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Massachusetts Attorney General Issues Guidance on Debt Collection Regulations
By Thomas P. Quinn, Jr.

The Massachusetts Attorney General has just issued long-awaited guidance (the “Guidance”) to accompany its debt collection regulations that were revised last March. The most controversial aspect of the revised regulations – the need for creditors collecting their own debts to issue debt validation notices to delinquent borrowers – remains intact. However, after nearly a year of delay, the Guidance does clarify several questions that arose after the revised regulations were issued last spring.

Under the revised regulations it is considered an unfair and deceptive practice for a creditor to “initiate a communication” with a debtor (either in person, text message or prerecorded message) more than twice in any seven-day period to the debtor’s residence, cell phone or other personal telephone number. The regulations also impose a limit of two such communications in any thirty day period at other contact points. In response, questions arose as to what constitutes “initiating a communication” under these new rules. For example: is an unsuccessful attempt to reach a debtor at his/her home or cell phone number a “communication” because the debtor can ascertain the creditor’s identity through caller ID and reverse look-up services?

The Guidance clarifies that an unsuccessful attempt to reach the debtor by telephone (or his/her voicemail) is not “initiating a communication” and thus is not subject to the weekly and monthly limits described above. However, the Guidance does go on to note that this allowance should not be considered an endorsement of other actions “the natural consequence of which is to harass, oppress, or abuse a debtor.” In other words, the Guidance does not permit creditors to continuously dial, and then hang up before connecting with, the debtor.

Although the Attorney General’s regulation always included a list of practices considered “unfair” and/or “deceptive,” the list of such activities was greatly expanded by the March 2012 revisions. Among the practices added to the list: taking possession of and selling property exempt from judgment creditor seizure on execution under § 34 of Chapter 235 of the Massachusetts General Laws. Following publication of the regulatory revisions many within the industry pondered how these prohibitions should be interpreted in the context of secured credit. Fortunately, the Guidance resolves these questions by noting that secured creditors are permitted to enforce their rights against collateral in accordance with a valid mortgage or other security interest, without regard to the limits imposed on judgment creditors under Chapter 235.

Despite the fact that the Guidance does not roll back the requirement for creditors to send validation notices, it does provide several helpful clarifications regarding the process. First, the Guidance articulates several factors to help creditors determine when they have sent an “initial communication regarding the collection of a debt” (and thus triggered the need to send a validation notice within five days. Among the factors the Guidance says should be considered:

  • Whether the communication demands payment or otherwise attempts to collect a debt;
  • Whether the communication is an attempt to induce the debtor to settle or discuss the debt; and
  • The relationship of the parties.

Footnotes that accompany these factors further provide that they should be viewed from the perspective of an “unsophisticated but reasonable consumer” and whether such an individual would believe the creditor is communicating in connection with the collection of the debt.

One area where the Guidance could have gone further is the explanation of whether a periodic statement (which may include payment and delinquency warnings), does or does not constitute an “initial communication regarding the collection of a debt” for purposes of triggering a validation notice. For example, it would have been helpful for the Guidance to clearly articulate a standard in which the validation notice is triggered by the first collection phone call or dunning notice sent by the creditor, but not a monthly statement sent in the ordinary course. The Guidance does not provide that level of clarity.

On a positive note, also buried within these footnotes is a helpful discussion relative to delinquency “frequent flyers” (those that slip into delinquency, cure, and then again become delinquent – perhaps repeating this cycle multiple times). The Guidance notes that for a single line of credit “that fluctuates between current and in arrears, a single disclosure made after initial communication in connection with collection of the debt is sufficient, provided there is no change in parties or terms and conditions to that account.” This language makes it clear (unfortunately for open-end credit only, despite the fact that many closed-end creditors send periodic statements – and mortgage creditors soon will be required to send them) that such “frequent flyers” only need receive a single validation notice, and not one for each trip into delinquency status.

A second clarification regarding validation notices found in the Guidance is in regards to the “automatic stay” required once a consumer requests validation of a debt. Under the revised regulation, if a borrower disputes the debt after receiving a validation notice the creditor must cease further collection activity until it provides the debtor with certain materials and documents to essentially “prove” the validity of the debt. Among the questions that had arisen following the release of the revised regulation was whether this pause in collection activity would preclude creditors from interfacing with borrowers in mortgage-related loss mitigation efforts – some of which are required by other provisions of Massachusetts law (including the “Right to Cure” and “Right to Modify” notices that creditors must send under the commonwealth’s foreclosure statute). The Guidance clarifies that such efforts are servicing-related, and not collection-related, and thus are permitted during the period prior to the creditor providing the validation materials to the disputing borrower.

The final validation notice related clarification found in the Guidance deals with the types of materials creditors must send to validate the debt. As revised, the regulation requires creditors to send:

  • All documents, including electronic records or images, which bear the signature of the debtor and which concern the debt being collected;
  • A ledger, account card, account statement copy, or similar record, whether paper or electronic, which reflects the date and amount of payments, credits, balances, and charges concerning the debt, including (but not limited to) interest, fees, charges or expenses incidental to the principal obligation which the creditor is expressly authorized to collect by the agreement creating the debt or permitted to collect by law;
  • The name and address of the original creditor (if it differs from creditor now collecting the debt); and
  • A copy of any judgment against the debtor.

Given the breadth of this list – in particular the first two items – there were many questions that arose regarding “how much is enough”? For example: would a mortgage creditor truly need to provide all documents that it had a borrower sign? Would a credit card issuer need to provide copies of all signed sales transaction receipts? How many periodic statements should the creditor provide? As drafted, the list of materials is a very slippery slope.

The Guidance does not provide a bright-line answer to the “how much is enough” question. Rather, it says that the Attorney General’s office “expects that creditors will act in good faith and exercise due diligence to product documentation sufficient to confirm the amount demanded is due…from the debtor.” However, it does note, in a footnote, that the regulation “does not necessarily require the production of every signature-bearing document with regard to the many individual transactions that may be associated with a revolving account or loan obligation, or the various documents specific to transactions that may be itemized in a statement verified by the creditor.” While attempting to read these tea leaves is not without risk, one reasonable interpretation seems to be for creditors to provide signed documents that establish the extension of credit and debtor’s obligation to repay (e.g.: signed promissory notes, mortgages or other security interest documents) and which evidence credit extended that is unpaid and now delinquent (e.g.: periodic statements showing transactions of credit that are now in arrears).

With the issuance of the Guidance, which is available at http://www.mass.gov/ago/docs/government/debt-collection-guidance-2013.pdf, it is unlikely that the Attorney General will publish any additional interpretations regarding its revised debt collection regulations.

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.

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