The Consumer Financial Protection Bureau’s (CFPB or Bureau) Notice of Proposed Rulemaking (NPRM) for debt collection was released yesterday and contained a lot of detail about validation notice requirements. Parts of the notice are consistent with today's version, but the NPRM outlines several new requirements and clarifications.
insideARM published an article yesterday with some of the detail. Below is a deeper dive into the validation period, the “tear off” check box section, and the itemization of debt.
Clearly-Defined Validation Period
The Fair Debt Collection Practices Act (FDCPA) provides consumers with 30 days from receipt of the validation notice to take advantage of the rights outlined in section 1692g of the FDCPA. This might seem like a simple concept at first blush, especially where electronic communications are concerned, but the issue becomes complex when taking the mail system into account. Without mail tracking, which is cost-prohibitive in the context of debt collection due to the quantity of letters sent, debt collectors must make an educated guess as to when the consumer actually received the letter.
The Bureau answers this question by clearly laying out the validation period. The consumer still has 30 days from the date of receipt to take advantage of his or her right, but now “a debt collector may assume that a consumer receives the validation information on any date that is at least five days (excluding legal public holidays, Saturdays, and Sundays) after the debt collector provides it.” See NPRM § 1006.34(b)(5).
Of benefit to both the consumer and the debt collector, the validation notice will need to clearly state the date that the validation period ends (see NPRM § 1006.34(c)(3)) so there is no confused about when the consumer must exercise his or her validation rights.
Check Box Tear-Off or Equivalent
The proposed rule will require that the validation notice contains what has frequently been referred to as a “tear-off” or “coupon” section which a list of check box options for actions the consumer may take. This section will need to be segregated from other sections of the letter and contain a specifically-defined list of available actions, such as options for disputing the debt and requesting original creditor information. See NPRM § 1006.34(c)(4). Model Form 3–B, which the Bureau considers compliant, models the section as follows:
If the validation notice is sent electronically, these prompts may be displayed as electronically fillable fields and include hyperlinks to the debt collector’s website. See 1006.34(d)(4).
Itemization of Debt
The NPRM requires that the validation notice letter includes an itemization of debt. This itemization seems to be fashioned after New York’s requirements, requiring the debt collector to outline the amount of the debt as of the “itemization date” (more on that in a minute) and the current amount of the debt “in a tabular format reflecting interest, fees, payments, and credits since the itemization date.” See NPRM § 1006.34(c)(2)(viii)-(ix). Model Form 3–B shows the format as follows:
When the initial outline of the proposed rules came out in 2016, there was some issue with clearly defining a date for such itemization, since different types of debts use different terminology and have different processes for determining the amount of debt. For example, a charge-off date might better apply to credit card debt, but date of services received might be a better date for healthcare accounts. Even within the credit card realm, sometimes debt collectors are assigned post-default but pre-charge-off accounts, in which case there would not yet be a charge-off date.
The Bureau addressed this concern by providing the debt collector some flexibility so that it can select whichever date is most appropriate for its specific situation. Section 1006.34(b)(3) provides debt collectors with flexibility by defining the itemization date as any of the following:
- Last statement date,
- Charge-off date,
- Last payment date, or
- Date of the transaction that gave rise to the debt.
As we dig deeper into the NPRM, we will have more to follow.
It's important to note is that these are not yet official rules; they are proposals, and open to comment for approximately 90 days (that clock will start ticking once the NPRM is published in the Federal Register, which is expected in the coming days). A final rule is expected in the months following the close of this comment period.