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.

 

Will Hunstein Require a Reset?

 

By Caren D. Enloe

Last month, the entire ARM industry was caught by surprise when the Eleventh Circuit held that a debt collector’s transmittal of information to a third-party letter vendor violated Section 1692c(b) of the FDCPA.  Hunstein v. Preferred Collection and Management Services, Inc., 2021 U.S. App. LEXIS 11648, 994 F.3d 1341 (11^th Cir. 2021).  While the case will continue to be contested in the Eleventh Circuit, collection agencies and others who rely upon third party vendors have been left to contemplate what comes next.  This article will examine the decision, its immediate impacts, and considerations for the industry as it moves toward implementation of the debt collection rule.

A Quick Summary

In Hunstein, the debt collector engaged a third-party vendor to prepare and send its demand letter.  In doing so, the debt collector electronically transmitted certain information to its letter vendor, including: (1) the consumer’s name and address; (2) the balance owed; (3) the name of the creditor; “(4) that the debt concerned his son’s medical treatment;” and (5) his son’s name.  Id., 2021 U.S. App. LEXIS 11648 at *4.  The consumer sued the debt collector, alleging that the transmittal of that information was a communication in connection with the collection of a debt and violated 15 U.S.C. §1692c(b).  The District Court dismissed the complaint concluding that the transmittal of information did not qualify as a communication ‘in connection with the collection of a[ny] debt.” Id., at *3-4.  On appeal, the Eleventh Circuit reversed and held: (a) that that the plaintiff had standing to sue because the transmittal of the information was an invasion of privacy; and (b) that the transmittal of such information to a letter vendor stated a claim for a violation of Section 1692c(b). In doing so, the Court recognized the impact of its decision, stating

It's not lost on us that our interpretation of § 1692c(b) runs the risk of upsetting the status quo in the debt-collection industry. We presume that, in the ordinary course of business, debt collectors share information about consumers not only with dunning vendors like Compumail, but also with other third-party entities. Our reading of § 1692c(b) may well require debt collectors (at least in the short term) to in-source many of the services that they had previously outsourced, potentially at great cost. We recognize, as well, that those costs may not purchase much in the way of "real" consumer privacy, as we doubt that the Compumails of the world routinely read, care about, or abuse the information that debt collectors transmit to them.

 

 

What are the Immediate Impacts of the Decision?

 

It’s important to note a couple of things regarding Hunstein and its immediate impact.  First and foremost, it’s not over.  While the decision has precedential value in the Eleventh Circuit, the battle rages on.  The debt collector is petitioning for an en banc review which, if granted, will give the industry an opportunity to change the Court’s mind.  Moreover, the collection agency has the support of the industry and several trade associations and other interested parties intend to file amicus briefs in support of the collection agency’s position.  While that petition is pending (it’s due to be filed in late May), lower courts in the Eleventh Circuit will likely encounter copycat suits and will have the choice to follow Hunstein or to stay the case pending the outcome of Hunstein. 

 

Secondly, while the opinion may be binding in the Eleventh Circuit, that’s not the case in other circuits.  In other jurisdictions, the case would only constitute “persuasive” authority, meaning courts may consider it but are not bound by it. Debt collectors need to expect copycat cases to continue popping up in other jurisdictions as the consumer bar tries to leverage this legal theory and the ARM industry pushes back seeking a different result in other jurisdictions.

 

Finally, it’s important to keep in mind that the Court’s ruling simply means that the complaint’s allegations were enough to state a claim.  It does not mean that the consumer is entitled to a judgment for damages or will ultimately prevail.

 

 

What Does this Mean Regarding Collection Agencies’ Current Use of Third Party Vendors?

 

For now, Hunstein calls into question the sharing of certain consumer specific communications with third-party vendors.  But are all third-party vendors created equal for purposes of Hunstein?  The answer is likely no. Compliance teams therefore will need to assess their third-party vendor relationships and assess each one under the microscope of Hunstein.  In doing so, it’s important to remember that the Court in Hunstein was concerned that the information transmitted to the letter vendor rose to the level of being a communication “in connection with the collection of a debt.”  That information included not only the consumer’s name and address but also the amount of the debt, the name of the creditor and the nature of the debt. 

 

Moving forward, compliance teams will need to review and assess the specific information shared with each of their third party vendors and ascertain whether it rises to the same level as Hunstein such that it would be considered a communication in connection with the collection of a debt.  Communications with, for instance, a third-party company scrubbing for location information may not require the sharing of the same level of information as that provided to a letter vendor and therefore may carry a lesser risk.  Similarly, working with a letter vendor to set up a form letter does not require the conveyance of any information specific to a consumer and likely would not meet the same scrutiny.  For now, compliance departments will have to assess the risk associated with each of its third-party vendors by reviewing the information shared with each and ascertain whether it rises to the level of a communication. Depending upon their level of risk tolerance and the amount of information conveyed, debt collectors may consider bringing some backroom services back inhouse for the time being.

 

How Does Hunstein Align With or Impact the Debt Collection Rule?

 

Interestingly, the CFPB’s views do not appear to align with those of the Eleventh Circuit.  The CFPB has always understood and contemplated the use of third-party vendors.  As early as 2012, the CFPB recognized that the use of service providers “is often an appropriate business decision.”  CFPB Bulletin 2012-03; see also CFPB Bulletin 2016-02.  The CFPB went as far as to say that “[s]upervised…nonbanks may outsource certain functions to service providers due to resource constraints… or relay on expertise from service providers that would not otherwise be available without significant investment.”  Id.  Consistent with this, the CFPB set forth guidelines for vendor risk management to protect consumers from harm and ensure vendors are complying with federal consumer financial law.  In setting out these guidelines, the CFPB, however, was quick to point out that “the mere fact that a supervised… [entity] enters into a business relationship with a service provider does not absolve the supervised…[entity] of responsibility for complying with Federal consumer financial law to avoid consumer harm.”  Id. at p. 3. 

 

All of this aligns with the CFPB’s views of third-party vendors in the context of the Debt Collection Rule (the “Rule”).  The CFPB expressly contemplated and seemingly endorsed the use of third-party vendors in the final version of the Rule. 

 

The Rule in fact discusses and contemplates the use of data vendors for skip tracing, as well as for letters.  With respect to letter vendors, the CFPB is aware of the prevalence of the practice.  Its Operations Study undertaken during the formulation of the Rule noted that 85% of debt collectors surveyed used letter vendors.  In its in its Section by Section Analysis of the debt validation provisions, the CFPB contemplated this practice continuing when it stated that the costs associated with reformatting validation notices and understanding the requirements could reasonably be borne by debt collectors and their vendors.  Carrying this further, the Rule expressly allows debt collectors to include a vendor’s mailing address if that is an address at which the debt collector accepts disputed and requests for original-creditor information. See Section 1006.34(c)(2)(i) and Comment 34(c)(2)(i)-2. 

 

How Hunstein will impact the Debt Collection Rule remains to be seen.  When it published the Rule, the CFPB clearly did not see the use of letter vendors as violating Section 1692c and it will be interesting to see (although unlikely) if they submit an amicus brief taking a position either way.  While the CFPB has already proposed pushing back the Rule’s effective date until January 2022, there is nothing thus far that would indicate they will push it back further.

 

Conclusion

 

Hunstein has opened Pandora’s box and the industry’s use of third-party vendors will now have be defended through the courts.  In the interim, compliance departments should be discussing their tolerance for risk and reviewing their use of other third- party vendors and the amount of information shared to ascertain whether they run similar risks.

CFPB Proposes Delaying Effective Date of the Debt Collection Rule

By Caren D. Enloe

On April 6th, the CFPB announced its proposal to postpone the effective date of the Debt Collection Rule.  Originally scheduled to take effect November 30, 2021, the CFPB now proposes that the Rule become effective on January 29, 2022.  According to the CFPB, the "proposed delay would allow stakeholders affected by the pandemic additional time to review and implement the rules."   A thirty day comment period will open once the Notice of Proposed Rulemaking (the "NPRM") is published in the Federal Register.  A couple of quick takeaways:

• While the CFPB notes that debt collectors can choose to implement the Rule prior to the effective date, as of now, the safe harbors and presumptions will not be in effect until the effective date; 

• No other proposed changes to the Debt Collection Rule are suggested in the NPRM; however, that does not mean proposed substantive changes won't be forthcoming after confirmation is completed as to the new Director of the CFPB; and 

• Debt Collectors should keep an eye on this development but continue forward with their assessment of their policy, procedures and practices to ensure timely compliance with the Rule whenever the effective date.

Adjusting Policies and Procedures for the Dead Consumer

 

By Caren D. Enloe

 

Section 1692a(3) defines a consumer as any natural person obligated or allegedly obligated to pay a consumer debt.   The final debt collection rule interprets the definition of a consumer to include deceased natural consumers, as well. Looking towards a November 30^th effective date, here are some key items that may require adjustments to your policies and procedures.

Initial Skip Traces. Because the Rule now addresses communications regarding dead consumers, it’s important to review skip trace policies and ensure policies are in place which will provide the debt collector with ample information as to the deceased consumer’s estate. Collection agencies will therefore want to examine their skip trace policies and procedures to ascertain whether they adequately identify estates and the representatives of those estates wherever possible.  According to the CFPB,  acceptable means for identifying estates would include a search of public records and use of location information communications.

 

Location Information.  The Rule will allow debt collectors to seek location information concerning persons authorized to act on behalf of the deceased consumer’s estate. While neither the FDCPA nor the Rule allow for the debt collector to disclose the debt, the Rule’s Official Commentary provides directed guidance on the what content is acceptable in location information communications.  Specific to deceased consumers, the Comments  indicate a debt collector may state: “that the debt collector is seeking to identify and locate the person who is authorized to act on behalf of the deceased consumer’s estate” or “that the debt collector is seeking to identify and locate the person handling the financial affairs of the deceased consumer.”  See Comment 10(b)(2)-1. Collection agencies should consider  incorporating this language into their skip tracing and location inquiries.  While not a per se safe harbor, adherence to the language of the comments provides some persuasive authority for compliance.

 

Debt Validation Notice.  For purposes of debt validation, the Rule  makes clear that if the debt collector knows or should know that the consumer is deceased, and if the debt collector has not previously provided the validation notice to the deceased consumer, the debt collector must provide the debt validation notice to a person authorized to act on behalf of the deceased consumer’s estate. Under the CFPB’s interpretation this would include executors, administrators and personal representatives.

 

The “should know” standard should give debt collectors pause to consider what tools they have at their disposal that would or should allow them to know a consumer is deceased.  Debt collectors should be establishing policies and procedures which address when and to whom a debt validation notice should be sent when the consumer is deceased, as well as processes for identifying estates and the appropriate representative of the estate. 

 

Debt collectors should be mindful of the specificity required when sending validation notices to the representative of a deceased consumer.  Comment 34(a)(1)-1 requires that the debt collector identify by name the person who is authorized to act on behalf of the deceased person.  It is not enough to simply address the debt validation to the “Estate of John Smith.”  Instead, the debt collector will need to identify the specific person authorized to act on behalf of the deceased consumer’s estate and, where the validation notice has not previously been provided, provide it addressed to the appropriate representative.

 

Permissive Parties for Communication. For all other communications and consistent with this expansive interpretation of who is a consumer, the Rules likewise include as permissive third parties for communication the deceased consumer’s spouse, parent (if the consumer is a minor), legal guardian, executor or administrator, and confirmed successor in interest (as defined Regulation X).  Moreover, the Comments clarify that the terms “executor” and “administrator” include less formal personal representatives.  See Comment 6(a)(4)-1. “Persons with such authority may include personal representatives under the informal probate and summary administration procedures…, persons who sign declarations or affidavits to effectuate the transfer of estate assets, and persons who dispose of the deceased consumer’s financial assets or other assets of monetary value extrajudicially.”  Collection agencies should be mindful of this clarification and should begin reviewing their policies, procedures and scripts to evaluate whether they are sufficiently robust to adequately identify such parties.

 

Because the Rule takes a more expansive view of who is a consumer, collection agencies should begin reviewing their policies, procedures, scripts and letter contents to ensure they are properly communicating with the appropriate representatives of estates. Skip tracing and location contacts should be updated to identify deceased consumers and those authorized to act on behalf of the deceased consumer’s estate.  Debt validation notices should be similarly updated to send debt validation notices to the appropriate named representative of the estate.  And finally, policies and procedures should be updated to identify the appropriate third parties for further communications concerning the debt when the consumer is deceased.

 

The CFPB Publishes the Remainder of its Final Debt Collection Rule – Here’s What You Need to Know

 By Caren D. Enloe

On December 18, 2020, the CFPB published the remainder of its Final Debt Collection Rule (the “Rule”) highlighting its crown jewel -  the provisions centering around debt validation notices.  While the bulk of Part 2 addresses the parties’ obligations under Section 1692g of the FDCPA, the remainder of Part 2 ties up other loose ends, including time-barred debt, credit reporting, and communications where the consumer is deceased. The entire Rule (both Parts 1 and 2) takes effect November 30, 2021.

Aside from Debt Validation, What’s Included in Part 2 of the Rule?

            Deceased Consumers

The FDCPA defines a consumer as any natural person obligated or allegedly obligated to pay a consumer debt.  Section 1006.2(c) of the Rule interprets 1692a(3) to include deceased natural persons.  This definition dovetails with 1006.6 (Communications in Connection with Debt Collection) to allow debt collectors to communicate with the deceased consumer’s spouse, parent (if the consumer is a minor), legal guardian, executor or administrator, and confirmed successor in interest (as defined Regulation X).  Additionally, Section 1006.34 makes provision for sending debt validation notices when the consumer is deceased.

Collection of Time-Barred Debt

Perhaps the biggest surprise in Part 2 of the Rule is the CFPB’s seeming abandonment of time-barred debt and revival disclosures.  Debt collectors, however, should not assume that those disclosures will not be forthcoming at a later date.  Instead, the CFPB notes that it determines only that the specific disclosure requirements proposed “may not sufficiently accommodate the concerns raised by different stakeholders.” 

Section 1006.26 of the Rule prohibits legal actions or threats of legal actions against a consumer to collect time-barred debts.  The Rule defines “time-barred debt” to mean a debt for which the statute of limitations has expired. “Statute of limitations,” in turn, is defined as the period prescribed by applicable law for bringing a legal action against a consumer to collect a debt. Notably, Section 1006.26 differs from the proposed version of the Rule in that it implements a strict liability standard rather than the proposed “know or has reason to know”  which was originally proposed.  As finalized the Rule additionally makes clear that the filing of a proof of claim is not a legal action subject to this provision.

Credit Reporting Restrictions

The CFPB published the majority of Rule’s catch-all section, §1006.30, in Part 1 of the Rule.  The CFPB, however, held back the provisions regarding passive debt collection through credit reporting until Part 2.  While Section 1692d(3) of the FDCPA allows for credit reporting, the Section 1006.30(a) of the Rule now limits the circumstances and timing for credit reporting and prohibits the practice of passive debt collection through credit reporting.

Section 1006.30(a) prohibits debt collectors from furnishing information to a consumer reporting agency about a debt before the debt collector either speaks to the consumer about the debt in person or by telephone or sends its validation notice and then waits for a reasonable period of time to receive a notice of undeliverability. Comment 30(a)(1)-2 provides a presumption that a reasonable period of time is 14 consecutive days after the date that the communication is sent. As an exception to the Rule, 1006.30(a) additionally allows for debt collector’s immediate furnishing to a specialty consumer reporting agency that compiles and maintains a consumer’s check writing history.

Debt Validation Notices Under the Final Rule

The crown jewel of Part 2 of the Rule is Section 1006.34 which takes on section 1692g(a) of the FDCPA.  Section 1006.34 provides new delivery requirements and concepts while expanding the information required in the debt collector’s validation notice.  

    Delivery Methods

Consistent with the Rule’s stated goal to allow for technological advances, Section 1006.34 allows for the notice to be provided in writing and orally, as well as electronically.  

    Deceased Consumers           

Section 1006.34 additionally recognizes the consumer to include deceased consumers. Comment 1006.34(a)(1)-1 makes clear that if the debt collector knows or should know that the consumer is deceased, and if the debt collector has not previously provided the validation notice to the deceased consumer, the debt collector must provide the debt validation notice to a person authorized to act on behalf of the deceased consumer’s estate.

The Itemization Date

The Rule introduces a new concept that is not present in the FDCPA – the “itemization date.”  The Rule now requires the debt collector identify an “itemization date” and provide an itemization of the debt from that date forward.  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.

 The Rule’s Official Comments provide a couple of key clarifications as to the itemization date. For debt collectors choosing to use the last payment date, the Comments clarify that the last payment includes a third party payment applied to the debt.  This means that last payment date includes the date when sales proceeds were applied or when insurance reimbursements were applied to the debt. For debt collectors choosing to use the last statement date, the Comments clarify that it is the date of the last statement provided by the creditor and may include those provided by a third party acting on the creditor’s behalf, such as a servicer.  Finally, for those debt collectors relying upon a transaction date, if a debt has more than one transaction date, the debt collector may use any such date as the transaction date so long as they use it consistently. Finally, while the Rule requires the debt collector to choose an itemization date and disclose it, the Rule does not require the debt collector to disclose the itemization date category upon which it relies.

Content of the Validation Notice

Section 1006.34 expands upon the requirements of the FDCPA and requires a debt collector provide additional information about the debt in its validation notice.  Under the Rule, the validation notice requires debt collectors provide: (a) information to help consumers identify the debt; (b) information about consumer protections; and (c) information to help consumers exercise their rights.  The Rule additionally allows for and identifies certain optional disclosures.

        Information to Help Consumers Identify the Debt

While the FDCPA only requires the debt collector provide the amount of the debt and the name of the creditor to whom the debt is owed, the Rule is far more expansive.  Section 1006.34(c) of the Rule requires the validation notice include: 

• the debt collector’s name and the mailing address at which it accepts disputes and requests for original creditor information;
• the consumer's name and mailing address; 
• the identity of the “itemization date” creditor for debt related to consumer financial products or services;
• the identity of the current creditor; 
• the account number or a truncated version of the same;
• the "itemization date;"
• the amount of the debt on the itemization date;
• an itemization of the debt since the itemization date; and
• the current amount of the debt.

Residential mortgage debt subject to the mortgage servicing rules and their periodic statement requirements may be excepted from certain itemization requirements if the debt collector furnishes a copy of the most recent periodic statement provided to the consumer with the validation notice.  Section 1006.34(d) of the Rule provides the option, but does not require, a debt collector to provide its telephone contact information, a reference code the debt collector uses to identify the debt or the consumer, and the merchant brand, affinity brand or facility name for the debt.

          Information About Consumer Protections

In addition to advising the consumer of his or her rights pursuant to section 1692g(a) of the FDCPA, Section 1006.34(c) now requires the debt collector provide the end date for the validation period.  To allow for delivery of the validation notice, Section 1006.34(b)(5) of the Rule provides that a debt collector may assume that a consumer receives the validation information on any date that is at least five business days (excluding certain public holidays identified in 5 U.S.C. §6103(a), Saturdays and Sunday) after the debt collector provides the notice. Debt collectors should therefore provide at least  40 calendar days in calculating their end date of the validation period in order to account for the five business date rule.

In addition to the traditional disclosures required by the FDCPA, the Rule requires: inclusion of the Mini-Mirada disclosure, and if the debt is related to a consumer financial product or service, a statement that additional information regarding consumer protections for debt collection is available on the CFPB’s website and provide the website link.  Finally, if the validation notice is being sent electronically, a statement explaining the consumer can dispute the debt or request original creditor information electronically.

Information to Help Consumers Exercise Their Rights

To help consumers exercise their rights under 1692g(a), Section 1006.34(c) requires debt collectors provide the consumer with a response section that includes dispute prompts under the headings “How do you want to respond?” and “Check all that apply.” The dispute response must include the following prescribed dispute statements and list them in the following order:

• "I want to dispute the debt because I think:”;
•  “This is not my debt.”; 
•  “The amount is wrong.”; and 
•  “Other (please describe on reverse or attach additional information.)”

The Rule additionally requires the following additional prompt: “I want you to send me the name and address of the original creditor.” 

This tear off section must additionally include the debtor’s name and address, as well as the debt collector’s name and the address at which it receives debt validation requests.  The Rule also allows as optional certain payment disclosures but makes clear that any payment disclosures must appear below the mandated prompts.

State Law and Other Applicable Law Disclosures

Section 1006.34(d) recognizes and allows for state mandated disclosures among the “optional” disclosures. The Rule allows for these to be placed on the reverse side of the validation notice.  For such disclosures, however, the debt collector must place a statement on the front of the validation notice referring to those disclosures.  Importantly, the Rule specifies that such disclosures on the reverse side of the notice must appear above the tear off section. 

The Rule also recognizes that certain jurisdiction require or provide a safe-harbor as long as a disclosure is provided.  For those disclosures, the Rule requires that they be disclosed on the front of the validation notice.

Other Optional Disclosures

Section 1006.34(d) allows for certain other optional disclosures.  In addition to those already noted, The Rule allows for disclosures regarding a consumer’s ability to request a Spanish-language translation of a validation notice.  Likewise, a debt collector may send its validation notice completely and accurately translated in another language so long as certain additional conditions are met. 

In addition, the Rule allows a debt collector to disclose its website and email address.  Finally, if the validation notice is not provided electronically, the Rule allows a debt collector to provide a statement explaining how a consumer can dispute the debt or request original-creditor information electronically.

Safe Harbor Provisions.

The Rule includes a model form and a safe harbor for those that use the model form. Deviations are allowed, provided that the content, format, and placement of information are substantially similar to the model form. Debt collectors should not that deviations may at least in part negate the safe harbor protections.

What’s Next?

Collection agencies should begin preparing for the November 30, 2021 effective date.  Among other things:

• All compliance teams should begin a thorough review of the Rule and Comments to assess what changes will need to be made to the agency’s practice and procedures;
• All policies and procedures should be similarly updated and training programs should be undertaken with staff to ensure their understanding of the Rule;
• All scripts should be reviewed and adjusted to comply with the Rule;
• All letters should be reviewed and adjusted to comply with the Rule and the agencies should begin coordinating with their letter vendors to ensure a smooth transition on November 30, 2021;
• Agencies should begin reviewing and assessing their ability and desire to use electronic communications, keeping in mind other statutory requirements that may also be in play, including the Telephone Consumer Protection Act, as well as their clients’ use of electronic communication consents;
• Agencies should begin discussing and coordinating with their first party clients the itemization date and what additional information will need to be provided to the agency at placement to ensure compliance with Section 1006.34’s new validation requirements;
• Agencies should begin reviewing and assessing applicable state disclosure requirements to ascertain their impact on the agency’s ability to use the Safe Harbor Validation Notice and what adjustments, if any, will need to be made to address the same; and
• Agencies should begin assessing and adjusting their credit reporting practices to ensure compliance with new requirements.

Caren Enloe is a partner with Smith Debnam in Raleigh, NC and leads the firm’s Consumer Financial Services Litigation and Compliance Group.  Caren additionally serves as the Chair of the American Bar Association’s Debt Collection and Bankruptcy Subcommittee.  Active in a number of trade groups, Caren serves as the Member Attorney Program State Chair for ACA International and as a member of the National Creditors Bar Association’s Defense Bar.      

 

North Carolina Department of Insurance Extends Deferral Period

The North Carolina Department of Insurance has extended its previous order which activated the payment deferral provisions of N.C.Gen. Stat. 58-2-46.  The Order would have expired April 26th and has been extended an additional thirty (30) days through and including May 27, 2020.  A copy of the Extended Order can be found here.  

Additionally, in response to the number of questions posed with respect to the obligations of collection agencies and others licensed by the North Carolina Department of Insurance, the Department has now published  a list of FAQs.  Collection agencies should be mindful that the North Carolina Collection Agency Act encompasses to the collection of commercial, as well as consumer debts, and that this Order, by extension, applies similarly. The FAQs make clear:

•  There is no affirmative duty on collection agencies to send a mass mailing to debtors offering deferrals.  Instead, it is "up to the customer" to contact the collection agency to discuss options.  If, however, a collection agency contacts a debtor to discuss repayment, the agency is affirmatively obligated to advise the customer of the option to defer payment for 30 days.
• A request for deferment acts as a cease and desist for the 30 day period.  "Not just payments are deferred; ANY collection activity should cease for 30 days should the customer request a deferral."
• The Order and Extended Order apply to all payments, including those required by payment plans, ACHs and credit card repayment agreements. If the customer requests the deferments, the collection agency should cease all collection payment, including collection according to pre-arranged ACHs, credit card payments and other pre-arranged agreements for the 30 day period.
• While the Order and Extended Order do not generally apply to law firms and attorneys collecting debt, the Order and Extended Order do apply to law firms and attorneys to the extent they are seeking to collect payments under insurance contracts or policies.  In those instances, the law firm or attorney "must delay collection activities on behalf of its clients during the deferral period.

Collection agencies and others impacted by the Order and Extended Order should continue to check periodically for further extensions of the Order.

North Carolina Department of Insurance Amends COVID-19 Order

On March 30th, Commissioner Mike Causey amended his March 27th Order regarding COVID-19 to provide for thirty days rather than sixty days.  The Order will now expire April 26th. A copy of the Amended Order can be found here.  Aside from the change in the Order's expiration date, the Order remains in effect as originally reported yesterday.  

The DOI Order notes the emergency conditions in the state and invokes the provisions of N.C. Gen. Stat. § 58-2-46 (1)-(3). N.C. Gen. Stat. § 58-2-46(2) requires collection agencies and debt buyers to give their customers the option of deferring premium or debt payments[.]” The DOI Order designates the entire state as the affected geographic area, so consumers located anywhere in the state must be given the option to defer payments. Further, Chapter 58 of the General Statutes broadly defines “consumers” to include businesses, so the mandate applies equally to traditional consumer debt (that incurred for personal, family or household debt) and commercial debt. 

Additionally, the NCDOI has confirmed that licensed entities are not required to preemptively notify "consumers" of the waiver option but do have an obligation to offer the deferred payment to "consumers" when discussing payment. The option to defer payments must be given for payments that are due through and including the time period covered by the DOI Order as amended. Subsection 2 goes on to state that the deferral period “shall be 30 days from the last day the premium or debt payment may be made under the terms of the policy or contract.” While this statutory section is open to (at least) a few possible interpretations, we believe the best reading is that the option to defer must be given until at least April 26, 2020, when the DOI Order is currently set to expire. If a consumer elects to defer a payment, the deferral must be granted and the new payment date should be set 30 days after the original payment date.