The Consumer Financial Protection Bureau (CFPB or "Bureau") issued a second debt collection final rule that:
- clarifies the validation information and disclosures that a debt collector must provide to a consumer at the outset of debt collection communications and provides a model notice containing such information,
- prohibits debt collectors from bringing or threatening to bring a legal action against a consumer to collect a time-barred debt, and
- requires debt collectors to take certain actions before furnishing information about a consumer's debt to a consumer reporting agency (CRA).
The Final Rule issued on December 18, 2020 follows a recently released final rule regarding debt collection communications ("November 2020 Final Rule"). Together, the two rules amend Regulation F, which implements and interprets the Fair Debt Collections Practices Act (FDCPA). The final rule is based primarily on the Bureau's authority to issue rules to implement the FDCPA and, consequently, covers debt collectors, as that term is defined in the FDCPA. The Final Rule takes effect on November 30, 2021.
Validation Information Requirements and Disclosures (Section 1006.34)
The Final Rule implements the FDCPA's validation information requirement when the debt collector first communicates with the consumer to collect the debt or shortly thereafter. The Final Rule requires the debt collector to provide the consumer with certain information related to the debt and the consumer's rights (the "validation information") and imposes certain timing and delivery requirements. If the validation information is provided in writing, including electronic communication, the document containing the information is referred to as a "validation notice." The Final Rule also allows debt collectors to provide the validation information orally during the initial communication.
Under the Final Rule, the validation notice must include the following validation information:
- Debt collector communication disclosure;
- Debt collector's name and mailing address;
- Consumer's name and mailing address;
- Name and mailing information of the creditor to which the debt was owed on the itemization date;
- Account number or truncated account number, if any, associated with the debt on the itemization date;
- Name of the creditor to which the debt is currently owed;
- Current amount of the debt;
- Amount of the debt on the itemization date;
- Itemization-related information;
- Information about consumer protections;
- Consumer-response information; and
- Consumer dispute prompts.
The contents above must be "clear and conspicuous," which is defined in the Final Rule to mean readily understandable. If the validation notice is provided in writing or electronically, the location and type size also must be readily noticeable and legible to consumers; oral disclosures must be given at a volume and a speed that allow the consumer to hear and comprehend them.
If a debt collector wishes to retain the safe harbor by using the model notice provided in the rule (discussed further below), the debt collector may also include certain optional content in the validation notice. The optional content permitted includes the following, provided that the optional content is not more prominent than the required content:
- the debt collector's telephone contact information;
- a reference code the debt collector uses to identify the consumer or the particular debt;
- certain payment disclosures;
- certain electronic communication information, such as the debt collector's website or email address;
- certain Spanish-language disclosures regarding how a consumer may request a Spanish-language validation notice;
- the merchant brand, affinity brand, or facility name associated with the debt; or
- disclosures specifically required under (or that provide safe harbor under) other applicable law.
Delivery Method and Timing Requirements
The validation notice must be provided either (1) in the debt collector's initial communication to the consumer or (2) within 5 calendar days after the initial communication.
For purposes of the validation information, "initial communication" means the first time the debt collector conveys information to the consumer about the debt, directly or indirectly.
The following permutations are set out in the Final Rule:
- If the consumer pays off the debt before the validation information is required to be sent (i.e., prior to the end of the 5 calendar days after the initial communication), the debt collector is not required to provide the information.
- If the debt collector provides the validation notice in the initial communication, the debt collector can provide the required information in whichever method the debt collector chooses for the initial communication itself.
- If provided in the initial communication electronically, the debt collector need not comply with E-SIGN requirements, but must comply with the general disclosure delivery requirements in the November 2020 Final Rule (i.e., in a manner reasonably expected to provide actual notice and in a form the consumer may keep and access later).
- The November 2020 Final Rule also contains additional requirements related to electronic disclosures. If the debt collector does not provide the validation information in the initial communication, the debt collector generally must provide the validation notice no more than 5 calendar days after the initial communication.
- If providing the validation notice during this later period, it must meet the general disclosure delivery requirements in the November 2020 Final Rule. If electronic, it must also meet the electronic disclosure requirements in the November 2020 Final Rule, and the debt collector must have E-SIGN consent.
For purposes of the validation information, the initial communication does not include formal civil action pleadings (including proof of claims filed in accordance with the United States Bankruptcy Code). Additionally, it does not include any form or notice that is not related to the collection of debt and that is expressly required by the Internal Revenue Code, Title V of the Gramm-Leach-Bliley Act, or any federal or state law or regulation mandating notice of a security breach or privacy risk.
The Final Rule revises the definition of "consumer" used in the November 2020 Final Rule. "Consumer" now includes both living and deceased consumers. As a result, the debt collector must provide the validation notice either to the living consumer, or, if the debt collector knows or should know the consumer is deceased prior to providing the validation notice, to the person authorized to act on behalf of the deceased consumer's estate (e.g., an executor, administrator, or personal representative).
Validation Period Requirements
The debt collector must provide the consumer 30 calendar days—identified in the rule as the "validation period"—to dispute the debt or request original-creditor information about the debt. The period begins on the date the consumer receives, or is assumed to have received, the validation notice. A consumer is assumed to have received the validation notice 5 business days after the date the debt collector provides it electronically or in writing.
A debt collector may use the date on which the consumer is assumed to receive the validation notice to calculate the end date of the validation period, even if the debt collector later learns that the consumer received the notice on a different date.
During the validation period, the debt collector must not engage in collection activities or communications that overshadow, are inconsistent with, or would interfere with the consumer's rights to dispute the debt or request original-creditor information.
Additionally, if the consumer disputes the debt or requests original-creditor information in writing within the validation period, the debt collector must cease collection of the debt (or the disputed portion) until the debt collector provides the information needed to verify the debt or provides the original-creditor information.
Safe Harbor for Model Validation Notice Use
A debt collector that uses the model validation notice provided complies with the Final Rule's content requirements, including the requirement that the notice be clear and conspicuous. Use of the model validation notice also would not constitute a violation of the November 2020 Final Rule's prohibition on conduct that "overshadows" a consumer's rights during the validation period.
CFPB Model Debt Collection Validation Notice
Additionally, a debt collector receives this safe harbor if it uses any of the specified variations of the model notice in Appendix B of the rule, or if it provides a notice substantially similar to the model notice in Appendix B.
The safe harbor generally does not apply with respect to the entirety of the validation notice if a debt collector includes any additional disclosures beyond (1) the required validation information; (2) the optional disclosures identified in the rule; or (3) any changes to the form that, if included, still leave the form substantially similar in substance, clarity, and meaningful sequence to the model notice. Any false or misleading statements, such as an inflated current amount of debt, would fall outside of the safe harbor.
The safe harbor does not cover delivery timing and method requirements for validation notices.
Translation into Other Languages
Generally, the Final Rule allows the debt collector the option to send the consumer a validation notice completely and accurately translated into any language. If a debt collector chooses to offer translated validation notices, the debt collector must provide the translated notice with an English-language notice in the same communication as the translated validation notice.
The Final Rule allows the use of optional disclosures to notify the consumer of the ability to request a Spanish translation of the validation notice. If such an optional disclosure is used and the consumer makes the request, the debt collector must provide a validation notice that is completely and accurately translated into Spanish. The CFPB plans to make available on its website a Spanish-language translation of the validation notice, which will be considered a complete and accurate translation.
Time-Barred Debts (Section 1006.26)
Under the Final Rule collectors are prohibited from—and will be strictly liable for—bringing or threatening to bring legal action against a consumer to collect a time-barred debt. The Final Rule defines time-barred debt as a debt for which the applicable statute of limitations has expired. Proofs of claim filed in connection with a bankruptcy proceeding are not included in this prohibition.
The Bureau also clarified that the collection of time-barred debt is not categorically prohibited. Attempting to collect time-barred debts may be permissible if sufficient disclosures are provided to the consumer, the collection efforts do not include legal action or threats of legal action, and no other potentially deceptive practices are utilized. However, the CFPB did not finalize the model disclosures originally proposed to act as a safe harbor if collectors took prescribed steps to alert consumers that their debt might be time barred. While the Final Rule does not contain a disclosure safe harbor, that Bureau concluded that, "[i]n many circumstances, disclosures can effectively cure the potential deception associated with the collection of time-barred debt."
Under the Final Rule, a collector who sues or threatens to sue a consumer to collect a time-barred debt violates the FDCPA even if applicable state law permits the suit (as would be the case in states in which the statute of limitation operates as an affirmative defense, rather than a bar to filing a claim). In doing so, the Bureau moved away from the proposed "know-or-should-know" standard in favor of strict liability.
Required Actions Before Credit Reporting (Section 1006.30)
The Final Rule prohibits the practice of furnishing collection information about a debt to a CRA without first notifying the consumer about the debt—a practice also known as "passive collection." The Final Rule requires a debt collector to notify the consumer prior to furnishing information to a CRA in one of two ways:
- The debt collector must speak to the consumer about the debt in person or by telephone, or
- Place a letter in the mail or send an electronic message to the consumer about the debt and wait a reasonable period of time to receive a notice of undeliverability.
Providing the validation information required under the rule is one way to comply with this requirement, although, according to the rule, it is not the only way.
If mailing a letter or sending an electronic message to the consumer, the collector must wait a reasonable period of time to receive a notice of undeliverability before furnishing information to a CRA. During the "reasonable period of time," the debt collector must permit receipt of, and monitor for, notifications of undeliverability from communications providers. Waiting 14 consecutive days after sending the mail or electronic message serves as a safe harbor from this requirement. The safe harbor would apply even if a notice of undeliverability is received after the 14-day period.
If the debt collector receives a notice of undeliverability during the "reasonable period of time," the debt collector must not furnish information about the debt to a CRA until it resubmits the information about the debt to the consumer by one of two methods identified above. The Final Rule includes examples of how the receipt of notice of undeliverability impacts furnishing.
The Final Rule also excludes furnishing information about a debt to a CRA that maintains and compiles files on consumers on a nationwide basis relating to check writing history. The Bureau determined that furnishing to such specialty CRAs was necessary to avoid "[r]educing the effectiveness of the check verification system."
Record Retention (Section 1006.100)
The Final Rule provides, in part, that a debt collector must retain records that are evidence of compliance or noncompliance with the FDCPA and the rule. Thus, under the rule, a debt collector must retain records that evidence that the debt collector performed the actions and made the disclosures required by the FDCPA and the rule, as well as records that evidence that the debt collector refrained from conduct prohibited by the FDCPA and Regulation F. If a record is of a type that could evidence compliance or noncompliance depending on the conduct of the debt collector that is revealed within the record, then the record is one that is evidence of compliance or noncompliance, and the debt collector must retain it. Examples include telephone call logs as evidence of compliance or noncompliance with the prohibition against harassing telephone calls, and copies of documents provided to consumers as evidence that the debt collector provided the information required by the rule and met the delivery requirements discussed above.
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For more information about this and related industry topics, see www.venable.com/cfs/publications.
This article is not intended to provide legal advice or opinion and should not be relied on as such. Legal advice can be provided only in response to a specific fact situation.