Debt Collection: Notice to Cease Communications

QUESTION 

We are facing a potential class action suit for violating the Fair Debt Collection Practices Act. Our company originates and services residential loans. I am the company’s General Counsel. My colleague is Of Counsel. Together, we are writing for some guidance. We already have retained outside counsel to fight the suit; however, we seek some understanding for revising our policies and procedures by outlining the written notice requirements to cease communications. 

Here’s what happened, in part. For a period of approximately six months, we did not cease communications upon receiving the borrowers’ written requests to terminate communications with them. We learned about it due to a servicing quality control review. The servicing quality control reviews should never have been stopped. These audits were only reactivated after receiving consumer complaints, which thereafter led to the lawsuit. 

What are the salient guidelines for a debt collector to cease communications with a debtor upon a written request? 

ANSWER 

I have written and spoken at length about the importance of implementing servicing quality control. Here are just a few of the articles on this subject. For some reason, some servicers – and lenders who use subservicers! – do not conduct servicing quality control. Then lawsuits or regulators come knocking on their door, and they suddenly scramble to do it. 

Our highly credentialed experts provide the servicing quality control audit if you (or anyone else) want it. Regulators and investors know the excellent reliability of our work. So contact us, and we’ll send you information about our servicing quality control. 

It seems like your firm understands the importance of servicing quality control, but somewhere along the line, let the ball drop. Benjamin Franklin’s warning applies: “A little neglect may breed great mischief.” Missing one servicing QC period is a red flag; miss six of them, as in your case, and get ready for a lawsuit! 

Now, let’s zero in on your question. 

The Fair Debt Collection Practices Act (FDCPA)[i] provides that debt collectors must cease to send communications to the consumer upon the consumer’s written request. The term “consumer” is defined under FDCPA[ii]  to include both

(1) the “natural person obligated to pay the subject debt” and

 

(2) certain persons “close to the consumer-debtor,” specifically the consumer’s spouse, parent (if the debtor is a minor under applicable state law), guardian, executor, and administrator. However, other relatives, such as the consumer’s children, parents (if the consumer is not a minor), grandparents, and relatives not included in the special FDCPA definition do not constitute “consumers” under FDCPA.[iii] 

Taking into account this expanded FDCPA[iv] definition of consumer, the FDCPA decrees[v] that whenever a Debtor, et al., (“Debtor”) notifies a debt collector in writing that the consumer

 

(1) refuses to pay the debt sought to be collected or

 

(2) wishes the debt collector to cease further communication with the Debtor, the debt collector must not communicate further with the Debtor regarding the subject debt, except for the following purposes:

 

·       To advise the Debtor that the debt collector’s further collection efforts are being terminated.

 

·       To notify the Debtor that the debt collector or the creditor may invoke specified remedies that are ordinarily invoked by the debt collector or the creditor.

 

·       Where applicable, notify the Debtor that the debt collector or the creditor intends to invoke a specified remedy. 

Furthermore, the FDCPA further provides[vi] that if the notice to the debt collector to cease communications with the Debtor is sent by mail, the notification is complete upon receipt by the debt collector. 

The term “communication” is defined as the conveying of information regarding a debt, orally or in writing, either directly or indirectly, and through any medium. This term includes both oral and written transmissions of messages that refer to a debt.[vii] 

Indeed, the FDCPA expands the definition of “communication,” by stating that “the term ‘communicate’ is given its commonly accepted meaning.”[viii] Thus, “communication” means any contact with the consumer related to the collection of the debt, whether or not the debt is specifically mentioned.”[ix]  

Taking this into account, upon receipt of the notification to cease further communications, debt collectors must cease all oral and written contact with the consumer, their spouse, parent (if a minor), guardian, executor, or administrator, except for the three express exceptions previously discussed. 

________________________________________________

FEATURED SOLUTION

SERVICING QUALITY CONTROL

______________________________________________________

In effect, the FDCPA requires that the debt collection show some good manners. Most of our servicing clients adopt the Golden Rule. That principle encourages us to ‘do unto others as you want them to do unto you.’ Of course, the negative reciprocal is not doing unto others as you do not want them to do unto you. Good manners are just a way of being courteous, respectful, and polite. The FDCPA enacts requirements that effectively ensure that the Golden Rule will be enforced, like it or not! 

Put simply, there is a time when further communications between a debt collector and the Debtor should halt. According to the statute establishing legal protection from abusive debt collection practices, published all the way back in 1977, consumer witnesses who related their personal experiences at the congressional hearings testified that they had been innocent third parties wrongly assumed to be the consumer merely because of a slight similarity of names. Also, stories reportedly were presented of abnormally rude and persistent collectors who refused to listen to the consumers’ valid reasons for nonpayment.[x] 

The FDCPA is intended to give relief to consumers being ‘harassed cruelly and relentlessly’ by a few independent debt collectors; it does not, however, enable consumers to avoid payment of just and honest debts. 

Thus, the mandate to debt collectors could not be more clear. 

To draft your policy, I suggest you include a section given to your employees involved in debt collection. Importantly, you must monitor their actions regularly. The section should be in the form of written instructions on implementing the FDCPA requirements. You may want them to sign a receipt for it and require periodic training. 

We are now ready to discuss the salient guidelines to cease communications with a debtor upon a written request. 

Collection procedures manuals should emphasize the following salient points:

 

·       Written Notice Required

In order for the notice requiring the debt collector to cease communications with the Debtor to be enforceable, it must be furnished to the debt collector in writing. Thus, an oral request made by a Debtor in person or over the telephone does not trigger the requirement to terminate all communications.

 

·       No Formal Notice Required

The FDCPA does not require that the written notice be signed. Since the FDCPA does not indicate how formal the notice must be, debt collection employees should be alerted to watch for written notations on returned dunning letters, envelopes, bills, and scraps of paper stating that

 

(1) The consumer refuses to pay the debt, or

 

(2) The consumer wants the debt collector to cease making any further contacts. Upon receipt of any such written messages, a proper cease communications notice is deemed to have been received by the debt collector.

 

·       Notices Permissible from Multiple Persons

The notice to cease communications may be sent to the debt collector not only by the individual who actually or allegedly owes the debt but also by the consumer’s spouse; parent if the consumer is a minor under applicable state law (viz., each state law must be examined on point); legal guardian; and the executor or administrator if the consumer is deceased.

 

·       Effective Date of Notices

Whether the notice to cease communications is delivered by hand or by mail to the collector, it becomes binding on the debt collector and all of the collector’s employees upon receipt in the collection agency’s office.

 

·       All Contact Halted

Upon receipt of the notice to cease communications, the debt collector must cease all contact with the individual consumer and the consumer’s spouse, parent (if the consumer is a minor), or legal guardian. If the notice is received from the executor or the administrator of a deceased consumer’s estate, no further communications may be sent to those officials or the family members of the deceased consumer.

 

·       Some Disputes Not “Notices” 

Debt collectors are not required to cease communicating with the Debtor simply because the consumer disputes the amount or character of the debt or the quality of goods purchased or financed. A cease communications notice is received only when the Debtor writes a note to the debt collector stating either that the consumer

 

(1) refuses to pay the subject bill or

 

(2) wishes the debt collector to cease all further communications. Written statements such as (a) “I won’t pay your bill” or (b) “I don’t want you to call or write me any more letters” would each serve as the requisite cease communications notice.

 

·       Notice as to Multiple Accounts

Debt collectors who handle multiple claims against an individual must cease their communications with the Debtor solely regarding the particular debts or accounts referred to in the notice to cease communications. If the notice relates exclusively to one particular delinquent account, the debt collector may continue debt collection efforts on the other claims. However, if the notice states that the Debtor wants the debt collector to cease future communications concerning all claims the collector is handling or that the consumer refuses to pay all of the debts that the debt collector is seeking to collect, all contacts should be terminated concerning all claims being handled.

I have not discussed here the actions the debt collector should take in response to a cease communications notice; however, the FDCPA allows but does not require the collector to send one final letter or notice that advises the consumer of the following:

·       The debt collector is terminating further efforts to collect the debt from the consumer;

 

·       The debt collector or the creditor may invoke certain clearly specified remedies that are ordinarily invoked by either the debt collector or the creditor; and/or

 

·       Where a clearly specified remedy is available to the debt collector or the creditor and applicable to the debt and the consumer, the debt collector or the creditor actually intends to invoke this remedy. 

The FDCPA states that the debt collector’s response to a written notice to cease communication from a consumer is limited to the three statutory exemptions, as noted above. The response specifically may not contain a demand for payment. 

Jonathan Foxx, Ph.D., MBA

Chairman & Managing Director 

Lenders Compliance Group

---

[i] Fair Debt Collection Practices Act (FDCPA) § 805(c), 15 USC § 1692c(c)

[ii] § 805(d),15 USC § 1692c(d); for all portions of FDCPA § 805

[iii]  See § 805(d)

[iv] Idem

[v] § 805(c), 15 USC § 1692c(c)

[vi] Idem

[vii] Comment 803(2)-1

[viii] Comment 805(c)-1, for purposes of implementing § 805(c)

[ix] Op. cit. i

[x] Public Law 95-109, 91 Stat. 874, approved September 20, 1977, and subsequently amended, the statute is a consumer protection amendment that establishes legal protection from abusive debt collection practices; it is in the Consumer Credit Protection Act, as Title VIII thereof.

Non-Foreclosure and Time-Barred Collection Activities

QUESTION

We are a client of yours and retain you for our servicing compliance. One of the things we’ve realized over the years in working with your firm is the impact the FDCPA has on our collection activities. In particular, the non-foreclosure and time-barred collection activities. 

Our foreclosure process has passed numerous regulatory reviews. But we want to ensure we handle the non-foreclosure and time-barred collection policy needs. Your team is already working on it. However, I would like you to share your insights with your readers about how the FDCPA applies to the abovementioned concerns. 

As the Chief Risk Officer, I believe other servicers need to get their FDCPA policy and read it carefully to be sure that these aspects are adequately covered. A few years ago, we learned the hard way! I hope you’ll share some information about my concerns. 

What is the relationship between non-foreclosure and time-barred debt collection activities? 

ANSWER 

Of course, I recognize you are one of our clients. I was privileged to work with you to arrange compliance support services. Thank you for the opportunity to work with your organization! 

Now, to your question. I would be glad to share some information. Let me first provide a brief outline that should set the stage for further explication involving non-foreclosure and time-barred debt collection. 

The Consumer Financial Protection Bureau issued an advisory opinion related to time-barred debts.[i] The advisory opinion affirms that the Fair Debt Collection Practices Act (FDCPA) and the Debt Collection Rule prohibit FDCPA-covered debt collectors from suing or threatening to sue to collect a time-barred debt. The advisory also affirms that this prohibition may apply to debt collectors who bring state-court mortgage foreclosure actions to collect on time-barred mortgage debt. 

The FDCPA and its implementing Regulation F govern the conduct of debt collectors when they collect debt.[ii] The statute and regulation generally define a debt collector as 

“any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”[iii] 

Many individuals and entities seeking to collect defaulted mortgage loans and attorneys bringing foreclosure actions on their behalf are FDCPA debt collectors. 

So, to expand this outline further, the FDCPA and Regulation F define debt as 

“any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.”[iv] 

Thus, a consumer’s payment obligation arising from a mortgage transaction primarily for personal, family, or household purposes, such as the purchase of the consumer’s residence, falls within the plain language of this definition.[v] It follows that state court foreclosure proceedings often constitute the collection of debt under the FDCPA, and debt collectors who engage in such debt collection activity are subject to the requirements and prohibitions of the FDCPA and Regulation F, whether or not that debt is time-barred.[vi] 

Regulation F prohibits a debt collector from suing or threatening to sue to collect a time-barred debt. As the CFPB explained in finalizing this prohibition, 

“a debt collector who sues or threatens to sue a consumer to collect a time-barred debt explicitly or implicitly misrepresents to the consumer that the debt is legally enforceable, and that misrepresentation is material to consumers because it may affect their conduct with regard to the collection of that debt, including whether to pay it.”[vii] 

Regulation F’s prohibition on lawsuits and threats of lawsuits on time-barred debt is subject to a strict liability standard; that is, a debt collector who sues or threatens to sue to collect a time-barred debt violates the prohibition “even if the debt collector neither knew nor should have known that a debt was time-barred.”[viii] 

Consequently, a debt collector who brings or threatens to bring a state court foreclosure action with respect to a time-barred mortgage debt may violate the FDCPA and Regulation F. This is true even if the debt collector neither knew nor should have known that the debt was time-barred. 

Regarding non-foreclosure collection activities, the CFPB has noted a broad range of non-foreclosure debt collection-related activities are covered by the FDCPA, such as communicating with consumers about defaulted mortgages. FDCPA debt collectors undertaking such activity are subject to the other requirements and prohibitions of the statute and Regulation F when collecting debt, regardless of whether that debt is time-barred. 

For instance, these requirements and prohibitions include the prohibition on debt collectors: 

·     Falsely representing the character, amount, or legal status of any debt;[ix] 

·     Threatening to take any action that cannot legally be taken or that is not intended to be taken;[x] and 

·     Selling, transferring for consideration, or placing for collection a debt that the debt collector knows or should know has been paid, settled, or discharged in bankruptcy.[xi]  

The requirements and prohibitions would also include the requirements that debt collectors: 

·     Identify themselves as a debt collector in all communications with the consumer (except formal pleadings in connection with a legal action);[xii] 

·     Provide the consumer with validation information in certain circumstances;[xiii] and 

·     Respond to consumer disputes adequately before continuing to collect.[xiv]

 Even if an FDCPA debt collector engages only in actions necessary to undertake a nonjudicial foreclosure action, the debt collector is still subject to the FDCPA and Regulation F,[xv] which generally prohibit taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if the debt collector has no present right or intention to do so. 

Because you are our client, I know you service second mortgages. So, a final note. Mortgage servicers (and other entities) selling or collecting on second mortgages are also subject to certain requirements under the Real Estate Settlement Procedures Act (RESPA),[xvi] the Truth in Lending Act,[xvii] and the CFPB’s mortgage servicing regulations.[xviii], [xix] 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

_____________________________

[i] Fair Debt Collection Practices Act (Regulation F); Time-Barred Debt, CFR Part 1006, Advisory Opinion, April 26, 2023, Consumer Financial Protection Bureau.
[ii] This advisory opinion applies to debt collectors as defined in section 803(6) of the FDCPA and implemented in Regulation F, 12 CFR 1006.2(i).
[iii] 15 U.S.C. 1692a(6); 12 CFR 1006.2(i). The statute and regulation also provide that, for purposes of section 808(6) and 12 CFR 1006.22(e), the term debt collector also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. See 12 CFR part 1006.
[iv] 15 U.S.C. 1692a(5); 12 CFR 1006.2(h).
[v] See, e.g., Cohen v. Rosicki, Rosicki & Assocs., PC, 897 F.3d 75, 83 (2d Cir. 2018).
[vi] See 15 U.S.C. 1692a(5); 12 CFR 1006.2(h).
[vii] 86 FR 5776, 5778 (Jan. 19, 2021).
[viii] Idem at 5777.
[ix] 15 U.S.C. 1692e(2)(a); 12 CFR 1006.18(b)(2).
[x] 15 U.S.C. 1692e(5); 12 CFR 1006.18(c)(1); 15 U.S.C. 1692f(6); 12 CFR 1006.22(e).
[xi] 12 CFR 1006.30(b).
[xii] 15 U.S.C. 1692e(11); 12 CFR 1006.18(e).
[xiii] 15 U.S.C. 1692g(a); 12 CFR 1006.34.
[xiv] 15 U.S.C. 1692g(b); 12 CFR 1006.38(d); 85 FR 76734, 76845-48 (Nov. 30, 2020).
[xv] See FDCPA section 808(6)25 and Regulation F, 12 CFR 1006.22(e).
[xvi] 12 U.S.C. 2601 et seq.
[xvii] 15 U.S.C. 1601 et seq.
[xviii] See, e.g., 12 CFR 1024.33(b) (requiring a transferee and transferor servicer to provide a timely notice of transfer of servicing to the affected borrower); 12 CFR 1024.39 (requiring servicers to make early intervention contacts with delinquent borrowers); and 12 CFR 1024.41 (requiring servicers to follow certain loss mitigation procedural requirements, including certain foreclosure-related protections). Note that small servicers, as defined in 12 CFR 1026.41(e)(4), are exempt from certain of these requirements. See 12 CFR 1024.30(b).
[xix] See 12 CFR 1026.41(a); see also, e.g., 12 CFR 1026.41(e)(4) (exempting small servicers from this requirement) and 12 CFR 1026.41(e)(6) (exempting servicers from periodic statement requirements for certain charged-off loans but only if, among other conditions, the servicer sends a specific notice to the consumer and does not charge additional fees or interest on the account).