How finance companies and buy-here, pay-here dealerships execute one of their most important functions — collections — now potentially has six additional layers of compliance requirements stemming from the regulatory proposal rolled out by the Consumer Financial Protection Bureau on Thursday.

The CFPB explained its proposals under consideration would overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt.

Under the proposals being considered, the bureau indicated debt collectors would be required to have more and better information about the debt before they collect. As they are collecting, companies would be required to limit communications, clearly disclose debt details and make it easier to dispute the debt.

When responding to disputes, the CFPB said collectors would be prohibited from continuing to pursue debt without sufficient evidence. These requirements and restrictions would follow the debt if it were sold or transferred.

“Today we are considering proposals that would drastically overhaul the debt collection market,” CFPB director Richard Cordray said. “This is about bringing better accuracy and accountability to a market that desperately needs it.”

6 debt collection protections

The CFPB reiterated debt collectors are already prohibited by federal law from “harassing, oppressing or abusing” consumers. The main law that governs the industry and protects consumers is the 1977 Fair Debt Collection Practices Act. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act revised that law, making the bureau the first agency with the power to issue substantive rules under the statute.

Bureau officials explained proposals under consideration would increase protections pertaining to third-party debt collectors and others covered by the Fair Debt Collection Practices Act, including many debt buyers.

As part of its overhaul of the debt collection marketplace, the CFPB plans to address consumer protection issues involving first-party debt collectors and creditors on a separate track. Specifically, the new protections are aimed at ensuring that debt collectors:

—Collect the correct debt: Collectors would have to scrub their files and substantiate the debt before contacting consumers. For example, collectors would have to confirm that they have sufficient information to start collection, such as the full name, last known address, last known telephone number, account number, date of default, amount owed at default, and the date and amount of any payment or credit applied after default.

—Limit excessive or disruptive communications: Collectors would be limited to six communication attempts per week through any point of contact before they have reached the consumer. In addition, if a consumer wants to stop specific ways collectors are contacting them, for example on a particular phone line, while they are at work, or during certain hours, it would be easier for a consumer to do that. The CFPB is also considering proposing a 30-day waiting period after a consumer has passed away during which collectors would be prohibited from communicating with certain parties, like surviving spouses.

—Make debt details clear and disputes easy: Collectors would be required to include more specific information about the debt in the initial collection notices sent to consumers. This information would include the consumer’s federal rights. They would have to disclose to consumers, when applicable, that the debt is too old for a lawsuit. The proposal under consideration would also add a “tear-off” portion to the notice that consumers could send back to the collector to easily dispute the debt, with options for why the consumer thinks the collector’s demand is wrong. The tear-off would also allow consumers to pay the debt. The consumer could also verbally question the debt’s validity at any time, and prompt the collector to have to check its files again.

—Document debt on demand for disputes: If the tear-off sheet or any written notice is sent back within 30 days of the initial collection notice, the collector would have to provide a debt report — written information substantiating the debt — back to the consumer. The collector could not continue to pursue the debt until that report and verification is sent.

—Stop collecting or suing for debt without proper documentation: If a consumer disputes — in any way — the validity of the debt, collectors would have to stop collections until the necessary documentation is checked. Collecting on debt that lacks sufficient evidence would be prohibited. In addition, collectors that come across any specific warning signs that the information is inaccurate or incomplete would not be able to collect until they resolve the problem. Warning signs could include a portfolio with a high rate of disputes or the inability to obtain underlying documents to respond to specific disputes. Collectors also would be required to check documentation of a debt before pursuing action against a consumer in court. For example, collectors would have to review evidence of the amount of principal, interest, or fees billed, and the date and amount of each payment made after default.

—Stop burying the dispute: If debt collectors transfer debt without responding to disputes, the bureau pointed out the next collector could not try to collect until the dispute is resolved. The proposals under consideration also outlined information that collectors would have to send when they transfer the debt to another collector so that a consumer does not have to resubmit this information to the new collector.

The outline of the proposals under consideration can be found here.