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Collections Compliance: the Laws that Govern the Collections Industry

Both telemarketing and debt collection are, quite literally, risky businesses. Both fields are highly regulated, governed by complex legislation, and subject to potentially expensive penalties and litigation. Compliance in either field is complicated enough on its own but compliance for debt collectors who use telephone solicitation in order to conduct their business imposes difficulties to an extent beyond the mere sum of the complexities of either field on its own.

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Both telemarketing and debt collection are, quite literally, risky businesses. Both fields are highly regulated, governed by complex legislation, and subject to potentially expensive penalties and litigation. Compliance in either field is complicated enough on its own but compliance for debt collectors who use telephone solicitation in order to conduct their business imposes difficulties to an extent beyond the mere sum of the complexities of either field on its own.

Telephone solicitation for the purposes of debt collection requires maintaining compliance with four different, interrelated laws. The Telephone Consumer Protection Act (TCPA) and the Fair Debt Collection Practices Act (FDCPA) have specific rules directly relevant to telemarketing collections; while the Fair Credit Reporting Act (FCRA) and the Truth In Lending Act (TILA) apply to the credit industry more generally. This article will explain the relevant rules and exemptions for each law as well as provide some best practices.

Telephone Consumer Protection Act (TCPA)

Overseen by the Federal Communications Commission (FCC), the Telephone Consumer Protection Act is the primary federal law governing telephone solicitations, including all manner of telephone, fax, and text message solicitations. The TCPA regulates both telemarketing and debt collection.

Noncompliance with the TCPA can result in having to pay awards from $500 for a negligent violation, and up to $1,500 per willful violation. The TCPA creates a private right of action, meaning plaintiffs can seek redress in small claims court, state or federal district court, either alone or in class actions.

Rules

While the TCPA and its long history of related FCC orders and court precedents cover a variety of telemarketing restrictions, these are the ones that are relevant for the purposes of collections telemarketing:

  • Call Time Restrictions – Telemarketers should only call between 8 a.m. and 9 p.m. according to the call recipient’s local time. Some states have laws mandating stricter call time restrictions.
  • Consent – Solicitors are prohibited from using an Automatic Telephone Dialing System (ATDS) to contact phone numbers at which the recipient may be charged for the call—primarily cell phones but also pagers, VoIP, and faxes—without prior express consent (or written consent for telemarketers). For the purposes of debt collection, courts have generally accepted the argument that a consumer gives prior express consent if they provide their phone number as a part of the transaction that resulted in the debt being owed.
  • Right Party – Consent is associated with the called party, not necessarily the phone number. If a phone number is reassigned from one person to another, any consent previously acquired for that number becomes invalid, and any calls made to that number could be TCPA violations.

Exemptions

In July 2015, the FCC issued a TCPA Omnibus Declaratory Ruling and Order that overhauled and updated a number of aspects of the statute. Among the changes was a debt exemption that permitted automated calls to cellphones when the calls were for the collection of government-backed debt such as a student loan.

However, in 2019, the Fourth Circuit found this exemption to be unconstitutional on free speech grounds. In fact, in finding the exemption to be a content-based restriction that favored a select group, the court nearly invalidated the TCPA as a whole. The court was able to avoid invalidating the entire statute only by severing the “flawed exemption” from the rest of the TCPA. The Supreme Court affirmed this decision in 2020's Barr v. AAPC.

Fair Debt Collection Practices Act (FDCPA)

The Fair Debt Collection Practices Act was originally passed in 1977 but was significantly amended as a part of the legislative reforms instituted by the Dodd-Frank Act of 2010. Enforced by the CFPB, the FDCPA enumerates restrictions for the behavior of third-party debt collectors who collect on debts owed to another person or entity. Debt collectors who violate the FDCPA can be sued in state or federal court for damages and legal fees within one year of the violation(s).

Rules

As it governs debt collection practices, the FDCPA provides a number of rules that telemarketers who collect debt as third-party debt collectors must follow:

  • Call Time Restrictions – A debt collector should not contact a debtor before 8 a.m. or after 9 p.m. (according to the debtor’s local time) unless they have made an arrangement with the debtor to call outside those hours.
  • Honoring Workplace Opt-Outs – A debt collector may attempt to reach a debtor at their place of work as well as their home. But if the debtor informs the debt collector to stop contacting their workplace, either verbally or in writing, the debt collector must honor that request.
  • Honoring Home Phone Opt-Outs – Debtors can also request that debt collectors not call their home phones. But they must send this request in the form of a letter.
  • Restrictions Against Harassment – Debt collectors are not allowed to threaten bodily harm or arrest, and are prohibited from using profane or obscene language.
  • Restrictions Against Unfair Practices – Debt collectors are not allowed to use abusive, unfair, or deceptive practices in order to collect debts.
  • Restrictions Against False Lawsuit Threats – Debt collectors are prohibited from threatening to sue a debtor unless they intend to follow through on that threat.

Did You Know?

If a third-party debt collector does not have accurate contact information for a debtor, they may contact the debtor’s relatives, neighbors, or associates in order to obtain that contact information. However, the debt collector is prohibited from revealing any information about the debt, including its very existence, to anybody other than the debtor or their spouse. Also, the debt collector must not attempt to contact any of these third parties more than once each.

CFPB Debt Collection Overhaul

In November 2020, the CFPB published Regulation F, a major overhaul of the FDCPA. It is a 653-page rule that updates the law to reflect the numerous changes to communications technology and practices that occurred in the decades following the FDCPA’s initial passage in 1977.

The key changes under Regulation F are as follows:

  • Contact Frequency for Voice Calls
    The rule states that, once a debt collector initiates contact with a debtor via a phone call, the collector is allowed to make seven calls within the first seven days. After that initial week, the collector is permitted to call that debtor once every seven days. Interestingly, these numerical limits are not hard and fast rules but something more like a starting point for determining if debt collectors are violating the law’s restrictions on harassment. Essentially, any practices that stay within those limits are presumed to be lawful and any that exceed those limits are presumed to be unlawful. But it is possible to present evidence rebutting either of those determinations.
  • Contact Frequency for Other Communications
    When it comes to electronic communications such as emails, text messages, and social media direct messages, Regulation F does not set numerical limits. That’s not to say that collectors are free to send unlimited messages. Rather, it just means that any violations due to excessive messaging will not come from violating a specific numerical cap.
  • Opt-Outs for Emails and Texts
    The rule’s summary explains that "the final rule requires that each of a debt collector’s emails and text messages must include instructions for a reasonable and simple method by which a consumer can opt out of receiving further emails or text messages.”
  • Time and Technology Restrictions
    Regulation F allows consumers to designate particular times as being inconvenient times for debt collectors to contact them. There is a provision allowing for collectors to violate this “inconvenient time” restriction, but they may do so only once and only if the communication is in response to a message from the consumer that had been sent during that same restricted span of time. Similarly, the final rule allows consumers to designate one particular communications medium as one that cannot be used to contact them.
  • Limited-Content Message
    Regulation F defines a new term for debt collection purposes, the limited-content message: “This definition permits a debt collector to leave a voicemail message for a consumer that is not a communication under the FDCPA or the final rule and therefore is not subject to certain requirements or restrictions.”
  • Limitations On Who May Be Contacted
    The rule specifies that a debt collector may only communicate about a debt with the following people: the consumer, the consumer’s attorney, a consumer reporting agency (if otherwise permitted by law), the creditor, the creditor’s attorney, and the debt collector’s attorney. The rule also eliminates the FDCPA’s “no meaningful involvement” requirement for letters from attorneys. This requirement had previously prevented attorneys from sending letters to debtors on official letterhead unless they have some direct involvement in a case against the debtor.

These are not the only restrictions. Regulation F contains other provisions, including regulations relating to reassigned numbers, the sale and transfer of certain debts, third-party disclosures, location information, and requirements for compliance record-keeping. Regulation F’s overhaul of the FDCPA took effect on November 30, 2021.

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act is the primary federal law covering the rules on the collection and reporting of consumer credit information. It was passed into law in 1970. It is enforced by the Federal Trade Commission (FTC) and CFPB. Because the world of credit reporting intersects with the world of debt collection, compliance with the FCRA in an essential practice for debt collectors.

The FCRA sets rules on how credit bureaus can obtain consumer credit information, how long they can store that information, who they can share that information with, and what sort of information they can collect. The FCRA allows credit bureaus to collect the following kinds of information:

  • Bill payment history
  • Loan history
  • Current debts
  • Employment information
  • Bankruptcy history
  • Child support payment history
  • Arrest history

Truth In Lending Act (TILA)

First enacted into law in 1968, the Truth In Lending Act governs the way lenders and creditors disclose information about their financial goods and services to consumers. Initially overseen by the Federal Reserve Board, the TILA has been enforced by the CFPB since 2011.

As with the FCRA, the TILA is less a statute directly governing debt collection and more a law that debt collectors must heed more generally. The TILA’s provisions cover most sorts of consumer credit—such as home mortgages, car loans, credit cards, and equity lines of credit—which are the sorts of credit that can lead to debt collection.

Best Practices for Collections Compliance

Don’t call known litigators and serial plaintiffs
The easiest way to avoid a lawsuit is to not contact the people who are most likely to sue. TCPA, FDCPA, and FCRA litigators and professional plaintiffs can find their way onto your call lists (litigators can have debts just like anyone else). The best defense is to remove these predatory individuals from all calling lists before reaching out.

Know You’re Calling the Right Party
Verify your consent with the called party by confirming their current contact information.

Get a Third-Party Compliance Provider
When you’re in a high-risk category like debt collection, it is not enough to just have legal counsel. It is critical to have a compliance provider on your side. You will save money, avoid headaches, and prevent brand damage.

Check for Reassigned Numbers
With approximately 100,000 mobile phone numbers reassigned by wireless carriers every day, it is absolutely essential to check your data for reassigned numbers. Both the TCPA and FDCPA offer safe harbor defenses for callers that utilize the FCC’s Reassigned Numbers Database.

Frequently Asked Questions

What sort of TCPA consent is required for debt collection calls?

The TCPA requires that any autodialed calls to cellphones (or VoIP phones) be placed with prior express consent. There are no consent requirements for debt collection calls to landlines.

What constitutes prior express consent for debt collection calls?

Courts have held that consumers provide express consent to receive debt collection calls if they provide their phone number as a part of the initial transaction that resulted in the debt being owed.

Should debt collectors honor opt-outs?

Yes, it is usually a legal requirement and always a best practice to honor opt-out requests. The CFPB also released a debt collection rule in late 2020 that requires that any debt collection text messages include opt-out information.

If I placed calls to collect on government-backed debt when the debt exemption was in effect, can I still rely on that exemption after Barr v. AAPC?

Based on lower court decisions following Barr v. AAPC, the most likely answer is no. By severing and invalidating the debt exemption, SCOTUS has essentially ruled that the debt exemption was never constitutional.

For more information on compliance for collections, click here for a free guide.