While it remains to be seen what changes, if any, a change in leadership within the CFPB will bring to the debt collection rule, for now, collection agencies should start preparing for a November 30.e effective date. Now that the Rule has been fully published, this article will explore the centerpiece of the Rule, Section 1006.34 (Debt Validation Notice), and five traps for the unwary.
Trap number 1: Attention to the deceased consumer.
For the purposes of validating the debt, the Rule specifies that if the debt collector knows or should know that the consumer is deceased, and if he has not previously provided the validation notice to the deceased consumer, the debt collector debts must provide the validation of the debt notice to a person authorized to act on behalf of the deceased consumer’s estate. According to the CFPB’s interpretation, this would include executors, administrators and personal representatives. Debt collectors should therefore establish policies and procedures that specify when and to whom a debt validation notice should be sent when the consumer has died. These policies should include processes to identify estates and the appropriate estate representative.
In addition, debt collectors should be aware that specificity is required when sending validation notices to the representative of a deceased consumer. Commentary 34 (a) (1) -1 requires the debt collector to identify name the person authorized to act on behalf of the deceased. It is not enough to simply send the validation of the debt 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 been previously provided, provide it to the appropriate representative’s address. .
Trap number 2: Beware of the empty box.
While the template form offers some security to debt collectors who choose to use it, beware of the trap of leaving boxes empty in the BOM! Section 1006.34 (c) (2) (vii) specifically requires a breakdown of the current amount of debt reflecting interest, charges, payments and credits since the date of the breakdown. Comment 34 (c) (2) (vii) -1 makes it clear that the debt collector must include fields in the notice for all of these, even if none have been assessed or applied. It is important to note that a debt collector cannot leave a mandatory field blank. This means that debt collectors must provide clues indicating that none or “-0-” is due in each of these fields. An empty box or a mention “not applicable” is insufficient and liable to be interpreted as a violation of the Rule.
Trap number 3: Beware of the Upside Down Riddle.
Under the Rule, certain optional disclosures are permitted. For those made under applicable state law, the majority of them should be placed on the back of the validation notice. Debt collectors should be aware that their placement is essential. The Rule expressly requires that they be placed in such a way that they are above consumer response information or tear up part of the notice. See Section 1006.34 (d) (3). This is to ensure that the consumer can retain the information if they choose to request validation.
Trap number 4: Be careful at the end of the validation period.
Sections 1006.34 (c) (3) (i) through (iii) require that validation rights statements specify the date the validation period ends. Section 1006.34 (b) (5) defines the validation period as starting on the date the validation notice is mailed and ending 30 days after the consumer receives or is believed to have received it. For the purposes of the end date, the debt collector may assume that the consumer receives validation on any date that is at least 5 days (excluding statutory holidays defined in the US Code, Saturday and Sunday).
Problems can arise if the validation period is calculated to ignore federal holidays or if notices are sent along with their preparation. Debt collectors should ensure that (a) the data field for the validation end date is correctly calculated and completed; and (b) they document their business practices for sending out debt validation notices.
Trap number 5: Beware of the lock box trap.
Section 1006.34 (c) (2) (i) of the Rule requires the debt collector to disclose as part of its validation information the mailing address to which the debt collector accepts disputes and inquiries. on the original creditor. The rule allows for flexibility by allowing a debt collector to disclose a seller’s mailing address if it is an address to which the debt collector accepts disputes and claims from creditors. origin. Importantly, however, the Rule does not allow debt collectors to indicate a second address for payments in the validation notice. In fact, the CFPB is adamant that payment is a secondary concern in the validation notice. The CFPB makes it clear that additional importance with regard to payment information is not warranted and that optional payment disclosures allowed should appear under the consumer’s response information. With this in mind, the Bureau is clear that an alternative second address for payments should not be included in the validation notice. For debt collectors, who use a lock box for payments, this can be problematic. Debt collectors will need to determine whether or not they want to include optional payment disclosures and for those using a separate lock box for payment, they may consider omitting payment disclosures until a later letter when they can appropriately include the address lock box.
Collection agencies should start reviewing their debt validation notices, checking their ability to use the template form and what changes will need to be made in preparation for the effective date of November 30, 2021. Among others:
- All letters should be reviewed and adjusted to comply with the Rule and agencies should start coordinating with their letter providers to ensure a smooth transition on November 30, 2021;
- Agencies should start to review and assess how they will send validation notices: will they take advantage of electronic means or will they continue to send validation notices by mail?
- Agencies should begin to discuss and coordinate with their first party clients the detail date and additional information that will need to be provided to the agency upon placement to ensure compliance with the new validation requirements of section 1006.34;
- Agencies should begin to review and assess applicable state disclosure requirements to determine their impact on the agency’s ability to use the Safe Harbor validation notice and what adjustments, if any, will need to be made. be carried out to remedy it; and
- Once the agency has its validation notice in final form, all agencies should consider a final review for compliance of the notice to ensure the agency is aware of any potential for litigation or increased error. .