This blog post is part three of a five-part series examining the Consumer Financial Protection Bureau’s (the “CFPB” or “Bureau”) proposed rule amending Regulation F (“Proposed Rule”), which implements the Fair Debt Collection Practices Act (“FDCPA”) to prescribe rules governing the activities of debt collectors.
In part one of this series, we provided a brief overview of the FDCPA and the Proposed Rule’s most impactful provisions. In part two, we summarized the key provisions of the Proposed Rule relating to debt collector communications with consumers. This post summarizes the key provisions of the Proposed Rule relating to debt collectors’ disclosures to consumers. These include provisions relating to key proposed disclosures, namely the requirements relating to debt validation notices, and the electronic provision of required disclosures.
Section 809(a) of the FDCPA requires that within five days after the initial communication with the consumer in connection with the collection of any debt, a debt collector must provide the consumer with a validation notice (unless the required information is contained in the initial communication, or the consumer has paid the debt). The statute requires the notice to include:
- The amount of the debt;
- The name of the creditor to whom the debt is owed;
- A statement that unless the consumer disputes the validity of the debt (or any portion thereof) within 30 days after receipt of the notice, the debt collector will assume the debt to be valid;
- A statement that if the consumer notifies the debt collector in writing during the 30-day period that the debt (or any portion thereof) is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer, and the debt collector will mail the consumer a copy of the verification or judgment; and
- A statement that, upon the consumer’s request within the 30-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
Proposed Debt Validation Notice Requirements
To address perceived inadequacies in the processes relating to validation and verification, the Bureau has proposed Section 1006.34 to clarify what validation information debt collectors must provide to consumers.
First, the Proposed Rule would clarify that a debt collector may satisfy the initial disclosure requirement by sending a consumer a validation notice that satisfies the delivery requirements of proposed Section 1006.42(a): (1) in the initial communication; or (2) within five days thereafter. However, as under Section 809(a), the disclosure requirement does not apply if the consumer has paid the debt prior to the time the notice is required to be sent. As these provisions are largely consistent with the statute, they do not appear to present significant challenges for implementation.
Second, the Proposed Rule would require the validation information to be “clear and conspicuous,” which the CFPB would define consistent with how that term is used in other consumer financial services laws and implementing regulations. Accordingly, for a disclosure to satisfy the standard, it would have to be: (1) readily understandable; (2) for a written or electronic disclosure, in a location and type size that are readily noticeable to consumers; and (3) for and oral disclosure, given at a volume and speed that are sufficient for a consumer to hear and comprehend it.
Third, the Proposed Rule would require a debt collector to include in the validation notice information about the debt that would be sufficient to enable the consumer to identify, and determine whether they owe, the debt. Specifically, such information would include:
- the consumer’s name and mailing address, which would have to be the most complete information the debt collector obtained from the creditor or another source;
- the name of the creditor, which the CFPB proposes to make the creditor as of the itemization date;
- the account number;
- the amount of the debt;
- information about consumer protections, including the right to dispute a debt and to request the name and address of the original creditor, as provided under Section 809(b) of the FDCPA; and
- a consumer response form that a consumer may use to exercise such rights (e.g., submitting a dispute or requesting original creditor information), which would include express elective statements that a consumer could use to ensure that debt collectors provide the appropriate information.
Fourth, to comply with the validation disclosure requirements of Section 809(a) of the FDCPA and 12 C.F.R. § 1006.34 of the Proposed Rule, the CFPB has proposed a Model Validation Form (B-3). The Bureau would permit a debt collector to adjust the content, format and placement of certain validation information within the model form, provided that the resulting disclosures are substantially similar to the model.
Disclosure of the Amount of Debt
The proposed requirements relating to the amount of the debt are worth note. First, the Proposed Rule would require a debt collector to disclose both: (1) the current amount of the debt; and (2) the amount of the debt as of the “itemization date.” The amount would have to be presented in tabular format, and reflect interest, fees, payments, and credits (or, if applicable, a disclosure that no interest, fees, payments, or credits were assessed or applied to a debt). The Bureau has requested comment on whether the itemization should be more detailed, whether itemization is practicable for all categories of debt, and whether the proposed itemization would cause conflicts with other applicable laws and requirements.
Second, the Proposed Rule would define the “itemization date” as any of the following reference dates on which the debt collector can ascertain the amount of the debt: (1) the last statement date; (2) the charge-off date; (3) the last payment date; or (4) the transaction date; Notably, while the Proposed Rule would allow a debt collector flexibility in determining which reference date to choose as the “itemization date,” it would require a debt collector to use the same date consistently for disclosures for that same consumer, to ensure that changes in the reference do not undermine the Bureau’s purpose of providing clear and consistent information in disclosures under proposed Section 1006.34. Additionally, debt collectors would have to take care to identify the creditor as of the chosen itemization date. The CFPB has requested comments on whether: (1) the proposed definition of “itemization date” will facilitate disclosure, (2) would capture all debt types; (3) whether additional clarification is needed; and (4) whether the potential reference dates should be ordered in a hierarchy in order to improve consumer understanding of the required disclosures.
Third, the Proposed Rule includes special disclosure requirements for the amount of the debt for debt collectors collecting mortgage debt that is subject to Regulation Z, 12 C.F.R. § 1026.41. Given that that regulation requires the delivery of regular periodic statements that includes itemized fee information, the CFPB’s proposal reflects that for such loans the “amount of the debt” information that would otherwise be required under the Proposed Rule would already be delivered to consumers. Accordingly, the Proposed Rule would permit a debt collector collecting a mortgage debt subject to the periodic statements requirement of Regulation Z a copy of the most recent periodic statement provided to the consumer at the same time as the validation notice, and refer to the periodic statement in the notice, in order to satisfy the itemization requirement. In doing so, the Proposed Rule would provide flexibility to mortgage servicers in complying with the “amount due” itemization requirement. The Bureau is requesting comment on how this exemption would apply to servicers exempt from the periodic statement requirement (e.g., for borrowers in bankruptcy). However, we note that the periodic statement requirements also do not apply to open-end and reverse mortgage loans. Thus, it appears that servicers of open-end and reverse mortgage loans would not be given the same flexibility in complying with the “amount due” itemization requirement. In addition, it is unclear whether the provision of a periodic statement, in lieu of the itemized amount due, could create borrower confusion to the extent the amount listed on the periodic statement materially differs from the “current amount of the debt,” which must continue to be disclosed.
Proposed Validation Period Requirements
In addition to the validation notice requirements discussed above, Section 809 of the FDCPA requires a debt collector to satisfy certain requirements if a consumer, within the 30-day validation period: (1) disputes a debt; or (2) requests the name and address of the original creditor. To ensure that consumers can take advantage of this protection, the Proposed Rule would require a debt collector to disclose to a consumer the date on which the verification right expires (i.e., the date on which the 30-day period ends).
The Proposed Rule would define the validation period as beginning on the date on which a debt collector provides the validation information, and ending 30 days after the consumer receives or is assumed to receive such information. Under the Proposed Rule, the latter date would be any date that is at least five business days (excluding Saturdays, Sundays, and legal public holidays) after the debt collector provides the validation information. If a consumer does not receive the original validation notice, and the debt collector sends a subsequent notice, the Proposed Rule would calculate the validation period from the date of receipt (or assumed receipt) of the subsequent notice.
The Bureau is seeking comment on how debt collectors determine the end of the validation period, and on whether the timing presumption should be modified (including to account for differences in mail versus electronic delivery).
Proposed Provisions Relating to Translation of Disclosures
To address concerns regarding LEP consumers, the Proposed Rule would include provisions relating to the translation of information from validation notices.
Specifically, the Bureau proposes to permit a debt collector to include in a validation notice optional information (in Spanish) on how a consumer may request the notice in Spanish, if the debt collector chooses to provide a Spanish-language translation. To determine the potential impact of this provision, the CFPB has requested comments on: (1) debt collectors’ current Spanish-language, and other non-English language, collection activities; (2) examples of supplemental Spanish-language instructions to request a translated validation notice; and (3) the benefits and risks of such an approach.
Further, the Proposed Rule would allow a debt collector to provide a translation of the validation notice in any language other than English if the debt collector: (1) also sends an English-language validation notice in the same transmittal; or (2) previously sent an English-language validation notice. This provision of the proposal recognizes, but does not mirror, obligations that may arise under state law regarding the provision of translated documents to LEP consumers. By declining to mandate multiple translations, the Bureau’s proposal would avoid imposing significant costs on debt collectors who may not deal with significant LEP populations. However, the Bureau is seeking comment on whether a debt collector should be required to provide a translated non-English validation notice (in a language other than Spanish) at the request of the consumer. Such a requirement could expand the cost of compliance with the Proposed Rule, particularly for debt collectors whose exposure to LEP consumers is more limited.
Electronic Disclosure Requirements
To recognize the role that electronic communications play in debt collection activities, the Proposed Rule would:
- Permit debt collectors to include electronic contact information (website and email address) in the validation notice;
- If a debt collector sends a validation notice electronically, require the debt collector to include a statement regarding how a consumer can take responsive actions (e.g., disputing the debt) electronically, and permit the debt collector to include such information in a disclosure that is not provided electronically;
- Require a debt collector to provide required disclosures in a manner that is reasonably expected to provide actual notice and in a form that the consumer can keep and access later; and
- If a debt collector provides required disclosures electronically, mandate compliance with the federal E-SIGN Act or equivalent processes.
The Bureau is giving particular consideration to how consumers might respond to electronic validation notices. Specifically, the Proposed Rule considers how a debt collector may include prompts and hyperlinks in validation notices to facilitate consumer responses. The former director of the Federal Trade Commission’s Bureau of Consumer Protection, David Vladeck, recently published an opinion article in which he highlighted several cybersecurity concerns related to the permissible use of hyperlinks under the Proposed Rule. Specifically, the former director noted that:
Encouraging use of hyperlinks by unknown parties undermines government warnings about the risks of doing so and exposes consumers to criminal exploitation. Scammers pushing links with viruses, malware, and identity theft scams are almost certain to impersonate debt collectors. Consumers will face a catch-22: Click and risk a virus or a scam, or don’t click and miss potentially legitimate information about why a debt collector is going after you and how to dispute the debt.
In light of the risks highlighted by the former director, and other consumer advocates, it is unclear whether the Proposed Rule’s provisions on the use of hyperlinks will make their way into a Final Rule.
While the Proposed Rule would provide debt collectors some flexibility in determining how to comply with the validation notice requirements, the scope of issues on which the Bureau has requested comment in connection with these provisions leaves open the possibility that the new requirements could be significantly more burdensome to implement. As parts four and five of this blog series will discuss in greater depth, the final requirements that the Proposed Rule would impose, and its nuances, are important to note for debt collectors.