Insights

On March 1, 2012, Attorney General Martha Coakley’s office published revised debt collection regulations. The regulations, which were the subject of a public hearing in the spring of 2011, became effective the following day.

Massachusetts has two (2) sets of regulations governing debt collection practices. One is issued by the Division of Banks (found at 209 C.M.R. Part 18.00) and is a licensing and conduct regulating scheme aimed at collection agencies that collect debts owed to third parties. Unlike the Division of Banks regulation, the Attorney General’s rule (found at 940 C.M.R. Part 7.00) applies to creditors collecting their own debts. While it does not require the licensure of such parties, the Attorney General regulation does regulate their conduct when taking steps to collect delinquent debt.

Although there are a number of implementation provisions that will need to be sorted through in the coming months, there are several requirements of the revised rule that are worth highlighting:

• First Mortgages and Loans in Excess of $25,000 Now Covered: Under prior versions of the regulation, loans secured by a first lien mortgage and loans in excess of $25,000 were excluded from the definition of the term “debt,” meaning that collection efforts on such loans was technically not covered by the requirements of the regulation. These exemptions have been removed.
• Debt Buyers Now Explicitly Covered: Although implicit in the prior version, the regulation has been amended to explicitly include debt buyers (including “passive debt buyers”) in the definition of a “creditor.”
• Validation Process: Where the prior version of the regulation provided the debtor a right to inspect certain documents regarding his/her debt, the revised regulation now includes a full validation process that permits consumers to dispute the validity of the debt in question and (similar to the standards required of Massachusetts-licensed third party debt collectors) requires the creditor to respond by providing specific documentation to verify its validity.
• References to New Technology: The regulation has also been updated to address the use of new technology in collection efforts, such as email, text messages and calls to cell phones. The general rule under the regulation as revised is that parties should not incur an expense to receive a call or message related to collection efforts, although calls to a cell phone number provided by the debtor as his/her personal phone number in connection with the debt are permitted.
• Collection of “Time Barred Debt”: The regulation has been amended to include a requirement for creditors to make a good faith determination as to whether a debt is unenforceable in a judicial proceeding because the applicable statute of limitations has run (thus making the debt “time barred”). Collecting on such a debt is an unfair or deceptive act under Massachusetts law.

In addition to these “big ticket” compliance items, the revised regulation also adds a number of activities that if done by a creditor collecting its own debt would be considered an unfair and deceptive act under Massachusetts law. While the Federal Fair Debt Collection Practices Act includes an exemption for creditors collecting its own debt, the Massachusetts regulation does not. As a result, institutions with borrowers residing in Massachusetts should carefully review their current collection practices to ensure that they comply with the regulation’s revised requirements.

Thomas P. Quinn, Jr. is a partner in the Massachusetts office of Hudson Cook, LLP. Tom can be reached at 774-365-4758 or by email at tquinn@hudco.com.