Finding Shelter in the Storm: Using the Bona Fide Error Defense with the Final Debt Collection Rule

 By Caren D. Enloe

The FDCPA provides a bona fide error defense for debt collectors who can show by a preponderance of the evidence that their violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.  15 U.S.C. §1692k(c).  Historically, debt collectors have been judicious in its use.  While it is a powerful tool, it shines a bright light on a debt collector’s policies and procedures and therefore, the stakes are high.  If a debt collector’s policies are adjudicated to be lacking, it can expose the debt collector to liability not only in the present action, but potentially to a swarm of further litigation. On the other hand, if the debt collector can safely navigate the defense with robust policies and procedures, it may fend off the present action, as well as future litigation. 

With the enactment of the Debt Collection Rule, debt collectors now have a map as to certain best practices which can help them better inform their policies and procedures. Assuming they mold their actions to comply with the same, the Rule may now provide a more effective shield in actions under the FDCPA.  Scattered throughout the Rule like little nuggets of gold, the CFPB has provided safe harbors which, when coupled with the bona fide error defense, should allow savvy debt collectors to better take advantage of the bona fide error defense. This article examines these nuggets which, if incorporated into a debt collector’s policies and procedures, may provide an effective bona fide error defense.

Limited Content Messages.  “Limited Content Messages” are a new concept introduced by the Rule in its definitional section (1006.1) and are intended to provide a safe way for debt collectors to leave non-substantive messages for a consumer requesting a return call while not inadvertently disclosing the debt to third parties.  The Rule and its Comments make clear that Limited Content Messages are not communications regarding a debt.  To qualify as a Limited Content Message, the message must be left by voice mail and only contain the specified limited content set forth explicitly in Section 1006.1(j). A Limited Content Message can only include: (a) a business name for the debt collector that does not indicate that the debt collector is in the debt collection business; (b) a request that the consumer reply to the message; (c) the name or names of one or more natural persons whom the consumer can contact; (d) a telephone number or numbers the consumer can use to reply to the debt collector; and (e) certain very limited and specified optional content.  Communications are distinguished as they convey information regarding a debt.

While not a per se safe harbor, the Rule’s Official Comments contain sample scripts which, if used, would comply with the Rule.  Using those scripts, therefore, may provide an implied safe harbor. Debt collectors should consider incorporating these scripts into their best practices to help mitigate risk with respect to 15 U.S.C. §§1692c and 1692e(11).    See, e.g., Comment 2(j)(1)-1; Comment 2(j)(2)-2.

Electronic Communications. As a general notion, the Rule provides a general road map for compliance with the FDCPA with respect to electronic communications in Section 1006.6.  Specifically, the Rule sets forth specific procedures which, if followed (including provisions for consumer opt outs), provide the debt collector with a safe harbor with respect to electronic communications and unintentional third party electronic communications. 

The Rule allows for the use of email and text message communications and sets forth procedures which provide the debt collector with a safe harbor if followed.  Specifically, Section 1006(d)(4) allows for email communications to the consumer: first, by allowing the use of an email address the consumer has either used to communicate with the debt collector (and has not subsequently opted out) or the consumer has provided prior express consent to use and second, by allowing an email address used previously by the creditor or a prior debt collector subject to certain limitations and conditions.  Section 1006(d)(5) allows for text messaging subject to similar conditions.  Additionally, the Official Comments contain sample language for opt out notices where, if used, are likely to provide an implied safe harbor.  See, e.g., Comment 6(d)(4)(ii)(C)-2)(i) – (ii); Comment 6(e)-1(i)-(ii). Debt collectors contemplating the use of electronic communications should incorporate these into their policies and procedures to mitigate risk.

Unintentional Third Party Communications. On a related note, what happens when the communication is received by an impermissible third party? Section 1006.6(d)(3) provides a bona fide error defense in those instances where the debt collector can satisfy two conditions.  First, there must be procedures in place to reasonably confirm and document that the communications complied with 1006.6(d)(4) or (5) (see above discussion).  Secondly, the debt collector’s procedures must include steps to reasonably confirm and document that the debt collector did not communicate with the consumer at an email address or telephone number that the debt collectors knows has led to an impermissible third party communication. Moreover, Section 1006.22(g) provides a safe harbor under 15 U.S.C. §1692f for emails and text messages which are sent in accordance  with 1006.6(d)(3) that reveal the debt collector’s name or other information indicating the communication relates to the collection of a debt.

Time and Place. With the advent of new technologies, preventing communications at a time and place which is known or should be known to be inconvenient has become challenging for debt collectors.  The Rule attempts to address these challenges in Section 1006.6 and its Official Comments.  Section 1006.6 provides that an inconvenient time for communication with the consumer is before 8:00 AM and 9:00 PM local time at the consumer’s location.  The Official Comments then provides a safe harbor and guidance as to how to handle conflicting or ambiguous information regarding a consumer’s location.  In those instances and in the absence of knowledge to the contrary, Comment 6(b)(1)-2 provides that the debtor collector complies with the Rule (specifically, 1006.6(b)(1)(i)) if the debt collector communicates or attempts to communicate with the consumer at a time that would be convenient in all of the locations at which the debt collector’s information indicates the consumer might be located. 

Call Frequency. Section 1692d(5) of the FDCPA prohibits a debt collector from causing a telephone to ring and from engaging a person in telephone conversations repeatedly or continuously with the intent to annoy, abuse, or harass. Section 1006.14 establishes a bright line by placing numeric limitations on the placing of telephone calls.  In doing so, the Rule creates presumptions of compliance and violation. While not a safe harbor per se, Section 1006.14 creates a presumption of compliance with 15 U.S.C. §1692d(5) where the debt collector complies with the call limitations set forth in §1006.14(b)(2).  Of course, this will require documentation of policies and procedures which set forth frequencies consistent with the Rule’s requirements.

Debt Validation Notice. Section 1692g of the FDCPA requires debt collectors provide consumers with a validation notice which includes the name of the creditor, the amount of the debt and the disclosure of certain statutorily prescribed consumer protection rights. Section 1006.34 of the Rule reinvents the Debt Validation Notice by requiring significantly more robust disclosures. These disclosures fall roughly into three categories: (a) information to help consumers identify the debt; (b) information about consumer protections; and (c) information to help consumers exercise their rights, including a tear off dispute form with prescribed prompts.

The Rule provides safe harbors for compliance with the information and form requirements set forth in Section 1006.34(c) and (d)(1) for debt collectors who use the model validation notice, specified variations of the same, or a substantially similar notice.  Additionally, debt collectors using the model validation notice are provided with a safe harbor as to 15 USC §1692g(b)’s overshadowing prohibition.  See 1006.38(b).  Further, assuming the debt collector does not receive a notice of undeliverability, Comment 42(a)(1)-3 makes clear that a debt collector has sent the required disclosures for purposes of the Rule if the debt collector mails a printed copy of any required disclosures to a consumer’s last known address unless the debt collector, at the time of mailing, knows or should know that the consumer does not currently reside at, or receive mail at, that location.

Credit Reporting.  While Section 1692d(3) of the FDCPA allows for credit reporting, 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 safe harbor for debt collectors as to what constitutes a “reasonable period of time.”  Specifically, Comment 30(a)(1)-2 provides a safe harbor by construing a “reasonable period of time” to mean a period of 14 consecutive days after the date that the debt collector places a letter in the mail or sends an electronic message.

While the CFPB intends to push back the effective date of the Rule sixty (60) days, compliance teams should be reviewing the Rule and Comments to assess what changes will need to be made to the agency’s practice and procedures.  As part of this process, debt collectors should be considering incorporating the safe harbors, implied and express, set forth within the Rule to allow for future mitigation of risk.

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.

Ambiguous Language in Validation Notice Creates Disputed Issue of Material Fact on Meaningful Attorney Involvement Claim

 

By: Landon G. Van Winkle

 

The U.S. District Court for the Eastern District of New York recently denied cross-motions for summary judgment on a debtor’s claim that a law firm’s validation notice constituted a meaningful attorney involvement violation of the FDCPA. Solovyova v. Grossman & Karaszewski PLLC, No. 19-CV-2996, 2021 U.S. Dist. LEXIS 27837, at *19–21 (E.D.N.Y. Feb. 12, 2021).  Specifically, the debtor took issue with a disclosure in the validation notice, which she attached to her complaint, that provided “[i]n making this demand we are relying entirely on information provided by our client.” Id. at *18. The debtor advanced seven discrete FDCPA claims in connection with the notice, although the law firm defendant successfully moved for summary judgment on six of those claims. Id. at *22.

 

With respect to the meaningful attorney involvement claim, the debtor argued that the disclosure in the validation notice was ambiguous because “the least sophisticated consumer ‘could read the letter and be reasonably led to believe that the communication was from an attorney . . . At the same time, one could read the statement that Defendant was relying entirely on information provided by his client and be under the impression that no attorney was meaningfully involve[d] in the case.’” Id. at *18. Because the letter could be read to imply that no attorney was meaningfully involved in the review of the debtor’s case or preparation of the letter, the debtor argued that it violated several provisions of § 1692e, including § 1692e(3), which proscribes any “false representation or implication that any . . . communication is from an attorney.” See, e.g., Miller v. Wolpoff & Abramson, L.L.P., 321 F.3d 292, 301 (2d Cir. 2003) (“Although there is no dispute that [defendants] are law firms, or that the letters sent by those firms were ‘from’ attorneys in the literal sense of that word, some degree of attorney involvement is required before a letter will be considered ‘from an attorney’ within the meaning of the FDCPA.”).

 

The disclosure at issue placed the law firm in a somewhat awkward position. On the one hand, it was not the clear and unambiguous disclaimer of attorney involvement approved by the Second Circuit in Greco v. Trauner, Cohen & Thomas, L.L.P., 412 F.3d 360, 364–65 (2d Cir. 2005) (holding that disclaimer in collection letter that “at this time, no attorney with this firm has personally reviewed the particular circumstances of your account” sufficiently rebutted implied level of attorney involvement created by sending letter on firm letterhead with attorneys’ signature to eliminate any potential confusion by least sophisticated consumer receiving the letter, and thus nullified any claim that the letter violated the FDCPA). On the other hand, the notice was not silent as to the level of attorney involvement, such as the letters at issue in Miller or the more extreme case of the completely uninvolved attorney in Clomon v. Jackson, 988 F.2d 1314 (2d Cir. 1993) (affirming district court’s grant of summary judgment to plaintiff who claimed form collection letters sent by attorney who “never considered the particular circumstances of [plaintiff’s] case prior to the mailing of the letters and . . . never participated personally in the mailing” violated § 1692e of the FDCPA where attorney had provided form letters to debt collector client which were mass-mailed to debtors with a “mechanically reproduced facsimile” of the attorney’s signature and attorney had no knowledge of plaintiff’s individual file).

 

The court had no difficulty in concluding that the validation notice was “‘from’ the law firm in the literal sense,” because it was on the law firm’s letterhead, contained the law firm’s address, telephone number, and email address, listed the attorneys associated with the firm, and was signed by the firm (although not by any individual attorney). Solovyova, 2021 U.S. Dist. LEXIS 27837, at *19. The court then concluded that a genuine dispute of material fact precluded either party’s motion for summary judgment, because the disclosure at least suggested “that the defendant sent the plaintiff this letter based solely on information provided by the creditor, without any attorney review.” Id. at *20 (quoting Hochhauser v. Grossman & Karaszewski, PLLC, No. 19CV2468ARRRML, 2020 U.S. Dist. LEXIS 74548, 2020 WL 2042390, at *6 (E.D.N.Y. Apr. 28, 2020)).

 

Critically, while the law firm argued that its attorneys had been meaningfully involved in the review of the debtor’s account and preparation of the notice at issue, it did not proffer any evidence of this assertion in support of its motion for summary judgment, “such as a declaration by an attorney, or by providing documentation that lawyers used their professional judgment in forming an opinion about how to manage the case or making the decision to send said letter.” Solovyova, 2021 U.S. Dist. LEXIS 27837, at *21. However, because the debtor had also not proffered “admissible evidence that an attorney was not meaningfully involved,” neither party was entitled to summary judgment. Id. at *21 (emphasis added).

 

Thus, while the law firm may not have prevailed on its motion for summary judgment, it very well could prevail at trial, as the burden remains on the debtor to prove that no attorney at the law firm was meaningfully involved in the review of her account or the preparation of the notice. While a Greco disclosure may not always be appropriate in a validation notice (such as where an attorney has reviewed the debtor’s file and been meaningfully involved in the preparation of the notice), any attempt to expressly define the scope of an attorney’s involvement in preparing a validation notice must be carefully drafted to avoid ambiguity and to effectively address the implications created when a validation notice is sent “from” a law firm in the literal sense. 

Landon Van Winkle is an attorney in Smith Debnam's Consumer Financial Services Litigation and Compliance Group.

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.

 

Picking Apart the Validation Notice Requirements Under the Debt Collection Rule

 By: Caren D. Enloe

While it remains to be seen what, if any, changes a change in leadership in the CFPB will bring to the Debt Collection Rule, for now collection agencies should begin readying themselves for a November 30^th effective date. Now that the Rule has been fully published, this article will explore the Rule’s center piece, Section 1006.34 (Debt Validation Notices), and five traps for the unwary.

 

Trap Number 1: Beware the Deceased Consumer. 

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. Debt collectors therefore should be establishing policies and procedures which address when and to whom a debt validation notice should be sent when the consumer is deceased. Such policies should include processes for identifying estates and the appropriate representative of the estate.

Moreover, debt collectors should be aware that specificity is 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.

 

Trap Number 2: Beware the Empty Box. 

While the Model Form provides some security for the debt collectors who choose to use it, beware the trap of leaving boxes empty in the itemization!   Section 1006.34(c)(2)(vii) specifically requires an itemization of the current amount of the debt reflecting interest, fees, payments and credits since the itemization date.  Comment 34(c)(2)(vii)-1 makes clear that the debt collector must include fields in the notice for all of those items even if none have been assessed or applied.  Importantly, a debt collector may not leave a required field blank.  This means that debt collectors must provide some indicia that none or “-0-“ is owed in each of those fields.   An empty box or an indication of “not applicable” is insufficient and likely to be construed as a violation of the Rule.

 

Trap Number 3: Beware the Reverse Side Conundrum. 

Under the Rule, certain optional disclosures are allowed.  With respect to those made under applicable state law, the majority of these are required to be placed on the reverse side of the validation notice.  Debt collectors need to be aware that their placement is critical. The Rule expressly requires that they should be placed such that they are above the consumer-response information or tear off portion of the notice.  See Section 1006.34(d)(3).  This is to ensure that the consumer can keep the disclosures should they opt to request validation.

 

Trap Number 4: Beware the End of the Validation Period.

Sections 1006.34(c)(3)(i) through (iii) require that the validation rights statements specify the end date of the validation period. Section 1006.34(b)(5) defines the validation period as starting on the date that the validation notice is mailed and ending 30 days after the consumer receives it or is assumed to receive it.  For purposes of the end date, the debt collector can assume the consumer receives the validation on any date which is at least 5 days (excluding legal public holidays defined in the U.S. Code, Saturdays and Sundays).

Problems may arise if the validation period is calculated in such a manner as to not account for federal holidays or that notices are sent out contemporaneously with their preparation.  Debt collectors will need to ensure (a) the data field for the validation end date is properly calculated and filled in; and (b) that they are documenting their business practices for sending debt validation notices. 

 

Trap Number 5: Beware the Lock Box Trap.

Section 1006.34(c)(2)(i) of the Rule requires the debt collector disclose as part of its validation information the mailing address at which the debt collector accepts disputes and requests for original-creditor information.  The Rule allows for some flexibility by allowing a debt collector to disclose a vendor’s mailing address if that is an address at which the debt collector accepts disputes and original-creditor requests.  However, importantly, the Rule does not allow that debt collectors list a second address for payments in the validation notice.  In fact, the CFPB is adamant that payment is of secondary concern in the validation notice. The CFPB makes clear that additional prominence as to payment information is not justified and that the allowed optional payment disclosures must appear below the consumer-response information.  In keeping with this, the Bureau is clear that a second alternative address for payments should not be included in the validation notice. For debt collectors, who use a lock box for payments, this may be problematic.  Debt collectors will need to consider whether or not they want to include the optional payment disclosures and for those who use a separate lock box for payment, they may want to consider omitting the payment disclosures until a later letter when they can appropriately include the lock box address.

 

What’s Next?

Collection agencies should begin reviewing their debt validation notices, ascertain their ability to use the Model Form and what, changes, will need to be in preparation for the November 30, 2021 effective date.  Among other things:

• 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 how they will deliver validation notices- will they take advantage of electronic means or will they continue to send validation notices via mail;
• 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
• Once the agency has its validation notice in final form, all agencies should consider a final compliance review of the notice to ensure the agency is aware of any heightened litigation risks or errors.

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.