Regulation F and the CFPB commentary are over 900 pages of regulatory changes to everyday operational matters faced by the debt collection industry. Our team has spent months reviewing Regulation F for the purposes of implementing adjustments to our processes (you can learn about our organizational structure including Alliance Collection Agencies here). Without further ado, here are our thoughts.
Change 1: Certainty of Regulation Levels the Playing Field
All industries and businesses crave certainty of regulation. Certainty of regulation levels the playing field, permitting competition based on results. CFPB Regulation F, promulgated under the rule-making authority given the CFPB under the 2010 Dodd-Frank Act, for the first time provides rules for the conduct of consumer debt collection on a national level. Regulation F will be effective November 30, 2021 or, as recently proposed by the CFPB, January 29, 2022. The latter is a proposed extension of the effective date resulting from the disruption caused by the COVID-19 pandemic. Regulation F covers a broad range of consumer debt collection activity under the 1978 Fair Debt Collection Practices Act (FDCPA).
Among other things, Regulation F acknowledges modern forms of communication such as email and text messages as methods of communication with consumers that, done properly, comply with the FDCPA. Of course, these forms of communication were non-existent at the time of enactment of the FDCPA. Although no regulation is perfect, with some questions remaining and inconsistent regulation at the state and local levels, Regulation F has the potential to supplant the regulation by enforcement model at the federal level that has existed since 1978.
Regulation F with its model validation form, rules for electronic delivery of required written communications under the FDCPA, bona fide error defenses for email and text messages, and presumptions of compliance for frequency of telephone calls to consumers, also has the potential to reduce substantially the plague of private litigation that has burdened the industry, often with no resulting benefit to consumers*.
*6,876 private actions were filed against debt collectors alleging violations of the FDCPA in 2020. Debt collectors are often forced to settle these cases regardless of merit because of the prohibitive cost of defending them.
Change 2: Regulation F’s Acknowledgment of Modern Forms of Communication
Regulation F explicitly acknowledges the use of email and text messages as methods of debt collection communication with consumers that, done in compliance with Regulation F, comply with the requirements of the FDCPA. Regulation F provides that consumer consent to email communication, obtained in accordance with the federal E-Sign Act, enables email communication to satisfy the written communication requirements of the FDCPA.
Regulation F provides bona fide error defenses to unauthorized third-party debt collection disclosure claims for email and text message communications done in compliance with Regulation F. Regulation F requires that each outbound email and text message communication with consumers contain easy to use opt-out methods.
Best Practice: Now is the time to begin to ensure Regulation F provisions coincide with your integration of email, texts and other debtor self-pay technologies, if your existing practices do not fully mesh. Doing so will allow your organization to collect from consumers in the most effective, compliant and consumer-friendly manner possible.
Change 3: Electronic Communication
Regulation F enables the use of email, text and debtor self-service as legitimate alternatives to the traditional collection letter and telephone call methods of debt collection communications with consumers.
Best Practice: Utilize analytics to determine the most effective and accepted communication channel for each consumer in your portfolio. This will lead to higher liquidation rates and reduced communication costs.
Change 4: Avoidance of Attempts to Communicate at Inconvenient Times or Places, Call Frequency Limits & Electronic Communication Opt-out Notices
Regulation F’s emphasis on avoidance of attempts to communicate and communications with consumers at inconvenient times and places, limits on frequency of attempted calls and calls placed, and easy opt-out methods as part of every electronic communication are all consistent with our suggested best practices. Unwanted debt collection communications and communications that do not result in right-party contacts are unproductive, expensive and lead to complaints.
Best Practice: Work to understand the consumer’s propensity to respond to various forms of communication, optimize the method of communication to each consumer, and track all communication attempts with each consumer across all communication channels to comply with Regulation F and the FDCPA.
Change 5: Validation Requirements & Model Validation Notice
Regulation F provides greater certainty for debt collectors to meet the FDCPA debt validation requirements and avoid consumer claims of “overshadowing.” Regulation F implements the FDCPA information requirements when the debt collector first communicates with the consumer to collect the debt, or shortly thereafter.
Regulation F provides a model validation notice that if used, provides a safe harbor for debt collectors to meet the information and form requirements for debt validation under the FDCPA and Regulation F. Regulation F requires the validation notice to include the following, among other things, provided in a clear and conspicuous manner:
- Debt collector’s name & mailing address
- Mini-Miranda
- Amount of the debt on the itemization date
- Itemization-related information
- Current amount of the debt
- Name of the creditor to which the debt is currently owed
- Account number or truncated account number
- Information about consumer protections, to include the date the debt collector considers the end date of the validation period
- Consumer-response information
- Consumer dispute prompts
Regulation F also permits certain optional information to be included in the model validation notice, including the debt collector’s telephone number, the debt collector’s reference code to identify the consumer or the debt, the debt collector’s website or email address, the facility name associated with the debt and state law required disclosures.
Change 6: Regulation F Prohibits “Passive Collection”
Passive collection is the practice of furnishing collection information about a debt to the credit bureaus without first notifying the consumer. Before furnishing information about the debt to the credit bureaus, Regulation F requires the debt collector to first speak to the consumer about the debt or send the validation notice by mail or electronic means to the consumer and wait a reasonable period (14 days is the safe harbor) to permit receipt of and monitor for notifications of undeliverability.
Best Practice: Put forth the effort to ensure the expiration of the validation period with no notice of undeliverability before credit reporting.
Change 7: Time-Barred Debts
Regulation F prohibits a debt collector from suing or threatening suit to collect consumer debt for which the applicable statute of limitations has expired.
Change 8: Record Retention
Regulation F requires debt collectors to maintain records that evidence compliance with the FDCPA and Regulation F for 3 years following the last collection activity on a consumer debt (3 years for call recordings following a recorded call made in connection with the collection of a debt if the debt collector records calls).
Legal Disclaimer
The information provided in this document does not, and is not intended to, constitute legal advice; instead, all information is for general informational purposes only. Information contained within this document may not constitute the most up-to-date legal or other information. Readers should contact their attorney to obtain advice with respect to any legal matter. No reader should act or refrain from acting on the basis of information provided in this document without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.