Where the Rubber Meets the Road

 

For the past year, the industry’s attention has been focused on the Debt Collection Rule (the “Rule”), its changes, and the new expectations it will place on debt collectors; but as the rubber meets the road, collection agencies and other debt collectors now are turning their attention to operational impacts and, how to put the Rule into practice.  In doing so, many are now considering how to reconcile the requirements of the Rule with  competing, and sometimes more restrictive or conflicting, state statutes and regulations. 

Reconciling federal and state debt collection rules and statutes is not a new phenomenon for debt collectors.  Both the FDCPA and the Rule recognize that federal law is not the only player in this space.  Thus, both expressly provide that they do not annul, alter, or affect, or exempt any person subject to the FDCPA or the Rule from complying with state law except when those laws are inconsistent with the FDCPA and then only to the extent of the inconsistency.  Importantly, both also recognize that state laws may be more restrictive. Thus, where Section 1006.14 of the Rule may allow 7 call attempts in a 7 day period, some state laws may have more restrictive call frequency limitations.  In those instances, complying with the Rule may save you from an FDCPA violation but it will not save you from a state violation unless you comply with the more restrictive state requirement.

As we near the effective date for the Rule and focus turns to the operational adjustments necessary to comply with the Rule, debt collectors once again should review competing state and federal requirements, identify where one may be more restrictive than the other or where there may be conflict, and adjust their policies and procedures to accommodate for the same.

While this is not meant to be comprehensive, here are a few of the issues debt collectors should be considering:

What changes are being made to the debt collector’s operations because of the Rule? 

One of the first issues compliance department should identify is where is the Rule necessitating changes to policies, procedures, and operations?  Aside from the substantive changes to the debt validation notice, here are a few of the more obvious potential changes to consider:

• Does the agency intend to use limited-content messages?
• Has the agency contemplated a name change or use of an assumed name as a result of the Rule? 
• How do the new call frequency limitations impact the agency’s policies and procedures? 
• Does the agency intend to make use of electronic communications? 
• Is the agency making changes to its letter or dialing campaigns as a result of changes brought about by the Rule? 
• To the extent the agency credit reports, does the Rule impact how and when the agency will credit report?

While these are some of the more obvious impacts, compliance departments should be taking a granular look as well  and identifying other operational changes brought about by the Rule.  For each change identified, compliance departments will then need to review state laws and regulations to determine whether those changes comply with state law. Where state laws are more restrictive, policies and procedures may require further alterations. 

Here is an example. The Rule introduces the concept of limited-content messages.  As suggested by their name, they contain limited content.  In fact, content is limited to a business name for the debt collector (that does not indicate the debt collector is in the debt collection business), a request that the consumer reply to the message, the name or names of one or more natural persons whom the consumer can contact, and a telephone number that the consumer can use to reply to the debt collector.  12 C.F.R. 1006.2(d).  It does not allow, for instance, the agency to identify itself as a debt collector.  Nor does it allow the agency to identify the creditor or the intended recipient of the message?

But how does that mesh with state law?  Not all states define communication to mean conveying information regarding a debt directly or indirectly to any person.”  In fact, some states don’t define communication at all.  Moreover, some state statutes require the agency identify it as a debt collector and/or the creditor in any calls or oral communications.  In those states, limited-content messages may not be practicable or may carry risk the agency is not willing to take when considering the state’s definition of communication or the state’s content requirements.  

  What about the validation notice?

Section 1006.34 of the Rule implements and interprets section 1692g(a) of the FDCPA and expands the information required in the debt collector’s validation notice. In doing so, it treats state mandated disclosures as “optional” and requires most, but not all, be placed on the back of the validation notice above the tear off section. The exception, time barred debt disclosures, are required to be placed on the front of the notice.  Section 1006.34(d)(3)(iv)(B).  

Agencies should be considering the following questions when finalizing their validation notices and considering their back side disclosures (or “backer”): 

• Are they collecting in states with state mandated disclosures?  
• If so, how do the state mandated disclosures compare to those required by the Rule? 
• Are they consistent with the Rule?
• Do they require additional information?  
• Do they require specific language which conflicts with the Rule?  
• If so, how can you reconcile that conflict and comply with both?

• Is there an itemization requirement under state law? 
• Is it consistent with Section 1006.34?

Where issues arise, debt collectors should consider consulting with counsel to ascertain how best to reconcile those issues.

Finally, In States Where Licensure Is Required, What Additional Impacts are Brought About by the Rule?

Finally, in states where collection agencies are required to be licensed, it is important not to lose sight of regulator-required approvals for amended letters, communications, and scripts.  Collection agencies, therefore, should ensure any such changes are appropriately submitted to the state regulator in a timely fashion.

As the effective date of the Rule rapidly approaches, compliance departments should not lose sight of their state debt collection requirements.  The key is to identify changes, examine those changes for compliance with state law, and adapt as needed before the rubber meets the road.

Crucial Conversations All Debt Collectors Should Have with their Creditors

 

With the CFPB having decided to leave the effective date of the Debt Collection Rule as November 30^th, the push is on for debt collectors to ensure their compliance with the Rule by that date. As debt collectors make the final push towards implementation, there are crucial conversations debt collectors should be having with creditors to ensure a smooth transition.

Referral of the Account.  Debt collectors should be discussing the referral process with their clients to ensure a clear understanding of the amount of the debt and what new or additional information creditors will need to provide for the debt collector to initiate collections. 

As we all know by now, the Rule introduces as a new concept the “itemization date.”  Because the Rule requires the debt collector identify an “itemization date” and provide an itemization of the debt from that itemization date through the validation notice, it’s important both the creditor and the debt collector understand what comprises the balance being sent for collection and upon which “itemization date” it is based. 

Section 1006.34(b) of the Rule allows debt collectors to choose one of five specified reference dates as their “itemization date:”

· the last statement date, which is the date of the last periodic statement or written account statement or invoice provided to the consumer by the creditor;

·  the charge-off date, which is the date the creditor charged off the account;

 ·   the last payment date, which is the date the last payment was applied to the debt; 

 ·   the transaction date, which is the date of the transaction that gave rise to the debt; or

·   the judgment date, which is the date of a final court judgment that determines the amount of the debt owed by the consumer.

 12 C.F.R. 1006.34(b)(3) (effective November 30, 2021).

Selection of an itemization date will necessarily require the debt collector have a clear understanding of how the creditor arrives at the balance and conversely, that the creditor understand that its balance needs to relate back to one of the five itemization dates.  Moreover, the creditor will need to include with the balance an itemization of the interest, fees, payments, and credits which have accrued since the itemization date.

 Communication Channels.  One of the hallmarks of the Rule is its attempt to implement the use of more modern communication channels within the limitations of the Fair Debt Collection Practices Act.  The Rule provides for the use of email and text communications and provides specific procedures which, if followed, provide the debt collector with a safe harbor with respect to electronic communications and unintentional third-party electronic communications.  To the extent the creditor or debt collector want to take advantage of these options, a conversation should be had as to how consent from the consumer will be obtained.  One of the options provided is based upon prior communications with the creditor.  For debt collectors who want to take advantage of this option, conversations should be had with creditors to ascertain what notices are being provided to consumers so the debt collector can ascertain their sufficiency for compliance with the Rule. 

Adjust Expectations of the Creditor.  With the introduction of a more robust debt validation notice, creditors should understand that delays are likely in the collection process.  By providing an understanding to the creditor (and adjusting expectations accordingly), creditors are more likely to have a better appreciation of the collection process and the challenges facing debt collectors.  Debt collectors should be examining their adjusted policies and procedure to ascertain what changes might impact or delay their collection efforts.

Here are a couple of examples of changes debt collectors may consider explaining and discussing with their creditor clients.  First, the validation period will be prolonged by the addition of at least five business days to the validation period. See 12 CFR 1006.34(b)(5)  (effective November 30, 2021) (which states that the validation period ends 30 days after receipt and allows the debt collector to assume the consumer received the validation notice any date that is “at least five days (excluding legal public holidays … Saturdays, and Sundays) after the debt collector provides it.  By its very nature, the first communication is now less of a demand for payment and more of a statutorily required notice.  If this impacts the collection processes, consider making creditor clients aware so they can adjust their expectations and have a better understanding of the challenges you (and the rest of the industry) face.  

Secondly, the validation notice’s inclusion of the dispute form (with convenient boxes to be checked) will likely increase the number of disputes and requests for validation that debt collectors receive, as well as the corollary requests for information to creditors.  Creditors will benefit from understanding the anticipated increase in requests for additional information either at the validation/dispute stage or at the  initial forwarding stage.

Thirdly,  credit reporting cannot occur until after the debt collector communicates with the consumer (usually by the debt validation notice) and waits a reasonable period of time to receive a notice of undeliverability (which the Official Interpretation identifies as being 14 days).  To the extent collection agencies are credit reporting and will be changing when they initiate credit reporting, collection agencies should discuss this change with their clients and make any necessary adjustments to the Collection Services Agreement or performance standards that are necessary.

Review Your Collection Services Agreement. Finally, now is a good time to revisit Collection Services Agreements to ensure they are consistent with the Debt Collection Rule, particularly regarding such things as validation and disputes, credit reporting and communication frequency.  To the extent there are inconsistencies, now is the time to have that discussion with your creditors and amend those agreements.

As Joseph Grenny, the author of Crucial Conversations, once said “[a]t the core of every successful conversation lies the free flow of relevant information.”  Make time to have those crucial conversations with your clients regarding the Rule to ensure a smooth transition.