Today, from 12 p.m. to 1:00 p.m. ET, Ballard Spahr attorneys will hold a webinar, “Part II of the CFPB’s Final Collection Rule: What You Need to Know.” For more information and to register, click here.
The CFPB issued Part II of its final collection rule on December 18, 2020. Part II supplements the final rule issued on October 30, 2020, about which our team published a series of blog posts on topics such as impacts on creditors, contact frequency limitations and limited content messages, electronic communications to send required disclosures, impact on credit reporting, mortgage servicing provisions and impacts, and meaningful attorney involvement and debt sale restrictions. Parts I and II were both adopted pursuant to the Bureau’s authority under the Fair Debt Collection Practices Act and not its UDAAP authority under the Dodd-Frank Act, and are effective November 30, 2021.
Part II of the final rule has three primary components, dealing with (1) the collection of time-barred debt, (2) passive debt collection, and (3) validation notices.
Time-Barred Debt
Part II includes prohibitions against taking or threatening legal action on time-barred debt, as was the case with the proposed rule. See §1006.26(b). Proposed §1006.26(b) prohibited a debt collector from bringing or threatening 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. However, the Bureau finalized §1006.26(b) with two principal changes.
First, the Bureau did not adopt the “knows-or-should-know standard.” Rather, suing or threatening suit on a time-barred debt is subject to a strict liability standard. However, the Bureau stated that a debt collector may be able to invoke the “bona fide error” defense to civil liability under FDCPA section 813, depending on the circumstances.
Second, Part II clarifies that the prohibitions in §1006.26(b) do not apply to proofs of claim filed in bankruptcy proceedings. The Bureau reasoned that §1006.26(b) uses the term “legal action” and noted in Midland Funding, LLC v. Johnson, 137 S. Ct. 1407 (2017), the U.S. Supreme Court held that filing a proof of claim on a time-barred debt in a bankruptcy proceeding does not violate the FDCPA sections 807 or 808.
The most confusing aspect of Part II’s handling of time-barred debt relates to the Bureau’s handling of disclosures associated with such debts. The proposed rule contained a disclosure that would be required when a time-barred debt...
