In two recent law review articles, (here and here) law professor Jeff Sovern published his empirical findings that most people don’t understand the validation notice required by the federal Fair Debt Collection Practices Act (FDCPA)
To the extent the professor’s findings are representative of consumers as a whole, this is an interesting issue for debt collectors. Despite the Consumer Financial Protection Board’s (BCFP) forecast that it intends to consider issuing FDCPA regulation, it does not have the power to re-write the FDCPA statute containing the validation notice. To some extent the professor’s empirical findings confirm what many in the debt collection business have said for years, the validation notice is confusing. Perhaps it is time for debt collectors to view the validation notice not as a collection tool but a legal prerequisite to collection.
One of the critical aspects of debt collection by third party debt collectors is the ‘validation notice’ required by 15 U.S.C. s. 1692g of the FDCPA. A debt collector is required to send this notice to a consumer within five days after first contact with the consumer. The law specifies that the validation notice contain certain information and advise the consumer of certain rights, as follows:
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of the
notice, disputes the validity of the debt, or any portion thereof, the debt will be
assumed to be valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the
thirty-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 a copy of such verification or judgment will be mailed to the consumer by the
debt collector; and
(5) a statement that, upon the consumer’s written request within the thirty-day
period, the debt collector will provide the consumer with the name and address of
the original creditor, if different from the current creditor.
Sending the validation notice is a prerequisite to other methods of debt collection, such as calling the consumer, contacting the consumer electronically, writing letters, or filing a lawsuit. The validation notice is also an important issue for debt collectors because failure to comply with the above requirements subjects a debt collector to strict liability, meaning the debt collector is liable even for mistaken failure to comply. Further, the aggrieved consumer need not show he or she was actually harmed by anything the validation notice said or failed to say, only that the validation notice did not comply with the above law. While a consumers actual damages may be small, and statutory damages, in the case of an individual plaintiff, are relatively small, $1,000, the successful consumer is entitled to an award of attorneys fees, and these can be substantial. There have been numerous lawsuits about compliance with the above language and the decisions are not consistent. It would not be an understatement to say the validation notice is one of the biggest issues in debt collection today.
The validation notice language above is generally believed to protect important rights for consumers. Consumers are believed to have a right to know the amount of the debt, the name of the creditor to whom the debt is owed, and that the consumer must dispute the validity of the debt within thirty days of the validation notice or the debt collector will assume it is valid. Consumers have a right to be advised if the consumer disputes the debt, perhaps in writing, perhaps orally (some courts have ordered the dispute need not be in writing), the debt collector is required to obtain verification of the debt and mail it to the consumer. The consumer has a right to be provided with the name and address of the original creditor, if different from the current debt collector.
Law professor Jeff Sovern authored two law review articles, in 2017 and 2018, publishing the results of a study he conducted using four versions of a collection letter with different iterations of the validation notice, including a ‘control’ that did not contain a validation notice at all. Then Sovern asked his subjects a series of questions about what the various notices notices said to test the subjects understanding of the notice.
Many in debt collection might (or might not) be surprised to learn some of Professor Sovern’s views of his findings:
- It did not appear to matter whether the collection letter contained the validation notice or not. On most questions the survey subjects did not show significantly better understanding of their validation rights from a letter that contained the above notice than did the subjects who saw an otherwise identical letter without any validation notice.
- More than half the subjects appeared to Sovern to be confused about the language referring to under what circumstances the debt collector would assume the debt to be valid.
- About a quarter of the subjects did not realize they had a right to request verification of the debt
- Almost all who understood they could request verification of the debt thought an oral request was sufficient – even though the statute clearly states such a request must be in writing
- The professor’s general observations on his findings that likely would disturb consumer advocates the most related to the statutory language that unless disputed, the debt collector would assume the debt to be valid: “. . .More than a third of respondents thought that if they did not meet the thirty-day deadline specified in the validation notice for disputing the debt, they would have to pay the debt or could not defend against a suit to collect it even if they did not owe the debt.”
The professor concludes his thoughts on the results of his study by claiming the validation notice would be deceptive according to the standards of the Federal Trade Commission.
The law review articles also contain a useful history of the FDCPA and survey of cases interpreting the validation notice. The professor’s analysis of his survey findings is exhaustively detailed (the two articles together are almost 200 pages long)
As Sovern aptly points out, his study was hypothetical. The subjects were not people who were alleged to owe money who had received the letters from a real debt collector. They were respondents to an internet survey requested to read the four forms of collection letters and answer questions about them. It is not known how the subjects would interpret the letters if they received them from real debt collectors alleging actual debts
Professor Sovern’s studies raise significant questions as to what ‘rights’ consumers and/or debt collectors have under the validation notice and whether the validation notice enumerates those ‘rights’ reasonably or understandably. To some extent his studies merely reflect what both consumer advocates and debt collectors have said for years, that the FDCPA validation notice is not easy to understand.
Although the studies provide an empirical basis for consumer confusion, from a debt collector’s perspective, the studies may not provide much more than academic interest. Debt collectors are required by law to give the validation notice as it appears above, regardless of whether consumers understand it. A debt collector’s failure to give the notice, or failure to give it in a way that a judge feels adequately expresses itself, without overshadowing or confusion, subjects the debt collector to liability. Arguing to a judge that the consumer does not understand the notice anyway does not help.
There are other reasons the professor’s findings are of only limited interest. In analyzing whether a debt collector’s enumeration of the validation notice complies with the law, judges do not ask whether the particular consumer who received the notice understood. In fact, a consumer claimant need not show she read the notice at all. The standard employed courts is whether the ‘least sophisticated’ or ‘unsophisticated’ consumer understood it. The judge applies her legal judgment as to whether the notice is understanding based on these standards. Empirical evidence, regardless of how reliable, as to the abstract understandably of the validation notice, is not currently relevant to the analysis.
I know of no current intention by congress to revisit the wording of the validation notice. Rulemaking by the BCFP cannot re-write it. For the foreseeable future, debt collectors are stuck with the validation notice.
One approach for debt collectors is to acknowledge that regardless of the statute’s intent, the validation notice in reality performs functions other than to educate the consumer or set forth rights of the consumer vs. the debt collector. The debt collector should proceed based on the reality, not the alleged purpose of the validation notice.
For example, there are many other areas of the law where creditor is required to send notices to a debtor. In some cases the notices in fact function not to educate the consumer but as prerequisites to other methods of collection. Under Massachusetts G.L. c. 255B s. 20A, in order to repossess a motor vehicle, a creditor must send a ’21 day notice’ containing certain information regarding the amount owed, the creditor’s right to repossess the vehicle, etc., and give the debtor a certain period of time to cure the default before attempting to repossess the motor vehicle. The required wording of the ’21 day notice’ is set forth in the statute. Whether the debtor understands the ’21 day notice’ or not is irrelevant. If the creditor uses the statutorily required language and the consumer does not cure the default per the ’21 day notice’ requirements, the debt collector’s right to repossess the motor vehicle is activated.
This might be a more fruitful strategy for debt collectors. That is, treat the validation notice language as a gateway to collection rather than a tool for collection. This would involve reproducing the language from the validation statute as faithfully as possible and ensuring as little other language appears in the validation notice as possible, so as not to add confusion to an already confusing statute.
Having fulfilled its statutory duty to advise the consumer of his/her rights, the debt collector can move to more productive methods of debt collection, such as correspondence, phone calls, electronic communications and, if necessary, legal action.
Although long and detailed, professor Sovern’s studies are interesting and worth reading.