Review of the Proposed FDCPA Validation Notice Regulations

On May 7, 2019 the Consumer Financial Protection Bureau (CFPB) released its Notice Of Proposed Rulemaking (NPRM) proposing debt collection regulations. I previously blogged about the need for such regulations.

Today I want to take a look at the NPRM proposed rules for the validation notice. The Federal Fair Debt Collection Practices Act (FDCPA) 15 USC 1692g  requires a debt collector to notify the debtor of certain rights within five days of her first contact with the debtor. Currently, debt collectors draft validation notices based on the above statute, which is not a model of clarity, and there is research to the effect that such notices are difficult for debtors to understand. The wording of debt collector’s validation notice is heavily litigated and has resulted in significant confusion for debtors and liability for debt collectors.

Unlike the wording of 15 USC 1692g, the NPRM proposed validation notice requirements are numerous and specific. The relevant portions are summarized below:

1006.34(c)(1) inform debtor that debt collector is attempting to collect a debt and that any information obtained will be used for that purpose

1006.34(c)(2) (i)  debt collector’s name and mailing address.
(ii)  consumer’s name and mailing address.
(iii) If the debt is a credit card debt, the merchant brand, if any, associated with the debt, to the extent available to the debt collector.
(iv) …. the name of the creditor to whom the debt was owed on the itemization date.(the itemization date 1006.34(b)(3) is one of four reference dates to be selected by the debt collector for ascertaining the amount of the debt – the NPRM’s response to uncertainty over such concepts as ‘date of default’)
(v) The account number, if any, associated with the debt on the itemization date …..
(vi) The name of the creditor to whom the debt currently is owed.
(vii) The itemization date.
(viii) The amount of the debt on the itemization date.
(ix) An itemization of the current amount of the debt in a tabular format reflecting interest, fees, payments, and credits since the itemization date.
(x) The current amount of the debt.

1006.34(c) (3)(i)-(iii) specification of the date of the end of the thirty day validation period, that, if the consumer notifies the debt collector in writing before the end of the validation period that the debt, or any portion of the debt, is disputed, or requests the original creditor, the debt collector must cease collection of the debt, or the disputed portion of the debt, until the debt collector sends the consumer either the verification of the debt or a copy of a judgment, and that if the debtor does not dispute the debt the debt collector will consider it valid
(iv) …. a statement that informs the consumer that additional information regarding consumer protections in debt collection is available on the Bureau’s website at https://www.consumerfinance.gov.
(v) & (vi) exceptions for email validation notices

1006.34(c) (4) …. [the following], segregated from the validation information [above] in paragraphs (c)(1) through (3) … and from [certain] optional information ….[placed] at the bottom of the notice under the headings, “How do you want to respond?” and “Check all that apply:”:
(i) Dispute prompts. The following statements, listed in the following order, and using the following phrasing or substantially similar phrasing, each next to a prompt:
(A) “I want to dispute the debt because I think:;”
(B) “This is not my debt;”
(C) “The amount is wrong;” and
(D) “Other (please describe on reverse or attach additional information).”
(ii) ….the statement, “I want you to send me the name and address of the original creditor,” using that phrase or a substantially similar phrase, next to a prompt.(iii) …. mailing addresses for the consumer and the debt collector, which include the debt collector’s and the consumer’s names.

1006.34(d)(1)(i) paragraph c validation information must be clear and conspicuous …. content, format, placement of the 1006.34(c) validation information and 1006.34(d) optional disclosures must be substantially similar to Model Form B-3 in the NPRM appendix B.

There is a ‘safe harbor’ in 1006.34(d)(2) stating that if the collector uses Model Form B-3  it has complied with 1006.34(a)(1)(i), which contains the requirement to send the validation notice as required by 1006.34(c), and 1006.34(d)(1) which is the clear and conspicuous requirement.

The extent to which the debt collector may request payment is strictly limited. Under 1006.34(d)(3)(iii), a debt collector may use the statement “contact us about your payment options” ‘… or a substantially similar phrase’. The debt collector may also insert the statement “I enclosed this amount” or a substantially similar phrase, payment instructions after that statement, and a prompt. These phrases must not be more prominent than any 1006.34(c) validation information.

Under 1006.34(d)(iv) the debt collector may insert that there are other disclosures required by applicable law, and locate those disclosures on the reverse of the validation notice.

A debt collector is specifically authorized to give the validation notice orally . 1006.34(a)(1)(ii)

Lastly, 1006.34 explicitly permits debt collectors to provide validation notices electronically  and provides guidance for doing so.

Overall, the proposed regulation and model form provide welcome clarity for debt collectors and consumers alike.

The requirement to state the date that is the end of the validation period in 1006.34(b)(5) is a positive step. 1006.34(c)(3)(i)-(iii) appears to be an attempt to clarify the confusing language of 15 USC 1692g(a)(1)-(5) as to the debtor’s rights if she disputes the debt in writing as opposed to orally. The new regulation is a reasonable attempt at clarification.

Debt collectors will undoubtedly welcome specification of what constitutes lawfully providing a validation letter electronically.

The concept of promulgating a model form which presumably constitutes compliance with the regulation is a positive step. Hopefully it would reduce debtor confusion over her rights and obligations under the FDCPA and reduce lawsuits against debt collectors based on their validation notices.

The CFPB attempts to resolve the issue of the date upon which the amount due is calculated with its concept of the itemization date set forth in 1006.34(b)(3) . The section by section analysis acknowledges the issue of the CFPB proposing a uniform rule as to the ‘date of default’ because of the variation among debt instruments and state law. The CFPB proposes that the debt collector may use one of four reference dates, the last statement date, the charge-off date, the last payment date, or the date of the transaction giving rise to the debt. The CFPB requests input on the usefulness of the itemization date concept.

Regardless of any benefit flowing from clear guidelines, the regulations and the model form can hardly be called ‘collection’ letters. Request for payment is strictly limited to two brief phrases or their substantial equivalent, which may not be more prominent than the disclosures of the debtor’s various rights to information and to dispute. 1006.34(c)(4)(i) et seq. The top right hand heading of the model form states “How can you dispute the debt?” The possibility of payment is only raised under the next heading “What else can you do?” beneath bullet points advising the debtor about her right to the name and address of the original creditor and her rights under federal law.

As such, the validation letter of the regulations preserves the fundamentally schizophrenic nature of the validation letter.  It embodies two contradictory purposes, the debt collector’s demand for payment and the regulator’s notification that the debtor may not have to pay, as well as a method for disputing the debt. One wonders if any validation letter can be drafted to serve both purposes in an understandable way.

Presumably courts would uphold the model notice as satisfying 15 USC 1692g. However, the CFPB does not acknowledge that courts analyze validation notices according to a legal standard, the least sophisticated debtor, and the CFPB’s claimed justification for its model form is factual, namely, several surveys it performed with consumers. In addition, it is unclear whether Avila – style language as to the amount owed is still required or advisable. Perhaps the CFPB intended its concept of the itemization date to address this point, but it is not clear.


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