Crucial Conversations for a Smooth Transition to Reg. F
By Caren D. Enloe
With the CFPB having decided to leave the effective date of the Debt Collection Rule as November 30th, the push is on for debt collectors to ensure their compliance with the Rule by that date. As debt collectors make the final push towards implementation, there are crucial conversations debt collectors should be having with creditors to ensure a smooth transition.
Referral of the Account
Debt collectors should be discussing the referral process with their clients to ensure a clear understanding of the amount of the debt and what new or additional information creditors will need to provide for the debt collector to initiate collections.
As we all know by now, the Rule introduces as a new concept the “itemization date.” Because the Rule requires the debt collector identify an “itemization date” and provide an itemization of the debt from that itemization date through the validation notice, it’s important both the creditor and the debt collector understand what comprises the balance being sent for collection and upon which “itemization date” it is based.
Section 1006.34(b) of the Rule allows debt collectors to choose one of five specified reference dates as their “itemization date:”
- the last statement date, which is the date of the last periodic statement or written account statement or invoice provided to the consumer by the creditor;
- the charge-off date, which is the date the creditor charged off the account;
- the last payment date, which is the date the last payment was applied to the debt;
- the transaction date, which is the date of the transaction that gave rise to the debt; or
- the judgment date, which is the date of a final court judgment that determines the amount of the debt owed by the consumer.
12 C.F.R. 1006.34(b)(3) (effective November 30, 2021).
Selection of an itemization date will necessarily require the debt collector have a clear understanding of how the creditor arrives at the balance and conversely, that the creditor understand that its balance needs to relate back to one of the five itemization dates. Moreover, the creditor will need to include with the balance an itemization of the interest, fees, payments, and credits which have accrued since the itemization date.
One of the hallmarks of the Rule is its attempt to implement the use of more modern communication channels within the limitations of the Fair Debt Collection Practices Act. The Rule provides for the use of email and text communications and provides specific procedures which, if followed, provide the debt collector with a safe harbor with respect to electronic communications and unintentional third-party electronic communications. To the extent the creditor or debt collector want to take advantage of these options, a conversation should be had as to how consent from the consumer will be obtained. One of the options provided is based upon prior communications with the creditor. For debt collectors who want to take advantage of this option, conversations should be had with creditors to ascertain what notices are being provided to consumers so the debt collector can ascertain their sufficiency for compliance with the Rule.
Adjust Expectations of the Creditor
With the introduction of a more robust debt validation notice, creditors should understand that delays are likely in the collection process. By providing an understanding to the creditor (and adjusting expectations accordingly), creditors are more likely to have a better appreciation of the collection process and the challenges facing debt collectors. Debt collectors should be examining their adjusted policies and procedure to ascertain what changes might impact or delay their collection efforts.
Here are a couple of examples of changes debt collectors may consider explaining and discussing with their creditor clients:
First, the validation period will be prolonged by the addition of at least five business days to the validation period. See 12 CFR 1006.34(b)(5) (effective November 30, 2021) (which states that the validation period ends 30 days after receipt and allows the debt collector to assume the consumer received the validation notice any date that is “at least five days (excluding legal public holidays … Saturdays, and Sundays) after the debt collector provides it. By its very nature, the first communication is now less of a demand for payment and more of a statutorily required notice. If this impacts the collection processes, consider making creditor clients aware so they can adjust their expectations and have a better understanding of the challenges you (and the rest of the industry) face.
Secondly, the validation notice’s inclusion of the dispute form (with convenient boxes to be checked) will likely increase the number of disputes and requests for validation that debt collectors receive, as well as the corollary requests for information to creditors. Creditors will benefit from understanding the anticipated increase in requests for additional information either at the validation/dispute stage or at the initial forwarding stage.
Thirdly, credit reporting cannot occur until after the debt collector communicates with the consumer (usually by the debt validation notice) and waits a reasonable period of time to receive a notice of undeliverability (which the Official Interpretation identifies as being 14 days). To the extent collection agencies are credit reporting and will be changing when they initiate credit reporting, collection agencies should discuss this change with their clients and make any necessary adjustments to the Collection Services Agreement or performance standards that are necessary.
Review Your Collection Services Agreement
Finally, now is a good time to revisit Collection Services Agreements to ensure they are consistent with the Debt Collection Rule, particularly regarding such things as validation and disputes, credit reporting and communication frequency. To the extent there are inconsistencies, now is the time to have that discussion with your creditors and amend those agreements.
As Joseph Grenny, the author of Crucial Conversations, once said “[a]t the core of every successful conversation lies the free flow of relevant information.” Make time to have those crucial conversations with your clients regarding the Rule to ensure a smooth transition.
About the Author. Caren Enloe leads Smith Debnam’ s consumer financial services litigation and compliance group. Caren currently serves as chair of the Debt Collection Practices and Bankruptcy subcommittee for the American Bar Association’s Consumer Financial Services committee and as co-chair of the National Creditors Bar Association’ s Bankruptcy Section. She is additionally a MAP State Chair and member of ACA International. Most recently, she was elected to the Governing Committee for the Conference on Consumer Finance Law. In 2018, Caren was named one of the “20 Most Powerful Women in Collections” by Collection Advisor, a national trade publication. An active writer and speaker, Caren oversees a blog dedicated to consumer financial services and has been published in various publications.