1692o, 7004. Subpart B—Rules for FDCPA Debt Collectors 2. Section 1006.26 is amended by adding paragraph (c) to read as follows: ■ § 1006.26 Collection of time-barred debts. lotter on DSKBCFDHB2PROD with PROPOSALS2 * * * * * (c) Disclosures required. (1) In general. A debt collector who knows or should know that a debt is time barred when the debt collector makes the initial communication as defined in 205 The Bureau’s share of burden hours for this rule is 1,180,000 hours including 150,000 hours of burden that would be added by the new information collections added by the supplemental proposed rule. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 § 1006.34(b)(2) must, in that initial communication and on any validation notice required by § 1006.34(a)(1)(i)(B), clearly and conspicuously disclose: (i) That the law limits how long the consumer can be sued for a debt and that, because of the age of the debt, the debt collector will not sue the consumer to collect it; and (ii) If, under applicable law, the debt collector’s right to bring a legal action against the consumer can be revived, the fact that revival can occur and the circumstances in which it can occur. (2) Additional circumstances in which disclosures are required. (i) Debts that become time barred. A debt collector who knows or should know that a debt has become time barred after the debt collector has made the initial communication as defined in § 1006.34(b)(2) but before the debt collector has sent any validation notice required by § 1006.34(a)(1)(i)(B) must provide the disclosures required by paragraph (c)(1) of this section in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should know that the debt became time barred, and on any validation notice required by § 1006.34(a)(1)(i)(B). A debt collector who knows or should know that a debt has become time barred after the debt collector has made the initial communication as defined in § 1006.34(b)(2) and has sent any validation notice required by § 1006.34(a)(1)(i)(B) must provide the disclosures required by paragraph (c)(1) of this section in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should know that the debt became time barred. (ii) Change in debt collector’s knowledge. A debt collector who neither knows nor should know that a timebarred debt is time barred when the debt collector makes the initial communication as defined in § 1006.34(b)(2), but who knows or should know that the debt is time barred before the debt collector has sent any validation notice required by § 1006.34(a)(1)(i)(B), must provide the disclosures required by paragraph (c)(1) of this section in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should know that the debt is time barred, and on any validation notice required by § 1006.34(a)(1)(i)(B). A debt collector who neither knows nor should know that a time-barred debt is time barred when the debt collector makes the initial communication as defined in § 1006.34(b)(2) and sends any validation PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 notice required by § 1006.34(a)(1)(i)(B), but who later knows or should know that the debt is time barred, must provide the disclosures required by paragraph (c)(1) of this section in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should know that the debt was time barred. (3) Form and delivery of disclosures. (i) In general. When provided on a validation notice, the content, format, and placement of the disclosures required by paragraph (c)(1) of this section must be substantially similar to such disclosures on Model Form B–4, B–5, B–6, or B–7 in appendix B of this part, as applicable. When provided orally or in a written communication that is not a validation notice, the content of the disclosures required by paragraph (c)(1) of this section must be substantially similar to such disclosures on Model Form B–4, B–5, B–6, or B–7 in appendix B of this part, as applicable. (ii) Safe harbor. When providing the disclosures required by paragraph (c)(1) of this section on a validation notice, a debt collector who uses Model Form B– 4, B–5, B–6, or B–7 in appendix B of this part, as applicable, complies with the requirements of paragraphs (c)(1) and (3)(i) of this section. When providing the disclosures required by paragraph (c)(1) of this section orally or in a written communication that is not a validation notice, a debt collector who uses the relevant content of Model Form B–4, B–5, B–6, or B–7, as applicable, complies with the requirements of paragraphs (c)(1) and (3)(i) of this section. (iii) Delivery. When providing the disclosures required by paragraph (c)(1) of this section on a validation notice or a written communication that is not a validation notice, a debt collector must do so in a manner permitted by § 1006.42. (iv) Translated disclosures. A debt collector must make the disclosures required by paragraph (c)(1) of this section in the same language or languages used for the rest of the communication in which the disclosures are conveyed. Any translation of the required disclosures must be complete and accurate. ■ 3. Section 1006.34 is amended by adding paragraph (c)(2)(xi) to read as follows: § 1006.34 Notice for validation of debts. * * * * * (c) * * * (2) * * * (xi) A time-barred debt disclosure, or a time-barred debt and a revival E:\FR\FM\03MRP2.SGM 03MRP2 12697 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules disclosure, if the debt collector determines after a reasonable investigation that such disclosures are required by § 1006.26(c). * * * * * 4. Appendix B to part 1006 is amended by adding B–4 through B–7 to read as follows: ■ Appendix B to Part 1006—Model Forms and Clauses * * * * * BILLING CODE 4810–AM–P B–4 Model Form for Time-Barred Debt Disclosure § 1006.26 North South Group P,Q, Box•t23456 Pa~dena, QA91111,12::14 (800) 123•4567from8am.tQ 8pm EST, Mondayto Saturday VtfW!;/lf,North$outhG.roup.com To: PersonA 2$23.PiarkStreet Apartment 123 Bi:lthesda; MD 20800 Reference: 584-345 North South Group is a debt coDector. We are frying to coifecta debt thaf you owe to Bank. of RQckville. Wewm use any iOformatiQn yqu give u1;Jq help coHect the. debt H9W can ypu cJispµte the del>f?: You had a.Main Street:Department StQrecredit card from Bank .otRo.c.kville With ac®Unt nur:nber. 123•45JH89. Asof January 2, 2009, yol;I owed: 13e~en January 2,.2009.andtoday: Yoll Wtirecharged thi.sa.n,ountin interest: You were charged thisan,ount. in tees; You paid or Wtire credited this an,ount toward the:debt: + $ + $ 75:00 25;00, - $ 50.:00 • CaH1>tWrite~!JSbyAprtl 30,W1$,t!)di.sputeanor partofthedebt ff. you do not. wewrn assumethatour inrotmatlc>n is ec>rrect, ff Y(,u ~.to us byApriL$9, 201s, we must stop collection on any arnount you dispute until we send yc>Uinfc>rmatic:m th;a.tshovvs yc>u o'M'J the debt • You may use the form beloworyou may write tO' uswithoutthe form.You may a1so include supp6ttrnGt do1;uments. we accept disputeselectronicailyatwww.NorthSouthGroup.com/dispute, Whatelse can you do? • Write to ask for the name and address oftheoriginal e.reditor. lfyouwrtte by April 30, :WW; \\'&\/vii.I stop oollectipri untilwesend·youthatinformation.You may use the form beldili/c>r write.to us wtthoutthe, form. accept such requests erecironicaflyatwww. No.rth$Q4thGroqp,comi request. we • Learn· moreaboutyourr1gtits undertedera.1 laW,.Fcir instance, youhavetherighfto stop or lii'l'lit how.wecontact· .you. Go,towww,consumerfinance:gov, • CMtact .us.abOut your payroentoptr6ii!'/. •• Review.state. law disclosures on reverse skle; if:applicabre. •· P6ngaseen contactocon nosotros parasoiicitar una copfa'de este fotmulari6 en.espanoL How do youwant to respond? (;~ a/I that apply: 1:1 !Want fodisputethe debtbecause I think: Maffthiis torm to; North $out11 Group P.O. Efox 123456 Pasadena, bA 91fH~i2j4 □ This is. not my debt The amocmt is v,,(On{t. Cl Other(pleasedescdbe.on reverse or attach additional inforr:rtation). □ 1:1 l\iiiintyou to send methe.nam-e and tl !enclosed this amount ~I$_·----~. Make.your c.he<;kpayable.to Bank.of Rockville. [ncludethe.reference.number584,M5. Md20800 □ Quiero estaformularfoen.espafiol. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 PO 00000 Frm 00027 Fmt 4701 Sfmt 4725 E:\FR\FM\03MRP2.SGM 03MRP2 EP03MR20.003</GPH> lotter on DSKBCFDHB2PROD with PROPOSALS2 address of the.original creditor. persotrA .'2323 Park street .A;partment123 Bethesda, 12698 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules B–5 Model Form for Time-Barred Debt and Revival Disclosure (Payment and Written Acknowledgement) § 1006.26 North South Group P.O. Box 123456 Pasadena, CA 91111-1234 (800} 123•4567 from 8am to 8pm EST, Monday to Saturday www. NorthSouthGroup~com To: Person.A 2323 Park street Apartment 123 Bethesda, MD 20800 Reference: 584-345 North South Group is a debt collector. We are trying to collect a debt that you owe to Bank of Rockville. Wewill use any information you give us to help collect the debt Our information shows: How can YQU dispute the d~bt? You had a Main Street Department store credit card from Bank • can or write tous byApnl 30, 2019, -to dispute all or part ofthe. debt If you do not, we will assume that our information is correct If you~ to us by April 30, 2tm:l; we must stop collection on any amount you.dispute until we send yocdnformation that shows you owe the ttebt. of Rockville with account nl!mber 123•456•789. As of Januai:y 2, 2009, you owed: $ 2,234.56 Between January 2, 2000-and today: You were charged this amount in in~erest: + $ 75.00 You were charged this amount in fees; + $ 25.00 You paid or were credited_ this amount toward the.debt: • You may use the form below or you may write to us without the form. You may also·include.supporting documents. We accept disputes electronlea Uy at W'-NIN. NorthSouthGrouf).Com/dispute. 50.00 What else can you do? • Write to ask for the name-and address of the original creditor. If you write by April 30, 2019, ~ will stop collection until we·send you thafinformation, You may use the form below.or write to us withoutthe form: We accept such requestselectronica!ly-at_www.NorthSouthGroup.com/ regue§t. • Learn more aboutyour rtghts uni:terfederal law. For instance, you have the right to stop or timit how Wf: contact you. Go to www,consumerfinance.-gov. • Contact .usabout your payment options. • Review state law disclosures on reverse side; if applicable: • Pongase en contacto.con nosotros para solicitar una cop[a de este formulariO en espaflol. How do you want to respond? Che<;kall that apply: □ I want to dispute the debt because I think: Mail thisform-to: North South Group P.O. Box 123456 Pasadena, CA-S1111·1234 □ This is not my debt The amount is wrong. □ Other (please describe on reverse or attacihadditiohal information}, □ 0 lWantyoUtoserid met-heriamearid address of tile original creditor. □ I$-~~---' I enclosed f11is-amount .. Make your .oheolc payable to. Bank ofRoc;kvJ/le, Include the reference:number5$4-345, □ Quiero esta formularlo en espai'ioi. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 PO 00000 Frm 00028 Fmt 4701 Sfmt 4725 E:\FR\FM\03MRP2.SGM 03MRP2 EP03MR20.004</GPH> lotter on DSKBCFDHB2PROD with PROPOSALS2 Person A 2323 Park Street f.\partrnent 123 Bethesda, MD 20800 12699 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules B–6 Model Form for Time-Barred Debt and Revival Disclosure (Payment) § 1006.26 North South Group To: Person A .P.O. Box 123456 Pasadena, GA 91111·1234 .(800} 123-4567 from .Sam to 8pm EST,. Monday to Saturday 2323 Park.street Apartment 123 Bethesda, www.. NorthSouthGroup.-com MD 20800 Reference: 584~345 North South Group is a debt collector. We are trying to collect a debt that you owe to Bank of Rockville. ~will use any information you give usto help collect the debt. Our infonnation shows: How can you dispute the debt? You had a Main Street Department store credit.card from Bank • Call or write tous byApril.30, 2019, to dispute au or part of the debt. If youdp not, wewi.11 assume that our information is correct. Ifyou ~ to us by April 30, 2019; we must stop collection on any amount you dispute until we send cf .Rockville with account numlier 123-456-789.. As of January 2, 2009, you owed: $ 2;234,56 youinformation thatsh-Ows you Between January 2, 2009 and today: You were charged this amount in interest: + $ You were charged this a.mount in fees; + $ 75.00 25.00 - $ 50.00 You paid or were credited .this amount toward the debt: • You owe the debt may use the form below or you may write to us without the form.You may a~ includesupportlng documents. We.accept .dlSJjutes electronically at www.NorthSouthGroup.com/di$pute. What else can you do? • Write to ask for the name and address of the original creditor. lfyouwrite by April 30, 2019, v,;e will $top collaction untit we sendyou that information. You may use the form bekiw or write to us.without the form. We accept such. requests electronicaUyat www. NorthSouthG roup. comf · request. • Learn more a.bout your rights under federal law. For instance, you have the right to $top or limit how we contact you. Go to www.consumerfinance.gov. • Gohtact .us about your payment options. • Review state law disclo$ure$.Qlt reverse side, if applicable. " P6ngase en contacto con no$0tro$ para $Olicitar una copra de este for mu lario en e$panol. How do you want to respond? Check all. that apply: □ I wantto dispute the debt because I think: Mall this form to: North South Group P.O. Box 1'.2345$ Pas:adena,·CA91111-1234 □ Thi$ i$ not my debt. □ The amount is wrong. 0 Other (please des;cribe on reverre or attach additional information). o twilntyou to send rnethenameai:td. address of the. origii:tal creditor. PersohA 'tJ 2323 Park Street $ · 1 MIJ20800 ti Quiero esta formula no en espai'iof. VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 PO 00000 Frm 00029 Fmt 4701 Sfmt 4725 E:\FR\FM\03MRP2.SGM 03MRP2 EP03MR20.005</GPH> lotter on DSKBCFDHB2PROD with PROPOSALS2 I Mal<Elyi.JUr-checkpayable to Bank.ofRockville. Include the reference number 584<545. Apartment 123 Bethe$da, I enclosed this amount: 12700 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules B–7 Model Form for Time-Barred Debt and Revival Disclosure (Written Acknowledgement) § 1006.26 North South Group To: P.O.. Box.123456 PersonA 2323 Park street Pasadena, CA 91111-1234 Apartment 123 (800) 123-4567 fromt\amto 8pm EST,Monday to Saturday Bethesda, MD 20800 -www.NorthSouthGroup,com Reference: 584-345 North South Group is a debt collector; We are trying to collect a debt that you owe to Bank of Rockville. We wm use any informatton yot-! give usto help ce>llect the debt. Our information shows: How can you dispute the debt? You had a Main Street'Oepartment Store credit card from.Sank • can or write to us byApril30, 2019, to dispute a:u or part:ofthe:debt If you do not, weWi.ll assume that our of RockVilf€! With acco1.m.tnumber 123•456,789. informatbn is correct. $ 2,234,56 As.of January 2, 2009, you owed: If you ~ t o us by April30; 20i9, we must stop collection on any amount you dispute until we send you information that shows you owe the debt Between January 2, 2000 and today: You were charged this amotmt in interest: + $ 75.00 You were charged this amount in fees: + $ 25.00 - $ 50:00 You paid or were credited this amount toward the debt: • You may use the rorm below or you may write to us Without the form, You may atso Include supporting documents. we accept -disputes electronicaHy atwww. NorthSouthGroup.corh/dlspute. What else can you do? • Write to ask for the: name and address of the original creditor. If you write by April 30, 2019, we will stop collection. until we send you that.information. You may use the form below or write to us Without the fOrm. We accept such requesls etectronicallyatwww.NorthSouthGroup.com/ request. • Learn more about Y<>tif tights under federal 1aw, For instance, you have:fhe righfto stop or limit how we contact you. Go to www.consumerfinance.gov. • Cohtacfos.about your payment Options. • Review .state law disclosures on reverse side, if applicable. • P6ngase en contacto con ·nosotros para solicitar una copia de este fotmulario en espaflol. How do you want to te$pond? Check all that apply: MaH this form to: D I want to dispute the debt because I think: North South Group □ This is P.(L Box 123456 □ Pasadena, CA 911.11-1234 Cl not my debt. The amount is wrong. Other (please describe on reverse or attadh ..additional information). o 1.wanty.ou to.se:nct met.he name arid address of the original creditor. I$__··.-'---""----" f'Eii's_Oii A Cl I enclosed thisamount: ... 2323 Park Street Makeyout cneok payable. to Bank of Rockville. lnclucfethereferencenumber!'584•M5. Apartment 123 Cl Quiercresta tormulario en espanoL BILLING CODE 4810–AM–C VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 E:\FR\FM\03MRP2.SGM 03MRP2 EP03MR20.006</GPH> lotter on DSKBCFDHB2PROD with PROPOSALS2 Bethesda, MD,20000 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules 5. In Supplement I to Part 1006— Official Interpretations, new Section 1006.26—Collection of Time-Barred Debt is added to read as follows: lotter on DSKBCFDHB2PROD with PROPOSALS2 ■ Section 1006.26—Collection of TimeBarred Debt 26(c) Disclosures required. 26(c)(1) In general. 1. Clearly and conspicuously. The disclosures required by § 1006.26(c)(1) must be provided clearly and conspicuously. The term ‘‘clear and conspicuous’’ is defined in § 1006.34(b)(1). 2. Validation notice in initial communication. The disclosures required by § 1006.26(c)(1) must be provided in the initial communication as defined in § 1006.34(b)(2) and on any validation notice required by § 1006.34(a)(1)(i)(B). A debt collector who sends a validation notice in the initial communication pursuant to § 1006.34(a)(1)(i)(A) complies with § 1006.26(c)(1) by providing the required disclosures on the validation notice. Paragraph 26(c)(1)(ii). 1. Revival disclosures. If a debt collector’s right to bring a legal action against a consumer to collect a debt can be revived under applicable law, § 1006.26(c)(1)(ii) requires a debt collector who collects a debt that the debt collector knows or should know is time barred to disclose the fact that revival can occur and the circumstances in which it can occur. To satisfy the § 1006.26(c)(1)(ii) disclosure requirement, a debt collector first must determine which State’s law applies and the circumstances under which that State permits revival, if any. Then, for example, if a debt collector determines that applicable State law permits revival only if the consumer makes a payment, the debt collector must provide the time-barred debt and revival disclosure shown on Model Form B–6 in appendix B of this part, or a substantially similar disclosure. If, on the other hand, a debt collector determines that applicable State law does not permit revival § 1006.26(c)(1)(ii) does not apply and the debt collector must provide the time-barred debt disclosure shown on Model Form B–4 in appendix B of this part, or a substantially similar disclosure. 26(c)(2) Additional circumstances in which disclosures are required. 26(c)(2)(i) Debts that become time barred. 1. Debts that become time barred after the debt collector has made the initial communication but before the debt collector has sent the validation notice. Under § 1006.26(c)(2)(i), a debt collector VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 who knows or should know that a debt has become time barred after the debt collector has made the initial communication as defined in § 1006.34(b)(2) but before the debt collector has sent any validation notice required by § 1006.34(a)(1)(i)(B) must provide the disclosures required by § 1006.26(c)(1) in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should know that the debt became time barred, and on any validation notice required by § 1006.34(a)(1)(i)(B). The following example illustrates the rule: i. A creditor hires ABC debt collector to collect a debt that ABC debt collector knows will become time barred on June 30. ABC debt collector’s initial communication with the consumer takes place by telephone on June 27. ABC debt collector’s next communication with the consumer takes place by telephone on July 1. Under § 1006.26(c)(2)(i), ABC debt collector must provide the disclosures required by § 1006.26(c)(1) in that telephone conversation. The following day, ABC debt collector sends a validation notice to the consumer. Under § 1006.26(c)(2)(i), the validation notice must include the disclosures required by § 1006.26(c)(1). 2. Debts that become time barred after the debt collector has made the initial communication and has sent the validation notice. Under § 1006.26(c)(2)(i), a debt collector who knows or should know that a debt has become time barred after the debt collector has made the initial communication as defined in § 1006.34(b)(2) and has sent any validation notice required by § 1006.34(a)(1)(i)(B) must provide the disclosures required by § 1006.26(c)(1) in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should know that the debt became time barred. The following example illustrates the rule: i. A creditor hires ABC debt collector to collect a debt. ABC debt collector knows that the applicable statute of limitations will expire in one month and promptly sends the consumer a validation notice, which is the debt collector’s initial communication with the consumer. The next communication between ABC debt collector and the consumer takes place over the telephone two weeks after the statute of limitations has expired. Under § 1006.26(c)(2)(i), ABC debt collector must provide the disclosures required by § 1006.26(c)(1) in that telephone communication. PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 12701 26(c)(2)(ii) Change in debt collector’s knowledge. 1. Change in debt collector’s knowledge after the debt collector has made the initial communication but before the debt collector has sent the validation notice. Under § 1006.26(c)(2)(ii), a debt collector who neither knows nor should know that a time-barred debt is time barred when the debt collector makes the initial communication as defined in § 1006.34(b)(2), but who knows or should know that the debt is time barred before the debt collector has sent any validation notice required by § 1006.34(a)(1)(i)(B), must provide the disclosures required by § 1006.26(c)(1) in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should know that the debt is time barred, and on any validation notice required by § 1006.34(a)(1)(i)(B). The following example illustrates the rule. i. A creditor hires ABC debt collector to collect a debt. Although the debt is time barred, ABC debt collector neither knows nor should know that the debt is time barred. ABC debt collector has an initial communication with the consumer that does not include the disclosures required by § 1006.26(c)(1). Because ABC debt collector neither knew nor should have known that the debt was time barred, ABC debt collector has not violated § 1006.26(c)(1). The next day, before sending the validation notice required by § 1006.34(a)(1)(i)(B), ABC debt collector learns that the debt was, in fact, time barred at the time of the initial communication. Under § 1006.26(c)(2)(ii), ABC debt collector must provide the disclosures required by § 1006.26(c)(1) in its next communication, if any, with the consumer, and on any validation notice required by § 1006.34(a)(1)(i)(B). 2. Change in debt collector’s knowledge after the debt collector has made the initial communication and has sent the validation notice. Under § 1006.26(c)(2)(ii), a debt collector who neither knows nor should know that a time-barred debt is time barred when the debt collector makes the initial communication as defined in § 1006.34(b)(2) and sends any validation notice required by § 1006.34(a)(1)(i)(B), but who later knows or should know that the debt is time barred, must provide the disclosures required by § 1006.26(c)(1) in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should E:\FR\FM\03MRP2.SGM 03MRP2 12702 Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Proposed Rules lotter on DSKBCFDHB2PROD with PROPOSALS2 know that the debt was time barred. The following example illustrates the rule: i. A creditor hires ABC debt collector to collect a debt. Although the debt is time barred, ABC debt collector neither knows nor should know that the debt is time barred. ABC debt collector has an initial communication with the consumer and sends a validation notice to the consumer, neither of which includes the disclosures required by § 1006.26(c)(1). Because ABC debt collector neither knew nor should have known that the debt was time barred, ABC debt collector has not violated § 1006.26(c)(1). Several weeks later, however, ABC debt collector learns that the debt was, in fact, time barred when ABC debt collector sent the validation notice. Under § 1006.26(c)(2)(ii), ABC debt collector must provide the disclosures required by § 1006.26(c)(1) in its next communication, if any, with the consumer. 26(c)(3) Form and delivery of disclosures. 26(c)(3)(i) In general. 1. Disclosures required by other applicable law. Section 1006.26(c)(3)(i) requires that, when provided on a validation notice, the content, format, and placement of the disclosures required by § 1006.26(c)(1) must be substantially similar to such disclosures on Model Form B–4, B–5, B–6, or B–7 in appendix B of this part, as applicable. A debt collector who uses a validation notice that otherwise is substantially similar to Model Form B–4, B–5, B–6, or B–7, as applicable, may include any additional disclosures required by other applicable law on the reverse of the validation notice and will continue to be in compliance with the requirements of § 1006.26(c)(1) and (3)(i). Disclosures required by other applicable law may VerDate Sep<11>2014 19:01 Mar 02, 2020 Jkt 250001 include, for example, a State law requirement to disclose that a debt is time barred or that a debt collector’s right to bring a legal action on a timebarred debt can be revived. See comments 26(c)(3)(ii)–2 and 34(d)(3)(iv)–1 for further guidance concerning disclosures required by other applicable law. 26(c)(3)(ii) Safe harbor. 1. Safe harbor provided by use of model form. Although the use of Model Form B–4, B–5, B–6, or B–7 in appendix B of this part is not required, a debt collector who uses the applicable model form complies with the requirements of § 1006.26(c)(1) and (3)(i). For example, if under applicable law only a payment on a time-barred debt revives a debt collector’s right to bring a legal action against the consumer to collect the debt, a debt collector who uses Model Form B–6, which refers to payment but not written acknowledgement, to provide the disclosure on the validation notice complies with the requirements of § 1006.26(c)(1) and (3)(i). 2. Disclosures required by other applicable law. When providing the disclosures required by § 1006.26(c)(1) on a validation notice, a debt collector who uses Model Form B–4, B–5, B–6, or B–7 in appendix B of this part, as applicable, may include any additional disclosures required by other applicable law on the reverse of the validation notice and will continue to be in compliance with the requirements of § 1006.26(c)(1) and (3)(i). See comments 26(c)(3)(i)–1 and 34(d)(3)(iv)–1 for further guidance concerning disclosures required by other applicable law. 26(c)(3)(iv) Translated disclosures. 1. Examples. Section 1006.26(c)(3)(iv) provides that a debt collector must make the disclosures required by PO 00000 Frm 00032 Fmt 4701 Sfmt 9990 § 1006.26(c)(1) in the same language or languages used for the rest of the communication in which they are conveyed. The following examples illustrate the rule: i. ABC debt collector is collecting time-barred debt. ABC debt collector’s initial communication with the consumer takes place in Spanish. Under § 1006.26(c)(1), the initial communication must contain the disclosures described in that section, as applicable. Under § 1006.26(c)(3)(iv), ABC debt collector must provide the disclosures in Spanish. ii. XYZ debt collector is collecting a time-barred debt. XYZ debt collector’s initial communication with the consumer takes place partly in English and partly in Spanish. Under § 1006.26(c)(1), the initial communication must contain the disclosures described in that section, as applicable. Under § 1006.26(c)(3)(iv), XYZ debt collector must provide the disclosures in both Spanish and English. 2. Complete and accurate translation. Under § 1006.26(e)(3)(iv), any translation of the disclosures required by § 1006.26(c)(1) must be complete and accurate. The language of a disclosure that a debt collector obtains from the Bureau’s website is considered a complete and accurate translation, although debt collectors are permitted to use other translations so long as they are complete and accurate. Dated: February 13, 2020. Kathleen L. Kraninger, Director, Bureau of Consumer Financial Protection. [FR Doc. 2020–03838 Filed 3–2–20; 8:45 am] BILLING CODE 4810–AM–P E:\FR\FM\03MRP2.SGM 03MRP2

Agencies

[Federal Register Volume 85, Number 42 (Tuesday, March 3, 2020)]
[Proposed Rules]
[Pages 12672-12702]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03838]



[[Page 12671]]

Vol. 85

Tuesday,

No. 42

March 3, 2020

Part II





Bureau of Consumer Financial Protection





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12 CFR Part 1006





Debt Collection Practices (Regulation F); Proposed Rule

Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / 
Proposed Rules

[[Page 12672]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1006

[Docket No. CFPB-2020-0010]
RIN 3170-AA41


Debt Collection Practices (Regulation F)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Supplemental notice of proposed rulemaking.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) proposes 
to amend Regulation F, which implements the Fair Debt Collection 
Practices Act (FDCPA) and currently contains the procedures for State 
application for exemption from the provisions of the FDCPA. On May 21, 
2019, the Bureau published in the Federal Register a proposed rule (May 
2019 Proposed Rule) that would prescribe Federal rules governing the 
activities of debt collectors, as that term is defined in the FDCPA. 
This proposal supplements the May 2019 Proposed Rule by proposing to 
require debt collectors to make certain disclosures when collecting 
time-barred debts.

DATES: Comments must be received on or before May 4, 2020.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2020-
0010 or RIN 3170-AA41, by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include Docket 
No. CFPB-2020-0010 or RIN 3170-AA41 in the subject line of the email.
     Mail/Hand Delivery/Courier: Comment Intake, Bureau of 
Consumer Financial Protection, 1700 G Street NW, Washington, DC 20552.
    Instructions: The Bureau encourages the early submission of 
comments. All submissions should include the agency name and docket 
number or Regulatory Information Number (RIN) for this rulemaking. 
Because paper mail in the Washington, DC area and at the Bureau is 
subject to delay, commenters are encouraged to submit comments 
electronically. In general, all comments received will be posted 
without change to http://www.regulations.gov. In addition, comments 
will be available for public inspection and copying at 1700 G Street 
NW, Washington, DC 20552, on official business days between the hours 
of 10:00 a.m. and 5:00 p.m. Eastern Time. You can make an appointment 
to inspect the documents by telephoning 202-435-9169.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Proprietary or sensitive personal information, such as account numbers, 
Social Security numbers, or names of other individuals, should not be 
included. Comments will not be edited to remove any identifying or 
contact information.

FOR FURTHER INFORMATION CONTACT: Seth Caffrey, Courtney Jean, or 
Kristin McPartland, Senior Counsels, Office of Regulations, at 202-435-
7700. If you require this document in an alternative electronic format, 
please contact [email protected].

SUPPLEMENTARY INFORMATION: 

I. Summary of the Proposed Rule

    The Bureau proposes to amend Regulation F, which implements the 
FDCPA, to require debt collectors, as that term is defined in the 
FDCPA,\1\ to make certain disclosures when collecting time-barred 
debts. Time-barred debts are debts for which the applicable statute of 
limitations has expired. The Bureau proposes to require a debt 
collector collecting a debt that the debt collector knows or should 
know is time barred to disclose: (1) That the law limits how long the 
consumer can be sued for a debt and that, because of the age of the 
debt, the debt collector will not sue the consumer to collect it; and 
(2) if the debt collector's right to bring a legal action against the 
consumer to collect the debt can be revived under applicable law, the 
fact that revival can occur and the circumstances in which it can 
occur. The Bureau proposes model language and forms that debt 
collectors could use to comply with the proposed disclosure 
requirements.
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    \1\ 15 U.S.C. 1692-1692p. This proposal would cover the same 
universe of debt collectors as the May 2019 Proposed Rule, i.e., 
only FDCPA-covered debt collectors. 15 U.S.C. 1692a(6). Creditors 
therefore would only have to comply to the extent they are FDCPA-
covered debt collectors.
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    The Bureau proposes that the effective date of the final rule would 
be one year after the final rule is published in the Federal Register. 
The Bureau requests comment on this proposed effective date.

II. Background

A. In General

    Statutes of limitations establish time limits for bringing suit on 
legal claims.\2\ They serve several purposes.\3\ First, statutes of 
limitations advance a defendant's interest in repose. That is, they 
reflect the legislative judgment that it is ``unjust to fail to put the 
adversary on notice to defend within a specified period of time.'' \4\ 
Second, statutes of limitations eliminate stale claims. That is, they 
protect defendants and the courts from having to deal with cases in 
which ``the search for truth may be seriously impaired by the loss of 
evidence, whether by death or disappearance of witnesses, fading 
memories, disappearance of documents, or otherwise.'' \5\ Third, 
statutes of limitations provide ``certainty about a plaintiff's 
opportunity for recovery and a defendant's potential liabilities.'' \6\
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    \2\ See generally Lozano v. Montoya Alvarez, 572 U.S. 1, 14 
(2014).
    \3\ See generally Rotella v. Wood, 528 U.S. 549, 555 (2000) 
(identifying ``the basic policies of all limitations provisions'' as 
``repose, elimination of stale claims, and certainty'').
    \4\ United States v. Kubrick, 444 U.S. 111, 117 (1979).
    \5\ Id.
    \6\ Young v. United States, 535 U.S. 43, 47 (2002) (quoting 
Rotella, 528 U.S. at 555).
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    A time-barred debt is a debt for which the applicable statute of 
limitations has expired. For most debts, State law supplies the 
applicable statute of limitations.\7\ The length of the limitations 
period varies by State and debt type. Most statutes of limitations 
applicable to debt collection claims are between three and six years, 
although some are as long as 15 years.\8\
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    \7\ Federal law sometimes establishes the statute of 
limitations. For example, legal actions to recover certain 
telecommunications debt are subject to a statute of limitations set 
by Federal law. See 47 U.S.C. 415(a).
    \8\ See Fed. Trade Comm'n, The Structure and Practices of the 
Debt Buying Industry, at 42 (Jan. 2013), https://www.ftc.gov/sites/default/files/documents/reports/structure-and-practices-debt-buying-industry/debtbuyingreport.pdf (hereinafter FTC Debt Buying Report).
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    Currently, in most States, expiration of the statute of 
limitations, if raised by the consumer as an affirmative defense, 
precludes the debt collector from recovering on the debt through 
litigation,\9\ but it does not extinguish the debt itself.\10\ In these 
jurisdictions, a

[[Page 12673]]

debt collector may use non-litigation means, such as letters and 
telephone calls, to collect a time-barred debt, as long as those means 
do not violate the FDCPA or other laws. As courts have recognized, a 
consumer who cannot be sued on a debt may still feel a moral obligation 
to pay.\11\ In addition, a consumer may pay a time-barred debt 
believing that doing so will improve the consumer's credit report.\12\
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    \9\ As a result, many courts have held that suing or threatening 
to sue on time-barred debts is an unfair or deceptive practice under 
the FDCPA. See, e.g., Pantoja v. Portfolio Recovery Assocs., LLC, 
852 F.3d 679, 683 (7th Cir. 2017) (noting that ``a debt collector 
violates the [FDCPA] by suing to collect a time-barred debt after 
the statute of limitations has run and bars the suit''); Crawford v. 
LVNV Funding, LLC, 758 F.3d 1254, 1259 (11th Cir. 2014) (``Federal 
circuit and district courts have uniformly held that a debt 
collector's . . . filing a time-barred suit in state court to 
recover [a time-barred] debt violates [the FDCPA].''). The Bureau's 
May 2019 Proposed Rule would prohibit debt collectors from suing or 
threatening to sue consumers to collect debts the debt collectors 
know or should know are time barred. See 84 FR 23274, 23327-29, 
23403 (May 21, 2019).
    \10\ In Mississippi and Wisconsin, debts are extinguished when 
the applicable statute of limitations expires. See Miss. Code Ann. 
15-1-3 (``The completion of the period of limitation prescribed to 
bar any action, shall defeat and extinguish the right as well as the 
remedy.''); Wis. Stat. Ann. 893.05 (``When the period within which 
an action may be commenced on a Wisconsin cause of action has 
expired, the right is extinguished as well as the remedy.''). North 
Carolina prohibits a ``debt buyer'' from collecting or attempting to 
collect a debt when the debt buyer ``knows, or reasonably should 
know, that such collection is barred by the applicable statute of 
limitations.'' N.C. Gen. Stat. 58-70-115(4).
    \11\ See, e.g., Pantoja, 852 F.3d at 684 (``The creditor retains 
the right to appeal to the debtor to honor the debt out of a sense 
of moral obligation even if the legal obligation can no longer be 
enforced in court.''); Buchanan v. Northland Grp., Inc., 776 F.3d 
393, 399 (6th Cir. 2015) (``Legal defenses are not moral defenses . 
. . [a]nd a creditor remains free, in the absence of a bankruptcy 
order or something comparable preventing it from trying to collect 
the debt, to let the debtor know what the debt is and to ask her to 
pay it.''); McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th 
Cir. 2014) (``[S]ome people might consider full debt re-payment a 
moral obligation, even though the legal remedy for the debt has been 
extinguished.'').
    \12\ Section 605(a)(4) of the Fair Credit Reporting Act 
generally establishes a seven-year period for reporting information 
about accounts placed for collection; after this period has elapsed, 
the debt generally cannot appear on a consumer report. 15 U.S.C. 
1681c(a)(4). Because the statute of limitations on a debt collection 
claim is less than seven years in some States, it is possible for a 
time-barred debt to appear on a consumer's credit report.
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    In many States, a debt collector's right to sue on a time-barred 
debt can be ``revived'' if certain conditions are met. Revival 
extinguishes the consumer's right to raise expiration of the statute of 
limitations as an affirmative defense to litigation; that is, it 
revives the debt collector's right to sue to collect the debt. There 
are generally two circumstances in which State laws permit revival. 
First, in some States, a consumer's partial payment on a time-barred 
debt revives the debt collector's right to sue.\13\ One possible theory 
underlying these laws is that a partial payment ``is an acknowledgement 
of the existence of the indebtedness, which raises an implied promise 
to continue the obligation and to pay the balance.'' \14\ Second, in 
some States, a consumer's written acknowledgement of a time-barred debt 
revives the debt collector's right to sue.\15\ One possible theory 
underlying these laws is that a written acknowledgement ``raises a new 
promise by the debtor to pay [the] existing debt'' and is ``enforceable 
because it is supported by the existing legal duty of the promisor.'' 
\16\
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    \13\ See, e.g., Buchanan, 776 F.3d at 399 (applying Michigan 
law).
    \14\ Young v. Sorenson, 121 Cal. Rptr. 236, 237 (Ct. App. 1975).
    \15\ See, e.g., Pariot v. Portfolio Recovery Assocs., LLC, No. 
2:18-cv-09614-SJO, 2019 WL 2635586, at *3 (C.D. Cal. June 25, 2019) 
(applying California law).
    \16\ United States v. Glens Falls Ins. Co., 546 F. Supp. 643, 
645 (N.D.N.Y. 1982).
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B. Market for Time-Barred Debt

    As discussed in the May 2019 Proposed Rule, the debt collection 
industry includes creditors, third-party debt collectors, debt buyers, 
and a variety of service providers.\17\ A creditor to whom a debt is 
owed may collect the debt itself, send the account to a third-party 
debt collector to recover on the debt in the third-party debt 
collector's name, or sell the debt to a debt buyer.\18\ By the time a 
debt becomes time barred (i.e., after three to six years for many 
debts) it may have been placed with multiple third-party debt 
collectors, or purchased and sold by multiple debt buyers.
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    \17\ See 84 FR 23274, 23276-77 (May 21, 2019).
    \18\ Id. at 23277.
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    The cost to purchase a debt generally decreases over time as the 
probability of recovering on the debt also decreases.\19\ Because of 
their age and the general unavailability of litigation as a collection 
method, time-barred debts typically are available for purchase at a 
discount off face value.\20\ In analyzing whether, and for what price, 
to purchase a portfolio of debts, debt buyers commonly consider the 
prevalence of time-barred debts in the portfolio.\21\ The Bureau is 
unaware of any formal studies of the size of the market for collection 
of time-barred debts.\22\
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    \19\ See FTC Debt Buying Report, supra note 8, at 23-24; Bureau 
of Consumer Fin. Prot., Market Snapshot: Online Debt Sales, at 11 
(Jan. 2017), https://www.consumerfinance.gov/documents/2249/201701_cfpb_Online-Debt-Sales-Report.pdf (hereinafter CFPB Online 
Debt Sales Report).
    \20\ See, e.g., FTC Debt Buying Report, supra note 8, at 23-24; 
CFPB Online Debt Sales Report, supra note 19, at 10.
    \21\ FTC Debt Buying Report, supra note 8, at 21.
    \22\ See David E. Reid, Out-of-Statute Debt: What is a Smart, 
Balanced, and Responsible Approach, at 5 n.6 (Receivables Mgmt. 
Ass'n Int'l, White Paper, 2015), https://rmassociation.org/wp-content/uploads/2017/04/RMA_Whitepaper_OOS.pdf (noting challenge of 
developing a reliable methodology for estimating size of time-barred 
debt market).
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C. Consumer Protection Concerns Regarding Collection of Time-Barred 
Debt

    The collection of time-barred debt through non-litigation means can 
pose consumer protection concerns. Consumers unfamiliar with statutes 
of limitations may take away from a debt collector's attempt to collect 
a time-barred debt the misleading impression that the debt is legally 
enforceable--even if the debt collector does not explicitly threaten 
litigation. A consumer with the misimpression that a time-barred debt 
is enforceable in court may pay or prioritize that debt over another 
debt or expense, in the mistaken belief that doing so is necessary to 
avoid litigation. The consumer may, in turn, have less money to pay 
another debt on which the consumer can be sued, or to pay other 
expenses, such as household necessities. In the many States that permit 
revival, a consumer who makes a partial payment on a time-barred debt 
or acknowledges the debt in writing may revive the debt collector's 
right to sue.
    Some States have attempted to address these consumer protection 
concerns by imposing disclosure requirements on debt collectors. In 
these jurisdictions, a debt collector may not collect a time-barred 
debt without disclosing to the consumer that the debt is time 
barred.\23\ Although their wording varies, State-mandated time-barred 
debt disclosures typically inform the consumer that the law limits how 
long a consumer can be sued on a debt, and that the debt collector 
cannot or will not sue to collect the debt.\24\ Some States also 
require debt collectors to disclose the circumstances in which the 
right to sue on a time-barred debt can be revived.\25\
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    \23\ See, e.g., Cal. Civ. Code 1788.14(d); Conn. Gen. Stat. 36a-
805(a)(14); Mass. Code Regs., tit. 940, 7.07(24); N.M. Admin. Code 
12.2.12.9; N.Y. Comp. Codes R. & Regs., tit. 23, 1.3; N.C. Gen. 
Stat. 58-70-115(1); Tex. Fin. Code Ann. 392-307(e); 6 Vt. Code R. 
031-004-Rule-CF 104.05; 6 Vt. Code R. 3-2-103:CP 104.05(a); W. Va. 
Code 46a-2-128(f).
    \24\ For example, California law requires debt collectors to 
disclose, in relevant part, the following in the first written 
communication with a debtor after the debt has become time barred: 
``The law limits how long you can be sued on a debt. Because of the 
age of your debt, we will not sue you for it.'' Cal. Civ. Code 
1788.14(d).
    \25\ For example, New Mexico law provides, in relevant part, 
that it is an unfair or deceptive trade practice for a debt 
collector to collect or attempt to collect a debt that the debt 
collector knows or has reason to know is time barred unless the debt 
collector makes required time-barred debt and revival disclosures. 
New Mexico provides the following safe harbor disclosure:
    We are required by New Mexico Attorney General rule to notify 
you of the following information. This information is not legal 
advice: This debt may be too old for you to be sued on it in court. 
If it is too old, you can't be required to pay it through a lawsuit. 
You can renew the debt and start the time for the filing of a 
lawsuit against you to collect the debt if you do any of the 
following: Make any payment of the debt; sign a paper in which you 
admit that you owe the debt or in which you make a new promise to 
pay; sign a paper in which you give up (``waive'') your right to 
stop the debt collector from suing you in court to collect the debt.
    N.M. Admin. Code 12.2.12.9. See also, e.g., Mass Code Regs., 
tit. 94, 7.07(24); N.M. Admin. Code 12.2.12.9; N.Y. Comp. Codes R. & 
Regs., tit. 23, 1.3; N.C. Gen. Stat. 58-70-115(1); 6 Vt. Code R. 3-
2-103:CP 104.05(a).

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[[Page 12674]]

    Federal regulators also have highlighted the consumer protection 
concerns associated with time-barred debts. For example, the Federal 
Trade Commission (FTC) has published several reports on the debt 
collection industry, each recognizing the potential that consumers may 
be misled by the collection of time-barred debts.\26\ In addition, the 
FTC and the Bureau have filed amicus briefs addressing the collection 
of time-barred debt.\27\ The FTC and the Bureau also have brought 
enforcement actions against debt collectors who violated the FDCPA when 
collecting time-barred debts; the injunctive relief in those cases 
sometimes required the debt collector to make time-barred debt 
disclosures.\28\
---------------------------------------------------------------------------

    \26\ See FTC Debt Buying Report, supra note 8, at 44-49; Fed. 
Trade Comm'n, Repairing a Broken System: Protecting Consumers in 
Debt Collection Litigation and Arbitration (July 2010), at 22-31, 
https://www.ftc.gov/sites/default/files/documents/reports/federal-trade-commission-bureau-consumer-protection-staff-report-repairing-broken-system-protecting/debtcollectionreport.pdf; Fed Trade Comm'n, 
Collecting Consumer Debts: The Challenges of Change (Feb. 2009), at 
62-65, https://www.ftc.gov/sites/default/files/documents/reports/collecting-consumer-debts-challenges-change-federal-trade-commission-workshop-report/dcwr.pdf.
    \27\ See, e.g., Brief of Amici Curiae, Buchanan v. Northland 
Grp., Inc., No. 13-2523 (6th Cir. Mar. 5, 2014), https://www.consumerfinance.gov/f/201403_cfpb_amicus-brief_buchanan-v-northland-group-inc.pdf; Brief of Amici Curiae, Delgado v. Capital 
Mgmt. Servs., LP, No. 13-2030 (7th Cir. Aug. 14, 2013), https://www.consumerfinance.gov/f/201309_cfpb_agency-brief_12-cv-04057.pdf.
    \28\ See, e.g., In re Encore Capital Grp., Inc., Bureau of 
Consumer Fin. Prot., File No. 2015-CFPB-0022 (Sept. 9, 2015), at 17; 
In re Portfolio Recovery Assocs. LLC, Bureau of Consumer Fin. Prot., 
File No. 2015-CFPB-0023 (Sept. 9, 2015), at 15; United States v. 
Asset Acceptance, LLC, No. 8:12-cv-182 (M.D. Fla. filed Jan. 30, 
2012).
---------------------------------------------------------------------------

    Courts generally have agreed that a debt collector violates the 
FDCPA when its statements would mislead an unsophisticated consumer to 
believe that a time-barred debt is legally enforceable, regardless of 
whether the debt collector expressly threatens litigation.\29\ In 
addition, courts generally have agreed that a debt collector can use 
disclosures to correct misleading impressions relating to a debt's 
enforceability and the possibility of revival that arise from the debt 
collector's attempt to collect a time-barred debt.\30\ Some courts have 
found that a debt collector who seeks payment on a time-barred debt 
without disclosing the debt's unenforceability (and, where applicable, 
the possibility of revival) may violate the FDCPA, but whether a 
particular communication is misleading in violation of the FDCPA raises 
a question of fact.\31\ Other courts have held that a debt collector 
who offers a settlement or seeks payment on a time-barred debt without 
disclosing the debt's unenforceability (and, where applicable, the 
possibility of revival) violates the FDCPA as a matter of law.\32\ Some 
courts have provided debt collectors with model disclosure 
language,\33\ while others have not.\34\
---------------------------------------------------------------------------

    \29\ See, e.g., Holzman v. Malcolm S. Gerald & Assocs., 920 F.3d 
1264, 1271 (11th Cir. 2019); Tatis v. Allied Interstate, LLC, 882 
F.3d 422, 429 (3d Cir. 2018); Daugherty v. Convergent Outsourcing 
Inc., 836 F.3d 507, 509 (5th Cir. 2016); Buchanan v. Northland Grp., 
Inc., 776 F.3d 393, 398-99 (6th Cir. 2015).
    \30\ See, e.g., Holzman, 920 F.3d at 1272-73; Pantoja v. 
Portfolio Recovery Assocs., LLC, 852 F.3d 679, 685-86 (7th Cir. 
2017); Daugherty, 836 F.3d at 513; Buchanan, 776 F.3d at 399-400.
    \31\ See, e.g., Holzman, 920 F.3d at 1269; Daugherty, 836 F.3d 
at 513; Buchanan, 776 F.3d at 397-99.
    \32\ See, e.g., Pantoja, 852 F.3d at 682-83, 685-86; Manuel v. 
Merchants & Prof'l Credit Bureau, Inc., No. 1:18-cv-226-DAE, 2019 WL 
3713750, at *9 (W.D. Tex. Aug. 5, 2019); Schafer v. Allied 
Interstate LLC, No. 1:17-cv-233, 2019 WL 2710272, at *10 (W.D. Mich. 
June 28, 2019).
    \33\ See, e.g., Buchanan, 776 F.3d at 400.
    \34\ See, e.g., Tatis, 882 F.3d at 430; Pantoja, 852 F.3d at 
682-83, 685-86.
---------------------------------------------------------------------------

    Given the current state of the law, some consumers may not receive 
a disclosure about the time-barred status of a debt in collection, 
while others may receive a disclosure containing language that varies 
based on jurisdiction. In addition, debt collectors may be unclear 
about their disclosure obligations when collecting time-barred debt 
through non-litigation means. The lack of clarity may be especially 
acute in jurisdictions where courts have not considered whether the law 
requires disclosures or have not provided model disclosure language. 
Even in jurisdictions with State-law disclosure requirements, debt 
collectors may not know whether providing such disclosures is 
sufficient to comply with the FDCPA.

III. The Rulemaking Process

    Before publishing the May 2019 Proposed Rule, the Bureau engaged in 
outreach regarding numerous debt collection topics, including time-
barred debt. The May 2019 Proposed Rule described the scope of that 
outreach, which also has informed the development of this proposed 
rule.\35\ Of particular note, the Bureau has met with stakeholders 
including consumer advocates, debt collection trade associations, 
industry participants, academics with expertise in debt collection, 
Federal prudential regulators, and other Federal and State consumer 
protection regulators. The Bureau also has drawn on information 
gathered through the more formal outreach described below.
---------------------------------------------------------------------------

    \35\ 84 FR 23274, 23278-81 (May 21, 2019).
---------------------------------------------------------------------------

A. 2013 Advance Notice of Proposed Rulemaking

    The Bureau issued an Advance Notice of Proposed Rulemaking (ANPRM) 
regarding debt collection in November 2013.\36\ The ANPRM sought 
information about an array of debt collection practices, including the 
use of disclosures, such as time-barred debt disclosures, in debt 
collection. Among other things, the Bureau requested comment on whether 
a debt collector should be required to disclose that a debt is time 
barred; that the debt collector cannot lawfully sue to collect it; and 
that, if applicable under State law, a consumer's partial payment 
revives the debt collector's right to sue for the entire amount.\37\
---------------------------------------------------------------------------

    \36\ 78 FR 67848 (Nov. 12, 2013).
    \37\ Id. at 67876.
---------------------------------------------------------------------------

    The Bureau received more than 23,000 comments in response to the 
ANPRM, including nearly 400 non-form comments submitted by consumers, 
consumer advocates, debt collection industry participants and trade 
associations, legal groups including law school clinics, State 
Attorneys General, and other stakeholders. Some consumer advocates, 
legal groups, and State Attorneys General supported banning the 
collection of time-barred debts. Some consumer advocates, legal groups, 
and one industry commenter also supported prohibiting revival.
    A number of commenters addressed the merits of time-barred debt 
disclosures. Consumer advocates and State Attorneys General supported 
disclosures that would inform consumers when debt collectors are 
collecting time-barred debt and, if applicable, about the possibility 
of revival. With a few exceptions, industry commenters generally 
opposed such disclosures. Some industry commenters favored a disclosure 
that would provide consumers general information about statutes of 
limitations but that would not require debt collectors to provide 
information about the time-barred status of particular debts.

B. Qualitative Consumer Testing

    In 2014, the Bureau contracted with a third-party vendor, Fors 
Marsh Group (FMG), to assist with developing, and to conduct 
qualitative consumer testing of, debt collection disclosures for 
consumers, including disclosures regarding time-barred debt and 
revival. The Bureau sought insight into

[[Page 12675]]

consumers' understanding of time-barred debt and revival, as well as 
whether and how time-barred debt and revival disclosures might, if 
included on the validation notice, affect consumers' ability to make 
decisions. As described in the May 2019 Proposed Rule, the Bureau's 
qualitative testing took place during 2014 and 2015 and consisted of 
five focus group discussions and two rounds of 30 one-on-one interviews 
with consumers.\38\
---------------------------------------------------------------------------

    \38\ 84 FR 23274, 23279 (May 21, 2019).
---------------------------------------------------------------------------

    The focus group discussions were designed to assess consumers' 
thoughts about debt collectors and debt collection, to evaluate 
consumers' perceptions of disclosures provided by debt collectors, and 
to measure consumers' understanding of their rights in debt collection, 
including with respect to time-barred debt. The first round of one-on-
one interviews (i.e., cognitive testing) was designed to assess how 
consumers might interact with different versions of a validation 
notice, and how consumers' behavior might differ after reading the 
forms. Regarding time-barred debt, participants were shown two 
different versions of time-barred debt and revival disclosures and were 
asked to respond to a survey with Likert-scale questions.\39\ The 
second round of one-on-one interviews (i.e., usability testing) also 
was designed to assess consumers' understanding of different validation 
notices and to evaluate how each of the notices, which contained one of 
several different time-barred debt disclosures and, in certain cases, 
revival disclosures, might affect consumer behavior. During this 
testing, participants responded to researchers' comprehension questions 
and engaged in additional testing activities.\40\
---------------------------------------------------------------------------

    \39\ A Likert-scale is a commonly used research scale that asks 
respondents to specify their level of agreement or disagreement with 
a series of statements.
    \40\ Reports prepared by FMG regarding each phase of the 
qualitative testing, as well as a report summarizing all of the 
qualitative testing, were published on the Bureau's website when the 
May 2019 Proposed Rule was issued. See Fors Marsh Grp., Debt 
Collection Focus Groups (Aug. 2014), https://files.consumerfinance.gov/f/documents/cfpb_debtcollection_fmg-focus-group-report.pdf (hereinafter FMG Focus Group Report); Fors Marsh 
Grp., Debt Collection Cognitive Interviews (n.d.), https://files.consumerfinance.gov/f/documents/cfpb_debtcollection_fmg-cognitive-report.pdf (hereinafter FMG Cognitive Report); Fors Marsh 
Grp., Debt Collection User Experience Study (Feb. 2016), https://files.consumerfinance.gov/f/documents/cfpb_debtcollection_fmg-usability-report.pdf (hereinafter FMG Usability Report); Fors Marsh 
Grp., Debt Collection Validation Notice Research: Summary of Focus 
Groups, Cognitive Interviews, and User Experience Testing (Feb. 
2016), https://files.consumerfinance.gov/f/documents/cfpb_debtcollection_fmg-summary-report.pdf (hereinafter FMG Summary 
Report).
---------------------------------------------------------------------------

    As discussed in the May 2019 Proposed Rule, the Bureau's 
qualitative testing found that consumers often are uncertain about 
their rights concerning time-barred debt.\41\ Focus group participants 
said that knowing a debt is time barred is helpful and important 
information. Many participants said that knowing that a debt was time 
barred (and thus better understanding the risk of a lawsuit regarding 
that debt) would affect their decision-making regarding payments.\42\ 
In particular, many participants said they would be less likely to pay 
or prioritize a debt they knew was time barred.\43\ The qualitative 
testing also suggested that a plain-language disclosure could help 
consumers understand their rights with respect to time-barred debt. For 
example, nearly all participants in the Bureau's qualitative testing 
who were provided with a disclosure stating, ``Because of the age of 
this debt, we cannot sue you for it'' understood that they could not be 
sued on the debt.\44\ However, the Bureau's qualitative testing also 
suggested that it could be challenging to develop an effective revival 
disclosure, in part because consumers find the concept of revival 
counterintuitive--that is, consumers believe that making a payment 
should avert the negative consequences of nonpayment, which is in 
tension with being subject to the risk of a lawsuit.\45\
---------------------------------------------------------------------------

    \41\ See 84 FR 23274, 23328 (May 21, 2019). See also FMG Focus 
Group Report, supra note 40, at 9-10; FMG Cognitive Report, supra 
note 40, at 36-37; FMG Summary Report, supra note 40, at 35-36.
    \42\ FMG Summary Report, supra note 40, at 35.
    \43\ FMG Focus Group Report, supra note 40, at 9-10; FMG 
Cognitive Report, supra note 40, at 36; FMG Usability Report, supra 
note 40, at 75, 78, 80-81; FMG Summary Report, supra note 40, at 35-
36.
    \44\ FMG Usability Report, supra note 40, at 74, 77.
    \45\ Id. at 74-75, 77; FMG Summary Report, supra note 40, at 37. 
See also United States v. Asset Acceptance, LLC, No. 8:12-cv-182, at 
] 34 (M.D. Fla. filed Jan. 30, 2012).
---------------------------------------------------------------------------

C. Small Business Review Panel

    As discussed in the May 2019 Proposed Rule, in August 2016, the 
Bureau convened a Small Business Review Panel (Small Business Review 
Panel or Panel) with the Chief Counsel for Advocacy of the Small 
Business Administration and the Administrator of the Office of 
Information and Regulatory Affairs with the Office of Management and 
Budget (OMB).\46\ As part of that process, the Bureau prepared an 
outline of proposals under consideration and the alternatives 
considered (Small Business Review Panel Outline or Outline).\47\
---------------------------------------------------------------------------

    \46\ The Small Business Regulatory Enforcement Fairness Act of 
1996 (SBREFA), as amended by section 1100G(a) of the Dodd-Frank Act, 
requires the Bureau to convene a Small Business Review Panel before 
proposing a rule that may have a substantial economic impact on a 
significant number of small entities. See Public Law 104-121, tit. 
II, 110 Stat. 847, 857 (1996) (as amended by Pub. L. 110-28, section 
8302 (2007)).
    \47\ Bureau of Consumer Fin. Prot., Small Business Review Panel 
for Debt Collector and Debt Buyer Rulemaking: Outline of Proposals 
Under Consideration and Alternatives Considered (July 2016), https://files.consumerfinance.gov/f/documents/20160727_cfpb_Outline_of_proposals.pdf (hereinafter Small Business 
Review Panel Outline or Outline).
---------------------------------------------------------------------------

    Among other topics, the Small Business Review Panel Outline 
discussed consumer protection concerns regarding time-barred debt and a 
proposal under consideration to require disclosures in connection with 
the collection of such debt. The Outline noted that the Bureau was 
considering requiring debt collectors collecting on time-barred debt to 
provide a brief, plain-language statement informing the consumer that, 
because of the age of the debt, the debt collector could not sue to 
recover it. The Bureau also was considering proposing that a time-
barred debt disclosure made by one debt collector would bind subsequent 
debt collectors who, in turn, would have to provide the disclosure to 
the consumer.\48\ The Outline noted that the Bureau was considering how 
frequently debt collectors should be required to provide any such time-
barred debt disclosures (i.e., in the validation notice only, or in 
other oral or written communications with the consumer) and whether to 
require such disclosures only when the debt collector knew or should 
have known that the debt was time barred.\49\ The Outline also noted 
that the Bureau was considering a proposal to prohibit debt collectors 
from collecting time-barred debt that could be revived under State law 
unless they waived the right to sue on the debt.\50\
---------------------------------------------------------------------------

    \48\ Id. at 20-21.
    \49\ Id.
    \50\ Id. at 21.
---------------------------------------------------------------------------

    The Bureau participated in telephone conferences and a full-day 
outreach meeting to receive feedback on the Outline from the small 
entity representatives participating in the Panel process. After 
gathering information from the small entity representatives, the Panel 
issued a Small Business Review Panel Report (Report), which set forth 
findings and recommendations regarding the Bureau's proposals under 
consideration.\51\ The Report noted that

[[Page 12676]]

some small entity representatives expressed concern about the proposal 
under consideration to require time-barred debt disclosures. Those 
small entity representatives stated that it can be difficult to 
determine whether debt is time barred, and they feared potential 
lawsuits if good faith determinations about a debt's time-barred status 
proved wrong.\52\ One such small entity representative recommended that 
a debt collector should not be liable for failing to provide a time-
barred debt disclosure if the debt collector made a good-faith 
determination, after appropriate consideration, that the statute of 
limitations for that debt had not yet expired.\53\ Another small entity 
representative said that a time-barred debt disclosure could mislead a 
consumer into believing that the consumer no longer had any obligation 
to pay the debt.\54\ Regarding the Bureau's proposal under 
consideration to require waiver of revival in certain circumstances, 
one small entity representative predicted that, if the Bureau limited 
the circumstances in which debt collectors could sue on revived debts, 
creditors would be less motivated to negotiate prolonged repayment 
plans and more motivated to sue consumers before the statute of 
limitations expired. The Bureau has considered the Small Business 
Review Panel's findings and recommendations in preparing this proposal 
and also discusses them in part V.
---------------------------------------------------------------------------

    \51\ See 84 FR 23274, 23281 (May 21, 2019). The Small Business 
Review Panel Report is part of the administrative record in this 
rulemaking and is available to the public on the Bureau's website. 
See generally Bureau of Consumer Fin. Prot., U.S. Small Bus. Admin., 
& Office of Mgmt. & Budget, Final Report of the Small Business 
Review Panel on the CFPB's Proposals Under Consideration for the 
Debt Collector and Debt Buying Rulemaking (Oct. 2016), https://files.consumerfinance.gov/f/documents/cfpb_debt-collector-debt-buyer_SBREFA-report.pdf (hereinafter Small Business Review Panel 
Report or Report).
    \52\ Small Business Review Panel Report, supra note 51, at 25.
    \53\ Id. at appendix A (comment of Levy & Associates, LLC).
    \54\ Id. at 25.
---------------------------------------------------------------------------

D. 2019 Notice of Proposed Rulemaking

    In May 2019 the Bureau published a proposed rule to amend 
Regulation F, 12 CFR part 1006.\55\ The May 2019 Proposed Rule would 
amend Regulation F to prescribe Federal rules governing the activities 
of debt collectors, as that term is defined in the FDCPA.
---------------------------------------------------------------------------

    \55\ 84 FR 23274 (May 21, 2019).
---------------------------------------------------------------------------

    Among other things, the Bureau proposed to interpret and apply 
FDCPA section 807's prohibitions on false or misleading 
representations, including by prohibiting a debt collector from suing 
or threatening to sue a consumer to collect a debt that the debt 
collector ``knows or should know'' is time barred.\56\ The Bureau 
proposed the ``know or should know'' standard in response to feedback 
received during the SBREFA process about the complexity of determining 
whether the statute of limitations for a particular debt has 
expired.\57\ The Bureau stated that, while debt collectors often will 
know, or can readily determine, whether the statute of limitations has 
expired, there may be some instances in which debt collectors may be 
uncertain whether it has expired even after undertaking a reasonable 
investigation. The Bureau noted that this could occur when, for 
example, the case law in a State is unclear as to which statute of 
limitations applies to a particular type of debt. The Bureau also 
acknowledged, however, that it could be difficult to determine whether 
a ``know or should know'' standard has been met. The Bureau requested 
comment on the merits of using that standard, as opposed to a ``strict 
liability'' standard under which collectors would be liable for suing 
or threatening to sue on time-barred debt even if they neither knew nor 
should have known that a debt was time barred.\58\
---------------------------------------------------------------------------

    \56\ Id. at 23327-29, 23403 (proposing 12 CFR 1006.26(b) to 
provide that ``[a] debt collector must not bring or threaten to 
bring a legal action against a consumer to collect a debt that the 
debt collector knows or should know is a time-barred debt'').
    \57\ See part III.C, supra.
    \58\ 84 FR 23274, 23329 (May 21, 2019).
---------------------------------------------------------------------------

    The May 2019 Proposed Rule also stated that the Bureau was likely 
to propose that debt collectors must provide disclosures to consumers 
when collecting time-barred debt. The proposal noted that, before 
issuing any such proposal, the Bureau intended to conduct additional 
consumer testing of possible time-barred debt and revival disclosures, 
and that the Bureau would publish the results of such testing for 
public comment.\59\ That testing is now complete and is summarized in 
part III.E. The May 2019 Proposed Rule reserved proposed 12 CFR 
1006.26(c) and appendix B for any requirements for time-barred debt and 
revival disclosures.\60\
---------------------------------------------------------------------------

    \59\ Id.
    \60\ Id.
---------------------------------------------------------------------------

    The comment period for the May 2019 Proposed Rule closed on 
September 18, 2019,\61\ and the Bureau received over 14,000 public 
comments.\62\ A large number of comments addressed time-barred debt and 
the Bureau's proposed prohibition regarding suits and threats of suit 
on time-barred debt, including the proposed ``know or should know'' 
standard and alternatives for regulating the collection of time-barred 
debt, such as prohibiting the collection of such debt altogether. The 
Bureau is undertaking a complete review of the comments as part of the 
process of taking final action on the May 2019 Proposed Rule. The 
Bureau cross-references provisions of the May 2019 Proposed Rule 
throughout this proposal.
---------------------------------------------------------------------------

    \61\ 84 FR 37806 (Aug. 2, 2019).
    \62\ See Regulations.gov, Debt Collection Practices (Regulation 
F) Docket Folder Summary, https://www.regulations.gov/docket?D=CFPB-2019-0022 (last visited Feb. 18, 2020).
---------------------------------------------------------------------------

E. Quantitative Consumer Testing

    To obtain additional information about consumer comprehension and 
decision-making in response to sample debt collection disclosures 
relating to time-barred debt, in 2017 the Bureau contracted with ICF 
International, Inc. (ICF) to conduct a web survey of approximately 
8,000 individuals possessing a broad range of demographic 
characteristics.\63\ This quantitative testing concluded in late 
September 2019, and the Bureau \64\ and ICF \65\ have published 
detailed reports summarizing the testing methodology and results. The 
Bureau summarizes the results below and welcomes feedback on the full 
reports, as published on the Bureau's website.
---------------------------------------------------------------------------

    \63\ OMB approved the Bureau's request to conduct the survey on 
May 7, 2019. See Office of Mgmt. & Budget, Office of Information and 
Regulatory Affairs, ICR--OIRA Conclusion, https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201902-3170-001# (last visited Feb. 18, 
2020).
    \64\ See Bureau of Consumer Fin. Prot., Disclosure of Time-
Barred Debt and Revival: Findings from the CFPB's Quantitative 
Disclosure Testing (Feb. 2020), https://files.consumerfinance.gov/f/documents/cfpb_debt-collection-quantitative-disclosure-testing_report.pdf (hereinafter CFPB Quantitative Testing Report).
    \65\ See ICF Int'l, Inc., Quantitative Survey Testing of Model 
Disclosure Clauses and Forms for Debt Collection: Methodology Report 
(Jan. 21, 2020), https://files.consumerfinance.gov/f/documents/cfpb_icf_debt-survey_methodology-report.pdf.
---------------------------------------------------------------------------

    Respondents to the web survey were provided one of two versions of 
a vignette in which a consumer incurred debt to purchase a couch. In 
one version, the purchase occurred three years ago; in the other, it 
occurred 10 years ago. Respondents were told that the consumer had not 
paid off the debt and had received a validation notice from a debt 
collector.
    Respondents were randomly shown one of 11 different versions of a 
validation notice. Two versions served as control conditions. One 
control was designed to resemble validation notices that some debt 
collectors use today (Status Quo Notice). The other control was the 
Bureau's model validation notice as proposed in the May 2019 Proposed 
Rule (Model Notice).\66\ Neither of the control notices contained a 
time-barred debt or revival disclosure.

[[Page 12677]]

Of the remaining nine tested notices, four contained variations of a 
time-barred debt disclosure added to the Bureau's model notice (TBD 
Notices), and five contained variations of both a time-barred debt 
disclosure and a revival disclosure added to the Bureau's model notice 
(TBD with Revival Notices).\67\ The survey used these various TBD 
Notices and TBD with Revival Notices to test whether and how consumers' 
understanding of time-barred debt and revival concepts changed with 
differently worded disclosures.
---------------------------------------------------------------------------

    \66\ See CFPB Quantitative Testing Report, supra note 64, at 6-
9.
    \67\ See id.
---------------------------------------------------------------------------

    After viewing their assigned validation notice, respondents 
answered a series of questions designed primarily to measure their 
understanding of time-barred debt and revival disclosures (or their 
understanding of time-barred debt and revival concepts without such 
disclosures). Respondents were asked whether, based on what they read 
in the notice, they thought a debt collector would be legally allowed 
to sue the consumer to collect the debt if the consumer: (1) Ignored 
the notice and took no action; (2) made a payment; (3) sent the debt 
collector a letter acknowledging the debt; (4) called the debt 
collector acknowledging the debt; or (5) mailed in the tear-off portion 
of the validation notice to dispute the debt.
    As discussed further in part V, the quantitative testing results 
generally indicate that, in connection with the collection of a time-
barred debt, and at least in a testing environment, a validation notice 
without a time-barred debt disclosure can leave consumers with the 
misleading impression that debt collectors would be legally allowed to 
sue to collect the debt.\68\ Time-barred debt disclosures, whether 
alone or with a revival disclosure, generally appear to correct this 
misimpression. On the other hand, the quantitative testing results 
indicate that a time-barred debt disclosure alone (i.e., without a 
revival disclosure) could lead consumers in revival States to believe 
that debt collectors are legally allowed to sue in fewer circumstances 
than they in fact are. Revival disclosures generally appear to clarify 
the circumstances in which the debt collector's right to sue can be 
revived.\69\
---------------------------------------------------------------------------

    \68\ Throughout this proposal, the Bureau refers to time-barred 
debts as not ``legally enforceable'' or states that debt collectors 
are not ``legally allowed to sue'' to collect them. The Bureau uses 
these shorthand phrases to reflect the current state of the law, 
i.e., that the statute of limitations generally is an affirmative 
defense to a lawsuit on time-barred debt and, as a result, courts 
have concluded that suits or threats of suit on time-barred debt 
violate the FDCPA. See supra note 9. As noted, the Bureau's May 2019 
Proposed Rule also would prohibit debt collectors from suing or 
threatening to sue to collect debts that the debt collectors know or 
should know are time barred. Id.
    \69\ See CFPB Quantitative Testing Report, supra note 64, at 4.
---------------------------------------------------------------------------

IV. Legal Authority

    The Bureau issues this supplemental proposal pursuant to its 
authority under the FDCPA and the Dodd-Frank Act. As amended by the 
Dodd-Frank Act, FDCPA section 814(d) provides that the Bureau ``may 
prescribe rules with respect to the collection of debts by debt 
collectors,'' as defined in the FDCPA.\70\
---------------------------------------------------------------------------

    \70\ 15 U.S.C. 1692l(d).
---------------------------------------------------------------------------

    Section 1022(a) of the Dodd-Frank Act provides that ``[t]he Bureau 
is authorized to exercise its authorities under Federal consumer 
financial law to administer, enforce, and otherwise implement the 
provisions of Federal consumer financial law.'' \71\ Section 1022(b)(1) 
of the Dodd-Frank Act provides that the Director may prescribe rules 
and issue orders and guidance, as may be necessary or appropriate to 
enable the Bureau to administer and carry out the purposes and 
objectives of the Federal consumer financial laws, and to prevent 
evasions thereof.\72\ ``Federal consumer financial law'' includes title 
X of the Dodd-Frank Act and the FDCPA.\73\
---------------------------------------------------------------------------

    \71\ 12 U.S.C. 5512(a).
    \72\ 12 U.S.C. 5512(b)(1).
    \73\ 12 U.S.C. 5481(12)(H), (14).
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A. FDCPA Sections 807 and 808

    The Bureau issues this proposal pursuant to its authority to 
interpret FDCPA sections 807 \74\ and 808.\75\ FDCPA section 807 
generally prohibits a debt collector from ``us[ing] any false, 
deceptive, or misleading representation or means in connection with the 
collection of any debt,'' \76\ and then lists, without limiting the 
general prohibition, 16 examples of conduct that violate the 
section.\77\ Similarly, FDCPA section 808 generally prohibits a debt 
collector from ``us[ing] unfair or unconscionable means to collect or 
attempt to collect any debt,'' and then lists, without limiting the 
general prohibition, eight examples of conduct that violate the 
section.\78\
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    \74\ 15 U.S.C. 1692e.
    \75\ 15 U.S.C. 1692f.
    \76\ 15 U.S.C. 1692e.
    \77\ 15 U.S.C. 1692e(1)-(16).
    \78\ 15 U.S.C. 1692f.
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    The Bureau proposes to interpret FDCPA sections 807 and 808 
consistent with the approach proposed in the May 2019 Proposed Rule for 
interpreting FDCPA sections 806 through 808.\79\ That is, the Bureau 
proposes to interpret FDCPA sections 807 and 808 in light of: (1) The 
FDCPA's language and purpose; (2) the general types of conduct 
prohibited by sections 807 and 808 and, where relevant, the specific 
examples enumerated in those sections; and (3) judicial precedent.\80\
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    \79\ 84 FR 23274, 23281-82 (May 21, 2019).
    \80\ Id. at 23281-83.
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    In particular, the Bureau notes that FDCPA section 807's and 808's 
examples of prohibited conduct do not ``limit[ ] the general 
application'' of the general prohibitions set forth in those sections. 
Accordingly, the Bureau may prohibit conduct that the specific examples 
do not address if the conduct violates the general prohibitions. In 
addition, the Bureau uses the specific examples to inform its 
understanding of the general prohibitions.\81\ The Bureau also 
interprets FDCPA sections 807 and 808 in light of the significant body 
of existing court decisions interpreting those sections, including 
cases discussing the collection of time-barred debt.\82\ Finally, 
consistent with the majority of courts, the Bureau proposes to 
interpret FDCPA sections 807 and 808 to incorporate an objective, 
``unsophisticated'' or ``least sophisticated'' consumer standard.\83\
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    \81\ Id. at 23282.
    \82\ Id. See, e.g., Holzman v. Malcolm S. Gerald & Assocs., 920 
F.3d 1264 (11th Cir. 2019); Tatis v. Allied Interstate, LLC, 882 
F.3d 422 (3rd Cir. 2018); Pantoja v. Portfolio Recovery Assocs., 
LLC, 852 F.3d 679 (7th Cir. 2017); Daugherty v. Convergent 
Outsourcing Inc., 836 F.3d 507 (5th Cir. 2016); Buchanan v. 
Northland Grp., Inc., 776 F.3d 393 (6th Cir. 2015); McMahon v. LVNV 
Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014).
    \83\ 84 FR 23282 (May 21, 2019).
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B. Dodd-Frank Act Section 1032

    The Bureau also issues this proposal pursuant to its authority 
under Dodd-Frank Act section 1032. Dodd-Frank Act section 1032(a) 
provides that the Bureau may prescribe rules to ensure that the 
features of any consumer financial product or service, ``both initially 
and over the term of the product or service,'' are ``fully, accurately, 
and effectively disclosed to consumers in a manner that permits 
consumers to understand the costs, benefits, and risks associated with 
the product or service, in light of the facts and circumstances.'' \84\ 
Under Dodd-Frank Act section 1032(a), the Bureau is empowered to 
prescribe rules regarding the disclosure of the ``features'' of 
consumer financial products and services generally. Accordingly, the 
Bureau may prescribe rules containing disclosure requirements even if 
other Federal consumer financial laws do not specifically require 
disclosure of such features. Dodd-Frank Act section

[[Page 12678]]

1032(b)(1) provides that ``any final rule prescribed by the Bureau 
under this section requiring disclosures may include a model form that 
may be used at the option of the covered person for provision of the 
required disclosures.'' \85\ Dodd-Frank Act section 1032(b)(2) provides 
that such a model form ``shall contain a clear and conspicuous 
disclosure that at a minimum--(A) uses plain language comprehensible to 
consumers; (B) contains a clear format and design, such as an easily 
readable type font; and (C) succinctly explains the information that 
must be communicated to the consumer.'' \86\ Dodd-Frank Act section 
1032(b)(3) provides that any such model form ``shall be validated 
through consumer testing.'' \87\
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    \84\ 12 U.S.C. 5532(a).
    \85\ 12 U.S.C. 5532(b)(1).
    \86\ 12 U.S.C. 5532(b)(2).
    \87\ 12 U.S.C. 5532(b)(3).
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    Dodd-Frank Act section 1032(c) provides that, in prescribing rules 
pursuant to Dodd-Frank Act section 1032, the Bureau ``shall consider 
available evidence about consumer awareness, understanding of, and 
responses to disclosures or communications about the risks, costs, and 
benefits of consumer financial products or services.'' \88\ Dodd-Frank 
Act section 1032(d) provides that ``[a]ny covered person that uses a 
model form included with a rule issued under this section shall be 
deemed to be in compliance with the disclosure requirements of this 
section with respect to such model form.'' \89\
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    \88\ 12 U.S.C. 5532(c).
    \89\ 12 U.S.C. 5532(d).
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V. Section-by-Section Analysis

Section 1006.26 Collection of Time-Barred Debts

26(c) Disclosures Required

    For the reasons discussed below, the Bureau proposes Sec.  
1006.26(c) to require debt collectors who are collecting debts that 
they know or should know are time barred to provide time-barred debt 
disclosures and, if applicable, revival disclosures to consumers. 
Proposed Sec.  1006.26(c)(1) and (2) sets forth content and timing 
requirements, and proposed Sec.  1006.26(c)(3) sets forth formatting 
requirements and a safe harbor for making the disclosures.
    The Bureau proposes Sec.  1006.26(c) pursuant to its authority 
under FDCPA section 814(d) to prescribe rules with respect to the 
collection of debts by debt collectors, and pursuant to its authority 
to interpret FDCPA section 807. The Bureau proposes to interpret FDCPA 
section 807's prohibition on using ``any false, deceptive, or 
misleading representation or means in connection with the collection of 
any debt'' to require debt collectors to make time-barred debt 
disclosures and, if applicable, revival disclosures to consumers 
because, as discussed below, a debt collector's attempt to collect a 
time-barred debt is likely to give a consumer the false impression that 
the debt is legally enforceable. This false impression, as also 
discussed below, is likely to affect a consumer's decision whether to 
pay or prioritize the debt. Thus, when a debt collector collects a 
time-barred debt without disclosing that the debt is time barred, the 
debt collector may misrepresent the character or le gal status of the 
debt, which FDCPA section 807(2)(A) specifically prohibits.
    The Bureau also proposes Sec.  1006.26(c) pursuant to its authority 
under section 1032(a) of the Dodd-Frank Act. As discussed in part IV, 
Dodd-Frank Act section 1032(a) provides that the Bureau may prescribe 
rules to ensure that the features of any consumer financial product or 
service, ``both initially and over the term of the product or 
service,'' are ``fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances.'' Under Dodd-Frank Act section 1002(5) and 
(15)(A)(x), collecting debt related to any consumer financial product 
or service is itself a consumer financial product or service.
    Dodd-Frank Act section 1032(c) provides that, in prescribing rules 
pursuant to section 1032 of the Dodd-Frank Act, the Bureau ``shall 
consider available evidence about consumer awareness, understanding of, 
and responses to disclosures or communications about the risks, costs, 
and benefits of consumer financial products or services.'' Accordingly, 
in developing proposed Sec.  1006.26(c), the Bureau has considered 
consumer complaints, industry disclosure practices, and other evidence 
about consumer awareness, understanding of, and responses to 
disclosures or communications about the risks, costs, and benefits of 
consumer financial products or services. The Bureau has also considered 
the evidence developed through its consumer testing.
    The Bureau proposes Sec.  1006.26(c) on the theory that a debt's 
status as time barred is a feature of debt collection. Knowing that a 
debt is time barred may help a consumer understand the costs, benefits, 
and risks associated with paying or not paying a debt. For the reasons 
described below, the Bureau believes that requiring debt collectors to 
clearly and conspicuously disclose to consumers when a debt is time 
barred and, if applicable, when revival may occur, using disclosures 
substantially similar to those set forth on the model forms in proposed 
appendices B-4 through B-7, may ensure that the features of debt 
collection are fully, accurately, and effectively disclosed to 
consumers.
26(c)(1) In General
    As discussed in part II.C, the non-litigation collection of time-
barred debt can raise concerns about consumer deception. If a debt 
collector attempts to collect a debt, the consumer may take away the 
impression that the debt collector is legally allowed to sue to collect 
it.\90\ For time-barred debts, this impression would be false, and this 
false impression is likely to affect a consumer's decision whether to 
pay or prioritize a time-barred debt.
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    \90\ See FTC Debt Buying Report, supra note 8, at 46-47 (``When 
collectors attempt to recover on debts, in many circumstances, such 
efforts may convey or imply to consumers that the collectors could 
sue them if they do not pay.''). See also, e.g., Holzman v. Malcolm 
S. Gerald & Assocs., Inc., 920 F.3d 1264, 1272 (11th Cir. 2019); 
Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679, 683-84 
(7th Cir. 2017).
---------------------------------------------------------------------------

    As summarized in part III.E, the Bureau's quantitative testing 
results suggest that, without a disclosure, many consumers are likely 
to believe that a debt collector is legally allowed to sue to collect a 
time-barred debt. For example, as discussed in the Bureau's 
Quantitative Testing Report, one survey question asked respondents 
whether, based on what they read in a sample validation notice, they 
thought the debt collector would be legally allowed to sue the debtor 
if the debtor ignored the notice and took no action. For the time-
barred debts described in the testing scenarios, the correct answer to 
this question was ``no,'' the debt collector would not be legally 
allowed to sue. However, over 60 percent of respondents who saw either 
a Status Quo or Model Notice (i.e., a validation notice without a time-
barred debt disclosure) got this question wrong and replied that the 
debt collector would be legally allowed to sue.\91\
---------------------------------------------------------------------------

    \91\ CFPB Quantitative Testing Report, supra note 64, at 17-18.
---------------------------------------------------------------------------

    This false impression could affect a consumer's decision whether to 
pay or prioritize a debt. For example, a different survey question 
asked respondents how likely they would be, if they were the debtor, 
either to make a full or partial payment on the debt or to ignore the 
validation notice and not

[[Page 12679]]

respond to it. Respondents who saw a validation notice with no time-
barred debt disclosure were more likely than respondents who saw a 
validation notice with such a disclosure to say that they were ``very 
likely'' to make a full or partial payment and that they were ``very 
unlikely'' to ignore the notice.\92\ These results reflect responses to 
hypotheticals in a testing environment, but they indicate that, if a 
consumer has the misimpression that a debt collector can sue to enforce 
a time-barred debt, the consumer may be more likely to pay or 
prioritize that debt than if the consumer knew that doing so was not 
necessary to avoid litigation. Consumers, of course, may choose to pay 
time-barred debts for any number of reasons, including moral ones \93\ 
or in the belief that doing so will improve their credit reports.\94\ 
However, the Bureau believes that consumers are harmed to the extent 
that they decide to pay or prioritize time-barred debts over other 
debts or expenses such as household necessities because of a false 
understanding that they can be sued.
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    \92\ Id. at 28-29. The Bureau's qualitative consumer testing and 
other research also suggests that knowing whether a debt is time 
barred, and that debt collectors cannot enforce time-barred debts in 
court, may affect a consumer's decision-making with respect to the 
debt. Participants in the Bureau's consumer testing said that 
knowing a debt is time barred is important and would affect their 
decision-making. In particular, many participants said they would be 
less likely to pay or prioritize a debt they knew was time barred. 
FMG Focus Group Report, supra note 40, at 9-10; FMG Cognitive 
Report, supra note 40, at 36; FMG Usability Report, supra note 40, 
at 75, 78, 80-81; FMG Summary Report, supra note 40, at 35-36. See 
also Timothy E. Goldsmith & Nathalie Martin, Testing Materiality 
Under the Unfair Practices Acts: What Information Matters Collecting 
Time-Barred Debts? 64 Consumer Fin. L. Q. Rep. 372, at 377-80 
(2010).
    \93\ See, e.g., Pantoja, 852 F.3d at 684; Buchanan v. Northland 
Grp., Inc., 776 F.3d 393, 399 (6th Cir. 2015); McMahon v. LVNV 
Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014).
    \94\ See supra note 12.
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    As discussed in part II.C., several jurisdictions already require 
debt collectors to inform consumers if a debt is time barred,\95\ and 
some debt collectors also must provide such disclosures as a result of 
consent agreements with law enforcement agencies, including the Bureau 
and the FTC.\96\ The Bureau's quantitative testing supports the 
conclusion that such a time-barred debt disclosure can, in fact, help 
to correct the misimpression that a debt collector would be legally 
allowed to sue to collect a time-barred debt. As noted, over 60 percent 
of respondents who were shown a validation notice without a time-barred 
debt disclosure answered incorrectly when asked whether, based on what 
they read in the notice, the debt collector would be legally allowed to 
sue to collect the time-barred debt if the debtor ignored the notice 
and took no action. By contrast, over 60 percent of respondents who 
received either a TBD or TBD with Revival Notice (i.e., a validation 
notice with a time-barred debt disclosure) answered this question 
correctly.\97\
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    \95\ See, e.g., Cal. Civ. Code 1788.52(d)(3); Conn. Gen. Stat. 
36a-805(a)(14); Mass. Code Regs., tit. 940, 7.07(24); N.M. Code. R. 
12.2.12.9(A); N.Y. Comp. Codes R. & Regs., tit. 23, 1.3; New York 
City, N.Y., Rules, tit. 6, 2-191(a); W. Va. Code 46a-2-128(f).
    \96\ For example, the Bureau has brought enforcement actions 
alleging that debt collectors violated the FDCPA by sending letters 
containing time-limited ``settlement'' offers that failed to 
disclose that the debt was time barred and therefore too old for 
litigation. Consent Order at ]] 65-69, In re Encore Capital Grp., 
Inc., Bureau of Consumer Fin. Prot., File No. 2015-CFPB-0022 (Sept. 
9, 2015), https://files.consumerfinance.gov/f/201509_cfpb_consent-order-encore-capital-group.pdf; Consent Order at ]] 56-59, In re 
Portfolio Recovery Assocs., LLC, Bureau of Consumer Fin. Prot., File 
No. 2015-CFPB-0023 (Sept. 9, 2015), https://files.consumerfinance.gov/f/201509_cfpb_consent-order-portfolio-recovery-associates-llc.pdf. Similarly, the FTC has brought an 
enforcement action alleging that a debt collector's collection of 
time-barred debts violated the FDCPA where the debt collector failed 
to disclose that the debts were time-barred and that the debt 
collector's right to sue could be revived. Complaint ]] 30-34, 56-
58, United States v. Asset Acceptance, LLC, No. 8:12-cv-182 (M.D. 
Fla. Jan. 30, 2012), https://www.ftc.gov/sites/default/files/documents/cases/2012/01/120130assetcmpt.pdf. The consent orders that 
resolved Encore, Portfolio Recovery, and Asset Acceptance required 
the debt collectors in those cases to make time-barred debt 
disclosures. Encore Consent Order at ] 133; Portfolio Recovery 
Consent Order at ] 126; Asset Acceptance Consent Decree at Sec.  IV, 
https://www.ftc.gov/sites/default/files/documents/cases/2012/01/120131assetconsent.pdf.
    \97\ CFPB Quantitative Testing Report, supra note 64, at 17-18. 
The Bureau's qualitative testing supports the same conclusion. 
Nearly all participants in the Bureau's consumer testing who were 
provided with a disclosure stating, ``Because of the age of this 
debt, we cannot sue you for it'' understood that they could not be 
sued on the debt. FMG Usability Report, supra note 40, at 74, 77.
---------------------------------------------------------------------------

    Although the Bureau's quantitative testing found that a time-barred 
debt disclosure tended to correct the misimpression that a debt 
collector would be legally allowed to sue to collect a time-barred 
debt, the testing also revealed that, in States with revival laws, an 
unqualified time-barred debt disclosure could create its own risk of a 
consumer taking away a false, material impression. Specifically, the 
Bureau's quantitative testing found that a time-barred debt disclosure 
alone (i.e., without a revival disclosure) could lead consumers in 
revival States to believe that debt collectors are able to legally sue 
them on time-barred debt in fewer circumstances than they in fact 
are.\98\ As discussed in the Bureau's Quantitative Testing Report, two 
survey questions asked respondents whether, based on what they read in 
a sample validation notice, they thought the debt collector would be 
legally allowed to sue the debtor if the debtor either made a payment 
or acknowledged the debt in writing. For the time-barred debts 
described in the testing scenarios, the correct answer to these 
questions was ``yes,'' the debt collector would be legally allowed to 
sue. However, more than 60 percent of respondents who saw a TBD Notice 
(i.e., a validation notice with an unqualified time-barred debt 
disclosure) replied incorrectly that the debt collector would not be 
legally allowed to sue.\99\
---------------------------------------------------------------------------

    \98\ As discussed in part II, in ``revival jurisdictions,'' if 
consumers either make partial payments on time-barred debts or 
acknowledge time-barred debts in writing (or both), debt collectors 
once again would be legally allowed to sue to collect the debts. If 
a debt collector makes an unqualified time-barred debt disclosure to 
a consumer in a revival jurisdiction, that disclosure would be false 
for a consumer whose conduct revived the debt.
    \99\ CFPB Quantitative Testing Report, supra note 64, at 18-20. 
Although respondents who received no time-barred debt disclosure at 
all also tended to answer these questions incorrectly, respondents 
who received an unqualified time-barred debt disclosure were even 
more likely to answer these questions incorrectly. Id. These results 
suggest that an unqualified time-barred debt disclosure could 
mislead consumers for those scenarios.
---------------------------------------------------------------------------

    As with the false impression that debt collectors legally are 
allowed to sue to collect a time-barred debt even if the consumer takes 
no action, the false impression that debt collectors are not legally 
allowed to sue even if the consumer makes a payment or acknowledges the 
debt in writing could affect a consumer's decision whether to pay or 
prioritize time-barred debts. The Bureau's quantitative testing 
suggests that, in revival jurisdictions, a time-barred debt disclosure 
accompanied by a revival disclosure may help to correct this 
misimpression. When respondents were asked whether, based on what they 
read in the notice, the debt collector would be legally allowed to sue 
to collect the time-barred debt if the consumer either made a payment 
or acknowledged the debt in writing, about 70 percent and 60 percent of 
respondents, respectively, who received both a time-barred debt and 
revival disclosure answered correctly that the debt collector would be 
legally allowed to sue.\100\
---------------------------------------------------------------------------

    \100\ Id.
---------------------------------------------------------------------------

    To address the likelihood that consumers may be deceived by the 
non-litigation collection of time-barred debt, and pursuant to its 
authority under FDCPA sections 814(d) and 807 and Dodd-Frank Act 
section 1032, the Bureau proposes Sec.  1006.26(c)(1) to require debt 
collectors who are collecting time-barred debt to provide

[[Page 12680]]

certain disclosures to consumers.\101\ Specifically, proposed Sec.  
1006.26(c)(1) would provide that a debt collector who knows or should 
know that a debt is time barred when the debt collector makes the 
initial communication as defined in Sec.  1006.34(b)(2) must, in that 
initial communication, and on any validation notice required by Sec.  
1006.34(a)(1)(i)(B), clearly and conspicuously provide time-barred debt 
and, if applicable, revival disclosures to consumers.\102\
---------------------------------------------------------------------------

    \101\ The requirements of proposed Sec.  1006.26(c)(1) therefore 
would apply to FDCPA-covered debt collectors collecting debt, as 
that term is defined in FDCPA section 803(5), regardless of whether 
the debt is a consumer financial product or service debt, as that 
term is defined in the May 2019 Proposed Rule. See 84 FR 23274, 
23399 (May 21, 2019). Consumer financial product or service debts 
would include, for example, debts related to consumer mortgage loans 
or credit cards. Id. at 23286.
    \102\ The required disclosures are discussed in the section-by-
section analysis of proposed Sec.  1006.26(c)(1)(i) and (ii). 
Proposed Sec.  1006.34(c)(2)(xi), discussed below, would amend the 
validation notice provisions of the May 2019 Proposed Rule to 
reflect the disclosures that would be required by proposed Sec.  
1006.26(c)(1).
---------------------------------------------------------------------------

    Proposed Sec.  1006.26(c)(1) would require the time-barred debt 
and, if applicable, revival disclosures to be made regarding debts that 
the debt collector ``knows or should know'' are time barred. As 
discussed in the May 2019 Proposed Rule and in part III.D, determining 
whether the statute of limitations for a particular debt has expired 
can, in certain cases, be a complex undertaking, and debt collectors 
may be uncertain about whether a particular statute of limitations has 
passed even after conducting a reasonable investigation.\103\ For this 
reason, the May 2019 Proposed Rule proposed to prohibit debt collectors 
from suing or threatening to sue to collect debts if they ``know or 
should know'' that the statute of limitations has expired.\104\ In 
response to the May 2019 Proposed Rule, the Bureau received a large 
number of comments regarding this knowledge standard. In general, 
industry commenters favored a ``know or should know'' standard, while 
consumer advocates favored a ``strict liability'' standard.\105\ The 
Bureau is analyzing those comments as part of the process of finalizing 
the May 2019 Proposed Rule. For consistency with that proposal, the 
Bureau proposes to require disclosures under Sec.  1006.26(c)(1) only 
if the debt collector knows or should know that the debt is time 
barred.
---------------------------------------------------------------------------

    \103\ See 84 FR 23274, 23329 (May 21, 2019) (determining whether 
the statute of limitations has expired may involve analyzing which 
statute of limitations applies, when the statute of limitations 
began to run, and whether the statute of limitations has been tolled 
or reset).
    \104\ Id. at 23328-29, 23403. A debt collector would violate 
FDCPA section 807's prohibition on deception and, if finalized, 
Sec.  1006.18 in the May 2019 Proposed Rule, by providing the Sec.  
1006.26(c)(1) disclosures if the debt collector later sues or 
threatens to sue to collect the debt. The Bureau requests comment on 
whether the final rule should indicate in rule text or commentary 
that this would be a violation.
    \105\ Under a ``strict liability'' standard, for example, a debt 
collector would violate the proposed prohibition against suits or 
threats of suit if the debt collector sued or threatened to sue to 
collect a debt that a court later determined was time barred, even 
if the debt collector had investigated and reasonably concluded that 
the debt was not time barred. This could occur, for example, if 
State law applies different statutes of limitations to different 
types of debts, and if a court later determined that a debt 
collector had applied the wrong provision in determining whether the 
debt was time barred, notwithstanding a reasonable investigation.
---------------------------------------------------------------------------

    Proposed Sec.  1006.26(c)(1) also would require the time-barred 
debt and, if applicable, revival disclosures to be made clearly and 
conspicuously. The Bureau proposes this standard to help ensure that 
consumers take away a truthful, non-misleading impression. A disclosure 
that is not clear and conspicuous will not be effective in conveying 
this impression, defeating the disclosure's purpose. Proposed comment 
26(c)(1)-1 would clarify that ``clearly and conspicuously'' for 
purposes of Sec.  1006.26(c)(1) means the same thing as ``clear and 
conspicuous'' as the Bureau proposed to define that term in Sec.  
1006.34(b)(1) in the May 2019 Proposed Rule.\106\ That standard, in 
turn, is based on the standard used in other consumer financial 
services laws and their implementing regulations, including Regulation 
E Subpart B (Remittance Transfers).\107\
---------------------------------------------------------------------------

    \106\ Proposed Sec.  1006.34(b)(1) defines ``clear and 
conspicuous'' to mean ``disclosures that are readily 
understandable.'' In the case of written and electronic disclosures, 
``the location and type size also must be readily noticeable to 
consumers.'' In the case of oral disclosures, ``the disclosures also 
must be given at a volume and speed sufficient for the consumer to 
hear and comprehend them.''
    \107\ Regulation E, 12 CFR 1005.31.
---------------------------------------------------------------------------

    Proposed Sec.  1006.26(c)(1) also would require the time-barred 
debt and, if applicable, revival disclosures to be made in the initial 
communication as defined in Sec.  1006.34(b)(2), and on any validation 
notice required by Sec.  1006.34(a)(1)(i)(B).\108\ Proposed Sec.  
1006.26(c)(1) would require a debt collector to provide the disclosures 
in these communications because, without the disclosures, the debt 
collector may convey a misleading impression about the legal 
enforceability of the time-barred debt. In addition, requiring the 
disclosures at the time that the debt collector first communicates with 
the consumer in connection with the collection of the debt and on any 
required validation notice should ensure that consumers receive 
information regarding the debt's legal enforceability at a time when 
they may be evaluating their rights and obligations regarding the debt, 
including whether to pay or prioritize it over other debts. Proposed 
comment 26(c)(1)-2 would clarify that a debt collector who sends a 
validation notice in the initial communication pursuant to Sec.  
1006.34(a)(1)(i)(A) complies with Sec.  1006.26(c)(1) by providing the 
required disclosures on the validation notice.
---------------------------------------------------------------------------

    \108\ The Bureau proposes to use the same definition of 
``initial communication'' proposed in the May 2019 Proposed Rule. 
See 84 FR 23274, 23404 (May 21, 2019) (proposing 12 CFR part 
1006.34(b)(2) to define ``initial communication'' in to mean ``the 
first time that, in connection with the collection of a debt, a debt 
collector conveys information, directly or indirectly, regarding the 
debt to the consumer,'' other than certain communications required 
by law or made in the form of a formal pleasing in a civil action).
---------------------------------------------------------------------------

    Some stakeholders, including consumers, consumer groups, and others 
who commented on the May 2019 Proposed Rule, have urged the Bureau to 
prevent the risk of deception by prohibiting the collection of time-
barred debt and banning revival. These stakeholders assert, among other 
things, that concepts like statutes of limitations and revival are too 
complicated to disclose to consumers effectively. As discussed above, 
however, the Bureau's quantitative testing results suggest that 
disclosures can be effective in preventing the deception associated 
with the collection of time-barred debts and that, therefore, 
prohibiting the collection of time-barred debt and banning revival are 
not necessary to prevent deception. In addition, banning the collection 
of time-barred debt could have unintended consequences for consumers, 
such as increased litigation before expiration of the statute of 
limitations. Because disclosures may adequately address the risks to 
consumers, the Bureau proposes to require disclosures rather than to 
prohibit the collection of time-barred debt and ban revival.
    The Bureau requests comment on proposed Sec.  1006.26(c)(1) and its 
related commentary. In particular, the Bureau requests comment on the 
merits of using a ``know or should know'' standard versus a ``strict 
liability'' standard for determining when debt collectors must provide 
time-barred debt and revival disclosures. The Bureau also requests 
comment on the merits of using, as an alternative, a ``strict 
liability'' standard with a safe harbor for debt collectors who provide 
the disclosures when they

[[Page 12681]]

neither knew nor should have known the debt was time-barred.
    The Bureau also requests comment on: (1) Whether knowing if a debt 
is time barred affects or is likely to affect a consumer's conduct 
relating to the debt; (2) the frequency with which debt collectors 
should be required to provide required disclosures, including the basis 
for requiring more or less frequent disclosures; (3) whether additional 
guidance is needed to address situations in which a validation notice 
might be re-issued voluntarily because, for example, the consumer 
requests a copy or a translation; (4) debt collectors' current 
practices with respect to disclosing whether a debt is time barred and 
the circumstances, if any, in which revival can occur; and (5) debt 
collectors' current practices with respect to revival, including 
whether and how frequently they sue to collect debts when the right to 
do so has been revived.
26(c)(1)(i)
    Proposed Sec.  1006.26(c)(1)(i) sets forth the disclosure that debt 
collectors would be required to provide when collecting debts that they 
know or should know are time barred. Proposed Sec.  1006.26(c)(1)(i) 
would require debt collectors to disclose that the law limits how long 
the consumer can be sued for a debt and that, because of the age of the 
debt, the debt collector will not sue the consumer to collect it. The 
disclosure would be required to be substantially similar to the 
disclosure shown on proposed Model Form B-4 in appendix B, and debt 
collectors could comply by using that model form (or, if making the 
disclosure other than on a validation notice, by using the relevant 
language from that model form).\109\
---------------------------------------------------------------------------

    \109\ See the section-by-section analysis of proposed Sec.  
1006.26(c)(3) regarding proposed requirements for the form and 
delivery of the required disclosures.
---------------------------------------------------------------------------

    As discussed in the Bureau's Quantitative Testing Report, the 
Bureau tested alternative versions of this time-barred debt disclosure, 
including two that used the phrase ``will not sue'' and two that used 
the phrase ``cannot sue.'' A disclosure that uses the phrase ``will not 
sue'' may be more accurate than a disclosure that uses the phrase 
``cannot sue.'' A disclosure that uses the phrase ``cannot sue'' may 
imply that a debt collector has definitively determined that the debt 
is time barred and that all subsequent collectors thus would reach the 
same conclusion. By contrast, a ``will not sue'' disclosure merely 
represents that the debt collector believes that the debt is time 
barred, not that the debt collector has definitely determined that it 
is time barred; it may not actually be the case that the debt is, or 
that a subsequent collector would conclude that the debt is, time 
barred.\110\ The Bureau's testing showed no consistent differences in 
consumer understanding between the ``will not sue'' and ``cannot sue'' 
disclosures.\111\
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    \110\ For this reason, a debt collector who provides the 
proposed Sec.  1006.26(c)(1) disclosures after undertaking a 
reasonable inquiry and concluding that a debt is time barred would 
not be liable under either the FDCPA or Regulation F for having made 
the disclosures even if it is determined later that the debt 
collector's conclusion about the debt's time-barred status was 
incorrect, as long as the debt collector honors the disclosures by 
not suing.
    \111\ CFPB Quantitative Testing Report, supra note 64, at 22-23.
---------------------------------------------------------------------------

    As discussed in part III.C, during the SBREFA process, the Bureau 
was considering a proposal to require a debt collector who was 
collecting a time-barred debt to disclose that, because of the age of 
the debt, the debt collector ``cannot sue to recover it.'' \112\ 
Several small entity representatives expressed concern that the 
disclosure under consideration could constitute legal advice, or that 
consumers who received the disclosures could construe them as legal 
advice and ask the debt collector follow-up questions about the debt's 
legal status. Some industry commenters to the Bureau's ANPR expressed 
similar concerns. As noted, the Bureau does not believe that the ``will 
not sue'' disclosure described in proposed Sec.  1006.26(c)(1)(i) 
constitutes legal advice. It is neither a statement of what the law is 
nor advice to consumers as to what they should or should not do. 
Instead, it is a statement of what the collector will do. In addition, 
nothing in the Bureau's proposal would require a debt collector to 
provide legal advice to a consumer who requests it. The Bureau requests 
comment on proposed Sec.  1006.26(c)(1)(i) and on the burden of making 
a time-barred debt determination for debt collectors who do not sue to 
collect debts.
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    \112\ Small Business Review Panel Outline, supra note 47, at 20.
---------------------------------------------------------------------------

26(c)(1)(ii)
    Proposed Sec.  1006.26(c)(1)(ii) sets forth an additional 
disclosure that debt collectors would be required to provide when 
collecting debts that they know or should know are time barred if, 
under applicable law, the debt collector's right to bring a legal 
against the consumer could be revived. Under proposed Sec.  
1006.26(c)(1)(ii), debt collectors would be required to disclose the 
fact that revival can occur and the circumstances in which it can 
occur. The disclosure would be required to be substantially similar to 
those shown on proposed Model Forms B-5 through B-7 in appendix B, and 
debt collectors could comply by using those model forms, as applicable 
(or, if making the disclosure other than on a validation notice, by 
using the relevant language from the model forms).\113\ Proposed 
comment 26(c)(1)(ii)-1 would clarify that, to satisfy the disclosure 
requirement in proposed Sec.  1006.26(c)(1)(ii), a debt collector would 
be required to determine which State's law applies and the 
circumstances, if any, in which that law would permit revival.
---------------------------------------------------------------------------

    \113\ See the section-by-section analysis of proposed Sec.  
1006.26(c)(3) regarding proposed requirements for the form and 
delivery of the required disclosures.
---------------------------------------------------------------------------

    The Bureau requests comment on proposed Sec.  1006.26(c)(1)(ii) and 
on comment 26(c)(1)(ii)-1. The Bureau specifically requests comment on 
the burden of requiring all debt collectors to determine, when 
collecting debt that they know or should know is time barred, which 
State's law applies and the circumstances, if any, under which that law 
would permit revival. The Bureau also specifically requests comment on 
the burden of making these determinations under a strict liability 
standard. The Bureau recognizes that some debt collectors do not sue to 
collect any debts (including revived debts) and that some debts may be 
clearly time barred under any applicable State law. The Bureau requests 
comment on the burden in such circumstances of requiring debt 
collectors to conduct the inquiry that would be required to satisfy 
proposed Sec.  1006.26(c)(1)(ii) (i.e., to make a disclosure that 
reflects the applicable State's revival law).
26(c)(2) Additional Circumstances in Which Disclosures Are Required
    A debt may become time barred after a debt collector's initial 
communication with the consumer or after the debt collector sends the 
consumer any validation notice required by Sec.  1006.34(a)(1)(i)(B). 
This could happen, for example, if a debt collector begins collecting a 
debt soon before the statute of limitations expires, and collection 
activities continue after expiration. This also could happen if a debt 
collector begins collecting a debt before the statute of limitations 
expires, warehouses the debt, and resumes collection activities after 
expiration. Relatedly, it may be the case that a debt collector who 
does not know, and should not know, that a debt is time barred when 
making the initial communication with the consumer or

[[Page 12682]]

when sending the consumer any validation notice required by Sec.  
1006.34(a)(1)(i)(B) later knows, or should know, that the debt was, in 
fact, time barred.
    As discussed, the Bureau's quantitative testing results indicate 
that, without disclosure, few consumers are likely to recognize that a 
debt collector is not legally allowed to sue to collect a time-barred 
debt. The quantitative testing results also indicate that an 
unqualified time-barred debt disclosure provided in a revival State may 
create a risk of consumer misunderstanding about revival. For these 
reasons, and pursuant to its authority under FDCPA sections 814(d) and 
807 and Dodd-Frank Act section 1032(a), the Bureau proposes Sec.  
1006.26(c)(2) to specify additional circumstances in which debt 
collectors would be required to provide time-barred debt and, if 
applicable, revival disclosures.\114\
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    \114\ The requirements of proposed Sec.  1006.26(c)(2) therefore 
would apply to FDCPA-covered debt collectors collecting debt, as 
that term is defined in FDCPA section 803(5), regardless of whether 
the debt is a consumer financial product or service debt, as that 
term is defined in the May 2019 Proposed Rule. See 84 FR 23274, 
23399 (May 21, 2019). Consumer financial product or service debts 
would include, for example, debts related to consumer mortgage loans 
or credit cards. Id. at 23286.
---------------------------------------------------------------------------

    Proposed Sec.  1006.26(c)(2)(i) would require a debt collector who 
knows or should know that a debt has become time barred after the 
initial communication as defined in Sec.  1006.34(b)(2) but before the 
debt collector has sent any validation notice required by Sec.  
1006.34(a)(1)(i)(B) to provide the disclosures required by Sec.  
1006.26(c)(1) in the debt collector's first communication, if any, with 
the consumer on or after the date on which the debt collector knows or 
should know that the debt has become time barred, and on any validation 
notice required by Sec.  1006.34(a)(1)(i)(B). In addition, proposed 
Sec.  1006.26(c)(2)(i) would require a debt collector who knows or 
should know that a debt has become time barred after the debt collector 
has made the initial communication as defined in Sec.  1006.34(b)(2) 
and has sent any validation notice required by Sec.  
1006.34(a)(1)(i)(B) to provide the disclosures required by Sec.  
1006.26(c)(1) in the debt collector's first communication, if any, with 
the consumer on or after the date on which the debt collector knows or 
should know that the debt became time barred. Proposed comments 
26(c)(2)(i)-1 and -2 provide examples illustrating the rule.
    Proposed Sec.  1006.26(c)(2)(ii) would require a debt collector who 
neither knows nor should know that a time-barred debt is time barred 
when the debt collector makes the initial communication as defined in 
Sec.  1006.34(b)(2), but who knows or should know that the debt is time 
barred before the debt collector has sent any validation notice 
required by Sec.  1006.34(a)(1)(i)(B), to provide the disclosures 
required by Sec.  1006.26(c)(1) in the debt collector's first 
communication, if any, with the consumer on or after the date on which 
the debt collector knows or should know that the debt is time barred, 
and on any validation notice required by Sec.  1006.34(a)(1)(i)(B). In 
addition, proposed Sec.  1006.26(c)(2)(ii) would require a debt 
collector who neither knows nor should know that a time-barred debt is 
time barred when the debt collector makes the initial communication as 
defined in Sec.  1006.34(b)(2) and sends any validation notice required 
by Sec.  1006.34(a)(1)(i)(B), but who later knows or should know that 
the debt is time barred, to provide the disclosures required by Sec.  
1006.26(c)(1) in the debt collector's first communication, if any, with 
the consumer on or after the date on which the debt collector knows or 
should know that the debt was time barred. Proposed comments 
26(c)(2)(ii)-1 and -2 provide examples illustrating the rule.
    The Bureau requests comment on proposed Sec.  1006.26(c)(2). In 
particular, the Bureau requests comment on the knowledge standard that 
should apply for determining when disclosures would be required under 
proposed 1006.26(c)(2).\115\ In addition, the Bureau requests comment 
on whether, if the first communication after a debt becomes time barred 
(or after the debt collector knows or should know that the debt is time 
barred) is oral, the debt collector should also be required to provide 
the disclosures in the first subsequent written communication.
---------------------------------------------------------------------------

    \115\ See the request for comment regarding the knowledge 
standard in the section-by-section analysis of proposed 
1006.26(c)(1).
---------------------------------------------------------------------------

26(c)(3) Form and Delivery of Disclosures
26(c)(3)(i) In General
    The Bureau has developed a series of model forms featuring the 
disclosures that would be required by proposed Sec.  1006.26(c)(1). 
Under proposed Sec.  1006.26(c)(3)(i), the required disclosures would 
need to be substantially similar to those shown on the model forms, and 
under proposed Sec.  1006.26(c)(3)(ii), debt collectors would receive a 
safe harbor for using the model forms (or, when applicable, for 
providing the disclosures shown on the model forms).
    Proposed Model Form B-4 is a validation notice that includes a 
time-barred debt disclosure, for use by debt collectors providing only 
the disclosure required under Sec.  1006.26(c)(1)(i) (i.e., if the 
right to bring a legal action against the consumer on a time-barred 
debt cannot be revived under applicable law). The disclosure on 
proposed Model Form B-4 reads as follows: ``The law limits how long you 
can be sued for a debt. Because of the age of this debt, we will not 
sue you for it.''
    Proposed Model Forms B-5 through B-7 are validation notices that 
include time-barred debt and revival disclosures, for use by debt 
collectors providing the disclosures required under Sec.  
1006.26(c)(1)(i) and (ii). The proposed model forms contain revival 
disclosures tailored to the different circumstances in which time-
barred debts could be revived under applicable law. Specifically:
     The disclosure on proposed Model Form B-5 provides: ``The 
law limits how long you can be sued for a debt. If you do nothing or 
speak to us about this debt, we will not sue you to collect it. This is 
because the debt is too old. BUT if you make a payment or acknowledge 
in writing that you owe this debt, then we can sue you to collect it.'' 
Proposed Model Form B-5 would be for use by debt collectors collecting 
time-barred debts if applicable law permits revival when a consumer 
makes a payment or acknowledges the debt in writing.\116\
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    \116\ Although what constitutes a written acknowledgement 
sufficient to trigger revival may differ by State, proposed Model 
Form B-5 is drafted at a level of generality meant to accommodate 
debt collectors in all jurisdictions where written acknowledgement 
revives the debt collector's right to sue.
---------------------------------------------------------------------------

     The disclosure on proposed Model Form B-6 provides: ``The 
law limits how long you can be sued for a debt. If you do nothing or 
speak to us about this debt, we will not sue you to collect it. This is 
because the debt is too old. BUT if you make a payment, then we can sue 
you to collect it.'' Proposed Model Form B-6 would be for use by debt 
collectors collecting time-barred debts if applicable law permits 
revival only when a consumer makes a payment.
     The disclosure on proposed Model Form B-7 provides: ``The 
law limits how long you can be sued for a debt. If you do nothing or 
speak to us about this debt, we will not sue you to collect it. This is 
because the debt is too old. BUT if you acknowledge in writing that you 
owe this debt, then we can sue you to collect it.'' Proposed Model Form 
B-7

[[Page 12683]]

would be for use by debt collectors if applicable law permits revival 
only when a consumer acknowledges the debt in writing.\117\
---------------------------------------------------------------------------

    \117\ Proposed Model Form B-7, like proposed Model Form B-5, is 
drafted at a level of generality meant to accommodate debt 
collectors in all written-acknowledgement jurisdictions.
---------------------------------------------------------------------------

    As described in part III.B, the Bureau tested multiple written 
time-barred debt and revival disclosures. In proposing Model Forms B-4 
through B-7, the Bureau generally has selected the disclosures that, 
based on testing results, consumers would be most likely to 
understand.\118\ Regarding revival, the Bureau selected the disclosure 
that respondents most understood when asked whether the debt collector 
would legally be allowed to sue to collect the debt if the debtor did 
nothing, made a payment, or wrote to the debt collector to acknowledge 
the debt. However, the Bureau notes that this disclosure underperformed 
other tested revival disclosures when respondents were asked whether 
the debt collector would legally be allowed to sue if the debtor called 
the debt collector to acknowledge the debt.\119\ As tested, the first 
sentence of the selected revival disclosure read, ``If you do nothing 
in response to this notice, we will not sue you to collect this debt.'' 
Based on the testing results, the Bureau believes that this phrasing 
could lead consumers who receive such a revival disclosure to have the 
false impression that communicating with a debt collector by telephone 
would revive the debt collector's right to sue and thus make the 
consumer reluctant to communicate. To clarify that communicating with a 
debt collector by telephone would not revive the debt collector's right 
to sue, the first sentence of the revival disclosures on proposed Model 
Forms B-5 through B-7 also includes the phrase ``or speak to us.''
---------------------------------------------------------------------------

    \118\ CFPB Quantitative Testing Report, supra note 64, at 22-25.
    \119\ CFPB Quantitative Testing Report, supra note 64, at 24-25.
---------------------------------------------------------------------------

    As noted, the Bureau's quantitative testing tested respondents' 
understanding of written disclosures included on validation notices. 
For this reason, the time-barred debt and revival disclosures described 
what would or would not happen if the consumer took various actions in 
response ``to this notice.'' However, proposed Sec.  1006.26(c)(1) and 
(2) would require time-barred debt and revival disclosures in certain 
oral communications. To ensure that the disclosure on the proposed 
model forms will be appropriate whether provided in writing or orally 
(and whether on a validation notice or not), the Bureau also proposes 
to include the phrase ``about this debt'' instead of the tested 
language ``in response to this notice.'' Based on the Bureau's 
quantitative testing, and with these slight adjustments, the Bureau 
believes that the model forms effectively disclose the information 
described in proposed Sec.  1006.26(c)(1) and (2).
    For these reasons, and pursuant to its authority under FDCPA 
sections 814(d) and 807 and Dodd-Frank Act section 1032, the Bureau 
proposes Sec.  1006.26(c)(3)(i) to require that, when debt collectors 
provide the disclosures required by Sec.  1006.26(c)(1) on a validation 
notice, the content, format, and placement of the disclosures must be 
substantially similar to such disclosures on Model Forms B-4 through B-
7 in appendix B, as applicable. Proposed Sec.  1006.26(c)(3)(i) also 
would require that, when the disclosures required by Sec.  
1006.26(c)(1) are provided orally or in a written communication that is 
not a validation notice, the content must be substantially similar to 
such disclosures on Model Forms B-4 through B-7 in appendix B, as 
applicable.
    As already discussed, some jurisdictions require debt collectors to 
make disclosures, including on validation notices, when collecting 
time-barred debt. Proposed comment 26(c)(3)(i)-1 would clarify that, 
when providing the disclosures required by Sec.  1006.26(c)(1) on a 
validation notice, a debt collector who uses a validation notice that 
is otherwise substantially similar to Model Forms B-4 through B-7, as 
applicable, may include any disclosures required by other applicable 
law on the reverse of the validation notice and will continue to be in 
compliance with the requirements of proposed Sec.  1006.26(c)(1) and 
(3)(i). The proposed comment also provides an example of a disclosure 
required by other applicable law.
    The Bureau requests comment on proposed Sec.  1006.26(c)(3)(i) and 
on comment 26(c)(3)(i)-1, including on conflicts that might arise 
between the Bureau's proposed model forms and other disclosures 
required by applicable law. In particular, the Bureau requests comment 
on whether proposed Sec.  1006.26(c)(3)(i)--and proposed Model Forms B-
4 through B-7--would allow debt collectors to comply with other 
applicable law, including on whether any jurisdictions require time-
barred debt or revival disclosures to be included on the front of the 
validation notice and whether, if so, it is possible for a debt 
collector to comply with both the Bureau's proposal and any such State 
laws. The Bureau also requests comment and any supporting data on 
whether consumers who receive both Federal and State time-barred debt 
(and, if applicable, revival) disclosures on a validation notice may be 
confused by the dual disclosures.
26(c)(3)(ii) Safe Harbor
    Model forms that provide a safe harbor may benefit both consumers 
and debt collectors. A model form that has been tested with consumers 
may effectively disclose the information required by proposed Sec.  
1006.26(c)(1) in a manner that prevents deception and permits consumers 
to understand the costs, benefits, and risks associated with the 
collection of time-barred debts. A model form may also provide debt 
collectors with protection from liability that could arise if they 
developed and used their own forms. During the SBREFA process, small 
entity representatives encouraged the Bureau to develop model forms and 
safe harbors, emphasizing that model forms can promote efficiency and 
predictability by reducing legal risk.\120\ Because of the potential 
benefits to consumers and debt collectors, the Bureau has developed 
proposed Model Forms B-4 through B-7 in appendix B.
---------------------------------------------------------------------------

    \120\ See, e.g., Small Business Review Panel Report, supra note 
51, at 22.
---------------------------------------------------------------------------

    As described above, proposed Model Forms B-4 through B-7 were 
developed over multiple rounds of consumer testing, and, based on this 
testing, the Bureau believes that they effectively disclose the 
information described in proposed Sec.  1006.26(c)(1). For these 
reasons, under proposed Sec.  1006.26(c)(3)(ii) a debt collector who 
uses Model Forms B-4 through B-7 in appendix B, as applicable, to 
provide the disclosures required by Sec.  1006.26(c)(1) in a validation 
notice would receive a safe harbor for compliance with the requirements 
of Sec.  1006.26(c)(1) and (3)(i). In addition, under proposed Sec.  
1006.26(c)(3)(ii) a debt collector who uses the relevant content of 
Model Forms B-4 through B-7, as applicable, to provide the disclosures 
required by Sec.  1006.26(c)(1) orally or in a written communication 
that is not a validation notice would receive a safe harbor for 
compliance with the requirements of Sec.  1006.26(c)(1) and (3)(i).
    Proposed comment 26(c)(3)(ii)-1 explains that, although the use of 
Model Forms B-4 through B-7 is not required, a debt collector who uses 
the applicable model form complies with the requirements of Sec.  
1006.26(c)(1) and (3)(i). The comment also would clarify what it means 
for a debt collector to use the ``applicable'' model form. For

[[Page 12684]]

example, if under applicable law only a payment on a time-barred debt 
revives a debt collector's right to bring a legal action against the 
consumer to collect the debt, a debt collector who uses Model Form B-6, 
which refers to payment but not written acknowledgement, to provide the 
disclosure on the validation notice would comply with the requirements 
of Sec.  1006.26(c)(1) and (3)(i). Proposed comment 26(c)(3)(ii)-2 
would clarify that a debt collector who uses Model Forms B-4 through B-
7, as applicable, may include any disclosures required by other 
applicable law on the reverse of the validation notice and will 
continue to be in compliance with the requirements of proposed Sec.  
1006.26(c)(1) and (3)(i).
    The Bureau proposes Model Forms B-4 through B-7 pursuant to its 
authority under section 1032(b) of the Dodd-Frank Act. As discussed in 
part IV, section 1032(b)(1) of the Dodd-Frank Act provides that ``any 
final rule prescribed by the Bureau under [section 1032] requiring 
disclosures may include a model form that may be used at the option of 
the covered person for provision of the required disclosures.'' Section 
1032(b)(2) of the Dodd-Frank Act provides certain minimum criteria that 
any such model form must meet, and section 1032(b)(3) of the Dodd-Frank 
Act requires the Bureau to validate any such model form through 
consumer testing.
    Consistent with the Bureau's authority under Dodd-Frank Act section 
1032(b)(1), the Bureau believes that proposed Model Forms B-4 through 
B-7 use plain language comprehensible to consumers, contain a clear 
format and design, such as easily readable type font, and succinctly 
explain the information that must be communicated to consumers. As 
discussed above, the Bureau has developed these model forms after 
consumer testing and believes that making them available would help 
ensure that the disclosures required by proposed Sec.  1006.26(c)(1) 
are provided to consumers effectively, while also minimizing the burden 
on debt collectors who would otherwise need to develop their own 
disclosures.
    The Bureau requests comment on proposed Sec.  1006.26(c)(3)(ii) and 
on proposed comments 26(c)(3)(ii)-1 and -2. In particular, the Bureau 
requests comment on the content, format, and design of proposed Model 
Forms B-4 through B-7. The Bureau also requests comment on whether the 
two conditions described on the model forms--payment and written 
acknowledgement--capture all circumstances in which State law permits 
revival.
26(c)(3)(iii) Delivery
    Proposed Sec.  1006.26(c)(3)(iii) would state that, when providing 
the disclosures required by proposed Sec.  1006.26(c)(1) on a 
validation notice or a written communication that is not a validation 
notice, a debt collector must do so in a manner permitted by proposed 
Sec.  1006.42. As discussed in the May 2019 Proposed Rule, proposed 
Sec.  1006.42(a)(1) generally would require a debt collector who 
provides disclosures required by Regulation F in writing or 
electronically to do so in a manner that is reasonably expected to 
provide actual notice and in a form that the consumer may keep and 
access later.\121\ Proposed Sec.  1006.42(b) through (e) in the May 
2019 Proposed Rule explain how debt collectors may provide required 
notices to consumers by email or text message.\122\
---------------------------------------------------------------------------

    \121\ See 84 FR 23274, 23355-57 (May 21, 2019). The May 2019 
Proposed Rule would except from this requirement two disclosures 
that would be required to accompany all written debt collection 
communications (even relatively routine ones), on the theory that 
subjecting them to proposed Sec.  1006.42(a)(1) likely would impose 
an unnecessary burden on debt collectors with little corresponding 
benefit to consumers. Id. The disclosures that proposed Sec.  
1006.26(c) would require would accompany at most two of the debt 
collector's communications, so there is no similar basis to except 
them from proposed Sec.  1006.42(a)(1).
    \122\ See id. at 23357-67. As discussed in the May 2019 Proposed 
Rule, the Bureau proposed Sec.  1006.42(b) through (d) based, in 
part, on its authority under the Electronic Communications in Global 
and National Commerce Act (E-SIGN Act). Id.; see also id. at 23285 
(describing Bureau's E-SIGN Act authority).
---------------------------------------------------------------------------

    The Bureau proposes Sec.  1006.26(c)(3)(iii) as an interpretation 
of FDCPA section 808's prohibition on using unfair or unconscionable 
means to collect a debt. It may be unfair or unconscionable under FDCPA 
section 808 for a debt collector to deliver a disclosure using a method 
that is not reasonably expected to provide actual notice to the 
consumer or that does not allow the consumer to retain the disclosure 
and access it later. If debt collectors deliver disclosures in a manner 
that does not meet these standards, consumers may not receive required 
information or have it available for future reference, potentially 
leading them to take different actions with respect to debts than they 
otherwise would have. A debt collector's decision to provide a required 
disclosure in a manner not reasonably expected to provide actual notice 
or in a form that the consumer cannot keep and access later is outside 
of a consumer's control; therefore, a consumer cannot reasonably avoid 
the injury caused by a debt collector who provides a required 
disclosure in such a manner or form. Providing required disclosures in 
a manner not reasonably expected to provide actual notice or in a form 
that the consumer cannot keep and access later could effectively thwart 
the rule's disclosure provisions. Thus, whatever benefits debt 
collectors may receive from such conduct do not appear to be outweighed 
by the costs to consumers.
    In addition, to the extent proposed Sec.  1006.26(c)(3)(iii) 
applies to the provision of disclosures on a validation notice, the 
Bureau proposes Sec.  1006.26(c)(3)(iii) to implement and interpret 
FDCPA section 809(a) and (b) and pursuant to its authority under FDCPA 
section 814(d) to prescribe rules with respect to the collection of 
debts by debt collectors.\123\ The Bureau requests comment on proposed 
Sec.  1006.26(c)(3)(iii).
---------------------------------------------------------------------------

    \123\ Id. at 23356.
---------------------------------------------------------------------------

26(c)(3)(iv) Translated Disclosures
    As discussed, the disclosures that proposed Sec.  1006.26(c)(1) 
would require may help resolve consumer uncertainty related to the 
collection of time-barred debts and enable consumers to make more 
informed choices about whether to pay or prioritize such debts. Because 
some consumers do not speak or understand English, some debt collectors 
communicate with consumers in languages other than English. Consumers 
who are unable to communicate in English would benefit from receiving 
translated versions of the disclosures. At the same time, requiring 
debt collectors to identify such consumers and provide accurate 
translations in the myriad languages that consumers speak may impose a 
significant burden on industry. If a debt collector chooses to 
communicate with a consumer in a non-English language, however, this 
burden may be reduced. Such a debt collector has already identified the 
consumer's language preference and exhibited a willingness to 
communicate in that language. Although preparing accurate translations 
of the disclosures described in proposed Sec.  1006.26(c)(1) may be 
challenging in some circumstances, requiring a debt collector who 
communicates in a non-English language to provide the disclosures in 
that language may prevent deception and help ensure that the 
disclosures are effective for more consumers.\124\
---------------------------------------------------------------------------

    \124\ Proposed Sec.  1006.34(e) in the May 2019 Proposed Rule 
also would require the translation of any such disclosures provided 
on a validation notice that is translated into a language other than 
English. See id. at 23405 (permitting a debt collector who also 
sends an English-language validation notice in the same 
communication, or who has already provided an English-language 
validation notice, to ``send the consumer a validation notice 
completely and accurately translated into any language'').

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[[Page 12685]]

    For these reasons, and pursuant to the Bureau's authority under 
FDCPA section 814(d) and Dodd-Frank Act section 1032(a), proposed Sec.  
1006.26(c)(3)(iv) would require a debt collector to make the 
disclosures that would be required by proposed Sec.  1006.26(c)(1) in 
the same language or languages used for the rest of the communication 
in which the disclosures are conveyed. Proposed Sec.  1006.26(c)(3)(iv) 
also would require that any translation of the disclosures that would 
be required by Sec.  1006.26(c)(1) be complete and accurate. Proposed 
comment 26(c)(3)(iv)-1 provides illustrative examples, the second of 
which illustrates the application of proposed Sec.  1006.26(c)(3)(iv) 
to communications that take place in multiple languages. Proposed 
comment 26(c)(3)(iv)-2 would clarify that the language of a disclosure 
obtained from the Bureau's website is considered a complete and 
accurate translation, although debt collectors are permitted to use 
other translations so long as those translations are complete and 
accurate. The Bureau requests comment on proposed Sec.  
1006.26(c)(3)(iv).

Section 1006.34 Notice for Validation of Debts

34(c) Validation Information
34(c)(2) Information About the Debt
34(c)(2)(xi)
    In the May 2019 Proposed Rule, the Bureau proposed Sec.  1006.34(a) 
to require debt collectors to provide consumers with specified 
validation information, either by sending the consumer a validation 
notice in the initial communication, as defined in proposed Sec.  
1006.34(b)(2), or within five days of that initial communication, or by 
providing the information orally in the initial communication.\125\ 
Proposed Sec.  1006.34(c) in the May 2019 Proposed Rule set forth the 
required validation information, with proposed Sec.  1006.34(c)(2) 
specifying the information that debt collectors would be required to 
provide about the debt being collected.\126\ Because the time-barred 
debt and revival disclosures described in Sec.  1006.26(c)(1) and (2) 
represent information about the debt that debt collectors would be 
required to include, as applicable, on validation notices, the Bureau 
proposes to include the disclosures in the list of validation 
information in Sec.  1006.34(c)(2). Specifically, the Bureau proposes 
Sec.  1006.34(c)(2)(xi) to provide that validation information includes 
a time-barred debt disclosure, or a time-barred debt and a revival 
disclosure, if the debt collector determines after a reasonable 
investigation that such disclosures are required by Sec.  1006.26(c). 
Thus, a debt collector who provides the proposed Sec.  1006.26(c) 
disclosures after undertaking a reasonable inquiry and concluding that 
the disclosures are required would not violate proposed Sec.  1006.34 
for having made the disclosures even if it is determined later that 
such disclosures were not required. For the reasons discussed in the 
section-by-section analysis of proposed Sec.  1006.26(c)(1), the Bureau 
proposes Sec.  1006.34(c)(2)(xi) pursuant to its authority under FDCPA 
sections 814(d) and 807 and Dodd-Frank Act section 1032(a). The Bureau 
requests comment on proposed Sec.  1006.34(c)(2)(xi).
---------------------------------------------------------------------------

    \125\ Id. at 23404.
    \126\ Id.
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VI. Dodd-Frank Act Section 1022(b) Analysis

A. Overview

    In developing the supplemental proposed rule, the Bureau has 
considered its potential benefits, costs, and impacts.\127\ The Bureau 
requests comment on the preliminary analysis presented below as well as 
submissions of additional data that could inform the Bureau's analysis 
of the benefits, costs, and impacts.
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    \127\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act 
requires the Bureau to consider the potential benefits and costs of 
the regulation to consumers and covered persons, including the 
potential reduction of access by consumers to consumer financial 
products and services; the impact of proposed rule on insured 
depository institutions and insured credit unions with less than $10 
billion in total assets as described in section 1026 of the Dodd-
Frank Act; and the impact on consumers in rural areas.
---------------------------------------------------------------------------

    Debt collectors play a critical role in markets for consumer 
financial products and services. Credit markets function because 
lenders expect that borrowers will pay them back. In consumer credit 
markets, if borrowers fail to repay what they owe per the terms of 
their loan agreement, creditors often engage debt collectors to attempt 
to recover amounts owed, whether through the court system or through 
less formal requests for repayment.
    The supplemental proposal would require debt collectors to make 
certain disclosures when attempting to collect time-barred debt. The 
new requirements would provide benefits to consumers by helping to 
correct the misimpression that consumers might have that debt 
collectors can legally sue to collect time-barred debts. Correcting 
this misimpression can help consumers because a better understanding of 
whether they can be sued could be important in deciding how to 
prioritize time-barred debts relative to other debts or expenses such 
as household necessities. The requirements would also impose costs on 
debt collectors who would need to determine for each debt whether the 
disclosures are required and to provide the disclosures when 
appropriate. The disclosures could also reduce debt collector revenue 
because consumers who receive such disclosures might be less willing to 
repay time-barred debts. In addition to these effects, there could be 
indirect impacts on credit markets. This is because, if the proposal 
were to increase costs for debt collectors or reduce repayment of time-
barred debt, it would reduce the expected return to lending. This could 
lead lenders to increase interest rates and other costs to borrowers 
and to restrict availability of credit, particularly to higher-risk 
borrowers.\128\
---------------------------------------------------------------------------

    \128\ See 84 FR 23274, 23371-72, 23389-91 (May 21, 2019).
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    In developing the supplemental proposed rule, the Bureau has 
consulted, or offered to consult with, the appropriate prudential 
regulators and other Federal agencies, including regarding consistency 
with any prudential, market, or systemic objectives administered by 
such agencies.

B. Provisions To Be Analyzed

    The analysis below considers the potential benefits, costs, and 
impacts to consumers and covered persons of the supplemental proposal, 
which would require debt collectors who are collecting debts that they 
know or should know are time barred to provide time-barred debt 
disclosures and, if applicable, revival disclosures to consumers.

C. Data Limitations and Quantification of Benefits, Costs, and Impacts

    The discussion in this part VI relies on publicly available 
information as well as information the Bureau has obtained. The Bureau 
engaged a contractor to conduct qualitative and quantitative testing to 
evaluate consumers' understanding of time-barred debt and revival and 
of disclosures about time-barred debt and revival. Specifically, the 
Bureau conducted 54 qualitative one-on-one interviews with consumers 
between April 2017 and April 2019, in order to refine the disclosures. 
The Bureau then

[[Page 12686]]

conducted an online survey designed to assess the effectiveness of 
time-barred debt and revival disclosures. The online survey, completed 
in September of 2019, surveyed 8,011 consumers--66 percent of whom had 
debt collection experience--and used random assignment to study the 
effect of receiving a time-barred debt disclosure alone, or time-barred 
debt and revival disclosures together, on consumer comprehension of 
time-barred debt and revival.\129\
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    \129\ See CFPB Quantitative Testing Report, supra note 64. The 
survey results provide important information on consumer 
comprehension of disclosures about time-barred debt; however, as 
further discussed in the Testing Results Report, effects observed in 
a controlled setting such as the survey may differ from those 
observed in practice.
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    The Bureau also relies on the results of its 2015 Survey of 
Consumer Views on Debt, which provided the first comprehensive and 
nationally representative data on consumers' experiences and 
preferences related to debt collection.\130\ In addition, the Bureau 
relies on its Consumer Credit Panel (CCP) to understand potential 
benefits and costs to consumers of the proposed rule.\131\ To better 
understand potential effects on industry of potential requirements, 
such as those in the proposed rule, the Bureau has engaged in 
significant outreach, including the CFPB Debt Collections Operations 
Study.\132\ In July 2016, the Bureau consulted with small entities as 
part of the SBREFA process and obtained important information on the 
potential impacts of proposals that the Bureau was considering at the 
time, including disclosures regarding a debt's time-barred status.\133\
---------------------------------------------------------------------------

    \130\ Bureau of Consumer Fin. Prot., Consumer Experiences with 
Debt Collection: Findings from the CFPB's Survey of Consumer Views 
on Debt (Jan. 2017), https://www.consumerfinance.gov/data-research/research-reports/consumer-experiences-debt-collection-findings-cfpbs-survey-consumer-views-debt/.
    \131\ For more information about Bureau data sources, see 
Sources and Uses of Data at the Bureau of Consumer Financial 
Protection (Sept. 2018), https://www.consumerfinance.gov/data-research/research-reports/sources-and-uses-data-bureau-consumer-financial-protection/.
    \132\ See Bureau of Consumer Fin. Prot., Study of Third-Party 
Debt Collection Operations (July 2016), https://www.consumerfinance.gov/documents/755/20160727_cfpb_Third_Party_Debt_Collection_Operations_Study.pdf 
(hereinafter CFPB Debt Collection Operations Study).
    \133\ See Small Business Review Panel Report, supra note 51.
---------------------------------------------------------------------------

    The sources described above, together with other sources of 
information and the Bureau's market knowledge, form the basis for the 
Bureau's consideration of the likely impacts of the supplemental 
proposed rule. The Bureau provides the best estimates possible of the 
potential benefits and costs to consumers and covered persons of this 
proposal given available data. However, available data sources 
generally do not permit the Bureau to quantify, in dollar terms, how 
particular proposed provisions will affect consumers. With respect to 
industry impacts, much of the Bureau's existing data come from 
qualitative input from debt collectors and other entities that operate 
in the debt collection market rather than from representative sampling 
that would allow the Bureau to estimate total benefits and costs.
    The Bureau's discussion in this part generally considers the 
benefits, costs, and impacts of the supplemental proposal through the 
first 10 years after the potential effective date. The Bureau generally 
anticipates that any one-time costs to covered persons of coming into 
compliance with the supplemental proposal would be borne before or 
during the first year after the effective date. Ongoing benefits and 
costs would likely vary from year to year in accordance with the amount 
of time-barred debt collected in any year. The Bureau does not have any 
basis at this time to predict how that amount will vary during future 
years.
    General economic principles and the Bureau's expertise in consumer 
financial markets, together with the data and findings that are 
available, provide insight into the potential benefits, costs, and 
impacts of the supplemental proposed rule. Where possible, the Bureau 
has made quantitative estimates based on these principles and the data 
available. Some benefits and costs, however, are not amenable to 
quantification, or are not quantifiable given the data available to the 
Bureau. The Bureau provides a qualitative discussion of those benefits, 
costs, and impacts. The Bureau requests additional data or studies that 
could help quantify the benefits and costs to consumers and covered 
persons of the supplemental proposed rule.

D. Baseline for Analysis

    In evaluating the potential benefits, costs, and impacts of the 
supplemental proposal, the Bureau takes as a baseline the current legal 
framework governing debt collection. This includes debt collector 
practices as they currently exist, responding to the requirements of 
the FDCPA as currently interpreted by courts and law enforcement 
agencies, other Federal laws, and the rules and statutory requirements 
promulgated by the States.\134\ In the consideration of potential 
benefits, costs, and impacts below, the Bureau discusses its 
understanding of practices in the debt collection market under this 
baseline and how those practices would change under the proposal.
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    \134\ These requirements, and the specificity of the 
requirements, may vary depending upon the jurisdiction in which the 
collection occurs. For example, as discussed in part II.C, certain 
States require specific disclosure language be provided when 
collecting time-barred debt.
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E. Coverage of Proposal

    The proposed rule would apply to debt collectors as defined in the 
FDCPA, as further discussed in the May 2019 Proposed Rule.\135\ 
Creditors that collect on debts they own generally would not be 
affected directly by the proposal because they typically are not debt 
collectors for purposes of the FDCPA. Creditors, however, may 
experience indirect effects if debt collectors' costs increase and if 
those costs are passed on to creditors.
---------------------------------------------------------------------------

    \135\ See 84 FR 23274, 23372 (May 21, 2019).
---------------------------------------------------------------------------

F. Potential Benefits and Costs to Consumers and Covered Persons

    Proposed Sec.  1006.26(c) would require debt collectors who are 
collecting debts that they know or should know are time barred to 
provide time-barred debt disclosures and, if applicable, revival 
disclosures to consumers. Proposed model forms B-4 through B-7 include 
the disclosures that debt collectors could use to comply with the 
disclosure requirements of proposed Sec.  1006.26(c).
    Potential benefits and costs to consumers. The proposed time-barred 
debt and revival disclosures would benefit consumers by providing them 
with information that may be important when deciding how to respond to 
a request for payment. A debt collector's attempt to collect a time-
barred debt may give a consumer the impression that the debt is legally 
enforceable--an impression that is false for time-barred debts. A 
consumer who takes away from the collection attempt that he or she 
will, or could, be sued for a time-barred debt may place greater 
priority on paying that debt than if he or she knew that the debt 
collector could not sue. Furthermore, a consumer who is unaware of the 
actions that would trigger revival may revive the debt collector's 
right to sue, for example by making a partial payment.
    The consumer benefits of the proposed time-barred debt and revival 
disclosures depend on a number of factors, including: (i) How 
frequently debt collectors attempt to collect debt that is time barred; 
(ii) what consumers already understand about debts' time-barred status 
and how much the proposed disclosures would improve

[[Page 12687]]

their understanding about time-barred debt and revival; and (iii) the 
value to consumers of gaining a better understanding of time-barred 
debt and revival and making better-informed decisions as a result. The 
Bureau cannot fully quantify each of these factors, although the Bureau 
has research and other data that are relevant to the potential extent 
of these benefits.
    First, regarding the frequency with which debt collectors attempt 
to collect time-barred debt, the Bureau is not aware of representative 
data showing how much debt collection activity involves time-barred 
debt. There is evidence that some debt collectors contact a substantial 
share of consumers to attempt to collect time-barred debt. For example, 
a 2013 FTC report notes that most statutes of limitations are between 
three and six years and estimates that, for certain large debt buyers, 
about a third of debt purchased was at least three years old, and 12 
percent of debt purchased was at least six years old.\136\ On the other 
hand, some contingency collection agencies have told the Bureau that 
they do not collect any debt that is time barred. Variation in State 
statutes of limitations makes quantification of the number of debts 
that are time barred difficult; some States consider debts time barred 
if they are three years from charge off, while others use longer 
periods, such as seven or 15 years, to demarcate time-barred debt. The 
Bureau has estimated that at least 49 million consumers are contacted 
by a third-party debt collector each year about a debt in 
collection.\137\ Even if only a relatively small fraction of those 
consumers' debts were time barred, it could still mean that debt 
collectors contact millions of consumers each year about time-barred 
debts.
---------------------------------------------------------------------------

    \136\ FTC Debt Buying Report, supra note 8, at 43. The same 
study estimates that, even for debts that are at least 15 years old, 
these debt buyers attempted to collect the debt at least 29 percent 
of the time. Id. at B-12.
    \137\ See 84 FR 23274, 23384 (May 21, 2019).
---------------------------------------------------------------------------

    Second, the Bureau has some evidence that consumers do not have a 
clear understanding of what constitutes time-barred debt and the 
implications of having a debt that is time barred. In focus groups the 
Bureau observed in developing the proposed disclosures, for example, 
consumers expressed erroneous beliefs about if debts are time barred, 
if they can be sued for time-barred debt, and if time-barred debt can 
appear on their credit report.\138\ As an example, one consumer said 
``I think you're forgiven after twenty years.'' Additionally, as 
discussed in the Quantitative Testing Report, without a disclosure, 
most consumers believe they can be sued for a debt even if it is old 
enough to be time barred in most jurisdictions. When asked if a debt 
collector could sue to collect a debt if the debtor did nothing in 
response to the collection notice for a ten-year-old debt, about 65 
percent of respondents who read a notice about a debt that did not 
include a time-barred debt disclosure incorrectly reported that the 
debt collector was legally allowed to sue to collect the debt.\139\ 
Being presented with a disclosure explaining that a debt is time barred 
largely corrected this misunderstanding: Approximately 65 percent of 
respondents who were randomly assigned a notice containing a time-
barred debt disclosure (with or without a revival disclosure) correctly 
stated that they could not be sued on the debt.\140\
---------------------------------------------------------------------------

    \138\ FMG Focus Group Report, supra note 40, at 9-10.
    \139\ CFPB Quantitative Testing Report, supra note 64, at 
appendix table 8. The length of the limitations period generally 
varies by State and debt type. Most statutes of limitations 
applicable to debt collection claims are between three and six 
years, and therefore a ten-year-old debt is likely to be time-barred 
in most states.
    \140\ Id.
---------------------------------------------------------------------------

    Similarly, the Bureau has evidence to suggest that consumers do not 
understand the actions that trigger revival of a debt collector's right 
to sue on a time-barred debt. In focus groups, participants in general 
were confused about actions that would trigger revival, in particular 
finding it surprising that making a payment made them susceptible to 
being sued. One participant said, ``Why would they punish me for trying 
to make a payment?'' \141\ The Bureau's quantitative research findings 
are consistent with this. Of the respondents who did not receive a 
disclosure informing them of the actions that trigger revival, fewer 
than 20 percent correctly reported that the debt collector is legally 
allowed to sue the debtor if the debtor makes a partial payment, and 
fewer than 20 percent correctly reported that a debt collector is 
legally allowed to sue if the debtor sends a letter acknowledging the 
debt as theirs.\142\ In contrast, once a revival disclosure was 
provided, about 70 percent of respondents reported correctly that the 
debtor can be sued after making a partial payment, and about 58 percent 
reported correctly that the debtor can be sued after writing to the 
debt collector to acknowledge the debt as theirs.\143\ This research 
suggests that consumers generally do not understand that making a 
partial payment or writing a debt collector to acknowledge a time-
barred debt can trigger revival of a debt collector's right to sue to 
collect the debt, but that a revival disclosure can substantially 
improve understanding of the implications of these actions.
---------------------------------------------------------------------------

    \141\ FMG Cognitive Report, supra note 40, at 35-36.
    \142\ CFPB Quantitative Testing Report, supra note 64, at 
appendix tables 9-10. These results compare respondents who received 
a time-barred debt with revival disclosure to respondents who 
received either a time-barred debt disclosure that did not mention 
revival or no time-barred debt disclosure at all.
    \143\ Id.
---------------------------------------------------------------------------

    Finally, the Bureau has evidence that, if consumers know that debts 
are time barred, that knowledge is likely to affect their conduct 
relating to the debts. Consumers in focus groups expressed that it was 
important to know that a debt was time barred. The Bureau's 
Quantitative Testing Report indicates that, for many respondents, 
understanding a debt's time-barred status and revival could affect 
their choice of what to do about a debt under some circumstances. 
Respondents who were shown a time-barred debt and revival disclosure 
were more likely to say that they would ignore the debt, and less 
likely to say that they would make a payment on the debt, than 
respondents who did not see a disclosure or who saw a time-barred debt 
disclosure without a revival disclosure.\144\ These differences were 
statistically significant and relatively large in magnitude. For 
example, of respondents who saw either a time-barred debt disclosure 
without revival or no time-barred debt disclosure, about 31 to 38 
percent said they would be ``very likely'' to make a full or partial 
payment on a hypothetical debt, whereas about 23 percent of respondents 
who saw the a time-barred debt with revival disclosure said they would 
be ``very likely'' to pay.\145\ The fact that many respondents who saw 
a time-barred debt with revival disclosure said they would make 
different choices suggests that, for consumers such as these 
respondents, the information in the proposed disclosure is valuable in 
making choices.
---------------------------------------------------------------------------

    \144\ Id. at 28-30. Respondents were asked about a hypothetical 
debt and told that ``while it would not be easy, [the respondent] 
probably could find a way to come up with money to pay the debt.'' 
The survey results thus more closely reflect consumer choices in 
that situation than situations in which consumers are either more or 
less able to repay.
    \145\ Id. at appendix table 23.
---------------------------------------------------------------------------

    The Bureau is unaware of data that could be used to estimate the 
frequency with which debt collectors in fact sue or threaten to sue on 
revived debt. Industry representatives state that many debt collectors 
choose not to sue or threaten to sue on time-barred debt even if the 
consumer takes action to revive the right

[[Page 12688]]

to sue, and one major trade association composed largely of debt buyers 
has established standards that prohibit its members from suing or 
threatening to sue on time-barred debt even if the right to sue has 
been revived.\146\ However, the Bureau does not know what share of 
time-barred debts are collected by debt collectors following such a 
policy. The benefits of the revival disclosures in the supplemental 
proposal may be limited if few debt collectors in fact sue or threaten 
to sue after the right to do so has been revived.
---------------------------------------------------------------------------

    \146\ Receivables Mgmt. Ass'n Int'l, Receivables Management 
Certification Program, at 32 (Jan. 2018), https://rmassociation.org/wp-content/uploads/2018/02/Certification-Policy-version-6.0-FINAL-20180119.pdf (``A Certified Company shall not knowingly bring or 
imply that it has the ability to bring a lawsuit on a debt that is 
beyond the applicable statute of limitations, even if state law 
revives the limitations period when a payment is received after the 
expiration of the statute.'')
---------------------------------------------------------------------------

    The estimates above suggest that the proposed time-barred debt and 
revival disclosures could benefit some consumers, but the Bureau 
expects this benefit could vary based on current State law and the 
practices of particular debt collectors. The Bureau understands, for 
example, that some debt collectors, when attempting to collect time-
barred debt, currently disclose to consumers that they cannot sue to 
collect the debt.\147\ Moreover, certain jurisdictions, including 
California and New York, require debt collectors to make time-barred 
debt disclosures, and in some cases revival disclosures, in at least 
some circumstances. The benefits of the proposed disclosures may be 
limited where similar disclosures are already being provided.
---------------------------------------------------------------------------

    \147\ Some debt collectors also must provide such disclosures as 
a result of consent agreements with law enforcement agencies, 
including the Bureau and the FTC. See supra note 96.
---------------------------------------------------------------------------

    The proposed disclosures could have costs to consumers if they lead 
to mistaken beliefs about the consequences of consumers' actions. Some 
results of the Bureau's quantitative testing suggest that a revival 
disclosure could lead some consumers to overgeneralize the actions that 
can make them susceptible to lawsuit. In the Bureau's quantitative 
testing, about 45 percent of respondents who saw the revival disclosure 
incorrectly reported that the debt collector is legally allowed to sue 
the debtor to collect time-barred debt if the debtor calls to 
acknowledge the debt as theirs, relative to about 17 percent of 
respondents who saw no disclosure about time-barred debt or revival and 
about 9 percent of respondents who saw a time-barred debt disclosure 
without revival.\148\ As discussed in the section-by-section analysis 
of proposed Sec.  1006.26(c)(3)(i), the Bureau has made a small change 
to the content of the disclosures on proposed Model Forms B-5 through 
B-7 (i.e., the proposed model forms containing revival language), 
specifically mentioning that the debt collector will not sue if the 
consumer does nothing or speaks to the debt collector about the debt, 
to attempt to reduce the risk of this type of overgeneralization.
---------------------------------------------------------------------------

    \148\ CFPB Quantitative Testing Report, supra note 64, at 
appendix table 11.
---------------------------------------------------------------------------

    Another potential cost to consumers could arise if the proposed 
disclosures make debt collectors more likely to sue consumers before a 
debt becomes time-barred. The Bureau's research provides some evidence 
that consumers may be less likely to pay debts that they know are time 
barred, as discussed below in the Bureau's consideration of costs to 
covered persons. Requiring debt collectors to disclose that a debt is 
time barred may therefore reduce the number of time-barred debts that 
are paid. Knowing that a consumer is less likely to pay a time-barred 
debt may make debt collectors more likely to pursue litigation prior to 
a debt reaching the statute of limitations, which could impose costs on 
some consumers. However, as described below, the available evidence 
suggests that, in practice, time-barred debt disclosures in use today 
do not lead to a material reduction in the aggregate rate at which 
time-barred debt is repaid, which in turn suggests that there would not 
be a large increase in litigation. The Bureau requests data and other 
evidence that would permit it to better estimate any such effects.
    Potential benefits and costs to covered persons. The supplemental 
proposal would require debt collectors who attempt to collect time-
barred debt to provide new disclosures in certain communications with 
consumers. This could impose one-time costs for systems that identify 
whether a debt is time barred and whether (and if so, when) it is 
subject to revival, and it may impose ongoing costs both to determine 
whether debts are time barred and to make disclosures when appropriate.
    To quantify costs of the proposal to covered persons, the Bureau 
would need to estimate the number of debt collectors who collect time-
barred debt, the number of time-barred accounts they collect, the cost 
to such debt collectors of determining whether a debt is time barred 
and whether and when it can be revived, and the cost of making the 
proposed disclosures when appropriate. The Bureau does not have 
representative data that permit it to estimate the number of debt 
collectors who collect time-barred accounts or the number of time-
barred accounts they collect. The Bureau understands based on industry 
outreach that many debt collectors do not collect time-barred accounts. 
Even debt collectors who do not regularly collect time-barred debt 
might need to review systems to ensure that they are not communicating 
about time-barred debts without providing the appropriate proposed 
disclosure in circumstances when they are required; however, as 
discussed below, the Bureau expects that the burden of the proposed 
provision on such debt collectors would be lower than for debt 
collectors who regularly collect time-barred accounts.
    Among those debt collectors who do regularly attempt to collect 
time-barred accounts, the Bureau understands that some currently 
disclose to consumers that they cannot sue to collect the debt. 
Moreover, debt collectors who are collecting debt in certain 
jurisdictions, such as California and New York, already must make such 
disclosures in at least some circumstances. Also, debt collectors who 
litigate accounts must know whether an account is time barred to avoid 
threatening to sue or suing on time-barred accounts in violation of the 
FDCPA as interpreted by existing FDCPA case law. Thus, some debt 
collectors, particularly ones that collect nationwide or that engage in 
litigation, already have a process in place for identifying time-barred 
accounts and, where they do attempt to collect time-barred debt, for 
providing disclosures to consumers about the time-barred status of such 
accounts.\149\
---------------------------------------------------------------------------

    \149\ Consistent with this, the FTC found that debt buyers 
commonly consider the prevalence of time-barred debt when bidding on 
portfolios of debt, suggesting that debt buyers and sellers of debt 
regularly determine whether debts are time barred. See FTC Debt 
Buying Report, supra note 8, at 21.
---------------------------------------------------------------------------

    The Bureau understands that determining whether an account is time 
barred is not always straightforward, particularly for debt collectors 
operating in a range of jurisdictions. Different States have different 
statutes of limitations for different types of debt.\150\ Which statute 
applies depends on questions such as where the consumer resides and the 
nature of the credit contract, as well as which State's law a court 
applies to a given case. As noted above, many debt collectors already 
must make decisions about a debt's time-barred status to determine 
whether a lawsuit is permissible or, in certain

[[Page 12689]]

States, whether particular disclosures are required. Even for these 
debt collectors, however, the proposed rule would increase the 
importance of making the correct determination. The Bureau anticipates 
that some collection agencies and debt buyers would incur legal and 
programming costs to develop a system to identify time-barred accounts 
and incorporate the determination into the collection management 
system.\151\ These costs could be mitigated somewhat by the proposed 
rule's ``know or should know'' standard for the debt's time-barred 
status, which could reduce the likelihood that debt collectors would be 
held liable for failing to identify time-barred debt. Debt collectors 
would also incur costs to train staff to answer consumer questions 
about the proposed disclosures and to incorporate information about the 
new disclosures into their systems for managing communication with 
consumers.
---------------------------------------------------------------------------

    \150\ Small Business Review Panel Report, supra note 51, at 25.
    \151\ The Bureau understands that many debt collectors who 
currently track the time-barred status of debts to comply with 
existing requirements are able to categorize debts as time barred in 
an automated way. In part, this may require debt collectors to take 
a conservative approach of erring in favor of categorizing debt as 
time barred in cases where there might be doubt as to a debt's time-
barred status and where a detailed fact-specific inquiry about a 
particular account would be costly.
---------------------------------------------------------------------------

    Debt collectors could also incur ongoing costs of determining 
whether debts are time barred. Debt collectors would need to update 
systems from time to time to reflect changes in State laws regarding 
statutes of limitations and might need to perform new legal analyses 
when facing novel questions of law or fact, such as when beginning to 
collect debt from consumers in a particular jurisdiction for the first 
time.
    For accounts that are identified as time barred, debt collectors 
would need to make disclosures with certain written and oral 
communications. This would impose direct costs to make the disclosures 
and potentially indirect costs because consumers may be less likely to 
pay debts after being informed that those debts are time barred.
    Debt collectors most often initiate communication with consumers by 
letter, meaning that most disclosures required by the proposal would be 
made in writing.\152\ The Bureau does not anticipate that debt 
collectors would incur substantial ongoing costs to provide the 
proposed disclosures in written materials because required disclosures 
could be automatically included in written materials when applicable.
---------------------------------------------------------------------------

    \152\ CFPB Debt Collection Operations Study, supra note 132, at 
28.
---------------------------------------------------------------------------

    Some debt collectors call consumers before sending any written 
material and would need to make any required disclosure orally in their 
first communication with the consumer. For oral communications, the 
Bureau anticipates that debt collectors or their vendors would adjust 
collection management systems to identify disclosures that must be made 
and prompt debt collector employees to make oral disclosures when 
required. The required disclosure would increase the length of each 
conversation about a time-barred debt by perhaps 5 to 10 seconds, 
though if consumers have questions about the disclosure, this could 
lengthen some calls considerably. If the disclosure lengthens initial 
calls to collect a time-barred debt by 15 seconds on average, given an 
assumed average labor cost of $22 per hour for debt collectors, this 
would cost approximately $0.09 per call.\153\
---------------------------------------------------------------------------

    \153\ Id. at 17.
---------------------------------------------------------------------------

    Costs may also increase if debt collectors and creditors increase 
monitoring of calls regarding time-barred debt to ensure compliance. 
Many debt collectors currently audit telephone conversations, either by 
listening to a sample of calls or by using automated voice-recognition 
software, to ensure that individual debt collectors comply with 
applicable law and other standards. A new required disclosure for time-
barred debt could increase the cost of such monitoring, by adding to 
the list of items that must be audited.
    The Bureau believes that many consumers are unaware of the statute 
of limitations or may not know whether it has expired for their debt. 
As discussed above, the Bureau's quantitative survey suggests that some 
consumers might not repay a debt if they know they cannot be sued, 
although others may repay regardless.\154\ While the Bureau's 
quantitative research findings show that about 44 percent of 
respondents who viewed a time-barred debt with revival disclosure 
indicated they would be ``very unlikely'' to pay, about 32 percent 
answered they would be likely or very likely to pay (indicated either a 
4 or 5 on a 5-point scale where 5 was ``very likely'').\155\ In 
contrast, about 18 to 26 percent of consumers who did not see the 
revival disclosure said they would be ``very unlikely'' to pay, and 
about 54 to 56 percent of these consumers said they would be likely or 
very likely to repay.\156\
---------------------------------------------------------------------------

    \154\ CFPB Quantitative Testing Report, supra note 64, at 28-30. 
In addition, another study found that, when told they could not be 
sued, 34 percent of participants reflecting on a hypothetical 
scenario said they would decline to pay relative to 6 percent who 
were not told they could not be sued. FTC Debt Buying Report, supra 
note 8, at 47.
    \155\ CFPB Quantitative Testing Report, supra note 64, at 
appendix table 23.
    \156\ Id. The likelihood that consumers choose to repay actual 
debts is likely to be different than the rate at which survey 
respondents said they would repay debt in a hypothetical situation, 
but the survey findings do suggest that time-barred debt and revival 
disclosures will affect some consumers' repayment decisions.
---------------------------------------------------------------------------

    These survey results reflect responses to a hypothetical question 
by respondents who were being asked specifically about a debt's time-
barred status. They suggest that the proposed disclosures can affect 
consumers' decisions about whether to repay under certain 
circumstances. The degree to which the proposed disclosures would 
affect repayment of time-barred debt in aggregate depends on a number 
of other factors, including the extent to which debt collectors 
actively attempt to collect time-barred debts, whether debt collectors 
are able to contact consumers, and whether consumers are willing and 
able to repay debts. To better understand the effect of time-barred 
debt disclosures on aggregate real-world collections activity, the 
Bureau examined credit report data from the CCP. As noted above, some 
debt collectors already provide time-barred debt disclosures; some do 
so voluntarily, while others are required by State law or a consent 
order to do so. While the Bureau has no data regarding debt collectors 
who voluntarily provide time-barred debt disclosures, the Bureau has 
some data in the CCP regarding the effects of disclosures mandated by 
State laws. The Bureau analyzed whether a likely time-barred 
collections tradeline in the CCP has a lower probability of being paid 
if there is a State-mandated time-barred debt disclosure requirement in 
effect. To determine whether a collections tradeline is likely past the 
State statute of limitations, the Bureau used the same procedure as in 
its analysis of the effects of prohibiting threats of suit on time-
barred debt in the May 2019 Proposed Rule.\157\ The Bureau identified 
nine States with laws or regulations mandating some kind of time-barred 
debt disclosure: California,\158\ Connecticut,\159\ Massachusetts,\160\ 
Nevada,\161\ New

[[Page 12690]]

Mexico,\162\ New York,\163\ North Carolina,\164\ Vermont,\165\ and West 
Virginia.\166\
---------------------------------------------------------------------------

    \157\ See 84 FR 23274, 23381-82 (May 21, 2019).
    \158\ Cal. Civ. Code 1788.52(d). This law only applies to debt 
buyers, and so the Bureau only considered California debts to have a 
disclosure required if the CCP data indicate that the debt was held 
by a debt buyer.
    \159\ Conn. Gen. Stat. 36a-805(a)(14).
    \160\ Mass Code Regs., tit. 904, 7.07(24).
    \161\ Nev. Rev. Stat. 649.332(2). This regulation only applies 
to ``hospital'' debt. The Bureau only considered Nevada debts to 
have a disclosure required if the CCP data indicate that the 
tradeline was related to a medical debt.
    \162\ N.M. Admin. Code 12.2.12.9.
    \163\ N.Y. Comp. Codes R. & Regs. tit. 23, 1.3.
    \164\ N.C. Gen. Stat. 58-70-115.
    \165\ 6 Code of Vt. Rules 031-004-Rule CF 104.05.
    \166\ W. Va. Code 46a-2-128(f).
---------------------------------------------------------------------------

    The Bureau calculated the hazard rate of payment over time in 
collections--that is, the probability of payment occurring after a 
given number of months, conditional on no payment occurring before--for 
all collections tradelines in the CCP. The Bureau also calculated the 
hazard rate separately for tradelines belonging to consumers residing 
in a State where a time-barred debt disclosure would have been required 
after the expiration of the statute of limitations, and for tradelines 
belonging to consumers residing in States that did not have these 
requirements.\167\ The Bureau then calculated the average hazard rate 
based on the number of months before or after the probable expiration 
of the applicable statute of limitations, again with separate 
calculations for loans with and without a State-mandated time-barred 
debt disclosure. This calculation is plotted in Figure 1, below.\168\ 
The hazard of payment declines steadily over the year leading up to the 
probable expiration of the statute of limitations and continues to 
decline at roughly the same rate afterwards, with the rate of decline 
flattening out slowly over time. If the requirement to make a time-
barred debt disclosure significantly affects payment rates, one would 
expect the hazard rate in States with disclosures to diverge downward 
from the rate in States without disclosures following the probable 
expiration of the State statute of limitations. In fact, although prior 
to the probable expiration of the State statute of limitations the 
hazard of payment declines slightly faster in States with time-barred 
debt disclosures than in States that do not require disclosure, the 
slope flattens out more following the probable expiration of the 
statute of limitations in States with disclosures, compared to States 
without. This suggests that time-barred debt disclosures in these 
States have not resulted in a large drop in the aggregate likelihood 
that consumers pay time-barred debts, although it is still consistent 
with the possibility that repayment rates are reduced for certain types 
of debt or for consumers in certain situations.
---------------------------------------------------------------------------

    \167\ The calculations rely on the assumption that debts owed by 
consumers who reside in a given State are governed by the statute of 
limitations in that State and that consumers in that State receive 
disclosures mandated by the law of that State. Note that some of the 
States in question passed their laws or regulations mandating a 
time-barred debt disclosure during the sample period studied by the 
Bureau. Specifically, California's law became effective January 1, 
2014; Connecticut's law became effective October 1, 2013; 
Massachusetts' regulation became effective March 2, 2012; Nevada's 
law became effective June 13, 2007; New Mexico's law became 
effective March 15, 2011; New York's regulation became effective 
December 1, 2014; North Carolina's law became effective October 1, 
2009; Vermont's law became effective January 1, 1976; and West 
Virginia's law became effective June 6, 2014. The CCP data used in 
the Bureau's analysis covers the period from 2005 to 2018. For 
purposes of this analysis, the Bureau excluded debts belonging to 
consumers in States that eventually mandated time-barred debt 
disclosures if the probable expiration of the statute of limitations 
occurred before the disclosure became effective.
    \168\ The overall level of the hazard rate in the figure is 
quite low--on the order of two-tenths of 1 percent. This is to be 
expected given the monthly nature of the series. Although around 10 
percent of all collections tradelines eventually show some evidence 
of payment, the proportion that do so in any given month is quite 
low.
[GRAPHIC] [TIFF OMITTED] TP03MR20.002

    Thus, while the requirement to provide the proposed disclosures 
would likely impose some costs on covered persons, the Bureau does not 
expect that the proposed disclosures would have large effects on 
aggregate collections revenue.
    Alternatives considered. The Bureau considered alternative 
proposals regarding time-barred debt and revival, including those 
considered as part of the SBREFA process. In the Small Business Review 
Panel Outline, the Bureau considered an alternative that would also 
require debt collectors to

[[Page 12691]]

provide a disclosure when collecting time-barred debt but would 
prohibit debt collectors from collecting on time-barred debt that can 
be revived unless they waive the right to sue on the debt. Under the 
requirement considered, subsequent debt collectors would be bound by 
the disclosure made by any previous debt collectors. Such a requirement 
could have benefits for consumers relative to the supplemental 
proposal, because it would mean debt would generally not be revived 
regardless of whether consumers read and understood a disclosure about 
revival. Similarly, this alternative would be more burdensome for debt 
collectors than the proposed requirement because it would prevent them 
from suing to recover debts when the consumer had taken actions that 
revive the debts. However, the differences in consumer benefits and in 
debt collector costs from this alternative could be quite small 
assuming that, as industry has claimed, collectors do not in fact sue 
to recover debts that have been revived.
    The Bureau also considered requiring a time-barred debt disclosure 
without requiring any disclosure about revival. Such a requirement 
could be less burdensome for small entities under some circumstances. 
However, the Bureau's quantitative disclosure testing indicates that 
many consumers who view a time-barred debt disclosure without a 
disclosure about revival fail to understand that certain actions they 
take could revive the debt.\169\
---------------------------------------------------------------------------

    \169\ See CFPB Quantitative Testing Report, supra note 64, at 
16-25.
---------------------------------------------------------------------------

G. Potential Reduction of Access by Consumers to Consumer Financial 
Products and Services

    Economic theory indicates that it is possible for changes in debt 
collection rules, such as those contained in this supplemental 
proposal, to affect consumers' access to credit. Under economic theory, 
creditors should decide to extend credit based on the discounted 
expected value of the revenue stream from that extension of credit. 
This entails considering the possibility that the consumer will 
ultimately default and expected payments will decrease. If the proposed 
rule were to increase collection costs or reduce revenue collected from 
time-barred debt, then this would reduce the return to lending, which 
in theory could lead lenders to increase the cost of lending, restrict 
availability of credit, or both.
    As discussed in the May 2019 Proposed Rule, the Bureau has 
considered the available empirical data and research on the effect of 
State debt collection laws on the price and availability of 
credit.\170\ That research shows that State debt collection laws affect 
the price and availability of credit in ways that theory would predict, 
but that effects are relatively small even for changes in State laws 
that are likely more significant than the disclosures in this proposed 
rule.\171\ In light of that research and the CCP analysis above, the 
Bureau concludes that the disclosures in the proposed rule are unlikely 
to cause any significant reduction in access to consumer credit. The 
Bureau requests comment on this conclusion and data that can provide 
insights into the impact of the proposed disclosures on the price and 
availability of credit.
---------------------------------------------------------------------------

    \170\ See 84 FR 23274, 23389-91 (May 21, 2019).
    \171\ For example, one study found that additional State 
regulations on debt collectors' conduct caused the success rate of a 
credit inquiry to decline by less than 0.02 percentage points off a 
base rate of about 43 percent. See 84 FR 23274, 23389-90 (May 21, 
2019).
---------------------------------------------------------------------------

H. Potential Specific Impacts of the Proposed Rule

1. Depository Institutions and Credit Unions With $10 Billion or Less 
in Total Assets, as Described in Section 1026
    Depository institutions and credit unions are generally not debt 
collectors under the FDCPA and therefore would not be covered under the 
proposal. Creditors could experience indirect effects from the proposal 
to the extent they hire FDCPA-covered debt collectors or sell debt in 
default to such debt collectors. Such creditors could experience higher 
costs if debt collectors' costs increase and if debt collectors are 
able to pass those costs on to creditors. The Bureau understands that 
many depository institutions and credit unions with $10 billion or less 
in total assets rely on FDCPA-covered debt collectors to collect 
uncollected amounts, but the Bureau does not have data indicating 
whether such institutions are more or less likely than other creditors 
to do so. The Bureau requests additional data and other information 
about potential benefits and costs of the proposal for these 
institutions.
2. Impact of the Proposed Provisions on Consumers in Rural Areas
    Consumers in rural areas may experience benefits from the 
supplemental proposed rule that are different in certain respects from 
the benefits experienced by consumers in general. For example, 
consumers in rural areas may be more likely to borrow from small local 
banks and credit unions that may be less likely to outsource debt 
collection to FDCPA-covered debt collectors. The Bureau does not have 
any information to suggest that consumers in rural areas are more or 
less likely than other consumers to have time-barred debt or to benefit 
from disclosures about time-barred debt. The Bureau will further 
consider the impact of the proposed rule on consumers in rural areas. 
The Bureau therefore asks interested parties to provide data, research 
results, and other factual information on the impact of the proposed 
rule on consumers in rural areas.

I. Request for Information

    The Bureau will further consider the benefits, costs, and impacts 
of the proposed provisions, and any modifications to the proposed 
provisions made in response to comments, before finalizing the 
proposal. As noted above, there are a number of areas in which 
additional information would allow the Bureau to better estimate the 
benefits, costs, and impacts of this proposal and more fully inform the 
rulemaking. The Bureau asks interested parties to provide comment or 
data on various aspects of the proposed rule, as detailed in the 
section-by-section analysis. Information provided by interested parties 
regarding these and other aspects of the proposed rule may be 
considered in the analysis of the benefits, costs, and impacts of the 
final rule. The Bureau specifically requests precise cost or 
operational data that would permit it to better evaluate the potential 
implementation costs and ongoing operational costs imposed by the 
proposed provisions.

VII. Regulatory Flexibility Analysis

    Under section 603(a) of the Regulatory Flexibility Act (RFA), an 
initial regulatory flexibility analysis (IRFA) ``shall describe the 
impact of the proposed rule on small entities.'' \172\ Section 603(b) 
of the RFA sets forth the required elements of the IRFA. Section 
603(b)(1) requires a description of the reasons agency action is being 
considered.\173\ Section 603(b)(2) requires a succinct statement of the 
objectives of, and the legal basis for, the proposed rule.\174\ Section 
603(b)(3) requires a description of and, where feasible, an estimate of 
the number of small entities to which the proposed rule will 
apply.\175\ Section 603(b)(4) requires a description of the projected

[[Page 12692]]

reporting, recordkeeping, and other compliance requirements of the 
proposed rule, including an estimate of the classes of small entities 
that will be subject to the requirement and the types of professional 
skills necessary for the preparation of the report or record.\176\ 
Section 603(b)(5) requires identifying, to the extent practicable, all 
relevant Federal rules which may duplicate, overlap, or conflict with 
the proposed rule.\177\ Section 603(c) requires a description of any 
significant alternatives to the proposed rule that accomplish the 
stated objectives of applicable statutes and that minimize any 
significant economic impact of the proposed rule on small 
entities.\178\ Finally, section 603(d)(1) requires a description of any 
projected increase in the cost of credit for small entities, a 
description of any significant alternatives to the proposed rule that 
accomplish the stated objectives of applicable statutes and that 
minimize any increase in the cost of credit for small entities (if such 
an increase in the cost of credit is projected), and a description of 
the advice and recommendations of representatives of small entities 
relating to the cost of credit issues.\179\
---------------------------------------------------------------------------

    \172\ 5 U.S.C. 603(a).
    \173\ 5 U.S.C. 603(b)(1).
    \174\ 5 U.S.C. 603(b)(2).
    \175\ 5 U.S.C. 603(b)(3).
    \176\ 5 U.S.C. 603(b)(4).
    \177\ 5 U.S.C. 603(b)(5).
    \178\ 5 U.S.C. 603(c).
    \179\ 5 U.S.C. 603(d)(1).
---------------------------------------------------------------------------

A. Description of the Reasons Why Agency Action Is Being Considered

    The Bureau is issuing this supplemental proposed rule to implement 
and interpret the FDCPA, particularly with respect to debt collection 
communication and disclosures regarding time-barred debts and revival. 
As discussed in part V, the Bureau believes that the supplemental 
proposed rule would provide additional clarity about the FDCPA's 
requirements to debt collectors and consumers and help ensure that the 
features of debt collection are fully, accurately, and effectively 
disclosed to consumers.

B. Statement of the Objectives of, and Legal Basis for, the Proposed 
Rule

    As discussed in part IV, the Bureau issues this supplemental 
proposal pursuant to its authority under the FDCPA and the Dodd-Frank 
Act. The objectives of the supplemental proposed rule are to clarify 
and implement the FDCPA's provisions and to further the FDCPA's goals 
of eliminating abusive debt collection practices and ensuring that debt 
collectors who refrain from abusive debt collection practices are not 
competitively disadvantaged.\180\ As the first Federal agency with 
authority under the FDCPA to prescribe substantive rules with respect 
to the collection of debts by debt collectors, the Bureau proposes 
consumer disclosure requirements to provide greater clarity for both 
consumers and industry participants as to the information they must 
provide consumers to comply with the law. The Bureau intends that these 
clarifications will help to eliminate abusive debt collection practices 
and ensure that debt collectors who refrain from abusive debt 
collection practices are not competitively disadvantaged.\181\
---------------------------------------------------------------------------

    \180\ See 15 U.S.C. 1692(e).
    \181\ See id.
---------------------------------------------------------------------------

    As amended by the Dodd-Frank Act, FDCPA section 814(d) provides 
that the Bureau may ``prescribe rules with respect to the collection of 
debts by debt collectors,'' as that term is defined in the FDCPA.\182\ 
Section 1022(a) of the Dodd-Frank Act provides that ``[t]he Bureau is 
authorized to exercise its authorities under Federal consumer financial 
law to administer, enforce, and otherwise implement the provisions of 
Federal consumer financial law.'' \183\ ``Federal consumer financial 
law'' includes title X of the Dodd-Frank Act and the FDCPA. The legal 
basis for the proposed rule is discussed in detail in the legal 
authority analysis in part IV and in the section-by-section analysis in 
part V.
---------------------------------------------------------------------------

    \182\ 15 U.S.C. 1692l(d).
    \183\ 12 U.S.C. 5512(a).
---------------------------------------------------------------------------

C. Description and, Where Feasible, Provision of an Estimate of the 
Number of Small Entities to Which the Proposed Rule Will Apply

    As discussed in the Small Business Review Panel Report, for the 
purposes of assessing the impacts of the supplemental proposed rule on 
small entities, ``small entities'' is defined in the RFA to include 
small businesses, small nonprofit organizations, and small government 
jurisdictions.\184\ A ``small business'' is determined by application 
of SBA regulations in reference to the North American Industry 
Classification System (NAICS) classifications and size standards.\185\ 
Under such standards, the Small Business Review Panel (Panel) 
identified four categories of small entities that may be subject to the 
proposed provisions: Collection agencies (NAICS 561440) with annual 
receipts at or below the SBA size standard (currently $16.5 million), 
debt buyers (NAICS 522298) with annual receipts at or below the size 
standard (currently $41.5 million), collection law firms (NAICS 54110) 
with annual receipts at or below the size standard (currently $12 
million), and servicers who acquire accounts in default. These 
servicers include depository institutions (NAICS 522110, 522120, and 
522130) with assets at or below the size standard (currently $600 
million) or non-depository institutions (NAICS 522390) with annual 
receipts at or below the size standard (currently $22 million). The 
Panel did not meet with small nonprofit organizations or small 
government jurisdictions.\186\
---------------------------------------------------------------------------

    \184\ 5 U.S.C. 601(6).
    \185\ The current SBA size standards are found on SBA's website, 
http://www.sba.gov/content/table-small-business-size-standards.
    \186\ Small Business Review Panel Report, supra note 51, at 29.
---------------------------------------------------------------------------

    The following table provides the Bureau's estimate of the number 
and types of entities that may be affected by the proposed provisions:

                  Table 1--Estimated Number of Affected Entities and Small Entities by Category
----------------------------------------------------------------------------------------------------------------
                                                                             Estimated total
                                                           Small entity       number of debt    Estimated number
            Category                     NAICS              threshold       collectors within   of small entity
                                                                                 category       debt collectors
----------------------------------------------------------------------------------------------------------------
Collection agencies.............  561440.............  $16.5 million in                 9,000              8,800
                                                        annual receipts.
Debt buyers.....................  522298.............  $41.5 million in                   330                300
                                                        annual receipts.
Collection law firms............  541110.............  $12.0 million in                 1,000                950
                                                        annual receipts.
Loan servicers..................  522110, 522120, and  $600 million in                    700                200
                                   522130               annual receipts
                                   (depositories);      for depository
                                   522390 (non-         institutions;
                                   depositories.        $22.0 million or
                                                        less for non-
                                                        depositories.
----------------------------------------------------------------------------------------------------------------


[[Page 12693]]

    Descriptions of the four categories:
    Collection agencies. The Census Bureau defines ``collection 
agencies'' (NAICS code 561440) as ``establishments primarily engaged in 
collecting payments for claims and remitting payments collected to 
their clients.'' \187\ According to the Census Bureau, in 2012 (the 
most recent year for which detailed data are available), there were 
approximately 4,000 collection agencies with paid employees in the 
United States. Of these, the Bureau estimates that 3,800 collection 
agencies have $15.0 million or less in annual receipts and are 
therefore small entities.\188\ Census Bureau estimates indicate that in 
2012 there were also more than 5,000 collection agencies without 
employees, all of which are presumably small entities.
---------------------------------------------------------------------------

    \187\ As defined by the Census Bureau, collection agencies 
include entities that collect only commercial debt, and the proposed 
rule would apply only to debt collectors of consumer debt. However, 
the Bureau understands that relatively few collection agencies 
collect only commercial debt.
    \188\ The Census Bureau estimates average annual receipts of 
$95,000 per employee for collection agencies. Given this, the Bureau 
assumes that all firms with fewer than 100 employees and 
approximately one-half of the firms with 100 to 499 employees are 
small entities, which implies approximately 3,800 firms.
---------------------------------------------------------------------------

    Debt buyers. Debt buyers purchase delinquent accounts and attempt 
to collect amounts owed, either themselves or through agents. The 
Bureau estimates that there are approximately 330 debt buyers in the 
United States, and that a substantial majority of these are small 
entities.\189\ Many debt buyers--particularly those that are small 
entities--also collect debt on behalf of other debt owners.\190\
---------------------------------------------------------------------------

    \189\ The Receivables Management Association, the largest trade 
group for debt buyers, states that it has approximately 300 debt 
buyer members and believes that 90 percent of debt buyers are 
current members.
    \190\ The Bureau understands that debt buyers are generally 
nondepositories that specialize in debt buying and, in some cases, 
debt collection. The Bureau expects that debt buyers that are not 
collection agencies would be classified by the Census Bureau under 
``all other nondepository credit intermediation'' (NAICS Code 
522298).
---------------------------------------------------------------------------

    Collection law firms. The Bureau estimates that there are 1,000 law 
firms in the United States that either have as their principal purpose 
the collection of consumer debt or regularly collect consumer debt owed 
to others, so that the proposed rule would apply to them. The Bureau 
estimates that 95 percent of such law firms are small entities.\191\
---------------------------------------------------------------------------

    \191\ The primary trade association for collection attorneys, 
the National Creditors Bar Association (NCBA), states that it has 
approximately 600 law firm members, 95 percent of which are small 
entities. The Bureau estimates that approximately 60 percent of law 
firms that collect debt are NCBA members and that a similar fraction 
of non-member law firms are small entities.
---------------------------------------------------------------------------

    Loan servicers. Loan servicers would be covered by the proposed 
rule if they are covered by the FDCPA because, among other things, they 
acquire the right to service loans already in default.\192\ The Bureau 
believes that this is most likely to occur with regard to companies 
that service mortgage loans or student loans. The Bureau estimates that 
approximately 200 such mortgage servicers may be small entities and 
that few, if any, student loan servicers that would be covered by the 
proposed rule are small.\193\
---------------------------------------------------------------------------

    \192\ The Bureau expects that loan servicers are generally 
classified under NAICS code 522390, ``Other Activities Related to 
Credit Intermediation.'' Some depository institutions (NAICS codes 
522110, 522120, and 522130) also service loans for others and may be 
covered by the proposed rule.
    \193\ Based on the December 2015 Call Report data as compiled by 
SNL Financial (with respect to insured depositories) and December 
2015 data from the Nationwide Mortgage Licensing System and Registry 
(with respect to non-depositories), the Bureau estimates that there 
are approximately 9,000 small entities engaged in mortgage 
servicing, of which approximately 100 service more than 5,000 loans. 
See 81 FR 72160, 72363 (Oct. 19, 2016). The Bureau's estimate is 
based on the assumption that all those servicing more than 5,000 
loans may acquire servicing of loans when loans are in default and 
that at most 100 of those servicing 5,000 loans or fewer acquire 
servicing of loans when loans are in default.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements of the Proposed Rule, Including an Estimate of Classes of 
Small Entities That Will Be Subject to the Requirements and the Type of 
Professional Skills Necessary for the Preparation of the Report or 
Record

    The supplemental proposed rule would not impose new reporting or 
recordkeeping requirements, but it would impose new compliance 
requirements on small entities subject to the proposal.\194\ The 
proposed requirements and the costs associated with them are discussed 
below.
---------------------------------------------------------------------------

    \194\ While the supplemental proposed rule does not include new 
recordkeeping requirements, the Bureau notes that, by introducing a 
new compliance requirement, the supplemental proposed rule may 
increase the cost of complying with recordkeeping requirements 
proposed in the May 2019 Proposed Rule. This is because debt 
collectors would need to retain evidence of compliance with any 
additional compliance requirement.
---------------------------------------------------------------------------

    In evaluating the potential impacts of the proposal on small 
entities, the Bureau takes as a baseline the current legal framework 
governing debt collection. This includes debt collector practices as 
they currently exist, responding to the requirements of the FDCPA as 
currently interpreted by courts and law enforcement agencies, other 
Federal laws, and the rules and statutory requirements promulgated by 
the States. This baseline represents the status quo from which the 
impacts of this proposal will be evaluated.
    The Bureau requests comment on the estimated impacts on small 
entities discussed below and solicits data and analysis that would 
supplement the quantitative estimates discussed below or provide 
quantitative estimates of benefits, costs, or impacts for which there 
are currently only qualitative discussions.
    The discussion here is confined to the direct costs to small 
entities of complying with the requirements of the supplemental 
proposed rule, if finalized. Other impacts, such as the impacts of 
disclosures about time-barred debt on consumers' repayment decisions, 
are discussed in part VI. The Bureau believes that, except where 
otherwise noted, the impacts discussed in part VI would apply to small 
entities.
    The supplemental proposal would require small entity debt 
collectors that attempt to collect time-barred debt to provide new 
disclosures in certain communications with consumers. This could impose 
one-time costs for systems that identify whether a debt is time barred 
and whether (and if so, when) it is subject to revival, and it may 
impose ongoing costs both to determine whether debts are time barred 
and to make disclosures when appropriate.
    To quantify costs of the proposal to small entities, the Bureau 
would need to estimate the number of small entity debt collectors that 
collect time-barred debt, the number of time-barred accounts they 
collect, the cost to such debt collectors of determining whether a debt 
is time barred and whether and when it can be revived, and the cost of 
making the proposed disclosures when appropriate. The Bureau does not 
have representative data that permit it to estimate the number of small 
entity debt collectors that collect time-barred accounts or the number 
of time-barred accounts they collect. The Bureau understands based on 
industry outreach that many debt collectors do not collect time-barred 
accounts. Even debt collectors that do not regularly collect time-
barred debt might need to review systems to ensure that they are not 
communicating about time-barred debts without providing the appropriate 
proposed disclosure in circumstances when they are required; however, 
the Bureau expects that the burden of the proposed provision on such 
debt collectors would be lower than for debt collectors that regularly 
collect time-barred accounts.
    Among those debt collectors that do regularly attempt to collect 
time-barred accounts, the Bureau understands that

[[Page 12694]]

some currently disclose to consumers that they cannot sue to collect 
the debt. Moreover, debt collectors who are collecting debt in certain 
jurisdictions, such as California and New York, already must make such 
disclosures in at least some circumstances. Also, debt collectors that 
litigate accounts must know whether an account is time barred to avoid 
threatening to sue or suing on time-barred accounts in violation of the 
FDCPA as interpreted by existing FDCPA case law. Thus, some debt 
collectors, particularly ones that collect nationwide or that engage in 
litigation, already have a process in place for identifying time-barred 
accounts and, where they do attempt to collect time-barred debt, for 
providing disclosures to consumers about the time-barred status of such 
accounts.\195\
---------------------------------------------------------------------------

    \195\ Consistent with this, the FTC found that debt buyers 
commonly consider the prevalence of time-barred debt when bidding on 
portfolios of debt, suggesting that debt buyers and sellers of debt 
regularly determine whether debts are time barred. See FTC Debt 
Buying Report, supra note 8, at 21.
---------------------------------------------------------------------------

    The Bureau understands that determining whether an account is time 
barred is not always straightforward, particularly for debt collectors 
that operate in a range of jurisdictions. Different States have 
different statutes of limitations for different types of debt.\196\ 
Which statute applies depends on questions such as where the consumer 
resides and the nature of the credit contract, as well as which State's 
law a court applies to a given case. As noted above, many debt 
collectors already must make decisions about a debt's time-barred 
status to determine whether a lawsuit is permissible or, in certain 
States, whether particular disclosures are required. Even for these 
debt collectors, however, the proposed rule would increase the 
importance of making the correct determination. The Bureau anticipates 
that some collection agencies and debt buyers would incur legal and 
programming costs to develop a system to identify time-barred accounts 
and incorporate the determination into the collection management 
system. These costs could be mitigated somewhat by the proposed rule's 
``know or should know'' standard for the debt's time-barred status, 
which could reduce the likelihood that debt collectors would be held 
liable for failing to identify time-barred debt. Debt collectors would 
also incur costs to train staff to answer consumer questions about the 
proposed disclosures and to incorporate information about the new 
disclosures into their systems for managing communication with 
consumers.
---------------------------------------------------------------------------

    \196\ Small Business Review Panel Report, supra note 51, at 25.
---------------------------------------------------------------------------

    Debt collectors could also incur ongoing costs of determining 
whether debts are time barred. Debt collectors would need to update 
systems from time to time to reflect changes in State laws regarding 
statutes of limitations and might need to perform new legal analyses 
when facing fact patterns that are new to their business, such as when 
beginning to collect debt from consumers in a particular jurisdiction 
for the first time.
    For accounts that are identified as time barred, debt collectors 
would need to make disclosures with certain written and oral 
communications. This would impose direct costs to make the disclosures 
and potentially indirect costs because consumers may be less likely to 
pay debts after being informed that those debts are time barred.
    Debt collectors most often initiate communication with consumers by 
letter, meaning that the majority of disclosures required by the 
proposal would be made in writing.\197\ The Bureau does not anticipate 
that debt collectors would incur substantial ongoing costs to provide 
the proposed disclosures in written materials because required 
disclosures could be automatically included in written materials when 
applicable.
---------------------------------------------------------------------------

    \197\ CFPB Debt Collection Operations Study, supra note 132, at 
28.
---------------------------------------------------------------------------

    Some debt collectors call consumers before sending any written 
material and would need to make any required disclosure orally in their 
first communication with the consumer. For oral communications, the 
Bureau anticipates that debt collectors or their vendors would adjust 
collection management systems to identify disclosures that must be made 
and prompt debt collector employees to make oral disclosures when 
required. The required disclosure would increase the length of each 
conversation about a time-barred debt by perhaps 5 to 10 seconds, 
though if consumers have questions about the disclosure, this could 
lengthen some calls considerably. If the disclosure lengthens initial 
calls to collect a time-barred debt by 15 seconds on average, given an 
assumed average debt collector labor cost of $22 per hour, this would 
cost approximately $0.09 per call.\198\
---------------------------------------------------------------------------

    \198\ Id. at 17.
---------------------------------------------------------------------------

    Costs may also increase if debt collectors and creditors increase 
monitoring of calls regarding time-barred debt to ensure compliance. 
Many debt collectors currently audit telephone conversations, either by 
listening to a sample of calls or by using automated voice-recognition 
software, to ensure that individual debt collectors comply with 
applicable law and other standards. A new required disclosure for time-
barred debt could increase the cost of such monitoring, by adding to 
the list of items that must be audited.

E. Identification, to the Extent Practicable, of All Relevant Federal 
Rules That May Duplicate, Overlap, or Conflict With the Proposed Rule

    Certain other Federal laws and regulations include requirements 
that apply to FDCPA-covered debt collectors. However, consistent with 
the findings of the Panel, the Bureau is not aware of any other Federal 
regulations that currently duplicate, overlap, or conflict with the 
proposed rule.
    The Bureau requests comment on the intersection between the 
proposed rule and other Federal laws and regulations. The Bureau 
specifically requests comment on conflicts that may arise between the 
proposed rule and other Federal laws and regulations and methods to 
minimize such conflicts to the extent they exist.

F. Description of Any Significant Alternatives to the Proposed Rule 
That Accomplish the Stated Objectives of the Applicable Statutes and 
Minimize Any Significant Economic Impact of the Proposed Rule on Small 
Entities

    Section 603(c) of the RFA requires the Bureau to describe in the 
IRFA any significant alternatives to the proposed rule that accomplish 
the stated objectives of applicable statutes and that minimize any 
significant economic impact of the proposed rule on small 
entities.\199\ In developing the proposed rule, the Bureau has 
considered alternative provisions and believes that none of the 
alternatives considered would be as effective at accomplishing the 
stated objectives of the FDCPA and the applicable provisions of title X 
of the Dodd-Frank Act while minimizing the impact of the proposed rule 
on small entities.\200\
---------------------------------------------------------------------------

    \199\ 5 U.S.C. 603(c).
    \200\ Certain alternatives, including those suggested by 
commenters, are discussed in part V above.
---------------------------------------------------------------------------

    In developing the proposal, the Bureau considered a number of 
alternatives, including those considered as part of the SBREFA process. 
In the Small Business Review Panel Outline, the Bureau considered an 
alternative that would also require debt collectors to provide a 
disclosure when collecting time-barred debt but would prohibit debt 
collectors from collecting on time-barred debt that can be revived 
unless

[[Page 12695]]

they waive the right to sue on the debt. Under the requirement 
considered, subsequent debt collectors would be bound by the disclosure 
made by any previous debt collectors. The Bureau believes that such a 
requirement would be more burdensome for small entities than the 
proposed requirement.
    The Bureau also considered requiring a time-barred debt disclosure 
without requiring any disclosure about revival. Such a requirement 
could be less burdensome for small entities under some circumstances. 
However, the Bureau's quantitative disclosure testing indicates that 
many consumers who view a time-barred debt disclosure without a 
disclosure about revival fail to understand that certain actions they 
take could revive the debt.\201\
---------------------------------------------------------------------------

    \201\ See CFPB Quantitative Testing Report, supra note 64, at 
17-24.
---------------------------------------------------------------------------

G. Discussion of Impact on Cost of Credit for Small Entities

    Section 603(d) of the RFA requires the Bureau to consult with small 
entities regarding the potential impact of the proposed rule on the 
cost of credit for small entities and related matters.\202\ To satisfy 
these statutory requirements, the Bureau provided notification to the 
Chief Counsel for Advocacy of the Small Business Administration (Chief 
Counsel) that the Bureau would collect the advice and recommendations 
of the same small entity representatives identified in consultation 
with the Chief Counsel through the SBREFA process concerning any 
projected impact and the proposed rule on the cost of credit for small 
entities. The Bureau sought to collect the advice and recommendations 
of the small entity representatives during the Small Business Review 
Panel meeting regarding the potential impact on the cost of business 
credit because, as small debt collectors with credit needs, the small 
entity representatives could provide valuable input on any such impact 
related to the proposed rule.
---------------------------------------------------------------------------

    \202\ 5 U.S.C. 603(d).
---------------------------------------------------------------------------

    The Bureau's Small Business Review Panel Outline asked small entity 
representatives to comment on how the proposals under consideration 
would affect the cost of credit to small entities. The Bureau believes 
that the disclosures in the supplemental proposal will have little 
impact on the cost of credit to small entities. The Bureau does 
recognize that consumer credit could become more expensive and less 
available as a result of requirements that restrict the collection of 
debt; however, the Bureau does not anticipate that the requirements of 
this supplemental proposal would have any significant impact on the 
cost or availability of consumer credit. Many small entities affected 
by the disclosures in the supplemental proposal use consumer credit as 
a source of credit and may, therefore, see costs rise if consumer 
credit availability decreases. The Bureau does not expect this to be a 
large effect and does not anticipate measurable impact.
    During the SBREFA process, several small entity representatives 
said that the proposals under consideration at that time, which 
included time-barred debt disclosures among several other proposals, 
could have an impact on the cost of credit for them and for their small 
business clients. Some small entity representatives said that they use 
lines of credit in their business and that regulations that raise their 
costs or reduce their revenue could mean they are unable to meet 
covenants in their loan agreements, causing lenders to reduce access to 
capital or increase their borrowing costs.

VIII. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA),\203\ Federal 
agencies are generally required to seek approval from the Office of 
Management and Budget (OMB) for information collection requirements 
prior to implementation. Under the PRA, the Bureau may not conduct or 
sponsor, and, notwithstanding any other provision of law, a person is 
not required to respond to, an information collection unless the 
information collection displays a valid control number assigned by OMB.
---------------------------------------------------------------------------

    \203\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Bureau conducts a preclearance consultation program to 
provide the general public and Federal agencies with an opportunity to 
comment on the information collection requirements in accordance with 
the PRA. This helps ensure that the public understands the Bureau's 
requirements or instructions, respondents can provide the requested 
data in the desired format, reporting burden (time and financial 
resources) is minimized, collection instruments are clearly understood, 
and the Bureau can properly assess the impact of collection 
requirements on respondents.
    The supplemental proposed rule would amend 12 CFR part 1006 
(Regulation F), which implements the FDCPA. The Bureau's OMB control 
number for Regulation F is 3170-0056. This supplemental proposed rule 
along with the May 2019 Proposed Rule would revise the information 
collection requirements contained in Regulation F that OMB has approved 
under that OMB control number.
    The supplemental proposal would require a new information 
collection requirement under Regulation F, in proposed Sec.  1006.26 
regarding time-barred debts, which would require debt collectors to 
provide a particular disclosure in certain communications when 
attempting to collect time-barred debt.
    This information collection would be required to provide benefits 
for consumers and would be mandatory. Because the Bureau does not 
collect any information, no issue of confidentiality arises. The likely 
respondents would be for-profit businesses that are FDCPA-covered debt 
collectors.
    The collection of information contained in this supplemental 
proposed rule, and identified as such, has been submitted to OMB for 
review under section 3507(d) of the PRA. A complete description of the 
information collection requirement, including the burden estimate 
methods, is provided in the information collection request (ICR) that 
the Bureau has submitted to OMB under the requirements of the PRA. 
Please send your comments to the Office of Information and Regulatory 
Affairs, OMB, Attention: Desk Officer for the Bureau of Consumer 
Financial Protection. Send these comments by email to 
[email protected] or by fax to (202) 395-6974. If you wish to 
share your comments with the Bureau, please send a copy of these 
comments as described in the Addresses section above. The ICR submitted 
to OMB requesting approval under the PRA for the information collection 
requirements contained herein is available at www.regulations.gov as 
well as on OMB's public-facing docket at www.reginfo.gov.
    Title of Collection: Regulation F: Fair Debt Collection Practices 
Act.
    OMB Control Number: 3170-0056.
    Type of Review: Revision of a currently approved collection.
    Affected Public: Private Sector.
    Estimated Number of Respondents: 12,027.\204\
---------------------------------------------------------------------------

    \204\ The Bureau shares enforcement authority under the FDCPA 
with the Federal Trade Commission. To avoid double-counting, the 
Bureau allocates to itself half of the estimated paperwork burden 
under the proposed rule by dividing the burden hours even between 
the agencies. However, since the Bureau has joint authority over the 
respondents themselves, the Bureau retains the entity count of all 
affected respondents as shown above.

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[[Page 12696]]

    Estimated Total Annual Burden Hours: 2,360,000.\205\
---------------------------------------------------------------------------

    \205\ The Bureau's share of burden hours for this rule is 
1,180,000 hours including 150,000 hours of burden that would be 
added by the new information collections added by the supplemental 
proposed rule.
---------------------------------------------------------------------------

    Comments are invited on: (a) Whether the collection of information 
is necessary for the proper performance of the functions of the Bureau, 
including whether the information will have practical utility; (b) the 
accuracy of the Bureau's estimate of the burden of the collection of 
information, including the validity of the methods and the assumptions 
used; (c) ways to enhance the quality, utility, and clarity of the 
information to be collected; and (d) ways to minimize the burden of the 
collection of information on respondents, including through the use of 
automated collection techniques or other forms of information 
technology. Comments submitted in response to this supplemental 
proposal will be summarized and/or included in the request for OMB 
approval. All comments will become a matter of public record.
    If applicable, the notice of final rule will display the control 
number assigned by OMB to any information collection requirements 
proposed herein and adopted in the final rule.

List of Subjects in 12 CFR Part 1006

    Administrative practice and procedure, Consumer protection, Credit, 
Debt collection, Intergovernmental relations.

Authority and Issuance

    For the reasons set forth above, the Bureau proposes that 
Regulation F, 12 CFR part 1006, as proposed to be amended on May 21, 
2019 (84 FR 23274), be further amended as follows:

PART 1006--DEBT COLLECTION PRACTICES (REGULATION F)

0
1. The authority citation for part 1006 continues to read as follows:

    Authority: 12 U.S.C. 5512, 5514(b), 5531, 5532; 15 U.S.C. 
1692l(d), 1692o, 7004.

Subpart B--Rules for FDCPA Debt Collectors

0
2. Section 1006.26 is amended by adding paragraph (c) to read as 
follows:


Sec.  1006.26  Collection of time-barred debts.

* * * * *
    (c) Disclosures required. (1) In general. A debt collector who 
knows or should know that a debt is time barred when the debt collector 
makes the initial communication as defined in Sec.  1006.34(b)(2) must, 
in that initial communication and on any validation notice required by 
Sec.  1006.34(a)(1)(i)(B), clearly and conspicuously disclose:
    (i) That the law limits how long the consumer can be sued for a 
debt and that, because of the age of the debt, the debt collector will 
not sue the consumer to collect it; and
    (ii) If, under applicable law, the debt collector's right to bring 
a legal action against the consumer can be revived, the fact that 
revival can occur and the circumstances in which it can occur.
    (2) Additional circumstances in which disclosures are required. (i) 
Debts that become time barred. A debt collector who knows or should 
know that a debt has become time barred after the debt collector has 
made the initial communication as defined in Sec.  1006.34(b)(2) but 
before the debt collector has sent any validation notice required by 
Sec.  1006.34(a)(1)(i)(B) must provide the disclosures required by 
paragraph (c)(1) of this section in the debt collector's first 
communication, if any, with the consumer on or after the date on which 
the debt collector knows or should know that the debt became time 
barred, and on any validation notice required by Sec.  
1006.34(a)(1)(i)(B). A debt collector who knows or should know that a 
debt has become time barred after the debt collector has made the 
initial communication as defined in Sec.  1006.34(b)(2) and has sent 
any validation notice required by Sec.  1006.34(a)(1)(i)(B) must 
provide the disclosures required by paragraph (c)(1) of this section in 
the debt collector's first communication, if any, with the consumer on 
or after the date on which the debt collector knows or should know that 
the debt became time barred.
    (ii) Change in debt collector's knowledge. A debt collector who 
neither knows nor should know that a time-barred debt is time barred 
when the debt collector makes the initial communication as defined in 
Sec.  1006.34(b)(2), but who knows or should know that the debt is time 
barred before the debt collector has sent any validation notice 
required by Sec.  1006.34(a)(1)(i)(B), must provide the disclosures 
required by paragraph (c)(1) of this section in the debt collector's 
first communication, if any, with the consumer on or after the date on 
which the debt collector knows or should know that the debt is time 
barred, and on any validation notice required by Sec.  
1006.34(a)(1)(i)(B). A debt collector who neither knows nor should know 
that a time-barred debt is time barred when the debt collector makes 
the initial communication as defined in Sec.  1006.34(b)(2) and sends 
any validation notice required by Sec.  1006.34(a)(1)(i)(B), but who 
later knows or should know that the debt is time barred, must provide 
the disclosures required by paragraph (c)(1) of this section in the 
debt collector's first communication, if any, with the consumer on or 
after the date on which the debt collector knows or should know that 
the debt was time barred.
    (3) Form and delivery of disclosures. (i) In general. When provided 
on a validation notice, the content, format, and placement of the 
disclosures required by paragraph (c)(1) of this section must be 
substantially similar to such disclosures on Model Form B-4, B-5, B-6, 
or B-7 in appendix B of this part, as applicable. When provided orally 
or in a written communication that is not a validation notice, the 
content of the disclosures required by paragraph (c)(1) of this section 
must be substantially similar to such disclosures on Model Form B-4, B-
5, B-6, or B-7 in appendix B of this part, as applicable.
    (ii) Safe harbor. When providing the disclosures required by 
paragraph (c)(1) of this section on a validation notice, a debt 
collector who uses Model Form B-4, B-5, B-6, or B-7 in appendix B of 
this part, as applicable, complies with the requirements of paragraphs 
(c)(1) and (3)(i) of this section. When providing the disclosures 
required by paragraph (c)(1) of this section orally or in a written 
communication that is not a validation notice, a debt collector who 
uses the relevant content of Model Form B-4, B-5, B-6, or B-7, as 
applicable, complies with the requirements of paragraphs (c)(1) and 
(3)(i) of this section.
    (iii) Delivery. When providing the disclosures required by 
paragraph (c)(1) of this section on a validation notice or a written 
communication that is not a validation notice, a debt collector must do 
so in a manner permitted by Sec.  1006.42.
    (iv) Translated disclosures. A debt collector must make the 
disclosures required by paragraph (c)(1) of this section in the same 
language or languages used for the rest of the communication in which 
the disclosures are conveyed. Any translation of the required 
disclosures must be complete and accurate.
0
3. Section 1006.34 is amended by adding paragraph (c)(2)(xi) to read as 
follows:


Sec.  1006.34  Notice for validation of debts.

* * * * *
    (c) * * *
    (2) * * *
    (xi) A time-barred debt disclosure, or a time-barred debt and a 
revival

[[Page 12697]]

disclosure, if the debt collector determines after a reasonable 
investigation that such disclosures are required by Sec.  1006.26(c).
* * * * *
0
4. Appendix B to part 1006 is amended by adding B-4 through B-7 to read 
as follows:

Appendix B to Part 1006--Model Forms and Clauses

* * * * *
BILLING CODE 4810-AM-P

B-4 Model Form for Time-Barred Debt Disclosure Sec.  1006.26
[GRAPHIC] [TIFF OMITTED] TP03MR20.003


[[Page 12698]]



B-5 Model Form for Time-Barred Debt and Revival Disclosure (Payment and 
Written Acknowledgement) Sec.  1006.26
[GRAPHIC] [TIFF OMITTED] TP03MR20.004


[[Page 12699]]



B-6 Model Form for Time-Barred Debt and Revival Disclosure (Payment) 
Sec.  1006.26
[GRAPHIC] [TIFF OMITTED] TP03MR20.005


[[Page 12700]]



B-7 Model Form for Time-Barred Debt and Revival Disclosure (Written 
Acknowledgement) Sec.  1006.26
[GRAPHIC] [TIFF OMITTED] TP03MR20.006

BILLING CODE 4810-AM-C

[[Page 12701]]

0
5. In Supplement I to Part 1006--Official Interpretations, new Section 
1006.26--Collection of Time-Barred Debt is added to read as follows:
Section 1006.26--Collection of Time-Barred Debt
    26(c) Disclosures required.
    26(c)(1) In general.
    1. Clearly and conspicuously. The disclosures required by Sec.  
1006.26(c)(1) must be provided clearly and conspicuously. The term 
``clear and conspicuous'' is defined in Sec.  1006.34(b)(1).
    2. Validation notice in initial communication. The disclosures 
required by Sec.  1006.26(c)(1) must be provided in the initial 
communication as defined in Sec.  1006.34(b)(2) and on any validation 
notice required by Sec.  1006.34(a)(1)(i)(B). A debt collector who 
sends a validation notice in the initial communication pursuant to 
Sec.  1006.34(a)(1)(i)(A) complies with Sec.  1006.26(c)(1) by 
providing the required disclosures on the validation notice.
    Paragraph 26(c)(1)(ii).
    1. Revival disclosures. If a debt collector's right to bring a 
legal action against a consumer to collect a debt can be revived under 
applicable law, Sec.  1006.26(c)(1)(ii) requires a debt collector who 
collects a debt that the debt collector knows or should know is time 
barred to disclose the fact that revival can occur and the 
circumstances in which it can occur. To satisfy the Sec.  
1006.26(c)(1)(ii) disclosure requirement, a debt collector first must 
determine which State's law applies and the circumstances under which 
that State permits revival, if any. Then, for example, if a debt 
collector determines that applicable State law permits revival only if 
the consumer makes a payment, the debt collector must provide the time-
barred debt and revival disclosure shown on Model Form B-6 in appendix 
B of this part, or a substantially similar disclosure. If, on the other 
hand, a debt collector determines that applicable State law does not 
permit revival Sec.  1006.26(c)(1)(ii) does not apply and the debt 
collector must provide the time-barred debt disclosure shown on Model 
Form B-4 in appendix B of this part, or a substantially similar 
disclosure.
    26(c)(2) Additional circumstances in which disclosures are 
required.
    26(c)(2)(i) Debts that become time barred.
    1. Debts that become time barred after the debt collector has made 
the initial communication but before the debt collector has sent the 
validation notice. Under Sec.  1006.26(c)(2)(i), a debt collector who 
knows or should know that a debt has become time barred after the debt 
collector has made the initial communication as defined in Sec.  
1006.34(b)(2) but before the debt collector has sent any validation 
notice required by Sec.  1006.34(a)(1)(i)(B) must provide the 
disclosures required by Sec.  1006.26(c)(1) in the debt collector's 
first communication, if any, with the consumer on or after the date on 
which the debt collector knows or should know that the debt became time 
barred, and on any validation notice required by Sec.  
1006.34(a)(1)(i)(B). The following example illustrates the rule:
    i. A creditor hires ABC debt collector to collect a debt that ABC 
debt collector knows will become time barred on June 30. ABC debt 
collector's initial communication with the consumer takes place by 
telephone on June 27. ABC debt collector's next communication with the 
consumer takes place by telephone on July 1. Under Sec.  
1006.26(c)(2)(i), ABC debt collector must provide the disclosures 
required by Sec.  1006.26(c)(1) in that telephone conversation. The 
following day, ABC debt collector sends a validation notice to the 
consumer. Under Sec.  1006.26(c)(2)(i), the validation notice must 
include the disclosures required by Sec.  1006.26(c)(1).
    2. Debts that become time barred after the debt collector has made 
the initial communication and has sent the validation notice. Under 
Sec.  1006.26(c)(2)(i), a debt collector who knows or should know that 
a debt has become time barred after the debt collector has made the 
initial communication as defined in Sec.  1006.34(b)(2) and has sent 
any validation notice required by Sec.  1006.34(a)(1)(i)(B) must 
provide the disclosures required by Sec.  1006.26(c)(1) in the debt 
collector's first communication, if any, with the consumer on or after 
the date on which the debt collector knows or should know that the debt 
became time barred. The following example illustrates the rule:
    i. A creditor hires ABC debt collector to collect a debt. ABC debt 
collector knows that the applicable statute of limitations will expire 
in one month and promptly sends the consumer a validation notice, which 
is the debt collector's initial communication with the consumer. The 
next communication between ABC debt collector and the consumer takes 
place over the telephone two weeks after the statute of limitations has 
expired. Under Sec.  1006.26(c)(2)(i), ABC debt collector must provide 
the disclosures required by Sec.  1006.26(c)(1) in that telephone 
communication.
    26(c)(2)(ii) Change in debt collector's knowledge.
    1. Change in debt collector's knowledge after the debt collector 
has made the initial communication but before the debt collector has 
sent the validation notice. Under Sec.  1006.26(c)(2)(ii), a debt 
collector who neither knows nor should know that a time-barred debt is 
time barred when the debt collector makes the initial communication as 
defined in Sec.  1006.34(b)(2), but who knows or should know that the 
debt is time barred before the debt collector has sent any validation 
notice required by Sec.  1006.34(a)(1)(i)(B), must provide the 
disclosures required by Sec.  1006.26(c)(1) in the debt collector's 
first communication, if any, with the consumer on or after the date on 
which the debt collector knows or should know that the debt is time 
barred, and on any validation notice required by Sec.  
1006.34(a)(1)(i)(B). The following example illustrates the rule.
    i. A creditor hires ABC debt collector to collect a debt. Although 
the debt is time barred, ABC debt collector neither knows nor should 
know that the debt is time barred. ABC debt collector has an initial 
communication with the consumer that does not include the disclosures 
required by Sec.  1006.26(c)(1). Because ABC debt collector neither 
knew nor should have known that the debt was time barred, ABC debt 
collector has not violated Sec.  1006.26(c)(1). The next day, before 
sending the validation notice required by Sec.  1006.34(a)(1)(i)(B), 
ABC debt collector learns that the debt was, in fact, time barred at 
the time of the initial communication. Under Sec.  1006.26(c)(2)(ii), 
ABC debt collector must provide the disclosures required by Sec.  
1006.26(c)(1) in its next communication, if any, with the consumer, and 
on any validation notice required by Sec.  1006.34(a)(1)(i)(B).
    2. Change in debt collector's knowledge after the debt collector 
has made the initial communication and has sent the validation notice. 
Under Sec.  1006.26(c)(2)(ii), a debt collector who neither knows nor 
should know that a time-barred debt is time barred when the debt 
collector makes the initial communication as defined in Sec.  
1006.34(b)(2) and sends any validation notice required by Sec.  
1006.34(a)(1)(i)(B), but who later knows or should know that the debt 
is time barred, must provide the disclosures required by Sec.  
1006.26(c)(1) in the debt collector's first communication, if any, with 
the consumer on or after the date on which the debt collector knows or 
should

[[Page 12702]]

know that the debt was time barred. The following example illustrates 
the rule:
    i. A creditor hires ABC debt collector to collect a debt. Although 
the debt is time barred, ABC debt collector neither knows nor should 
know that the debt is time barred. ABC debt collector has an initial 
communication with the consumer and sends a validation notice to the 
consumer, neither of which includes the disclosures required by Sec.  
1006.26(c)(1). Because ABC debt collector neither knew nor should have 
known that the debt was time barred, ABC debt collector has not 
violated Sec.  1006.26(c)(1). Several weeks later, however, ABC debt 
collector learns that the debt was, in fact, time barred when ABC debt 
collector sent the validation notice. Under Sec.  1006.26(c)(2)(ii), 
ABC debt collector must provide the disclosures required by Sec.  
1006.26(c)(1) in its next communication, if any, with the consumer.
    26(c)(3) Form and delivery of disclosures.
    26(c)(3)(i) In general.
    1. Disclosures required by other applicable law. Section 
1006.26(c)(3)(i) requires that, when provided on a validation notice, 
the content, format, and placement of the disclosures required by Sec.  
1006.26(c)(1) must be substantially similar to such disclosures on 
Model Form B-4, B-5, B-6, or B-7 in appendix B of this part, as 
applicable. A debt collector who uses a validation notice that 
otherwise is substantially similar to Model Form B-4, B-5, B-6, or B-7, 
as applicable, may include any additional disclosures required by other 
applicable law on the reverse of the validation notice and will 
continue to be in compliance with the requirements of Sec.  
1006.26(c)(1) and (3)(i). Disclosures required by other applicable law 
may include, for example, a State law requirement to disclose that a 
debt is time barred or that a debt collector's right to bring a legal 
action on a time-barred debt can be revived. See comments 26(c)(3)(ii)-
2 and 34(d)(3)(iv)-1 for further guidance concerning disclosures 
required by other applicable law.
    26(c)(3)(ii) Safe harbor.
    1. Safe harbor provided by use of model form. Although the use of 
Model Form B-4, B-5, B-6, or B-7 in appendix B of this part is not 
required, a debt collector who uses the applicable model form complies 
with the requirements of Sec.  1006.26(c)(1) and (3)(i). For example, 
if under applicable law only a payment on a time-barred debt revives a 
debt collector's right to bring a legal action against the consumer to 
collect the debt, a debt collector who uses Model Form B-6, which 
refers to payment but not written acknowledgement, to provide the 
disclosure on the validation notice complies with the requirements of 
Sec.  1006.26(c)(1) and (3)(i).
    2. Disclosures required by other applicable law. When providing the 
disclosures required by Sec.  1006.26(c)(1) on a validation notice, a 
debt collector who uses Model Form B-4, B-5, B-6, or B-7 in appendix B 
of this part, as applicable, may include any additional disclosures 
required by other applicable law on the reverse of the validation 
notice and will continue to be in compliance with the requirements of 
Sec.  1006.26(c)(1) and (3)(i). See comments 26(c)(3)(i)-1 and 
34(d)(3)(iv)-1 for further guidance concerning disclosures required by 
other applicable law.
    26(c)(3)(iv) Translated disclosures.
    1. Examples. Section 1006.26(c)(3)(iv) provides that a debt 
collector must make the disclosures required by Sec.  1006.26(c)(1) in 
the same language or languages used for the rest of the communication 
in which they are conveyed. The following examples illustrate the rule:
    i. ABC debt collector is collecting time-barred debt. ABC debt 
collector's initial communication with the consumer takes place in 
Spanish. Under Sec.  1006.26(c)(1), the initial communication must 
contain the disclosures described in that section, as applicable. Under 
Sec.  1006.26(c)(3)(iv), ABC debt collector must provide the 
disclosures in Spanish.
    ii. XYZ debt collector is collecting a time-barred debt. XYZ debt 
collector's initial communication with the consumer takes place partly 
in English and partly in Spanish. Under Sec.  1006.26(c)(1), the 
initial communication must contain the disclosures described in that 
section, as applicable. Under Sec.  1006.26(c)(3)(iv), XYZ debt 
collector must provide the disclosures in both Spanish and English.
    2. Complete and accurate translation. Under Sec.  
1006.26(e)(3)(iv), any translation of the disclosures required by Sec.  
1006.26(c)(1) must be complete and accurate. The language of a 
disclosure that a debt collector obtains from the Bureau's website is 
considered a complete and accurate translation, although debt 
collectors are permitted to use other translations so long as they are 
complete and accurate.

    Dated: February 13, 2020.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2020-03838 Filed 3-2-20; 8:45 am]
 BILLING CODE 4810-AM-P