In a recent consent order with a legal collection law firm, the Massachusetts Attorney General imposed significant restrictions on legal collection that go beyond previous CFPB consent orders, which we covered here. We believe that the Massachusetts Attorney General is likely to view at least some of the injunctive provisions in this consent order as setting standards for legal collections in Massachusetts generally, although it is possible that some provisions are unique to this particular case. The substantive provisions of the consent order will likely necessitate creation of new policies, procedures, and compliance monitoring law firms, creditors, debt collectors, and debt buyers engaged in legal collection in Massachusetts.
In addition to the injunctive provisions found in prior CFPB consent orders, the Massachusetts Attorney General consent order imposes the following requirements:
- The firm must provide a “protected income disclosure” in the first written statement to a consumer, all written statements demanding or soliciting payment, any written statement proposing or confirming settlement, and any written statement proposing or confirming a periodic payment arrangement or court order, which states:
You may not have to pay us while your only income is any of the following: wages up to $550 per week; Social Security benefits; pensions; veterans’ benefits; child support; unemployment benefits; or workers’ compensation benefits.
Please write or call us if you receive income from the above sources or any other government benefits, and we will send you a form for you to complete regarding your income. Although you may not be legally required to pay us from any of the above sources, you may voluntarily pay us using money from any of them. Even if you do not have to pay us at this time, we may still seek a judgment in court against you, if a judgment has not already entered, but you cannot be ordered to pay the judgment from the sources of income listed above. We also reserve the right to make future inquiry about any changes in your financial circumstances.
- The firm must provide the following oral disclosure anytime it makes an “oral demand, proposal, or request for payment”:
You may not have to pay us at this time if you make less than $550 a week or receive only social security benefits, disability benefits, pension income, child support, or certain other government benefits. Even if you do not have to pay us at this time due to the amount of wages you receive or your receipt of certain government benefits you may make voluntary payments to us using funds from these sources. Do you make less than $550 per week or receive any of these types of benefits or any other government benefits?
- If the consumer indicates that he or she only has exempt income, the law firm must cease collection attempts and send the consumer a financial form with a pre-addressed return envelope. The law firm is then prohibited from continued collection until one of the following occurs. The law firm may, however, accept voluntary payments from the consumer.
- The consumer does not respond within 30 days after the law firm mailed the financial form; or
- The consumer returns the financial form and the law firm “does not have reason to believe a consumer has only exempt income and exempt assets.”
- If the consumer only has exempt income and is either handicapped or 70 years of age or older, the law firm must cease all collection attempts, and may not file suit against the consumer.
- If the consumer only has exempt income but is not handicapped or 70 years of age or older, the law firm “may commence and litigate to judgment a collection suit,” subject to the following restrictions:
- If the court enters a judgment against the consumer, the law firm may only seek an updated financial form from the consumer every 90 days. If it appears from the updated financial form or a “historically reliable source” that the consumer has non-exempt income or assets, the law firm may resume collection of the judgment.
- If the consumer does not respond to a request for an updated financial form within 30 days, the law firm may resume collection of the judgment.
- If the law firm “has reason to believe” that a consumer only has exempt income and assets and that the financial situation is unlikely to improve for the foreseeable future, the firm must cancel any pending payment hearings or examinations in small claims court.
- If the law firm “has reason to believe” that a consumer only has exempt income and assets but that the consumer’s financial situation may improve, the firm must request a continuance of any pending payment hearings or examinations in small claims court. If the court denies the request for a continuance, the law firm is permitted to attend the hearing.
- If a court determines that the consumer does not have a present ability to pay a debt:
- The law firm is enjoined from collection unless a court subsequently “enters an order requiring the consumer to pay the debt or the consumer fails to appear for and participate in a subsequent examination,” or the law firm receives a new financial form or other information “reasonably establishing the consumer presently has non-exempt income or non-exempt assets.”
- But, the law firm may not resume collection or schedule a payment hearing “if it has reason to believe the consumer is unlikely to have a future ability to pay the debt.”
- The firm may not seek or serve a capias warrant, or other warrant for the consumer’s arrest, while it “has reason to believe a consumer has only exempt income and exempt assets.”
- The law firm may only submit an affidavit signed by a creditor if the firm verifies the statements in the affidavit with original account-level documentation.
- If a consumer disputes the validity of a debt verbally or in writing, the law firm must cease collection until it:
- Obtains and reviews original account-level documentation; and
- Provides copies of the account-level documentation to the consumer.
- The law firm is prohibited from filing suit on debt “that would be time-barred but for an alleged post-origination payment unless [the firm] has obtained and reviewed documentation reasonably demonstrating the existence and date of that payment contained in the business records of the party that received the payment.” In essence, the firm must verify that the debt is not time barred.