Is This the End of Credit Reporting for Debt Collectors?

Since December 1, 2004, the Fair Credit Reporting Act (“FCRA”) has required financial institutions that extend credit and furnish information to a consumer reporting agency (“CRA”) to provide notice to the customer prior to, or no later than thirty days after, furnishing negative information about the customer. 15 U.S.C. § 1681s-2(a)(7)(A)(i). Because debt collectors do not extend credit to customers, they have not been subjected to this notice requirement. As a result, some debt collectors furnish collection information about a debt to CRAs without first providing notice to the consumer.  However, pursuant to the recent debt collection final rule issued by the Consumer Financial Protection Bureau (“CFPB”), debt collectors may now be required to first provide notice.

CFPB Implements Notice Requirement for Debt Collectors

On December 18, 2020, the CFPB issued a final rule amending Regulation F to provide additional requirements for debt collectors. Among those requirements, the CFPB identified actions that a debt collector must follow before furnishing information about a debt to a CRA.[1]

Specifically, the final rule requires that a debt collector do one of the following before furnishing information about a debt to a CRA:

1. Speak with the consumer in person about the debt;
2. Speak with the consumer by telephone about the debt;
3. Mail a letter about the debt to the consumer and wait a reasonable period of time to receive notice of undeliverability; or
4. Send an electronic message about the debt to the consumer and wait a reasonable period of time to receive notice of undeliverability.

The final rule describes a “reasonable period of time” as a period of fourteen calendar days after the letter or electronic message was sent. During the “reasonable period of time,” the debt collector must permit receipt of, and monitor for, notifications of undeliverability from communications providers.  If, after the fourteen days pass and the debt collector does not receive a notice of undeliverability, the debt collector may furnish information about the debt to a CRA. The final rule explains that if the debt collector subsequently receives a notice of undeliverability after furnishing the information, there will not be a violation.

The CFPB Joins Three Jurisdictions with the Notice Requirement

California

The California Consumer Credit Reporting Agencies Act (“CCCRAA”) requires a debt collector to provide written notice of credit reporting prior to, or within thirty days, of submitting negative credit information to the CRAs.  Cal Civ. Code § 1785.26(b).[2]   The law provides that notice is sufficient if it is in substantially the following form:

As required by law, you are hereby notified that a negative credit report reflecting on your credit record may be submitted to a credit reporting agency if you fail to fulfill the terms of your credit obligations.

Id. at (c)(2).  The law indicates that any changes to the statutory notice requirement must make the notice more specific, not less.  Id. at (c)(3).  In addition, the law explains that the giving of notice does not create any requirement to actually submit negative credit information to a CRA.  Id. at (c)(4). 

Colorado

The Colorado Fair Debt Collection Practices Act prohibits debt collectors from communicating credit information to a CRA earlier than thirty days after the initial notice has been mailed to the consumer unless the consumer’s last-known address is known to be invalid.  Colo. Stat. § 5-16-108(j). 

While this law does not require actual notice regarding credit reporting, it regulates the timing of any credit reporting to the CRAs. 

Utah

Utah law requires a debt collector to provide written notice of credit reporting prior to, or within thirty days, of submitting negative credit information to the CRAs.  Utah Stat. § 70C-7-107(2).[3]  The law provides that notice is sufficient if it is in substantially the following form:

As required by Utah law, you are hereby notified that a negative credit report reflecting on your credit record may be submitted to a credit reporting agency if you fail to fulfill the terms of your credit obligations.

Id. at (3)(c).  Like the CCCRAA, the law indicates that any changes to the statutory notice requirement must make the notice more specific, not less.  Id. at (3)(d). 

Is the Notice Requirement Too Burdensome for Debt Collectors?

The CFPB’s intention behind the notice requirement is to increase the likelihood that consumers learn about an alleged debt before a debt collector furnishes adverse information to a CRA. This would provide consumers with an opportunity to dispute the debt if they believe that the information is incorrect. On the other hand, the notice requirement is likely to impose additional challenges for debt collectors, such as increased costs and resources.

Recognizing that this notice requirement could unduly burden debt collectors, it will be interesting to see whether debt collectors cease furnishing information to CRAs in response.

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[1] The final rule specifies that the notice requirements do not apply to the furnishing of information about a debt to a specialty check verification CRA.

[2] While the statute references a “creditor”, it defines “creditor” as “includ[ing] an agent or assignee of a creditor, including an agent engaged in administering or collecting the creditor’s accounts.”  Cal. Civ. Code § 1785.26(a)(1).

[3] Like the CCCRAA, the Utah statute references a “creditor”, but defines “creditor” as “includ[ing] an agent of a creditor engaged in administering or collecting the creditor’s accounts.”  Utah Stat. § 70C-7-107(1)(a).