Debt collectors need clearer telecom rules
History tells us that the first phone call was made on March 10, 1876, by Alexander Graham Bell to his assistant, Thomas Watson. What history hasn’t confirmed is that the second phone call to Watson interrupted his dinner, irritating him greatly. So began the great American tradition of being bothered by unwanted phone calls.
The proliferation of cellphones over the past 15 years certainly exacerbated the problem, as telemarketers took advantage of lagging regulations in wireless communications. Congress passed the Telephone Consumer Protection Act in 1991, a time when most people thought cellphones were only for movie villains, leading the FCC eventually update regulations to ensure telephone solicitation rules and the do-not-call registry applied across all devices.
From investment banking to commercial real estate, to accounting and insurance, each sector within the financial services industry has attempted to keep current with new technologies and accommodate the ever-evolving regulatory landscape to meet the needs of consumers.
These priorities create a powerful imperative for the creation of regulations that provide unyielding consumer protections without unduly burdening financial companies from serving their customers. When the rules regarding communicating with the public are not articulated with specificity, it leads to trouble, such as the wave of frivolous litigation that has vexed the financial services industry in recent years.
Clever and aggressive trial lawyers can make an exceptional living in filing lawsuits for plaintiffs for even perceived violations of phone solicitation laws, ultimately leading to higher costs and diminished services for consumers of defendant companies who did little more than misinterpret vague rules. Facing penalties of $500 per infraction, companies are left in a Catch-22 between either failing to provide services and information consumers require for their own financial security — or face expensive litigation or settlement costs.
The rules have been especially harsh with regard to debt collectors, who have a legitimate obligation to settle consumer accounts. Similar to the outdated TCPA, the Fair Debt Collection Practices Act is nearly 40 years old, and currently is largely overseen by regulations promulgated through the Consumer Financial Protection Bureau.
Every year the CFPB partners with the Federal Trade Commission to release a report highlighting enforcement activities on debt collectors. While the agencies’ most recent report, released in March, does not present considerably new information, CFPB Director Kathy Kraninger mentions in her opening statement that the CFPB will address “communication practices and consumer disclosures” this spring.
Headwinds continue to come from some policymakers and consumer activists who argue the CFPB should maintain a strict regime of FDCPA regulations that give little leeway to the practices of legitimate businesses such as debt collectors, even though their stance would likewise adversely impact businesses outside of financial services, such as schools making robocalls regarding snow days, or doctors’ offices with any number of urgent matters. Without regulatory clarification that clearly defines the line between unwanted robocall solicitations and calls that provide helpful information, both businesses and consumers will be harmed.
Vague regulations continue to instigate unnecessary litigation, such as a Third Circuit Court of Appeals ruling in April against a plaintiff’s “pretext” argument that a faxed customer satisfaction survey was a solicitation in disguise. The CFPB has the power to put an end to a good deal of this type of costly and unnecessary litigation by creating bright-line rules that clarify these and other issues. Some industries have become so frozen with fear over their industry practices they are now petitioning agencies to get a declaratory ruling, rather than brace themselves for lawsuits or an enforcement action.
Modernized regulations from the CFPB in this area should strike the right balance — allowing businesses to operate as needed while also protecting consumers. Collection on debt accounts protects borrowers from finding out after the fact their credit score has been ruined, and it protects all consumers from delinquent accounts, which drive up costs. On that same note, we expect to be protected from illegal scams and harassment through the very channels we rely on.
It is understandable that most people would prefer to not receive calls or letters from debt collectors. Just as legitimate debt collectors want to be protected from unjust lawsuits, consumers should be protected from false claims or unwanted forms of communication. It’s certainly encouraging that Kraninger took the time to visit debt collection agencies before the upcoming rulemaking to review their operations and the important role they play both for consumers and our economy. We strongly encourage her to update the rules governing the FDCPA to provide consumers and industry alike a clearer signal.