Debt Collection Practices (Regulation F)
| Published date | 19 January 2021 |
| Citation | 86 FR 5766 |
| Record Number | 2020-28422 |
| Section | Rules and Regulations |
| Court | Consumer Financial Protection Bureau |
Federal Register, Volume 86 Issue 11 (Tuesday, January 19, 2021)
[Federal Register Volume 86, Number 11 (Tuesday, January 19, 2021)]
[Rules and Regulations]
[Pages 5766-5862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28422]
[[Page 5765]]
Vol. 86
Tuesday,
No. 11
January 19, 2021
Part VIIIBureau of Consumer Financial Protection-----------------------------------------------------------------------12 CFR Part 1006Debt Collection Practices (Regulation F); Final Rule
Federal Register / Vol. 86 , No. 11 / Tuesday, January 19, 2021 /
Rules and Regulations
[[Page 5766]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1006
[Docket No. CFPB-2019-0022]
RIN 3170-AA41
Debt Collection Practices (Regulation F)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Final rule; official interpretation.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
issuing this final rule to revise Regulation F, which implements the
Fair Debt Collection Practices Act (FDCPA). The final rule governs
certain activities by debt collectors, as that term is defined in the
FDCPA. Among other things, the final rule clarifies the information
that a debt collector must provide to a consumer at the outset of debt
collection communications, prohibits debt collectors from bringing or
threatening to bring a legal action against a consumer to collect a
time-barred debt, and requires debt collectors to take certain actions
before furnishing information about a consumer's debt to a consumer
reporting agency.
DATES: This rule is effective on November 30, 2021.
FOR FURTHER INFORMATION CONTACT: Joel Singerman, Counsel, or Dania
Ayoubi, Joseph Baressi, Seth Caffrey, Brandy Hood, David Jacobs,
Courtney Jean, Adam Mayle, Kristin McPartland, Michael Silver, Senior
Counsels, Office of Regulations, at 202-435-7700. If you require this
document in an alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule
The Bureau is finalizing amendments to Regulation F, 12 CFR part
1006, which implements the FDCPA.\1\ The amendments prescribe Federal
rules governing the activities of debt collectors, as that term is
defined in the FDCPA (debt collectors or FDCPA debt collectors). The
final rule clarifies the information that a debt collector must provide
to a consumer at the outset of debt collection communications and
provides a model validation notice containing such information. The
final rule also addresses consumer protection concerns related to
passive collections (i.e., the practice of furnishing information about
a debt to a consumer reporting agency before communicating with the
consumer about the debt) and the collection of debt that is beyond the
statute of limitations (i.e., time-barred debt). On November 30, 2020,
the Bureau published a final rule in the Federal Register that focused
on debt collection communications and related practices by debt
collectors (November 2020 Final Rule). The November 2020 Final Rule
reserved certain sections of Regulation F in anticipation of this final
rule.
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\1\ 15 U.S.C. 1692 et seq.
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As discussed in the November 2020 Final Rule, in 1977, Congress
passed the FDCPA to eliminate abusive debt collection practices by debt
collectors, to ensure that those debt collectors who refrain from using
abusive debt collection practices are not competitively disadvantaged,
and to promote consistent State action to protect consumers against
debt collection abuses.\2\ The statute was a response to ``abundant
evidence of the use of abusive, deceptive, and unfair debt collection
practices by many debt collectors.'' \3\ According to Congress, these
practices ``contribute to the number of personal bankruptcies, to
marital instability, to the loss of jobs, and to invasions of
individual privacy.'' \4\
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\2\ 15 U.S.C. 1692(e).
\3\ 15 U.S.C. 1692(a).
\4\ Id.
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The FDCPA established specific consumer protections, enabling
consumers to establish controls on when and how debt collectors contact
them, establishing privacy protections surrounding the collection of
debts, and protecting consumers from certain collection practices. The
FDCPA also established broad consumer protections, prohibiting
harassment or abuse, false or misleading representations, and unfair
practices. In the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank Act), Congress provided the Bureau with authority under
the FDCPA to prescribe substantive rules with respect to the collection
of debts by debt collectors. The Bureau issues this final rule, like
the November 2020 Final Rule, to implement and interpret the FDCPA.
A. Coverage and Organization of the Final Rule
The final rule is based primarily on the Bureau's authority to
issue rules to implement the FDCPA and, consequently, covers debt
collectors, as that term is defined in the FDCPA.
As revised in the November 2020 Final Rule, Regulation F contains
four subparts. Subpart A contains generally applicable provisions, such
as definitions that apply throughout the regulation. Subpart B contains
rules for FDCPA debt collectors. Subpart C is reserved for any future
debt collection rulemakings. Subpart D contains certain miscellaneous
provisions. This final rule adds additional provisions in subparts A,
B, and D.
B. Scope of the Final Rule
FDCPA section 809(a) requires that a debt collector send a written
notice containing certain information about the debt and actions the
consumer may take in response (the validation notice) to a consumer
within five days of the initial communication, unless such validation
information was provided in the initial communication or the consumer
has paid the debt.\5\ The final rule clarifies the information about
the debt and the consumer's rights with respect to the debt that a debt
collector must provide to a consumer at the outset of debt collection
communications, including (if applicable) on a validation notice. The
final rule also requires a debt collector to provide prompts that a
consumer can use to dispute the debt, request information about the
original creditor, or take certain other actions. The final rule
provides a safe harbor for compliance with these disclosure
requirements for debt collectors who use the model validation notice or
certain variations of the notice.
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\5\ 15 U.S.C. 1692g(a).
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The final rule also prohibits a debt collector from suing or
threatening to sue a consumer to collect time-barred debt. In addition,
the final rule prohibits a debt collector from furnishing information
about a debt to a consumer reporting agency before engaging in specific
outreach to the consumer about the debt. The final rule also addresses
certain other disclosure-focused provisions, such as clarifying how a
debt collector may respond to a consumer's request for original-
creditor information if the original creditor is the same as the
current creditor. Additionally, the final rule interprets the
definition of consumer under the FDCPA to include deceased natural
persons and, relatedly, provides that, if a debt collector knows or
should know that the a consumer is deceased, and the debt collector has
not previously provided the validation information to the deceased
consumer, the debt collector must provide that information to a person
who is authorized to act on behalf of the deceased consumer's estate.
[[Page 5767]]
II. Background
A. Debt Collection Market Background
A consumer debt is commonly understood to be a consumer's
obligation to pay money to another person or entity. Sometimes a debt
arises out of a closed-end loan. Other times, a debt arises from a
consumer's use of an open-end line of credit, commonly a credit card.
And in other cases, a debt arises from a consumer's purchase of goods
or services with payment due thereafter. Often there is an agreed-upon
payment schedule or date by which the consumer must repay the debt.
For a variety of reasons, consumers sometimes are unable or
unwilling to make payments when they are due. Collection efforts may
directly recover some or all of the overdue amounts owed to debt owners
and thereby may indirectly help to keep consumer credit available and
more affordable to consumers.\6\ Collection activities also can lead to
repayment plans or debt restructuring that may provide consumers with
additional time to make payments or resolve their debts on more
manageable terms.\7\
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\6\ See Bureau of Consumer Fin. Prot., Fair Debt Collection
Practices Act: CFPB Annual Report 2013, at 9 (Mar. 20, 2013),
https://www.consumerfinance.gov/data-research/research-reports/annual-report-on-the-fair-debt-collection-practices-act/ (2013 FDCPA
Annual Report).
\7\ See id.
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The November 2020 Final Rule provides an extensive overview of the
debt collection market (including the roles of creditors, third-party
debt collectors, debt buyers, and a variety of service providers in the
market), methods of debt collection, and consumer protection concerns
in debt collection.\8\ Below the Bureau summarizes information
regarding debt collection methods and consumer protection concerns
specifically related to the topics addressed in this final rule.
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\8\ See 85 FR 76734, 76735-37 (Nov. 30, 2020).
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B. Debt Collection Methods
If a consumer's payment obligations remain unmet, a creditor may
send the account to a third-party debt collector to recover on the debt
in the third-party debt collector's name. A creditor typically stops
communicating with a consumer once responsibility for an account has
moved to a third-party debt collector. Active debt collection efforts
typically begin with the debt collector attempting to locate the
consumer, usually by identifying a valid telephone number or mailing
address, so that the debt collector can establish contact with the
consumer. Once a debt collector has obtained contact information for a
consumer, the debt collector typically will seek to communicate with
the consumer to obtain payment on some or all of the debt.
As already noted, FDCPA section 809(a) generally requires a debt
collector to provide certain information to a consumer either at the
time that, or shortly after, the debt collector first communicates with
the consumer in connection with the collection of a debt. The required
information includes: (1) Certain details about the debt, such as the
amount of the debt and the name of the creditor to whom the debt is
owed; and (2) a description of consumer protections, such as the
consumer's rights to dispute the debt and to request information about
the original creditor. A debt collector may send a validation notice
containing the required information as the initial communication to the
consumer or send the required information in a validation notice within
five days after the initial communication. Currently, validation
notices include little or no information about the debt beyond the
information specifically listed in FDCPA section 809(a). This
information may not be sufficient for the consumer to recognize the
debt, particularly if, for example, the amount owed has changed over
time due to interest, fees, payment, or credits, or if the debt
collector has changed since an original collection attempt.
A debt collector may tailor the collection strategy depending on a
variety of factors, including the size and age of the debt and the debt
collector's assessment of the likelihood of obtaining money from the
consumer. For example, rather than engage in active debt collection
efforts by affirmatively locating and contacting consumers, some debt
collectors collecting relatively small debts--such as many medical,
utility, and telecommunications debts--report the debts to consumer
reporting agencies and then wait for consumers to contact them after
discovering the debts on their consumer reports.\9\
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\9\ Bureau of Consumer Fin. Prot., Consumer Credit Reports: A
Study of Medical and Non-Medical Collections, at 35-36 (Dec. 2014),
http://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf (CFPB Medical Debt
Report).
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As discussed in the November 2020 Final Rule, a debt owner may also
try to recover on a debt through litigation.\10\ And debt collectors
sometimes attempt to collect debt for which the applicable statute of
limitations has expired. The length of the limitations period for debt
collection claims usually varies by State and debt type; most
limitations periods are between three and six years, although some are
as long as 15 years. Currently, in most States, expiration of the
statute of limitations, if raised by the consumer as an affirmative
defense, precludes the debt collector from recovering on the debt
through litigation, but it does not extinguish the debt itself. If the
debt is not extinguished, a debt collector may use non-litigation
means, such as letters and telephone calls, to collect a time-barred
debt, as long as those means do not violate the FDCPA or other
laws.\11\
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\10\ See 85 FR 76735, 76736 (Nov. 30, 2020).
\11\ See 85 FR 12672, 12672-73 (Mar. 3, 2020).
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C. Consumer Protection Concerns
As discussed in the November 2020 Final Rule, each year consumers
submit tens of thousands of complaints about debt collection to Federal
regulators.\12\ A significant proportion of those complaints involve
debts that consumers believe they do not owe, which may be because the
debt is being collected in error or because the consumer does not
recognize the debt. Consumers also file thousands of private actions
each year against debt collectors who allegedly have violated the
FDCPA, including many cases alleging violations related to the
validation notice. Since the Bureau began operations in 2011, it has
brought numerous debt collection
[[Page 5768]]
cases against third-party debt collectors, alleging both FDCPA
violations and unfair, deceptive, or abusive debt collection acts or
practices in violation of the Dodd-Frank Act.\13\ In many of these
cases, the Bureau has obtained civil penalties, monetary compensation
for consumers, and other relief. In its supervisory work, the Bureau
similarly has identified many FDCPA violations during examinations of
debt collectors. Over the past decade, the Federal Trade Commission
(FTC) and State regulators also have brought numerous additional
actions against debt collectors for violating Federal and State debt
collection and consumer protection laws.
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\12\ See, e.g., Bureau of Consumer Fin. Prot., Fair Debt
Collection Practices Act: CFPB Annual Report 2020, at 13 (Mar.
2020), https://files.consumerfinance.gov/f/documents/cfpb_fdcpa_annual-report-congress_03-2020.pdf (2020 FDCPA Annual
Report); Fed. Trade Comm'n, 2019 Consumer Sentinel Network Databook,
at 7 (Jan. 2020), https://www.ftc.gov/system/files/documents/reports/consumer-sentinel-network-data-book-2019/consumer_sentinel_network_data_book_2019.pdf; Bureau of Consumer
Fin. Prot., Fair Debt Collection Practices Act: CFPB Annual Report
2019, at 15-16 (Mar. 2019), https://files.consumerfinance.gov/f/documents/cfpb_fdcpa_annual-report-congress_03-2019.pdf (2019 FDCPA
Annual Report); Fed. Trade Comm'n, 2018 Consumer Sentinel Network
Databook, at 4, 7 (Feb. 2019), https://www.ftc.gov/system/files/documents/reports/consumer-sentinel-network-data-book-2018/consumer_sentinel_network_data_book_2018_0.pdf; Bureau of Consumer
Fin. Prot., Fair Debt Collection Practices Act: CFPB Annual Report
2018, at 14-15 (Mar. 2018), https://files.consumerfinance.gov/f/documents/cfpb_fdcpa_annual-report-congress_03-2018.pdf (2018 FDCPA
Annual Report); Fed. Trade Comm'n, 2017 Consumer Sentinel Network
Databook, at 3, 6 (Mar. 2018), https://www.ftc.gov/system/files/documents/reports/consumer-sentinel-network-data-book-2017/consumer_sentinel_data_book_2017.pdf; Bureau of Consumer Fin. Prot.,
2017 Fair Debt Collection Practices Act: CFPB Annual Report 2017, at
15-16 (Mar. 2017), https://files.consumerfinance.gov/f/documents/201703_cfpb_Fair-Debt-Collection-Practices-Act-Annual-Report.pdf
(2017 FDCPA Annual Report); Fed. Trade Comm'n, Consumer Sentinel
Network Data Book for January-December 2016, at 3, 6 (Mar. 2017),
https://www.ftc.gov/system/files/documents/reports/consumer-sentinel-network-data-book-january-december-2016/csn_cy-2016_data_book.pdf.
\13\ See, e.g., Stipulated Final Judgment and Consent Order,
Consumer Fin. Prot. Bureau v. Encore Capital Grp., Inc., 3:20-cv-
01750 (S.D. Cal. Oct. 15, 2020), https://www.courtlistener.com/recap/gov.uscourts.casd.686719/gov.uscourts.casd.686719.5.1.pdf;
Consent Order, In re Asset Recovery Assocs., 2019-BCFP-0009 (Aug.
28, 2019), https://www.consumerfinance.gov/documents/7938/cfpb_asset-recovery-associates_consent-order_2019-08.pdf; Consent
Order, In re Encore Capital Grp., Inc., 2015-CFPB-0022 (Sept. 9,
2015), http://files.consumerfinance.gov/f/201509_cfpb_consent-order-encore-capital-group.pdf; Consent Order, In re Portfolio Recovery
Assocs., LLC, 2015-CFPB-0023 (Sept. 9, 2015), http://files.consumerfinance.gov/f/201509_cfpb_consent-order-portfolio-recovery-associates-llc.pdf; Complaint, Consumer Fin. Prot. Bureau
v. Nat'l Corrective Grp., Inc., 1:15-cv-00899-RDB (D. Md. Mar. 30,
2015), http://files.consumerfinance.gov/f/201503_cfpb_complaint-national-corrective-group.pdf.
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D. FDCPA and Dodd-Frank Act Protections for Consumers
Federal and State governments historically have sought to protect
consumers from harmful debt collection practices. From 1938 to 1977,
the Federal government primarily protected consumers through FTC
enforcement actions against debt collectors who engaged in unfair or
deceptive acts or practices in violation of section 5 of the FTC
Act.\14\ When Congress enacted the FDCPA in 1977, it found that
``[e]xisting laws and procedures for redressing . . . injuries [were]
inadequate to protect consumers.'' \15\ Congress found that ``[t]here
[was] abundant evidence of the use of abusive, deceptive, and unfair
debt collection practices by many debt collectors'' and that these
practices ``contribute to the number of personal bankruptcies, to
marital instability, to the loss of jobs, and to invasions of
individual privacy.'' \16\
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\14\ 15 U.S.C. 45.
\15\ 15 U.S.C. 1692(b).
\16\ 15 U.S.C. 1692(a).
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The FDCPA was enacted, in part, ``to eliminate abusive debt
collection practices by debt collectors, [and] to insure that those
debt collectors who refrain from using abusive debt collection
practices are not competitively disadvantaged.'' \17\ Among other
things, the FDCPA: (1) Prohibits debt collectors from engaging in
harassment or abuse, making false or misleading representations, and
engaging in unfair practices in debt collection; (2) restricts debt
collectors' communications with consumers and others; and (3) requires
debt collectors to provide consumers with disclosures concerning the
debts they owe or allegedly owe.
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\17\ 15 U.S.C. 1692(e).
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The FDCPA, in general, applies to debt collectors as that term is
defined under the statute. As discussed further in the section-by-
section analysis of Sec. 1006.2(i) of the November 2020 Final Rule,
the FDCPA generally provides that a debt collector is any person: (1)
Who uses any instrumentality of interstate commerce or the mails in any
business the principal purpose of which is the collection of any debts
(i.e., the ``principal purpose'' prong), or (2) who regularly collects,
or attempts to collect, directly or indirectly, debts owed or due or
asserted to be owed or due to another (i.e., the ``regularly collects''
prong). FDCPA section 803(6) also sets forth several exclusions from
the general definition.
Until the creation of the Bureau, no Federal agency was authorized
to issue regulations to implement the substantive provisions of the
FDCPA. Courts have issued opinions providing differing interpretations
of various FDCPA provisions, and there is considerable uncertainty with
respect to how the FDCPA applies to communication technologies that
have developed since 1977. The Dodd-Frank Act amended the FDCPA to
provide the Bureau with authority to ``prescribe rules with respect to
the collection of debts by debt collectors.'' \18\
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\18\ FDCPA section 814(d), 15 U.S.C. 1692l(d).
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III. Summary of the Rulemaking Process
A. The November 2020 Final Rule
The Bureau issued the November 2020 Final Rule to finalize certain
provisions of the proposed rule that the Bureau published in the
Federal Register on May 21, 2019, to amend Regulation F.\19\
Specifically, the November 2020 Final Rule primarily addressed debt
collection communications and related practices by debt collectors. The
November 2020 Final Rule reserved certain sections of Regulation F in
anticipation of this final rule.
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\19\ See 84 FR 23274 (May 21, 2019).
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B. The 2019 Proposal and 2020 Supplemental Proposal
As noted, on May 21, 2019, the Bureau published a proposed rule
(the May 2019 proposal or proposal) in the Federal Register to amend
Regulation F.\20\ The proposal provided a 90-day comment period that
would have closed on August 19, 2019. To allow interested persons more
time to consider and submit their comments, the Bureau issued an
extension of the comment period until September 18, 2019.\21\ In
response to the May 2019 proposal, the Bureau received more than 14,000
comments from consumers, consumer groups, members of Congress, other
government agencies, creditors, debt collectors, industry trade
associations, and others. As discussed below, the Bureau has considered
those comments in deciding to issue this final rule.
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\20\ Id.
\21\ 84 FR 37806 (Aug. 2, 2019).
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As relevant to this final rule, in the May 2019 proposal, the
Bureau proposed to implement and interpret FDCPA section 809(a) and (b)
regarding the information that debt collectors must provide to
consumers at the outset of debt collection communications and debt
collectors' obligations to respond to consumers' disputes and requests
for original-creditor information, including if the consumer obligated
or allegedly obligated to pay the debt has died. The Bureau also
proposed to prohibit debt collectors from bringing or threatening to
bring a legal action against a consumer to collect a debt that the debt
collector knows or should know is a time-barred debt. And the Bureau
proposed to prohibit debt collectors from furnishing information
regarding a debt to a consumer reporting agency before communicating
with the consumer about the debt.
On February 21, 2020, the Bureau released a supplemental notice of
proposed rulemaking to amend Regulation F to require debt collectors to
make certain disclosures when collecting time-barred debts (the
February 2020 proposal).\22\ The February 2020 proposal provided a 60-
day comment period that would have closed on May 4, 2020. To allow
interested persons more time to consider and submit their comments, the
Bureau issued two extensions of the comment period, the first until
June 5, 2020, and the second until August 4,
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2020.\23\ In response to the February 2020 proposal, the Bureau
received approximately 90 comments from consumers, consumer groups,
members of Congress, other government agencies, creditors, debt
collectors, industry trade associations, and others. As discussed
below, the Bureau has considered those comments in adopting this final
rule.
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\22\ See 85 FR 12672 (Mar. 3, 2020).
\23\ See 85 FR 17299 (Mar. 27, 2020) (first extension); 85 FR
30890 (May 21, 2020) (second extension).
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C. Consumer Testing
The Bureau has undertaken two rounds of qualitative disclosure
testing and one round of quantitative disclosure testing, all of which
have informed this final rule.
First, as discussed in more detail in the May 2019 proposal, the
Bureau in 2014 contracted with a third-party vendor, Fors Marsh Group
(FMG), to assist with developing, and to conduct qualitative consumer
testing of the model validation notice.\24\ This initial qualitative
testing included focus group testing, cognitive testing, and usability
testing conducted by FMG.\25\ Through the testing, the Bureau sought
insight into consumers' understanding of debt collection protections
and how consumers would interact with the forms if the forms were
incorporated into a final rule. Specific findings from the consumer
testing are discussed in more detail in part V where relevant. In
conjunction with the release of the May 2019 proposal, the Bureau made
available a report prepared by FMG regarding the focus group
testing,\26\ the cognitive testing,\27\ the usability testing,\28\ and
a report prepared by FMG summarizing the focus group testing, cognitive
testing, and usability testing.\29\
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\24\ The Bureau also tested a statement of consumer rights
disclosure, but the Bureau decided not to propose to require debt
collectors to provide such a disclosure to consumers. Instead, the
Bureau proposed in the May 2019 proposal to require certain debt
collectors to provide with the validation information a statement
referring consumers to a Bureau-provided website that would describe
certain consumer protections in debt collection. See the section-by-
section analysis of Sec. 1006.34(c)(3)(iv). Because the Bureau did
not propose to require debt collectors to provide consumers with a
statement of consumer rights disclosure, the Bureau did not
summarize testing related to that disclosure in the May 2019
proposal.
\25\ See 84 FR 23274, 23279 (May 21, 2019).
\26\ See generally Fors Marsh Grp., Debt Collection Focus Groups
(Aug. 2014), https://files.consumerfinance.gov/f/documents/cfpb_debt-collection_fmg-focus-group-report.pdf (FMG Focus Group
Report). The focus group testing was conducted in accordance with
OMB control number 3170-0022, Generic Information Collection Plan
for the Development and/or Testing of Model Forms, Disclosures,
Tools, and Other Similar Related Materials.
\27\ See generally Fors Marsh Grp., Debt Collection Cognitive
Interviews (n.d.), https://files.consumerfinance.gov/f/documents/cfpb_debt-collection_fmg-cognitive-report.pdf (FMG Cognitive
Report). The cognitive testing was conducted in accordance with OMB
control number 3170-0022, Generic Information Collection Plan for
the Development and/or Testing of Model Forms, Disclosures, Tools,
and Other Similar Related Materials.
\28\ See generally Fors Marsh Grp., Debt Collection User
Experience Study (Feb. 2016), https://files.consumerfinance.gov/f/documents/cfpb_debt-collection_fmg-usability-report.pdf (FMG
Usability Report). Like the other testing, the usability testing was
conducted in accordance with OMB control number 3170-0022, Generic
Information Collection Plan for the Development and/or Testing of
Model Forms, Disclosures, Tools, and Other Similar Related
Materials.
\29\ See generally Fors Marsh Grp., Debt Collection Validation
Notice Research: Summary of Focus Groups, Cognitive Interviews, and
User Experience Testing (Feb. 2016), https://files.consumerfinance.gov/f/documents/cfpb_debt-collection_fmg-summary-report.pdf (FMG Summary Report).
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Second, to obtain additional information about consumer
comprehension and decision-making in response to sample debt collection
disclosures relating to time-barred debt, in 2017 the Bureau contracted
with ICF International, Inc. (ICF) to conduct a web survey of
approximately 8,000 individuals possessing a broad range of demographic
characteristics.\30\ This quantitative testing concluded in late
September 2019, and, in conjunction with the release of the February
2020 proposal, the Bureau \31\ and ICF \32\ published detailed reports
summarizing the testing methodology and results. The February 2020
proposal provides an extensive overview of the quantitative
testing.\33\
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\30\ OMB approved the Bureau's request to conduct the survey on
May 7, 2019. See Office of Information & Regulatory Affairs, Office
of Mgmt. & Budget, ICR--OIRA Conclusion, https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201902-3170-001# (last visited Feb. 18,
2020).
\31\ See Bureau of Consumer Fin. Prot., Disclosure of Time-
Barred Debt and Revival: Findings from the CFPB's Quantitative
Disclosure Testing (Feb. 2020), https://files.consumerfinance.gov/f/documents/cfpb_debt-collection-quantitative-disclosure-testing_report.pdf (CFPB Quantitative Testing Report).
\32\ See ICF Int'l, Inc., Quantitative Survey Testing of Model
Disclosure Clauses and Forms for Debt Collection: Methodology Report
(Jan. 21, 2020), https://files.consumerfinance.gov/f/documents/cfpb_icf_debt-survey_methodology-report.pdf.
\33\ See 85 FR 12672, 12676-77 (Mar. 3, 2020).
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Third, to further evaluate the effectiveness of the model
validation notice, the Bureau contracted with FMG again in 2019 to
conduct an additional round of qualitative testing. Because of the
COVID-19 pandemic, FMG conducted this consumer testing by telephone,
completing 51 one-on-one usability interviews between October 5 and
October 15, 2020. The qualitative testing showed, among other things,
that 80 percent of participants shared positive initial reactions to
the model validation notice and indicated that the information in the
notice was clear and available actions were obvious. In addition, 88
percent of participants rated the overall model validation notice as
``very easy'' or ``easy'' to understand, and no participants rated the
notice as ``difficult'' or ``very difficult'' to understand. Finally,
77 percent of participants answered correctly over 90 percent of the
time when, after reviewing the notice, they were asked to answer
certain questions about information included on the notice. In
conjunction with release of this final rule, the Bureau is making
available a report prepared by FMG regarding the qualitative
testing.\34\
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\34\ See generally Fors Marsh Grp., Consumer Financial
Protection Bureau (CFPB) Usability Testing Report: Model Validation
Notice (Nov. 20, 2020), https://files.consumerfinance.gov/f/documents/cfpb_model-validation-notice_report_2020-12.pdf (November
2020 Qualitative Testing Report).
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D. Other Outreach \35\
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\35\ The preamble to the May 2019 proposal includes a more
thorough discussion of the outreach the Bureau conducted prior to
issuing the proposal. See 84 FR 23274, 23278-80 (May 21, 2019).
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In November 2013, the Bureau began the rulemaking process with the
publication of an Advance Notice of Proposed Rulemaking (ANPRM)
regarding debt collection.\36\ As discussed in the May 2019 proposal,
the ANPRM sought information about a wide variety of both first- and
third-party debt collection practices. The Bureau received more than
23,000 comments in response to the ANPRM, which the Bureau considered
when developing the proposals.
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\36\ 78 FR 67848 (Nov. 12, 2013).
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To better understand the operational costs of debt collection
firms, including law firms, the Bureau also surveyed debt collection
firms and vendors and published a report based on that study in July
2016 (CFPB Debt Collection Operations Study or Operations Study).\37\
The Operations Study focused on understanding how debt collection firms
obtain information about delinquent consumer accounts and attempt to
collect on those accounts.
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\37\ See generally Bureau of Consumer Fin. Prot., Study of
Third-Party Debt Collection Operations (July 2016), https://www.consumerfinance.gov/documents/755/20160727_cfpb_Third_Party_Debt_Collection_Operations_Study.pdf (CFPB
Debt Collection Operations Study).
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In August 2016, the Bureau convened a Small Business Review Panel
(Small Business Review Panel or Panel) with the Chief Counsel for
Advocacy of the Small Business Administration (SBA) and the
Administrator of the Office of Information and Regulatory Affairs with
[[Page 5770]]
the Office of Management and Budget (OMB).\38\ As part of this process,
the Bureau prepared an outline of proposals under consideration and the
alternatives considered (Small Business Review Panel Outline or
Outline),\39\ which the Bureau posted on its website for review by the
small entity representatives participating in the Panel process and by
the general public. The Panel gathered information from the small
entity representatives and made findings and recommendations regarding
the potential compliance costs and other impacts on those entities of
the proposals under consideration. Those findings and recommendations
are set forth in the Small Business Review Panel Report, which is part
of the administrative record in this rulemaking and is available to the
public.\40\ The Bureau considered these findings and recommendations in
preparing the proposals and this final rule.
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\38\ The Small Business Regulatory Enforcement Fairness Act of
1996 (SBREFA), as amended by section 1100G(a) of the Dodd-Frank Act,
requires the Bureau to convene a Small Business Review Panel before
proposing a rule that may have a substantial economic impact on a
significant number of small entities. See Public Law 104-121, tit.
II, 110 Stat. 857 (1996) (as amended by the Small Business and Work
Opportunity Act of 2007, Public Law. 110-28, tit. VIII, subtit. C,
sec. 8302, 121 Stat. 204 (2007)).
\39\ Bureau of Consumer Fin. Prot., Small Business Review Panel
for Debt Collector and Debt Buyer Rulemaking: Outline of Proposals
Under Consideration and Alternatives Considered (July 28, 2016),
https://files.consumerfinance.gov/f/documents/20160727_cfpb_Outline_of_proposals.pdf (Small Business Review Panel
Outline). The Bureau also gathered feedback on the Small Business
Review Panel Outline from other stakeholders, members of the public,
and the Bureau's Consumer Advisory Board and Community Bank Advisory
Council.
\40\ Bureau of Consumer Fin. Prot., U.S. Small Bus. Admin. &
Office of Mgmt. & Budget, Final Report of the Small Business Review
Panel on the CFPB's Proposals Under Consideration for the Debt
Collector and Debt Buying Rulemaking (Oct. 2016), https://files.consumerfinance.gov/f/documents/cfpb_debt-collector-debt-buyer_SBREFA-report.pdf (Small Business Review Panel Report).
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The Bureau has also met on many occasions with various
stakeholders, including consumer advocates, debt collection trade
associations, industry participants, academics with expertise in debt
collection, Federal prudential regulators, and other Federal and State
consumer protection regulators. The Bureau also received a number of
comments specific to the debt collection rulemaking in response to its
Request for Information Regarding the Bureau's Adopted Regulations and
New Rulemaking Authorities \41\ and its Request for Information
Regarding the Bureau's Inherited Regulations and Inherited Rulemaking
Authorities; \42\ the Bureau considered these comments in developing
the proposals and this final rule. In addition, the Bureau has engaged
in general outreach, speaking at consumer advocate and industry events
and visiting consumer organizations and industry stakeholders. The
Bureau has provided other regulators with information about the
proposals and this final rule, has sought their input, and has received
feedback that has helped the Bureau to prepare this final rule.
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\41\ 83 FR 12286 (Mar. 21, 2018).
\42\ 83 FR 12881 (Mar. 26, 2018).
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Under the Dodd-Frank Act, the Bureau is required to conduct an
assessment of significant rules within five years of the rule's
effective date. The Bureau anticipates that this final rule may be
significant and therefore may require an assessment within five years
of the rule's effective date. The Bureau is preparing now for this
possible assessment. Specifically, the Bureau is considering how best
to obtain information now to serve as a baseline for evaluation of the
costs, benefits, and other effects of the final rule. The Bureau
expects to collect data and other information from consumers, debt
collectors, and other stakeholders to understand whether the rule is
achieving its goals under the FDCPA and the Dodd-Frank Act, and to help
the Bureau measure the costs and benefits of the rule. Topics of data
collection could include: whether consumers are better able to identify
a debt when receiving validation information after the rule compared to
before the rule; whether debt collectors are receiving higher or lower
rates of consumer disputes after the rule compared to before the rule;
whether greater clarity about FDCPA requirements helps reduce
litigation related to the validation notice after the rule compared to
before the rule; and costs of the rule, both anticipated and
unexpected, for consumers or for industry. The Bureau expects to
conduct outreach in 2021 to explore how best to obtain such data,
including potentially through surveying consumers or firms or by
collecting operational data.
IV. Legal Authority
The Bureau is issuing this final rule primarily pursuant to its
authority under the FDCPA and the Dodd-Frank Act. As amended by the
Dodd-Frank Act, FDCPA section 814(d) provides that the Bureau ``may
prescribe rules with respect to the collection of debts by debt
collectors,'' as defined in the FDCPA.\43\ Section 1022(a) of the Dodd-
Frank Act provides that ``[t]he Bureau is authorized to exercise its
authorities under Federal consumer financial law to administer,
enforce, and otherwise implement the provisions of Federal consumer
financial law.'' \44\ Section 1022(b)(1) of the Dodd-Frank Act provides
that the Director may prescribe rules and issue orders and guidance, as
may be necessary or appropriate to enable the Bureau to administer and
carry out the purposes and objectives of the Federal consumer financial
laws, and to prevent evasions thereof.\45\ ``Federal consumer financial
law'' includes title X of the Dodd-Frank Act and the FDCPA.\46\ No
provisions in this final rule are based on section 1031 of the Dodd-
Frank Act.\47\
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\43\ 15 U.S.C. 1692l(d). As noted, the Bureau is the first
Federal agency with authority to prescribe substantive debt
collection rules under the FDCPA. Prior to the Dodd-Frank Act's
grant of rulemaking authority to the Bureau, no agency had authority
to issue substantive rules with respect to the collection of debts
by debt collectors under the FDCPA, but the FTC published various
materials providing guidance on the FDCPA. The FTC's materials have
informed the Bureau's rulemaking and, if relevant to particular
provisions, are discussed in part V.
\44\ 12 U.S.C. 5512(a).
\45\ 12 U.S.C. 5512(b)(1).
\46\ 12 U.S.C. 5481(12)(H), (14).
\47\ The Bureau proposed to rely on its Dodd-Frank Act section
1031 authority (relating to unfair, deceptive, or abusive acts or
practices in connection with consumer financial products or
services) to support two interventions in the May 2019 proposal. The
Bureau has not finalized any provisions of this final rule (or, as
discussed in the November 2020 Final Rule, of that final rule),
pursuant to its authority under Dodd-Frank Act section 1031.
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These and other authorities are discussed in greater detail in
parts IV.A through C below. Part IV.A discusses the Bureau's authority
under sections 806 through 808 of the FDCPA. Parts IV.B through C
discuss the Bureau's relevant authorities under the Dodd-Frank Act.
A. FDCPA Sections 806 Through 808
As discussed in part V, the Bureau is finalizing several
provisions, in whole or in part, pursuant to its authority to interpret
FDCPA sections 806 through 808, which set forth general prohibitions
on, and requirements relating to, debt collectors' conduct and are
accompanied by non-exhaustive lists of examples of unlawful conduct.
The November 2020 Final Rule provides an overview of how the Bureau
interprets FDCPA sections 806 through 808.
FDCPA section 806 generally prohibits a debt collector from
``engag[ing] in any conduct the natural consequence of which is to
harass, oppress, or abuse any person in connection with the collection
of a
[[Page 5771]]
debt.'' \48\ Then, ``[w]ithout limiting the general application of the
foregoing,'' it lists six examples of conduct that violate that
section.\49\ Similarly, FDCPA section 807 generally prohibits a debt
collector from ``us[ing] any false, deceptive, or misleading
representation or means in connection with the collection of any
debt.'' \50\ Then, ``[w]ithout limiting the general application of the
foregoing,'' section 807 lists 16 examples of conduct that violate that
section.\51\ Finally, FDCPA section 808 prohibits a debt collector from
``us[ing] unfair or unconscionable means to collect or attempt to
collect any debt.'' \52\ Then, ``[w]ithout limiting the general
application of the foregoing,'' FDCPA section 808 lists eight examples
of conduct that violate that section.\53\ Consistent with the approach
in the November 2020 Final Rule \54\ and as proposed in the May 2019
proposal,\55\ the Bureau interprets FDCPA sections 806 through 808 in
light of: (1) The FDCPA's language and purpose; (2) the general types
of conduct prohibited by those sections and, where relevant, the
specific examples enumerated in those sections; and (3) judicial
decisions.\56\
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\48\ 15 U.S.C. 1692d.
\49\ 15 U.S.C. 1692d(1)-(6).
\50\ 15 U.S.C. 1692e.
\51\ 15 U.S.C. 1692e(1)-(16).
\52\ 15 U.S.C. 1692f.
\53\ 15 U.S.C. 1692f(1)-(8).
\54\ See 85 FR 76734, 76738 (Nov. 30, 2020).
\55\ 84 FR 23274, 23281-82 (May 21, 2019).
\56\ Where the Bureau prescribes requirements pursuant only to
its authority to implement and interpret sections 806 through 808 of
the FDCPA, the Bureau does not take a position on whether such
practices also would constitute an unfair, deceptive, or abusive act
or practice under section 1031 of the Dodd-Frank Act.
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In particular, the Bureau notes that, by their plain terms, FDCPA
sections 806 through 808 make clear that their examples of prohibited
conduct do not ``limit[ ] the general application'' of those sections'
general prohibitions. The FDCPA's legislative history is consistent
with this understanding,\57\ as are opinions by courts that have
addressed this issue.\58\ Accordingly, the Bureau may interpret the
general provisions of FDCPA sections 806 to 808 to prohibit conduct
that the specific examples in FDCPA sections 806 through 808 do not
address if the conduct violates the general prohibitions. In addition,
the Bureau uses the specific examples to inform its understanding of
the general prohibitions. The Bureau also interprets FDCPA sections 806
through 808 in light of the significant body of existing court
decisions interpreting those sections, including, where applicable,
cases discussing the collection of time-barred debt.\59\ Finally,
consistent with the majority of courts, the Bureau interprets FDCPA
sections 806 through 808 to incorporate an objective,
``unsophisticated'' or ``least sophisticated'' consumer standard.\60\
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\57\ See, e.g., S. Rep. No. 382, 95th Cong., 1st Sess. 2, 4
(1977), reprinted in 1977 U.S.C.C.A.N. 1695, 1698 (S. Rep. No. 382)
(``[T]his bill prohibits in general terms any harassing, unfair, or
deceptive collection practice. This will enable the courts, where
appropriate, to proscribe other improper conduct which is not
specifically addressed.''). Courts have also cited legislative
history in noting that, ``in passing the FDCPA, Congress identified
abusive collection attempts as primary motivations for the Act's
passage.'' Hart v. FCI Lender Servs., Inc., 797 F.3d 219, 226 (2d
Cir. 2015).
\58\ See, e.g., Stratton v. Portfolio Recovery Assocs., LLC, 770
F.3d 443, 450 (6th Cir. 2014) (``[T]he listed examples of illegal
acts are just that--examples.'').
\59\ Id. See, e.g., Holzman v. Malcolm S. Gerald & Assocs., 920
F.3d 1264 (11th Cir. 2019); Tatis v. Allied Interstate, LLC, 882
F.3d 422 (3d Cir. 2018); Pantoja v. Portfolio Recovery Assocs., LLC,
852 F.3d 679 (7th Cir. 2017), cert. denied, 138 S. Ct. 736 (2018);
Daugherty v. Convergent Outsourcing Inc., 836 F.3d 507 (5th Cir.
2016); Buchanan v. Northland Grp., Inc., 776 F.3d 393 (6th Cir.
2015); McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir.
2014).
\60\ 85 FR 76734, 76740 (Nov. 30, 2020); 84 FR 23274, 23282-83
(May 21, 2019).
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B. Dodd-Frank Act Section 1032
Dodd-Frank Act section 1032(a) provides that the Bureau may
prescribe rules to ensure that the features of any consumer financial
product or service, ``both initially and over the term of the product
or service,'' are ``fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances.'' \61\ Under Dodd-Frank Act section
1032(a), the Bureau is empowered to prescribe rules regarding the
disclosure of the ``features'' of consumer financial products and
services generally. Accordingly, the Bureau may prescribe rules
containing disclosure requirements even if other Federal consumer
financial laws do not specifically require disclosure of such features.
Dodd-Frank Act section 1032(c) provides that, in prescribing rules
pursuant to Dodd-Frank Act section 1032, the Bureau ``shall consider
available evidence about consumer awareness, understanding of, and
responses to disclosures or communications about the risks, costs, and
benefits of consumer financial products or services.'' \62\ The Bureau
is finalizing Sec. Sec. 1006.34 and 1006.38 based in part on its
authority under Dodd-Frank Act section 1032.
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\61\ 12 U.S.C. 5532(a).
\62\ 12 U.S.C. 5532(c).
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C. Other Authorities Under the Dodd-Frank Act
Section 1022(b)(1) of the Dodd-Frank Act provides that the Bureau's
Director ``may prescribe rules and issue orders and guidance, as may be
necessary or appropriate to enable the Bureau to administer and carry
out the purposes and objectives of the Federal consumer financial laws,
and to prevent evasions thereof.'' \63\ ``Federal consumer financial
laws'' include the FDCPA and title X of the Dodd-Frank Act.\64\ Section
1022(b)(2) of the Dodd-Frank Act prescribes certain standards for
rulemaking that the Bureau must follow in exercising its authority
under Dodd-Frank Act section 1022(b)(1).\65\ See part VII for a
discussion of the Bureau's standards for rulemaking under Dodd-Frank
Act section 1022(b)(2).
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\63\ 12 U.S.C. 5512(b)(1).
\64\ 12 U.S.C. 5481(14).
\65\ 12 U.S.C. 5512(b)(2).
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V. Section-by-Section Analysis
Subpart A--General
Section 1006.1 Authority, Purpose, and Coverage
1(c) Coverage
In the November 2020 Final Rule, the Bureau adopted Sec.
1006.1(c)(1) to specify that, except as provided in Sec. 1006.108 and
appendix A, Regulation F applies to debt collectors, as defined in
Sec. 1006.2(i), other than a person excluded from coverage by section
1029(a) of the Consumer Financial Protection Act of 2010, title X of
the Dodd-Frank Act (12 U.S.C. 5519(a)).\66\ The Bureau also noted that
it was not finalizing, as part of the November 2020 Final Rule,
proposed Sec. 1006.1(c)(2), which provided that certain provisions of
Regulation F applied to debt collectors only when they were collecting
consumer financial product or service debt, as defined in Sec.
1006.2(f). The Bureau explained that it was not finalizing Sec.
1006.1(c)(2) as part of the November 2020 Final Rule because all of the
provisions of that final rule apply to debt collectors as defined in
Sec. 1006.2(i). The Bureau nevertheless reserved Sec. 1006.1(c)(2) so
that the Bureau could clarify which provisions of this final rule, if
any, apply to debt collectors only if they are collecting debt related
to a consumer financial product or service.
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\66\ 85 FR 76734, 76742 (Nov. 30, 2020).
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For the reasons discussed in the section-by-section analysis of
Sec. 1006.34, two provisions of that section (Sec. 1006.34(c)(2)(iii)
and (3)(iv)) apply to debt collectors only if they are collecting debt
related to a consumer
[[Page 5772]]
financial produce or service as defined in Sec. 1006.2(f). Therefore,
the Bureau is finalizing Sec. 1006.1(c)(2) to provide that certain
provisions of Regulation F apply to debt collectors only if they are
collecting debt related to a consumer financial product or service as
defined in Sec. 1006.2(f), and to specify that those provisions are
Sec. 1006.34(c)(2)(iii) and (3)(iv).
Section 1006.2 Definitions
2(e) Consumer
FDCPA section 803(3) defines a consumer as any natural person
obligated or allegedly obligated to pay any debt.\67\ The Bureau
proposed Sec. 1006.2(e) to implement this definition and to interpret
it to include a deceased natural person who is obligated or allegedly
obligated to pay a debt.\68\ The Bureau explained that this
interpretation would ensure that individuals trying to resolve a
deceased consumer's debts have the same legal right to receive the
validation notice, and to dispute the debt and request information
about the original creditor, as the deceased consumer would have had.
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\67\ 15 U.S.C. 1692a(3).
\68\ See 84 FR 23274, 23288 (May 21, 2019).
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As the Bureau noted in the November 2020 Final Rule, the Bureau
received a number of comments regarding its proposal to interpret the
term consumer to include deceased natural persons. The Bureau also
noted that it had proposed that interpretation, in large part, to
facilitate delivery of validation notices under proposed Sec. 1006.34
if the consumer obligated, or allegedly obligated, on the debt has
died. Further, the Bureau noted that it planned to address comments
received regarding that interpretation, and to determine whether to
finalize that interpretation, as part of this final rule. Thus, as
finalized in the November 2020 Final Rule, Sec. 1006.2(e) provides
that the term consumer means any natural person obligated or allegedly
obligated to pay any debt.\69\ The Bureau now addresses comments
received regarding its proposal to interpret the definition to include
deceased natural persons.
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\69\ For the reasons discussed in the November 2020 Final Rule,
Sec. 1006.2(e) as finalized in that rule also provides that, for
purposes of Sec. 1006.6, the term consumer includes the persons
described in Sec. 1006.6(a). To account for any revisions adopted
in this final rule, it also specifies that the Bureau may further
define the term in Regulation F to clarify its application when the
consumer is deceased. See 85 FR 76734, 76744-45, 76888 (Nov. 30,
2020).
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Several commenters supported the Bureau's proposed interpretation.
One industry commenter stated that, in the decedent debt context, the
person acting on behalf of a deceased consumer's estate should have the
same rights regarding validation notices and disputes as the consumer
would have had if the consumer were still living. Another industry
commenter reported that many debt collectors currently attempt to treat
deceased consumers as ``consumers'' under the FDCPA and explained that
the proposal would provide additional clarity that would benefit both
consumers and debt collectors in resolving the debts of deceased
consumers. A group of consumer advocates supported clarifying the
rights of executors, administrators, and personal representatives
regarding validation notices and disputes. However, as discussed below,
these consumer advocate commenters opposed the proposed interpretation
and suggested a different way to address the issue.
Other commenters opposed interpreting the term consumer to include
deceased natural persons who are obligated or allegedly obligated to
pay a debt. One industry commenter asserted that the proposed
interpretation would serve no purpose because deceased consumers lacked
privacy interests. A trade group commenter stated that no evidence of
confusion existed in the decedent debt context, and that the Bureau's
interpretation would expand the class of individuals entitled to sue
debt collectors for violations of the FDCPA and the final rule.
Finally, a group of consumer advocates suggested that the Bureau's
interpretation was unnecessary because proposed comments 34(a)(1)-1 and
38-1 would clarify that a person who is authorized to act on behalf of
the deceased consumer's estate operates as the consumer for purposes of
Sec. Sec. 1006.34(a)(1) and 1006.38.\70\ These commenters also stated
that, if the Bureau were attempting to change the class of individuals
who may bring civil actions against debt collectors, the FDCPA already
allows any ``person'' to bring such claims.
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\70\ See the section-by-section analyses of Sec. Sec. 1006.34
and 1006.38.
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For the reasons discussed below, the Bureau is revising Sec.
1006.2(e), as set forth in the November 2020 Final Rule, to clarify
that the definition of consumer includes deceased natural persons. As
explained in the May 2019 proposal, the FDCPA does not specify whether
a consumer, as defined in section 803(3), includes a deceased consumer
(or whether a natural person, as that term is used in section 803(3),
includes a deceased natural person).\71\ Because the definition of
consumer in FDCPA section 803(3) is silent with respect to deceased
consumers, other FDCPA provisions that refer to a debt collector's
obligations to a consumer lack clarity in the decedent debt context.
For example, FDCPA provisions requiring debt collectors to provide
validation information, and to respond to disputes and requests for
original-creditor information, do not address situations in which the
person obligated or allegedly obligated to pay the debt is deceased.
Uncertainty surrounding these provisions increases the risk of consumer
harm in the decedent debt context. Specifically, without validation
information and an opportunity to dispute the debt, individuals trying
to resolve debts in a deceased consumer's estate will lack information
needed to determine whether they are being asked to pay the right debt,
in the right amount, and to the right debt collector, and,
consequently, whether they should assert dispute rights.
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\71\ See 84 FR 23274, 23288 (May 21, 2019).
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Accordingly, to increase clarity and to decrease the risk of
consumer harm, the Bureau is revising Sec. 1006.2(e) to provide that
the term consumer means any natural person, whether living or deceased,
obligated or allegedly obligated to pay any debt. The Bureau also is
revising Sec. 1006.2(e) to delete the statement that the Bureau may
further define the term to clarify its application when the consumer is
deceased, since this final rule contains that further definition.\72\
Relatedly, the Bureau is finalizing the commentary to Sec. Sec.
1006.34(a)(1) and 1006.38 that clarifies that a person who is
authorized to act on behalf of the deceased consumer's estate, such as
the executor, administrator, or personal representative, operates as
the consumer for purposes of Sec. Sec. 1006.34(a)(1) and 1006.38.
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\72\ In the proposal, the Bureau explained that its
interpretation was ``consistent with a modern trend in the law that
favors recognizing, as a default, the continued existence of a
natural person after death.'' 84 FR 23274, 23288 (May 21, 2019).
Consumer advocates pointed out that the authority cited for this
proposition comes from contexts other than the FDCPA. But these
commenters do not explain why this fact undermines the existence of
the trend described by the Bureau.
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Regarding the comment that deceased consumers have no privacy
rights, the Bureau disagrees. In its Policy Statement on Decedent Debt,
the FTC prohibited debt collectors from openly referring to a deceased
consumer's debts in communications with third parties, instead adopting
an approach that ``balance[d] the legitimate needs of the collector
with the privacy interests of
[[Page 5773]]
the decedent.'' \73\ In the November 2020 Final Rule, the Bureau took a
similar approach regarding location communications for decedent
debt.\74\
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\73\ Fed. Trade Comm'n, Statement of Policy Regarding
Communications in Connection with the Collection of Decedents' Debts
at 44921 (July 27, 2011), https://www.ftc.gov/sites/default/files/documents/federal_register_notices/statement-policy-regarding-communications-connection-collection-decedents-debts-policy-statement/110720fdcpa.pdf (FTC Policy Statement on Decedent Debt).
\74\ See 85 FR 76734, 76797-00, 76890, 76900 (Nov. 30, 2020).
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Moreover, interpreting the term consumer in Sec. 1006.2(e) to
include deceased natural persons is supported by more than concern for
a decedent's privacy; it also clarifies debt collector's obligations to
a consumer and, in turn, to those authorized to act on the consumer's
behalf, if the consumer has died. This includes clarifying a debt
collector's obligations under the FDCPA's provisions, as implemented in
this final rule and in the November 2020 Final Rule, regarding
validation information and disputes and requests for original-creditor
information, which help to ensure that consumers are not paying the
wrong debt, in the wrong amount, to the wrong debt collector.
This interpretation also clarifies the application of Sec.
1006.22(f)(4), which the Bureau adopted in the November 2020 Final Rule
to prohibit debt collectors from communicating or attempting to
communicate with a person in connection with the collection of a debt
through a social media platform if the communication or attempt to
communicate is viewable by the general public or the person's social
media contacts.\75\ In adopting that provision, the Bureau discussed
that a consumer advocate commenter had stated that the Bureau should
broaden the prohibition to apply to deceased consumers, such that debt
collectors would be prohibited from posting publicly about a deceased
consumer's alleged debt on the consumer's social media page. The
consumer advocate commenter stated that a debt collector's only reason
for doing so would be to pressure surviving relatives to pay the debt,
either to protect the deceased consumer's reputation or out of a sense
of moral obligation.\76\
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\75\ See id. at 76836-39, 76892.
\76\ See id. at 76836-39.
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In finalizing Sec. 1006.22(f)(4) in the November 2020 Final Rule,
Bureau noted that the prohibition applied to communications and
attempts to communicate with ``a person,'' and that person, as defined
in Sec. 1006.2(k), includes a consumer. The Bureau again noted that it
had received a number of comments regarding its proposal to interpret
the term consumer to include deceased natural persons and that it would
address such comments in this final rule. In determining to revise
Sec. 1006.2(e) to include a deceased natural person who is obligated
or allegedly obligated to pay a debt, the Bureau thus also clarifies
that the prohibition in Sec. 1006.22(f)(4) includes deceased
consumers.
The Bureau disagrees with the industry commenter that there is no
evidence of confusion about the definition of consumer in the decedent
debt context. As explained above, the FDCPA's current lack of clarity
in the decedent debt context creates uncertainty in several situations
arising during the collection of debts belonging to deceased consumers.
Therefore, the Bureau determines that additional clarity will improve
the debt collection system for all parties.
Nor does Sec. 1006.2(e) expand the class of potential plaintiffs
who may bring suit under the FDCPA and Regulation F, as an industry
commenter alleged. The civil liability provision of the FDCPA already
creates liability for violations committed against any person.\77\ As
noted in the proposal, the trend in the law has been to recognize, as a
default, the continued existence of a natural person after death for
purposes of bringing civil actions, particularly for remedial statutes
like the FDCPA.\78\ This commenter did not explain how the Bureau's
interpretation would result in a lawsuit by someone other than a
``person'' under the statute.
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\77\ 15 U.S.C. 1692k.
\78\ See 84 FR 23274, 23288 (May 21, 2019).
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Finally, the Bureau disagrees, as suggested by certain commenters,
that the commentary to Sec. Sec. 1006.34(a)(1) and 1006.38 (final
comments 34(a)(1)-1 and 38-3) provide adequate clarity without
interpreting the term consumer to include deceased natural persons. In
fact, interpreting the term consumer to include deceased natural
persons is a necessary predicate to provide that the persons identified
in those comments operate as the consumer for purposes of the
requirements relating to validation information, disputes, and requests
for original-creditor information.
Commenters raised additional issues related to Sec. 1006.2(e). A
few industry commenters suggested that the Bureau's proposed
interpretation was inconsistent with the Bureau's mortgage servicing
rules regarding successors in interest. One trade group commenter
stated that allowing any individual authorized to act on behalf of a
deceased consumer's estate to meet Regulation F's definition of
consumer under Sec. 1006.2(e) will complicate and potentially impede
the existing successor in interest process under Regulations X and Z.
The commenter explained that, under proposed comment 34(a)(1)-1,
mortgage servicers who are also debt collectors under Regulation F
would have to send validation information to the person authorized to
act on behalf of the deceased consumer's estate but would not be able
to send foreclosure-related disclosures required under State law to the
same person, unless that person had assumed ownership of the
obligation. The commenter also suggested that, under proposed comment
38-1, debt collectors would be required to focus resources on verifying
the identify of an individual asserting to be a person authorized to
act on behalf of the deceased consumer's estate, which would take away
from legitimate efforts to respond to disputes and requests for
original-creditor information.
Another trade group commenter stated that the clarification in
proposed comment 34(a)(1)-1 to send the validation notice to the person
authorized to act on behalf of the deceased consumer's estate if the
debt collector knows or should know that the consumer is deceased
would, unlike the Bureau's mortgage servicing rules, appear to create
an affirmative obligation for mortgage servicers to track down
information about potential successors in interest and cloud
requirements for mortgage servicers under Regulation X. For this
reason, a third trade group commenter suggested that, if a required
notice must be sent and no individual has come forward as a potential
or confirmed successor in interest, the Bureau should permit mortgage
servicers to address a validation notice to the deceased consumer or
``the estate of'' the deceased consumer rather than require a search
for an individual to whom to address the notice.
As the Bureau has previously explained, while many mortgage
servicers are not subject to the FDCPA, mortgage servicers that
acquired a mortgage loan at the time that it was in default may be
subject to the FDCPA with respect to that mortgage loan.\79\ As
discussed below, the Bureau concludes that including a deceased natural
person who is obligated or allegedly obligated to pay a debt within the
definition of consumer under Sec. 1006.2(e) is not inconsistent with
the Bureau's mortgage servicing rules on successors in interest.
[[Page 5774]]
Although one commenter asserted that finalizing this definition as
proposed would complicate and potentially impede the existing successor
in interest process, the commenter failed to explain why that would be
the case and the Bureau does not believe that to be the case.
---------------------------------------------------------------------------
\79\ See 85 FR 76734, 76758 (Nov. 30, 2020); 81 FR 71977, 71978
(Oct. 19, 2016).
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Regarding delivery of validation information, as discussed below,
comment 34(a)(1)-1 clarifies that, if a debt collector knows or should
know that a consumer is deceased, and if the debt collector has not
previously provided the validation information to the deceased
consumer, then in such circumstances, to comply with Sec.
1006.34(a)(1), a debt collector must provide the validation information
to an individual whom the debt collector identifies by name and who is
authorized to act on behalf of the deceased consumer's estate.\80\ A
person who is authorized to act on behalf of a deceased consumer's
estate may include the executor, administrator, or personal
representative. However, as discussed in the November 2020 Final Rule,
for purposes of Regulations X and Z, a successor in interest is, in
general, a person to whom an ownership interest either in a property
securing a mortgage loan subject to subpart C of Regulation X, or in a
dwelling securing a closed-end consumer credit transaction under
Regulation Z, is transferred under specified circumstances including,
for example, after a consumer's death or as part of a divorce.\81\
Therefore, a person who is authorized to act on behalf of a deceased
consumer's estate for purposes of Regulation F may or may not also be a
successor in interest under Regulations X and Z, depending on whether
an ownership interest in a property securing a mortgage loan or a
dwelling securing a closed-end consumer credit transaction is
transferred to that person under the circumstances specified in
Regulations X and Z.\82\
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\80\ See the section-by-section analysis of Sec. 1006.34(a)(1).
\81\ See 85 FR 76734, 76758-59 (Nov. 30, 2020). See also 12 CFR
1024.31, 1026.2(a)(27)(i). A confirmed successor in interest, in
turn, means a successor in interest once a mortgage servicer has
confirmed the successor in interest's identity and ownership
interest in the property that secures the mortgage loan or in the
dwelling. See 12 CFR 1024.31, 1026.2(a)(27)(ii).
\82\ 12 CFR 1024.31, 1026.2(a)(27).
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Comment 34(a)(1)-1 provides debt collectors clarity regarding to
whom the validation information must be provided in the narrow
circumstance in which the debt collector knows or should know that a
consumer is deceased and the debt collector has not previously provided
the validation information to the deceased consumer. According to the
comment, under these circumstances, a debt collector who is collecting
the debt of a deceased consumer must determine who is authorized to act
on behalf of a deceased consumer's estate. These efforts, however, do
not create an affirmative obligation under the Bureau's mortgage
servicing rule for a mortgage servicer that is subject to the FDCPA
with respect to a mortgage loan to seek out potential successors in
interest within the meaning of the mortgage servicing rules. Under the
mortgage servicing rules, a mortgage servicer is not required to
conduct a search for potential successors in interest if the mortgage
servicer has not received actual notice of their existence.\83\ If, in
the course of determining who is authorized to act on behalf of a
deceased consumer's estate for purposes of Sec. 1006.34(a)(1), a
mortgage servicer receives actual notice of the existence of a
potential successor in interest, the mortgage servicer must, as
required under Regulation X, maintain policies and procedures
reasonably designed to ensure that the servicer can retain this
information and promptly facilitate communication with the potential
successor in interest.\84\ However, because a mortgage servicer that is
subject to the FDCPA with respect to a mortgage loan may comply with
both this final rule and the applicable successor in interest
provisions under Regulations X and Z, the Bureau concludes there is no
conflict with the mortgage servicing rules. Additionally, nothing in
this final rule is intended to alter the successor in interest
provisions in Regulations X and Z or to impose additional requirements
under Regulations X and Z.
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\83\ 12 CFR 1024.38(b)(1)(vi); comment 38(b)(1)(vi)-1.
\84\ Id. The general servicing policies, procedures, and
requirements in 12 CFR 1024.38 do not apply to a mortgage servicer
that qualifies as a small servicer pursuant to 12 CFR 1026.41(e).
See 12 CFR 1024.30(b)(1).
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In response to the commenter's concern regarding the burdens under
comment 38-1 of determining who is authorized to act on behalf of a
deceased consumer's estate before responding to a dispute or request
for original-creditor information, the potential burdens associated
with responding to such incoming disputes and requests will be
significantly reduced once a debt collector has procedures in place to
make that threshold determination or has already made that
determination for purposes of providing the validation information as
described in comment 34(a)(1)-1.
The Bureau declines to adopt the suggestion to allow mortgage
servicers to address a validation notice to the deceased consumer or to
``the estate of'' the deceased consumer. As discussed in the proposal,
the Bureau shares the view of the FTC, which stated in its Policy
Statement on Decedent Debt that individuals who lack the authority to
resolve the estate but who wish to be helpful are likely to open
communications addressed to the decedent's estate, or to an unnamed
executor or administrator, which makes such communications
insufficiently targeted to a consumer with whom the debt collector may
generally discuss the debt.\85\ The Bureau, therefore, shares the view
of the FTC that ``communication[s] addressed to the decedent's estate,
or an unnamed executor or administrator, [are] location
communication[s] and must not refer to the decedent's debts.'' \86\
Accordingly, comment 34(a)(1)-1 specifies that a debt collector must
provide the validation information to an individual that the debt
collector identifies by name who is authorized to act on behalf of the
deceased consumer's estate.
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\85\ See 84 FR 23274, 23334 (May 21, 2019).
\86\ FTC Policy Statement on Decedent Debt, supra note 73, at
44920.
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A group of consumer advocates stated that certain other provisions
of the Bureau's proposal, such as Sec. 1006.14(e)'s prohibition on
publishing lists of consumers who allegedly refuse to pay debts and
Sec. 1006.18(b)(1)(iv)'s prohibition on falsely representing or
implying that the consumer committed any crime or other conduct in
order to disgrace the consumer, should apply to deceased consumers.
But, these commenters claimed, other provisions, like Sec.
1006.6(b)(1)'s restrictions on communicating at inconvenient times or
places, were nonsensical as applied to deceased consumers. Therefore,
these commenters argued, the Bureau's interpretation in proposed Sec.
1006.2(e) was overbroad.
The Bureau acknowledges that there may be certain provisions in the
November 2020 Final Rule and in this final rule that refer to a
consumer that simply will be inapplicable in the context of a deceased
consumer.\87\ Nevertheless, as consumer advocates acknowledged, other
provisions that
[[Page 5775]]
refer to a consumer will apply to deceased consumers. For example, as
discussed above, interpreting the term consumer in Sec. 1006.2(e) to
include deceased natural persons means that, as applied to Sec.
1006.22(f)(4), debt collectors are prohibited from posting publicly
about a deceased consumer's alleged debt on a deceased consumer's
public-facing social media page. In situations that are currently
unclear, such as delivery of validation information, the final rule
adopts commentary clarifying debt collectors' obligations.
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\87\ For example, Sec. 1006.6(b) restricts, among other things,
the times at which debt collectors can communicate or attempt to
communicate with consumers. See 85 FR 76734, 76889 (Nov. 30, 2020).
To the extent that ``communicate'' includes having a conversation,
the Bureau believes it is obvious that this prohibition is simply
inapplicable in the case of a deceased consumer (but does apply to
having a conversation with the executor or administrator of the
consumer's estate).
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This group of consumer advocates also recommended that the Bureau
require debt collectors to provide a validation notice to the person
authorized to act on behalf of the deceased consumer's estate even if
validation information already was provided to the consumer. These
commenters also asked the Bureau to provide that the validation period
starts from the date the person authorized to act on behalf of the
deceased consumer's estate receives the validation notice, and to
require debt collectors to respond to disputes and requests for
original-creditor information submitted by this person, even if a
response already was provided to the consumer. The Bureau declines to
adopt these suggestions because the Bureau finds that, in the scenario
described, the debt collector has already satisfied the debt
collector's obligations to the consumer as set forth in FDCPA section
809 and Sec. Sec. 1006.34 and 1006.38. Depending on the facts, the
debt collector could be required to provide a validation notice or
dispute response to the person authorized to act on behalf of the
deceased consumer's estate,\88\ but the Bureau declines to require debt
collectors to do so in all cases. Nevertheless, the Bureau notes that
debt collectors who voluntarily provide validation notices after a
consumer dies (as some industry commenters reported is done), and who,
in doing so, start a new validation period, do not thereby violate the
FDCPA or Regulation F.
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\88\ See the section-by-section analysis of Sec. 1006.34(b)(5).
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For the reasons discussed above, and pursuant to its authority
under FDCPA section 814(d) to prescribe rules with respect to the
collection of debts by debt collectors, the Bureau is finalizing Sec.
1006.2(e) as proposed to interpret the definition of consumer in FDCPA
section 803(3) to mean any natural person, whether living or deceased,
who is obligated or allegedly obligated to pay any debt.
2(f) Consumer Financial Product or Service
As discussed in the November 2020 Final Rule, the Bureau proposed
Sec. 1006.2(f) to define consumer financial product or service debt to
mean any debt related to any consumer financial product or service, as
consumer financial product or service is defined in section 1002(5) of
the Dodd-Frank Act.\89\ As also discussed in the November 2020 Final
Rule, the Bureau did not finalize Sec. 1006.2(f) as part of that
rulemaking because the Bureau did not finalize in that rulemaking any
provisions for which the definition in proposed Sec. 1006.2(f) would
have been relevant.
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\89\ 85 FR 76734, 76745 (Nov. 30, 2020).
---------------------------------------------------------------------------
For the reasons discussed in the section-by-section analyses of
Sec. Sec. 1006.1(c) and 1006.34, the Bureau is adopting in this final
rule two provisions (Sec. 1006.34(c)(2)(iii) and (3)(iv)) that apply
to debt collectors only if they are collecting debt related to a
consumer financial product or service. This includes, for example, debt
collectors collecting debts related to consumer mortgage loans or
credit cards.\90\ To facilitate compliance with those provisions, the
Bureau is adopting Sec. 1006.2(f) to provide that consumer financial
product or service has the meaning in section 1002(5) of the Dodd-Frank
Act (12 U.S.C. 5481(5)).
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\90\ See 84 FR 23274, 23286 (May 21, 2019).
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The Bureau notes that it originally proposed Sec. 1006.2(f) to
define the term ``consumer financial product or service debt.''
However, because the relevant defined term in the Dodd-Frank Act is
``consumer financial product or service,'' and because certain
commenters observed that including two definitions of the term ``debt''
in the rule would be confusing, the Bureau is finalizing Sec.
1006.2(f) to provide that the defined term in the rule is ``consumer
financial product or service'' and that the term has the same meaning
given to it in section 1002(5) of the Dodd-Frank Act.
Subpart B--Rules for FDCPA Debt Collectors
Section 1006.26 Collection of Time-Barred Debts
The May 2019 proposal and the February 2020 proposal both addressed
the collection of time-barred debt. In the May 2019 proposal, the
Bureau proposed to define several terms (proposed Sec. 1006.26(a)) and
to prohibit debt collectors from bringing or threatening to bring legal
actions against consumers to collect certain time-barred debts
(proposed Sec. 1006.26(b)). In the February 2020 proposal, the Bureau
proposed to require debt collectors to provide disclosures if
collecting certain time-barred debts (proposed Sec. 1006.26(c)). The
February 2020 proposal also included model language and forms that debt
collectors could use to comply with the proposed disclosure
requirements. In the November 2020 Final Rule, the Bureau noted that it
planned to address its proposals regarding time-barred debt in this
final rule, and the Bureau reserved Sec. 1006.26 for that purpose.
After considering the comments received in response to both the May
2019 and February 2020 proposals, the Bureau is now finalizing proposed
Sec. 1006.26(a) and (b) with modifications as described below. The
Bureau is not finalizing proposed Sec. 1006.26(c).
26(a) Definitions
Proposed Sec. 1006.26(a) defined two terms not defined in the
FDCPA: Statute of limitations and time-barred debt. The Bureau proposed
to define these terms to facilitate compliance with proposed Sec.
1006.26(b) and (c). As discussed below, the Bureau is finalizing Sec.
1006.26(a) as proposed. The Bureau is finalizing Sec. 1006.26(a)
pursuant to its authority under FDCPA section 814(d) to prescribe rules
with respect to the collection of debts by debt collectors.
26(a)(1) Statute of Limitations
Proposed Sec. 1006.26(a)(1) defined the term statute of
limitations to mean the period prescribed by applicable law for
bringing a legal action against the consumer to collect a debt.\91\
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\91\ See 84 FR 23274, 23327-28 (May 21, 2019).
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Statutes of limitation, which typically are established by State
law, provide time limits for bringing suit on legal claims. As the
Bureau explained in the May 2019 proposal, statutes of limitation serve
several purposes.\92\ First, statutes of limitations advance a
defendant's interest in repose. That is, they reflect a legislative
judgment that it is ``unjust to fail to put the adversary on notice to
defend within a specified period of time.'' \93\ Second, statutes of
limitations eliminate stale claims. That is, they protect defendants
and the courts from having to deal with cases in which ``the search for
truth may be seriously impaired by the loss of evidence, whether by
death or disappearance of witnesses, fading
[[Page 5776]]
memories, disappearance of documents, or otherwise.'' \94\ Third,
statutes of limitations provide ``certainty about a plaintiff's
opportunity for recovery and a defendant's potential liabilities.''
\95\ For debt collection claims, the length of the applicable statute
of limitations often varies by State and, within each State, by debt
type. Although most statutes of limitations applicable to debt
collection claims are between three and six years, some are as long as
15 years.
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\92\ See generally Rotella v. Wood, 528 U.S. 549, 555 (2000)
(identifying ``the basic policies of all limitations provisions'' as
``repose, elimination of stale claims, and certainty'').
\93\ United States v. Kubrick, 444 U.S. 111, 117 (1979).
\94\ Id.
\95\ Young v. United States, 535 U.S. 43, 47 (2002) (quoting
Rotella, 528 U.S. at 555).
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Several commenters addressed proposed Sec. 1006.26(a)(1). One
industry commenter confirmed that the proposed definition of statute of
limitations comported with debt collectors' understanding of the term.
A number of other industry commenters requested that the Bureau modify
the definition to account for the fact that it can be challenging to
determine the applicable statute of limitations in certain
circumstances. For example, two industry commenters requested that the
Bureau clarify that, in determining the applicable statute of
limitations, a debt collector need only conduct a reasonable
investigation based on objectively ascertainable facts, and that a debt
collector would only be charged with knowing that the statute of
limitations has expired if the law is clearly established. The
commenters also requested that the Bureau more specifically define
certain elements of the term statute of limitations to lessen the
burden on debt collectors of determining whether a debt is time barred.
For example, they suggested defining ``applicable law'' as the law of
the jurisdiction where the consumer resides or is believed to reside at
the time collections begin, or the law of the jurisdiction in which the
consumer signed any underlying contract. Commenters suggested that
these changes would make it easier for a debt collector to determine
the statute of limitations applicable to a particular debt while
protecting a debt collector from liability when it is difficult
determine the exact date on which a debt becomes time barred.
The Bureau is finalizing Sec. 1006.26(a)(1) as proposed. As
industry commenters confirmed, the definition of statute of limitations
in Sec. 1006.26(a)(1) is consistent with debt collectors'
understanding of the term. The Bureau declines to modify the definition
to identify the type of investigation a debt collector must or should
undertake to ascertain the applicable statute of limitations. The
Bureau also declines to define the term ``applicable law'' in the
manner requested by commenters. The Bureau recognizes that, in some
cases, it can be challenging and costly for a debt collector to
determine what statute of limitations applies to a legal action against
the consumer to collect a particular debt, and that, in some cases, the
commenters' suggestions could reduce those challenges and costs. The
Bureau declines, however, to address the challenges and costs
associated with determining whether a debt is time barred by modifying
the definition of statute of limitations, a term with a meaning widely
understood by debt collectors, or by defining new terms. Comments
relating to the difficulty of determining whether a debt is time barred
are discussed further in the section-by-section analysis of Sec.
1006.26(b).
26(a)(2) Time-Barred Debt
Proposed Sec. 1006.26(a)(2) defined the term time-barred debt to
mean a debt for which the applicable statute of limitations has
expired.\96\
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\96\ See 84 FR 23274, 23328 (May 21, 2019).
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As the Bureau explained in the May 2019 proposal, many debt
collectors already determine whether the statute of limitations
applicable to a debt has expired. Some do so to comply with State and
local disclosure laws that require them to inform consumers when debts
are time barred.\97\ Others do so to assess whether they can sue to
collect the debt, which may affect their collection strategy. In
addition, the information that debt buyers generally receive when
bidding on and purchasing debts, and the information that other debt
collectors generally receive at placement, may allow them to determine
whether the applicable statute of limitations has expired.\98\
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\97\ See, e.g., Cal. Civ. Code sec. 1788.52(d)(3); Conn. Gen.
Stat. sec. 36a-805(a)(14); Mass. Code Regs., tit. 940, Sec.
7.07(24); N.M. Code. R. sec. 12.2.12.9(A); N.Y. Comp. Codes R. &
Regs., tit. 23, sec. 1.3; New York City, N.Y., Rules, tit. 6, sec.
2-191(a); W. Va. Code sec. 46a-2-128(f).
\98\ See Fed. Trade Comm'n, The Structure and Practices of the
Debt Buying Industry, at 49 (Jan. 2013), https://www.ftc.gov/sites/default/files/documents/reports/structure-and-practices-debt-buying-industry/debtbuyingreport.pdf (FTC Debt Buying Report) (``The data
the Commission received from debt buyers suggests that debt buyers
usually are likely to know or be able to determine whether the debts
on which they are collecting are beyond the statute of
limitations.''). Similarly, the majority of respondents to the
Bureau's Debt Collection Operations Study reported always or often
receiving certain information and documentation that may be relevant
to determining whether a debt is time barred, such as debt balance
at charge off, account agreement documentation, and billing
statements. See CFPB Debt Collection Operations Study, supra note
37, at 23.
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Several commenters addressed proposed Sec. 1006.26(a)(2). An
industry commenter confirmed that the proposed definition comported
with debt collectors' understanding of the term. Two other industry
commenters expressed concern that the term time-barred debt may imply
that a debt collector has no right at all to collect the debt, whereas
in most jurisdictions a debt's time-barred status only limits the debt
collector's right to recover on the debt through a lawsuit. Several
industry commenters expressed concern that the proposal seemed to
contemplate that a debt is a single amount that becomes time barred at
a single moment in time and noted that not all debts operate in that
manner. For example, these commenters stated that an installment loan
could become time barred on a rolling basis depending on when each
installment was due. In addition, according to some commenters, a legal
action to collect a debt may be based on more than one legal theory or
involve more than one cause of action, and each theory or cause of
action may be subject to a different statute of limitations. Similarly,
according to some commenters, certain secured debts may be subject to
more than one method of suit and more than one statute of limitations.
For example, these commenters asserted, in some States a mortgagee may
choose whether to pursue a remedy at law on the note, a remedy in
equity on the mortgage, or both, and the statute of limitations
applicable to these claims may differ. Relatedly, one industry
commenter asked the Bureau to clarify that debt collectors are not
prohibited from taking legal action to enforce a lien even if a claim
on the underlying obligation is time barred. Alternatively, the
commenter asked the Bureau to clarify that the requirements of proposed
Sec. 1006.26 would apply only when all causes of action associated
with the underlying note and with the security instrument are time
barred.\99\
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\99\ Another commenter seeking clarification on the scope of
proposed Sec. 1006.26(b) asserted that in rem enforcement of a
security instrument is not inherently debt collection. The Bureau
notes that Sec. 1006.26, like the rest of this final rule, applies
only to FDCPA debt collectors. The Supreme Court recently held that
a business engaged in no more than nonjudicial foreclosure
proceedings is not an FDCPA debt collector, except for the limited
purpose of FDCPA section 808(6). See Obduskey v. McCarthy & Holthus
LLP, 139 S. Ct. 1029 (2019). FDCPA section 808(6) specifically
prohibits taking or threatening to take any nonjudicial action in
certain circumstances, such as where there is no present right to
possession through an enforceable security instrument.
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The Bureau is finalizing Sec. 1006.26(a)(2) as proposed. As
industry commenters confirmed, the definition of time-barred debt in
Sec. 1006.26(a)(2) is consistent with debt collectors'
[[Page 5777]]
understanding of the term. In response to commenters' concerns that the
term time-barred debt might imply that a debt collector has no right to
collect the debt, the Bureau notes that, in most jurisdictions, as
commenters observed and as is discussed in the section-by-section
analysis of Sec. 1006.26(b), a debt is not extinguished when the
statute of limitations expires. Rather, in these jurisdictions, a debt
collector still may collect the debt using non-litigation means, such
as telephone calls and letters, and the Bureau's use of the term time-
barred debt neither changes that fact nor is meant to imply otherwise.
With respect to industry commenters' concern about debts for which
multiple statutes of limitation may be relevant, the Bureau notes that
a debt is a time-barred debt under Sec. 1006.26(a)(2) if the
applicable statute of limitations has expired. The applicable statute
of limitations depends on the specific legal action the debt collector
takes or represents that it will take. For some debts, such as certain
installment loans and secured debts, it may be the case that one claim
associated with a debt is time barred while another claim associated
with the debt is not. In such a case, the prohibitions in Sec.
1006.26(b) apply to the time-barred claim only.
26(b) Legal Actions and Threats of Legal Actions Prohibited
The Bureau proposed Sec. 1006.26(b) to prohibit a debt collector
from bringing or threatening to bring a legal action against a consumer
to collect a debt that the debt collector knows or should know is a
time-barred debt.\100\ In response to comments, the Bureau is
finalizing proposed Sec. 1006.26(b) with two principal changes. First,
the Bureau is not adopting the proposed knows-or-should-know standard;
instead, a debt collector may violate final Sec. 1006.26(b) even if
the debt collector neither knew nor should have known that a debt was
time barred. Second, consistent with the Supreme Court's decision in
Midland Funding, LLC v. Johnson, the final rule clarifies that the
prohibitions in Sec. 1006.26(b) do not apply to proofs of claim filed
in bankruptcy proceedings.\101\
---------------------------------------------------------------------------
\100\ See 84 FR 23274, 23328-29 (May 21, 2019).
\101\ 137 S. Ct. 1407 (2017).
---------------------------------------------------------------------------
Prohibitions
As the Bureau explained in the May 2019 proposal, in most States
the expiration of the applicable statute of limitations, if raised by
the consumer as an affirmative defense, precludes the debt collector
from recovering on the debt using judicial processes, but it does not
extinguish the debt itself.\102\ In other words, in most States a debt
collector may use non-litigation means to collect a time-barred debt,
as long as those means do not violate the FDCPA or other laws. If a
debt collector does sue to collect a time-barred debt, and if the
consumer proves the expiration of the statute of limitations as an
affirmative defense, the court will dismiss the suit.
---------------------------------------------------------------------------
\102\ See generally Midland Funding, LLC v. Johnson, 137 S. Ct.
1407, 1411-12 (2017) (noting that under ``the law of many States . .
. a creditor has the right to payment of a debt even after the
limitations period expires,'' and collecting State laws). In
Mississippi and Wisconsin, however, debts are extinguished when the
applicable statute of limitations expires. See Miss. Code Ann. sec.
15-1-3 (``The completion of the period of limitation prescribed to
bar any action, shall defeat and extinguish the right as well as the
remedy.''); Wis. Stat. Ann. sec. 893.05 (``When the period within
which an action may be commenced on a Wisconsin cause of action has
expired, the right is extinguished as well as the remedy.'').
---------------------------------------------------------------------------
Suits and threats of suit on time-barred debts can harm consumers
in multiple ways. A debt collector's threat to sue on a time-barred
debt may prompt some consumers to pay or prioritize that debt over
others in the mistaken belief that doing so is necessary to avoid
litigation. In some jurisdictions, a consumer's payment on or
acknowledgement of a debt can revive the debt collector's right to sue
for the entire amount, opening the consumer to new legal
liability.\103\ Similarly, suits on time-barred debts may lead to
judgments against consumers on claims for which those consumers had
meritorious defenses, including defenses based on the statute of
limitations. Few consumers who are sued for allegedly unpaid debts--
whether time barred or not--actually defend themselves in court, and
those who do often are unrepresented. As a result, the vast majority of
judgments on unpaid debts, including on time-barred debts, are default
judgments, entered solely on the representations contained in the debt
collector's complaint.\104\
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\103\ Revival extinguishes the consumer's right to raise the
expiration of the statute of limitations as an affirmative defense
to litigation; that is, it revives the debt collector's right to sue
to collect the debt. Although State revival laws vary, there are
generally several circumstances in which revival occurs. First, in
some States, a consumer's partial payment on a time-barred debt
revives the debt collector's right to sue. Second, in some States, a
consumer's written acknowledgement of a time-barred debt revives the
debt collector's right to sue. Third, a consumer's oral
acknowledgement of a time-barred debt may revive the debt
collector's right to sue in some States. See, e.g., Lima v. Schmidt,
595 So. 2d 624, 631 (La. 1992) (``Our courts have consistently held
that renunciation must be clear, direct, and absolute and manifested
by words or actions of the party in whose favor prescription has
run.'') (citations omitted); 22 Tenn. Pract. Contract Law and
Practice Sec. 12:88 (rev. Aug. 2020) (``[T]he defendant may revive
a plaintiff's remedy that has been barred by the statute of
limitations. This event can occur either when the defendant
expressly promises to pay a debt or when the defendant acknowledges
the debt and expresses a willingness to pay it . . . . The
expression of a defendant's willingness to pay might be implied from
the words or action of a debtor . . . .'') (citations and internal
quotation marks omitted).
\104\ See FTC Debt Buying Report, supra note 98, at 45
(observing that ``90 percent or more of consumers sued in [debt
collection actions] do not appear in court to defend,'' which
``creates a risk that consumer will be subject to a default judgment
on a time-barred debt''); Peter A. Holland, The One Hundred Billion
Dollar Problem in Small Claims Court: Robo-Signing and Lack of Proof
in Debt Buyer Cases, 6 J. Bus. & Tech. L. 259, 265 (2011) (``In the
majority of debt buyer cases, the courts grant the debt buyer a
default judgment because the consumer has failed to appear for trial
. . . . Debtors who do receive notice usually appear without legal
representation.''); CFPB Debt Collection Operations Study, supra
note 37, at 18 (observing that respondents reported obtaining
default judgments in 60 to 90 percent of their filed suits); cf.
Kimber v. Fed. Fin. Corp., 668 F. Supp. 1480, 1478 (M.D. Ala. 1987)
(``Because few unsophisticated consumers would be aware that a
statute of limitations could be used to defend against lawsuits
based on stale debts, such consumers would unwittingly acquiesce to
such lawsuits. And, even if the consumer realizes that she can use
time as a defense, she will more than likely still give in rather
than fight the lawsuit because she must still expend energy and
resources and subject herself to the embarrassment of going into
court to present the defense; this is particularly true in light of
the costs of attorneys today.'').
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Consumer and consumer advocate commenters generally supported the
prohibitions in proposed Sec. 1006.26(b). Many of these commenters
also argued that, to prevent deception, the Bureau should prohibit the
collection of time-barred debt altogether, even though the Bureau did
not propose such a prohibition in the May 2019 proposal or the February
2020 proposal. The Bureau certainly supports measures to prevent
deception because of the harm it causes to consumers. However, the
Bureau concludes that is not necessary to ban the collection of time-
barred debt to prevent potential deception. As discussed in the
February 2020 proposal, the Bureau's quantitative testing generally
indicates that disclosures, in certain situations, can be effective in
curing the potential deception associated with the collection of time-
barred debt.\105\ The Bureau concludes that a prohibition on the
collection of time-barred debt would impose significant burden on debt
collectors to identify such debts and would decrease the value of time-
barred debts to little or nothing; a debt has little or no value if the
owner cannot collect the debt either in litigation or outside of
litigation. The Bureau declines to impose such extraordinarily large
costs because much less costly measures--namely, disclosures--can be
[[Page 5778]]
effective in preventing potential deception.
---------------------------------------------------------------------------
\105\ See 85 FR 12672, 12677-79 (Mar. 3, 2020).
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Moreover, the Bureau emphasizes that prohibiting the collection of
time-barred debt when doing so is unnecessary to prevent potential
deception is inconsistent with the First Amendment limitations on the
Bureau's authority to ban commercial speech. Courts have held that a
debt collector who asks a consumer to pay a debt is engaging in
commercial speech.\106\ Prohibiting the collection of time-barred debt
therefore would restrict commercial speech. The Supreme Court has held
that restrictions on commercial speech are permissible when they: (1)
Are supported by a substantial government interest; (2) directly
advance that interest; and (3) are no more extensive than necessary to
serve that interest.\107\ If the potential deception associated with
the collection of time-barred debt can be cured by a disclosure, then
prohibiting the collection of time-barred debt would impose a
restriction that is more extensive than necessary.\108\ As noted above,
the Bureau's quantitative testing generally indicates that, in certain
situations involving the collection of time-barred debt, disclosures
can be effective in curing potential deception. Therefore, the Bureau
declines to finalize a prohibition on the collection of time-barred
debt.
---------------------------------------------------------------------------
\106\ See, e.g., ACA Int'l v. Healey, 457 F. Supp. 3d 17, 25-26
(D. Mass. 2020); Stover v. Fingerhut Direct Mktg., 709 F. Supp. 2d
473, 479 (S.D. W.Va. 2009).
\107\ See Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n,
447 U.S. 557, 566 (1980).
\108\ In re R.M.J., 455 U.S. 191, 203 (1982); see also Pearson
v. Shalala, 164 F.3d 650 (D.C. Cir. 1999).
---------------------------------------------------------------------------
In addition to consumers and consumer advocates, several industry
commenters, Federal agency staff, and one local government commenter
expressed support for the proposed prohibitions. Commenters who
supported the proposed prohibitions asserted that suits and threats of
suit on time-barred debts may induce consumers to make payments they
otherwise would not make. Some consumer advocate commenters noted that
these payments can revive the debt collector's right to sue in certain
jurisdictions. Additionally, consumer advocate commenters asserted that
consumers often assume that the mere filing of a lawsuit means that
they owe the debt, that the amount owed is accurately stated, and that
the debt collector has the legal right to collect the debt, whereas in
fact the debt collector may lack support for its claims. These
commenters also asserted that consumers generally lack the knowledge
and resources to defend their rights in court, and, as a consequence,
many claims result in default judgments on debts that were not legally
enforceable. Consumer advocate commenters also provided anecdotes and
pointed to recent enforcement actions to show that debt collectors
continue to sue and threaten to sue on time-barred debt.\109\ One
industry commenter who supported elements of proposed Sec. 1006.26(b)
acknowledged that proposed Sec. 1006.26(b) is consistent with long-
standing FDCPA case law.
---------------------------------------------------------------------------
\109\ See, e.g., Consent Order ]] 65-69, In re Encore Capital
Grp., Inc., No. 2015-CFPB-0022 (Sept. 9, 2015), http://files.consumerfinance.gov/f/201509_cfpb_consent-order-encore-capital-group.pdf; Consent Order ]] 56-59, In re Portfolio Recovery
Assocs. LLC, No. 2015-CFPB-0023 (Sept. 9, 2015), http://files.consumerfinance.gov/f/201509_cfpb_consent-order-portfolio-recovery-associates-llc.pdf; see also Complaint ]] 30-35, Bureau of
Consumer Fin. Prot. v. Encore Capital Grp., Inc., No. 2020CV1750
(S.D. Cal. Sept. 8, 2020), https://www.consumerfinance.gov/documents/9167/cfpb_encore-capital-group-et-al_complaint_2020-08.pdf.
---------------------------------------------------------------------------
Several industry commenters who opposed proposed Sec. 1006.26(b)
argued that the Bureau should not prohibit suits and threats of suit on
time-barred debt because, in most jurisdictions, expiration of the
statute of limitations does not prohibit a debt collector from bringing
suit but rather provides the consumer with an affirmative defense to
liability. According to these commenters, proposed Sec. 1006.26(b)
would effectively preempt State affirmative defense laws by making
expiration of the statute of limitations a total bar to suit, thereby
interfering with debt collectors' right to legal recourse under State
law. Relatedly, an industry commenter argued that State courts are
capable of addressing situations in which a debt collector sues to
collect a time-barred debt, including by dismissing the debt
collector's claim and awarding sanctions if appropriate. Another
industry commenter asserted that consumers should be responsible for
tracking the legal obligations associated with their debts, and that it
would be unduly burdensome to require debt collectors to determine
whether a debt is time barred, particularly for debt collectors who are
small businesses.
Some industry commenters argued that the Bureau lacks the authority
to prohibit suits and threats of suit on time-barred debts. For
example, several industry commenters argued that proposed Sec.
1006.26(b) exceeds the Bureau's authority because, in their view,
nothing in the FDCPA permits the Bureau to preempt State laws relating
to debt collection or access to courts or establishes a Federal role in
determining State law defenses. Similarly, one industry commenter
asserted that proposed Sec. 1006.26(b) contradicts the Federal Rules
of Civil Procedure and State-law equivalents and abridges a debt
collector's right to petition the courts. The commenter pointed to
Federal Rule of Civil Procedure 11, pursuant to which an attorney's
claims, defenses, and other legal contentions must be warranted by
existing law or by a nonfrivolous argument for extending, modifying, or
reversing existing law or for establishing new law. According to this
commenter, the proposed prohibitions conflict with Rule 11 and its
equivalents by discouraging debt collectors from filing legitimate
lawsuits that argue in good faith for the modification or reversal of
existing law.
Final Sec. 1006.26(b) prohibits a debt collector from bringing or
threatening to bring a legal action against a consumer to collect a
time-barred debt. A debt collector who sues or threatens to sue a
consumer to collect a time-barred debt explicitly or implicitly
misrepresents to the consumer that the debt is legally enforceable, and
that misrepresentation is material to consumers because it may affect
their conduct with regard to the collection of that debt, including
whether to pay it.\110\ The Bureau's consumer testing suggests that
consumers often are uncertain about their rights concerning time-barred
debt.\111\ Consumers sued or threatened with suit on a time-barred debt
generally do not recognize that the debt is time barred, that time-
barred debts are unenforceable in court, or that they must raise the
expiration of the statute of limitations as an affirmative defense.
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\110\ See, e.g., Kimber, 668 F. Supp. at 1489 (``By threatening
to sue Kimber on her alleged debt . . . FFC implicit[ly] represented
that it could recover in a lawsuit, when in fact it cannot properly
do so.'').
\111\ See FMG Focus Group Report, supra note 26, at 9-10; FMG
Cognitive Report, supra note 27, at 36-37; FMG Summary Report, supra
note 29, at 35-36; see also Fed. Trade Comm'n, Repairing a Broken
System: Protecting Consumers in Debt Collection Litigation and
Arbitration at iii, 26 (July 2010), https://www.ftc.gov/sites/default/files/documents/reports/federal-trade-commission-bureau-consumer-protection-staff-report-repairing-broken-system-protecting/debtcollectionreport.pdf (FTC Litigation Report).
---------------------------------------------------------------------------
The prohibitions in final Sec. 1006.26(b) generally are consistent
with the current state of the law. Multiple courts have held that suits
and threats of suit on time-barred debt violate the FDCPA, reasoning
that such practices violate FDCPA section 807's prohibition on false or
misleading representations, FDCPA section 808's prohibition on unfair
practices, or both.\112\ The FTC
[[Page 5779]]
also has concluded that the FDCPA bars actual and threatened suits on
time-barred debt.\113\ In addition, the prohibitions in final Sec.
1006.26(b) generally are consistent with current industry practice. For
example, a number of industry commenters stated they do not sue or
threaten to sue on time-barred debt as a matter of policy, and one
trade group commenter stated that it requires its members to refrain
from suing or threatening to sue on time-barred debts.
---------------------------------------------------------------------------
\112\ See, e.g., Pantoja v. Portfolio Recovery Assocs., LLC, 852
F.3d 679, 683-84 (7th Cir. 2017); McMahon v. LVNV Funding, LLC, 744
F.3d 1010, 1020 (7th Cir. 2014); Phillips v. Asset Acceptance, LLC,
736 F.3d 1076, 1079 (7th Cir. 2013); Huertas v. Galaxy Asset Mgmt.,
641 F.3d 28, 33 (3d Cir. 2011) (per curiam); Goins v. JBC & Assocs.,
P.C., 352 F. Supp. 2d 262, 273 (D. Conn. 2005); Kimber, 668 F. Supp.
at 1487-89.
\113\ FTC Litigation Report, supra note 111, at 23.
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The Bureau recognizes that, in most jurisdictions, expiration of
the statute of limitations provides the consumer with an affirmative
defense to liability, but it does not bar a debt collector from
bringing suit. The Bureau concludes, however, that consumers are
unlikely to know whether the applicable statute of limitations has
expired or that the expiration of the statute of limitations provides
an affirmative defense. Suits and threats of suit on time-barred debts
therefore imply to the least sophisticated consumer not simply that the
debt collector may sue or has sued the consumer but also that the debt
collector's claim is legally enforceable. For time-barred debts, this
is misleading because expiration of the statute of limitations provides
the consumer with a complete defense.\114\ Accordingly, the Bureau
concludes that bringing or threatening to bring a legal action to
collect a time-barred debt is a deceptive practice under FDCPA section
807 even if expiration of the statute of limitations is an affirmative
defense rather than a categorical bar to suit.
---------------------------------------------------------------------------
\114\ See, e.g., Goins, 352 F. Supp. 2d at 272 (holding that,
although the statute of limitations is an affirmative defense,
threatening to bring suit on time-barred debt ``can at best be
described as a `misleading' representation, in violation of Sec.
1692e,'' because the statute of limitations is a complete defense to
any suit).
---------------------------------------------------------------------------
As explained below, the Bureau is finalizing Sec. 1006.26(b) as an
interpretation of FDCPA section 807's prohibition on deception; such an
interpretation is squarely within the Bureau's authority under FDCPA
section 814(d) to prescribe rules with respect to the collection of
debts by debt collectors. Contrary to commenters' claims, Sec.
1006.26(b) does not preempt State laws relating to when a debt
collector may bring a lawsuit in State court. Rather, it provides that
a debt collector who sues or threatens to sue a consumer to collect a
time-barred debt violates the FDCPA even if applicable State law
permits the suit. In addition, contrary to commenters' assertions,
Sec. 1006.26(b) does not exceed the Bureau's authority by regulating
access to the courts or litigation activities. Debt collectors have
repeatedly argued that they cannot be held liable under the FDCPA for
actions taken in litigation because, for example, the United States
Constitution allows debt collectors to petition the courts, or because
the Federal Rules of Civil Procedure (or their State equivalents) allow
debt collectors to argue for the modification or reversal of existing
law. Many courts have rejected such arguments, generally reasoning that
the FDCPA unquestionably applies to litigation activities.\115\ The
fact that expiration of a State's statute of limitations may not
extinguish a debt under State law or bar a lawsuit in State court
unless an affirmative defense is raised and proven does not render the
FDCPA's prohibition on using deceptive or misleading representations or
means in debt collection inapplicable. There is nothing unusual about
the proposition that some behavior permitted by State law may
nevertheless violate Federal law. Moreover, nothing in Sec. 1006.26(b)
prohibits a debt collector from bringing a legal action against a
consumer in which the debt collector argues for an extension,
modification, or reversal of existing law or the establishment of new
law--including a legal action in which the debt collector argues that a
debt is not time barred. Debt collectors remain free to do so. But a
debt collector who brings such an action may violate Sec. 1006.26(b)
if a court ultimately determines that the debt was time barred.
---------------------------------------------------------------------------
\115\ See, e.g., Aguilar v. LVNV Funding LLC, No. 2:19-cv-105,
2019 WL 3369706, at *3-4 (M.D. Fla. July 26, 2019); Tobing v. Parker
McCay, P.A., No. 3:17-cv-00474, 2018 WL 2002799, at *9 (D.N.J. Apr.
30, 2018); Consumer Fin. Prot. Bureau v. Frederick J. Hanna &
Assocs., P.C., 114 F. Supp. 3d 1342, 1359-61 (N.D. Ga. 2015);
Johnson v. Riddle, 305 F.3d 1107, 1118 (10th Cir. 2002).
---------------------------------------------------------------------------
Liability Standard
Proposed Sec. 1006.26(b) would have prohibited a debt collector
from bringing or threatening to bring a legal action against a consumer
to collect a time-barred debt only if the debt collector knew or should
have known the debt was time barred.
In proposing a knows-or-should-know standard, the Bureau explained
that determining whether a debt is time barred may involve analyzing
which State law applies, which statute of limitations applies, when the
statute of limitations began to run, and whether the statute of
limitations has been tolled or reset. In many cases, a debt collector
will know, or will be able to readily determine, whether the statute of
limitations has expired. In some instances, however, a debt collector
may be genuinely uncertain even after undertaking a reasonable
investigation, such as if the case law in a State is unclear as to
which statute of limitations applies to a particular type of debt. The
proposed knows-or-should-know standard was meant to address this
concern by not imposing liability on a debt collector if it had no way
of knowing that a particular debt was time barred. But the Bureau also
acknowledged that it sometimes may be difficult to determine whether a
knows-or-should-know standard has been met. Such uncertainty could
increase litigation costs and make it difficult for consumers and
government agencies to bring actions against debt collectors. To
address this concern, the Bureau sought comment on an alternative
strict liability standard pursuant to which a debt collector would be
liable for suing or threatening to sue on a time-barred debt even if
the debt collector neither knew nor should have known that the debt was
time barred.
Industry commenters generally did not support a strict liability
standard. These commenters generally agreed that it can be difficult
for a debt collector to determine whether a debt is time barred and
asserted that holding debt collectors strictly liable for good faith
errors would be unduly harsh. These commenters stated, for example,
that determining the applicable statute of limitations and whether it
has expired may require analyzing a variety of factual and legal
questions specific to the debt, and that, in many cases, a debt
collector may reach the wrong conclusion even after undertaking a
reasonable investigation and analysis. Industry commenters asserted
that debt collectors may be unable to reliably determine the statute of
limitations before filing suit because the law is unclear, because some
information relevant to the analysis may be unavailable, or both. Some
industry commenters also asserted that the analysis may change over
time. For example, according to these commenters, a consumer's decision
to move to a different State after signing a loan agreement could
affect a debt collector's analysis of which State law applies and
whether the statute of limitations has been tolled. As another example,
an industry commenter stated that, in certain jurisdictions, the
statute of limitations applicable to mortgage debt is in flux because
of unprecedented access by consumers to loss mitigation and an increase
in bankruptcy filings in
[[Page 5780]]
the wake of the foreclosure crisis. Several industry commenters also
expressed concern that debt collectors who are not attorneys may have
particular difficulty making an accurate time-barred debt
determination. For these reasons, industry commenters asserted that a
strict liability standard, which would leave no room for error, would
expose debt collectors to liability even though it would be challenging
or very costly in many circumstances to determine if a debt is time
barred.
Some industry commenters supported the proposed knows-or-should-
know standard. These commenters generally asserted that the proposed
standard would help debt collectors avoid liability for good-faith
mistakes in determining whether a debt is time barred--something
industry commenters argued is important given the complexity and
uncertainty of certain time-barred debt analyses. One industry
commenter asserted that the proposed standard also would adequately
protect consumers from harm. However, several industry commenters who
expressed general support for the proposed standard also asked the
Bureau to provide additional guidance, including examples of
circumstances in which a debt collector neither knows nor should know
that a debt is time barred.
Not all industry commenters supported the proposed knows-or-should-
know standard. Some industry commenters argued that the proposed
standard was vague and subjective and could increase litigation risk
rather than mitigating it. Other industry commenters asked the Bureau
to clarify that the knows-or-should-know standard depends on the
specific understanding and sophistication of the particular debt
collector. They asserted, for example, that what an attorney debt
collector knows or should know about a debt's time-barred status may
differ from what a non-attorney debt collector knows or should know.
Some industry commenters who opposed the proposed knows-or-should-
know standard offered alternative standards. For example, several
industry commenters recommended that the Bureau finalize a reasonable
investigation standard such that a debt collector who sued or
threatened to sue to collect a time-barred debt would not be liable if
the debt collector undertook a reasonable investigation before doing
so. Similarly, some industry commenters argued that a debt collector
who acts in good faith should not be liable for suits and threats of
suit on time-barred debts. Other industry commenters suggested that the
Bureau finalize a liability standard akin to qualified immunity such
that a debt collector who sued or threatened to sue to collect a time-
barred debt would not be liable unless the applicable statute of
limitations was clearly established. Other industry commenters
suggested that the Bureau finalize an actual knowledge standard such
that a debt collector who sued or threatened to sue on a time-barred
debt would be liable only if the debt collector knew the debt was time
barred.
Some commenters suggested that the Bureau finalize various safe
harbors for debt collectors. For example, industry commenters
recommended safe harbors for debt collectors collecting debts of a
certain age and for debt collectors who rely on information provided by
the creditor. Other industry commenters suggested that a debt collector
who maintains and follows reasonable procedures for determining whether
a debt is time barred should receive a safe harbor from liability in
the event that the debt collector inadvertently sues or threatens to
sue on a time-barred debt. One industry commenter requested that the
Bureau specifically confirm that FDCPA section 813(c)'s bona fide error
defense would apply to violations of Sec. 1006.26(b).
Other commenters, including consumers, consumer advocates,
academics, some members of Congress, a group of State Attorneys
General, and several local governments, urged the Bureau to adopt a
strict liability standard. Although some of these commenters
acknowledged that determining whether a debt is time barred can be
complicated,\116\ others argued that determining whether a debt is time
barred is relatively straightforward in most cases. One commenter
suggested that, if the Bureau finalizes the proposed knows-or-should-
know standard, the Bureau should clarify that in most cases a debt
collector will know (or should know) whether the statute of limitations
has run because in most cases debt collectors have the necessary
information to make the determination.
---------------------------------------------------------------------------
\116\ A group of academic commenters challenged the Bureau's
assertion that debt buyers generally receive enough information to
determine whether a debt is time barred. These commenters noted that
fewer than half of respondents to the Bureau's industry survey
reported receiving account agreement documentation or billing
statements, information that the commenters believed would help a
debt collector calculate the applicable statute of limitations and
whether it has expired.
---------------------------------------------------------------------------
Some consumer advocate commenters who argued for a strict liability
standard stated that it would incentivize debt collectors to determine
whether a debt is time barred before threatening or filing suit. Some
consumer advocate commenters suggested that this would help reduce the
consumer protection risks associated with the collection of time-barred
debt, including the risk that consumers may be unable to adequately
protect their rights in court and the risk that consumers may make a
payment on the debt under the misimpression that the debt is legally
enforceable, which could revive the debt collector's right to sue. Some
commenters expressed concern that the proposed knows-or-should-know
standard would not adequately incentivize debt collectors to determine
the time-barred status of debts. Around two dozen members of Congress
asserted that finalizing a knows-or-should-know standard without
additional protections could encourage willful ignorance on the part of
a debt collector about the time-barred status of a debt. A group of
State Attorneys General and some consumer advocate commenters similarly
argued that a knows-or-should-know standard would promote willful
ignorance by debt collectors.
A number of commenters, including consumer advocate commenters and
a group of State Attorneys General, advocated a strict liability
standard because, in their view, debt collectors generally have more
resources and expertise and better access to information than
consumers. These commenters generally asserted that it would often be
difficult for a consumer to establish that a debt was time barred and
that the debt collector knew or should have known that fact.
Many of these commenters also argued that the proposed knows-or-
should-know standard was inconsistent with the FDCPA (which some
commenters described as a strict liability statute) and with FDCPA
section 807's prohibition on deception (which does not include a
knowledge element). Some commenters pointed out that, because FDCPA
section 813(c) provides debt collectors with a bona fide error defense
to liability in certain circumstances, a strict liability standard
would not expose debt collectors to undue liability. Commenters also
argued that the proposed knows-or-should-know standard was inconsistent
with case law imposing or implying a strict liability standard when
evaluating claims that a debt collector sued or threatened to sue to
collect a time-barred debt. Several commenters agreed with the Bureau
that a strict liability standard generally would reduce ambiguity and
be easier to enforce than the proposed knows-or-should-know standard.
Federal government agency staff encouraged the Bureau to consider
[[Page 5781]]
further whether a knows-or-should-know standard would place an
unnecessary burden on law enforcement agencies.
The Bureau is not finalizing the proposed knows-or-should-know
standard and is instead finalizing a strict liability standard.
Although determining whether a debt is time barred can be challenging
or costly in certain circumstances, the Bureau concludes that the
proposed knows-or-should-know standard is generally inconsistent with
FDCPA section 807, which does not include an exception or exclusion for
debt collectors whose deceptive statements are unintentional or for
whom ensuring that a statement is not deceptive is burdensome.\117\ The
Bureau also concludes that a strict liability standard is more
consistent with FDCPA section 807's prohibition on deception, as well
as case law imposing or implying such a standard when evaluating claims
under FDCPA section 807 generally and claims related to suits and
threats of suit on time-barred debt specifically.\118\
---------------------------------------------------------------------------
\117\ For the same reasons, the Bureau concludes that the
alternative standards proposed by industry commenters--including,
for example, an actual knowledge standard, a reasonable-
investigation standard, or a clearly-established-law standard--are
generally inconsistent with FDCPA section 807.
\118\ See, e.g., Pantoja, v. Portfolio Recovery Assocs., LLC,
852 F.3d 679, 683 (7th Cir. 2017); Buchanan v. Northland Grp., Inc.,
776 F.3d 393, 399 (6th Cir. 2015); Phillips v. Asset Acceptance,
LLC, 736 F.3d 1076, 1083-84 (7th Cir. 2013); Clark v. Capital Credit
& Collection Servs., 460 F.3d 1162, 1176 (9th Cir. 2006); Gearing v.
Check Brokerage Corp., 233 F.3d 469, 472 (7th Cir. 2000).
---------------------------------------------------------------------------
Moreover, the Bureau notes that a knows-or-should-know standard
could, in some circumstances, shift the risk that a claim is deceptive
from debt collectors to consumers. As explained above, suits and
threats of suit on time-barred debt can cause consumer harm. In a case
in which it is difficult or costly to determine whether a debt is time
barred, a knows-or-should-know standard could allow debt collectors to
avoid liability for causing such harm. In other consumer protection
contexts, courts and the FTC have recognized that an advertiser who
makes an unsubstantiated claim may be liable for deception even if the
cost of substantiating the claim is high or prohibitively
expensive.\119\ The Bureau's decision to finalize a strict liability
standard is generally consistent with this principle.
---------------------------------------------------------------------------
\119\ See, e.g., POM Wonderful, LLC v. FTC, 777 F.3d 478, 497
(D.C. Cir. 2015) (``We acknowledge that RCTs [i.e., randomized
clinical trials] may be costly. . . . Yet if the cost of an RCT
proves prohibitive, petitioners can choose to specify a lower level
of substantiation for their claims. As the Commission observed, the
need for RCTs is driven by the claims petitioners have chosen to
make.'') (internal brackets and quotation marks omitted); In re POM
Wonderful LLC, 2013 WL 268926, at *50 (F.T.C. Jan. 16, 2013)
(rejecting argument that an advertiser may ``make particular claims
that go beyond the substantiation it possesses and then ask the
Commission to excuse the inadequacy of its support by asserting that
[the] advertiser did the best it could because the proper
substantiation for the actual claim would be too expensive''); In re
Kroger Co., 98 F.T.C. 639, 737 (1981) (``Where the demands of the
purse require such compromises, the advertiser must generally limit
the claims it makes for its data or make appropriate disclosures to
insure proper consumer understanding of the survey's results.'').
---------------------------------------------------------------------------
The Bureau emphasizes that, although a strict liability standard
might create some risk for debt collectors if a debt's time-barred
status is unclear, debt collectors have multiple ways to manage such
risk. In particular, a debt collector can avoid liability under Sec.
1006.26(b) by confirming that the statute of limitations has not
expired before bringing or threatening to bring a legal action.
Similarly, a debt collector who is ultimately unable to determine with
certainty whether a debt is time barred can avoid liability under Sec.
1006.26(b) by refraining from bringing or threatening to bring a legal
action while, in most States, continuing with non-litigation collection
activities. Moreover, a debt collector who brings or threatens to bring
a legal action against a consumer to collect a time-barred debt may,
depending upon the reason for the debt collector's error, have a
defense to civil liability under FDCPA section 813 if the debt
collector shows by a preponderance of evidence that the violation was
not intentional and resulted from a bona fide error notwithstanding the
maintenance of procedures reasonably adapted to avoid any such
error.\120\ For these reasons, the Bureau concludes that finalizing a
strict liability standard under Sec. 1006.26(b) does not pose an undue
risk of liability for debt collectors, even in cases in which a debt
collector is unable to determine with certainty whether a debt is time
barred.
---------------------------------------------------------------------------
\120\ See Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich
LPA, 559 U.S. 573 (2010) (holding that bona fide error defense is
not available when FDCPA violation arises from a debt collector's
mistaken interpretation of FDCPA's legal requirements but noting
that bona fide error defense is available when FDCPA violation
arises from certain other types of errors).
---------------------------------------------------------------------------
Requests for Clarification
Several commenters asked the Bureau to clarify the scope of
proposed Sec. 1006.26(b)'s prohibitions.\121\ Two industry commenters
suggested that the term ``legal action'' is unclear and could be
interpreted to encompass any action in any court of law or equity.
These commenters suggested replacing ``legal action'' with ``lawsuit,''
asserting that, although ``legal action'' and ``lawsuit'' have
overlapping meanings, ``lawsuit'' has a narrower connotation that
excludes certain legal actions, such as bankruptcy proceedings.
Alternatively, these commenters argued that, if the Bureau declines to
change the term legal action, the prohibitions in proposed Sec.
1006.26(b) should be adjusted to specifically exclude certain types of
legal actions, such as garnishment actions, probate actions, and the
filing of proofs of claim in bankruptcy proceedings.\122\ Another
commenter asked the Bureau to clarify that, for purposes of proposed
Sec. 1006.26(b), the term ``legal action'' does not include ``non-
original complaints,'' such as amended complaints, supplemental
complaints, complaints re-filed after a prior dismissal without
prejudice, post-judgment court filings, or post-judgment communications
(such as executions or garnishments).
---------------------------------------------------------------------------
\121\ Commenters also asked the Bureau to adopt a number of
interventions that the Bureau did not propose, such as a prohibition
on revival and a prohibition on perpetual tolling, which commenters
asserted prevents a statute of limitations from ever expiring in
certain circumstances. The Bureau did not propose these
interventions and it is not finalizing them.
\122\ A consumer advocate commenter argued that the rule should
expressly prohibit filing a bankruptcy proof of claim to recover a
time-barred debt.
---------------------------------------------------------------------------
Final Sec. 1006.26(b) uses the term ``legal action.'' In Midland
Funding, LLC v. Johnson, the Supreme Court held that filing a proof of
claim on a time-barred debt in a bankruptcy proceeding does not violate
the FDCPA sections 807 or 808.\123\ Consistent with Midland, the final
rule clarifies that Sec. 1006.26(b) does not prohibit the filing of
proofs of claim in a bankruptcy proceeding. The Bureau does not see a
basis to categorically exclude other types of legal actions, such as
garnishment and probate actions, from the prohibitions in Sec.
1006.26(b). No other section of the FDCPA pertaining to legal actions
contains a similar exclusion, and the commenters did not explain why
they believe an exclusion is merited here.
---------------------------------------------------------------------------
\123\ 137 S. Ct. 1407 (2017).
---------------------------------------------------------------------------
At least one industry commenter asked the Bureau to clarify the
types of actions and statements that qualify as a threat of legal
action or that could be interpreted by a consumer as a threat of legal
action. The Bureau declines to do so at this time. Whether a particular
action or statement constitutes a threat of legal action depends on the
facts and circumstances of the particular case. Nevertheless, the
Bureau notes that Sec. 1006.26(b) prohibits not only explicit
[[Page 5782]]
threats of legal action but also implicit ones.
For the reasons discussed above, the Bureau is finalizing Sec.
1006.26(b), which provides that a debt collector must not bring or
threaten to bring a legal action against a consumer to collect a time-
barred debt. Section 1006.26(b) also states that these prohibitions do
not apply to proofs of claim filed in connection with a bankruptcy
proceeding. The Bureau is finalizing Sec. 1006.26(b) as an
interpretation of FDCPA section 807. FDCPA section 807 generally
prohibits debt collectors from using ``any false, deceptive, or
misleading representation or means in connection with the collection of
any debt,'' and FDCPA section 807(2)(A) specifically prohibits falsely
representing ``the character, amount, or legal status of any debt.''
The Bureau interprets FDCPA section 807 and 807(2)(A) to prohibit debt
collectors from suing or threatening to sue consumers on time-barred
debts because such suits and threats of suit explicitly or implicitly
misrepresent, and cause consumers to believe, that the debts are
legally enforceable. In addition, threats to sue consumers on time-
barred debts are similar to threats to take actions that cannot legally
be taken, which FDCPA section 807(5) specifically prohibits, because
both involve the threat of action to which the consumer has a complete
legal defense.\124\ The Bureau's interpretation of FDCPA section 807 is
generally consistent with well-established case law holding that suits
and threats of suits on time-barred debt violate FDCPA section
807.\125\
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\124\ A consumer advocate commenter requested that the Bureau
clarify that a debt collector who brings or threatens to bring a
legal action against a consumer to collect a time-barred debt also
violates the Dodd-Frank Act. The Bureau is finalizing Sec.
1006.26(b) as an interpretation of FDCPA section 807 only.
\125\ See, e.g., Pantoja, 852 F.3d at 683; McMahon, 744 F.3d at
1020; Phillips, 736 F.3d at 1079; Kimber, 668 F. Supp. at 1488-89.
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Proposed Provision Not Finalized
In the February 2020 proposal, the Bureau proposed to require a
debt collector collecting a debt that the debt collector knows or
should know is a time-barred debt to provide time-barred debt
disclosures and, if applicable, revival disclosures (proposed Sec.
1006.26(c)(1) and (2)).\126\ The Bureau proposed to require these
disclosures in the debt collector's initial communication with the
consumer, on any validation notice, and in certain situations if the
debt became time barred during collections. The February 2020 proposal
also included, among other things, model forms and language a debt
collector could have used to comply with the proposed disclosure
requirements (proposed Model Forms B-4 through B-7), and it provided a
safe harbor to a debt collector who used the model forms or language
(proposed Sec. 1006.26(c)(3)). In support of proposed Sec.
1006.26(c), the Bureau cited, among other things, the results of its
quantitative testing survey.\127\
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\126\ Specifically, proposed Sec. 1006.26(c)(1) would have
required a debt collector collecting a debt that the debt collector
knows or should know is a time-barred debt to disclose (i) that the
law limits how long a consumer can be sued for a debt and that,
because of the age of the debt, the debt collector will not sue the
consumer to collect it; and (ii) if, under applicable law, the debt
collector's right to bring a legal action against the consumer can
be revived, then the fact that revival can occur and the
circumstances in which it can occur. 85 FR 12672, 12696 (Mar. 3,
2020).
\127\ See id. at 12678-79.
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Although some commenters expressed general support for the idea of
addressing the risk of deception associated with the collection of
time-barred debts by requiring time-barred debt and revival
disclosures, many commenters opposed the Bureau's specific proposal.
According to industry commenters, the proposal would have imposed a
significant burden on debt collectors by requiring them to conduct
time-barred debt and revival analyses for each debt in collection.
These commenters also reported that they would face a significant risk
of liability given uncertainty about the statute of limitations and
revival law in at least some States. Industry commenters stated that
most debt collectors lack the legal training to determine whether a
debt is time barred or the circumstances in which it can be revived. To
comply with the disclosure requirements, these commenters asserted that
debt collectors would need to engage an attorney or otherwise incur
substantial costs. Industry commenters particularly objected to
imposing these costs on debt collectors who never sue to collect debts,
or never sue to collect revived debts. Industry commenters also raised
concerns about being required to respond to legal questions from
consumers as a result of providing the disclosures.
Among consumer, consumer advocate, academic, and State Attorneys
General commenters who opposed the Bureau's proposal, many doubted that
disclosures can effectively convey information about topics as
complicated and unfamiliar to consumers as time-barred debt and
revival. These commenters also raised concerns about the Bureau's
proposed model disclosures, characterizing them as confusing, vague,
and ineffective--particularly for the least sophisticated
consumer.\128\ Some consumer advocate commenters also expressed concern
about the accuracy of the proposed disclosures and the frequency with
which the Bureau proposed to require them. These commenters urged the
Bureau to reconsider or significantly revise the proposal.
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\128\ Courts have applied an objective standard of an
``unsophisticated'' or ``least sophisticated'' consumer to claims
brought under FDCPA section 807. Jensen v. Pressler & Pressler, 791
F.3d 413, 419 (3d Cir. 2015) (``The standard is an objective one,
meaning that the specific plaintiff need not prove that she was
actually confused or misled, only that the objective least
sophisticated debtor would be.''); Hartman v. Great Seneca Fin.
Corp., 569 F.3d 606, 613 (6th Cir. 2009) (applying least
sophisticated consumer standard to section 807 claim); Bentley v.
Great Lakes Collection Bureau, 6 F.3d 60, 62 (2d Cir. 1993) (same);
Swanson v. S. Or. Credit Serv., Inc., 869 F.2d 1222, 1227 (9th Cir.
1988) (per curiam) (same). This standard ``protects the consumer who
is uninformed, naive, or trusting, yet it admits an objective
element of reasonableness.'' Gammon v. GC Servs. Ltd. P'ship, 27
F.3d 1254, 1257 (7th Cir. 1994). As discussed in part IV, the Bureau
interprets FDCPA sections 807 to incorporate an objective,
``unsophisticated'' or ``least sophisticated'' consumer standard.
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Given industry commenters' concerns about the burden on debt
collectors of the Bureau's specific proposal, and consumer advocate
commenters' concerns about whether the Bureau's specific proposal would
effectively cure consumer deception, the Bureau has decided not to
finalize proposed Sec. 1006.26(c). In deciding not to finalize
proposed Sec. 1006.26(c), the Bureau determines only that the specific
disclosure requirements described in the February 2020 proposal may not
sufficiently accommodate the concerns raised by different stakeholders.
However, the Bureau concludes, as discussed in the February 2020
proposal, that, in many circumstances, disclosures can effectively cure
the potential deception associated with the collection of time-barred
debt.
Finally, the Bureau emphasizes that the FDCPA, the November 2020
Final Rule, and this final rule nevertheless apply to debt collectors'
activities involving the collection of time-barred debts, including
debt collectors' communications when collecting such debts.
Accordingly, a debt collector may not use any false, deceptive, or
misleading representation or means in connection with the collection of
a time-barred debt. Nor may a debt collector use unfair or
unconscionable means to collect or attempt to collect a time-barred
debt. Depending on the circumstances associated with the collection of
a specific time-barred debt, a debt collector may decide that, to avoid
violating the FDCPA and the final
[[Page 5783]]
rule, the debt collector needs to disclose information to consumers
about the debt collector's ability to sue and the possibility of
revival and, in that case, the debt collector may do so.
Section 1006.30 Other Prohibited Practices
30(a) Required Actions Prior to Furnishing Information
The Bureau proposed in Sec. 1006.30(a) to prohibit so-called
passive collections, i.e., the practice of a debt collector furnishing
to a consumer reporting agency, as defined in section 603(f) of the
Fair Credit Reporting Act (FCRA),\129\ information regarding a debt
before communicating with the consumer about the debt. The Bureau
proposed Sec. 1006.30(a) pursuant to its authority under FDCPA section
814(d) to prescribe rules with respect to the collection of debts by
debt collectors; pursuant to its authority to interpret FDCPA section
806, which prohibits a debt collector from engaging in any conduct the
natural consequence of which is to harass, oppress, or abuse any person
in connection with the collection of a debt; and pursuant to its
authority to interpret FDCPA section 808, which prohibits a debt
collector from using unfair or unconscionable means to collect or
attempt to collect any debt. Courts have interpreted FDCPA sections 806
and 808 to prohibit certain coercive collection methods that may cause
consumers to pay debts not actually owed.\130\
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\129\ 15 U.S.C. 1681a(f).
\130\ See, e.g., Fox v. Citicorp Credit Servs., Inc., 15 F.3d
1507, 1517 (9th Cir. 1994) (reversing grant of summary judgment to
debt collector in part because ``a jury could rationally find'' that
filing writ of garnishment was unfair or unconscionable under
section 808 when debt was not delinquent); Ferrell v. Midland
Funding, LLC, No. 2:15-cv-00126-JHE, 2015 WL 2450615, at *3-4 (N.D.
Ala. May 22, 2015) (denying debt collector's motion to dismiss
section 806 claim where debt collector allegedly initiated
collection lawsuit even though it knew plaintiff did not owe debt);
Pittman v. J.J. Mac Intyre Co. of Nev., Inc., 969 F. Supp. 609, 612-
13 (D. Nev. 1997) (denying debt collector's motion to dismiss claims
under sections 807 and 808 where debt collector allegedly attempted
to collect fully satisfied debt).
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For the reasons discussed below, the Bureau is: (1) Finalizing
Sec. 1006.30(a) as Sec. 1006.30(a)(1), with changes to specify the
required actions that a debt collector generally must take before
furnishing information to a consumer reporting agency; and (2)
finalizing in Sec. 1006.30(a)(2) a special rule for information
furnished to certain specialty consumer reporting agencies.
30(a)(1) In General
The Bureau received comments on proposed Sec. 1006.30(a) from
consumer advocates and individuals, nonprofits, industry commenters,
and government agencies. Many commenters supported the proposed
prohibition on passive collections. A consumer group emphasized the
consumer harms identified in the proposal and agreed that, because with
passive collections a consumer does not know a debt is in collection,
the practice can cause a consumer's credit score to decrease, increase
the cost of future credit for the consumer, make it more difficult for
a consumer to obtain affordable housing, and jeopardize some job
opportunities, all without the consumer's knowledge. Three government
commenters also supported the proposed prohibition; one of them
reported receiving consumer complaints regarding passive collections.
An industry commenter supporting the proposal noted that the commenter
provides consumers with a 90-day grace period before furnishing
information to consumer reporting agencies.
A number of comments, primarily from industry or industry trade
groups, opposed the prohibition or suggested changes or clarifications.
Two industry trade groups and a law firm commenter argued that proposed
Sec. 1006.30(a) should not be finalized because it conflicts with the
FCRA, including section 623(a)(7), which requires certain financial
institutions to provide written notice to customers if they furnish
negative information to a consumer reporting agency, and section
623(a)(5), which requires furnishers to provide certain information
about a reported delinquency to the consumer reporting agency no later
than 90 days after furnishing information.\131\ Other industry
commenters argued that the proposal would encourage consumers to ignore
communications, provide inaccurate forwarding information to the
creditor, or falsely mark mail as undeliverable to avoid having
collection items furnished to consumer reporting agencies. In addition,
several industry commenters stated that locating consumers for certain
debts, such as medical debt, telecommunications debt, or rental debt,
is costly and may not be justified for small amounts. If debt
collectors cannot passively collect these debts, the commenters argued,
then the debts are effectively uncollectible. One industry trade group
similarly argued that passive collections benefits consumers who
otherwise cannot be located, rather than harming them, because the
collection item on their credit report will provide them contact
information for the debt collector, which the consumer can then use to
make payment arrangements.
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\131\ 15 U.S.C. 1681s-2(a)(5) and (7).
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A number of commenters suggested changing or clarifying the
proposed requirement to ``communicate'' before furnishing information
to a consumer reporting agency. Some urged the Bureau to adopt a
stricter requirement, such as by requiring written notice to the
consumer before reporting, mandating specific disclosure language,
imposing across-the-board waiting periods before reporting, or
prohibiting indirect communications. Others expressed concern that the
proposal would impose more stringent communication requirements than
the FDCPA otherwise requires and asked the Bureau to relax the
proposal, such as by clarifying that proof of receipt of a
communication is not required, by allowing debt collectors to satisfy
the proposed requirement by leaving limited-content messages (as
defined in Sec. 1006.2(j) of the November 2020 Final Rule), or by
permitting debt collectors to presume receipt of a communication after
a waiting period expires.
After considering all of the comments, the Bureau is finalizing
proposed Sec. 1006.30(a) and its related commentary with substantial
revisions, as follows.
Subject to Sec. 1006.30(a)(2) (discussed below), final Sec.
1006.30(a)(1) requires a debt collector to take certain actions before
furnishing information about a debt to a consumer reporting agency, as
defined in section 603(f) of the FCRA. Specifically, the debt collector
must either: (1) Speak to the consumer about the debt in person or by
telephone, or (2) place a letter in the mail or send an electronic
message to the consumer about the debt and wait a reasonable period of
time to receive a notice of undeliverability. During the reasonable
period, the debt collector must permit receipt of, and monitor for,
notifications of undeliverability from communications providers. If the
debt collector receives such a notification during the reasonable
period, the debt collector must not furnish information about the debt
to a consumer reporting agency until the debt collector otherwise
satisfies Sec. 1006.30(a)(1). The Bureau is finalizing commentary to
clarify these requirements as discussed below.
The Bureau finalizes the requirements under Sec. 1006.30(a)(1) to
address consumer harms that may arise if a debt collector furnishes
information about a debt to a consumer reporting agency without first
informing the consumer about the debt. As discussed in the proposal,
consumers who have not been informed about the debt are likely to be
unaware that they have a debt in
[[Page 5784]]
collection unless they obtain and review their consumer report. In
turn, many consumers may not obtain their consumer reports until they
apply for credit, housing, employment, or another product or service
provided by an entity that reviews consumer reports during the
application process. At that point, consumers may feel pressure to pay
debts that they otherwise would dispute, including debts they do not
owe, or may face the denial of an application, a higher interest rate,
or other negative consequences.
In addition, as discussed in the proposal, debt collectors may
attempt to collect debts passively if the expected return from that
technique exceeds the cost of attempting to collect the debt by
communicating with consumers.\132\ The Bureau understands that imposing
a requirement intended to inform the consumer about a debt before
furnishing information about a debt to consumer reporting agencies will
increase costs for debt collectors who do not currently attempt to do
so. However, passive collection practices can harm consumers for the
reasons discussed above. The Bureau has determined that the final rule
best balances debt collectors' cost concerns with protections for
consumers against the harms imposed by passive collection practices.
Final Sec. 1006.30(a)(1) gives a debt collector flexibility to contact
consumers in a variety of ways, including in person, by telephone, by
mail, or by electronic message.\133\ This gives debt collectors
flexibility to contact the consumer in a manner that works best for
their operations, and debt collectors need not confirm receipt of mail
or electronic messages.
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\132\ 84 FR 23274, 23330 (May 21, 2019).
\133\ Because medical offices, telecommunications companies, and
rental offices typically have contact information for their
customers, and because a variety of options to verify and forward
mail to a consumer's new address exist, a debt collector of such
debts should be able to satisfy Sec. 1006.30(a)'s requirements
without incurring significant costs.
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Although proposed Sec. 1006.30(a) used the term ``communicate,''
the proposal did not clearly specify a debt collector's obligations if
the debt collector learned after furnishing information to a consumer
reporting agency that no communication actually occurred (because,
e.g., the communication was sent by mail to the consumer's current
address but the debt collector later received a notification that the
letter was not delivered). Some commenters raised concerns that the
proposal's use of the term ``communicate'' could be construed to
require debt collectors to confirm a consumer's receipt of the
information before furnishing information about a debt to a consumer
reporting agency.
To respond to such comments, and because the proposal was designed
to increase the likelihood that consumers would learn that a debt
attributed to them is in collection but was not intended to be a
broader limitation on furnishing valid information about debts to
consumer reporting agencies, the Bureau finalizes specific requirements
a debt collector must take before furnishing. The actions specified in
the final rule are ones that increase the likelihood that a consumer
will learn about a debt before a debt collector begins furnishing
information about that debt to a consumer reporting agency. For this
reason, after a debt collector has complied with Sec. 1006.30(a)(1)
and furnished information to a consumer reporting agency, the debt
collector may furnish additional information with respect to that debt
without having to repeat the actions specified in Sec. 1006.30(a)(1).
Accordingly, the Bureau does not incorporate a receipt requirement in
final Sec. 1006.30(a)(1) and, instead of using the term
``communicate,'' sets forth the specific actions that a debt collector
must take before furnishing.
The Bureau has also determined that final Sec. 1006.30(a)(1) does
not conflict with FCRA section 623(a)(7) or (5) because those
provisions have different requirements and goals than Sec.
1006.30(a)(1). FCRA section 623(a)(7) applies only to ``financial
institutions'' as defined in FCRA section 603(t), which will cover few,
if any, FDCPA debt collectors. Final Sec. 1006.30(a)(1) does not
prevent debt collectors from complying with the FCRA, and the FCRA does
not prevent debt collectors from complying with final Sec.
1006.30(a)(1).\134\ The FCRA also does not state that it is the
exclusive Federal law governing credit reporting and, indeed, the FDCPA
also references a debt collector's interactions with consumer reporting
agencies.\135\
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\134\ For example, FCRA section 623(a)(7) requires certain
financial institutions that furnish negative information to a
consumer reporting agency, as defined in FCRA section 603(p), to
provide a written notice to consumers prior to, or no later than 30
days after, furnishing the negative information. A financial
institution that is required to provide a written notice under FCRA
section 623(a)(7) and that is also acting as an FDCPA debt collector
could comply with both requirements by, for example, placing a
letter in the mail to the consumer that contains sufficient
information to satisfy both requirements before furnishing
information to a consumer reporting agency.
\135\ See, e.g., 15 U.S.C. 1692c(b), 1692d(3).
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Because final Sec. 1006.30(a)(1) clearly describes the specific
actions that a debt collector must take before furnishing information
about a debt to a consumer reporting agency, a debt collector may
ensure compliance with the final rule based on the debt collector's own
actions, such as by placing a letter about the debt in the mail to the
consumer and waiting a reasonable period of time to receive a notice of
undeliverability. Therefore, the final rule also resolves concerns
about consumers avoiding a debt collector's communications to prevent
the debt collector from furnishing information to a consumer reporting
agency.
The final rule specifies in Sec. 1006.30(a)(1)(i) and (ii) the
methods by which a debt collector may meet its obligation to take
certain actions before furnishing information about a debt to a
consumer reporting agency. All of the methods require that information
``about the debt'' be conveyed to the consumer. Although the final rule
does not specify the particular information required to meet the
``about the debt'' requirement, the final rule adds comment 30(a)(1)-1
to clarify that the validation information required by Sec.
1006.34(c), including such information if provided in a validation
notice, is information ``about the debt.''
Under Sec. 1006.30(a)(1), information about a debt must be
transmitted ``to the consumer'' as defined in Sec. 1006.2(e). A debt
collector who sends information about the debt that reaches a
``consumer'' as defined in Sec. 1006.6(a), which includes additional
persons,\136\ may not have communicated with the consumer as defined in
Sec. 1006.2(e).
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\136\ For purposes of Sec. 1006.6(a), the term ``consumer''
also includes the consumer's spouse, parent (if the consumer is a
minor), legal guardian, executor or administrator of the consumer's
estate, if the consumer is deceased, and a confirmed successor in
interest. See 85 FR 76734, 76889 (Nov. 30, 2020).
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The Bureau notes that, in taking any of the actions specified in
Sec. 1006.30(a)(1), a debt collector must comply with the FDCPA and
the November 2020 Final Rule, including the prohibition on
communicating, in connection with the collection of any debt, with a
third party.\137\
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\137\ A debt collector sending an email or text message who uses
the procedures provided for in Sec. 1006.6(d)(4) or (5) as
finalized in the November 2020 Final Rule does not violate the
prohibition on third-party disclosure under Sec. 1006.6(d)(1).
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Proposed comment 30(a)-1 provided clarifications regarding the term
``communicate'' in proposed Sec. 1006.30(a)(1). Because final Sec.
1006.30(a)(1) does not use the term ``communicate'' and instead states
the specific actions the debt collector must take before furnishing
information about a debt to a consumer reporting agency, proposed
comment 30(a)-1 is no longer
[[Page 5785]]
necessary and the Bureau is not finalizing it.
The final rule specifies in Sec. 1006.30(a)(1)(ii) that a debt
collector who places a letter in the mail or sends an electronic
message to the consumer about the debt to satisfy Sec. 1006.30(a)(1)
must wait a reasonable period of time to receive a notice of
undeliverability before furnishing information about a debt to a
consumer reporting agency. New comment 30(a)(1)-2 clarifies that the
reasonable period of time begins on the date that the debt collector
places the letter in the mail or sends the electronic message. Comment
30(a)(1)-2 also provides a safe harbor for waiting a reasonable period
of time by clarifying that a period of 14 consecutive days after the
date that the debt collector places a letter in the mail or sends an
electronic message is a reasonable period of time.
Comment 30(a)(1)-3 clarifies that a debt collector who places a
letter in the mail or sends an electronic message to the consumer about
the debt to satisfy Sec. 1006.30(a)(1) and does not receive a notice
of undeliverability during the reasonable period of time, and who
thereafter furnishes information about the debt to a consumer reporting
agency, does not violate Sec. 1006.30(a)(1) even if the debt collector
subsequently receives a notice of undeliverability. Comment 30(a)(1)-3
also provides three examples illustrating this requirement.
The Bureau determines that these provisions clarify the proposal
with respect to pre-furnishing outreach by mail or electronic message
and provide protection for consumers.\138\ The Bureau understands that
the U.S. Postal Service typically notifies senders of most
undeliverable-as-addressed mail within 14 days. The amount of time it
takes a communications provider to return a notice of undeliverability
with respect to electronic messages is less clear. While an
undeliverability notice is typically received soon after sending an
electronic message, the Bureau understands that the time for receiving
a notice of undeliverability with respect to such electronic messages
may vary by provider, and the Bureau does not have sufficient
information to determine a uniform time period for electronic messages.
Nevertheless, the Bureau has no reason to believe that notices of
undeliverability are typically received more than 14 days after an
electronic message is sent. Therefore, the Bureau is finalizing the
same safe harbor time period (i.e., 14 consecutive days) for electronic
messages as for mailed letters.\139\ The Bureau may consider revising
the safe harbor for electronic messages in the future based on actual
stakeholder experience with this provision.
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\138\ The Bureau does not impose a similar period when a debt
collector speaks to a consumer about the debt in person or by
telephone because these scenarios do not have the potential for an
equivalent undeliverable notice outcome.
\139\ The Bureau notes that the 14-consecutive-day period is a
safe harbor. To comply with the rule, a debt collector only needs to
wait a ``reasonable period of time'' to receive a notice of
undeliverability. Therefore, a debt collector who shows that the
debt collector waited a reasonable time period to receive notices of
undeliverability for electronic messages may be able to satisfy the
requirements of the final rule without waiting 14 days.
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The Bureau recognizes that the final rule may result in instances
in which debt collectors furnish information about a debt to a consumer
reporting agency even though the consumer has not been made aware of
the collection item, either because the mail or electronic message is
returned as undeliverable after the reasonable period has passed or is
not received but is also not returned. These consumers will not have
the same opportunity to receive a message about their debt as those
consumers for whom the mail or electronic message is delivered.
Nevertheless, the Bureau determines that establishing a requirement
that debt collectors wait a reasonable period of time after placing a
letter in the mail or sending an electronic message provides sufficient
consumer protection without unduly prohibiting a debt collector from
furnishing information about a valid debt to a consumer reporting
agency.
The Bureau declines commenters' other suggestions, such as those to
require communications in writing, dictate specific language, apply
longer waiting periods (e.g., 180 days), or establish other safe
harbors because the suggestions are unnecessary to achieve the purpose
of the passive collections ban. For example, requiring written
communications and specific disclosure language is unnecessary to put
the consumer on notice that a debt is in collections. Additional safe
harbors are unnecessary and unwarranted at this time because the final
rule clarifies the specific actions that must occur before furnishing
information to a consumer reporting agency.
30(a)(2) Special Rule--Information Furnished to Certain Specialty
Consumer Reporting Agencies
The Bureau did not propose a special rule regarding furnishing to
specialty consumer reporting agencies. An industry commenter and a
consumer reporting agency argued in a joint comment that the final rule
should exempt from Sec. 1006.30(a) information furnished to certain
nationwide specialty consumer reporting agencies described in FCRA
section 603(x)(3), i.e., consumer reporting agencies that maintain and
compile files on consumers on a nationwide basis relating to check
writing history (``check verification consumer reporting agencies'').
The commenters explained that merchants use check verification
consumer reporting agencies to determine whether they should accept a
particular check. When a merchant seeks check verification information,
the check verification consumer reporting agency issues a check
verification report with a code that will indicate if the check appears
acceptable, the check is potentially fraudulent, or the checking
account is likely overdrawn. These inquiries are usually completed in
real time, while a transaction is occurring in a checkout lane or in
remote retailing. The commenters expressed concern that proposed Sec.
1006.30(a) would degrade the timely content of check verification
reports issued by check verification consumer reporting agencies
because debt collectors would be required to delay or refrain from
reporting altogether, which would undermine the accuracy of check
verification reports and reduce the willingness of merchants to accept
checks.
The commenters argued that the current system benefits consumers by
alerting them to potential fraud or that their account may be
overdrawn. Requiring contact before furnishing information would harm
these consumers because the fraud or overdrawn status of the account
may never be detected and, thus, consumers may not be alerted to
potential fraud or may unknowingly continue writing checks on an
overdrawn account. Further, the commenters stated that these
requirements could harm consumers by decreasing the number of merchants
that accept checks or increasing prices at merchants who continue to
accept checks.
The commenters also expressly recognized the harm that can occur if
a debt unexpectedly appears on a credit-related consumer reporting
agency report if the consumer is applying for credit, a job, or rental
housing, and cannot move forward with the transaction. However, they
noted that check verification reporting does not present comparable
risk of harm because (1) such reports are used to determine whether a
particular check should be accepted, not to evaluate a consumer's
creditworthiness for credit, a job, or rental housing; and (2) any harm
caused by refusal to accept a
[[Page 5786]]
check is outweighed by benefits, including alerting the consumer to
potential fraud and preventing them from incurring additional overdraft
or non-sufficient funds fees.
After carefully considering the comment, the Bureau has determined
that Sec. 1006.30(a) should not apply to a debt collector's furnishing
of information about a debt to a check verification consumer reporting
agency. The Bureau finds that a debt collector's furnishing of
information about a debt to a check verification consumer reporting
agency before engaging in outreach to the consumer about the debt is
unlikely to undermine the ability of consumers to decide whether to pay
debts in the same manner as the furnishing of information about debts
to other consumer reporting agencies. As a result, the Bureau has not
found that furnishing information about a debt to a check verification
consumer reporting agency before engaging in outreach to the consumer
about the debt constitutes conduct that may have the natural
consequence of harassment, oppression, or abuse in violation of FDCPA
section 806, or that is an unfair or unconscionable means to collect or
attempt to collect a debt under FDCPA section 808.
Immediate and frequent reporting appears to be a critical aspect of
check verification consumer reporting, and it appears that imposing a
requirement that debt collectors inform consumers about debts before
furnishing information to those check verification consumer reporting
agencies would require significant operational changes and could
significantly reduce the effectiveness of those reports. This is unlike
credit-related reporting, which typically involves less immediate
furnishing. The Bureau also finds that the consumer harm that Sec.
1006.30(a)(1) is designed to address is not present for check
verification consumer reporting because these reports are unlikely to
be used in making credit, employment, or rental housing decisions.
While consumers could also be harmed if they are unaware of checking
account report items, the harm of reducing the effectiveness of the
check verification system, including the potential harm to consumers if
checks are accepted by fewer merchants, outweighs the benefits of
requiring communication before furnishing. In addition, the immediacy
of the current check verification system provides countervailing
benefits to consumers who are alerted to potential fraud or to
discontinue writing checks on an overdrawn account. Further, a special
rule for check verification consumer reporting agencies is consistent
with several State laws regulating passive collections.\140\ For these
reasons, the Bureau concludes that furnishing of information to a check
verification consumer reporting agency before engaging in outreach to
the consumer does not raise concerns under FDCPA sections 806 and 808
similar to furnishing to other types of consumer reporting agencies.
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\140\ Colo. Rev. Stat. sec. 12-14-108 limits when ``debt
collectors'' may furnish information to a consumer reporting agency,
but exempts checks, negotiable instruments, or credit card drafts.
California and Utah also limit when information can be furnished to
a consumer reporting agency, but those laws only apply to
``creditors.'' Cal. Civ. Code sec. 1785.26; Utah Code sec. 70C-7-
107.
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Therefore, the final rule adds Sec. 1006.30(a)(2) to state that
Sec. 1006.30(a)(1) does not apply to a debt collector's furnishing of
information about a debt to a nationwide specialty consumer reporting
agency that compiles and maintains information on a consumer's check
writing history, as described in FCRA section 603(x)(3).\141\
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\141\ If and to the extent a check verification consumer
reporting agency compiles and maintains other types of information
specified in FCRA section 603(x) (e.g., residential or tenant
history), the special rule in Sec. 1006.30(a)(2) does not apply
with respect to a debt collector's furnishing of that information to
the check verification consumer reporting agency.
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For the reasons discussed above, the Bureau is adopting final Sec.
1006.30(a) pursuant to its authority under FDCPA section 814(d) to
prescribe rules with respect to the collection of debts by debt
collectors. The Bureau is also adopting final Sec. 1006.30(a) pursuant
to its authority to interpret FDCPA section 806, which prohibits a debt
collector from engaging in any conduct the natural consequence of which
is to harass, oppress, or abuse any person in connection with the
collection of a debt, and FDCPA section 808, which prohibits a debt
collector from using unfair or unconscionable means to collect or
attempt to collect any debt.
Section 1006.34 Notice for Validation of Debts
FDCPA section 809(a) generally requires a debt collector to provide
certain information to a consumer either at the time that, or shortly
after, the debt collector first communicates with the consumer in
connection with the collection of a debt.\142\ The required
information--i.e., the validation information--includes details about
the debt and about consumer protections, such as the consumer's rights
to dispute and receive verification of the debt and to request
information about the original creditor. When this validation
information is provided in writing, the document containing the
information is commonly referred to as a ``validation notice.''
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\142\ See 15 U.S.C. 1692g(a).
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The requirement to provide validation information is an important
component of the FDCPA and was intended to improve the debt collection
process by helping consumers to recognize debts that they owe and raise
concerns about debts that are unfamiliar. Congress in 1977 considered
the requirement a ``significant feature'' of the FDCPA, explaining that
it was designed to ``eliminate the recurring problem of debt collectors
dunning the wrong person or attempting to collect debts which the
consumer has already paid.'' \143\ Congress provided the Bureau with
rulemaking authority in 2010 apparently to address continuing
inadequacies around validation information and verification, among
other things.\144\ In addition, debt collectors have sought
clarification about how to provide information consistent with the
FDCPA, noting, for instance, that a significant number of lawsuits are
filed each year alleging deficiencies in their validation notices.
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\143\ S. Rep. No. 382, supra note 57; see also Jacobson v.
Healthcare Fin. Servs., Inc., 516 F.3d 85, 95 (2d Cir. 2008)
(validation notices ``make the rights and obligations of a
potentially hapless debtor as pellucid as possible''); Wilson v.
Quadramed Corp., 225 F.3d 350, 354 (3d Cir. 2000); Miller v. Payco-
Gen. Am. Credits, Inc., 943 F.2d 482, 484 (4th Cir. 1991); Swanson
v. S. Oregon Credit Serv., Inc., 869 F.2d 1222, 1225 (9th Cir.
1988).
\144\ See S. Rep. No. 111-176, at 19 (``In addition to concerns
about debt collection tactics, the Committee is concerned that
consumers have little ability to dispute the validity of a debt that
is being collected in error.'').
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For these reasons, the Bureau proposed Sec. 1006.34 to require
debt collectors to provide certain validation information to consumers
and to specify when and how the information must be provided. As
discussed in more detail below, the Bureau is finalizing Sec. 1006.34
with modifications in response to feedback and for clarity and
consistency with other provisions in this final rule and the November
2020 Final Rule.
Final Sec. 1006.34(a) sets forth the general requirement to
provide validation information and describes how such information may
be provided on a validation notice. Section 1006.34(b) sets forth
definitions for purposes of Sec. 1006.34. Section 1006.34(c) sets
forth the validation information, and Sec. 1006.34(d) sets forth a
general requirement that such information be clear and conspicuous.
Section 1006.34(d) also provides safe harbors for use of Model Form B-1
in appendix B to Regulation F, specified variations of the model
notice, or a
[[Page 5787]]
substantially similar form, and describes optional disclosures that
debt collectors may, but are not required to, provide with the
validation information.\145\ Section 1006.34(e) affirmatively permits
debt collectors to provide validation notices translated into other
languages and requires debt collectors who offer to provide consumers
translated notices to provide them to consumers who request them.
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\145\ The Bureau proposed a model validation notice as Model
Form B-3. The Bureau is finalizing that form, with revisions, as
Model Form B-1. This Notice refers to proposed Model Form B-3 as the
``proposed model validation notice'' or the ``proposed model
notice'' and final Model Form B-1 as the ``model validation notice''
or ``model notice.'' This Notice uses the phrase ``specified
variations of the model notice'' to refer to the specifically
enumerated versions of the model notice that receive a safe harbor
pursuant to Sec. 1006.34(d)(2)(i) and (ii) (i.e., notices that are
the same as, or substantially similar to, the model notice but for:
Omitting some or all of the optional disclosures that appear on the
model notice; including optional disclosures that do not appear on
the model notice; or including certain disclosures on a separate
page as permitted by Sec. 1006.34(c)(2)(viii) and (5)).
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As discussed in further detail in the section-by-section analysis
of Sec. 1006.34(d), the Bureau proposed to require that validation
notices must be the same as, or substantially similar to, the proposed
model validation notice. The Bureau is not finalizing that requirement.
Instead, the final rule provides certain safe harbors for compliance
with the information and form requirements in Sec. 1006.34(c) and
(d)(1) for debt collectors who use the model validation notice,
specified variations of the model notice, or a substantially similar
notice.
34(a) Validation Information Required
34(a)(1) In General
FDCPA section 809(a) provides, in relevant part, that, within five
days after the initial communication with a consumer in connection with
the collection of any debt, a debt collector shall send the consumer a
written notice containing the validation information, unless that
information is contained in the initial communication or the consumer
has paid the debt. The Bureau proposed Sec. 1006.34(a)(1) to implement
and interpret this general requirement.\146\ Specifically, proposed
Sec. 1006.34(a)(1) provided that, subject to a limited exception for
if a consumer has already paid a debt, a debt collector must provide a
consumer the required validation information either: (1) By sending the
consumer a validation notice (i.e., a written or electronic notice)
\147\ in the manner permitted by Sec. 1006.42 \148\ in the initial
communication with the consumer in connection with the collection of
the debt (proposed Sec. 1006.34(a)(1)(i)(A)) or within five days of
that initial communication (proposed Sec. 1006.34(a)(1)(i)(B)); or (2)
by providing the validation information orally in the initial
communication (proposed Sec. 1006.34(a)(1)(ii)).\149\ As discussed
below, the Bureau is adopting Sec. 1006.34(a)(1) with certain minor
revisions.
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\146\ See 84 FR 23274, 23333-34 (May 21, 2019).
\147\ Proposed Sec. 1006.34(b)(4) defined a validation notice
as any written or electronic notice that provides the validation
information described in Sec. 1006.34(c).
\148\ As finalized, Sec. 1006.42 generally requires debt
collectors to send written disclosures in a manner that is
reasonably expected to provide actual notice, and in a form that the
consumer may keep and access later. 85 FR 76734, 76893 (Nov. 30,
2020).
\149\ Proposed Sec. 1006.34(b)(2) provided that, with limited
exceptions, initial communication means the first time that, in
connection with the collection of a debt, a debt collector conveys
information, directly or indirectly, to the consumer regarding the
debt.
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Some commenters recommended that the Bureau modify proposed Sec.
1006.34(a)(1) generally. Some consumer advocate commenters stated that
the Bureau should require debt collectors to provide non-electronic,
written validation notices to all consumers. According to at least one
commenter, the Bureau should require a written validation notice even
if a debt collector also provides the validation information
electronically. Another consumer advocate commenter asked the Bureau to
require debt collectors to provide a consumer a validation notice in
every communication.
The Bureau declines to require debt collectors to always provide
written, non-electronic validation notices to consumers. For the
reasons set forth in the November 2020 Final Rule, the Bureau
interprets FDCPA section 809(a) as not requiring that the notice of
debt be provided in writing when it is contained in the initial
communication.\150\ Moreover, if FDCPA section 809(a) does require that
the notice of debt be provided in writing--i.e., if the validation
information is not contained within the initial communication--nothing
in the FDCPA prohibits a debt collector from providing the required
written validation notice electronically in accordance with the
consumer-consent provisions of section 101(c) of the E-SIGN Act. In
turn, if a statute (here, the FDCPA) requires a written disclosure, the
E-SIGN Act's consumer-consent provisions specify requirements pursuant
to which debt collectors may send the required written disclosures
electronically. Accordingly, pursuant to Sec. 1006.42, a debt
collector may send the validation notice electronically under Sec.
1006.34(a)(1)(i)(A) (i.e., within the initial communication) if the
debt collector complies with Sec. 1006.42(a)(1), which requires that
the debt collector send the notice in a manner that is reasonably
expected to provide actual notice, and in a form that the consumer may
keep and access later. A debt collector may send the validation notice
electronically under Sec. 1006.34(a)(1)(i)(B) (i.e., not within the
initial communication) if the debt collector complies with Sec.
1006.42(a)(1) and also complies with Sec. 1006.42(b), which requires
that the debt collector send the notice in accordance with section
101(c) of the E-SIGN Act. The Bureau concludes that, if debt collectors
send validation notices electronically as described above, there is a
reasonable likelihood that consumers will receive and be able to retain
the notices.
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\150\ 85 FR 76734, 76854 (Nov. 30, 2020).
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The Bureau determines, therefore, that it is unnecessary and
unwarranted to impose the burden on debt collectors that would result
from a requirement to always provide the validation notice in written,
non-electronic form; to provide a validation notice in written form
even if the debt collector also provides the validation notice
electronically; or to provide a validation notice or validation
information with every consumer communication.\151\ Such requirements
would go beyond the FDCPA's provisions and would be unduly burdensome
on debt collectors, because, as stated above, the Bureau concludes that
the Regulation F provisions that the Bureau is adopting provide
sufficient consumer protection. Accordingly, the Bureau does not impose
such requirements.
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\151\ The Bureau additionally notes that, if a statute (here,
FDCPA section 809(a)) requires a written disclosure, E-SIGN Act
section 104(c)(1) states that Federal agencies' authority to
interpret E-SIGN Act section 101 (including the consumer-consent
provisions in E-SIGN Act section 101(c)) does not include the
``authority to impose or reimpose any requirement that a record be
in a tangible printed or paper form.'' See 15 U.S.C. 7004(c)(1).
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The Bureau received few comments specifically about proposed Sec.
1006.34(a)(1)(i). Commenters who provided feedback supported the
Bureau's proposal. Thus, the Bureau is adopting Sec. 1006.34(a)(1)(i)
largely as proposed.
A large number of commenters responded to the clarification in
proposed Sec. 1006.34(a)(1)(ii) that debt collectors may provide
validation information orally in the initial communication. Commenters,
including most consumer advocates who addressed the topic, urged the
Bureau to
[[Page 5788]]
prohibit debt collectors from providing validation information orally.
These commenters stated that debt collectors could not effectively
convey orally to consumers the amount of validation information that
the Bureau proposed.\152\ Commenters argued that, if validation
information were conveyed orally, a consumer would be unable to review
the information at a later time, unless the consumer transcribed or
recorded the communication with the debt collector. Commenters stated
that this dynamic would place an unreasonable burden on consumers and
would be atypical compared to other consumer law disclosure regimes,
which mandate that required notices be provided in written form. At
least one commenter stated that oral delivery would be incompatible
with the formatting requirements in proposed Sec. 1006.34(d).
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\152\ Proposed Sec. 1006.34(c) described the validation
information that proposed Sec. 1006.34(a)(1) would have required
debt collectors to provide. As discussed in the section-by-section
analysis of Sec. 1006.34(c), the final rule requires debt
collectors to provide up to 18 items of validation information.
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On the other hand, some industry commenters supported the Bureau's
clarification that debt collectors may provide validation information
orally. These commenters asked the Bureau to provide additional
guidance about oral delivery of validation information, including, for
example, specific content for an oral notice, such as a script.
As proposed, the Bureau is finalizing the provision in Sec.
1006.34(a)(1)(ii) that debt collectors may provide the required
validation information orally in the initial communication. The Bureau
agrees that there may be significant challenges to conveying the
required validation information orally.\153\ Nevertheless, FDCPA
section 809(a) does not prohibit oral delivery. FDCPA section 809(a)
states that the required validation information may be ``contained in
the initial communication'' and that a written notice is mandatory only
if that required information is not contained in the initial
communication. Further, FDCPA section 807(11) indicates that the
initial communication may be oral.\154\ Accordingly, the Bureau
concludes that the most reasonable interpretation of FDCPA sections
809(a) and 807(11) is that the FDCPA permits the required validation
information to be conveyed orally if it is contained in the initial
communication.
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\153\ Section 1006.34(c) requires a significant amount of
validation information that debt collectors may not currently
include in the validation information they provide to consumers. It
might be difficult for a debt collector to convey all of the
required information orally, particularly in an initial
communication, which is the only context in which a debt collector
could comply with its legal obligation by providing the validation
information orally. Further, real-time communications with consumers
are unpredictable. Accordingly, even if the required components of
the validation information are contained in the oral communication,
the debt collector might not convey them in a way that meets the
requirements of the regulation; for example, as commenters noted the
debt collector might not convey the required information clearly and
conspicuously.
\154\ See 15 U.S.C. 1692e(11).
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Moreover, debt collectors providing validation information orally
will not be able to use the model validation notice and therefore will
not receive a safe harbor for compliance under Sec. 1006.34(d)(2). The
Bureau declines to provide additional guidance about oral delivery of
validation information. The Bureau is not aware of debt collectors
providing validation information orally today, and, for the reasons
discussed, the Bureau believes they will be unlikely to do so in the
future. As a result, the Bureau concludes that such additional guidance
is not necessary or warranted at this time.
The Bureau proposed comment 34(a)(1)-1 to clarify the provision of
validation notices if the consumer is deceased. Proposed comment
34(a)(1)-1 explained that, if the debt collector knows or should know
that the consumer is deceased, and if the debt collector has not
previously provided the deceased consumer the validation information, a
person who is authorized to act on behalf of the deceased consumer's
estate operates as the consumer for purposes of providing validation
information under Sec. 1006.34(a)(1). Under proposed comment 34(a)(1)-
1, a debt collector attempting to collect a debt from a deceased
consumer's estate generally would provide the validation information to
the named person who is authorized to act on behalf of the deceased
consumer's estate, if the debt collector had not already provided that
information to the consumer.
As discussed in the section-by-section analysis of Sec. 1006.2(e),
the Bureau is interpreting the term consumer to mean any natural
person, whether living or deceased, who is obligated or allegedly
obligated to pay any debt. And the Bureau is adopting commentary
clarifying how this definition operates in the decedent debt context,
including with respect to debt collectors' obligations to provide the
validation information and respond to disputes and requests for
original-creditor information. Accordingly, the Bureau is finalizing
comment 34(a)(1)-1 as proposed.
For all of these reasons, and pursuant to its authority under FDCPA
section 814(d) to prescribe rules with respect to the collection of
debts by debt collectors, the Bureau is finalizing Sec. 1006.34(a)(1)
to implement and interpret the FDCPA section 809(a) requirement that
debt collectors provide validation information to consumers.
34(a)(2) Exception
FDCPA section 809(a) contains a limited exception that provides
that, if required validation information is not contained in the
initial communication, a debt collector need not send the consumer a
written validation notice within five days of that communication if the
consumer has paid the debt prior to the time that the notice is
required to be sent. The Bureau proposed in Sec. 1006.34(a)(2) to
implement this exception by providing that a debt collector who
otherwise would be required to send a validation notice pursuant to
Sec. 1006.34(a)(1)(i)(B) is not required to do so if the consumer has
paid the debt prior to the time that Sec. 1006.34(a)(1)(i)(B) would
require the validation notice to be sent. Proposed Sec. 1006.34(a)(2)
generally restated the statute, except for minor changes for
organization and clarity.\155\
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\155\ See 84 FR 23274, 23334-35 (May 21, 2019).
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At least two consumer advocate commenters recommended that debt
collectors be required to provide a validation notice even if a
consumer has already paid the debt. According to these commenters, some
consumers, including seniors, will pay a debt that they do not owe or
recognize because they ``pay first and ask questions later.'' These
commenters suggested that validation information would help such
consumers assess after the fact whether they paid a debt that they
owed. An industry trade group commenter stated that, for open-end
credit, a debt collector should be permitted to satisfy Sec.
1006.34(a)(1) by providing a periodic statement pursuant to Regulation
Z, 12 CFR 1026.7, because periodic statements disclose sufficient
account information to consumers.
The Bureau declines to require debt collectors to provide a
validation notice if a consumer has already paid the debt. FDCPA
section 809(a) explicitly provides that a debt collector is not
required to send the validation notice if the consumer has paid the
debt, and the Bureau has determined that it is neither necessary nor
warranted to adopt a rule requiring otherwise.
The Bureau also declines to adopt recommendations to include an
exception to Sec. 1006.34(a)(1) for open-
[[Page 5789]]
end credit, because a periodic statement provided in accordance with
Regulation Z, 12 CFR 1026.7, is not an adequate substitute for the
validation information. While such a periodic statement discloses some
information about the debt, it typically does not disclose other
information required under the final rule, such as the information
about consumer protections required by FDCPA section 809(a)(3) through
(5) and the corresponding provisions of final Sec. 1006.34.
Accordingly, pursuant to its authority under FDCPA section 814(d)
to prescribe rules with respect to the collection of debts by debt
collectors, and to implement and interpret FDCPA section 809(a), the
Bureau is finalizing Sec. 1006.34(a)(2) as proposed.
34(b) Definitions
To facilitate compliance with Sec. 1006.34, proposed Sec.
1006.34(b) defined several terms that appear throughout the section. As
discussed below, the Bureau is finalizing those definitions and related
commentary with certain modifications in response to feedback.
Consistent with the proposal, unless noted otherwise below, the Bureau
is finalizing the definitions to implement and interpret FDCPA section
809(a) and pursuant to its authority under FDCPA section 814(d) to
prescribe rules with respect to the collection of debts by debt
collectors.
34(b)(1) Clear and Conspicuous
The Bureau proposed Sec. 1006.34(b)(1) to define the term clear
and conspicuous for purposes of Regulation F consistent with the
standards used in other consumer financial services laws and their
implementing regulations, including, for example, Regulation E, subpart
B (Remittance Transfers).\156\ Proposed Sec. 1006.34(b)(1) thus
provided that disclosures are clear and conspicuous if they are readily
understandable. The proposal provided that, in the case of written and
electronic disclosures, the location and type size also must be readily
noticeable to consumers and that, in the case of oral disclosures, the
disclosures must be given at a volume and speed sufficient for a
consumer to hear and comprehend them.\157\ For the reasons discussed
below, the Bureau is adopting Sec. 1006.34(b)(1) largely as proposed
but with minor modifications for clarity and in response to feedback.
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\156\ See 12 CFR 1005.31(a)(1), comment 31(a)(1)-1.
\157\ See 84 FR 23274, 23335 (May 21, 2019).
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An industry commenter objected to the clear and conspicuous
definition in proposed Sec. 1006.34(b)(1). This commenter stated that
a clear-and-conspicuous requirement is unnecessary in the debt
collection context because consumers have an ongoing relationship with
debt collectors, and a consumer therefore has the ability to ask a debt
collector to explain a particular disclosure or communication if the
consumer does not understand it.
Other commenters asked the Bureau to clarify the proposed
definition. For instance, industry trade group and consumer advocate
commenters offered various suggestions for specific font size or
disclosure placement requirements. At least one industry commenter
suggested that the Bureau explain how proposed Sec. 1006.34(b)(1)
would interact with State disclosure laws, which may have their own
clear-and-conspicuous standards that dictate font size or disclosure
placement. An industry trade group commenter asked the Bureau to
provide additional guidance about oral delivery of the validation
information because, in the commenter's view, the proposal that oral
communications be ``given at a volume and speed sufficient for a
consumer to hear and comprehend them'' was ambiguous.
The Bureau disagrees that ongoing relationships between debt
collectors and consumers make a clear and conspicuous definition
unnecessary or unwarranted in the debt collection context. Consumer
financial services laws and their implementing regulations commonly
include standards for clear and conspicuous disclosures provided in the
context of ongoing customer and business relationships between
consumers and consumer financial services providers.\158\ Additionally,
validation information is provided at the outset of collection
communications. If a consumer chooses not to engage with the debt
collector, no ongoing communications will be established.
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\158\ See, e.g., 12 CFR 1026.5(a)(1)(i) (disclosures for open-
end credit) and 12 CFR 1026.17(a)(1) (disclosures for closed-end
credit). Moreover, a consumer does not typically get to choose which
debt collector collects the consumer's debt, whereas a consumer does
choose his or her financial services providers. Further, some
customer relationships between consumers and debt collectors may be
of shorter duration than customer relationships between consumers
and other types of consumer financial services providers. These
factors suggest that a standard for clear and conspicuous
disclosures may be even more important in the debt collection
context than in other consumer financial services contexts.
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The Bureau declines to further clarify the clear and conspicuous
definition in Sec. 1006.34(b)(1) by, for example, dictating font sizes
or requirements regarding disclosure placement as requested by some
commenters. Different debt collectors may design their communications
in different ways, and the Bureau does not believe it is necessary or
warranted to specify such details, as long as the disclosure satisfies
the clear and conspicuous standard. In addition, the definition is
consistent with, and provides the same level of specificity as,
standards in some other consumer financial services laws and their
implementing regulations, including but not limited to the Bureau's
Remittance Transfers rule,\159\ which do not specify font size or
disclosure placement requirements. Moreover, the Bureau concludes that
the lack of more prescriptive guidance will not impose material burden
on debt collectors. As discussed in the section-by-section analysis of
Sec. 1006.34(d)(2), a debt collector who uses the model validation
notice, specified variations of the model notice, or a substantially
similar form, receives a safe harbor for the information requirements
in Sec. 1006.34(c) and for the clear-and-conspicuous requirement in
Sec. 1006.34(d)(1). Because debt collectors may use the model
validation notice, specified variations of the model notice, or a
substantially similar form if providing validation notices, debt
collectors need not incur significant expenses ascertaining what meets
the clear-and-conspicuous standard. Nevertheless, the final rule does
clarify that, in the case of written and electronic disclosures,
although no minimum font size is required, the location and type size
must be both readily noticeable and legible to consumers.\160\
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\159\ See 12 CFR 1005.31(a)(1), comment 31(a)(1)-1. See also,
e.g., the general disclosure requirements for open-end and closed-
end credit in, respectively, 12 CFR 1026.5(a)(1) and 1026.17(a)(1)
and their commentary.
\160\ The section-by-section analysis of Sec. 1006.38(b)(2)
discusses a new safe harbor from the overshadowing prohibition in
Sec. 1006.38(b)(1) for a debt collector who uses the model
validation notice.
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The Bureau declines to revise Sec. 1006.34(b)(1) to clarify how
the definition of clear and conspicuous interrelates with State
disclosure laws. A debt collector can comply with both Sec.
1006.34(b)(1) and State disclosure requirements that specify font size
or disclosure placement. With respect to font size, the Bureau
concludes, in general, that debt collectors satisfying State-law
minimum-font-size requirements will also satisfy the standard in Sec.
1006.34(b)(1) for a type size that is readily noticeable and legible to
consumers. With respect to disclosure placement, as discussed in the
section-by-section analysis of
[[Page 5790]]
Sec. 1006.34(d)(3)(iv), a debt collector may place disclosures
specifically required under other applicable law, which includes
disclosures specifically required by State law, on the reverse (or, in
certain specified circumstances, on the front) of the validation
notice. The Bureau believes that Sec. 1006.34(d)(3)(iv) will permit
debt collectors to provide State law disclosures in a manner that is
clear and conspicuous under applicable law.
The Bureau also declines to further clarify the meaning of clear
and conspicuous in the context of oral delivery of validation
information. The Bureau determines that the proposed and final
regulatory text is sufficiently clear and that the final rule will not
impose an undue burden on debt collectors, particularly in light of the
Bureau's expectation that few, if any, oral disclosures will be
provided.
For the reasons discussed above, the Bureau is finalizing Sec.
1006.34(b)(1) to provide that clear and conspicuous means readily
understandable and that, in the case of written and electronic
disclosures, the location and type size also must be readily noticeable
and legible to consumers, although no minimum type size is mandated.
Final Sec. 1006.34(b)(1) also provides that oral disclosures must be
given at a volume and speed sufficient for the consumer to hear and
comprehend them.
34(b)(2) Initial Communication
FDCPA section 809(a) requires debt collectors to provide consumers
with certain validation information either in the debt collector's
initial communication with the consumer in connection with the
collection of the debt, or within five days after that initial
communication. FDCPA section 803(2) defines the term communication
broadly to mean the conveying of information regarding a debt directly
or indirectly to any person through any medium.\161\ FDCPA section
809(d) and (e) identifies particular communications that are not
initial communications for purposes of FDCPA section 809(a) and that
therefore do not trigger the validation notice requirement.\162\
Pursuant to FDCPA section 809(d), an initial communication excludes a
communication in the form of a formal pleading in a civil action.
Pursuant to FDCPA section 809(e), an initial communication also
excludes the sending or delivery of any form or notice that does not
relate to the collection of the debt and is expressly required by the
Internal Revenue Code of 1986, title V of the Gramm-Leach-Bliley Act,
or any provision of Federal or State law relating to notice of a data
security breach or privacy, or any regulation prescribed under any such
provision of law.
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\161\ See 15 U.S.C. 1692a(2). The November 2020 Final Rule
implemented this definition in Sec. 1006.2(d). 85 FR 76734, 76888
(Nov. 30, 2020).
\162\ See 15 U.S.C. 1692g(d), (e).
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The Bureau proposed Sec. 1006.34(b)(2) to implement FDCPA section
809(a), (d), and (e) by defining the term initial communication. The
proposed definition largely restated the FDCPA and defined initial
communication as the first time that, in connection with the collection
of a debt, a debt collector conveys information, directly or
indirectly, regarding the debt to the consumer, other than a
communication in the form of a formal pleading in a civil action, or a
communication in any form or notice that does not relate to the
collection of the debt and is expressly required by any of the laws
referenced in FDCPA section 809(e).\163\
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\163\ See 84 FR 23274, 23335 (May 21, 2019).
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An industry trade group recommended a bankruptcy-specific exception
to the definition of initial communication for debt collectors
collecting debts owed by consumers in bankruptcy. The commenter
expressed concern that certain actions by a debt collector in the
context of a consumer's bankruptcy proceeding, in particular filing a
proof of claim, may be construed to be an initial communication and
therefore trigger the FDCPA section 809(a) validation notice
requirement.\164\ Additionally, according to the commenter, content on
the validation notice, including the debt collection communication
disclosure required by FDCPA section 807(11), could be construed as a
demand for payment that violates the automatic stay provisions of the
United States Bankruptcy Code (Bankruptcy Code) \165\ or, if the
consumer has been relieved of personal liability, the discharge
injunction.\166\ According to the commenter, some courts have opined
that a debt collector would face an irreconcilable conflict between
complying with the FDCPA and the Bankruptcy Code if the debt collector
were required to provide a validation notice to a consumer in
bankruptcy.\167\
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\164\ To receive a distribution from a bankruptcy estate, a
creditor generally must file with the bankruptcy court a proof of
claim, which includes details about an alleged debt or interest. See
Fed. R. Bankr. P. 3002.
\165\ See 11 U.S.C. 362.
\166\ A debtor's bankruptcy petition operates as an automatic
stay that, among other things, prohibits ``any act to collect,
assess, or recover a claim against the debtor that arose before the
commencement of the case.'' 11 U.S.C. 362(a)(6). When a debtor's
liability is discharged through bankruptcy, the discharge ``operates
as an injunction against the commencement or continuation of an
action, the employment of process, or an act, to collect, recover or
offset any such debt as a personal liability of the debtor, whether
or not discharge of such debt is waived.'' 11 U.S.C. 524(a)(2).
\167\ See, e.g., In re Chaussee, 399 B.R. 225, 238 (B.A.P. 9th
Cir. 2008) (``In our opinion, the debt validation provisions
required by the FDCPA clearly conflict with the claims processing
procedures contemplated by the [Bankruptcy] Code and Rules.'').
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The Bureau has determined to interpret the term initial
communication not to include proofs of claim filed in bankruptcy
proceedings. Courts have reached different conclusions about whether
the FDCPA conflicts with the Bankruptcy Code.\168\ The Bureau is
unaware of any case definitively holding that a proof of claim is an
initial communication and that a debt collector therefore must provide
a validation notice after filing a proof of claim. On the other hand,
some courts have held that proofs of claim are not initial
communications because, under FDCPA section 809(d), they are
communications in the form of a formal pleading in a civil action.\169\
Further, the Bureau has decided to permit a debt collector to file a
proof of claim in a bankruptcy proceeding as required by the Bankruptcy
Code without thereby triggering the debt collector's obligation to
provide a validation notice under the FDCPA, because the Bureau finds
it unlikely that consumer harm will result if a consumer does not
receive a validation notice subsequent to a proof of claim in
bankruptcy. The bankruptcy proof-of-claim form is filed under penalty
of perjury, and a person who files a fraudulent claim could be fined up
to $500,000, imprisoned for up to 5 years, or both.\170\ Thus, the
Bureau concludes that bankruptcy proof-of-claim forms generally are
likely to contain accurate information about the debt.
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\168\ See Walls v. Wells Fargo Bank, 276 F.3d 502, 511 (9th Cir.
2002) (holding that the Bankruptcy Code precludes application of
FDCPA requirements in bankruptcy cases); Chaussee, 399 B.R. at 239
(same); contra Simon v. FIA Card Servs., N.A., 732 F.3d 259, 274 (3d
Cir. 2013) (stating that when ``FDCPA claims arise from
communications a debt collector sends a bankruptcy debtor in a
pending bankruptcy proceeding, and the communications are alleged to
violate the Bankruptcy Code or Rules, there is no categorical
preclusion of the FDCPA claims'').
\169\ See Simon, 732 F.3d at 273; Townsend v. Quantum3 Grp.,
LLC, 535 B.R. 415, 423 (M.D. Fla. 2015); In re Brimmage, 523 B.R.
134, 141-42 (Bankr. N.D. Ill. 2015).
\170\ The official bankruptcy proof-of-claim form is available
here: https://www.uscourts.gov/forms/bankruptcy-forms/proof-claim-0.
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Accordingly, to provide clarity for debt collectors while
maintaining protections for consumers, the Bureau is interpreting the
term initial
[[Page 5791]]
communication not to include proofs of claim filed in bankruptcy.
Specifically, the Bureau is adopting new comment 34(b)(2)-1, which
clarifies that a proof of claim that a debt collector files in a
bankruptcy proceeding in accordance with the requirements of the
Bankruptcy Code is a communication in the form of a formal pleading in
a civil action and therefore is not an initial communication for
purposes of Sec. 1006.34. The Bureau adopts this comment as an
interpretation of the phrase ``[a] communication in the form of a
formal pleading in a civil action'' in FDCPA section 809(d). The Bureau
interprets that phrase to include a proof of claim that a debt
collector files in a bankruptcy proceeding in accordance with the
requirements of the Bankruptcy Code.
The Bureau acknowledges that other scenarios may exist in which a
debt collector communicates with a consumer in bankruptcy and
subsequently may be required to provide a validation notice. To the
extent that debt collectors do provide validation notices to consumers
in bankruptcy, Sec. 1006.34(a)(1) implements an existing FDCPA
disclosure requirement and does not create a new tension between the
FDCPA and the Bankruptcy Code. In addition, nothing in the final rule
requires debt collectors to include payment requests in the validation
information; instead, payment requests are optional disclosures that
Sec. 1006.34(d)(3)(iii) permits debt collectors to include along with
the validation information. Consequently, a debt collector concerned
that a payment request would violate the Bankruptcy Code's automatic
stay or discharge injunction is not required to include a payment
request and, additionally, could use the model validation notice,
specified variations of the model notice, or a substantially similar
form, without a payment request and receive a safe harbor under Sec.
1006.34(d)(2).
An industry trade group recommended that the Bureau exclude from
the Sec. 1006.34(b)(2) definition of initial communication the notice
of transfer of loan servicing required by Regulation X.\171\ According
to the commenter, after an FDCPA-covered mortgage debt is transferred
and a consumer receives a servicing transfer notice, the transferee may
not have received all the information necessary to send a validation
notice within the five-day timeframe required by FDCPA section 809(a).
For this reason, the commenter suggested that Regulation X servicing
transfer notices should not trigger the validation information
requirement.
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\171\ Generally, under Regulation X, each transferor servicer
and transferee servicer of any mortgage loan shall provide to the
borrower a notice of transfer for any assignment, sale, or transfer
of the servicing of the mortgage loan. 12 CFR 1024.33(b)(1).
Generally, the transferor servicer shall provide the notice of
transfer to the borrower not less than 15 days before the effective
date of the transfer of the servicing of the mortgage loan. The
transferee servicer shall provide the notice of transfer to the
borrower not more than 15 days after the effective date of the
transfer. The transferor and transferee servicers may provide a
single notice, in which case the notice shall be provided not less
than 15 days before the effective date of the transfer of the
servicing of the mortgage loan. 12 CFR 1024.33(b)(3)(i).
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The Bureau declines to interpret the term initial communication to
exclude servicing transfer notices required by Regulation X. Section
1006.34(b)(2) largely mirrors existing language in FDCPA sections
803(2) and 809(a), (d), and (e) and does not impose new substantive
requirements or obligations on covered entities. As discussed in the
section-by-section analysis of Sec. 1006.34(c), Regulation F will
result in validation notices containing more information about the debt
than they typically do today, but that information is, generally,
either routine account information that owners of debts currently
provide to debt collectors or that owners of debts can include without
significant additional expense. Although the commenter argues that
there may be timing considerations unique to mortgage servicing
transfer notices, the Bureau determines that such timing concerns do
not warrant an exception that would deem a mortgage servicing transfer
notice, even one that does convey information, directly or indirectly,
regarding the debt to the consumer to be excluded from the definition
of an ``initial communication.''
Other commenters asked the Bureau to clarify whether a consumer-
initiated communication, such as a consumer visiting a debt collector's
website or a consumer leaving a voicemail with a debt collector, would
constitute an initial communication under proposed Sec. 1006.34(b)(2).
The Bureau notes that, under Sec. 1006.34(b)(2), for an initial
communication to occur, a debt collector must ``convey[ ] information,
directly or indirectly, regarding the debt. . . .'' Section
1006.34(b)(2) is clear that, if a debt collector conveys no
information, directly or indirectly, regarding the debt, an initial
communication has not occurred and, consequently, the validation notice
requirement has not been triggered. Thus, a consumer's voicemail left
with a debt collector generally would not qualify as an initial
communication. Similarly, an initial communication generally would not
include a consumer's visit to a debt collector's website, unless during
that visit the debt collector conveyed information regarding the
consumer's specific debt.\172\
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\172\ For example, a debt collector potentially could convey
information regarding the debt during a consumer's visit to a
website through a website chat feature.
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For the reasons discussed above, the Bureau is finalizing Sec.
1006.34(b)(2) largely as proposed but with a revision to clarify that
proofs of claim filed in bankruptcy proceedings are not initial
communications.
34(b)(3) Itemization Date
FDCPA section 809(a)(1) requires debt collectors to disclose to
consumers, either in the debt collector's initial communication in
connection with the collection of the debt, or within five days after
that communication, the amount of the debt.\173\ The Bureau proposed in
Sec. 1006.34(c)(2)(vii) through (ix) to interpret the phrase ``amount
of the debt'' to mean that debt collectors must disclose the amount of
the debt as of a particular ``itemization date.'' \174\ To facilitate
compliance with proposed Sec. 1006.34(c)(2), the Bureau proposed Sec.
1006.34(b)(3) to define itemization date as one of four reference dates
for which a debt collector can ascertain the amount of the debt. The
proposed reference dates were the last statement date, the charge-off
date, the last payment date, and the transaction date.\175\
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\173\ See 15 U.S.C. 1692g(a)(1).
\174\ Proposed Sec. 1006.34(c)(2)(vii) and (viii) would have
required debt collectors to disclose, respectively, the itemization
date and the amount of the debt on the itemization date. Proposed
Sec. 1006.34(c)(2)(ix) would have required debt collectors to
disclose an itemization of the debt reflecting interest, fees,
payments, and credits since the itemization date. For additional
discussion of these provisions, which have been renumbered in the
final rule, see the section-by-section analysis of Sec.
1006.34(c)(2)(vi) through (viii).
\175\ See 84 FR 23274, 23335-37 (May 21, 2019). The reference
dates were set forth in proposed Sec. 1006.34(b)(3)(i) through (iv)
and are discussed in the section-by-section analysis of those
paragraphs below.
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The proposed definition of itemization date was designed to allow
the use of dates that debt collectors could identify with relative ease
because they reflect routine and recurring events, and that correspond
to notable events in the debt's history that consumers may recall or be
able to verify with records. The proposed definition also was intended
to include dates for which debt collectors typically may receive
account information from debt owners and that, therefore, debt
[[Page 5792]]
collectors would be able to use to provide the disclosures proposed in
Sec. 1006.34(c)(viii) and (ix).
Proposed comment 34(b)(3)-1 explained that a debt collector could
select any of the four reference dates as the itemization date. Once a
debt collector used one of the reference dates for a specific debt in a
communication with a consumer, however, the debt collector would be
required to use that reference date for that debt consistently when
providing disclosures pursuant to Sec. 1006.34 to that consumer.
For the reasons discussed below, the Bureau is adopting Sec.
1006.34(b)(3) and its related commentary largely as proposed but with
minor wording changes and to include an additional reference date in
response to feedback: The judgment date. The Bureau also is adopting
new comment 34(b)(3)-2, which provides that a debt collector may use a
different reference date than a prior debt collector used for the same
debt.
Some industry commenters supported the itemization date definition
in proposed Sec. 1006.34(b)(3). At least two industry commenters
supported providing debt collectors with a choice of several reference
dates because a debt collector might not be able ascertain the amount
of the debt on a single reference date. According to an industry trade
group commenter, the proposed reference dates would provide adequate
flexibility, as a creditor's information systems will have recorded at
least one of those dates for any given debt. Another industry trade
group commenter stated that the proposal's standardization of account
information would allow debt collectors to build better internal
procedures and improve consumer communication practices. An industry
commenter stated that proposed Sec. 1006.34(b)(3) would require
significant client education and information technology investment but
ultimately concluded that the framework was feasible.
Other commenters objected to proposed Sec. 1006.34(b)(3). An
industry commenter stated that creditors may provide debt collectors
information about multiple reference dates. According to this
commenter, analyzing creditor records to identify and organize account
information as of a single reference date would be complicated, costly,
and increase the likelihood of validation notice errors. A group of
consumer advocate commenters stated that, instead of permitting debt
collectors to choose between reference dates, Sec. 1006.34(b)(3)
should define the itemization date as a single reference date supported
by consumer testing.
The Bureau determines that Sec. 1006.34(b)(3) will facilitate
compliance with the itemization date-related requirements in final
Sec. 1006.34(c)(2)(vi) through (viii). Account information available
to debt collectors may vary by debt type because some account
information is not universally tracked or used across product markets.
To facilitate the ability of debt collectors across debt markets to
comply with Regulation F, the final rule permits debt collectors to
determine the itemization date by selecting from one of five reference
dates for which they can ascertain the amount of the debt.
The Bureau finds that this framework will not result in undue
industry burden. Debt collectors today routinely analyze and organize
account information included in files from creditors when creditors
place accounts for collection. Debt collectors should be able to use or
build on these existing functions to select an itemization date based
on the definition in Sec. 1006.34(b)(3). Therefore, even if creditors
provide or retain account information based on multiple reference
dates, debt collectors should not face substantial new costs or
litigation risks from complying with Sec. 1006.34(b)(3).
The Bureau declines consumer advocates' suggestion to specify a
single reference date. As discussed in the proposal, the Bureau
considered requiring debt collectors to provide an itemization of the
debt based on a single reference date but rejected that approach
because of the infeasibility of identifying a single reference date
that applies to all debt types across all relevant markets.\176\ The
group of consumer advocate commenters that recommended a single
reference date did not suggest or provide evidence that it would be
feasible to identify a single date that would be appropriate for all
types of debt. The Bureau also declines to exercise its discretion to
conduct consumer testing to attempt to determine an optimal itemization
date for debt collectors to use within each debt collection market
(e.g., mortgage debt, credit card debt, student loan debt, medical
debt, and so on). The Bureau determines that such testing is not
necessary or warranted, because the Bureau finds that debt collectors'
use of any one of the five itemization dates set forth in Sec.
1006.34(b)(3) should correspond, in most cases, to events in the debt's
history that consumers may recall or be able to verify with records.
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\176\ See 84 FR 23274, 23336 (May 21, 2019).
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In the proposal, the Bureau requested comment on whether the
itemization date should be structured as a prescriptive ordering of
reference dates, such as a hierarchy that would permit a debt collector
to use a date listed later in the hierarchy only if the debt collector
did not have information about any dates earlier in the hierarchy.
Industry and industry trade group commenters generally favored the
proposed flexible approach. According to commenters, a prescriptive
ordering would significantly increase costs and litigation risk for
debt collectors. As noted above, consumer advocates expressed concern
that the proposed approach would result in disclosure of itemization
dates that are not meaningful to consumers and urged the Bureau to use
consumer testing to determine a date that would be meaningful.
The Bureau agrees that a prescriptive ordering could impose undue
costs and litigation risks for debt collectors. In addition, as
discussed below in the section-by-section analysis of Sec.
1006.34(b)(3)(i) through (v), each reference date may be meaningful to
consumers because it corresponds to a notable event in the debt's
history that consumers may recall or be able to verify with records.
Because each reference date may be meaningful to a consumer, and
because each reference date may be more or less meaningful to the
consumer than one of the other reference dates depending on the
circumstances surrounding the debt, there may not be a benefit to
consumers if the Bureau were to structure the dates as a hierarchy. The
Bureau therefore declines to adopt a prescriptive ordering of the
reference dates.
Some commenters who did not object to the proposed itemization date
framework in principle either raised concerns that the proposed
reference dates would not accommodate debts in all product markets or
recommended additional reference dates. At least one industry trade
group commenter asked the Bureau to clarify what reference date debt
collectors should use for debts in bankruptcy. An industry commenter
stated that the proposal might not accommodate a debt a consumer owes
to a government, such as a tax debt. According to this commenter,
although the FDCPA does not cover many debts consumers owe to
governments,\177\ some debt collectors who collect debts on behalf of
Federal government agencies are legally or contractually obliged to
[[Page 5793]]
abide by the FDCPA.\178\ This commenter stated that the proposed
reference dates might not accommodate tax debt because, in some
instances, it will be the case that no previous statement was provided,
no prior payment was made, and there was no transaction per se between
the consumer and the government creditor.
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\177\ FDCPA section 803(5) defines a ``debt'' as any obligation
arising out of a transaction ``primarily for personal, family, or
household purposes.'' 15 U.S.C. 1692a(5). According to the
commenter, a debt a consumer owes to a government in many cases does
not meet this definition.
\178\ For example, debt collectors who collect on behalf of the
Internal Revenue Service under a ``qualified tax collection
contract'' generally are required by statute to comply with the
FDCPA. See 26 U.S.C. 6306(g) (``The provisions of the [FDCPA] shall
apply to any qualified tax collection contract, except to the extent
superseded by section 6304, section 7602(c), or by any other
provision of this title.'').
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According to another commenter, an additional reference date for
student loan debt is necessary because debt collectors collecting
Federal student loans do not receive any of the proposed reference
dates at the time of placement. Some commenters suggested that the
Bureau permit debt collectors to use the date of default as defined by
the Higher Education Act of 1965; commenters argued that this date is a
widely used reference date in the student loan market.\179\ By
contrast, an FTC commissioner urged the Bureau not to use the Higher
Education Act's definition of default and instead to use the date a
student loan borrower becomes 90 days past due.
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\179\ The Higher Education Act defines ``default'' as ``the
failure of a borrower . . . to make an installment payment when due,
or to meet other terms of the promissory note, the Act, or
regulations as applicable, if the Secretary or guaranty agency finds
it reasonable to conclude that the borrower and endorser, if any, no
longer intend to honor the obligation to repay, provided that this
failure persists for--(1) 270 days for a loan repayable in monthly
installments; or (2) 330 days for a loan repayable in less frequent
installments.'' 34 CFR 682.200(b).
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In addition, an industry commenter recommended that Sec.
1006.34(b)(3) incorporate: (1) The date a creditor places a debt with
the debt collector, or (2) the date the debt collector provides
validation information to the consumer. Another industry commenter
suggested that Sec. 1006.34(b)(3) incorporate the date of a previously
obtained court judgment.
The Bureau determines that Sec. 1006.34(b)(3)--in conjunction with
the five reference dates described in Sec. 1006.34(b)(3)(i) through
(v)--provides adequate flexibility for debts in all product markets,
including for debts in bankruptcy. A debt collector may choose which of
the five reference dates to use based on the facts and circumstances
surrounding the history of the debt--e.g., whether a creditor provided
statements, whether the consumer made payments--and the information
available to the debt collector.
With respect to which reference date a debt collector should use to
itemize a tax obligation a consumer owes to a government, the date the
tax was assessed may be a transaction date for tax debt, as discussed
in the section-by-section analysis of Sec. 1006.34(b)(3)(iv). In
addition, a date on which the government provided a written invoice or
tax bill may constitute a last statement date for tax debt under Sec.
1006.34(b)(3)(i).
The Bureau determines that a reference date specific to student
loan debt is unnecessary and unwarranted because the reference dates in
Sec. 1006.34(b)(3) are sufficient. For virtually any student loan
debt, there will be a last statement date as described in Sec.
1006.34(b)(3)(i), a last payment date as described in Sec.
1006.34(b)(3)(ii), or a transaction date as described in Sec.
1006.34(b)(3)(iv). For many student loan debts, all three reference
dates will exist.
The Bureau also declines to incorporate into Sec. 1006.34(b)(3)
the date of placement or the date the debt collector provides the
validation notice. From a consumer's perspective, these dates do not
correspond to notable events in a debt's history that the consumer may
recall or be able to verify. As noted above, however, in response to
feedback, the Bureau is adding a new reference date called the
``judgment date,'' which is the date of a final court judgment that
determines the amount of the debt owed by the consumer. The judgment
date is discussed in the section-by-section analysis of final Sec.
1006.34(b)(3)(v).
With respect to the Bureau's request for comment about whether a
subsequent debt collector should be permitted to use a different
itemization date than a prior debt collector used for the same debt,
industry and industry trade group commenters generally agreed that
requiring debt collectors to use the same reference date as a prior
collector would be burdensome and impractical. These commenters stated
that debt collectors would be unable to ensure compliance with such a
requirement because a creditor might not disclose the reference date
that a prior debt collector used. By contrast, an academic and a
consumer advocate commenter stated that a debt collector should be
required to use the same itemization date the prior debt collector used
because a consumer may not be able to assess the amount owed if the
subsequent debt collector uses a different reference date.
The final rule permits a debt collector to use a different
itemization date than a prior debt collector used for the same debt.
The availability of account information, including about a prior debt
collector's activities, to a subsequent debt collector depends on the
creditor or debt buyer who places the debt with the subsequent debt
collector. If the creditor or debt buyer does not provide the
previously used itemization date, the subsequent debt collector may be
unable to determine that date, and therefore fail to comply with a
requirement to use it. It is conceivable that, were the rule to require
use of the same itemization date previously used, debt collectors and
creditors could begin to structure their contracts and processes to
enable creditors and debt collectors to transfer a previously used
itemization date. However, establishing such contracts and processes
would likely impose costs on creditors and debt collectors,\180\ and
those costs would likely be passed on to consumers. Further, the Bureau
finds that the costs are not warranted because permitting a subsequent
debt collector to use a different itemization date will maintain
protections for consumers, as long as the debt collector uses one of
the five itemization dates specified in the rule. As stated above, the
Bureau finds that the five itemization dates are all dates that should
result in reasonably meaningful and recognizable debt amounts for
consumers. Accordingly, the Bureau is adopting new comment 34(b)(3)-2
to clarify that, when selecting an itemization date pursuant to Sec.
1006.34(b)(3), a debt collector may use a different reference date than
a prior debt collector who attempted to collect the debt.
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\180\ In order for the contractual framework and processes to
achieve the desired result of a creditor passing the previously used
itemization date to the current debt collector, creditors would have
to structure contracts to require the previous debt collectors to
pass back to the creditors the previously used itemization dates so
that the creditors, in turn, can pass them on to the current debt
collectors. Developing and implementing such contractual provisions
and processes across the debt collection industry would likely
impose potentially significant costs.
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For the reasons set forth above, the Bureau is finalizing Sec.
1006.34(b)(3) and its related commentary with minor wording changes and
to include a new reference date, the judgment date, in Sec.
1006.34(b)(3)(v). In addition, the Bureau is adopting new comment
34(b)(3)-2 to explain that a debt collector may use a different
reference date than a prior debt collector. The Bureau is finalizing
Sec. 1006.34(b)(3) and Sec. 1006.34(b)(3)(i) through (v), discussed
below, pursuant to its authority under FDCPA section 814(d) to
prescribe rules with respect to the collection of debts by debt
collectors and pursuant to its
[[Page 5794]]
authority under Dodd-Frank Act section 1032(a) to prescribe rules to
ensure that the features of consumer financial products and services
are disclosed to consumers fully, accurately, and effectively.
34(b)(3)(i)
The Bureau proposed in Sec. 1006.34(b)(3)(i) to permit debt
collectors to use as the itemization date the date of the last periodic
statement or written account statement or invoice provided to the
consumer. Proposed comment 34(b)(3)(i)-1 explained that a statement
provided by a creditor or a third party acting on the creditor's
behalf, including a creditor's service provider, may constitute the
last statement provided to the consumer for purposes of Sec.
1006.34(b)(3)(i).
Commenters disagreed about whether the Bureau should adopt the last
statement date as a permissible reference date. Several industry and
industry trade group commenters supported the proposal, stating that,
for some debts, the last statement date is readily available to debt
collectors and recognizable to consumers. Some commenters stated that,
even when creditors do not initially provide periodic statements to
debt collectors, such statements are available upon request. However,
some consumer advocate commenters stated that the last statement date
may not be meaningful to some consumers and may not help them recognize
a debt. For example, a commenter stated that a creditor may send
duplicates of the same periodic statement or invoice to a consumer
multiple times, even when the balance is changing due to interest or
fees. In this scenario, the commenter said, the last statement a
consumer received would not reflect the actual amount owed and would
not be helpful to the consumer.
At least two commenters stated that a validation notice provided by
a prior debt collector should not constitute a last statement for
purposes of Sec. 1006.34(b)(3)(i). According to a consumer advocate
commenter, the date of a prior validation notice will not be meaningful
to consumers and, consequently, an itemization as of that date will not
help consumers recognize an alleged debt. An industry trade group
commenter advised against relying on a validation notice provided by a
prior debt collector because creditors generally do not provide
previously sent validation notices to subsequent debt collectors.
The Bureau determines that the last statement date may be used as a
reference date. Many creditors or third parties acting on a creditor's
behalf routinely provide consumers with account statements, such as
periodic statements or invoices. If a consumer has received an account
statement from a creditor, the consumer either may recognize the date
that they last received a statement or may be able to verify that date
in their records.\181\ Further, last statement information is often
readily available to debt collectors, as debt collectors frequently
receive, or have the ability to request, last statement information or
records from creditors.
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\181\ This is likely to be true even if the consumer has
received a duplicative statement as the last statement. In that
scenario, under Sec. 1006.34(c)(2)(vii), which requires a debt
collector to disclose the amount of the debt on the itemization
date, the debt amount that the debt collector discloses to the
consumer must be the debt amount as of that last statement date.
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The Bureau determines that only a last statement or invoice
provided to a consumer by a creditor, as opposed to a statement, such
as a validation notice, provided by a debt collector, should serve as a
basis for a last statement date as defined in Sec. 1006.34(b)(3)(i)
because consumers may be more likely to recall or be able to verify a
statement sent by a creditor than by a debt collector. This may be true
even if a creditor issues a statement after the debt has gone into
collection. Under Sec. 1006.34(b)(3)(i), such a new statement may
serve as the last statement for purposes of the itemization date.
For these reasons, the Bureau is finalizing Sec. 1006.34(b)(3)(i)
and its related commentary with revisions to provide that only a
statement or invoice provided by a creditor qualifies as a last
statement for purposes of Sec. 1006.34(b)(3)(i). Specifically, the
Bureau is revising Sec. 1006.34(b)(3)(i) to state that the last
statement date is the date of the last periodic statement or written
account statement or invoice provided to the consumer by a creditor.
The Bureau also is revising comment 34(b)(3)(i)-1 to provide that a
statement or invoice provided by a debt collector is not a last
statement for purposes of Sec. 1006.34(b)(3)(i), unless the debt
collector is also a creditor.
34(b)(3)(ii)
The Bureau proposed in Sec. 1006.34(b)(3)(ii) to permit debt
collectors to use the date that the debt was charged off as the
itemization date.
An industry trade group and an industry commenter supported the use
of the charge-off date, particularly for debts associated with open-end
credit, such as credit cards. The commenters stated that charge off is
a regulated Federal standard for consumer credit \182\ and would be a
reliable reference date for itemization-related disclosures in some
circumstances. An industry trade group commenter stated that creditors
frequently provide debt collectors account information as of the
charge-off date. Commenters stated that consumers may recognize the
amount due as of the charge-off date because some creditors provide
charge-off statements that reflect the charge-off balance and, they
said, consumers have the ability to review these charge-off statements.
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\182\ 65 FR 36903 (June 12, 2000); Off. of the Comptroller of
the Currency, Bulletin 2000-20, Uniform Retail Credit Classification
and Account Management Policy (June 20, 2000).
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Other commenters objected to including the charge-off date as a
permissible reference date. An industry commenter stated that not all
creditors maintain account information as of the charge-off date or
communicate that information to debt collectors at placement. Consumer
advocates and at least two industry trade group commenters stated that,
although the charge-off date may be widely used for some financial
products, it may not resonate with consumers or help them recognize a
debt because consumers might not know the charge-off date.\183\
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\183\ An individual commenter requested clarification whether,
for medical debt, the date of charge off is the date a creditor
places the account for collection. The Bureau is not aware that such
a definition is commonly used.
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The Bureau determines that the charge-off date may be used as a
reference date. Creditors frequently provide account information as of
the charge-off date for various types of debts, including credit card
debt, to debt collectors. The Bureau acknowledges that not all
creditors maintain account information as of the charge-off date or
provide such information to debt collectors, but the charge-off date is
only one of five reference dates specified in the final rule. Further,
account information at charge off is readily available to a
sufficiently large number of debt collectors--including collectors of
credit card debt--to justify its adoption as a reference date. In
addition, while consumers might not know the specific charge-off date,
they may, in fact, recognize account information as of approximately
the charge-off date because charge off often occurs at around the time
the creditor provided a last account statement. Further, as noted by
commenters, some creditors may provide consumers with charge-off
statements that reflect the balance as of the charge-off date.
Accordingly, the Bureau is finalizing Sec. 1006.34(b)(3)(ii) as
proposed.
[[Page 5795]]
34(b)(3)(iii)
The Bureau proposed in Sec. 1006.34(b)(3)(iii) to permit debt
collectors to use the date the last payment was applied to the debt as
the itemization date.
Industry and consumer advocate commenters generally supported
proposed Sec. 1006.34(b)(3)(iii). These commenters agreed that account
information as of the last payment date is readily available to debt
collectors and recognizable to consumers. According to one consumer
advocate, a consumer may have a general idea of when a bill was last
paid, especially if the consumer's delinquency was related to a
significant life event, such as a job loss, a divorce, or an illness.
Accordingly, the Bureau determines that the last payment date as
defined in Sec. 1006.34(b)(3)(iii) is an appropriate reference date.
Commenters asked the Bureau to clarify whether a third-party
payment could serve as the basis for the last payment date. For
example, several trade group commenters stated that, if a consumer's
car is repossessed, the sale of the collateral may be applied to the
consumer's balance after receipt of the consumer's last payment.
Another commenter raised the possibility of third-party payments and
insurance adjustments in the medical debt context. A group of consumer
advocates recommended that only a payment from a consumer to a creditor
should serve as the basis for a last payment date. According to this
commenter, a last consumer payment to a prior debt collector may not be
significant or recognizable to a consumer.
The Bureau determines that third-party payments may serve as the
basis for the last payment date under Sec. 1006.34(b)(3)(iii). The
Bureau finds that the date of a third-party payment on the debt, such
as a payment from an auto repossession agent or an insurance company,
may be meaningful to a consumer because such payments may be
accompanied by a notice to the consumer, and therefore the consumer
could recognize or verify with records the date of such payments.
The Bureau also determines that a consumer's payment to a prior
debt collector may serve as the last payment date. The Bureau finds
that consumers are at least as likely to recognize or be able to verify
with records the status of the debt as of the consumer's last payment
to a prior debt collector as consumers are able to recognize or verify
an earlier (perhaps much earlier) payment to the creditor, particularly
if the debt has been outstanding for a long time.
For these reasons, the Bureau is finalizing Sec.
1006.34(b)(3)(iii) as proposed to provide that the last payment date is
the date the last payment was applied to the debt. The Bureau also is
adopting new comment 34(b)(3)(iii)-1, which clarifies that a third-
party payment applied to the debt, such as a payment from an auto
repossession agent or an insurance company, can be a last payment for
purposes of Sec. 1006.34(b)(3)(iii).
34(b)(3)(iv)
The Bureau proposed in Sec. 1006.34(b)(3)(iv) to permit debt
collectors to use as the itemization date the date of the transaction
that gave rise to the debt. Proposed comment 34(b)(3)(iv)-1 explained
that the transaction date is the date that a creditor provided, or made
available, a good or service to a consumer, and it included examples of
transaction dates. The comment also explained that, if a debt has more
than one potential transaction date, a debt collector may use any such
date as the transaction date but must use whichever transaction date it
selects consistently.
A number of commenters, including consumer advocates, industry
trade groups, and at least one industry commenter, supported including
the transaction date in the itemization date definition. According to
several commenters, consumers likely would recognize the transaction
date as defined by proposed Sec. 1006.34(b)(3)(iv). At least one
commenter stated that creditors provide account information as of the
transaction date for some debt types.
With respect to proposed comment 34(b)(3)(iv)-1, a consumer
advocate commenter stated that, if a debt has more than one potential
transaction date, the debt collector should not be permitted to choose
which date to use as the transaction date for purposes of Sec.
1006.34(b)(3)(iv). The commenter urged the Bureau to develop a
prescriptive standard for identifying the appropriate transaction date
for scenarios where multiple transaction dates exist.
Several commenters also stated that determining the transaction
date may be problematic in some circumstances. For example, a consumer
advocate commenter explained that, while determining the transaction
date is straightforward with one-time transactions, identifying the
transaction date may be more difficult with respect to contracts for
ongoing services, such as gym memberships, cellular telephone
contracts, or lawn care service contracts. In addition, an industry
commenter stated that medical providers may combine multiple dates of
service into one account or use family billing that combines separate
bills for family members into one account. The commenter suggested
that, if an account in collection reflects services on multiple dates
or for multiple individuals, identifying a transaction date may be
difficult for the debt collector.
The Bureau finds that, for some debts, creditors may provide debt
collectors with account information related to the transaction date. In
addition, consumers may recognize the amount of a debt on the
transaction date, which may be reflected on a copy of a contract or a
bill provided by a creditor. For this reason, the Bureau is finalizing
Sec. 1006.34(b)(3)(iv) as proposed to provide that the transaction
date, which is the date of the transaction that gave rise to the debt,
can be the itemization date for purposes of Sec. 1006.34(b)(3).
As commenters noted, various dates may serve as potential
transaction dates under Sec. 1006.34(b)(3)(iv). For example, potential
transaction dates may include the date a service or good was provided
to a consumer or the date that a consumer signed a contract for a
service or good. In the case of a consumer's tax debt, the date a
government assessed the tax may be a transaction date for purposes of
Sec. 1006.34(b)(3)(iv).\184\ Nevertheless, the Bureau declines to
adopt a prescriptive standard for identifying the only transaction date
debt collectors may use. Both the contract date and the service date
are significant dates that may resonate with a consumer. Because the
consumer may recognize the amount of the debt on those dates, the
Bureau finds that either date may serve as the transaction date.
Further, the Bureau determines that developing a more prescriptive
standard that would apply to all debt types is not feasible. For this
reason, the Bureau is finalizing comment 34(b)(3)(iv)-1, with minor
changes for clarity, to provide that, if a debt has more than one
transaction date, a debt collector may use any such date as the
transaction date, but the debt collector must use whichever date the
debt collector selects consistently, as described in comment 34(b)(3)-
1. Comment 34(b)(3)(iv)-1 also addresses concerns regarding identifying
the transaction date for medical debt that includes services on
[[Page 5796]]
multiple dates or for multiple individuals.\185\
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\184\ See the discussion of tax debts in the introductory
section-by-section analysis of Sec. 1006.34(b)(3).
\185\ Because of differences between various debt types and the
particular facts and circumstances of any given transaction, Sec.
1006.34(b)(3)(iv) provides debt collectors flexibility when
selecting a transaction date. However, if the total amount of a debt
in collection includes amounts incurred on different dates of
service, the Bureau believes that, even though Sec.
1006.34(b)(3)(iv) does not require it, debt collectors generally
will select the last date of service as the transaction date. This
date may be most recognizable to consumers. Further, disclosing
itemization-related information as of the last date, as opposed to
an earlier date, likely would be easier for a debt collector.
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The Bureau recognizes that the transaction date may be difficult to
determine in some circumstances. However, under the framework in Sec.
1006.34(b)(3) for determining the itemization date, the transaction
date is one of five reference dates from which a debt collector may
choose. Section 1006.34(b)(3) does not require a debt collector to use
the transaction date as the reference date for itemization-related
disclosures. If a debt collector cannot determine the transaction date,
the debt collector may use another reference date.
34(b)(3)(v)
As discussed above, the proposed definition of itemization date
included four reference dates. In response to the proposed definition,
an industry commenter suggested that the Bureau add a fifth date--the
date of a court judgment. The Bureau has determined to adopt this
recommendation. As a general matter, debt collectors will know if a
court judgment against a consumer exists and consumers are likely to
recognize the date of a court judgment against them or be able to
verify the date with records. Further, the amount of the debt as of the
date of a court judgment is verifiable as it will have been
memorialized in court records. Accordingly, the Bureau is finalizing
Sec. 1006.34(b)(3)(v) to permit debt collectors to use as the
itemization date the judgment date, which is the date of a final court
judgment that determines the amount of the debt owed by the consumer.
34(b)(4) Validation Notice
FDCPA section 809(a) provides, in relevant part, that, within five
days after the initial communication with a consumer in connection with
the collection of any debt, a debt collector shall send the consumer a
written notice containing specified information (i.e., validation
information), unless that information is contained in the initial
communication or the consumer has paid the debt. Debt collectors and
others commonly refer to the written notice required by FDCPA section
809(a) as a ``validation notice'' or a ``g notice.'' The Bureau
proposed in Sec. 1006.34(b)(4) to define validation notice to mean a
written or electronic notice that provides the validation information
described in Sec. 1006.34(c).\186\ The Bureau received no comments
regarding proposed Sec. 1006.34(b)(4) and is finalizing it with a
minor wording change for consistency with final Sec. 1006.34(c).
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\186\ See 84 FR 23274, 23337 (May 21, 2019).
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34(b)(5) Validation Period
FDCPA section 809(b) contains certain requirements that a debt
collector must satisfy if a consumer disputes a debt or requests the
name and address of the original creditor.\187\ If a consumer disputes
a debt in writing within 30 days of receiving the validation
information, a debt collector must stop collection of the debt until
the debt collector obtains verification of the debt or a copy of a
judgment against the consumer and mails it to the consumer. Similarly,
if a consumer requests the name and address of the original creditor in
writing within 30 days of receiving the validation information, the
debt collector must cease collection of the debt until the debt
collector obtains and mails such information to the consumer. FDCPA
section 809(b) also prohibits a debt collector, during the 30-day
period for written disputes and original-creditor information requests,
from engaging in collection activities and communications that
overshadow, or are inconsistent with, the disclosure of the consumer's
rights to dispute the debt and request original-creditor information,
which are sometimes referred to as ``verification rights.''
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\187\ 15 U.S.C. 1692g(b).
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As described in the section-by-section analysis of Sec.
1006.34(c)(3)(i) through (iii), the Bureau proposed to require debt
collectors to disclose to a consumer the date certain on which the
consumer's verification rights under FDCPA section 809(b) expire. To
facilitate compliance with that proposed requirement, proposed Sec.
1006.34(b)(5) defined the term validation period to mean the period
starting on the date that a debt collector provides the validation
information described in Sec. 1006.34(c) and ending 30 days after the
consumer receives or is assumed to receive the validation
information.\188\ To clarify how to calculate the end of the validation
period--including how debt collectors may disclose a period that
provides consumers additional time beyond the required 30 days to
exercise their validation rights--proposed Sec. 1006.34(b)(5) provided
that a debt collector may assume that a consumer receives the
validation information on any day that is at least five days (excluding
legal public holidays, Saturdays, and Sundays) after the debt collector
provides it. Proposed comment 34(b)(5)-1 clarified that, if a debt
collector sends an initial validation notice that was not received and
then sends a subsequent validation notice, the validation period ends
30 days after the consumer receives or is assumed to receive the
subsequent validation notice.
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\188\ 84 FR 23274, 23337-38 (May 21, 2019).
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For the reasons discussed below, the Bureau is finalizing proposed
Sec. 1006.34(b)(5) and proposed comment 34(b)(5)-1 (which is
renumbered as comment 34(b)(5)-2) with minor wording changes for
clarity and consistency with other provisions of Regulation F. The
Bureau is adopting new comment 34(b)(5)-1 to illustrate how a debt
collector may calculate the end of the validation period before sending
the validation notice.
A number of commenters, including industry commenters, supported
proposed Sec. 1006.34(b)(5). According to several commenters, the
proposed definition is consistent with current industry practices. For
example, with respect to the proposed five-day delivery timing
assumption, industry commenters stated that debt collectors generally
assume that a consumer receives a validation notice five to eight days
after mailing. Consumer advocate commenters objected to the proposed
definition, stating that debt collectors should be obligated to honor
consumer verification requests at any time, not only during the
validation period.
Some commenters recommended lengthening the proposed five-day
delivery timing assumption. A consumer advocate commenter and an
industry trade group commenter suggested that the validation period
definition should assume that the consumer receives the validation
notice seven days after the debt collector mails it to account for
delays or bulk mail delivery.\189\ Another trade group
[[Page 5797]]
commenter recommended a fixed ten-day assumption that omits
consideration of weekends and holidays.
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\189\ United States Postal Service (USPS) delivery times for
Standard Mail, commonly referred to as bulk mail, are typically
longer than delivery times for first-class mail. For example, based
on the USPS Originating Service Standards, bulk mail originated in
Washington, DC takes six days to reach New York City, seven days to
reach Denver, and nine days to reach Seattle. By contrast, first-
class mail from Washington, DC reaches New York City in two days and
Denver and Seattle in three days. See U.S. Postal Serv., Service
Standards Maps, https://postalpro.usps.com/ppro-tools/service-standards-maps (last visited Nov. 16, 2020).
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Other commenters recommended shortening the delivery timing
assumption. For example, an industry trade group commenter recommended
that the Bureau eliminate the assumption entirely and clarify that the
validation period commences upon mailing of a validation notice. Other
industry commenters urged the Bureau to shorten the assumption for
near-instantaneous communication methods, such as electronic or oral
delivery. In contrast, at least two industry trade groups commenters
and a consumer advocate commenter recommended a uniform validation
period across delivery methods. According to an industry trade group
commenter, if the validation period is not the same for all delivery
methods, consumers may be confused if they receive validation notices
through different delivery methods with different due dates.
After considering this feedback, the Bureau determines that a
validation period definition will facilitate debt collectors'
compliance with the requirement in Sec. 1006.34(c)(3) to disclose to a
consumer the date certain on which the consumer's FDCPA section 809(b)
verification rights expire. The Bureau declines, as requested by
consumer advocate commenters, to require a debt collector to comply
with a verification request that a consumer submits after the 30-day
period provided by the statute has expired. FDCPA section 809(b)
establishes a 30-day period for consumers to exercise their
verification rights.\190\
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\190\ Although the FDCPA and this implementing regulation do not
require a debt collector to provide verification after the
validation period expires, a debt collector nevertheless may choose
to do so. The Bureau has received feedback from debt collectors and
at least one industry trade group that many debt collectors respond
to disputes with verification, and to original-creditor-information
requests, after the validation period has expired.
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The Bureau also declines to modify the length of the five-day
delivery timing assumption. The Bureau proposed Sec. 1006.34(b)(5) on
the basis that a consumer typically receives a validation notice no
more than five days (excluding legal public holidays, Saturdays, and
Sundays) after the debt collector provides the notice. Based on its
market monitoring activities, the Bureau understands that debt
collectors typically send consumer communications by first-class mail,
which generally is delivered in three business days or less.\191\ The
Bureau is unaware that debt collectors typically use bulk mail to
deliver validation notices, and commenters offered no evidence
otherwise. For these reasons, the Bureau declines to extend the five-
day delivery timing assumption.
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\191\ See U.S. Postal Serv., Service Standards Maps, https://postalpro.usps.com/ppro-tools/service-standards-maps (last visited
Dec. 1, 2020).
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The Bureau also declines to shorten the validation period's five-
day delivery timing assumption. The FDCPA's 30-day validation period
begins to run when the consumer receives the validation
information.\192\ If the 30-day clock began to run upon the debt
collector's mailing of the validation notice, as some commenters
suggested, the consumer would be deprived of the full 30-day period
provided by the FDCPA to respond to the notice. Further, the Bureau
declines to shorten the length of the validation period for validation
information provided by communication methods such as electronic
delivery. A delivery timing assumption that varied by delivery method
could pose compliance challenges and incentivize use of one
communication method over another. Therefore, as proposed, the five-day
delivery timing assumption applies uniformly to all validation
information delivery methods.
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\192\ FDCPA section 809(a)(3) requires the validation notice to
include ``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.'' 15 U.S.C. 1692g(a)(3) (emphasis added).
---------------------------------------------------------------------------
A group of consumer advocates asked the Bureau to define the
validation period based solely on when the consumer is assumed to
receive the validation information. In other words, this commenter
requested that the rule not permit the date that a consumer actually
received the validation notice to serve as the basis of the validation
period. According to this commenter, relying solely on the date that
the consumer is assumed to receive the information would prevent
confusion if the date the consumer received the notice and the date the
debt collector assumed the consumer received it are different.
The Bureau declines to adopt this suggestion. The FDCPA's 30-day
validation period begins to run when the consumer receives the
validation information. Nevertheless, the Bureau determines that, at
least in certain contexts, the date that the consumer is assumed to
receive the validation notice is the only date information that a debt
collector will have at the time the validation information is
generated. Specifically, a debt collector who sends a written or
electronic validation notice will not know, at the time the notice is
generated, the date on which the consumer will receive the notice and,
therefore, must be able to use the date of assumed receipt to calculate
the validation period end date. The Bureau is adding new comment
34(b)(5)-1 to clarify that, in such circumstances, debt collectors may
rely on the date of assumed receipt, even if they learn after sending
the notice that the consumer received the validation information on a
different date.
Several industry and industry trade group commenters expressed
concern about the use of the term ``legal public holiday'' in proposed
Sec. 1006.34(b)(5). According to these commenters, legal public
holidays may include State and local holidays that the debt collector
is not aware of and cannot reasonably ascertain. In response to these
concerns, and consistent with Sec. 1006.22(c)(1) in the November 2020
Final Rule,\193\ the Bureau is revising Sec. 1006.34(b)(5) to provide
that 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 identified in 5 U.S.C. 6103(a),
Saturdays, and Sundays) after the debt collector provides it.
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\193\ 85 FR 76734, 76833-34, 76892 (Nov. 30, 2020).
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Several industry commenters asked the Bureau to clarify whether a
debt collector must receive a consumer's verification request before
the validation period end date, or whether the consumer need only send
the request by the validation period end date for the request to be
effective. The Bureau determines that a consumer's verification
request--whether an original-creditor information request or a
dispute--is effective if the consumer sends or submits the request
within the 30-day period established in Sec. 1006.34(b)(5), even if
the debt collector does not receive the request until after the 30-day
period. In specifying requirements for debt collectors' responses to
consumers' verification requests, Sec. 1006.38(c) and (d)(2) of the
Bureau's November 2020 Final Rule implemented FDCPA section 809(b) by
providing that, upon receipt of an original-creditor information
request (Sec. 1006.38(c)) or a dispute (Sec. 1006.38(d)(2))
``submitted by the consumer in writing within the validation period, a
debt collector must cease collection of the debt . . . .'' (emphasis
added). The Bureau determines that a consumer's original-
[[Page 5798]]
creditor information request or dispute has been ``submitted by the
consumer'' for purposes of Sec. 1006.38(c) and (d)(2) if the consumer
sends or submits the request within the 30-day period established in
Sec. 1006.34(b)(5), even if the debt collector does not receive the
request until after the 30-day period.
For the reasons discussed above, the Bureau is adopting Sec.
1006.34(b)(5) to provide that validation period means the period
starting on the date that a debt collector provides the validation
information and ending 30 days after the consumer receives or is
assumed to receive it. Section 1006.34(b)(5) also specifies that 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 identified in 5 U.S.C. 6103(a) (i.e., federally
recognized public holidays), Saturdays, and Sundays) after the debt
collector provides it.
Proposed comment 34(b)(5)-1 clarified that, if a debt collector
sends a subsequent validation notice to a consumer because the consumer
did not receive the original validation notice and the consumer has not
otherwise received the validation information, the debt collector must
calculate the end of the validation period based on the date the
consumer receives or is assumed to receive the subsequent validation
notice.
At least two industry trade group commenters stated that proposed
comment 34(b)(5)-1 was consistent with current industry practice.
According to these commenters, if a validation notice is returned as
undeliverable, debt collectors typically send a new validation notice
and provide a new period for consumers to exercise their verification
rights. A law firm commenter asked the Bureau to provide additional
guidance on a debt collector's duties if a validation notice is
returned as undeliverable after the validation period has expired.
The Bureau concludes based on feedback received and its own market-
monitoring, supervision, and enforcement experience that proposed
comment 34(b)(5)-1 is consistent with existing industry practice and
therefore is adopting it largely as proposed but renumbered as comment
34(b)(5)-2. If a validation notice is returned as undeliverable after
the validation period has expired and the debt collector sends a
subsequent notice, then, as stated in the comment, the debt collector
must calculate the end of the validation period based on the date the
consumer receives or is assumed to receive the subsequent validation
notice.
34(c) Validation Information
Proposed Sec. 1006.34(c) set forth the validation information that
proposed Sec. 1006.34(a)(1) would have required debt collectors to
disclose. The validation information consisted of four general
categories: Information to help consumers identify debts (including the
information specifically referenced in FDCPA section 809(a));
information about consumers' protections in debt collection;
information to facilitate consumers' ability to exercise their rights
with respect to debt collection; and certain other statutorily required
information. Each of those categories is addressed separately in the
section-by-section analysis of Sec. 1006.34(c)(1) through (4).
34(c)(1) Debt Collector Communication Disclosure
FDCPA section 807(11) requires a debt collector to disclose in its
initial written communication with a consumer--and, if the initial
communication is oral, in that oral communication as well--that the
debt collector is attempting to collect a debt and that any information
obtained will be used for that purpose.\194\ A debt collector must also
disclose in each subsequent communication that the communication is
from a debt collector. If a debt collector provides validation
information, the debt collector engages in a debt collection
communication and must make an appropriate FDCPA section 807(11)
disclosure.\195\
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\194\ See 15 U.S.C. 1692e(11).
\195\ See, e.g., Dorsey v. Morgan, 760 F. Supp. 509 (D. Md.
1991).
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The Bureau proposed to implement the FDCPA section 807(11)
disclosures in Sec. 1006.18(e).\196\ In turn, the Bureau proposed in
Sec. 1006.34(c)(1) that the Sec. 1006.18(e) disclosure is required
validation information. The Bureau finalized Sec. 1006.18(e) in the
November 2020 Final Rule.\197\ Section 1006.18(e)(1) requires a debt
collector to disclose in its initial communication that the debt
collector is attempting to collect a debt and that any information
obtained will be used for that purpose. Section 1006.18(e)(2) requires
a debt collector to disclose in each subsequent communication that the
communication is from a debt collector.
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\196\ See 84 FR 23274, 23322-23, 23402 (May 21, 2019).
\197\ See 85 FR 76734, 76830-31, 76891-92 (Nov. 30, 2020).
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At least one industry trade group supported proposed Sec.
1006.34(c)(1)'s cross-reference to the FDCPA section 807(11)
requirement. A consumer advocate commenter asked the Bureau to clarify
what version of the FDCPA section 807(11) disclosure should appear on
the validation notice: The longer, initial disclosure described in
Sec. 1006.18(e)(1) or the shorter, subsequent disclosure described in
Sec. 1006.18(e)(2).
The Bureau is adopting new comment 34(c)(1)-1 to clarify that a
debt collector who provides the validation notice required by Sec.
1006.34(a)(1)(i)(A)--i.e., a debt collector who provides the validation
notice in the initial communication--complies with Sec. 1006.34(c)(1)
by providing the disclosure described in Sec. 1006.18(e)(1). The
disclosure described in Sec. 1006.18(e)(1) is broader than, and
incorporates the content of, the disclosure described in Sec.
1006.18(e)(2). Accordingly, new comment 34(c)(1)-1 also clarifies that
a debt collector who provides the validation notice required by Sec.
1006.34(a)(1)(i)(B)--i.e., a debt collector who provides the validation
notice within five days of the initial communication--complies with
Sec. 1006.34(c)(1) by providing either the disclosure required by
Sec. 1006.18(e)(1) or the disclosure required by Sec.
1006.18(e)(2).\198\ The Bureau determines that this clarification will
facilitate compliance, encourage use of the model validation notice,
and protect consumers.
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\198\ The model validation notice includes the disclosure
required by Sec. 1006.18(e)(1). As explained in the section-by-
section analysis of Sec. 1006.34(d)(2), new comment 34(d)(2)(i)-1
clarifies that a debt collector who uses the model notice to provide
a validation notice as described in Sec. 1006.34(a)(1)(i)(B) may
replace the disclosure required by Sec. 1006.18(e)(1) with the
disclosure required by Sec. 1006.18(e)(2) without losing the safe
harbor provided by use of the model notice.
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The consumer advocate commenter also recommended that the Bureau
require every validation notice to include a Spanish translation of the
FDCPA section 807(11) disclosure to assist Spanish-speaking consumers.
The Bureau declines to do so. Mandating that every debt collector
provide a Spanish translation of the disclosure is unnecessary for the
majority of consumers, who are not Spanish speakers. Further, a
mandatory translation could undermine the effectiveness of the other
validation information disclosures. Moreover, the November 2020 Final
Rule contained a targeted language access intervention on this topic.
Pursuant to Sec. 1006.18(e)(4) in that rule, debt collectors will be
required to make the FDCPA section 807(11) disclosure in the same
language or languages used for the rest of the communication in which
the disclosures are conveyed. Thus, if a debt collector provides a
consumer a
[[Page 5799]]
validation notice in Spanish pursuant to Sec. 1006.34(e), the debt
collector must include on that notice a Spanish translation of the
FDCPA section 807(11) disclosure.
Accordingly, the Bureau is finalizing Sec. 1006.34(c)(1) as
proposed and is finalizing new comment 34(c)(1)-1 as described above.
34(c)(2) Information About the Debt
Proposed Sec. 1006.34(c)(2) specified that certain information
about the debt and the parties related to the debt was required
validation information.\199\ The section-by-section analysis of
proposed Sec. 1006.34(c)(2)(i) through (x) discussed the specific
items of information, which were designed to help consumers recognize
debts and included existing disclosures. The Bureau addresses comments
related to specific disclosures in the section-by-section analysis of
Sec. 1006.34(c)(2)(i) through (x). In this section-by-section
analysis, the Bureau addresses comments related to Sec. 1006.34(c)(2)
more generally.
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\199\ 84 FR 23274, 23338-42, 23404 (May 21, 2019). Proposed
Sec. 1006.34(c)(5) set forth a special rule for information about
the debt for certain residential mortgage debt.
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Some commenters supported proposed Sec. 1006.34(c)(2). A consumer
advocate and a municipal government commenter stated that the proposed
validation information would help consumers determine whether they owe
a debt. A group of State Attorneys General stated that consumers today
do not consistently receive the information they need to identify
debts. According to these commenters, consumers routinely submit
complaints that they do not recognize the debts or creditors disclosed
on validation notices. An industry trade group stated that it would be
feasible for debt collectors to disclose the proposed information
because debt buyers routinely obtain such information at purchase.
Other commenters objected to proposed Sec. 1006.34(c)(2) and
suggested that consumers do not need information beyond what the FDCPA
expressly requires. An industry trade group stated, without providing
verifiable evidence, that most debts are valid and asserted that less
than one-half of 1 percent of debts lack a contractual basis or are
miscalculated. According to this commenter, the small number of debts
that are problematic can be resolved by consumers invoking their FDCPA
verification rights.
Other commenters who objected to proposed Sec. 1006.34(c)(2) cited
industry burden. For example, one industry commenter stated that
requiring debt collectors to disclose the proposed information about
the debt and parties related to the debt would increase costs for debt
collectors as well as for creditors. Another industry commenter
suggested that proposed Sec. 1006.34(c)(2) was not feasible because
debt collectors rely on creditors for account information and records.
According to this commenter, if creditors did not provide the
information, debt collectors would be unable to comply with Sec.
1006.34(c)(2).
Some commenters stated that the information proposed Sec.
1006.34(c)(2) would require might confuse consumers and questioned
whether it was supported by the Bureau's consumer testing.
Some commenters recommended that the Bureau revise proposed Sec.
1006.34(c)(2) to require additional validation information. Federal
government agency staff, a group of State Attorneys General, and a
government commenter suggested that the name of the original creditor
and the date of the original transaction should be required validation
information. A group of State Attorneys General suggested that the
Bureau require debt collectors to provide information about the debt as
of the charge-off date. Two associations representing State regulatory
agencies recommended that the Bureau require disclosure of a debt
collector's State license or registration number, such as the
Nationwide Multi-State Licensing System identification. According to
these commenters, requiring debt collectors to disclose license or
registration information would assist regulators examining for
compliance with State debt collection laws. In addition, a consumer
advocate, an industry trade group, and an industry commenter
recommended that, for medical debt, validation information should
include the facility name associated with the debt. According to these
commenters, a consumer may be more likely to recognize a facility where
treatment was provided than the name of the physician or healthcare
provider to whom the consumer owes the debt.
After considering the feedback, the Bureau has determined to
finalize Sec. 1006.34(c)(2). The Bureau determines that validation
notices in use today frequently lack sufficient information about the
debt and the parties related to the debt, and this lack of information
undermines the ability of consumers to determine whether they owe an
alleged debt. This conclusion is consistent with feedback from Federal
and State government commenters, including the FTC and a group of State
Attorneys General. The Bureau's testing also supports this
conclusion.\200\
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\200\ Certain information that Bureau qualitative testing
indicates helps consumers to recognize a debt--including a debt's
original account number or an itemization of interest and fees--may
not consistently appear on validation notices. See FMG Cognitive
Report, supra note 27, at 8-11.
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The Bureau determines that requiring debt collectors to disclose
the information about the debt and parties related to the debt in Sec.
1006.34(c)(2) is necessary. Industry commenters did not support their
claims about the relative infrequency of problematic debts with
verifiable evidence.\201\ In addition, a group of State Attorneys
General stated that consumers routinely complain that they do not
recognize debts being collected, and the Bureau's complaint statistics
indicate similar concerns about debts among consumers.\202\ Thus, the
Bureau is finalizing Sec. 1006.34(c)(2) to require information about
the debt and parties related to the debt.
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\201\ Even assuming one commenter's claim that only one-half of
1 percent of debts lack a contractual basis or are miscalculated,
this error rate would impact hundreds of thousands of consumers
annually. As the proposal noted, 49 million consumers are contacted
by debt collectors every year. See 84 FR 23274, 23382 n.656 (May 21,
2019). If one-half of 1 percent of these consumers received
validation notices for debts they did not owe, 245,000 consumers
could be impacted.
\202\ The most common debt collection complaint received by the
Bureau continues to be about attempts to collect a debt that the
consumer reports is not owed. See 2020 FDCPA Annual Report, supra
note 12, at 14. Consumers may report that a debt is not owed for a
variety of reasons including, but not limited to, that the debt is
being collected in error or that the consumer does not recognize the
debt.
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The Bureau also determines that Sec. 1006.34(c)(2) will not impose
undue industry burden. As discussed in part VII, while Sec.
1006.34(c)(2) may increase some costs for debt collectors, as well as
cause some indirect costs for creditors, the Bureau does not expect
these costs to be substantial. The Bureau disagrees that a significant
number of debt collectors will be unable to comply with Sec.
1006.34(c)(2). The Bureau acknowledges that debt collectors depend on
creditors to provide account information and that creditors will not be
required by the final rule to provide the information that Sec.
1006.34(c)(2) will require. Notwithstanding this fact, the Bureau has
received feedback that many creditors today make available much of the
information mandated by Sec. 1006.34(c)(2). To the extent that
creditors do not already provide debt collectors with this information,
the Bureau determines that creditors will be incentivized to do so
after Sec. 1006.34(c)(2)'s effective date because the debt collectors
they hire or sell debts to will be unable to legally collect without
it.
[[Page 5800]]
The Bureau determines that the information required by Sec.
1006.34(c)(2) will not confuse consumers. As discussed in part III.C,
the Bureau has validated the model validation notice and the validation
information contained therein through four rounds of consumer testing.
The Bureau declines the recommendation to add certain disclosures
to Sec. 1006.34(c)(2). First, the Bureau declines to require the name
of the original creditor and the date of the original transaction.
Requiring this additional information on validation notices may
overwhelm consumers, may be repetitive, or may otherwise not add to
consumer understanding because the validation information already
includes items such as the debt collector's name (Sec.
1006.34(c)(2)(i)), the name of the creditor to whom the debt was owed
on the itemization date (Sec. 1006.34(c)(2)(iii)), and the name of the
creditor to whom debt is currently owed (Sec. 1006.34(c)(2)(v)).
The Bureau also declines to tie information disclosure requirements
to the date that a debt was charged off because charge off is not
relevant to all debt types. However, as discussed in the section-by-
section analysis of Sec. 1006.34(b)(3)(ii), a debt collector may use
the charge-off date as the itemization date, in which case consumers
will receive information about the amount of the date as of the charge-
off date, as well as information about interest, fees, payments, and
credits since that date.\203\
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\203\ See the section-by-section analysis of Sec.
1006.34(c)(2)(vii) and (viii).
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The Bureau also declines to require a debt collector to disclose a
State license or registration number. If a debt collector is
specifically required by applicable law to disclose such information, a
debt collector may do so as an optional disclosure under final Sec.
1006.34(d)(3)(iv)(A).
The Bureau does agree that a facility name associated with a debt
may be helpful to consumers in the medical debt context. The Bureau is
not modifying Sec. 1006.34(c)(2) to require this information, but
final Sec. 1006.34(d)(3)(vii) permits debt collectors to include
facility name as an optional disclosure.
Accordingly, as noted above, the Bureau is finalizing Sec.
1006.34(c)(2) to require debt collectors to provide certain information
about the debt and the parties related to the debt. Except with respect
to final Sec. 1006.34(c)(2)(iii), the Bureau is finalizing Sec.
1006.34(c)(2) pursuant to its authority under FDCPA section 814(d) to
prescribe rules with respect to the collection of debts by debt
collectors and, as described more fully below, its authority to
implement and interpret FDCPA section 809. In addition, except with
respect to final Sec. 1006.34(c)(2)(v) and (ix), the Bureau is
finalizing Sec. 1006.34(c)(2) pursuant to its authority under section
1032(a) of the Dodd-Frank Act, on the basis that the validation
information describes the debt, which is a feature of debt collection.
34(c)(2)(i)
FDCPA section 809(b) provides that a consumer may notify a debt
collector in writing, within 30 days after receipt of the information
required by FDCPA section 809(a), that the consumer is exercising
certain verification rights, including the right to dispute the
debt.\204\ FDCPA section 809(a)(3) through (5), in turn, requires debt
collectors to disclose how consumers may exercise their verification
rights. The proposal stated that to notify a debt collector in writing
that the consumer is exercising the consumer's verification rights, the
consumer must have the debt collector's name and address.\205\ Proposed
Sec. 1006.34(c)(2)(i) therefore provided that the debt collector's
name and mailing address are required validation information.
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\204\ 15 U.S.C. 1692g(b).
\205\ 84 FR 23274, 23339, 23404 (May 21, 2019).
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Industry and industry trade group commenters recommended various
revisions to proposed Sec. 1006.34(c)(2)(i). First, some industry
trade group commenters suggested that the Bureau permit a debt
collector to disclose a trade name or doing-business-as name (DBA), in
lieu of the debt collector's legal name. According to these commenters,
because a debt collector may not use its legal name when communicating
with consumers, a consumer may be more likely to recognize the debt
collector's trade name or DBA.
Next, one industry trade group commenter recommended that the
Bureau permit a debt collector to disclose a vendor's mailing address
because some debt collectors do not receive mail from consumers at
their office locations and instead use letter vendors.
Finally, some industry and industry trade group commenters
recommended that the Bureau permit debt collectors to disclose multiple
addresses. Some of these commenters stated that debt collectors may use
separate addresses for payments and other correspondence, including
disputes. For example, an industry trade group stated that some clients
of debt collectors, including the Department of Education, do not
permit debt collectors to receive payments at their office locations
and instead require debt collectors to direct payments to a
``lockbox,'' which is a post office box administered by a third party
for the receipt of payments.
A consumer advocate asked the Bureau to modify proposed Sec.
1006.34(c)(2)(i) to require debt collectors to also disclose a
telephone number, an email address, and any other method the debt
collector uses for consumer communications.
After considering the feedback, the Bureau is adopting Sec.
1006.34(c)(2)(i) with a revision for clarity and is also adopting two
new comments to incorporate certain suggestions made by commenters.
As noted, some commenters suggested that debt collectors who use
multiple mailing addresses be permitted to include more than one
mailing address as validation information. The Bureau declines to
affirmatively permit the use of more than one mailing address as
validation information. As discussed in the proposal, the purpose of
validation information is to facilitate a consumer's exercise of their
rights in debt collection, namely, the right to dispute the debt or to
request original-creditor information. Accordingly, the mailing address
included in the validation information must be an address at which the
debt collector accepts disputes and original-creditor information
requests. The Bureau is revising Sec. 1006.34(c)(2)(i) to
affirmatively state this requirement. If a debt collector only accepts
payments at a different address than the address at which it accepts
disputes and original-creditor information requests, the Bureau notes
that the debt collector need not include payment disclosures with the
validation information; they are optional disclosures under Sec.
1006.34(d)(3)(iii).\206\ Moreover, if a debt collector omits the
optional payment disclosures, the validation
[[Page 5801]]
notice will continue to contain contact information for the debt
collector, including, at the debt collector's option, the debt
collector's telephone number pursuant to Sec. 1006.34(d)(3)(i), should
the consumer wish to reach out for payment information or to make a
payment.
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\206\ The Bureau also notes that nothing in Regulation F
prevents a debt collector from using a different mailing address in
communications that do not contain the validation information. For
example, if a debt collector accepts payments at a different
address, the payment address may be included in a separate
communication seeking payment. Additionally, as noted at the outset
of the section-by-section analysis of Sec. 1006.34, the Bureau is
not finalizing the proposed requirement that all validation notices
be substantially similar to the Bureau's model validation notice.
Therefore, a debt collector may include a separate payment address
on a validation notice, but a debt collector who does so will not
receive safe harbors pursuant to Sec. Sec. 1006.34(d)(2) and
1006.38(b)(2) and must otherwise comply with the FDCPA and
Regulation F.
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The Bureau is also adopting new comment 34(c)(2)(i)-1 to clarify
that a debt collector may disclose the debt collector's trade name or
DBA in lieu of the debt collector's legal name. The Bureau observes
that, in some cases, a debt collector's trade name or DBA may be more
recognizable to consumers than the debt collector's legal name. The
Bureau therefore determines that a debt collector may use its trade
name or DBA when communicating with consumers. However, when disclosing
a trade name or DBA, the debt collector may not do so in a manner that
violates the FDCPA section 807 prohibition on false or misleading
representations. For example, a debt collector may violate the FDCPA
and this final rule if the debt collector discloses a trade name or DBA
that falsely represents or implies that the debt collector is an
attorney, when that is not the case.\207\
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\207\ See 15 U.S.C. 1692e(3).
---------------------------------------------------------------------------
Second, the Bureau is adopting new comment 34(c)(2)(i)-2 to clarify
that a debt collector may disclose a vendor's mailing address, if that
is an address at which the debt collector accepts disputes and requests
for original-creditor information. As one commenter observed, some debt
collectors may use a vendor to receive mail from consumers. The Bureau
is finalizing comment 34(c)(2)(i)-2 to accommodate this business
practice.
The Bureau declines to adopt the recommendation of some commenters
to require debt collectors to disclose other contact methods, including
a telephone number or an email address. The FDCPA does not require debt
collectors to communicate by telephone or email. However, as noted,
Sec. 1006.34(d)(3)(i) permits a debt collector to disclose the debt
collector's telephone number. Likewise, Sec. 1006.34(d)(3)(v)(A),
permits a debt collector to disclose the debt collector's website and
email address.
34(c)(2)(ii)
FDCPA section 809(a) requires debt collectors to disclose
information about the debt that helps consumers identify the debt and
facilitates resolution of the debt. The proposal stated that, like the
information FDCPA section 809(a) expressly requires, the consumer's
name and address is essential information about the debt that may help
a consumer determine whether the consumer owes a debt and is the
intended recipient of a validation notice.\208\ The Bureau therefore
proposed Sec. 1006.34(c)(2)(ii) to provide that the consumer's name
and mailing address is required validation information. As discussed
below, proposed comment 34(c)(2)(ii)-1 clarified the meaning of the
term ``consumer's name.''
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\208\ 84 FR 23274, 23339 (May 21, 2019).
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A consumer advocate and an industry trade group expressed overall
support for the proposed provision. The consumer advocate stated that
consumer name information would help a consumer identify an alleged
debt. The consumer advocate also stated that complete name
information--such as a first name, middle name, last name, and suffix--
would help consumers determine whether a debt collector is seeking a
different consumer with a similar name. According to the industry trade
group, it would be unreasonable for a debt collector to omit known name
information. For the reasons discussed in the proposal, the Bureau is
finalizing Sec. 1006.34(c)(2)(ii) as proposed.
Proposed comment 34(c)(2)(ii)-1 clarified that the consumer's name
should reflect what the debt collector reasonably determines is the
most complete version of the name information about which the debt
collector has knowledge, whether obtained from the creditor or another
source. Proposed comment 34(c)(2)(ii)-1 further explained that a debt
collector would not be able to omit name information in a manner that
would create a false, misleading, or confusing impression about the
consumer's identity and provided an example.
Some commenters raised concerns about proposed comment
34(c)(2)(ii)-1. A number of industry and industry trade group
commenters objected to the statement that debt collectors would be
required to determine the most complete version of the name about which
the debt collector has knowledge, whether obtained from the creditor or
another source. These commenters stated that the reference to ``another
source'' was ambiguous and would create litigation risk and compel debt
collectors to conduct open-ended research about a consumer's name.
Several commenters urged the Bureau to omit the reference to ``another
source.''
The Bureau is finalizing comment 34(c)(2)-1 with revisions in
response to feedback and for clarity. First, the Bureau is deleting the
phrase ``whether obtained from the creditor or another source.'' This
phrase is unnecessary as it does not alter the fundamental expectation
that a debt collector will disclose the most complete and accurate name
about which the debt collector has knowledge. In addition, the Bureau
determines that the reference to ``another source'' is ambiguous and
may create unjustified litigation risk and industry burden.
Second, the Bureau is revising the comment to clarify that a debt
collector must reasonably determine ``the most complete and accurate
version'' of a consumer's name. The Bureau intended that a debt
collector would be required to disclose ``accurate'' consumer name
information, but proposed comment 34(c)(2)-1 only referred to ``the
most complete version'' of the consumer's name. Finally, the Bureau has
elaborated on the example of a debt collector omitting a consumer's
name information.
34(c)(2)(iii) \209\
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\209\ Proposed Sec. 1006.34(c)(2)(iii) generally provided that
the merchant brand, if any, associated with a credit card debt was
required validation information. The Bureau is finalizing merchant
brand information as an optional disclosure. See the section-by-
section analysis of Sec. 1006.34(d)(3)(vii). The Bureau therefore
is finalizing proposed Sec. 1006.34(c)(2)(iv) through (x) as Sec.
1006.34(c)(2)(iii) through (ix).
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FDCPA section 809(a)(2), which requires debt collectors to disclose
to consumers the name of the creditor to whom the debt is owed,
typically is understood to refer to the current creditor.\210\ As the
proposal stated, if the original creditor (or the creditor as of the
itemization date) and the current creditor are the same, a consumer is
more likely to recognize the creditor's name. If they are different,
however, a consumer may be less likely to recognize the current
creditor than the name of the creditor as of the itemization date.
Proposed Sec. 1006.34(c)(2)(iv) provided that, if a debt collector is
collecting a consumer financial product or service debt (as that term
was defined in proposed Sec. 1006.2(f)), the name of the creditor to
whom the debt was owed on the itemization date is required validation
information.\211\ For the reasons discussed below, the Bureau is
finalizing proposed Sec. 1006.34(c)(2)(iv) with minor wording changes
and renumbered as Sec. 1006.34(c)(2)(iii), and is adopting new comment
34(c)(2)(iii)-1 to clarify that a debt collector may disclose the trade
name or DBA of the creditor to whom the debt was owed on the
itemization date.
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\210\ See 15 U.S.C. 1692g(a)(2). See the section-by-section
analysis of Sec. 1006.34(c)(2)(v).
\211\ 84 FR 23274, 23404 (May 21, 2019).
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[[Page 5802]]
An industry trade group commenter expressed support for requiring
debt collectors to disclose the creditor to whom the debt was owed on
the itemization date but asked the Bureau to clarify that a debt
collector may disclose this creditor's trade name or DBA, as opposed to
its legal name, which a consumer may not recognize.
A consumer advocate objected to the proposal because a consumer may
not recognize the creditor to whom the debt was owed on the itemization
date. According to the commenter, in some cases, the itemization date
may have occurred years after the debt was incurred. And, particularly
if the debt was transferred before the itemization date, the consumer
may not recognize the creditor as of that date. As an alternative, the
commenter suggested that a debt collector be required to disclose the
name of the original creditor.
As discussed in the section-by-section analysis of Sec.
1006.34(c)(2)(i), an entity's trade name or DBA may be more
recognizable to consumers than an entity's legal name. It may be
appropriate for a debt collector to disclose a creditor's trade name or
DBA, in lieu of the creditor's legal name, when communicating with
consumers. Thus, the Bureau is adopting new comment 34(c)(2)(iii)-1 to
clarify that a debt collector may disclose as validation information
the trade name or DBA of the creditor to whom the debt was owed on the
itemization date.
The Bureau declines to require a debt collector to disclose the
name of the original creditor as validation information under Sec.
1006.34(c). FDCPA section 809(a)(5) and (b) require a debt collector to
provide the name and address of the original creditor in response to a
consumer request. While the Bureau acknowledges that, in some cases, a
consumer may not recognize the creditor to whom the debt was owed on
the itemization date, this information will still benefit some
consumers. For an older debt or a debt that has been transferred,
consumers may be more likely to recognize the creditor as of the
itemization date than the current creditor.
Accordingly, the Bureau is finalizing Sec. 1006.34(c)(2)(iii) to
provide that, if the debt collector is collecting debt related to a
consumer financial product or service as defined in Sec. 1006.2(f),
the name of the creditor to whom the debt was owed on the itemization
date is required validation information. In addition, the Bureau is
finalizing comment 34(c)(2)(iii)-1 to clarify that a debt collector may
disclose the trade name or DBA of the creditor to whom the debt was
owed on the itemization date.
34(c)(2)(iv)
The purpose of FDCPA section 809 is to ``eliminate the recurring
problem of debt collectors dunning the wrong person or attempting to
collect debts which the consumer has already paid.'' \212\ Consistent
with the FDCPA's purpose, FDCPA section 809(a) requires debt collectors
to disclose to consumers certain information, such as the amount of the
debt, to help consumers identify debts. According to the proposal, an
account number associated with a debt on the itemization date may be
integral information that a consumer uses to identify the debt.\213\
The Bureau proposed Sec. 1006.34(c)(2)(v) to provide that the account
number, if any, associated with the debt on the itemization date, or a
truncated version of that number, is required validation information.
Proposed comment 34(c)(2)(v)-1 explained that a debt collector may
truncate an account number provided that the account number remains
recognizable. For the reasons discussed below, the Bureau is adopting
proposed Sec. 1006.34(c)(2)(v), renumbered as Sec. 1006.34(c)(2)(iv),
and its related commentary with minor wording changes.
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\212\ S. Rep. No. 382, supra note 57, at 4.
\213\ 84 FR 23274, 23340 (May 21, 2019).
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Industry commenters, a consumer advocate, and a group of State
Attorneys General, expressed overall support for proposed Sec.
1006.34(c)(2)(v). However, one industry commenter recommended that the
Bureau exempt debt collectors collecting residential mortgage debt from
the requirement to disclose an account number. According to the
commenter, the account number for a residential mortgage that has had a
servicing transfer may not be the current account number, which might
confuse consumers.
The Bureau concludes that an account number associated with a debt
on the itemization date may help some consumers recognize the debt. The
Bureau declines to adopt the recommendation to exempt debt collectors
collecting residential mortgage debt from disclosing an account number.
As discussed in the section-by-section analysis of Sec. 1006.34(b)(3),
the Bureau has determined that the reference dates that a debt
collector may use to determine the itemization date may be meaningful
to consumers because they correspond to a notable event in the debt's
history that consumers may recall or be able to verify with records. By
extension, the Bureau determines that an account number associated with
a debt as of one of those dates will also likely resonate with a
consumer, even if it is not the current account number.
Accordingly, the Bureau is finalizing Sec. 1006.34(c)(2)(iv) and
its related commentary largely as proposed, with only minor wording
changes to the commentary for clarity. No substantive change is
intended.
34(c)(2)(v)
FDCPA section 809(a)(2) requires debt collectors to disclose to
consumers the name of the creditor to whom the debt is owed.\214\ By
using the present tense ``is owed,'' the statute appears to refer to
the creditor to whom the debt is owed when the debt collector makes the
disclosure.\215\ The Bureau proposed Sec. 1006.34(c)(2)(vi) to provide
that the name of the current creditor is required validation
information. For the reasons discussed below, the Bureau is finalizing
the proposal, renumbered as Sec. 1006.34(c)(2)(v), and is adopting new
comment 34(c)(2)(v)-1 to clarify that a debt collector may disclose the
trade name or DBA of the creditor to whom the debt is currently owed,
instead of its legal name.
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\214\ See 15 U.S.C. 1692g(a)(2).
\215\ 84 FR 23274, 23341 (May 21, 2019).
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The Bureau received no comments specifically addressing proposed
Sec. 1006.34(c)(2)(vi) and is finalizing it as proposed but renumbered
as Sec. 1006.34(c)(2)(v). An industry trade group commenter
recommended that the Bureau permit debt collectors to disclose, along
with the required validation information, all current and past
creditors associated with the debt. According to the commenter, some
creditors, such as healthcare and financial services providers, may
have multiple sub-entities with different corporate names. This
commenter suggested that disclosing more names of creditors will
increase the likelihood that a consumer will recognize one of them.
The Bureau declines to adopt this recommendation. Disclosing all
current and past creditors along with the validation information could
overwhelm and confuse consumers.\216\ Thus, as discussed in the
section-by-section analysis of Sec. 1006.34(c), the Bureau is
requiring debt collectors to
[[Page 5803]]
disclose as validation information only two creditors: The creditor to
whom the debt was owed on the itemization date (Sec.
1006.34(c)(2)(iii)) and the creditor to whom the debt is currently owed
(Sec. 1006.34(c)(2)(v)). Nothing in the final rule prohibits a debt
collector from including the name of another creditor on a validation
notice, but a debt collector who does so will not receive the Sec.
1006.34(d)(2) safe harbor and will risk not complying with the
requirements of Sec. 1006.34, including the Sec. 1006.34(b)(1) clear
and conspicuous standard.
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\216\ During one round of cognitive testing, participants were
shown disclosure language that included a list of prior creditors.
Confusion was observed when participants tried to explain the
difference between prior and current creditors. The unclear
relationship between creditors was highlighted when participants
attempted to identify the creditor that currently owned the debt.
See FMG Cognitive Report, supra note 27, at 3-4.
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As discussed in the section-by-section analysis of Sec.
1006.34(c)(2)(i) and (iii), the Bureau is finalizing new comments
34(c)(2)(i)-1 and 34(c)(2)(iii)-1 to clarify that a debt collector may
disclose an entity's trade name or DBA, instead of its legal name. The
Bureau concludes that it is also appropriate to permit a debt collector
to disclose the trade name or DBA of a current creditor. Thus, the
Bureau is adopting new comment 34(c)(2)(v)-1 to clarify that a debt
collector may disclose the trade name or a DBA of the creditor to whom
the debt is currently owed, instead of its legal name.
34(c)(2)(vi)
FDCPA section 809(a)(1) requires debt collectors to disclose to
consumers the amount of the debt.\217\ In Sec. 1006.34(c)(2)(viii),
the Bureau proposed to interpret FDCPA section 809(a)(1), and to use
its authority under Dodd-Frank Act section 1032(a), to provide that the
amount of the debt on the itemization date is required validation
information.\218\ Consistent with proposed Sec. 1006.34(c)(2)(viii),
the Bureau proposed Sec. 1006.34(c)(2)(vii) to provide that the
itemization date, as defined in Sec. 1006.34(b)(3), also is required
validation information. For the reasons discussed below, the Bureau is
finalizing Sec. 1006.34(c)(2)(vii) as proposed but renumbered as Sec.
1006.34(c)(2)(vi).
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\217\ See 15 U.S.C. 1692g(a)(1).
\218\ 84 FR 23274, 23341 (May 21, 2019).
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Several commenters, including an industry commenter, an industry
trade group commenter, and a group of consumer advocates, stated that
the itemization date may not be meaningful to consumers or help them
recognize debts, if disclosed without an explanation of its relevance.
These commenters, along with Federal government agency staff,
recommended requiring debt collectors to disclose with the itemization
date a statement explaining which reference date the debt collector
used to determine that date.\219\
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\219\ As discussed in the section-by-section analysis of Sec.
1006.34(b)(3), the Bureau defines itemization date to mean one of
five reference dates for which a debt collector can ascertain the
amount of the debt.
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The Bureau declines to adopt this recommendation. As discussed in
the section-by-section analysis of Sec. 1006.34(b)(3), the Bureau
determines that the reference dates that a debt collector may use to
determine the itemization date have a significant likelihood of being
meaningful to consumers because they correspond to notable events in a
debt's history that consumers may recall or be able to verify with
records. Because each of the reference dates may be meaningful to
consumers, the Bureau determines that no additional disclosure
explaining their relevance is necessary. Moreover, the Bureau
determines that an additional disclosure explaining the reference date
may confuse or overwhelm some consumers. While a debt collector likely
could describe some reference dates (e.g., a last statement date) in a
straightforward manner, other reference dates (e.g., the charge-off
date and the transaction date) do not lend themselves to a succinct
explanation. That is because some reference dates reflect financial
concepts that are inherently complex (i.e., charge off) or that could
vary by debt type and the facts and circumstances surrounding a
particular debt (i.e., transaction dates). For such reference dates, a
statement explaining their relevance could distract or confuse
consumers, thereby undermining the efficacy of the other validation
information.
34(c)(2)(vii)
As noted, FDCPA section 809(a)(1) requires debt collectors to
disclose to consumers the amount of the debt. As discussed in the
proposal, the phrase ``the amount of the debt'' is ambiguous; it does
not specify which debt amount is being referred to, even though the
debt amount may change over time. As also discussed in the proposal,
consumers may recognize the amount of the debt as of the itemization
date (as the Bureau proposed to define that term in Sec.
1006.34(b)(3)). Because the amount of the debt on the itemization date
may help a consumer recognize a debt and determine whether the amount
of a debt is accurate, the Bureau proposed to interpret FDCPA section
809(a)(1), and to use its authority under Dodd-Frank Act section
1032(a), to provide in proposed Sec. 1006.34(c)(2)(viii) that the
amount of the debt on the itemization date is required validation
information.\220\ Proposed comment 34(c)(2)(viii)-1 explained that this
amount includes any fees, interest, or other charges owed as of the
itemization date.
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\220\ 84 FR 23274, 23341 (May 21, 2019). As proposed, the Bureau
is finalizing Sec. 1006.34(c)(2)(ix) (renumbered from proposed
Sec. 1006.34(c)(2)(x)) separately to provide that the current
amount of the debt also is required validation information.
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An industry commenter questioned whether proposed Sec.
1006.34(c)(2)(viii) would significantly improve consumer understanding.
According to the commenter, if a debt collector determines the
itemization date based on the last statement date pursuant to Sec.
1006.34(b)(3)(i), and if the debt is placed for collection shortly
after the last statement was provided, the current amount of the debt
(which the Bureau proposed as a separate item of required validation
information) and the amount of the debt on the itemization date would
be approximately the same. The commenter stated that, in this scenario,
disclosing the amount of the debt on the itemization date would not
benefit the consumer.
The Bureau acknowledges that, for a given debt, the amount owed on
the itemization date and the current amount of the debt may be similar
or even the same. However, as discussed below in the section-by-section
analysis of final Sec. 1006.34(c)(2)(viii), even in these cases, the
itemization of the debt will still be required, and, as clarified in
final comment 34(c)(2)(viii)-1, the itemization (if the amounts are the
same) will show $0 in interest, fees, payments, and credits. As such,
it should be clear to the consumer why the two amounts are the same. In
many other cases, these amounts will differ, sometimes substantially.
In these cases, the amount of the debt on the itemization date will
help consumers recognize or evaluate the debt.
For these reasons, the Bureau is finalizing Sec.
1006.34(c)(2)(viii) and its related commentary as proposed but
renumbered as Sec. 1006.34(c)(2)(vii).
34(c)(2)(viii)
As noted, FDCPA section 809(a)(1) requires a debt collector to
disclose to consumers the amount of the debt. As discussed, the Bureau
proposed to implement and interpret FDCPA section 809(a)(1) to provide
that debt collectors must disclose to consumers both the amount of the
debt on the itemization date and the current amount of the debt (i.e.,
the amount of the debt on the date that the validation information is
[[Page 5804]]
provided).\221\ In conjunction with the amount of the debt on the
itemization date and the current amount of the debt, the Bureau
proposed Sec. 1006.34(c)(2)(ix) to provide that an itemization of the
current amount of the debt, in a tabular format reflecting interest,
fees, payments, and credits since the itemization date, is required
validation information. Proposed comment 34(c)(2)(ix)-1 clarified how
debt collectors could disclose that no interest, fees, payments, or
credits were assessed or applied to a debt.
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\221\ 84 FR 23274, 23341 (May 21, 2019).
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For the reasons discussed below, the Bureau is finalizing the
proposal, renumbered as Sec. 1006.34(c)(2)(viii), with revisions to
permit debt collectors to disclose the itemization on a separate page
provided in the same communication with a validation notice, if the
debt collector includes on the validation notice, where the itemization
would have appeared, a statement referring to that separate page. The
Bureau also is finalizing comment 34(c)(2)(ix)-1 with a substantive
modification and renumbered as comment 34(c)(2)(viii)-1, and is
adopting new comments 34(c)(2)(viii)-2 through-4 to clarify other
aspects of final Sec. 1006.34(c)(2)(viii).
Commenters offered differing opinions regarding proposed Sec.
1006.34(c)(2)(ix). A group of State Attorneys General, Federal
government agency staff, consumer advocate commenters, some industry
trade group commenters, and at least one industry commenter supported
the proposed provision. These commenters generally agreed that an
itemization of the debt would help consumers recognize an alleged debt
and understand how the debt had evolved over time due to interest,
fees, payments, and credits. Further, the Bureau received feedback that
the proposal was consistent with some industry practice. For instance,
a commenter noted an industry certification standard that, during the
sales of certain debt types, requires debt buyers to obtain or provide
the unpaid balance due on the account, with a breakdown of the post-
charge-off balance, interest, fees, payments, and credits or
adjustments.\222\
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\222\ See Receivables Mgmt. Ass'n Int'l, Receivables Management
Certification Program, at 41-45 (Mar. 1, 2020), https://rmaintl.org/RMCP (last visited Dec. 9, 2020).
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The majority of industry and industry trade group commenters
objected to proposed Sec. 1006.34(c)(2)(ix). Some such commenters
stated that the proposed itemization requirement would be burdensome.
According to several industry commenters, debt collectors would either
have to manually access itemization information in creditor files or
implement costly information technology solutions to comply with the
proposed requirement. Some industry commenters, industry trade groups,
and the SBA argued that the proposed requirement would impose burdens
on creditors. Commenters stated that some creditors may not maintain
all of the itemization information that the proposal would require or
do not typically provide itemization information at placement and that
to do so would involve significant expense. Some commenters speculated
that, to avoid such costs, creditors might refer fewer accounts for
collection or file more collections lawsuits against consumers. The
SBA, an industry trade group, and industry commenters argued that
compliance costs could be onerous for smaller creditors and debt
collectors. For the most part, commenters offered qualitative
assessments of industry burden, but one industry trade group did
estimate that proposed Sec. 1006.34(c)(2)(ix) would impose billions of
dollars in compliance costs on industry.\223\
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\223\ One industry trade group estimated that an itemization
requirement would cost $600 million in professional fees to conduct
legal analyses of HIPAA compliance for medical debt, $30 million for
one-time system reprogramming for debt collectors, and $3 billion
for one-time system reprogramming for creditors. The proposal
allegedly would also result in billions of dollars in ongoing
support costs and uncompensated medical care because, according to
the commenter, the proposed requirement, if adopted, would increase
the risks that hospitals might be unable to use debt collectors.
---------------------------------------------------------------------------
Some commenters stated that proposed Sec. 1006.34(c)(2)(ix) is
unnecessary or unhelpful. Multiple industry commenters asserted that an
itemization is superfluous because consumers can exercise their FDCPA
section 809 verification rights to receive more account information if
desired. With respect to medical debt, an industry trade group stated
that proposed Sec. 1006.34(c)(2)(ix) is unnecessary because the
Internal Revenue Service (IRS) requires non-profit hospitals to send
letters with itemized information to consumers, and health insurance
companies routinely mail to responsible parties ``Explanation of
Benefits'' documents that provide details about coverage, payments, and
co-pays. Some commenters expressed concern that proposed Sec.
1006.34(c)(2)(ix) could increase legal risk for debt collectors if the
itemization information confused consumers. At least one industry
commenter stated that the Bureau's consumer testing did not support
proposed Sec. 1006.34(c)(2)(ix) because the testing did not involve
actual consumers assessing debts in a real-world setting.
A few industry commenters objected to proposed Sec.
1006.34(c)(2)(ix) because the FDCPA does not expressly require an
itemization of the current amount of the debt.
Some industry and industry trade group commenters objected to
proposed Sec. 1006.34(c)(2)(ix) because the itemization that appears
on the model validation notice is formatted for a single debt.
According to commenters, the proposal would not accommodate debt
collectors who combine multiple debts in a single validation notice.
Several commenters stated that not permitting debt collectors to
include multiple debts in one validation notice would dramatically
increase the volume of mail sent to consumers and would require
consumers to exercise their verification rights for each individual
debt in the event that a consumer has a global dispute. Industry and
industry trade group commenters stated that the inability to combine
multiple debts would be particularly challenging for medical debt
collectors. According to some commenters, healthcare providers
routinely combine multiple debts, in part because they utilize family
billing, which involves combining the separate bills for family members
of a primary insured party. Commenters stated that itemizations for
medical debt may be further complicated by the fact that healthcare
providers typically do not maintain a rolling total of charges for a
general service and instead individually bill for each good or service
provided. At least one trade group stated that student loan debt
presents comparable itemization-related challenges because student loan
debt may be provided through multiple disbursements with separate
account numbers.
An industry trade group suggested that proposed Sec.
1006.34(c)(2)(ix) would not accommodate debts in bankruptcy. According
to the commenter, the proposal did not have the specificity necessary
to account for how the Bankruptcy Code permits a debtor to cure pre-
bankruptcy defaults over the term of the bankruptcy plan while
maintaining regular post-bankruptcy payments. In addition, the
commenter argued, the proposal would not accommodate the nuances that
arise in the context of certain bankruptcy scenarios, such as a
cramdown plan or a lien strip.\224\
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\224\ Pursuant to 11 U.S.C. 1322(b)(5), a bankruptcy court may
change the underlying terms of a debt, which is referred to as a
``cramdown.'' Pursuant to 11 U.S.C. 1322(c)(2), a secured claim can
be converted to an unsecured claim, which is referred to as a ``lien
strip.''
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[[Page 5805]]
With regard to medical debt, industry commenters, an industry trade
group, and the SBA stated that healthcare providers might violate the
Health Insurance Portability and Accountability Act of 1996 (HIPAA)
\225\ Privacy Rule if they provided the proposed itemization.\226\
According to these commenters, proposed Sec. 1006.34(c)(2)(ix) would
require debt collectors to disclose more information than the minimum
necessary for treatment of the patient, payment of the bill, or
healthcare operations, in violation of HIPAA.
---------------------------------------------------------------------------
\225\ Public Law 104-191, 110 Stat. 1936 (1996).
\226\ 45 CFR part 160 and part 164 subparts A and E.
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Commenters recommended various modifications to proposed Sec.
1006.34(c)(2)(ix). Industry and industry trade group commenters
suggested that debt collectors should not need to comply with proposed
Sec. 1006.34(c)(2)(ix) if interest and fees are not charged on an
account.\227\ An industry commenter stated that debt collectors should
be permitted to indicate ``U'' for ``unknown'' or ``unavailable'' in
fields for which a creditor did not provide the relevant information.
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\227\ In addition, an industry trade group suggested that debt
collectors should not be required to comply with the itemization
requirement for pre-charge-off debts, particularly if periodic
statements continue to be provided. The Bureau notes that, in many
cases, a person collecting a debt that was not in default at the
time it was obtained by such person will not be a debt collector
subject to the FDCPA or Regulation F. See FDCPA section
803(6)(F)(iii), 15 U.S.C. 1692a(6)(F)(iii).
---------------------------------------------------------------------------
Several commenters asked the Bureau to clarify the proposal. An
industry commenter asked how a debt collector could disclose third-
party payments or insurance adjustments, particularly in the context of
medical debt. An industry trade group sought additional guidance about
how to disclose balance increases that are not caused by interest or
fees, such as a balance increase caused by a returned payment. Noting
the existence of validation notice itemization requirements imposed by
other applicable law, such as New York State regulations, two industry
trade groups requested guidance about how a debt collector should
simultaneously comply with those requirements and proposed Sec.
1006.34(c)(2)(ix).\228\
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\228\ See 23 NYCRR 1.2(b)(2).
---------------------------------------------------------------------------
With respect to the Bureau's request for comment about whether the
proposed itemization should be more detailed--for example, by
reflecting each fee charged and each payment received--or whether
certain itemization categories should be combined as proposed, industry
commenters suggested that the Bureau not deviate from the proposal. For
instance, a commenter stated that, in the context of medical debts,
listing all payments and credits individually could result in multiple
additional pages because of the number of third-party payments. In
contrast, citing the Bureau's consumer testing, an academic commenter
argued that the itemization should be more detailed because consumers
prefer to see penalties and fees broken down into individual
charges.\229\
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\229\ FMG Summary Report, supra note 29.
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After considering these comments, and for the reasons discussed
below, the Bureau is adopting the proposed requirement, renumbered as
Sec. 1006.34(c)(2)(viii), with revisions to provide that validation
information includes an itemization of the current amount of the debt
reflecting interest, fees, payments, and credits since the itemization
date. Final Sec. 1006.34(c)(2)(viii) further provides that a debt
collector may disclose the itemization on a separate page provided in
the same communication with a validation notice, if the debt collector
includes on the validation notice, where the itemization would have
appeared, a statement referring to that separate page.
The Bureau determines that an itemization of the debt will help a
significant number of consumers recognize whether they owe a debt and
evaluate whether the debt is accurate, because the itemization will
disclose how the amount may have changed over time due, for example, to
interest, fees, payments, and credits that have been assessed or
applied to the debt.
The Bureau determines that Sec. 1006.34(c)(2)(viii) will not
create undue industry burden in light of modifications made in response
to comments.\230\ The Bureau acknowledges that complying with the
itemization requirement may result in some additional costs to debt
collectors, particularly if they do not currently provide itemization
information at placement or on validation notices, as well as in some
indirect costs to creditors. However, the Bureau concludes that these
costs will not substantially impact companies' business operations
because the final rule provides sufficient flexibility to debt
collectors to tailor the itemization to specific business practices and
types of debt. Accordingly, the Bureau does not conclude, as some
commenters suggested, that the itemization requirement will result in
creditors referring significantly fewer accounts for collections or
filing more lawsuits against consumers.\231\
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\230\ For example, as noted in the section-by-section analysis
of Sec. 1006.34(b)(3)(i), a creditor or a third-party servicer
acting on the creditor's behalf may issue a statement even after the
debt has gone into collection. In that case, under Sec.
1006.34(b)(3)(i), that new statement may serve as the last statement
for purposes of the itemization date.
\231\ An industry trade group cited an article to suggest that
collection lawsuits nearly doubled in New York City since 2015
because of New York State's debt collection rules, which mandate an
itemization. See Yuka Hayashi, Debt Collectors Wage a Comeback, Wall
Street Journal (July 5, 2019). The Bureau notes that the article did
not cite a connection between higher rates of lawsuits and the
itemization requirement. Instead, the article discussed the
phenomenon of increasing lawsuits nationwide, including in States
like Texas, which had not recently introduced a significant debt
collection rule.
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Although several commenters stated that the required itemization
information may not be available for every debt, the Bureau notes that
the itemization of the debt is based on the type of routine account
information that debt collectors typically provide in response to
consumer verification requests and that, as such, debt collectors
should be able to obtain such information to comply with the final
rule. While some debt collectors do not currently provide this itemized
information at the outset of collection communications, providing such
itemization information to consumers already is considered a best
practice in some segments of the debt buying industry, including for
credit card debt and student loan debt.\232\ Further, debt collectors
are already required to disclose an itemization for some types of debt
in at least one jurisdiction, New York State.\233\
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\232\ See Receivables Mgmt. Ass'n Int'l, Receivables Management
Certification Program, at 41-45 (Mar. 1, 2020), https://rmaintl.org/RMCP (last visited Dec. 9, 2020).
\233\ See 23 NYCRR 1.2(b) (requiring debt collectors to provide
an itemized accounting of the debt within five days after the
initial communication with a consumer in connection with the
collection of certain types of charged-off debt, such as credit card
debt).
---------------------------------------------------------------------------
In addition, as discussed in the section-by-section analysis of
Sec. 1006.34(b)(3), the final rule's itemization date definition
permits debt collectors to select an itemization date that is feasible
for the type of debt in collection and the information debt collectors
receive. And Sec. 1006.34(c)(2)(viii) requires itemization of fees,
interest, and credits only subsequent to the selected itemization date.
Thus, for example, if a debt collector selects the last statement date
as the itemization date under Sec. 1006.34(b)(3), and if the creditor
has
[[Page 5806]]
recently issued a statement to the consumer, the debt collector need
only obtain and provide to the consumer an itemization with fees,
interest, and credits subsequent to that last statement date. And, as
discussed in the section-by-section analysis of Sec. 1006.34(d)(2), a
debt collector may provide the itemization on a separate page and
retain the safe harbor for the rest of the validation notice. For all
of these reasons, the Bureau concludes that the final rule will not
impose undue burdens on debt collectors and will provide consumers with
useful information. The Bureau will monitor whether the itemization
date definition, including the last statement date definition, meets
these goals.
The Bureau disagrees that Sec. 1006.34(c)(2)(viii) is unnecessary
or unhelpful. The verification rights afforded by FDCPA section 809 are
an important statutory protection; however, they do not serve the same
purpose or provide an adequate substitute to the itemization of the
debt that Sec. 1006.34(c)(2)(viii) will require. The Bureau disagrees
that an itemization of the current amount of the debt is unnecessary
for medical debt, as some commenters argued. Although some non-profit
hospitals or insurance companies may provide itemization information to
some consumers, commenters did not suggest, and the Bureau is not aware
of other evidence indicating, that all consumers with medical debt
receive itemization information such that Sec. 1006.34(c)(2)(viii)
would be unnecessary. The Bureau also disagrees with comments that an
itemization will confuse consumers. As the proposal noted, the Bureau's
qualitative consumer testing indicates that an itemization improves
consumer understanding about the debt.\234\
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\234\ See 84 FR 23274, 23341 (May 21, 2019); FMG Usability
Report, supra note 28, at 16-19.
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The Bureau also disagrees that the FDCPA's not expressly requiring
an itemization is a sufficient reason for the Bureau not to require it
by rule. The Bureau proposed and is finalizing the itemization
requirement pursuant to its authority to interpret FDCPA section
809(a), as well as pursuant to its authority under Dodd-Frank Act
section 1032(a) to prescribe rules to ensure that the features of debt
collection are fully, accurately, and effectively disclosed to
consumers.
The Bureau is revising Sec. 1006.34(c)(2)(viii) to permit debt
collectors to disclose the itemization on a separate page.\235\ The
itemization that appears on the model validation notice may not
accommodate all debt types in every instance. Some debt collectors may
have legitimate reasons to combine multiple debts on a single
validation notice. This may be the case with respect to medical debt
(for instance, owing to healthcare provider billing practices) and
student loan debt (because consumers may receive loans through multiple
disbursements with separate account numbers). As finalized, Sec.
1006.34(c)(2)(viii) states that a debt collector may disclose the
itemization on a separate page provided in the same communication with
a validation notice, if the debt collector includes on the validation
notice, where the itemization would have appeared, a statement
referring to that separate page.\236\ New comment 34(c)(2)(viii)-3
clarifies that a debt collector may comply with the requirement to
refer to the separate page by, for example, including on the validation
notice the statement, ``See the enclosed separate page for an
itemization of the debt,'' situated next to the information about the
current amount of the debt required by Sec. 1006.34(c)(2)(ix).\237\
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\235\ Under Sec. 1006.34(d)(2)(ii), a debt collector who
otherwise uses the model validation notice or a substantially
similar form, but who provides the itemization of the current amount
of the debt on separate page, receives a safe harbor for compliance
with the information and form requirements of Sec. 1006.34(c) and
(d)(1) except with respect to the itemization that appears on the
separate page.
\236\ For example, when delivering a validation notice by mail,
a debt collector may include the separate itemization in the same
envelope as the validation notice. Similarly, when delivering a
validation notice electronically, a debt collector may include the
separate itemization in the same email as the validation notice.
\237\ Section 1006.34(d)(2)(iii) establishes that a debt
collector who uses the model validation notice and who provides an
itemization on a separate page receives a safe harbor for compliance
with the information and form requirements of Sec. 1006.34(c) and
(d)(1), except with respect to the disclosures that appear on the
separate page.
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The Bureau is making an additional change to Sec.
1006.34(c)(2)(viii). As finalized, Sec. 1006.34(c)(2)(viii) omits the
proposed language that an itemization must be ``in a tabular format.''
The Bureau determined that it is unnecessary and unwarranted to mandate
the use of a tabular format because, if the itemization information is
provided on a separate page or orally, using a tabular format may be
impractical or infeasible and, if the itemization information is
provided on a validation notice, debt collectors likely will use the
tabular format shown on the model notice such that they may receive a
safe harbor for compliance with the information and form requirements
of Sec. 1006.34(c) and (d)(1).
To accommodate debt collectors who wish to combine multiple debts
on a single validation notice, the Bureau is adopting new comment
34(c)(2)(viii)-4 to clarify that a debt collector who combines multiple
debts on a single validation notice complies with Sec.
1006.34(c)(2)(viii) by disclosing either a single, cumulative
itemization on the validation notice or a separate itemization of each
debt on a separate page or pages provided in the same communication as
the validation notice.\238\
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\238\ Relatedly, as discussed in the section-by-section analysis
of Sec. 1006.34(c)(2)(ix), the Bureau is adopting new comment
34(c)(2)(ix)-2 to clarify that a debt collector who combines
multiple debts on a single validation notice complies with Sec.
1006.34(c)(2)(ix)'s requirement to disclose the ``current amount of
the debt'' by disclosing on the validation notice a single,
cumulative figure that is the sum of the current amount of all the
debts.
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The Bureau concludes that the itemization requirement will not
cause healthcare providers or debt collectors to violate the HIPAA
Privacy Rule. HHS staff has advised the Bureau that the HIPAA Privacy
Rule generally permits covered entities to disclose protected health
information required by applicable law.\239\ Because disclosure of
itemization information will be necessary to comply with Sec.
1006.34(c)(2)(viii), this guidance indicates that the HIPAA Privacy
Rule will permit its disclosure.
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\239\ See 45 CFR 164.512(a)(1) (``A covered entity may use or
disclose protected health information to the extent that such use or
disclosure is required by law and the use or disclosure complies
with and is limited to the relevant requirements of such law.'');
see also U.S. Dep't of Health & Human Servs., Does the HIPAA Privacy
Rule prevent health plans and providers from using debt collection
agencies? Does the Privacy Rule conflict with the Fair Debt
Collection Practices Act?, https://www.hhs.gov/hipaa/for-professionals/faq/268/does-the-hipaa-privacy-rule-prevent-health-care-providers-from-using-debt-collection-agencies/index.html (last
visited Dec. 1, 2020) (noting that the HIPAA Privacy Rule permits
healthcare providers to provide the minimum necessary patient
information to debt collectors for the purpose of receiving
payment).
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The Bureau declines to modify Sec. 1006.34(c)(2)(viii) as
commenters otherwise recommended. An itemization, even if no interest
and fees have been assessed or charged on an account, remains relevant
information about the debt. Further, complying with Sec.
1006.34(c)(2)(viii) if no interest and fees have been assessed or
charged is relatively straightforward, and comment 34(c)(2)(viii)-1
clarifies how debt collectors may do so.
However, the Bureau is finalizing proposed comment 34(c)(2)(viii)-1
with a modification to delete language stating that debt collectors may
indicate ``N/A'' in a required field when no interest, fees, payments,
or creditors have been
[[Page 5807]]
assessed or applied to the account because different consumers may
interpret ``N/A'' differently. For example, some consumers might
understand it as indicating ``not available,'' and others might
construe it as meaning ``not applicable.'' To eliminate this potential
ambiguity, the Bureau is revising comment 34(c)(2)(viii)-1 to provide
that a debt collector may indicate that the value of a required field
is ``0,'' ``none,'' or may state that no interest, fees, payments, or
credits have been assessed or applied to the debt. The Bureau also is
revising the comment to clarify, as was intended in the proposal, that
a debt collector may not leave a required field blank.
The Bureau declines the recommendation that debt collectors be
permitted to indicate ``U'' for ``unknown'' or ``unavailable'' in the
itemization if a creditor did not provide the relevant information.
Allowing debt collectors to omit specific itemization information in
this manner could incentivize debt collectors to avoid receiving it,
thereby undermining the effectiveness of Sec. 1006.34(c)(2)(viii).
Debt collectors sought clarification as to how they should comply
with Sec. 1006.34(c)(2)(viii) in various scenarios. Depending on the
facts and circumstances, a third-party payment or insurance adjustment
may be disclosed as a ``payment'' or a ``credit'' in the itemization.
Also depending on the facts and circumstances, a payment that is
returned may be omitted from the itemization provided that the payment
and the return offset each other, and provided that the amount of the
debt owed on the itemization date pursuant to Sec. 1006.34(c)(2)(vii)
and the current amount of the debt pursuant to Sec. 1006.34(c)(2)(ix)
are accurately disclosed.
Regarding Sec. 1006.34(c)(2)(viii)'s interaction with itemization
requirements in other applicable law, the Bureau is finalizing new
comment 34(c)(2)(viii)-2, which states that, if a debt collector is
required by other applicable law to provide an itemization of the
current amount of the debt with the validation information, the debt
collector may comply with Sec. 1006.34(c)(2)(viii) by disclosing the
itemization required by other applicable law in lieu of the itemization
described in Sec. 1006.34(c)(2)(viii), if the itemization required by
other applicable law is substantially similar to the itemization that
appears on the model validation notice. The Bureau is aware of only one
jurisdiction that requires debt collectors to provide an itemization
with the validation information, and that itemization is substantially
similar to the itemization required by Sec. 1006.34(c)(2)(viii).\240\
Further, consumers likely would not benefit--and, in fact, may be
disadvantaged--by receiving multiple itemizations with the validation
information. For instance, although a debt collector could include both
the itemization required by Sec. 1006.34(c)(2)(viii) on the front of a
validation notice, and, on the reverse, an itemization specifically
required by other applicable law (as an optional disclosure pursuant to
Sec. 1006.34(d)(3)(iv)), a consumer would be unlikely to benefit from
receiving two itemizations. In addition, permitting debt collectors to
simultaneously satisfy the Bureau's itemization requirement and a
substantially similar requirement under other applicable law with one
itemization avoids burdening debt collectors with the costs of creating
redundant disclosures.
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\240\ See 23 NYCRR 1.2(b)(2).
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The Bureau determines that the itemization of the current amount of
the debt should not be more detailed (e.g., it should not include a
detailed list of all payments). The itemization that appears on the
model validation notice has been validated through four rounds of
consumer testing and is effective, and the Bureau agrees with
commenters who observed that a detailed disclosure of, for example, all
payments could be overwhelming and not logistically feasible.
For all of these reasons, the Bureau is finalizing proposed Sec.
1006.34(c)(2)(ix), renumbered as Sec. 1006.34(c)(2)(viii), to provide
that required validation information includes an itemization of the
current amount of the debt reflecting interest, fees, payments, and
credits since the itemization date. Final Sec. 1006.34(c)(2)(viii)
also provides that a debt collector may disclose the itemization on a
separate page provided in the same communication with a validation
notice if the debt collector includes on the validation notice, where
the itemization would have appeared, a statement referring to that
separate page. The Bureau is finalizing comment 34(c)(2)(ix)-1 with
revisions and renumbered as comment 34(c)(2)(viii)-1 and is adding
comments 34(c)(2)(viii)-2 through -4 to clarify various aspects of
final Sec. 1006.34(c)(2)(viii), as discussed above. The Bureau is
finalizing Sec. 1006.34(c)(2)(viii) and its related commentary
pursuant to its authority to interpret FDCPA section 809(a), as well as
its authority under Dodd-Frank Act section 1032(a).
34(c)(2)(ix)
FDCPA section 809(a)(1) requires debt collectors to disclose to
consumers the amount of the debt. Proposed Sec. 1006.34(c)(2)(x)
provided that the current amount of the debt is required validation
information.\241\ Proposed comment 34(c)(2)(x)-1 explained that, for
residential mortgage debt subject to Regulation Z, 12 CFR 1026.41, a
debt collector could comply with Sec. 1006.34(c)(2)(x) by including in
the validation notice the total balance of the outstanding mortgage,
including principal, interest, fees, and other charges.
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\241\ 84 FR 23274, 23342, 23415 (May 21, 2019).
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Some commenters raised concerns about how proposed Sec.
1006.34(c)(2)(x) would disclose the current amount of the debt.
Industry and industry trade group commenters stated that, if interest
and fees are increasing, the current amount of the debt that appears on
a validation notice may no longer be accurate by the time the consumer
receives the notice. Some commenters stated that some State laws and
court decisions require debt collectors to disclose if the current
amount of the debt may change due to interest and fees.\242\ To address
these concerns, industry and industry trade group commenters suggested
that the Bureau should either develop a stand-alone increasing-
interest-and-fee disclosure or structure Sec. 1006.34(c)(2)(x) to
permit debt collectors to disclose that the itemized current amount of
the debt may increase or decrease.\243\
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\242\ See Avila v. Riexinger & Assocs., LLC, 817 F.3d 72, 76 (2d
Cir. 2016) (holding that 15 U.S.C. 1692e requires debt collectors to
disclose if the amount of a debt may increase due to interest and
fees).
\243\ A trade group commenter recommended the following dynamic
balance disclosure: ``As of the date of this letter, the balance due
on the account is . Because interest, fees, and/or other
charges may change the total owed from day to day, the amount due on
the day you pay may be greater. If you pay the amount shown above,
an adjustment may be necessary after we receive your payment, in
which event you may be informed of any other amount due.''
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An industry trade group stated that disclosing the current amount
of the debt as proposed would present challenges for some reverse
mortgage debt because that amount might differ from the amount
disclosed in monthly statements.\244\ The commenter
[[Page 5808]]
recommended that, to avoid potential confusion in the context of
reverse mortgage debt, a debt collector should be permitted to provide
the last monthly account statement in lieu of disclosing the current
amount of the debt.
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\244\ The Bureau understands that, for some reverse mortgages,
including Home Equity Conversion Mortgages insured by the FHA, when
the reverse mortgage is due and payable, the amount due from the
borrower may not be the amount of outstanding debt because these
reverse mortgages are non-recourse loans and a borrower will never
owe more than a portion of the appraised value of the home. See 24
CFR 206.125.
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A group of consumer advocates recommended that, for residential
mortgage debt, the Bureau should require debt collectors to disclose
the current amount of the total unpaid balance owed as well as the
arrearage owed. According to this commenter, the arrearage owed is
important information because, in many jurisdictions, homeowners in
default can pay the arrearage to stop a foreclosure and reinstate a
mortgage.
After considering these comments, the Bureau is finalizing Sec.
1006.34(c)(2)(x) as proposed but renumbered as Sec. 1006.34(c)(2)(ix).
In addition, the Bureau is finalizing comment 34(c)(2)(x)-1 as proposed
and is adopting new comment 34(c)(2)(ix)-2 to clarify how a debt
collector who combines multiple debts on a single validation notice
complies with Sec. 1006.34(c)(2)(ix).
With respect to interest and fee accrual when disclosing the
current amount of the debt, the Bureau declines to incorporate an
increasing-interest-or-fee disclosure or to structure the current
amount of the debt as a dynamic balance in Sec. 1006.34(c)(2)(ix). The
Bureau notes, however, that comment 34(c)(2)(ix)-1 (proposed as comment
34(c)(2)(x)-1) clarifies that the current amount of the debt is the
amount of the debt as of the date that the validation information is
provided. Therefore, a debt collector satisfies the requirement in
Sec. 1006.34(c)(2)(ix) without providing a dynamic balance or
increasing-interest-or-fee disclosure. Additionally, as discussed in
the section-by-section analysis of Sec. 1006.34(d)(3)(iv), the final
rule affirmatively permits debt collectors to include along with the
required validation information other disclosures specifically required
by applicable law. As such, debt collectors may include a disclosure
pursuant to a judicial decision or order that the current amount of the
debt may increase or vary due to interest, fees, or other charges. This
modification addresses the challenges debt collectors face related to
interest and fee accrual in disclosing the current amount of the debt.
The Bureau declines to permit debt collectors collecting reverse
mortgage debt to include a last monthly account statement in place of
disclosing the current amount of the debt. Unlike the special rule for
certain residential mortgage debt discussed in the section-by-section
analysis of Sec. 1006.34(c)(5), reverse mortgages are not generally
subject to a separate disclosure requirement, such as 12 CFR
1026.41(b)'s periodic statement requirement, that is functionally
equivalent to, or as useful to consumers as, certain disclosures
required by Sec. 1006.34(c)(2). Reverse mortgages generally are exempt
from providing periodic statements under the Truth in Lending Act
(TILA) \245\ and its implementing Regulation Z.\246\ While reverse
mortgages may be subject to a monthly statement requirement that would
require entities to disclose the ``total outstanding loan balance,''
this regulatory requirement is not as prescriptive as the Bureau's
periodic statement requirement for other residential mortgage
debt.\247\ Thus, the Bureau determines that a last monthly statement
for a reverse mortgage debt is not an adequate substitute for Sec.
1006.34(c)(2)(ix).
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\245\ 15 U.S.C. 1601 et seq.
\246\ See 12 CFR 1026.41(e)(1).
\247\ The regulation provides: ``The mortgagee shall provide to
the borrower a monthly statement regarding the activity of the
mortgage for each month, as well as for the calendar year. The
statement shall summarize the total principal amount which has been
paid to the borrower under the mortgage during that calendar year,
the MIP paid to the Commissioner and charged to the borrower, the
total amount of deferred interest added to the outstanding loan
balance, the total outstanding loan balance, and the current
principal limit. The mortgagee shall include an accounting of all
payments for property charges. The statement shall be provided to
the borrower monthly until the mortgage is paid in full by the
borrower. The mortgagee shall provide the borrower with a new
payment plan every time it recalculates monthly payments or the
payment option is changed. The statements shall be in a format
acceptable to the Commissioner.'' See 24 CFR 206.203(a).
---------------------------------------------------------------------------
The Bureau declines to require debt collectors to separately
disclose an arrearage owed for residential mortgage debt. Because the
Bureau did not propose this disclosure, it lacks the benefit of public
comment and concludes that additional information, including through
public comment, would be advisable before adopting any such
interpretation. However, the Bureau notes that a debt collector who
utilizes the special rule for certain residential mortgage debt
described in Sec. 1006.34(c)(5) to comply with Sec. 1006.34(c)(2)(vi)
through (viii) will provide a periodic statement that may disclose such
information.\248\ Although a mortgage servicer is not required to use
the special rule for certain residential mortgage debt, a mortgage
servicer who does so and who otherwise uses the model validation notice
or a substantially similar form receives a safe harbor for compliance
pursuant to Sec. 1006.34(d)(2)(ii). The Bureau therefore expects that,
in many circumstances, a debt collector who is also a mortgage servicer
that is required to provide periodic statements under Regulation Z, 12
CFR 1026.41 will disclose arrearage information.
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\248\ 12 CFR 1026.41(d)(8)(vi) requires a periodic statement to
include, if the consumer is more than 45 days delinquent, the total
payment amount needed to bring the account current.
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As noted in the section-by-section analysis of Sec.
1006.34(c)(2)(viii), industry commenters requested further guidance
about how to combine multiple debts on a single validation notice. The
Bureau is adopting new comment 34(c)(2)(ix)-2 to clarify that a debt
collector who combines multiple debts on a single validation notice
complies with Sec. 1006.34(c)(2)(ix) by disclosing on the validation
notice a single, cumulative figure that is the sum of the current
amount of all the debts.
Proposed Provision Not Finalized
As discussed in the section-by-section analysis of Sec.
1006.26(c), in the February 2020 proposal, the Bureau proposed to
require debt collectors collecting time-barred debt to include time-
barred debt and revival disclosures on the validation notice.\249\
Proposed Sec. 1006.34(c)(2)(xi) provided that validation information
included those disclosures, as applicable, if the debt collector
determined after a reasonable investigation that such disclosures were
required by Sec. 1006.26(c).\250\ For the reasons discussed in the
section-by-section analysis of Sec. 1006.26(c), the Bureau is not
finalizing the proposed time-barred debt disclosure requirements and,
accordingly, the Bureau is not finalizing proposed Sec.
1006.34(c)(2)(xi). However, as discussed in the section-by-section
analysis of Sec. 1006.34(d)(3)(iv)(B), any disclosures relating to
time-barred debt that are specifically required by applicable law or
that provide safe harbors under applicable law are optional disclosures
that the final rule affirmatively permits debt collectors to include on
the validation notice.
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\249\ See 85 FR 12672 (Mar. 3, 2020).
\250\ Id. at 12685, 12696.
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34(c)(3) Information About Consumer Protections
The disclosures in FDCPA section 809(a) help consumers to determine
if a particular debt is theirs and to facilitate action in response to
the receipt of validation information. However, as the proposal stated,
debt collectors typically disclose only the information that FDCPA
section 809(a) specifically references and provide the FDCPA section
809 information using statutory
[[Page 5809]]
language, rather than plain language that consumers can more easily
comprehend.\251\ To address these concerns, proposed Sec.
1006.34(c)(3) provided that certain information about a consumer's
rights with respect to debt collection is required validation
information. This information, which is discussed in the section-by-
section analysis of Sec. 1006.34(c)(3)(i) through (vi) below, included
disclosures specifically referenced in FDCPA section 809(a)(4) and (5),
as well as additional disclosures intended to help consumers understand
their debt collection rights.\252\
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\251\ 84 FR 23274, 23342 (May 21, 2019).
\252\ See 15 U.S.C. 1692g(a)(4) and (5).
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Commenters generally supported requiring debt collectors to
disclose information about a consumer's rights with respect to debt
collection. Federal government agency staff and a consumer advocate
commenter stated that proposed Sec. 1006.34(c)(3) would improve
consumers' understanding of their rights in debt collection. Some
industry and industry trade group commenters supported using plain
language disclosures to explain consumer protections in debt
collection.
Some commenters recommended that the Bureau require additional
disclosures about consumers' rights with respect to debt collection.
Federal government agency staff, a group of 28 State Attorneys General,
and a number of consumer advocate commenters recommended that debt
collectors be required to disclose the FDCPA section 805(c) cease
communication right.\253\ A State regulatory agency recommended that
the Bureau require debt collectors to disclose that a consumer's
failure to act or to dispute a debt may have credit reporting
implications. This commenter also recommended that Sec. 1006.34(c)(3)
require debt collectors to disclose how consumers may obtain an annual
credit report, which consumers are entitled to under the FCRA and its
implementing Regulation V.\254\
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\253\ In the November 2020 Final Rule, the Bureau finalized
Sec. 1006.6(c)(1) to implement FDCPA section 805(c) and to provide
that, ``if a consumer notifies a debt collector in writing that the
consumer refuses to pay a debt or that the consumer wants the debt
collector to cease further communication with the consumer, the debt
collector must not communicate or attempt to communicate further
with the consumer with respect to such debt.'' 85 FR 76734, 78889
(Nov. 30, 2020).
\254\ See 15 U.S.C. 1681j(a); 12 CFR 1022.136.
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The Bureau determines, as discussed in the proposal, that consumers
will benefit from receiving additional information about their rights
in debt collection and from plain language disclosures rather than
disclosures that parrot the FDCPA's statutory text.\255\ The Bureau
therefore is adopting Sec. 1006.34(c)(3). Specifically, as discussed
further in the section-by-section analysis below, the Bureau is
adopting Sec. 1006.34(c)(3)(i) through (v) and its related commentary
with minor modifications, but is not finalizing proposed Sec.
1006.34(c)(3)(vi), which addressed the opt-out notice required by Sec.
1006.6(e) for electronic communications or attempts to communicate.
---------------------------------------------------------------------------
\255\ 84 FR 23274, 23342 (May 21, 2019).
---------------------------------------------------------------------------
The Bureau declines to require additional disclosures about
consumer protections in debt collection, as some commenters suggested.
In particular, the Bureau concludes that, although consumers may
benefit from understanding the rights the commenters discussed, those
rights are not sufficiently related to the purposes of FDCPA section
809--i.e., helping consumers to determine if a debt is theirs and to
facilitate action in response to the receipt of validation
information--to require debt collectors to include them as validation
information.\256\ In addition, as discussed in the section-by-section
analysis of Sec. 1006.34(c)(3)(iv), the final rule generally requires
debt collectors to include a statement that informs consumers that
additional information regarding consumer protections in debt
collection is available on the Bureau's website, with a link to the
information.\257\ The Bureau's website will disclose more information
about consumer protections in debt collection, including about the
cease communication right.
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\256\ For example, when Congress established the cease
communication right pursuant to FDCPA section 805(c), Congress did
not require its disclosure pursuant to FDCPA section 809. The Bureau
concludes that was intentional. Thus, the Bureau declines to include
the cease communication right as validation information that debt
collectors must disclose.
\257\ Section 1006.34(c)(3)(iv) requires debt collectors to
include the disclosure if they are collecting debt related to a
consumer financial product or service, as defined in Sec.
1006.2(f). Otherwise, debt collectors can optionally include the
disclosure under Sec. 1006.34(d)(3)(viii).
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The Bureau is finalizing Sec. 1006.34(c)(3)(i) through (iii) and
(v) pursuant to its authority under FDCPA section 814(d) to prescribe
rules with respect to the collection of debts by debt collectors and,
as described more fully below, its authority to implement and interpret
FDCPA section 809. The Bureau also is finalizing Sec. 1006.34(c)(3)
pursuant to its authority under section 1032(a) of the Dodd-Frank Act,
on the basis that a consumer's rights are a feature of debt collection.
34(c)(3)(i)
FDCPA section 809(a)(4) requires debt collectors to disclose to
consumers their right under FDCPA section 809(b) to dispute the
validity of the debt within 30 days after receipt of the validation
information (i.e., during the validation period).\258\ If a consumer
disputes a debt in accordance with FDCPA section 809(b), a debt
collector must cease collecting the debt until the debt collector
provides verification to the consumer; this is sometimes referred to as
the collections pause. FDCPA section 809(a)(4) does not expressly
indicate that a debt collector must disclose to consumers that a
dispute triggers FDCPA section 809(b)'s collections pause, or whether a
debt collector must disclose the end date of the validation period.
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\258\ See 15 U.S.C. 1692g(a)(4).
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The Bureau proposed Sec. 1006.34(c)(3)(i) to provide that
validation information includes a statement that specifies the end date
of the validation period and states 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, the debt collector
must cease collection of the debt until the debt collector sends the
consumer either the verification of the debt or a copy of a
judgment.\259\
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\259\ 84 FR 23274, 23343, 23404 (May 21, 2019).
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The Bureau received a variety of comments in response to proposed
Sec. 1006.34(c)(3)(i)'s incorporation of the validation period end
date.\260\ On the one hand, an industry trade group and a group of
consumer advocate commenters supported the inclusion, asserting the
validation period end date would provide certainty to consumers about
the timeframe within which to exercise their verification rights.
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\260\ The discussion under the ``Model Validation Notice''
heading in the section-by-section analysis of Sec. 1006.34(d)(2)
provides details about how the statement required by Sec.
1006.34(c)(3)(i) is disclosed on the model validation notice.
---------------------------------------------------------------------------
However, other commenters opposed the inclusion because, if
delivery of a validation notice is delayed and the consumer receives
the notice later than the debt collector presumed, the validation
period end date would be inaccurate. Commenters suggested this could
pose legal risk to debt collectors. To address this concern, an
industry commenter recommended that the Bureau modify proposed Sec.
1006.34(c)(3)(i) to replace the validation period end date with a
generic statement that a consumer may request verification within 30
days after receiving the validation notice.
[[Page 5810]]
Some commenters, including consumer advocate commenters and an
industry trade group, stated that disclosing the validation period end
date might leave consumers with the false impression that they could
not raise concerns about a debt after the validation period expires. A
group of academic commenters argued that a study suggested that a
significant number of consumers believed that, if they did not dispute
a debt during the validation period, they would be unable to assert
later that they did not owe the debt.\261\ Similarly, an industry
commenter stated that disclosing the validation period end date might
dissuade consumers from making verification requests after that date
even though debt collectors sometimes honor such requests. To address
this potential misunderstanding, some commenters recommended that the
final rule require debt collectors to inform consumers that they can
raise concerns about a debt after the validation period end date.
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\261\ Jeff Sovern & Kate Walton, Are Validation Notices Valid?
An Empirical Evaluation of Consumer Understanding of Debt Collection
Validation Notices, 70 SMU L. Rev. 63, 128 (2017) (``Our study
indicated that more than a third of the respondents believed that if
they failed to meet the thirty-day deadline, they would either have
to pay a debt they did not owe or would not be able to argue in
court that they didn't owe the debt.'').
---------------------------------------------------------------------------
Commenters also addressed the Bureau's proposal to require debt
collectors to disclose FDCPA section 809(b)'s collections pause.
Federal government agency staff and a group of consumer advocate
commenters supported the collections pause disclosure. However,
industry commenters stated that the disclosure would be burdensome
because it would encourage consumers to dispute the debt for the
purpose of delaying or avoiding debt collection. According to an
industry commenter, consumers do not need to be informed about FDCPA
section 809(b)'s collections pause because debt collectors are aware of
it and observe it.
The Bureau determines that consumers will benefit from Sec.
1006.34(c)(3)(i)'s disclosure of the validation period end date. As
discussed in the proposal, the validation period end date is an
integral feature of consumers' dispute right. Among other things, the
validation period end date will provide certainty to consumers about
the timeframe provided by the FDCPA to exercise their verification
rights.
The Bureau disagrees that a validation period end date that is
inaccurate because a validation notice was delayed will present
significant legal risk to debt collectors. Final Sec. 1006.34(b)(5)
and comment 34(b)(5)-1 provide that, for purposes of determining the
end of the validation period, a debt collector who provides the
validation information in writing or electronically may assume that a
consumer receives the validation information on any date that is at
least five business days after the debt collector provides it. If a
debt collector calculates the validation period end date in accordance
with this presumption, the debt collector will not violate the FDCPA or
its implementing Regulation F, even if, as final comment 34(b)(5)-1
clarifies, the consumer receives the validation notice later than the
debt collector assumed. Further, the Bureau determines that a generic
statement that a consumer may request verification within 30 days after
receiving the validation notice is not an adequate substitute for
disclosing the validation period end date. Such a generic statement
could leave many consumers unsure about when the validation period
ends. For example, consumers might receive a validation notice in the
mail but not open it immediately, or they might open it and return to
it later without keeping track of how much time has passed. In these
and similar scenarios, consumers would not be able to determine the
validation period end date.
Regarding commenters' suggestion that the Bureau require debt
collectors to inform consumers that they can raise concerns about a
debt after the validation period end date, the Bureau concludes that it
is not necessary to require such a disclosure. FDCPA section 809(a)
requires specific consumer disclosures, including statements about the
consumer's rights within 30 days of receipt of the notice, but does not
require any additional statement addressing consumer actions after the
expiration of that period. The Bureau determines that a specific end
date will not increase consumer confusion more than general language
such as ``within 30 days.'' The Bureau's testing shows that, while some
confusion does occur, about 40 percent of participants said they could
still dispute the debt after the validation period end date.\262\ Of
the remaining 60 percent of participants, about 40 percent were unclear
what would happen if they wrote to dispute the debt, and only about 20
percent specifically said that they could not write to dispute the
debt.\263\ When asked whether the debt collector would be required to
send information saying they owe the debt if they wrote to dispute
after the validation period end date, a small majority of consumers
assumed that the debt collector would be required to do so.\264\ Thus,
although consumers may not be certain of the effect of writing to
dispute the debt after the validation period end date, the Bureau's
testing indicates that a sizeable majority of consumers would not be
inhibited about raising general concerns about the debt after the
validation notice end date. As discussed above, the final rule's
enhanced and plain-language disclosures should improve overall consumer
understanding and empower consumers to respond, should they choose, to
debt collectors. The Bureau therefore declines to require as part of
the validation information an explicit statement informing consumers
that they may continue to raise concerns about the debt after the
validation period end date.
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\262\ See November 2020 Qualitative Testing Report, supra note
34, at 13. Similarly, the Bureau's prior testing suggested that
``[o]verall, participants' comments suggest that they understood the
difference between writing before the specified date [and] writing
after that date.'' FMG Usability Report, supra note 28, at 56.
\263\ Id.
\264\ Id. at 13-14.
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The Bureau also determines that Sec. 1006.34(c)(3)(i) should not
omit the collections pause disclosure. As the proposal noted, consumer
testing indicates that knowing about the collections pause was
important to consumers and would encourage them to exercise their
dispute right if they questioned a debt's validity.\265\ Debt
collectors have not provided evidence to support the premise that a
significant number of consumers exercise their FDCPA section 809
verification rights solely to evade or delay paying debts that they
owe. Absent such evidence, the Bureau declines to conclude that
consumers will exercise their rights for such purposes. Further,
regardless of whether debt collectors are aware of and comply with
FDCPA section 809(b)'s collections pause requirement, the Bureau
concludes that consumers will benefit from this disclosure because it
will provide them with more complete information about the actions that
debt collectors must take if consumers notify them that the debt is
disputed.
---------------------------------------------------------------------------
\265\ FMG Cognitive Report, supra note 27, at 30; see also FMG
Summary Report, supra note 29, at 25.
---------------------------------------------------------------------------
For all of these reasons, the Bureau is finalizing Sec.
1006.34(c)(3)(i) as proposed, with minor wording changes to clarify the
content of the required disclosure, including by specifying that the
consumer must notify the debt collector in writing ``on or before'' the
end of the validation period, as opposed to
[[Page 5811]]
``before'' the end of the validation period, as proposed.\266\
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\266\ The model validation notice uses the term ``by'' instead
of ``on or before'' for plain language purposes.
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34(c)(3)(ii)
FDCPA section 809(a)(5) requires debt collectors to disclose to
consumers their right under FDCPA section 809(b) to request, within 30
days after receipt of the validation information, the name and address
of the original creditor, if different from the current creditor.\267\
FDCPA section 809(a)(5) does not expressly indicate that a debt
collector must disclose to consumers that an original-creditor
information request invokes FDCPA section 809(b)'s collections pause,
or whether a debt collector must disclose the end date of the
validation period. The Bureau proposed Sec. 1006.34(c)(3)(ii) to
provide that validation information includes a statement that specifies
the end date of the validation period and states that, if the consumer
requests in writing before the end of the validation period the name
and address of the original creditor, the debt collector must cease
collection of the debt until the debt collector sends the consumer the
name and address of the original creditor, if different from the
current creditor.\268\
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\267\ See 15 U.S.C. 1692g(a)(5).
\268\ 84 FR 23274, 23343, 23404 (May 21, 2019).
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Some industry and industry trade group commenters recommended that
the Bureau not finalize proposed Sec. 1006.34(c)(3)(ii).\269\ Some
commenters stated that the validation information need not include a
statement informing consumers of their right to request original-
creditor information because, under the Bureau's rule, the validation
information will include the creditor as of the itemization date and,
according to the commenters, that creditor and the original creditor
often will be the same. Relatedly, some commenters suggested that,
because the validation information will include the names of the
itemization-date creditor and the current creditor, debt collectors
should be permitted to omit the statement informing consumers of their
right to request original-creditor information if the original creditor
is the same as either of those creditors.\270\
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\269\ See the ``Model Validation Notice'' discussion in the
section-by-section analysis of Sec. 1006.34(d)(2) for additional
details about how the statement required by Sec. 1006.34(c)(3)(ii)
is disclosed on the model validation notice.
\270\ As an alternative to complying with Sec.
1006.34(c)(3)(ii), an industry trade group commenter recommended
that debt collectors be permitted to proactively disclose the
original-creditor information that a consumer would receive in
response to an FDCPA section 809(b) request. This comment is
addressed in the section-by-section analysis of Sec. 1006.38.
---------------------------------------------------------------------------
Some commenters recommended that the Bureau modify proposed Sec.
1006.34(c)(3)(ii) to omit the validation period end date and the
collections pause disclosures. These comments were substantially
similar to comments discussed in the section-by-section analysis of
Sec. 1006.34(c)(3)(i).
After considering the feedback, the Bureau has determined to
finalize Sec. 1006.34(c)(3)(ii). FDCPA section 809(a)(5) expressly
requires debt collectors to include in the validation information a
statement that, upon the consumer's written request within 30 days
after receipt of the validation information, the debt collector will
provide the consumer with the name and address of the original
creditor, if different from the current creditor. The Bureau proposed
Sec. 1006.34(c)(3)(ii) to implement that requirement and to clarify
the content of the disclosures for debt collectors. The Bureau did not
propose an exception to this disclosure requirement if the original
creditor and the current creditor are the same and therefore does not
have information regarding the costs or benefits of finalizing such an
exception. To the extent that commenters were concerned about the
burden of responding to original-creditor information requests when the
original creditor and the current creditor are the same, the Bureau is
finalizing a special rule for that scenario in Sec.
1006.38(c)(2).\271\ For these reasons, the Bureau is finalizing Sec.
1006.34(c)(3)(ii) as proposed, with minor wording changes to clarify
the content of the required disclosure, including by specifying that
the consumer must notify the debt collector in writing ``on or before''
the end date of the validation period, as opposed to ``before'' the end
of the validation period, as proposed.\272\
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\271\ See the section-by-section analysis of Sec.
1006.38(c)(2).
\272\ The model validation notice uses the term ``by'' instead
of ``on or before'' for plain language purposes.
---------------------------------------------------------------------------
The Bureau declines to omit the validation period end date and the
collections pause disclosures from Sec. 1006.34(c)(3)(ii) for the same
reasons discussed in the section-by-section analysis of Sec.
1006.34(c)(3)(i).
34(c)(3)(iii)
FDCPA section 809(a)(3) requires a debt collector to disclose to a
consumer that, unless the consumer disputes the validity of the debt
within 30 days of receipt of the validation information, the debt
collector will assume the debt to be valid.\273\ The Bureau proposed
Sec. 1006.34(c)(3)(iii) to provide that validation information
includes a statement that specifies the end date of the validation
period and states that, unless the consumer contacts the debt collector
to dispute the validity of the debt, or any portion of the debt, before
the end of the validation period, the debt collector will assume that
the debt is valid.\274\
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\273\ 15 U.S.C. 1692g(a)(3).
\274\ 84 FR 23274, 23343-44, 23404 (May 21, 2019).
---------------------------------------------------------------------------
At the time of the proposal, courts in various jurisdictions had
reached different conclusions about whether FDCPA section 809(a)(3)
requires debt collectors to recognize oral disputes about the validity
of a debt.\275\ These differing decisions principally arose from the
fact that, whereas FDCPA section 809(a)(4) and (5) explicitly state
that a consumer must notify a debt collector in writing, FDCPA section
809(a)(3) does not refer to a writing requirement. In the absence of an
express writing requirement in FDCPA section 809(a)(3), the majority of
circuit courts that considered the issue had determined that a
consumer's oral dispute triggers certain FDCPA protections, including,
for example, FDCPA section 810's payment application requirement.\276\
Consistent with this majority position, and pursuant to its authority
to implement and interpret FDCPA section 809(a)(3) as well as its
authority under Dodd-Frank Act section 1032(a), the Bureau proposed to
interpret FDCPA section 809(a)(3) to allow oral disputes.\277\
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\275\ Compare Clark v. Absolute Collection Serv., Inc., 741 F.3d
487, 490 (4th Cir. 2014) (per curiam) (holding that oral disputes
trigger certain FDCPA protections, including under FDCPA section
809(a)(3)), Hooks v. Forman, Holt, Eliades & Ravin, LLC, 717 F.3d
282, 286 (2d Cir. 2013) (same), and Camacho v. Bridgeport Fin. Inc.,
430 F.3d 1078, 1082 (9th Cir. 2005) (same), with Graziano v.
Harrison, 950 F.2d 107, 112 (3d Cir. 1991) (``[A] dispute, to be
effective, must be in writing.'').
\276\ FDCPA section 810 is implemented by Sec. 1006.30(c). See
85 FR 76734, 76843 (Nov. 30, 2020); see also Camacho, 430 F.3d at
1081-82 (holding that oral disputes trigger certain FDCPA
protections, including under FDCPA sections 807(8) and 810).
\277\ After the proposal was published, the circuit split was
resolved. In Riccio v. Sentry Credit, Inc., the Third Circuit
sitting en banc overruled its prior decision and determined that
FDCPA section 809(a)(3) does not require a dispute to be in writing.
Riccio v. Sentry Credit, Inc., 954 F.3d 582, 594 (3d Cir. 2020) (en
banc) (``In short, we conclude that debt collection notices sent
under Sec. 1692g need not require that disputes be expressed in
writing. In doing so, we overrule Graziano's contrary holding.'').
---------------------------------------------------------------------------
Industry commenters, industry trade group commenters, and a group
of academic commenters supported the Bureau's proposed interpretation
that FDCPA section 809(a)(3) permits
[[Page 5812]]
consumers to dispute the validity of a debt orally or in writing.
Several industry and industry trade group commenters expressed
concerns about how proposed Sec. 1006.34(c)(3)(iii) was disclosed on
the proposed model validation notice, perceiving a tension between the
regulatory text and the proposed model notice text. Specifically,
whereas the proposed model validation notice stated that a consumer may
``call or write'' to dispute all or part of the debt, proposed Sec.
1006.34(c)(3)(iii) did not specify the manner in which a consumer must
contact the debt collector and instead used the general term
``contact.''
As proposed, the Bureau determines that FDCPA section 809(a)(3)
permits both oral and written disputes. The Bureau agrees with every
circuit court that has addressed this issue and interprets the absence
of a reference to a writing requirement in FDCPA section 809(a)(3) to
mean that a writing is not required. Further, commenters overall
supported this interpretation.
The Bureau declines to modify how Sec. 1006.34(c)(3)(iii) is
phrased on the model validation notice. The Bureau developed the phrase
``call or write'' for comprehension purposes. The model notice's
language is intended to be plain language and consumer-friendly and was
validated through multiple rounds of qualitative and quantitative
consumer testing.\278\ Regulatory text and the model notice language
reflecting that regulatory text need not be identical in every case.
For instance, if consumers may not understand a requirement as
described in regulatory text, it is appropriate to express that
requirement in plain language in consumer disclosures.\279\
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\278\ See part III.C.
\279\ See the ``Model Validation Notice'' discussion in the
section-by-section analysis of Sec. 1006.34(d)(2) for additional
details about how the statement required by Sec. 1006.34(c)(3)(iii)
is disclosed on the model validation notice.
---------------------------------------------------------------------------
For these reasons, the Bureau is finalizing Sec.
1006.34(c)(3)(iii) as proposed, with minor wording changes to clarify
the content of the required disclosure, including by specifying that
the consumer must notify the debt collector in writing ``on or before''
the end of the validation period, rather than ``before'' the end of the
validation period, as proposed.\280\
---------------------------------------------------------------------------
\280\ The model validation notice uses the term ``by'' instead
of ``on or before'' for plain language purposes.
---------------------------------------------------------------------------
34(c)(3)(iv)
Dodd-Frank Act section 1032(a) permits the Bureau to prescribe
rules to ensure that the features of any consumer financial product or
service, both initially and over the term of the product or service,
are fully, accurately, and effectively disclosed to consumers in a
manner that permits consumers to understand the costs, benefits, and
risks associated with the product or service, in light of the facts and
circumstances. To enhance consumer understanding of protections
available during the debt collection process, and pursuant to its
authority under Dodd-Frank Act section 1032(a), the Bureau proposed
Sec. 1006.34(c)(3)(iv) to provide that, if a debt collector is
collecting a consumer financial product or service debt, as defined in
Sec. 1006.2(f), then validation information includes a statement that
informs the consumer that additional information regarding consumer
rights in debt collection is available on the Bureau's website at
https://www.consumerfinance.gov.
Commenters generally agreed that consumers would benefit from
information about additional protections available to consumers
experiencing debt collection. However, commenters disagreed about the
best way to provide that information.
A large number of consumer advocate and academic commenters
recommended that, rather than a statement that additional information
is available on the Bureau's website, the Bureau should require debt
collectors to provide consumers, along with the validation notice, a
reference document describing consumer protections in debt collection,
similar to the document that the Bureau developed prior to the SBREFA
process.\281\ Commenters stated that a reference document would be more
useful to consumers than a statement appearing on a validation notice.
Further, some such commenters stated that proposed Sec.
1006.34(c)(3)(iv) would not help consumers without internet access who
are unable to visit the Bureau's website.
---------------------------------------------------------------------------
\281\ For additional detail about information that the Bureau
considered including in the reference document, see appendix G of
the Small Business Review Panel Outline, supra note 39.
---------------------------------------------------------------------------
Consumer advocate commenters and a group of academics also stated
that, if the Bureau does not require a reference document, the Bureau
should revise proposed Sec. 1006.34(c)(3)(iv) to require debt
collectors to include a web address that directs consumers to a Bureau
page dedicated to consumer protections in debt collection, instead of
to the Bureau's general website landing page.\282\ Other commenters
stated that requiring consumers to click on a hyperlink if the
validation notice is delivered electronically would create procedural
hurdles that reduce consumer follow through and would pose security
risks to consumers.
---------------------------------------------------------------------------
\282\ Also, in response to proposed Sec. 1006.34(d)(4)(ii), a
consumer advocate commenter recommended that the Bureau permit debt
collectors to embed a hyperlink that directs consumers to the
Bureau's website address described in proposed Sec.
1006.34(c)(3)(iv). As discussed in the section-by-section analysis
of Sec. 1006.34(d)(4)(ii), the Bureau is adopting this
recommendation to permit debt collectors to include a hyperlink
without losing the safe harbor in Sec. 1006.34(d)(2).
---------------------------------------------------------------------------
At least one industry trade group commenter disagreed and supported
proposed Sec. 1006.34(c)(3)(iv) on the grounds that including a
reference document with the validation notice would overwhelm
consumers.
For the reasons discussed below, the Bureau is finalizing Sec.
1006.34(c)(3)(iv) as proposed with a revision in response to feedback.
The Bureau declines to require debt collectors to provide consumers
a reference document describing consumer protections in debt
collection. Because the Bureau did not propose such a requirement, the
Bureau did not receive robust feedback in response to the proposal
about what such a required form should look like and how a requirement
to provide it might operate. Further, the Bureau expects that most
consumers will receive the disclosure referring to the Bureau's website
and will be able to access the website; most consumers use the internet
and have experience navigating to websites.\283\
---------------------------------------------------------------------------
\283\ For example, a Pew Research Center study in 2019 found
that 90 percent of U.S. adults use the internet. See Pew Research
Ctr., Internet/Broadband Fact Sheet, https://www.pewresearch.org/internet/fact-sheet/internet-broadband/#who-uses-the-internet (last
visited Dec. 1, 2020).
---------------------------------------------------------------------------
The Bureau determines that consumers would benefit from being
directed to a page dedicated to consumer protections in debt collection
instead of the Bureau's website landing page. Accordingly, the Bureau
is modifying Sec. 1006.34(c)(3)(iv) to specifically reference the web
page www.cfpb.gov/debt-collection instead of the Bureau's general
landing page. The Bureau is also making a conforming change to how the
statement described in Sec. 1006.34(c)(3)(iv) is disclosed on the
model validation notice.
The Bureau determines that consumers will not face significant
security risks when accessing the Bureau's website. The vast majority
of validation notices today are delivered by mail, so an active
hyperlink is not possible. In the case of electronic communications,
the Bureau recognizes that active hyperlinks can present security
concerns to consumers, including, among other things, phishing
[[Page 5813]]
risks.\284\ But the Bureau is not requiring debt collectors to include
an active hyperlink to the Bureau's website in validation notices. In
other words, even if the validation information is provided
electronically, Sec. 1006.34(c)(3)(iv) only requires that the text
``www.cfpb.gov/debt-collection'' be displayed in the information. As
discussed in the section-by-section analysis of Sec.
1006.34(d)(4)(ii), a debt collector is permitted, but not required, to
include an active hyperlink to the Bureau's website. This is because
hyperlinks are a common feature of electronic commercial
communications. A validation notice that includes a hyperlink to the
Bureau's website may be safe and convenient for a consumer. This would
particularly be the case if the debt collector had prior contact with
the consumer and the consumer recognizes that the validation notice was
sent by a familiar source. If a consumer is unfamiliar with the debt
collector or otherwise has concerns about clicking on an active
hyperlink, the consumer could choose, rather than clicking on the
hyperlink, to navigate independently to the Bureau's website to obtain
more information about consumer protections in debt collection.
---------------------------------------------------------------------------
\284\ See, e.g., Fed. Trade Comm'n, How to Recognize and Avoid
Phishing Scams (May 2019), https://www.consumer.ftc.gov/articles/how-recognize-and-avoid-phishing-scams (last visited Dec. 1, 2020).
---------------------------------------------------------------------------
Accordingly, the Bureau is finalizing Sec. 1006.34(c)(3)(iv) to
provide that, if a debt collector is collecting debt related to a
consumer financial product or service as defined in Sec. 1006.2(f),
validation information includes a statement that informs the consumer
that additional information regarding consumer protections in debt
collection is available on the Bureau's website at www.cfpb.gov/debt-collection.
34(c)(3)(v)
Proposed Sec. 1006.34(c)(4) provided that validation information
includes information that a consumer can use to take certain actions,
including disputing a debt or requesting original-creditor
information.\285\ As discussed in the section-by-section analysis of
Sec. 1006.34(c)(3)(i) and (ii), FDCPA section 809(b) provides that
consumers must notify a debt collector ``in writing'' to dispute a debt
or request original-creditor information. Under Sec. 1006.38, this
writing requirement is satisfied if a consumer provides a dispute or
request for original-creditor information to the debt collector using a
medium of electronic communication through which a debt collector
accepts electronic communications from consumers, such as an email
address or a website portal.\286\ Thus, debt collectors are required to
give legal effect to consumer disputes or requests for original-
creditor information submitted electronically only if a debt collector
chooses to accept electronic communications from consumers. The Bureau
proposed Sec. 1006.34(c)(3)(v) to provide that validation information
includes a statement explaining how a consumer can take the actions
described in proposed Sec. 1006.34(c)(4) and (d)(3), as applicable,
electronically, if the debt collector sends a validation notice
electronically.
---------------------------------------------------------------------------
\285\ Proposed Sec. 1006.34(c)(4) set forth required consumer-
response information. Proposed Sec. 1006.34(d)(3)(iii)(B) and
(vi)(B) set forth certain other consumer-response information
related to payment requests and requests for Spanish-language
validation notices.
\286\ See the section-by-section analysis of Sec. 1006.38 and
comment 38-1.
---------------------------------------------------------------------------
Proposed comment 34(c)(3)(v)-1 explained that a debt collector may
provide the information described in Sec. 1006.34(c)(3)(v) by
including the statements, ``We accept disputes electronically,'' using
that phrase or a substantially similar phrase, followed by an email
address or website portal that a consumer can use to take the action
described in Sec. 1006.34(c)(4)(i), and ``We accept original-creditor
information requests electronically,'' using that phrase or a
substantially similar phrase, followed by an email address or website
portal that a consumer can use to take the action described in Sec.
1006.34(c)(4)(ii).\287\ Proposed comment 34(c)(3)(v)-1 also clarified
that, if a debt collector accepts electronic communications from
consumers through more than one medium, such as by email and through a
website portal, the debt collector is only required to provide
information regarding one of these media but may provide information
about additional media.
---------------------------------------------------------------------------
\287\ On the model validation notice, this phrase appears as
``We accept such requests electronically.'' This wording deviates
from the regulatory text due to space considerations and the context
of surrounding disclosures.
---------------------------------------------------------------------------
An industry commenter and an industry trade group commenter
supported proposed Sec. 1006.34(c)(3)(v) because it would inform
consumers about alternative methods to contact debt collectors and
would increase the likelihood that consumers would engage with debt
collectors. However, another industry commenter objected to the
proposal because, the commenter argued, allowing consumers to exercise
verification rights electronically would encourage consumers to submit
verification requests for the purpose of delaying or avoiding paying a
debt.
The Bureau determines that requiring debt collectors who provide
validation notices electronically to include statements on the
validation notice explaining how consumers can dispute the debt or
request original-creditor information electronically will benefit
consumers by facilitating their ability to exercise those verification
rights electronically. The Bureau agrees that such disclosures will
increase the likelihood of engagement between consumers and debt
collectors but does not agree that they will encourage consumers to
submit disputes or original-creditor-information requests to delay or
avoid paying the debt. As discussed in the section-by-section analysis
of Sec. 1006.34(c)(3)(i), commenters have not provided evidence
demonstrating that a significant number of consumers exercise their
verification rights with the principal purpose of avoiding paying debts
that they owe. Absent such evidence, the Bureau declines to conclude
that consumers will exercise verification rights for this purpose.
Accordingly, the Bureau is finalizing Sec. 1006.34(c)(3)(v) and
its related commentary largely as proposed, except that the final rule
does not require debt collectors who provide validation notices
electronically to include statements stating how consumers can take the
actions described in Sec. 1006.34(d)(3) (i.e., responding to a payment
prompt (Sec. 1006.34(d)(3)(iii)) or requesting a Spanish-language
translation (Sec. 1006.34(d)(3)(vi))) electronically.
The Bureau notes that Sec. 1006.34(d)(3)(vi)(A) affirmatively
permits a debt collector to include supplemental information in Spanish
specifying how a consumer may request a Spanish-language validation
notice, and such information could include how the consumer may do so
electronically. In addition, as discussed at the outset of the section-
by-section analysis of Sec. 1006.34, the Bureau is not finalizing the
proposed requirement that all validation notices must be substantially
similar to the model validation notice in order to avoid violating the
rule. Therefore, under the final rule, a debt collector who chooses to
include either or both of the optional payment disclosures in Sec.
1006.34(d)(3)(iii) is not prohibited by Regulation F from including a
statement about how the consumer can make a payment electronically
(although including such a statement will take the debt collector out
of the safe harbor in Sec. 1006.34(d)(2)). The Bureau is
[[Page 5814]]
finalizing Sec. 1006.34(c)(3)(v) pursuant to its authority to
interpret FDCPA section 809(a) and (b), as well as its authority under
Dodd-Frank Act section 1032(a).
34(c)(3)(vi)
The Bureau proposed Sec. 1006.34(c)(3)(vi) to provide that, for a
validation notice delivered in the body of an email pursuant to
procedures set forth in the proposal, validation information includes
the opt-out statement required by Sec. 1006.6(e).\288\ Proposed
comment 34(c)(3)(vi)-1 clarified certain details, including that the
requirement would not apply in the case of validation notices delivered
by hyperlink and that electronic delivery of a validation notice is not
rendered ineffective if a consumer opts out of future electronic
communications pursuant to Sec. 1006.6(e).
---------------------------------------------------------------------------
\288\ As finalized in the November 2020 Final Rule, Sec.
1006.6(e) requires a debt collector who communicates or attempts to
communicate with a consumer electronically in connection with the
collection of a debt using a specific email address, telephone
number for text messages, or other electronic-medium address to
include in such communication or attempt to communicate a clear and
conspicuous statement describing a reasonable and simple method by
which the consumer can opt out of further electronic communications
or attempts to communicate by the debt collector to that address or
telephone number. See 85 FR 76734, 76890 (Nov. 30, 2020).
---------------------------------------------------------------------------
Although no commenters objected to proposed Sec.
1006.34(c)(3)(vi), the Bureau is not finalizing it. The Bureau has
determined that it is not necessary to require debt collectors to
include the Sec. 1006.6(e) opt-out instructions on validation notices
sent electronically because Sec. 1006.6(e) itself already requires
those instructions in every electronic communication or communication
attempt, which will includes every electronic communication
transmitting a validation notice. Thus, Sec. 1006.34(c)(3)(vi) would
be redundant.
A debt collector who sends a validation notice electronically may
provide the Sec. 1006.6(e) disclosure in the electronic communication
outside of the validation notice. A debt collector who provides the
model validation notice electronically will not lose the safe harbor
described in Sec. 1006.34(d)(2) by including the Sec. 1006.6(e)
disclosure in the electronic communication outside the model notice.
Accordingly, the Bureau determines that the Sec. 1006.6(e) opt-out
disclosure is not necessary to include as validation information.
Although the Bureau is not finalizing proposed Sec. 1006.34(c)(3)(vi),
the Bureau reaffirms the clarification in proposed comment
34(c)(3)(vi)-1 that electronic delivery of a validation notice is not
rendered ineffective merely because a consumer opts out of future
electronic communications pursuant to the instructions in Sec.
1006.6(e).
34(c)(4) Consumer-Response Information
FDCPA section 809(b) contains certain requirements that a debt
collector must satisfy if a consumer exercises the consumer's right to
dispute the validity of the debt or request the name and address of the
original creditor. If a consumer disputes a debt in writing within 30
days of receiving the validation information, a debt collector must
stop collection of the debt until the debt collector obtains
verification of the debt or a copy of a judgment against the consumer
and mails it to the consumer. Similarly, if a consumer requests the
name and address of the original creditor in writing within 30 days of
receiving the validation information, FDCPA section 809(b) requires the
debt collector to cease collection of the debt until the debt collector
obtains and mails such information to the consumer. FDCPA section
809(b) also prohibits a debt collector, during the 30-day period
consumers have to dispute a debt or request information about the
original creditor, from engaging in collection activities and
communications that overshadow, or are inconsistent with, the
disclosure of the right to dispute the debt or request original-
creditor information, which the Bureau collectively refers to as
``verification rights.''
The Bureau proposed Sec. 1006.34(c)(4) to require a consumer-
response information section to help consumers exercise their FDCPA
section 809(b) verification rights.\289\ Specifically, proposed Sec.
1006.34(c)(4) provided that required validation information includes
certain consumer-response information situated next to prompts that
consumers could use to indicate that they want to take action or make a
request. The proposed information, which is discussed in the section-
by-section analysis of Sec. 1006.34(c)(4)(i) through (iii), included
statements describing certain actions that a consumer could take,
including submitting a dispute, identifying the reason for the dispute,
providing additional detail about the dispute, and requesting original-
creditor information.\290\ Proposed Sec. 1006.34(c)(4) provided that
the consumer-response information section must be segregated from the
validation information described in Sec. 1006.34(c)(1) through (3) and
from any optional information included pursuant to proposed Sec.
1006.34(d)(3)(i), (ii), (iv), or (v) and, if the validation information
is provided in writing or electronically, located at the bottom of the
notice and under the headings, ``How do you want to respond?'' and
``Check all that apply:''. As shown on the proposed model validation
notice, the consumer-response information section appeared as a tear-
off portion of the form. Proposed comment 34(c)(4)-1 clarified that, if
the validation information is provided in writing or electronically, a
prompt described in Sec. 1006.34(c)(4) may be formatted as a checkbox,
as shown on the model validation notice.
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\289\ 84 FR 23275, 23404 (May 21, 2019).
\290\ As discussed in the section-by-section analysis of Sec.
1006.34(d)(3), proposed Sec. 1006.34(d)(3)(iii)(B) and (vi)(B)
provided that a debt collector also could include a payment
disclosure and Spanish-language validation notice request disclosure
as consumer-response information.
---------------------------------------------------------------------------
A group of academic commenters expressed general support for
proposed Sec. 1006.34(c)(4). However, some industry commenters
objected to the proposed consumer-response information section.
According to a depository institution, the proposed consumer- response
information formatted as a tear-off is an obsolete approach because
physical mail is increasingly less relevant as consumers prefer
electronic communications. An industry commenter stated that the
proposed consumer-response information section would encourage
consumers to communicate through mail, which is more expensive and
time-intensive than other communication methods, such as email.
Several commenters raised concerns about proposed Sec.
1006.34(c)(4)'s use of the heading ``How do you want to respond?'' A
group of State Attorneys General and at least one industry commenter
stated that consumers may incorrectly infer from this phrase that they
must use the consumer-response information section to respond to a debt
collector. Some commenters suggested that this phrase created the false
impression that consumers must engage with the debt collector, even if
they prefer not to. To address this concern, consumer advocate
commenters and a group of State Attorneys General recommended that the
consumer-response information section include ``Do Nothing'' as a
response option.
Some industry trade group commenters objected to proposed Sec.
1006.34(c)(4) being formatted for use with a return envelope. According
to these commenters, some debt collectors do not include return
envelopes with
[[Page 5815]]
validation notices and instituting such a practice would entail
significant costs. However, a consumer group commenter disagreed and
stated that the Bureau should require debt collectors to include a
return envelope with prepaid postage to facilitate use of the proposed
consumer-response information section.
After considering comments, the Bureau is adopting Sec.
1006.34(c)(4) with minor wording changes to conform to changes in Sec.
1006.34(d).
The Bureau acknowledges that electronic communications are
increasingly prevalent in society at large; however, most debt
collectors do not presently communicate with consumers electronically,
particularly to provide validation notices.\291\ Further, many
consumers still prefer to communicate with debt collectors via mail
instead of email or other electronic media.\292\ Given communication
practices in the debt collection industry and consumer preferences, the
Bureau determines that formatting the model validation notice consumer-
response information section as a tear-off so that a consumer can
return that portion of the form by mail if the consumer so chooses will
benefit both debt collectors and consumers. Thus, if debt collectors
opt not to format the consumer-response information section as a tear-
off, the Sec. 1006.34(d)(2) safe harbor will not apply to their
validation notices.
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\291\ See 85 FR 76734, 76852 (Nov. 30, 2020).
\292\ According to the CFPB Debt Collection Consumer Survey, 71
percent of consumers preferred to be contacted by a debt collector
by mail. Only 12 percent of consumers preferred email. Bureau of
Consumer Fin. Prot., Consumer Experience with Debt Collection:
Findings from CFPB's Survey of Consumer Views on Debt, at 29-30
(Jan. 12, 2017), http://files.consumerfinance.gov/f/documents/201701_cfpb_Debt-Collection-Survey-Report.pdf (CFPB Debt Collection
Consumer Survey).
---------------------------------------------------------------------------
The Bureau concludes that the heading ``How do you want to
respond?'' likely will not lead consumers to believe that they must
respond to the debt collector or use the consumer-response information
section to do so. Consumer testing indicated that consumers paid
relatively little attention to this heading.\293\ Further, consumers
generally grasped the consequences of not responding to a validation
notice.\294\ These findings suggest that the heading will not induce
otherwise unwilling consumers to engage with debt collectors. This
conclusion is bolstered by findings from the Bureau's most recent
qualitative consumer testing. The Bureau's consumer testing suggests
that consumers understand that they have the option of not engaging
with a debt collector in response to a validation notice.\295\ This
testing also indicates that consumers understand that, if they choose
to communicate with a debt collector, they do not have to use the
consumer-response information section to do so.\296\ The Bureau
therefore determines that it is unnecessary to include a ``Do Nothing''
response option, as some commenters suggested.
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\293\ ``The `You Have Rights' and `How do you want to respond to
this notice?' sections had a comparatively low number of fixations
(i.e., a testing participant's eyes resting on a piece of
information) compared to other parts of the notice. These two
sections were often discussed during the interview as being
important so the fewer number of fixations suggests that this
information might have been easy to read and comprehend.
Participants also commented that these sections only needed to be
scanned, further suggesting that fewer fixations on this section
might have been due to ease of processing the information rather
than a disinterest in the information. See FMG Usability Report,
supra note 28, at 7.
\294\ See id. at 83-84.
\295\ When asked about whether they were legally required
respond to the model validation notice, approximately 90 percent of
participants reported that they were not. See November 2020
Qualitative Testing Report, supra note 34, at 11.
\296\ During testing, participants generally understood that
they could dispute the debt by telephone, electronically, or writing
with or without the ``tear-off.'' See id. at 15.
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The consumer-response information section should be formatted for
use with a return envelope. The fact that the consumer-response
information established by Sec. 1006.34(c)(4) is formatted on the
model validation notice for use with a return envelope does not require
debt collectors to include return envelopes with validation notices,
even if they use the model notice.
Accordingly, the Bureau is finalizing Sec. 1006.34(c)(4) with
minor wording changes to conform to changes in Sec. 1006.34(d). The
Bureau also is finalizing Sec. 1006.34(c)(4)(i) through (iii) and
their related commentary with certain modifications that are discussed
in the section-by-section analysis below.
The Bureau is finalizing Sec. 1006.34(c)(4) pursuant to its
authority under FDCPA section 814(d) to prescribe rules with respect to
the collection of debts by debt collectors and, as described more fully
below, its authority to implement and interpret FDCPA section 809. The
Bureau is also finalizing Sec. 1006.34(c)(4) pursuant to its authority
under section 1032(a) of the Dodd-Frank Act, on the basis that the
information in Sec. 1006.34(c)(4)(i) through (iii) informs consumers
how to exercise their rights under FDCPA section 809(b) and therefore
is a feature of debt collection. Requiring disclosure of consumer-
response information will help to ensure that the features of debt
collection are fully, accurately, and effectively disclosed to
consumers, such that consumers may better understand the costs,
benefits and risks associated with debt collection.
34(c)(4)(i) Dispute Prompts
FDCPA section 809(a)(4) requires a debt collector to disclose to
consumers their right under FDCPA section 809(b) to dispute the
validity of the debt within 30 days after receipt of the validation
notice.\297\ Proposed Sec. 1006.34(c)(4)(i) provided that consumer-
response information includes statements, situated next to prompts,
that the consumer can use to dispute the validity of a debt and to
specify a reason for that dispute.\298\ Proposed Sec.
1006.34(c)(4)(i), which was designed to work in tandem with Sec.
1006.34(c)(3)(i),\299\ provided that consumer-response information
includes the following four statements, listed in the following order,
using the following phrasing or substantially similar phrasing, each
next to a prompt: ``I want to dispute the debt because I think:'';
``This is not my debt.''; ``The amount is wrong.''; and ``Other:
(please describe on reverse or attach additional information).''
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\297\ 15 U.S.C. 1692g(a)(4).
\298\ 84 FR 23274, 23404-05 (May 21, 2019).
\299\ As finalized, Sec. 1006.34(c)(3)(i) provides that
validation information includes the date the debt collector will
consider the end date of the validation period and a statement that,
if the consumer notifies the debt collector in writing on or before
that date that the debt, or any portion of the debt, is disputed,
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.
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A group of academic commenters and some consumer advocate
commenters supported the dispute prompts described in proposed Sec.
1006.34(c)(4)(i). The academic commenters stated that the prompts would
facilitate consumer disputes because consumers are accustomed to using
forms with prompts, such as drop-down menus in online transactions.
According to these commenters, the Bureau should facilitate consumer
disputes given the low consumer literacy levels in the United States--
particularly among consumers with limited English proficiency (LEP
consumers)--and the FDCPA's least-sophisticated-consumer standard.\300\
These commenters stated
[[Page 5816]]
that facilitating disputes will also benefit industry because consumer
disputes may lead to questionable or invalid debts being removed from
the market.
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\300\ See, e.g., Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d
Cir. 2008) (``We use the `least sophisticated debtor' standard in
order to effectuate the basic purpose of the FDCPA: to protect all
consumers, the gullible as well as the shrewd.'') (citations and
some internal quotation marks omitted); Clomon v. Jackson, 988 F.2d
1314, 1319 (2d Cir. 1993) (``To serve the purposes of the consumer-
protection laws, courts have attempted to articulate a standard for
evaluating deceptiveness that does not rely on assumptions about the
`average' or `normal' consumer. This effort is grounded, quite
sensibly, in the assumption that consumers of below-average
sophistication or intelligence are especially vulnerable to
fraudulent schemes. The least-sophisticated-consumer standard
protects these consumers in a variety of ways.'').
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Other commenters objected to proposed Sec. 1006.34(c)(4)(i).
Industry trade group commenters stated that the proposed dispute
prompts would increase dispute volume and, consequently, debt
collectors would incur additional costs responding to disputes.
Industry commenters stated that higher dispute volumes would overwhelm
debt collectors, making it difficult to identify and process valid
disputes. Industry and industry trade group commenters stated that the
proposed dispute prompts would lead consumers to believe that they had
to dispute the debt, even if they recognized the debt as valid.
Industry and industry trade groups argued that streamlining the dispute
process would encourage frivolous disputes. One industry trade group
stated that requiring a lawyer engaged in debt collection to include
the proposed dispute prompts on a validation notice would constitute
providing legal advice to unrepresented persons, which is a violation
of attorney rules of professional conduct.
Industry and industry trade group commenters stated the proposed
dispute prompts would not solicit enough information for debt
collectors to evaluate disputes. According to commenters, the proposed
dispute prompts are too general and would result in generic disputes
that would increase compliance costs, frustrate dispute investigation,
undermine consumer communication, and increase litigation risk. To
address these concerns, commenters recommended modifications to
proposed Sec. 1006.34(c)(4)(i). Some commenters suggested that the
validation notice provide additional space where a consumer could
include additional dispute detail, update contact information, or
provide communication preferences. Other commenters recommended
replacing the proposed dispute prompts with narrative instructions that
solicit dispute detail and supporting documentation.
As discussed in the section-by-section analysis of Sec.
1006.34(c)(2)(i), commenters stated that some debt collectors receive
payments and other correspondence, including disputes, at separate
addresses. Industry commenters stated that proposed Sec.
1006.34(c)(4)(i) would effectively combine a dispute form with a
payment coupon. According to commenters, a consumer's dispute may not
be processed in a timely fashion if a consumer returns a consumer-
response information form with a dispute to a dedicated payment
address.
Several consumer advocate commenters recommended combining the
proposed dispute prompts into a single prompt. According to these
commenters, a single dispute prompt would be appropriate because the
FDCPA does not require a consumer to specify a reason for a dispute and
a consumer may make unintentional admissions against their interest by
providing details.
Some commenters suggested additional dispute-related prompts.
Consumer advocate commenters recommended prompts for debts discharged
in bankruptcy, debts resulting from identity theft, and debts that were
previously paid or settled. Industry commenters urged the Bureau to add
a general account inquiry prompt. According to one industry commenter,
consumers with an account inquiry may perceive that they have no
alternative but to select a dispute prompt if proposed Sec.
1006.34(c)(4)(i) does not include a general account inquiry prompt.
An industry commenter asked for additional guidance about how the
proposed dispute prompts should be formatted when validation
information is provided on a website.
Consistent with the rationale discussed in the proposal and for the
following reasons, the Bureau is adopting proposed Sec.
1006.34(c)(4)(i).
The Bureau determines that Sec. 1006.34(c)(4)(i) will help
consumers exercise their FDCPA section 809 dispute rights, in part
because prompts are a common feature in written and electronic
communications and most consumers are familiar with the concept. The
Bureau determines that facilitating consumer disputes under FDCPA
section 809 is beneficial, particularly for less sophisticated
consumers. Further, to the extent consumer disputes help remove invalid
debts from circulation, Sec. 1006.34(c)(4)(i) will improve the
efficiency of debt markets.
It is also not clear that finalizing the dispute prompts will
result in a significant increase in consumer disputes compared to
current dispute rates. Section 1006.34(c)(2) will require debt
collectors to disclose more information about the debt and will help
consumers recognize debts they owe. Thus, Sec. 1006.34(c)(2) may
reduce the number of disputes arising from lack of consumer
recognition.
The Bureau disagrees that Sec. 1006.34(c)(4)(i) will make it more
difficult for debt collectors to identify and process valid disputes.
As noted above, Sec. 1006.34(c)(2) should reduce the number of
disputes arising from lack of consumer recognition. Therefore, the
disputes debt collectors receive will be more likely to reflect
problems with the underlying debt. Further, Sec. 1006.34(c)(4)(i)'s
dispute prompts--including Sec. 1006.34(c)(4)(i)(D)'s free-form
dispute prompt--may help consumers articulate and provide more detailed
information about the nature of their disputes. Thus, debt collectors
may better understand the nature of a consumer's dispute and be able to
respond more efficiently than if consumers had provided generic
disputes.
Further, dispute prompts likely will not lead consumers to believe
that they must dispute the debt. The Bureau's consumer testing
indicates that consumers who receive a validation notice understand
that they are not required to dispute a debt.\301\ Further, the Bureau
disagrees that streamlining the dispute process will significantly
increase the frequency of frivolous disputes. As discussed in the
section-by-section analysis of Sec. 1006.34(c)(3)(i) and (v), debt
collectors have not provided evidence that supports the premise that a
significant number of consumers exercise their FDCPA section 809
verification rights solely to evade or avoid paying debts that they
owe. Absent such evidence, the Bureau declines to conclude that
consumers will dispute for such purposes.
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\301\ During one round of testing, approximately 50 percent of
participants stated that they would attempt to ``confirm'' a debt in
response to receiving a validation notice. Participants stated that
they would do so by, for example, contacting either the creditor or
the debt collector. Participants did not report that they would
dispute solely for the purposes of confirming the details of the
debt. See November 2020 Qualitative Testing Report, supra note 34,
at 11.
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The Bureau determines that requiring debt collectors who are
attorneys to include dispute prompts in the consumer-response
information will not cause those debt collectors to violate the
professional rule of conduct against providing legal advice to an
unrepresented person.\302\ The FDCPA
[[Page 5817]]
requires all debt collectors, including debt collectors who are
attorneys, to include in the validation information statements relating
to the consumer's right to dispute the debt. The dispute prompt merely
provides consumers a simple way to exercise that right if the consumer
so chooses; it does not advise the consumer whether to do so. In
addition, the commenter that raised this concern cited no case law,
legal interpretation, or comparable evidence to support the proposition
that including the dispute prompt will be problematic.
---------------------------------------------------------------------------
\302\ See Am. Bar Ass'n, Model Rules of Professional Conduct,
Rule 4.3: Dealing with Unrepresented Person https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_4_3_dealing_with_unrepresented_person/ (last visited Dec. 2,
2020).
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The Bureau is not modifying Sec. 1006.34(c)(4)(i) to provide
additional space for consumers to provide dispute details or to replace
the dispute prompts with narrative instructions. As discussed above,
the Bureau finds that it is unlikely that Sec. 1006.34(c)(4)(i) will
increase generic dispute volume. On the contrary, the dispute prompts--
including the free-form dispute prompt in Sec. 1006.34(c)(4)(i)(D)--
will provide debt collectors with more detailed dispute information
than they receive in many cases today. Further, the free-form dispute
prompt informs consumers that they can provide additional information
on the reverse of the consumer-response-information section (which is
formatted as a tear-off on the model validation notice) or on a
separate page. Thus, there is no need to provide additional space for
dispute detail on the validation notice itself.
Section 1006.34(c)(4)(i) will not lead to disputes being
misdirected to dedicated payment addresses. As discussed in the
section-by-section analysis of Sec. 1006.34(c)(4)(iii), the debt
collector must disclose in the consumer-response information section
the same mailing address disclosed pursuant to Sec. 1006.34(c)(2)(i),
which is the mailing address where the debt collector accepts disputes
and requests for original-creditor information.
The Bureau declines to structure Sec. 1006.34(c)(4)(i) as a single
dispute prompt. As discussed above, the dispute prompts are designed to
help consumers articulate, and debt collectors better understand, the
nature of a consumer's dispute and respond more efficiently than if
consumers had provided generic disputes. Reformulating Sec.
1006.34(c)(4)(i) as a single prompt would undermine this goal.
Meanwhile, the dispute prompts described in Sec. 1006.34(c)(4)(i) do
not contain individualized information that could reasonably result in
a consumer making an unintentional admission against their interest.
The Bureau declines to adopt additional dispute-related prompts.
Additional prompts for debts discharged in bankruptcy, debts resulting
from identity theft, and debts that were previously paid or settled
are, in the aggregate, not feasible and would likely overwhelm
consumers. Further, the Bureau believes the dispute prompts in Sec.
1006.34(c)(4)(i)(B) (this is not my debt) and (C) (the amount is wrong)
essentially capture these scenarios.
The Bureau also declines to add a general account inquiry prompt
distinct from the dispute prompt, as suggested by some commenters who
argued that consumers would use the dispute prompts to obtain general
information. The Bureau's testing has shown that consumers generally
understand that their response options are not limited to selecting a
dispute prompt and that disputing the debt is not the appropriate
method to raise a general question about the account.\303\
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\303\ During usability testing, when participants were asked
what they could do if they did not think they owed the debt, ``all
participants understood that they had options for contacting the
debt collector to dispute the debt,'' which included calling and
writing. FMG Usability Report, supra note 28, at 48. See also
November 2020 Qualitative Testing Report, supra note 34, at 11
(discussion in ``Response to the model validation notice'' section).
---------------------------------------------------------------------------
The Bureau declines to provide additional guidance about formatting
the dispute prompts if validation information is provided on a website.
As discussed in the November 2020 Final Rule, the Bureau did not
finalize several proposed interventions related to electronic delivery
of required notices, including proposed alternative procedures for
providing the validation information on a secure website (proposed
Sec. 1006.42(c)(2)(ii)).\304\ Because the Bureau is not addressing
electronic delivery more broadly, the Bureau declines here to provide
guidance about disclosing validation information on websites. However,
as discussed in the section-by-section analysis of Sec. 1006.34(d)(2),
in contrast to the proposal, debt collectors are not required to use
the model validation notice or a substantially similar form.
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\304\ 85 FR 76734, 76850-55 (Nov. 30, 2020).
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Accordingly, the Bureau is finalizing proposed Sec.
1006.34(c)(4)(i) pursuant to its authority to implement and interpret
FDCPA section 809, as well as its authority under Dodd-Frank Act
section 1032(a).
34(c)(4)(ii) Original-Creditor Information Prompt
FDCPA section 809(a)(5) requires a debt collector to disclose to
consumers their right under FDCPA section 809(b) to request the name
and address of the original creditor, if different from the current
creditor.\305\ Proposed Sec. 1006.34(c)(4)(ii) provided that consumer-
response information includes 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 the consumer could use
to request original-creditor information.\306\ Proposed Sec.
1006.34(c)(4)(ii) was intended to work in tandem with proposed Sec.
1006.34(c)(3)(ii).\307\ The Bureau received no comments specifically
addressing proposed Sec. 1006.34(c)(4)(ii) and is finalizing it as
proposed.
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\305\ 15 U.S.C. 1692g(a)(5).
\306\ 84 FR 23274, 23405 (May 21, 2019).
\307\ As finalized, Sec. 1006.34(c)(3)(ii) provides that
validation information includes the date that the debt collector
will consider the end date of the validation period and a statement
that, if the consumer requests in writing on or before that date the
name and address of the original creditor, the debt collector must
cease collection of the debt until the debt collector sends the
consumer the name and address of the original creditor, if different
from the current creditor.
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34(c)(4)(iii)
FDCPA section 809(b) assumes that a consumer has the ability to
write to a debt collector to exercise the consumer's verification
rights.\308\ Requiring a debt collector to include mailing addresses
for the consumer and the debt collector, along with the consumer-
response information described in Sec. 1006.34(c)(4)(i) and (ii), may
facilitate a consumer's ability to exercise the consumer's verification
rights. The Bureau proposed Sec. 1006.34(c)(4)(iii) to provide that
consumer-response information includes mailing addresses for the
consumer and the debt collector.\309\
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\308\ See 15 U.S.C. 1692g(b).
\309\ 84 FR 23274, 23405 (May 21, 2019).
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An industry trade group stated that some debt collectors use
vendors to receive and process mail from consumers. According to this
commenter, the Bureau should permit a debt collector to disclose the
address at which a debt collector receives mail, even if that address
is not the debt collector's physical address.
The Bureau is finalizing Sec. 1006.34(c)(4)(iii) with a clarifying
revision that addresses the commenter's request regarding letter vendor
mailing addresses. The Bureau is revising Sec. 1006.34(c)(4)(iii) to
provide that the mailing addresses disclosed for the consumer and the
debt collector in the consumer-response information must include the
debt collector's and the
[[Page 5818]]
consumer's names and mailing addresses as disclosed pursuant to Sec.
1006.34(c)(2)(i) and (ii). In turn, the Bureau notes that final Sec.
1006.34(c)(2)(i) and comment 34(c)(2)(i)-2 permit debt collectors to
disclose a vendor's mailing address, if that is an address at which the
debt collector accepts disputes and requests for original-creditor
information. Thus, under the final rule, a debt collector may include a
vendor's address in the consumer-response information if that is the
address that the debt collector discloses pursuant to Sec.
1006.34(c)(2)(i).
The Bureau notes that final Sec. 1006.34(c)(2)(i) and comment
34(c)(2)(i)-1 permit a debt collector to disclose its trade name or
DBA, instead of its legal name. Thus, under the final rule, a debt
collector must disclose its trade name or DBA in the consumer-response
information if that is the name that the debt collector discloses
pursuant to Sec. 1006.34(c)(2)(i).
34(c)(5) Special Rule for Certain Residential Mortgage Debt
FDCPA section 809(a)(1) requires a debt collector to disclose to
consumers the amount of the debt.\310\ As discussed in the section-by-
section analysis of Sec. 1006.34(c)(2)(vi) through (viii), the Bureau
interprets FDCPA section 809(a)(1) to require debt collectors to
disclose three pieces of itemization-related information: The
itemization date; the amount of the debt on the itemization date; and
an itemization of the debt reflecting interest, fees, payments, and
credits since the itemization date.
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\310\ 15 U.S.C. 1692g(a)(1).
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For certain residential mortgage debt covered by TILA, as
implemented by Regulation Z, 12 CFR 1026, 12 CFR 1026.41(b) generally
requires that a periodic statement be delivered or placed in the mail
within a reasonably prompt time after the payment due date or the end
of any courtesy period provided for the previous billing cycle. The
Bureau understands that most residential mortgage debt is subject to
this requirement, although exceptions exist.\311\ The Bureau further
understands that a consumer is provided with such a periodic statement
every billing cycle, even if a loan is transferred between servicers.
Pursuant to 12 CFR 1026.41(d)(3), such a periodic statement must
include a past payment breakdown, which shows the total of all payments
received since the last statement, including a breakdown showing the
amount, if any, that was applied to principal, interest, escrow, fees,
and charges, and the amount, if any, sent to any suspense or unapplied
funds account. The proposal stated that these periodic statement
disclosures may be functionally equivalent to, and as useful for the
consumer as, the information described in proposed Sec.
1006.34(c)(2)(vii) through (ix).\312\
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\311\ The periodic statement requirement pursuant to 12 CFR
1026.41(b) does not apply to open-end consumer credit transactions,
such as a home equity line of credit. See 12 CFR 1026.41(a)(1).
Pursuant to 12 CFR 1026.41(e), certain types of transactions are
exempt from Sec. 1026.41(b)'s periodic statement requirement,
including reverse mortgages, timeshare plans, certain charged-off
mortgage loans, mortgage loans with certain consumers in bankruptcy,
and fixed-rate mortgage loans where a servicer provides the consumer
with a coupon book for payment. Further, small servicers as defined
by 12 CFR 1026.41(e)(4)(ii) are exempt from the periodic statement
requirement.
\312\ 84 FR 23274, 23348 (May 21, 2019).
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Proposed Sec. 1006.34(c)(5) therefore provided that, for debts
subject to Regulation Z, 12 CFR 1026.41, a debt collector need not
provide the validation information described in Sec.
1006.34(c)(2)(vii) through (ix) if the debt collector provided the
consumer, at the same time as the validation notice, a copy of the most
recent periodic statement provided to the consumer under 12 CFR
1026.41(b), and referred to that periodic statement in the validation
notice. Proposed comment 34(c)(5)-1 provided examples clarifying how
debt collectors could comply with Sec. 1006.34(c)(5). Consistent with
the proposal's rationale, and for the reasons discussed below, the
Bureau is adopting Sec. 1006.34(c)(5) and its related commentary with
a substantive modification and a clarification.
Some commenters recommended that the Bureau expand proposed Sec.
1006.34(c)(5) to cover additional debt types. An industry trade group
commenter stated that the Bureau should revise proposed Sec.
1006.34(c)(5) to apply to all residential mortgage debt, including to
transactions that are exempt from Sec. 1026.41(b)'s periodic statement
requirement, such as mortgage loans with certain consumers in
bankruptcy. As discussed in detail in the section-by-section analysis
of Sec. 1006.34(c)(2)(viii), the Bureau received feedback that its
proposed itemization would be incompatible with the account
characteristics of debts in bankruptcy. Thus, this commenter suggested
that the Bureau should revise proposed Sec. 1006.34(c)(5) to permit a
debt collector to reference the consumer's bankruptcy case and the
filed or pending proof of claim instead of providing the itemization-
related disclosures required by Sec. 1006.34(c)(2). Other industry
trade group commenters variously recommended that the special rule
extend to reverse mortgages structured as open-end credit, home-equity
lines of credit, and credit cards.
A consumer advocate commenter recommended that the Bureau revise
proposed Sec. 1006.34(c)(5) to apply only to debts that are currently
subject to Regulation Z, 12 CFR 1026.41, to reduce the likelihood that
a debt collector provides an outdated periodic statement. According to
the commenter, TILA coverage is fluid and a significant amount of time
can elapse between when the creditor provides a last periodic statement
and when the debt collector provides a validation notice. This
commenter recommended that the Bureau revise proposed Sec.
1006.34(c)(5) to provide that the previous periodic statement must have
been provided no more than 31 days before the validation notice is
sent. The commenter also recommended that, if any entity other than the
current servicer provided the most recent periodic statement, the debt
collector must conduct a reasonable investigation to verify the
accuracy of the prior entity's periodic statement or prepare its own
periodic statement.
The Bureau declines to expand Sec. 1006.34(c)(5) to cover
additional debt types. For certain residential mortgage debt, the final
rule permits debt collectors to provide a periodic statement that was
provided under 12 CFR 1026.41(d)(3) in lieu of the information
described in final Sec. 1006.34(c)(2)(vi) through (viii) because those
periodic statement disclosures are functionally equivalent to, and as
useful for the consumer as, that itemization information. This special
rule is not appropriate for the additional debt types recommended by
commenters because those debt types are not subject to prescriptive
disclosure regimes, such as Regulation Z. The Bureau doubts that
disclosures used for those other debt types relate to information that
is functionally equivalent to, or as useful as, the information Sec.
1006.34(c)(2)(vi) through (viii) requires. For instance, mortgage loans
with certain consumers in bankruptcy are exempt from Sec. 1026.41(b)'s
periodic statement requirement.\313\ With respect to debts in
bankruptcy in general, the Bankruptcy Code does not prescribe
disclosure requirements for proofs of claim that are comparable to
Regulation Z, 12 CFR 1026.41(d)(3). As discussed in the section-by-
section analysis of Sec. 1006.34(c)(2)(ix), reverse mortgages are not
subject to prescriptive regulatory requirements for periodic
statements. The periodic statement requirement in 12 CFR 1026.41(b)
does not cover open-end consumer credit transactions,
[[Page 5819]]
including home-equity lines of credit.\314\ With respect to credit card
debt, no special accommodation is necessary as debt collectors can
readily disclose the itemization information pursuant to Sec.
1006.34(c)(2)(vi) through (viii).
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\313\ See 12 CFR 1026.41(e).
\314\ See 12 CFR 1026.41(a)(1).
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The Bureau determines that Sec. 1006.34(c)(5) should apply only to
debts that are currently subject to Regulation Z, 12 CFR 1026.41.
Modifying the proposal to this effect is appropriate to reduce the
likelihood that a debt collector provides an outdated periodic
statement, which may not provide information that is functionally
equivalent to, or as useful as, the information described in Sec.
1006.34(c)(2)(vi) through (viii). The Bureau therefore is revising
proposed Sec. 1006.34(c)(5) and its related commentary to provide that
the special rule only applies to residential mortgage debt if a
periodic statement is required under Regulation Z, 12 CFR 1026.41, at
the time a debt collector provides the validation notice.\315\
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\315\ Under Sec. 1006.34(d)(2)(ii), a debt collector who uses
the model validation notice and who also uses the special rule for
certain residential mortgage debt under Sec. 1006.34(c)(5) receives
a safe harbor for use of the model notice except with respect to the
disclosures that appear on the separate page.
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Accordingly, the Bureau is finalizing Sec. 1006.34(c)(5) as
described above and is finalizing comment 34(c)(5)-1 with minor
revisions for clarity and consistency with provisions of the final
rule.
34(d) Form of Validation Information
34(d)(1) In General
The Bureau proposed Sec. 1006.34(d)(1)(i) to require that the
validation information described in Sec. 1006.34(c) be conveyed in a
clear and conspicuous manner. The Bureau reasoned that FDCPA section
809(a)'s required disclosures would be ineffective unless a debt
collector disclosed them in a manner that was readily understandable to
consumers.\316\ The Bureau received no comments specifically addressing
proposed Sec. 1006.34(d)(1)(i). The Bureau therefore is finalizing it
largely as proposed but renumbered as Sec. 1006.34(d)(1) \317\ and
with a wording change solely for consistency with final Sec.
1006.34(c). The Bureau adopts Sec. 1006.34(d)(1) to implement and
interpret FDCPA section 809(a) and pursuant to its authority under
FDCPA section 814(d) to prescribe rules with respect to the collection
of debts by debt collectors. The Bureau also adopts Sec. 1006.34(d)(1)
pursuant to its authority under section 1032(a) of the Dodd-Frank Act
to prescribe rules to ensure that the features of consumer financial
products and services are disclosed fully, accurately, and effectively.
The Bureau finalizes this requirement on the basis that validation
information is a feature of debt collection and this information must
be readily understandable to be effectively and accurately disclosed.
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\316\ 84 FR 23274, 23348 (May 21, 2019). Section 1006.34(b)(1)
defines clear and conspicuous, and the Bureau responded to comments
on that definition in the section-by-section analysis of Sec.
1006.34(b)(1).
\317\ As discussed under the heading Proposed Provision Not
Finalized in this section-by-section analysis, the Bureau is not
finalizing proposed Sec. 1006.34(d)(1)(ii) and therefore is
finalizing proposed Sec. 1006.34(d)(1)(i) as Sec. 1006.34(d)(1).
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Proposed Provision Not Finalized
As noted at the outset of the section-by-section analysis of Sec.
1006.34, the Bureau proposed that debt collectors could use the model
validation notice to comply with the disclosure requirements proposed
in Sec. 1006.34(a)(1)(i) and (d)(1).\318\ In turn, the Bureau proposed
Sec. 1006.34(d)(1)(ii) to require that, if provided in a validation
notice, the content, format, and placement of the validation
information in Sec. 1006.34(c) and the optional disclosures in Sec.
1006.34(d)(3) must be substantially similar to the model validation
notice. Proposed comment 34(d)(1)(ii)-1 explained that a debt collector
could make certain changes as long as the resulting disclosures were
substantially similar to the model validation notice, and it provided
an example of a change that debt collectors may make to the validation
notice if the consumer is deceased.
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\318\ As discussed in the section-by-section analysis of Sec.
1006.34(d)(1), the Bureau proposed Sec. 1006.34(d)(1)(i) to require
that required validation information be provided in a clear and
conspicuous manner.
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While some industry, industry trade group, and consumer advocate
commenters supported proposed Sec. 1006.34(d)(1)(ii), other industry
and industry trade group commenters raised concerns that the proposed
model validation notice would not accommodate all debt types and debt
collection practices, suggesting that some debt collectors therefore
would be unable to comply with proposed Sec. 1006.34(d)(1)(ii). At
least two commenters, including a debt buyer specializing in medical
debt, stated that the proposed model validation notice was not well-
suited for non-financial debts, such as medical debts. A number of
commenters objected to the proposal because it would not allow debt
collectors to combine multiple debts in a single validation notice or
place multiple validation notices in one envelope. Commenters asked the
Bureau to modify proposed Sec. 1006.34(d)(1)(ii) to provide debt
collectors more flexibility to customize validation notices to
accommodate their business practices and the types of debts they
collect.
As discussed in the section-by-section analysis of Sec.
1006.34(d)(2), the Bureau has determined that a model validation notice
will benefit consumers and industry. However, based in part on feedback
from commenters, the Bureau also has determined that proposed Sec.
1006.34(d)(1)(ii) was overly prescriptive. Proposed Sec.
1006.34(d)(1)(ii) would have required any validation notice provided by
a debt collector to be substantially similar to the model validation
notice. Such a requirement could cause some debt collectors to face
undue compliance challenges depending on their business practices and
the types of debts they collect.
For this reason, the Bureau is not finalizing proposed Sec.
1006.34(d)(1)(ii) and its related commentary. Instead, as discussed in
the section-by-section analysis of Sec. 1006.34(d)(2), the Bureau is
adopting a more flexible framework in which debt collectors need not
use either the model validation notice, specified variations of the
model notice, or a substantially similar form, but debt collectors who
do so will receive a safe harbor for compliance with the information
and form requirements of Sec. 1006.34(c) and (d)(1).\319\ This
flexible framework is more consistent with model form safe harbors in
other consumer financial regulations.\320\ The Bureau determines that
this new framework will accommodate industry without significantly
increasing risks to consumers because the Bureau believes it is likely
that, if possible, debt collectors will use the model validation
notice, specified variations of the model notice, or a substantially
similar form to receive the compliance safe harbor. The Bureau notes
that a debt collector who provides the validation information in a form
that is not substantially similar either to the model validation notice
or to a specified variation of the model notice also is subject to the
FDCPA section 807 prohibition on false or misleading representations
and the FDCPA section 809(b) prohibition on overshadowing.
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\319\ The Bureau is relocating and repurposing some of the
proposed text of Sec. 1006.34(d)(1)(ii) and comment 34(d)(1)(ii)-1
to Sec. 1006.34(d)(2). See the section-by-section analysis of Sec.
1006.34(d)(2).
\320\ 15 U.S.C. 1601 et seq.
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[[Page 5820]]
34(d)(2) Safe Harbor
As discussed, the Bureau proposed Sec. 1006.34(d)(2) to provide,
pursuant to its authority under Dodd-Frank Act section 1032(b), that a
debt collector who uses the model validation complies with the
disclosure requirements of Sec. 1006.34(a)(1)(i) and (d)(1).\321\
Proposed comment 34(d)(2)-1 provided certain details regarding use of
the model validation notice. Under proposed Sec. 1006.34(d)(2) and as
explained in proposed comment 34(d)(2)-1, although use of the model
validation notice was not required, debt collectors would have received
a safe harbor for compliance only if they used the model validation
notice. Under proposed Sec. 1006.34(d)(2), debt collectors would not
have received a safe harbor if they used a form that was substantially
similar to the model validation notice.
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\321\ 84 FR 23274, 23405 (May 21, 2019). As discussed elsewhere
in part V, proposed Sec. 1006.34(a)(1)(i) provided that debt
collectors must send validation notices containing the information
described in proposed Sec. 1006.34(c) to consumers in a manner
permitted by Sec. 1006.42 (i.e., in a manner reasonably expected to
provide actual notice and in a form that the consumer may keep and
access later). And proposed Sec. 1006.34(d)(1) provided that debt
collectors must provide such validation information clearly and
conspicuously.
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As discussed below, the Bureau is finalizing proposed Sec.
1006.34(d)(2) and comment 34(d)(2)-1 with significant revisions to,
among other things, provide that debt collectors may obtain a safe
harbor for compliance with the validation information disclosure
requirements by using either the model validation notice, specified
variations of the model notice, or a substantially similar form. The
Bureau is finalizing new commentary to provide additional details
regarding the revised safe harbor framework.
Industry and industry trade group commenters overall supported
providing a safe harbor to debt collectors who use the model validation
notice. An industry and an industry trade group commenter stated that a
safe harbor would reduce frivolous litigation and compliance costs. An
industry commenter stated that not requiring debt collectors to use the
model validation notice would help to ensure that debt collectors can
provide validation notices in a manner consistent with their business
practices and the debt types they collect.
Some industry commenters asked the Bureau to specify what optional
disclosures could be added to the model notice. A number of industry
and industry trade group commenters also asked the Bureau to further
clarify what changes debt collectors could make to the model validation
notice and still receive the safe harbor.
Relatedly, some industry and industry trade group commenters asked
the Bureau to clarify the meaning of ``substantially similar,'' and two
industry trade group commenters recommended that the Bureau adopt
Regulation Z's definition of substantially similar. Some industry and
industry trade group commenters recommended that the Bureau expand
Sec. 1006.34(d)(2) to provide that debt collectors who use the model
validation notice comply with FDCPA section 807's prohibition on false
or misleading statements and FDCPA section 809(b)'s overshadowing
prohibition.\322\
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\322\ See 15 U.S.C. 1692e; see also 15 U.S.C. 1692g(b) (``Any
collection activities and communication during the 30-day period may
not overshadow or be inconsistent with the disclosure of the
consumer's right to dispute the debt or request the name and address
of the original creditor.'').
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A group of consumer advocate commenters stated that proposed Sec.
1006.34(d)(2) was too broad. Specifically, according to the commenter,
the safe harbor's cross-reference to Sec. 1006.34(a)(1)(i) was
overbroad because simply using the model validation notice does not
mean that the debt collector sent the validation notice in an initial
communication or within five days of the initial communication as
required by Sec. 1006.34(a)(1)(i). This commenter recommended that the
Bureau remove the reference to Sec. 1006.34(a)(1)(i) from Sec.
1006.34(d)(2).
After considering this feedback, and to clarify each of the ways in
which a debt collector may receive a safe harbor for compliance with
the final rule's validation information disclosure requirements, the
Bureau is finalizing Sec. 1006.34(d)(2) and its related commentary
with significant revisions, as follows.
34(d)(2)(i) In General
First, the Bureau is finalizing Sec. 1006.34(d)(2)(i) to provide
that, as proposed, a debt collector who uses the model validation
notice receives a safe harbor for compliance with the final rule's
validation information disclosure requirements. The Bureau determines
that a safe harbor is appropriate because the model validation notice
will effectively disclose information required by Sec. 1006.34(c), and
the safe harbor will incentivize debt collectors to use the model
notice.
The Bureau agrees that the Sec. 1006.34(d)(2) safe harbor should
not cover delivery of the validation notice. The Bureau recognizes the
risk that a debt collector could deliver the model validation notice in
an ineffective manner and that, as a result, the notice would be
delayed or never received by the consumer. The Bureau does not intend
Sec. 1006.34(d)(2) to provide a safe harbor in such a scenario. For
this reason, the Bureau is finalizing Sec. 1006.34(d)(2)(i) to specify
that the safe harbor for use of the model notice covers only compliance
with the information and form requirements of final Sec. 1006.34(c)
and (d)(1).
In response to comments requesting clarity about the use of
optional disclosures on the model notice, the Bureau is finalizing
Sec. 1006.34(d)(2)(i) to squarely address how the safe harbor applies
with respect to the Sec. 1006.34(d)(3) optional disclosures.\323\
First, the Bureau clarifies, as was intended in the proposal, that a
debt collector may include any or all of the Sec. 1006.34(d)(3)
optional disclosures without losing the safe harbor pursuant to Sec.
1006.34(d)(2). Specifically, final Sec. 1006.34(d)(2)(i) provides that
the model validation notice contains the validation information
required by Sec. 1006.34(c) and certain optional disclosures permitted
by Sec. 1006.34(d)(3). Section 1006.34(d)(2)(i) further provides that
a debt collector who uses the model validation notice complies with the
information and form requirements of Sec. 1006.34(c) and (d)(1),
including if the debt collector: Omits any or all of the optional
disclosures shown on the model notice (see Sec. 1006.34(d)(2)(i)(A));
or adds any or all of the optional disclosures described in Sec.
1006.34(d)(3) that are not shown on the model notice (see Sec.
1006.34(d)(2)(i)(B)), provided that any such optional disclosures are
no more prominent than any of the required validation information.\324\
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\323\ Proposed Sec. 1006.34(d)(3) specified that a debt
collector who used the model validation notice could include any of
the optional disclosures along with the validation information
without losing the Sec. 1006.34(d)(2) safe harbor for compliance.
\324\ The model validation notice includes the following
optional disclosures permitted by Sec. 1006.34(d)(3), each of which
is described in more detail in the section-by-section analysis
below: (1) Debt collector telephone contact information (see Sec.
1006.34(d)(3)(i)); (2) reference code (see Sec. 1006.34(d)(3)(ii));
(3) payment disclosures (see Sec. 1006.34(d)(3)(iii)); (4) a
statement referring to disclosures made under applicable law on the
reverse of the validation notice (see Sec. 1006.34(d)(3)(iv)(A));
(5) debt collector's website (see Sec. 1006.34(d)(3)(v)(A)); (6)
statement explaining how a consumer can dispute the debt or request
original-creditor information electronically (see Sec.
1006.34(d)(3)(v)(B)); (7) Spanish-language translation disclosures
(see Sec. 1006.34(d)(3)(vi)); (8) merchant brand information (see
Sec. 1006.34(d)(3)(vii)); and (9) for debt not related to a
consumer financial product or service, the information specified in
Sec. 1006.34(c)(2)(iii) or (c)(3)(iv) (i.e., name of the creditor
to whom the debt was owed on the itemization date and Bureau's debt
collection website, respectively) (see Sec. 1006.34(d)(3)(viii)).
The model validation notice does not include the following optional
disclosures permitted by Sec. 1006.34(d)(3): (1) Time-barred debt
disclosures made under applicable law on the front of the validation
notice (see Sec. 1006.34(d)(3)(iv)(B)); (2) debt collector email
address (see Sec. 1006.34(d)(3)(v)(A)); and (3) affinity brand or
facility name information (but, as noted above, merchant brand
information is shown on the model notice in the same location) (see
Sec. 1006.34(d)(3)(vii)).
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[[Page 5821]]
The requirement that any Sec. 1006.34(d)(3) optional disclosures
that are added to the model validation notice be no more prominent than
any of the validation information is designed to ensure that any such
optional disclosures do not overload consumers with information or
distract them from the required validation information. A debt
collector who chooses to include one or more of the Sec. 1006.34(d)(3)
optional disclosures that do not appear on the model validation notice,
but who violates the no-more-prominent requirement, loses the safe
harbor under Sec. 1006.34(d)(2) and may violate Sec. 1006.34
depending on the facts and circumstances.
As discussed in the section-by-section analysis of Sec.
1006.34(c)(1), a consumer advocate commenter asked the Bureau to
clarify what version of the FDCPA section 807(11) disclosure should
appear on the validation notice: The longer, initial disclosure
described in Sec. 1006.18(e)(1) or the shorter, subsequent disclosure
described in Sec. 1006.18(e)(2). The model validation notice includes
the disclosure required by Sec. 1006.18(e)(1). The Bureau is adopting
new comment 34(d)(2)(i)-1 to clarify that a debt collector who uses the
model notice to provide a validation notice as described in Sec.
1006.34(a)(1)(i)(B)--i.e., a debt collector who provides the validation
notice within five days of the initial communication--may replace the
disclosure required by Sec. 1006.18(e)(1) with the disclosure required
by Sec. 1006.18(e)(2) without losing the safe harbor provided by use
of the model notice. Comment 34(d)(2)(i)-1 also refers to comment
34(c)(1)-1 for further guidance related to providing the disclosure
required by Sec. 1006.18(e) on a validation notice.
The Bureau declines to extend the Sec. 1006.34(d)(2) safe harbor
to cover compliance with FDCPA section 807's prohibition on false or
misleading statements. A debt collector who uses the model validation
notice is still capable of making false or misleading statements to
consumers in the notice. For example, a debt collector using the model
validation notice could include false or misleading information about
the debt, such as an inflated current amount of the debt.
However, the Bureau agrees that debt collectors who use the model
validation notice should have a safe harbor for compliance with FDCPA
section 809(b)'s overshadowing prohibition. The Bureau provides a safe
harbor to that effect in Sec. 1006.38(b). The section-by-section
analysis of Sec. 1006.38(b) discusses this change in further detail.
34(d)(2)(ii) Certain Disclosures on a Separate Page
To conform with modifications in other sections of the Rule that
permit debt collectors to make certain itemization-related disclosures
on separate pages, the Bureau is finalizing new Sec.
1006.34(d)(2)(ii). As discussed in the section-by-section analysis of
Sec. 1006.34(c)(2)(viii), when disclosing the itemization of the
current amount of the debt, a debt collector has the option of
disclosing that itemization on a separate page. As discussed in the
section-by-section analysis of Sec. 1006.34(c)(5), the final rule
establishes a special rule for certain residential mortgage debt that
permits a debt collector, subject to certain conditions, to provide a
periodic statement under Regulation Z, 12 CFR 1026.41, instead of the
itemization-related validation information required by Sec.
1006.34(c)(2)(vi) through (viii).
Section 1006.34(d)(2)(ii) establishes how these provisions interact
with the safe harbor provided by use of the model notice. Specifically,
Sec. 1006.34(d)(2)(ii) establishes that a debt collector who uses the
model validation notice and makes certain disclosures on a separate
page pursuant to Sec. 1006.34(c)(2)(viii) or (5) may still receive a
safe harbor for use of the model notice except with respect to the
disclosures that appear on the separate page.
34(d)(2)(iii) Substantially Similar Form
As discussed in the section-by-section analysis of Sec.
1006.34(d)(1), the Bureau has determined that debt collectors should
receive a safe harbor for the information and form requirements of
Sec. 1006.34(c) and (d)(1) if they use a form that is substantially
similar to the model validation notice. The Bureau determines that, so
long as a form is substantially similar to the model notice, the
validation information disclosures will remain effective; the Bureau
therefore is finalizing Sec. 1006.34(d)(2) to provide this flexibility
for debt collectors.
For this reason, final Sec. 1006.34(d)(2)(iii) provides that a
debt collector who uses the model validation notice as described in
Sec. 1006.34(d)(2)(i) or (ii) may make changes to the form and retain
a safe harbor for compliance with the information and form requirements
of Sec. 1006.34(c) and (d)(1), provided that the form remains
substantially similar to the model notice. (As discussed elsewhere in
this Notice, a debt collector may comply with the requirements in Sec.
1006.34(c) and (d)(1) without using the model validation notice.)
Final comment 34(d)(2)(iii)-1 provides details regarding the
meaning of substantially similar, as requested by commenters, including
examples of permissible changes. The Bureau believes that these are
differences that may be useful to debt collectors and consumers and
will not increase the risk of consumer harm.
One permissible change relates to deceased consumers. Comment
34(d)(2)(iii)-1 incorporates proposed comment 34(d)(1)(ii)-1, which
discussed changes that debt collectors could make if the consumer were
deceased. The Bureau proposed comment 34(d)(1)(ii)-1 to explain that a
debt collector may make certain changes to the content, format, and
placement of the validation information described in Sec. 1006.34(c)
as long as the resulting disclosures are substantially similar to the
model notice. Proposed comment 34(d)(1)(ii)-1 also provided an example
of a change that debt collectors may make to the model validation
notice if the consumer is deceased.
The Bureau explained that, although the model validation notice
will contain the name of the deceased consumer, some persons who are
authorized to act on behalf of the deceased consumer's estate may be
misled by the use of second person pronouns such as ``you'' in the
validation notice. For example, the proposed model validation notice
stated that ``you owe'' the debt collector. While nothing in the
proposal would have prohibited a debt collector from including a cover
letter to explain the nature of the validation notice, proposed comment
34(d)(1)(ii)-1 also clarified that a debt collector could modify
inapplicable language in the validation notice that could suggest that
the recipient of the notice was liable for the debt. For example, if a
debt collector sent a validation notice to a person authorized to act
on behalf of the deceased consumer's estate, and if that person was not
liable for the debt, the debt collector could use the deceased
consumer's name instead of ``you.''
[[Page 5822]]
The Bureau received a few comments on proposed comment
34(d)(1)(ii)-1. One trade group commenter recommended that the Bureau
allow debt collectors to replace second-person pronouns with references
to the estate, such as ``the estate's bill.'' A group of consumer
advocates stated that, although the comment's example would be
appropriate in certain circumstances, the Bureau should provide an
entirely separate model validation notice for decedent debt because,
these commenters believed, debt collectors would be unlikely to diverge
from the model notice. Two trade group commenters also asked the Bureau
to create a second model validation notice for decedent debt.
The Bureau is incorporating proposed comment 34(d)(1)(ii)-1 into
comment 34(d)(2)(iii)-1, which clarifies that a debt collector may make
changes to the model validation notice and retain the safe harbor
provided by use of the model notice. Because the example regarding
decedent debt is illustrative, nothing in comment 34(d)(2)(iii)-1
prohibits a debt collector from making other substantially similar
modifications, such as referring to the estate rather than ``you,''
while still retaining the safe harbor. As explained elsewhere in this
section-by-section analysis, the Bureau declines to create separate
model forms for certain types of debt. The Bureau has modified the
model-form-safe-harbor framework under Sec. 1006.34(d)(2) to afford
debt collectors more flexibility to customize validation information to
accommodate their business practices and the types of debts they
collect. Within identified limits, debt collectors may make changes to
the model validation notice and still meet the standard for a safe
harbor under Sec. 1006.34(d)(2).
Comment 34(d)(2)(iii)-1 also includes four new examples of other
permissible changes: Relocating the consumer-response information
required by Sec. 1006.34(c)(4) to facilitate mailing; adding barcodes
or QR codes, as long as the inclusion of such items does not violate
Sec. 1006.38(b); adding the date the form is generated; and embedding
hyperlinks, if delivering the form electronically, which was proposed
in comment 34(d)(2)-1.
The Bureau clarifies that, if a debt collector includes disclosures
other than (1) the required validation information, (2) any optional
disclosures described in Sec. 1006.34(d)(3), or (3) any disclosures
that, if included, still leave the form substantially similar in
substance, clarity, and meaningful sequence to the model notice, then
the safe harbor does not apply with respect to the entirety of the
validation notice. Except as described in Sec. 1006.34(d)(2)(ii), the
Bureau has determined not to apply the safe harbor on a partial (i.e.,
disclosure-by-disclosure) basis because it is not clear how disclosures
other than those referenced above would interact with the validation
information.\325\ Final comment 34(d)(2)-1 clarifies that a debt
collector who provides a validation notice that is neither a notice
described in Sec. 1006.34(d)(2)(i) or (ii), nor a substantially
similar notice as described in Sec. 1006.34(d)(2)(iii), does not
receive a safe harbor for compliance with the information and form
requirements of Sec. 1006.34(c) and (d)(1). The Bureau notes that a
debt collector who adds disclosures to the model validation notice that
are not referenced above nevertheless may be able to comply with the
requirements in Sec. 1006.34(c) and (d)(1), Sec. 1006.38(b)(1), and
other requirements of the FDCPA and this final rule.
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\325\ As described in Sec. 1006.34(d)(2)(ii), a debt collector
who includes certain itemization-related disclosures on a separate
page in the same communication with the validation notice, and who
includes on the front of the notice the required statement referring
to those disclosures, receives a safe harbor for compliance with the
information and form requirements of Sec. 1006.34(c) and (d)(1)
except with respect to the disclosures that appear on the separate
page.
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Model Validation Notice
While the majority of industry commenters who commented on the
topic supported the idea of a model form, some criticized the design of
the proposed model validation notice. At least two industry commenters
stated that the proposed model notice contained too much content and
would overwhelm consumers. One commenter criticized the proposed model
notice for departing from the prevailing industry design for validation
notices. A number of identical or nearly identical comments suggested
that consumers would confuse the proposed model notice for a government
document, such as an IRS notice, but did not explain what in particular
about the model notice they believed would cause such consumer
confusion.
The Bureau's findings do not support the conclusions that the model
notice contains too much content or will overwhelm consumers. The model
validation notice was developed and validated over multiple rounds of
consumer testing that support its efficacy and comprehensibility. The
fact that the model validation notice departs from prevailing industry
design is intended. As the proposal noted, many validation notices used
today are confusing and lack sufficient information to help consumers
recognize their debts or exercise their FDCPA verification rights.\326\
With the model validation notice, the Bureau has developed an improved
validation notice that benefits both consumers and debt collectors. In
quantitative testing, the model validation notice consistently
performed better than or equal to a ``status quo'' notice designed to
resemble validation notices that some debt collectors use today.\327\
The Bureau also disagrees that the model validation notice resembles a
government document; the form clearly discloses that it is from a debt
collector, not the government.
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\326\ See 84 FR 23274, 23338 (May 21, 2019).
\327\ CFPB Quantitative Testing Report, supra note 31, at 13-16.
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A number of consumer advocate and academic commenters asserted that
the proposed model notice was not adequately tested. Some of these
commenters stated that the Bureau's testing included too few
participants to generate valid conclusions about the proposed model
notice's efficacy or to evaluate the comprehension of consumers,
particularly of the least sophisticated consumers. For instance, a
consumer advocate commenter expressed concern that only 60 consumers
were included in the cognitive and usability testing rounds.\328\
Likewise, an academic commenter stated that the Bureau's consumer
testing focused too heavily on observing what testing participants
looked at on the model notice (based on the use of eye tracking
techniques) at the expense of testing participants' comprehension of
the notice. Another commenter stated that the Bureau should have tested
more diverse groups, including consumers with limited English
proficiency, students, older consumers, and consumers from more diverse
socioeconomic backgrounds. Some consumer advocate and academic
commenters recommended that the Bureau field test the proposed model
notice with consumers with real debts. A consumer advocate expressed
concern about the performance of certain aspects of the proposed model
notice in quantitative testing, noting in particular that approximately
40 percent of respondents who received the model notice failed to
identify the correct entity the consumer should pay.\329\
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\328\ See FMG Summary Report, supra note 29, at 5-7.
\329\ Several comments in response to the May 2019 proposal also
criticized the consumer testing as being outdated because, when that
proposal was published, the most recent testing had occurred in
2016. However, the Bureau does not find any reason to believe that
consumer understanding of the model notice has changed since 2016,
and the commenters did not provide any evidence to support such a
claim. Moreover, since the May 2019 proposal, the Bureau has
conducted two additional testing rounds.
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[[Page 5823]]
The Bureau disagrees that the model notice was not adequately
tested. The model validation notice was developed and validated over
multiple rounds of testing between 2014 and 2020, and the Bureau
determines that these multiple rounds of testing were sufficient to
assess the model validation notice's efficacy and comprehensibility.
Further, the Bureau disagrees that its testing focused on eye-tracking
at the expense of comprehension testing as consumer comprehension of
the model validation notice was assessed in three rounds of testing.
The Bureau's testing used eye-tracking in conjunction with consumer
responses to inform its conclusions.
The Bureau disagrees that it did not sample sufficiently diverse
groups. The Bureau selected respondents with the goal of developing
diverse testing pools that would serve as a proxy for the population at
large. For example, in one round of usability testing, participants
reflected a range of demographic characteristics broken down by race
and ethnicity, household income, education level, and employment
status.\330\ With respect to criticism that the Bureau did not ``field
test'' the model validation notice, testing the form with consumers
with real debts would have been impractical. Regarding comments that
the model validation notice did not perform well during the
quantitative testing round, the Bureau disagrees. As noted above, in
that testing round, the model validation notice consistently performed
better than or equal to the status quo notice, including on the
question of to whom the consumer should send a payment.\331\
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\330\ FMG Usability Report, supra note 28, at 85-87.
\331\ In response to the question ``According to the notice, if
Person A wanted to make a payment on the debt, who should he or she
sent the payment to?'' approximately 60 percent of consumers who
received the model validation notice answered correctly compared to
approximately 40 percent of consumers who received a status quo
notice. CFPB Quantitative Testing Report, supra note 31, at 14.
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Commenters provided feedback on specific aspects of the proposed
validation notice, including the notice's disclosure of the FDCPA
section 809(a)(4) dispute right. As discussed, Sec. 1006.34(c)(3)(i),
which implements FDCPA section 809(a)(4), requires debt collectors to:
(1) Disclose the date the debt collector will consider the end date of
the validation period; and (2) state that, if the consumer notifies the
debt collector in writing on or before that date that the debt, or any
portion of the debt, is disputed, the debt collector must cease
collection of the debt, or the disputed portion of the debt, until the
debt collector sends the consumer either verification of the debt or a
copy of a judgment. The proposed model notice showed this disclosure
as: ``Call or write to us by November 12, 2019, to dispute all or part
of the debt . . . . If you write to us by November 12, 2019, we must
stop collection on any amount you dispute until we send you information
that shows you owe the debt.''
Some commenters criticized the phrase ``shows you owe the debt.''
Industry and industry trade group commenters stated that ``shows you
owe the debt'' would require debt collectors to prove that consumers
owe the debt. According to these commenters, this would modify the
verification standard established by FDCPA section 809 and expose debt
collectors to increased litigation risk.\332\ Thus, these commenters
recommended that the Bureau revise the proposed model notice to mirror
the FDCPA's statutory text.\333\ In contrast, a group of academic
commenters stated that the verification standard established by case
law is more robust than the phrase ``shows you owe the debt''
suggests.\334\ These commenters expressed concerns that the proposed
model notice would diminish the FDCPA's verification standard.
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\332\ An industry commenter stated that courts define
verification narrowly and have not imposed a duty upon debt
collectors to establish that a debt is owed. See Walton v. EOS CCA,
885 F.3d 1024, 1027-28 (7th Cir. 2018) (``The verification assures
the consumer that the creditor actually made the demand the debt
collector said it did and equips the consumer to evaluate the
validity of the creditor's claim. It would be both burdensome and
significantly beyond the Act's purpose to interpret Sec. 1692g as
requiring a debt collector to undertake an investigation into
whether the creditor is actually entitled to the money it seeks.'');
Haddad v. Alexander, Zelmanski, Danner & Fioritto, 758 F.3d 777 (6th
Cir. 2014); Dunham v. Portfolio Recovery Assocs., 663 F.3d 997, 1003
(8th Cir. 2001) (citing Chaudhry v. Gallerizzo, 174 F.3d 394 (4th
Cir. 1999)).
\333\ For instance, one commenter recommended that the model
notice should state ``verifies the amount of the debt claimed''
instead of ``shows you owe the debt.''
\334\ In Haddad, the court wrote that a verifying debt collector
``should provide the date and nature of the transaction that led to
the debt, such as a purchase on a particular date, a missed rental
payment for a specific month, a fee for a particular service
provided at a specified time, or a fine for a particular offense
assessed on a certain date.'' 758 F.3d at 786.
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The Bureau is not changing the final model validation notice's
disclosure of the FDCPA section 809(a)(4) dispute right. The Bureau
does not intend to modify FDCPA section 809's verification standard and
disagrees that the phrase ``shows you owe the debt'' has that effect.
``Shows you owe the debt'' is a plain-language phrase that the Bureau
is adopting to improve consumer understanding. This rulemaking does not
interpret what constitutes verification under FDCPA section 809.
The Bureau received comments on the model notice's description of
the dispute rights under FDCPA section 809(a)(3) and (4). Under FDCPA
section 809(a)(3), disputes can be made orally or in writing, which the
proposed model notice showed in part as: ``Call or write to us by
November 12, 2019, to dispute all or part of the debt.'' However, under
FDCPA section 809(a)(4) and (b), requests for verification must be made
in writing to have effect under the statute.\335\ An academic commenter
and at least two consumer advocates expressed concern that the proposed
model notice's description of these dispute rights was too nuanced, and
consumers would not understand that they must write to request
verification. To address this concern, a commenter recommended that the
Bureau revise the model notice to state, ``Call us to dispute. But if
you do call, we may not be required to send information that shows you
owe the debt.'' \336\ An industry trade group expressed uncertainty
about why the proposed model notice used the phrase ``call or write''
as opposed to ``write'' in different sentences.
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\335\ While FDCPA section 809 requires a debt collector to honor
only written verification requests, the Bureau understands that some
debt collectors honor both written and non-written verification
requests. Nothing in the FDCPA, the November 2020 Final Rule, or
this rule prevents such debt collectors from continuing to do so.
\336\ This recommendation is based on phrasing that the Bureau
adopted for usability testing. As noted in the usability testing
report, consumers who reviewed validation notices using this
phrasing ``exhibited less confusion'' about the distinction between
how a debt collector would be required to respond when receiving a
dispute in writing or by telephone. See FMG Usability Report, supra
note 28, at 55-56.
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The Bureau acknowledges that the dispute rights under FDCPA section
809(a)(3) and (4) may not be intuitive to some consumers. Nevertheless,
the Bureau settled on the current phrasing in the model validation
notice to emphasize the validation period end date as opposed to the
actions--i.e., calling or writing--that a consumer may take. In
general, the model validation notice has tested well. The Bureau is
concerned that revising or adding content to clarify the consequences
of writing versus calling may undermine the overall efficacy of the
form. Further, this clarification would be unnecessary in many cases.
The Bureau expects that many consumers will visit the Bureau's website
for more detailed information
[[Page 5824]]
regarding consumer protections in debt collection.\337\ However, to
provide further clarity, the Bureau has reformatted how these dispute
rights appear on the model validation notice. Specifically, the dispute
rights now appear in separate bullets with bolded text for
comprehension purposes.
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\337\ If the debt collector is collecting debt related to a
consumer financial product or service as defined in Sec.
1006.34.2(f), a statement that informs the consumer that additional
information regarding consumer protections in debt collection is
available on the Bureau's website is required under Sec.
1006.34(c)(3)(iv). If the debt collector is collecting debt other
than debt related to a consumer financial product or service, such a
statement is optional under Sec. 1006.34(d)(3)(viii).
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Commenters provided feedback on the proposed model validation
notice's original-creditor-information request disclosure pursuant to
FDCPA section 809(a)(5). Section 1006.34(c)(3)(ii), which implements
this provision, requires debt collectors to disclose the date the debt
collector will consider the end date of the validation period and a
statement that, if the consumer requests in writing on or before that
date the name and address of the original creditor, the debt collector
must cease collection of the debt until the debt collector sends the
consumer the name and address of the original creditor, if different
from the current creditor. The proposed model notice showed this
disclosure as: ``Write to ask for the name and address of the original
creditor. If you write by November 12, 2019, we will stop collection
until we send you that information.'' An industry commenter stated
that, by omitting the phrase ``if different from the current
creditor,'' the proposed model notice would compel debt collectors to
respond to original-creditor-information requests, even if the current
creditor is the original creditor. A consumer advocate supported the
omission, arguing that debt collectors should be required to respond to
all original-creditor-information requests, even if the current
creditor and the original creditor are the same.
The Bureau concludes that the model validation notice should
include the statutory phrase ``if different from the current creditor''
when disclosing the original-creditor-information request right. Thus,
as finalized, the model validation notice includes the phrase ``if
different from the current creditor.'' Further, as discussed below, the
Bureau is finalizing new Sec. 1006.38(c)(2), which sets forth an
alternative procedure that a debt collector may use to respond to a
consumer's request for original-creditor information when the original
creditor is the same as the current creditor.
Commenters recommended two other modifications to the proposed
model notice. To emphasize the distinction between the debt collector
and the creditor, an industry trade group commenter suggested that the
Bureau revise the proposed model notice to emphasize that ``North South
Group is a debt collector, not a creditor.'' Another industry trade
group stated that the model notice should incorporate account
information into the mini-Miranda disclosure, which would frontload
information that would help consumers recognize alleged debts and
thereby reduce the number of disputes debt collectors receive. An
industry trade group commenter stated that the proposed model notice is
not properly formatted for standard mailing envelopes. According to the
commenter, Sec. 1006.34(c)(4)'s consumer-response information section
will not fit a standard glassine window return envelope.
The Bureau declines other recommendations to modify the model
validation notice. The Bureau declines to specify that North South
Group is ``not a creditor,'' as consumer testing indicates that
consumers generally have a functional understanding that North South
Group is a debt collector.\338\ The Bureau declines to modify the debt
collection disclosure required by FDCPA section 807(11) and Sec.
1006.18(e) as finalized in the November 2020 Final Rule. The Bureau
concludes that combining this statutory disclosure with account
information would undermine its clarity and purpose. The Bureau
declines to modify the model notice in response to feedback that the
form is not properly formatted for standard mailing envelopes. Comment
34(d)(2)(iii)-1 clarifies that debt collectors may relocate the
consumer-response information required by Sec. 1006.34(c)(4) to
facilitate mailing without losing the safe harbor provided by Sec.
1006.34(d)(2). Thus, the Bureau determines that debt collectors will be
able to format the form for mailing.
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\338\ During November 2020 usability testing, 98 percent of
participants correctly identified North South Group as the correct
party to send payments to. Further, participants generally
understood that they could dispute the debt with North South Group.
See November 2020 Qualitative Testing Report, supra note 34, at 15.
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Various commenters requested that the Bureau publish additional
model validation notices to address specific scenarios. Several
consumer advocate commenters urged the Bureau to translate the model
notice into other languages, including Spanish. An industry trade group
commenter recommended that the Bureau develop a model notice that debt
collectors could use with consumers who are not obligated on the debt,
such as heirs, successors in interest, and consumers whose debts were
discharged in bankruptcy. An industry commenter recommended that the
Bureau create a model notice that omits all optional disclosures.
The Bureau declines to create additional model validation notice
forms. As discussed earlier in this section-by-section analysis, the
Bureau has modified the model-form-safe-harbor framework under Sec.
1006.34(d)(2) to afford debt collectors more flexibility to customize
validation information to accommodate their business practices and the
types of debts they collect. Within identified limits, debt collectors
may make changes to the model validation notice and still meet the
standard for a safe harbor under Sec. 1006.34(d)(2).
The Bureau is making an additional change to the model validation
notice in response to testing. The statement required by Sec.
1006.34(c)(3)(iv) informs the consumer that additional information
regarding consumer protections in debt collection is available on the
Bureau's website. The Bureau's most recent consumer testing indicated
that a small number of participants who used the model validation
notice were uncertain about where to find more information about
consumers' protections in debt collection.\339\ In response to this
finding, the Bureau is modifying how the statement required by Sec.
1006.34(c)(3)(iv) appears on the model validation notice to further
emphasize this disclosure and the Bureau's website address.
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\339\ During the most recent round of qualitative testing, a few
participants stated that they were unsure how to learn more about
debt collection in general. For example, one participant was unable
to find the statement required by Sec. 1006.34(c)(3)(iv) on the
model notice. See November 2020 Qualitative Testing Report, supra
note 34, at 13.
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34(d)(3) Optional Disclosures
Proposed Sec. 1006.34(d)(3) provided that a debt collector could
include the optional information described in Sec. 1006.34(d)(3)(i)
through (vi) when providing the validation information. The Bureau
received no comments specifically addressing the language in proposed
Sec. 1006.34(d)(3). Commenters did suggest a variety of optional
disclosures to add to Sec. 1006.34(d)(3), such as barcodes or QR
codes, the date a validation notice was created and sent, disclosures
required by government creditors, and a disclosure notifying the
consumer if the debt collector will
[[Page 5825]]
record telephone calls. Some of these suggested disclosures are
permissible changes to the model notice under Sec. 1006.34(d)(2)(iii)
\340\ or optional disclosures under Sec. 1006.34(d)(3), and debt
collectors can choose to make other suggested disclosures without safe
harbor protection.
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\340\ See comment 34(d)(2)(iii)-1 (examples of permissible
changes to the model notice include (1) adding barcodes or QR codes
as long as their inclusion does not violate Sec. 1006.38(b), and
(2) adding the date the form is generated).
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The Bureau is finalizing Sec. 1006.34(d)(3) largely as proposed
but with minor technical revisions for clarity and with one substantive
revision to clarify that a debt collector who includes any of the
optional disclosures receives the safe harbor described in Sec.
1006.34(d)(2), provided that the debt collector otherwise uses the
model validation notice or a variation of the model notice as described
in Sec. 1006.34(d)(2). This revision harmonizes Sec. 1006.34(d)(3)
with certain revisions to Sec. 1006.34(d)(2) in the final rule.\341\
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\341\ See the section-by-section analysis of Sec.
1006.34(d)(2)(i), particularly the discussion of new Sec.
1006.34(d)(2)(i)(A) and (B), which refers to the optional
disclosures.
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The Bureau is finalizing Sec. 1006.34(d)(3) and the related
provisions of Sec. 1006.34(d)(2), including each of the optional
disclosures that Sec. 1006.34(d)(3) permits debt collectors to
provide, to implement and interpret FDCPA section 809(a) and (b) and
pursuant to its FDCPA section 814(d) authority to prescribe rules with
respect to the collection of debts by debt collectors. The Bureau also
is finalizing Sec. 1006.34(d)(3) and the optional disclosures pursuant
to its authority under section 1032(a) of the Dodd-Frank Act to
prescribe rules to ensure that the features of consumer financial
products and services are disclosed fully, accurately, and effectively.
34(d)(3)(i) Telephone Contact Information
Proposed Sec. 1006.34(d)(3)(i) provided that a debt collector
could include, along with the validation information, the debt
collector's telephone contact information, including telephone number
and the times that the debt collector accepts consumer telephone calls.
Two industry trade group commenters supported permitting debt
collectors to disclose telephone contact information, with one such
commenter noting that it would facilitate communication with consumers,
and the other noting that some State laws require debt collectors to
disclose telephone contact information. A group of consumer advocate
commenters recommended that the Bureau make telephone contact
information a mandatory disclosure.
The Bureau determines that debt collectors should be permitted to
include their telephone contact information along with the validation
information. Section 1006.34(d)(3)(i) will accommodate debt collectors
who choose to communicate with consumers by telephone or who are
required to disclose telephone contact information by applicable State
law. The Bureau declines to make telephone contact information a
mandatory disclosure because, while many debt collectors likely will
provide telephone contact information, either by choice or because of a
State-law requirement, some debt collectors may not need or want to do
so. In such cases, consumers can use other contact information required
in the validation information to contact the debt collector. For these
reasons, the Bureau is finalizing Sec. 1006.34(d)(3)(i) largely as
proposed, except that the Bureau is finalizing the clarification that
telephone contact information may include, for example, a telephone
number as well as the times that the debt collector accepts consumer
telephone calls, as new comment 34(d)(3)(i)-1, rather than in the
regulation text as proposed.
34(d)(3)(ii) Reference Code
Many debt collectors include reference codes on validation notices
for administrative purposes. The Bureau proposed Sec.
1006.34(d)(3)(ii) to accommodate this practice by permitting a debt
collector to include, along with the validation information, a number
or code that the debt collector uses to identify the debt or the
consumer. One industry commenter asked the Bureau to create a safe
harbor for debt collectors to use an account number as a reference
code, if that number is labeled as a reference code. The Bureau
determines that creating such a safe harbor is unnecessary because debt
collectors may use any number they choose as a reference code.\342\ The
Bureau therefore is finalizing Sec. 1006.34(d)(3)(ii) as proposed.
---------------------------------------------------------------------------
\342\ Although Sec. 1006.34(d)(3)(ii) permits debt collectors
to use any number they choose as a reference code, debt collectors
may be prohibited from using certain numbers by other applicable
laws, such as privacy or data security rules or regulations.
---------------------------------------------------------------------------
34(d)(3)(iii) Payment Disclosures
The Bureau proposed in Sec. 1006.34(d)(3)(iii) to allow debt
collectors to include certain payment disclosures along with the
validation information, provided that such disclosures were no more
prominent than any of the validation information. Proposed Sec.
1006.34(d)(3)(iii)(A) provided that a debt collector could include in
the validation notice the statement ``Contact us about your payment
options,'' using that phrase or a substantially similar phrase.
Proposed Sec. 1006.34(d)(3)(iii)(B) provided that a debt collector
could include in the consumer-response information section described in
proposed Sec. 1006.34(c)(4) the statement, ``I enclosed this amount,''
using that phrase or a substantially similar phrase, payment
instructions after that statement, and a prompt for a consumer to write
in a payment amount. As discussed below, the Bureau is finalizing Sec.
1006.34(d)(3)(iii) largely as proposed, but with certain revisions for
clarity and consistency with other provisions in the final rule.
Industry and industry trade group commenters supported permitting
debt collectors to include optional payment disclosures. One industry
trade group stated that the proposed optional payment disclosures were
appropriate because they would not violate FDCPA section 809(b)'s
overshadowing prohibition.
Consumer advocate commenters generally objected to proposed Sec.
1006.34(d)(3)(iii). A number of these commenters stated that consumers
may perceive the payment disclosures as threatening, may misconstrue
the disclosures as stating that consumers must make a payment to
exercise their FDCPA dispute right, or may be confused about whether a
payment is in their interest. Some commenters stated that the proposed
disclosures could lead consumers to make payments that they might not
otherwise have made, which some commenters noted could cause consumers
to inadvertently revive previously time-barred debts. These commenters
asked the Bureau not to finalize proposed Sec. 1006.34(d)(3)(iii).
Some commenters suggested revisions to the proposed optional
payment disclosures. Industry and industry trade group commenters
recommended that the Bureau make the proposed optional payment
disclosures more prominent. For example, some commenters suggested that
the proposed optional payment disclosures be placed at the top of the
consumer-response information section. An industry commenter
recommended that the model validation notice include additional
optional payment disclosures. Industry trade group commenters
recommended that the Bureau permit debt collectors to include
[[Page 5826]]
instructions about how a consumer could make a payment by telephone,
website, or alternative payment methods, such as debit card or ACH.
Based on the concerns noted above about potential consumer
misunderstanding of the payment disclosures, a group of consumer
advocate commenters urged the Bureau to amend the validation notice to
segregate the payment disclosures from the other disclosures and to
eliminate the payment prompt on the consumer response form.
For the reasons discussed in the proposal, the Bureau determines
that the proposed optional payment disclosures facilitate payments that
may benefit both consumers and debt collectors. For consumers who
recognize and choose to repay all or part of a debt, payment
disclosures may make the transaction more efficient and convenient. In
addition, for consumers who determine that they owe a debt but may not
be ready to repay all of it at that time, payment disclosures may
facilitate a discussion that can lead to repayment, settlement, or a
payment plan.\343\ The Bureau also has determined that the optional
payment disclosures do not overshadow, and are not inconsistent with,
consumers' verification rights pursuant to FDCPA section 809(b).\344\
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\343\ See 84 FR 23274, 23350 (May 21, 2019).
\344\ For example, during consumer testing, participants
reported a variety of actions they thought they could take, and
approximately 50 percent of respondents said they would confirm the
debt is accurate before responding. Similarly, participants who
received the model validation notice, which included the optional
payment disclosures, generally understood from the notice how they
could dispute the debt. See November 2020 Qualitative Testing
Report, supra note 34, at 11, 15.
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Further, the Bureau's testing found that the model validation
notice, which was tested with the optional payment disclosures, was not
threatening or intimidating.\345\ The Bureau disagrees that consumers
will believe mistakenly that they must make a payment to exercise their
verification rights. As the proposal noted, consumer testing indicates
that consumers who encounter a payment disclosure on a validation
notice understand that a payment is not required to dispute a
debt.\346\ The Bureau determines that inclusion of the neutral, non-
threatening optional payment disclosures will not confuse consumers
about whether making a payment is in their best interest. For the same
reasons, the Bureau declines the suggestion to segregate the payment
disclosures from the other disclosures and to eliminate the payment
prompt on the consumer response form.
---------------------------------------------------------------------------
\345\ Participants with prior debt collection experience
observed that the model notice was ``different'' than other
validation notices they had received because the notice did not
include threatening or intimidating language. See November 2020
Qualitative Testing Report, supra note 34, at 10.
\346\ FMG Usability Report, supra note 28, at 59-61.
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The Bureau declines recommendations to permit debt collectors to
emphasize or highlight the payment option disclosures. Making the
payment disclosures more prominent, as some industry commenters
suggested, would reduce the efficacy of the model validation notice and
risk overshadowing the validation information in violation of FDCPA
section 809(b). The Bureau also determines that the optional payment
disclosures in Sec. 1006.34(d)(3)(iii)(A) and (B) are sufficient to
facilitate payments \347\ and that additional prominence for the
payment disclosures is not justified. The Bureau also declines to
permit debt collectors to include specific instructions about other
payment methods. Section 1006.34(d)(3)(iii)(A) permits debt collectors
to invite consumers to contact them about payment options, and debt
collectors have the ability to provide information about alternative
payment methods in subsequent communications.
---------------------------------------------------------------------------
\347\ During usability testing, participants expressed an
understanding that one purpose of the model validation notice was to
solicit payment on a debt. When asked about their payment options
based on the model validation notice, approximately 80 percent of
participants stated that they would contact the debt collector by
telephone, website, email, or write to explore payment options. See
November 2020 Qualitative Testing Report, supra note 34, at 10,12.
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For these reasons, this Bureau is finalizing Sec.
1006.34(d)(3)(iii) largely as proposed but with several revisions for
clarity and for consistency with other provisions in the final rule.
First, the Bureau is deleting the sentences that specified that the
optional payment disclosures in both Sec. 1006.34(d)(3)(iii)(A) and
(B) must be no more prominent than any of the validation information.
These deleted sentences are unnecessary in view of revisions to the
final rule in Sec. 1006.34(d)(2) that apply to all of the optional
disclosures, which makes the deleted sentences redundant.\348\ In
addition, the Bureau is adding language to clarify that a debt
collector may choose to include either of the optional payment
disclosures, or both of them. Lastly, the Bureau is finalizing Sec.
1006.34(d)(3)(iii)(B) to clarify that the optional payment disclosure
must appear ``below'' (rather than merely ``with'') the consumer-
response information required by Sec. 1006.34(c)(4)(i) and (ii).
---------------------------------------------------------------------------
\348\ Final Sec. 1006.34(d)(2)(i) states that certain optional
disclosures permitted by Sec. 1006.34(d)(3) are contained on the
model notice; those optional disclosures satisfy the requirement to
be no more prominent than any validation information. Final Sec.
1006.34(d)(2)(i)(B) also permits inclusion of the optional
disclosures described by Sec. 1006.34(d)(3) that are not included
on the model notice so long as they are no more prominent than any
validation information; see the section-by-section analysis of Sec.
1006.34(d)(2)(i) for more detail.
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Accordingly, final Sec. 1006.34(d)(3)(iii) provides that debt
collectors may include either or both of the following payment
disclosures: (1) The statement, ``Contact us about your payment
options,'' using that phrase or a substantially similar phrase; and (2)
below the consumer-response information required by Sec.
1006.34(c)(4)(i) and (ii), the statement, ``I enclosed this amount,''
using that phrase or a substantially similar phrase, payment
instructions after that statement, and a prompt.
34(d)(3)(iv) Disclosures Under Applicable Law
Some States require specific disclosures to appear on validation
notices. To enable debt collectors to comply with both Sec.
1006.34(a)(1) and disclosure requirements under other applicable law,
the Bureau proposed Sec. 1006.34(d)(3)(iv) to permit a debt collector
to include, on the front of the validation notice, a statement that
other disclosures required by applicable law appear on the reverse of
the form and, on the reverse of the validation notice, any such legally
required disclosures. Proposed comment 34(d)(3)(iv)-1 provided examples
of disclosure requirements that proposed Sec. 1006.34(d)(3)(iv) would
cover, including disclosures required by State statutes or regulations
and disclosures required by judicial opinions or orders. For the
reasons discussed below, the Bureau is adopting proposed Sec.
1006.34(d)(3)(iv) with revisions, including the addition of new
regulatory text subsections and commentary.
A number of industry and industry trade group commenters stated
that the Bureau's proposal regarding disclosures required by other
applicable law would either conflict with or not accommodate such
disclosures. Commenters stated that some States require disclosures to
appear on the front of a validation notice.\349\ To address such
concerns,
[[Page 5827]]
commenters recommended that the Bureau allow debt collectors to include
required State law disclosures on the front of the validation notice.
One commenter, an industry trade group, urged the Bureau to allow for
formatting flexibility for such State law disclosures while still
affording safe harbor protection. At least one commenter suggested that
the Bureau preempt State laws that require disclosures on the front of
a validation notice.
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\349\ Although these commenters cited various State laws
requiring disclosures, they primarily referred to State laws
requiring time-barred debt disclosures and revival disclosures. For
example, one industry trade group commenter noted that
Massachusetts, New Mexico, and New York State and City require
disclosures about time-barred debt and revival that specifically or
practically must appear on the front page of the validation notice.
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The Bureau determines that, particularly with the changes to the
model validation notice discussed in the section-by-section analysis,
final Sec. 1006.34(d)(3)(iv) generally will accommodate disclosures
required by other applicable law.\350\ As noted above, a few States
require time-barred debt disclosures to appear on the front of a
validation notice; time-barred debt disclosures are discussed further
below. The Bureau is not aware that States specifically require any
other disclosures to appear on the front of the validation notice; as
such, the Bureau concludes that disclosures specifically required by
applicable law, other than in those few instances relating to time-
barred debt, can be accommodated on the reverse of the validation
notice. The Bureau also is not aware of font size, prominence, or
placement requirements established by State or other applicable law
that final Sec. 1006.34(d)(3)(iv) will not accommodate, as discussed
further below. Further, the statement that Sec. 1006.34(d)(3)(iv)
permits on the front of a validation notice is consistent with State
laws that require statements on the front of the notice.\351\ The
Bureau will continue to monitor whether disclosures required by other
applicable law are inconsistent or conflict with Sec. 1006.34 or
Regulation F generally, and if such an inconsistency or conflict is
identified, the Bureau will endeavor to take action to address it. The
Bureau also reiterates that, unlike the proposal, the final rule does
not require the validation notice to be substantially similar to the
model validation notice; thus, if Sec. 1006.34(d)(3)(iv) does not
accommodate a disclosure required under State or other applicable law,
then debt collectors can provide such a disclosure without necessarily
violating the rule, but they would lose the Sec. 1006.34(d)(2) safe
harbor.
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\350\ As discussed in the section-by-section analysis of Sec.
1006.34(d)(2), the final rule permits a debt collector who uses the
model validation notice, specified variations of the model notice,
or a substantially similar form to receive a safe harbor. Moreover,
as discussed below in this section-by-section analysis of Sec.
1006.34(d)(3)(iv), the Bureau is modifying how the statement
required by Sec. 1006.34(d)(3)(iv) is disclosed on the model
validation notice to mirror language on a disclosure required under
Wisconsin law.
\351\ See, e.g., Colo. Rev. Stat. sec. 12-14-105(3)(c) (``In its
initial written communication to a consumer, a collection agency
shall include the following statement: `For information about the
Colorado Fair Debt Collection Practices Act, see
www.ago.state.co.us/cadc/cadcmain.cfm.' If the notification is
placed on the back of the written communication, there shall be a
statement on the front notifying the consumer of such fact.''); Wis.
Admin. Code DFI-Bkg sec. 74.13 (``Unless the initial communication
is written and contains the following notice or the debtor has paid
the debt, a licensee shall send the debtor the following notice
within 5 days after the initial communication with a debtor: `This
collection agency is licensed by the Division of Banking in the
Wisconsin Department of Financial Institutions, www.wdfi.org.' . . .
here the notice required by sub. (1) is printed on the reverse side
of any collection notice or validation sent by the licensee, the
front of such notice shall bear the following statement in not less
than 8 point type: ``Notice: See Reverse Side for Important
Information.'').
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The Bureau has revised Sec. 1006.34(d)(3)(iv) in response to
feedback and for clarity. Final Sec. 1006.34(d)(3)(iv)(A) provides
that the debt collector may include, on the reverse of the validation
notice, any disclosures that are specifically required by, or that
provide safe harbors under, applicable law and, if any such disclosures
are included, a statement on the front of the validation notice
referring to those disclosures. Final comment 34(d)(3)(iv)(A)-1
clarifies that disclosures permitted by Sec. 1006.34(d)(3)(iv)(A)
include, for example, specific disclosures required by Federal, State,
or municipal statutes or regulations, and specific disclosures required
by judicial or administrative decisions or orders, including
administrative consent orders. The comment also describes how such
disclosures could include, for example, time-barred debt disclosures
and disclosures that the current amount of the debt may increase or
vary due to interest, fees, or other charges, provided that such
disclosures are specifically required by applicable law.
The Bureau has revised Sec. 1006.34(d)(3)(iv) and its accompanying
commentary from the proposal to clarify the disclosures that are
permitted by Sec. 1006.34(d)(3)(iv). Specifically, the revisions
clarify that the provision applies if a debt collector must comply with
a specific disclosure requirement under Federal, State, or local law,
or under a judicial or administrative decision or order. As such, the
Bureau emphasizes that this provision is not intended to capture
circumstances in which a debt collector is not providing a disclosure
that is required under a specific law, decision, or order, but rather
the debt collector is providing a disclosure to try to comply with a
more general legal requirement. For example, if the debt collector were
to add language to the validation notice to try to avoid a finding of
an unfair, deceptive, or abusive practice under Dodd-Frank Act section
1031 or the FDCPA, that is not an optional disclosure covered by Sec.
1006.34(d)(3)(iv). Debt collectors are not precluded from making such
disclosures, but they will not receive the safe harbor under Sec.
1006.34(d)(2).
The Bureau has made modifications to the final rule, moreover, to
provide additional flexibility with respect to time-barred debt
disclosures, in response to feedback to the proposal. Under new Sec.
1006.34(d)(3)(iv)(B),\352\ if a debt collector is collecting time-
barred debt, the debt collector may include on the front of the
validation notice any time-barred debt disclosure that is specifically
required by, or that provides a safe harbor under, applicable law,
provided that applicable law specifies the content of the
disclosure.\353\ New comment 34(d)(3)(iv)(B)-1 clarifies that, for
example, if applicable State law requires a debt collector who is
collecting time-barred debt to disclose to the consumer that the law
limits how long a consumer can be sued on a debt and that the debt
collector cannot or will not sue the consumer to collect it, the debt
collector may include that disclosure on the front of the validation
notice. New comment 34(d)(3)(iv)(B)-1 also includes a cross-reference
to the definition of time-barred debt under Sec. 1006.26(a)(2) and
clarifies that, for purposes of Sec. 1006.34(d)(3)(iv)(B), time-barred
debt disclosures may include disclosures about revival of debt
collectors' right to bring a legal action to enforce the debt. The
Bureau concludes that providing additional flexibility to debt
collectors to make these optional disclosures either on the front or
reverse of the validation notice is warranted in view of circumstances
in which it may be difficult to discern under applicable State or local
law whether time-barred debt disclosures must appear on the front of a
validation notice. Moreover, the Bureau is finalizing Sec.
1006.34(d)(3)(iv)(B) in view of the
[[Page 5828]]
Bureau's decision not to finalize a requirement for debt collectors to
provide disclosures relating to time-barred debt or revival laws,
described in more detail in the section-by-section analysis of Sec.
1006.26.
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\352\ To permit this additional flexibility for time-barred debt
disclosures as distinguished from other disclosures made under
applicable law, the final rule has re-numbered proposed Sec.
1006.34(d)(3)(iv), which would have specified that the applicable
law disclosures are placed on the reverse side of the validation
notice only, as Sec. 1006.34(d)(3)(iv)(A).
\353\ As with other disclosures required by or providing safe
harbors under applicable law, debt collectors can also make the
time-barred debt disclosures on the reverse of the validation notice
pursuant to Sec. 1006.34(d)(3)(iv)(A). See comment 34(d)(3)(iv)(A)-
1, which gives an example of a time-barred debt disclosure as a
disclosure permitted by Sec. 1006.34(d)(3)(iv)(A).
---------------------------------------------------------------------------
The Bureau received feedback about modifying the scope of proposed
Sec. 1006.34(d)(3)(iv). An industry trade group commenter stated that
the Bureau should limit Sec. 1006.34(d)(3)(iv) to State laws and
exclude disclosures required by judicial decisions or orders. According
to the commenter, courts should not be permitted to dictate non-
standard disclosures that would limit the efficacy of the model
validation notice and result in validation notices that vary by
jurisdiction. This commenter asserted that permitting courts to vary
the model validation notice would be inconsistent with the framework in
other consumer financial laws and regulations, such as TILA and
Regulation Z, which do not permit courts to add disclosures to model
forms. A group of consumer advocate commenters asked the Bureau to
prohibit debt collectors from including disclosures that are permitted,
but not required, by applicable law, because including all possible
disclosures would overwhelm consumers. On the other hand, an industry
trade group commenter asked the Bureau to allow debt collectors to
include such disclosures.
The Bureau determines that Sec. 1006.34(d)(3)(iv) should cover
disclosures required pursuant to judicial or administrative decisions
or orders, including administrative consent orders. Permitting
disclosures required by judicial or administrative decisions or orders
to appear, like any State-law-required disclosures, on the reverse of a
validation notice will neither undermine the efficacy of the model
validation notice nor create validation notices that significantly vary
by jurisdiction, other than on the reverse of the notice. Further, the
Bureau concludes that permitting judicially mandated disclosures to
appear on validation notices is not inconsistent with other consumer
financial laws, as some commenters suggested. For instance, the Bureau
understands that nothing in TILA and its implementing Regulation Z
prohibit, as those commenters appeared to believe, creditors from
making disclosures required pursuant to judicial orders or decisions.
As noted above, final comment 34(d)(3)(iv)(A)-1 clarifies that the
disclosures permitted by Sec. 1006.34(d)(3)(iv) include specific
disclosures required by judicial decisions or orders.
In response to feedback, the Bureau also is finalizing Sec.
1006.34(d)(3)(iv)(A) and comment 34(d)(3)(iv)(A)-1 to permit debt
collectors to include disclosures that provide safe harbors under
applicable law without losing the safe harbor for compliance under
Sec. 1006.34(d)(2). Such disclosures can mitigate legal risks for debt
collectors and reduce the potential for consumer harm.\354\ On the
other hand, the Bureau declines to allow debt collectors to include
disclosures on the validation notice that are merely permitted by other
applicable law and still retain the safe harbor.\355\ Such disclosures
may be irrelevant to consumers, and their inclusion on the validation
notice may overwhelm consumers or overshadow more relevant disclosures.
Nevertheless, as noted elsewhere, a debt collector who included such a
disclosure would not necessarily violate Regulation F; that debt
collector would, however, be outside the safe harbor for compliance.
---------------------------------------------------------------------------
\354\ Avila, 817 F.3d at 76 (adopting the safe harbor approach
for debt collectors disclosing the amount of the debt when the
balance may increase due to interest and fees adopted in Miller v.
McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, LLC, 214 F.3d 872,
876 (7th Cir. 2000)).
\355\ As discussed earlier in this section-by-section analysis,
Sec. 1006.34(d)(3)(iv) has been revised in the final rule to
clarify that the optional disclosures are those that are
``specifically'' required by applicable law or that provide a safe
harbor under applicable law.
---------------------------------------------------------------------------
Some commenters suggested that the Bureau revise the text and
placement of the Sec. 1006.34(d)(3)(iv) disclosure that appeared on
the model validation notice. An industry trade group commenter noted
that Wisconsin law allows disclosures on the reverse of the notice but
requires the statement, ``Notice: See Reverse Side for Important
Information.'' A group of consumer advocate commenters suggested that
disclosures required by applicable law should be separately labeled as
``Disclosures Required by Your State'' and ``Disclosures Required by
Local Federal Courts.''
Relatedly, some commenters noted that some State laws include
specific prominence or font size requirements for validation notice
disclosures. A comment letter from two associations of State regulatory
agencies expressed concerns that proposed Sec. 1006.34(d)(3)(iv), as
disclosed on the model validation notice, was not sufficiently
prominent. In particular, these commenters objected that the statement
about disclosures required by applicable law appeared below the Sec.
1006.34(d)(3)(iii)(A) payment disclosure.
In response to feedback, the Bureau is including a new comment
34(d)(3)(iv)(A)-2 to clarify how the disclosure described in Sec.
1006.34(d)(3)(iv)(A) may appear depending on the delivery mechanism.
The comment clarifies that, if a debt collector includes disclosures
pursuant to Sec. 1006.34(d)(3)(iv)(A), the debt collector must include
a statement on the front of the validation notice referring to those
disclosures; and a debt collector may comply with the requirement to
refer to the disclosures by including on the front of the validation
notice the statement, ``Notice: See reverse side for important
information,'' or a substantially similar statement. The comment
further notes that if, as permitted by comment 34(d)(3)(iv)(A)-1, a
debt collector places the disclosures below the content of the
validation notice, the debt collector may comply with the requirement
to refer to the disclosures by stating, ``Notice: See below for
important information,'' or a substantially similar statement.
In response to feedback, the Bureau is also modifying how the
statement required by Sec. 1006.34(d)(3)(iv) is disclosed on the model
validation notice. Specifically, the Sec. 1006.34(d)(3)(iv) statement
appears on the final model notice as: ``Notice: See Reverse Side for
Important Information.'' \356\ The Bureau finds that this phrase is
clearer, more conspicuous, and more likely to encourage consumer action
than the proposed phrase, ``Review state law disclosures on reverse
side, if applicable.'' Finally, the Bureau declines the suggestion to
require debt collectors to label which disclosures are included
pursuant to State law and which are included pursuant to judicial
orders and decisions. That distinction likely makes little practical
difference to consumers.
---------------------------------------------------------------------------
\356\ The Bureau based this statement on a Wisconsin disclosure
requirement. See Wis. Admin. Code DFI-Bkg sec. 74.13.
---------------------------------------------------------------------------
The Bureau also determines that the Sec. 1006.34(d)(3)(iv)
disclosure should be more prominent than in the proposed model
validation notice, in part to account for the fact noted by some
commenters that disclosures required by other applicable law may have
prominence requirements, including clear and conspicuous requirements.
The Bureau therefore has modified the model validation notice to
further emphasize the Sec. 1006.34(d)(3)(iv) disclosure. Specifically,
in contrast to the proposed model validation notice, on which the
disclosure appeared in regular font in the middle of a list of other
disclosures, the disclosure appears on the final model validation
notice
[[Page 5829]]
underlined and in bold font and separated from other disclosures.
Commenters sought additional guidance about what constitutes the
``reverse side'' of the validation notice. Two industry trade group
commenters recommended that the Bureau interpret ``reverse side'' as
synonymous with ``next page'' to allow debt collectors to use a second
page to provide disclosures required by other applicable law.
Relatedly, one commenter stated that requiring a debt collector to
print on both sides of a validation notice would increase costs. Two
associations of State regulatory agencies asked the Bureau to clarify
where State law disclosures should be placed on validation notices
delivered electronically, since disclosures delivered electronically
will not have a reverse side.
The Bureau recognizes that the meaning of ``on the reverse'' may
vary by delivery method and format and that clarification is warranted,
particularly as to validation notices delivered electronically. As
such, the Bureau is adopting new comment 34(d)(3)(iv)(A)-1, which
clarifies, in relevant part, that if a debt collector provides a
validation notice in the body of an email, the debt collector may, in
lieu of including the disclosures permitted by Sec.
1006.34(d)(3)(iv)(A) on the reverse of the validation notice, include
them in the same communication below the content of the validation
notice. Furthermore, as discussed above, comment 34(d)(3)(iv)(A)-2
notes that, if a debt collector places the disclosures below the
content of the validation notice, the debt collector may comply with
the requirement to refer to the disclosures by including the statement,
``Notice: See below for important information,'' or a substantially
similar statement. These commentary provisions, therefore, address
circumstances in which the validation notice is delivered in the body
of an email.
The Bureau declines to permit debt collectors to place disclosures
required by other applicable law on a second page while maintaining the
Sec. 1006.34(d)(2) safe harbor, as some commenters requested. In Sec.
1006.34(d)(2)(ii), the Bureau specifies two narrow circumstances in
which debt collectors are permitted to include validation information
on a second page because such information, presented on a second page,
is likely to benefit consumers.\357\ And, in both cases, if a debt
collector includes the disclosures on a second page, the debt collector
loses the Sec. 1006.34(d)(2) safe harbor with respect to the second
page. The Bureau determines that it is unwarranted to provide a safe
harbor that would be more expansive both in scope and protection than
the other targeted exceptions to debt collectors providing other
applicable law disclosures on a second page. The Bureau notes that debt
collectors may include such disclosures on a second page without
necessarily violating the rule.
---------------------------------------------------------------------------
\357\ Final Sec. 1006.34(d)(2)(ii) allows a second page for
debt collectors to provide information that would otherwise be
provided in a relatively abbreviated itemization of the debt (i.e.,
itemization on a second page and for the special rule regarding
certain residential mortgage debt). This narrow exception allows the
debt collector to potentially provide significantly more information
to the consumer on a second page.
---------------------------------------------------------------------------
The Bureau is making one additional change not in response to
comments. Section 1006.34(d)(3)(iv)(A) provides, in relevant part, that
disclosures made under Sec. 1006.34(d)(3)(iv) must not appear directly
on the reverse of the consumer-response information required by Sec.
1006.34(c)(4), which appears on the front of the notice. This revision
is included to ensure that debt collectors who choose to make the
optional disclosures under Sec. 1006.34(d)(3)(iv) do not provide the
disclosures in a place where the disclosures would be returned with the
consumer-response information.
The Bureau notes that if, as permitted by Sec. 1006.34(d)(3)(iv),
a debt collector includes on the front of a validation notice the
required statement regarding disclosures under other applicable law
(i.e., ``Notice: See reverse side for important information''), the
debt collector must actually place such disclosures on the reverse.
Conversely, a debt collector may not include disclosures under other
applicable law on the reverse of a validation notice without including
the statement about those disclosures on the front of the validation
notice. The Bureau intended this effect when it proposed Sec.
1006.34(d)(3)(iv) and notes it here for clarity.
Accordingly, the Bureau is finalizing Sec. 1006.34(d)(3)(iv) and
its related commentary with both substantive revisions and minor
wording changes.
34(d)(3)(v) Information About Electronic Communications
Proposed Sec. 1006.34(d)(3)(v) provided that debt collectors could
include certain information about electronic communications along with
the validation information. First, proposed Sec. 1006.34(d)(3)(v)(A)
provided that a debt collector could include the debt collector's
website and email address. Second, proposed Sec. 1006.34(d)(3)(v)(B)
provided that a debt collector could include, for validation
information not provided electronically, the statement described in
Sec. 1006.34(c)(3)(v) explaining how a consumer could take the actions
described in Sec. 1006.34(c)(4) and Sec. 1006.34(d)(3)
electronically.\358\ One industry commenter supported proposed Sec.
1006.34(d)(3)(v), and the Bureau is finalizing it as proposed, with
technical revisions to reflect conforming changes to final Sec.
1006.34(c)(3)(v). For example, final Sec. 1006.34(d)(3)(v)(B) no
longer contains a reference to Sec. 1006.34(d)(3) because final Sec.
1006.34(c)(3)(v) itself no longer refers to Sec. 1006.34(d)(3).\359\
---------------------------------------------------------------------------
\358\ Proposed Sec. 1006.34(c)(3)(v) provided that such a
statement was required validation information for validation notices
provided electronically.
\359\ As discussed in the section-by-section analysis of Sec.
1006.34(c)(3)(v), the final rule does not require debt collectors
who provide validation notices electronically to include statements
explaining how consumers can take the actions described in Sec.
1006.34(d)(3) electronically.
---------------------------------------------------------------------------
34(d)(3)(vi) Spanish-Language Translation Disclosures
Proposed Sec. 1006.34(d)(3)(vi) provided that a debt collector
could include, along with the validation information, optional Spanish-
language disclosures that consumers could use to request a Spanish-
language validation notice. The proposal stated that Spanish-speaking
LEP consumers may benefit from a Spanish-language disclosure informing
them of their ability to request a Spanish-language translation, if a
debt collector chooses to make such a translation available.\360\ The
proposal stated that debt collectors may wish to provide validation
information in Spanish, as doing so may facilitate their communications
with consumers.
---------------------------------------------------------------------------
\360\ Spanish speakers represent the second-largest language
group in the United States after English speakers. As of 2016, 40
million residents in the United States ages five and older spoke
Spanish at home. See U.S. Census Bureau, Profile America for Facts
for Features CB17-FF.17: Hispanic Heritage Month 2017, at 4 (Oct.
17, 2017), https://www.census.gov/newsroom/facts-for-features/2017/hispanic-heritage.html.
---------------------------------------------------------------------------
Consumer advocate commenters generally supported permitting debt
collectors to provide certain Spanish-language disclosures along with
the validation information. Some consumer advocate commenters
recommended that the Bureau also require debt collectors to provide the
disclosures described in proposed Sec. 1006.34(d)(3)(vi). A group of
consumer advocate commenters urged the Bureau to require a debt
collector to send a translated validation notice if the debt collector
receives a request from a consumer seeking information in the
[[Page 5830]]
consumer's preferred language, including a request received using the
proposed tear off portion of the validation notice.
An industry commenter supported proposed Sec. 1006.34(d)(3)(vi) on
the understanding that the Spanish-language disclosures would be
optional. According to the commenter, requiring debt collectors to
provide foreign language disclosures would entail significant costs. An
industry commenter and an industry trade group commenter asked the
Bureau to clarify whether providing the proposed Sec.
1006.34(d)(3)(vi) disclosures would obligate a debt collector to
provide future communications in Spanish to the consumer. Some
commenters raised questions about whether the validation period would
be paused when a consumer requests a Spanish-language translation of
the validation notice and then restart when it is received, with a
local government commenter supporting such a revision in the final
rule.
The Bureau declines to make the Spanish-language disclosures
described in Sec. 1006.34(d)(3)(vi) mandatory. A requirement to
provide the Sec. 1006.34(d)(3)(vi) disclosures, standing alone, would
not be overly burdensome because the translation language is precisely
described in the regulation and is also included on the model
validation notice. However, the content of those disclosures means that
mandating them would effectively compel debt collectors to provide
translated validation notices to certain consumers (i.e., consumers who
respond to the Sec. 1006.34(d)(3)(vi) disclosures by requesting a
Spanish-language validation notice).\361\ As discussed in the proposal,
the Bureau did not propose to require debt collectors to provide
translated validation notices because of the associated costs of such a
requirement,\362\ and the Bureau is declining to finalize such a
requirement in this final rule.\363\
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\361\ 15 U.S.C. 1692e.
\362\ 84 FR 23274, 23352 (May 21, 2019).
\363\ See the section-by-section analysis of Sec. 1006.34(e).
---------------------------------------------------------------------------
A debt collector who provides the optional disclosure described in
Sec. 1006.34(d)(3)(vi) must honor a consumer's request for a
translated validation notice or risk violating FDCPA section 807.
However, the proposal did not expressly state that the debt collector
would be obligated to provide the Spanish-language translation of the
validation notice in this circumstance. The proposal only implied such
an obligation. To make the rule clearer, the Bureau is finalizing a new
Sec. 1006.34(e)(2), which provides that a debt collector who includes
in the validation information either or both of the optional
disclosures described in Sec. 1006.34(d)(3)(vi), and who thereafter
receives a request from the consumer for a Spanish-language validation
notice, must provide the consumer a validation notice completely and
accurately translated into Spanish.\364\ The Bureau clarifies that,
other than with respect to Sec. 1006.34(e)(2), nothing in the rule
obligates a debt collector to provide future communications in Spanish
solely because the debt collector provided a disclosure described in
Sec. 1006.34(d)(3)(vi) in Spanish.
---------------------------------------------------------------------------
\364\ Id.
---------------------------------------------------------------------------
Regarding the commenters who asked for clarification about, or
supported, restarting the validation period when the consumer requests
a Spanish-language validation notice, the Bureau declines to mandate
such a change but notes that debt collectors who voluntarily restart
the validation period after providing a copy of the Spanish-language
validation notice following the consumer's request do not violate the
FDCPA or Regulation F.
For these reasons, the Bureau is finalizing Sec. 1006.34(d)(3)(vi)
largely as proposed but with a revision to clarify that a debt
collector may include either of the optional Spanish-language
translation disclosures, or both of them.
34(d)(3)(vi)(A)
Proposed Sec. 1006.34(d)(3)(vi)(A) provided that a debt collector
could include a statement in Spanish informing a consumer that the
consumer could request a Spanish-language validation notice.
Specifically, the Bureau proposed in Sec. 1006.34(d)(3)(vi)(A) to
permit the statement, ``P[oacute]ngase en contacto con nosotros para
solicitar una copia de este formulario en espa[ntilde]ol,'' using that
phrase or a substantially similar phrase in Spanish. In English, this
phrase means, ``You may contact us to request a copy of this form in
Spanish.'' The proposal clarified that a debt collector who provided
this optional disclosure could also include supplemental information in
Spanish specifying how a consumer could request a Spanish-language
validation notice. Proposed comment 34(d)(3)(vi)(A)-1 explained that,
for example, a debt collector could provide a statement in Spanish that
a consumer could request a Spanish-language validation notice by
telephone or email.
Consumer advocate commenters supported the Spanish-language
disclosure described in proposed Sec. 1006.34(d)(3)(vi)(A). The Bureau
received no other comments specifically addressing the disclosure.
Accordingly, the Bureau is finalizing Sec. 1006.34(d)(3)(vi)(A) and
its related commentary as proposed, with only minor wording changes.
34(d)(3)(vi)(B)
Proposed Sec. 1006.34(d)(3)(vi)(B) provided that debt collectors
could include in the consumer-response information section of the
validation notice a statement in Spanish that a consumer could use to
request a Spanish-language validation notice. Specifically, the Bureau
proposed in Sec. 1006.34(d)(3)(vi)(B) to permit debt collectors to
include the statement, ``Quiero esta forma en espa[ntilde]ol,'' using
that phrase or a substantially similar phrase in Spanish. In English,
this phrase means, ``I want this form in Spanish.'' Proposed Sec.
1006.34(d)(3)(vi)(B) would have required this statement to be next to a
prompt that the consumer could use to request a Spanish-language
validation notice.
Consumer advocate commenters generally supported the Spanish-
language disclosure described in proposed Sec. 1006.34(d)(3)(vi)(B).
However, a group of consumer advocate commenters stated that the
Spanish translation in proposed Sec. 1006.34(d)(3)(vi)(B) was
inaccurate. Specifically, the commenters stated that the correct
Spanish translation of ``form'' is ``formulario,'' not ``forma.'' The
word ``forma'' appeared in both proposed Sec. 1006.34(d)(3)(vi)(B) and
in the sample disclosure on the proposed model validation notice. The
Bureau finds that ``formulario,'' not ``forma,'' is the correct Spanish
translation of ``form.'' The Bureau also finds that, for gender
agreement, Sec. 1006.34(d)(3)(vi)(B) should read ``este formulario,''
not ``esta formulario.''
The Bureau is finalizing Sec. 1006.34(d)(3)(vi)(B), its related
commentary, and the disclosure on the model validation notice as
proposed, but with revisions to correct the translation errors and with
other, minor wording changes for consistency with other provisions of
the final rule.
34(d)(3)(vii)
The Bureau proposed Sec. 1006.34(c)(2)(iii) to provide that the
merchant brand, if any, associated with a credit card debt, to the
extent available to the debt collector, is validation information that
must be provided to the consumer. Proposed comment 34(c)(2)(iii)-1
provided an example of
[[Page 5831]]
merchant brand information that the Bureau initially determined would
be available to a debt collector and that, therefore, would be required
on a validation notice.
For the reasons discussed below, the Bureau is not finalizing Sec.
1006.34(c)(2)(iii) and its related commentary. Instead, the Bureau is
restructuring and renumbering proposed Sec. 1006.34(c)(2)(iii) as a
new optional disclosure under Sec. 1006.34(d)(3)(vii), which permits,
but does not require, debt collectors to disclose the merchant brand,
affinity brand, or facility name, if any, associated with the debt (and
does not limit the optional disclosure to credit card debt).
Industry, industry trade group, and consumer advocate commenters
uniformly agreed that, if available, merchant brand information may
help consumers recognize debts. For example, consumer advocate
commenters stated that, in the case of a store-branded credit card, a
consumer may not associate the debt with the original creditor (often a
bank) and may be more likely to recognize the merchant, whose name
appears on the credit card. A group of consumer advocate commenters
asserted that such information was important, impliedly suggesting that
the Bureau require its disclosure as part of the validation
information.
Although supportive of the proposed disclosure in principle, some
industry trade group commenters asked the Bureau to clarify the
circumstances in which merchant brand information would be deemed
available. According to these commenters, whether merchant brand
information is available may be unclear because it is not always
identifiable in a consumer's file or a creditor may not have provided
it. One industry trade group commenter stated that the proposed
provision requiring disclosure of merchant brand information for credit
cards as part of the validation information would better serve
consumers and reduce compliance costs if the provision included broader
categories than merchant brand names and was an optional, rather than
mandatory, disclosure.
The Bureau received other comments about expanding the scope of
proposed Sec. 1006.34(c)(2)(iii). An industry trade group commenter
recommended that Sec. 1006.34(c)(2)(iii) also encompass affinity brand
information (e.g., the name of a college). Other commenters recommended
that debt collectors be permitted or required to disclose the facility
name associated with a medical debt (e.g., the name of a hospital).
According to commenters, a consumer may be more likely to recognize a
facility where treatment was provided than the healthcare service
provider that is the creditor. A group of consumer advocate commenters
noted that increasingly a hospital name may act as a brand for an
umbrella of service providers and thus should be treated in the same
manner as a merchant brand.
The Bureau determines that merchant brand information may help
consumers recognize debts. However, the Bureau agrees with the feedback
that whether merchant brand information is available may not always be
clear to a debt collector. This ambiguity is particularly likely with
respect to debts that have been sold or transferred multiple times.
Furthermore, not all creditors will have an associated merchant brand,
at least one that is distinct from the creditor name.
Accordingly, in lieu of finalizing the requirement in proposed
Sec. 1006.34(c)(2)(iii), the Bureau is adopting new Sec.
1006.34(d)(3)(vii), which permits, rather than requires, debt
collectors to disclose the merchant brand information, if any,
associated with a debt. By making merchant brand an optional
disclosure, the Bureau eliminates a source of potential ambiguity that
could expose debt collectors to legal risk. In addition,
notwithstanding this modification, the Bureau concludes that debt
collectors will be incentivized to provide merchant brand information
if it is available. Commenters uniformly agreed that merchant brand
information helps consumers recognize debts.\365\ Thus, debt collectors
likely will benefit from including merchant brand information if
possible. Providing merchant brand information will also benefit
consumers by allowing them to more easily identify debts, determine
whether they owe them, and avoid the confusion resulting from seeing a
validation notice with an unfamiliar name (which potentially leads to
the consumer ignoring the notice).
---------------------------------------------------------------------------
\365\ See 84 FR 23274, 23340 (May 21, 2019) (citing the Bureau's
consumer focus group findings that indicate consumers use merchant
brands to recognize credit card debts).
---------------------------------------------------------------------------
The Bureau finds that affinity brand information and facility name
information also may help consumers recognize debts they owe. Whereas a
merchant brand can be generally understood as the labelling or branding
of a commercial entity, such as a retail store, an affinity brand may
reflect the labelling or branding of an entity that is not necessarily
commercial but one with which the consumer has a relationship. For
example, a higher education institution (e.g., ``College of Columbia'')
or a charity may be associated with a consumer financial product (e.g.,
a credit card provided by ``ABC Bank'') as an affinity brand. See
comment 34(d)(3)(vii)-2. Moreover, facility name information (e.g.,
``ABC Hospital'') may prove more recognizable to consumers with respect
to a medical debt than the name of, for example, the physicians group
or laboratory that is the actual creditor (particularly if the consumer
has one appointment or procedure at one facility that results in
multiple bills from multiple providers). See comment 34(d)(3)(vii)-3.
Thus, Sec. 1006.34(d)(3)(vii) also permits debt collectors to disclose
an affinity brand or a facility name, if any, associated with a
debt.\366\
---------------------------------------------------------------------------
\366\ Although Sec. 1006.34(d)(3)(vii) permits debt collectors
to disclose the facility name associated with a medical debt along
with the validation information, debt collectors may be prohibited
from doing so by other applicable laws, such as healthcare privacy
rules or regulations.
---------------------------------------------------------------------------
For these reasons, the Bureau is finalizing Sec.
1006.34(d)(3)(vii) to provide that, along with the validation
information, debt collectors may disclose the merchant brand, affinity
brand, or facility name, if any, associated with a debt. The Bureau
also is adopting new comments 34(d)(3)(vii)-1 through -3 to provide
examples of a merchant brand, an affinity brand, and a facility name,
respectively.
34(d)(3)(viii)
The Bureau is finalizing Sec. 1006.34(d)(3)(viii) to provide that,
although it is not required, a debt collector who is collecting debt
not related to a consumer financial product or service may disclose
certain additional information without losing the safe harbor provided
by Sec. 1006.34(d)(2) (assuming the debt collector otherwise satisfies
the conditions for the safe harbor). Specifically, Sec.
1006.34(d)(3)(viii) provides that, if a debt collector is collecting
debt other than debt related to a consumer financial product or service
as defined in Sec. 1006.2(f), the debt collector may disclose: (1) The
name of the creditor to whom the debt was owed on the itemization date
(i.e., the information specified in Sec. 1006.34(c)(2)(iii)); or (2) a
statement that informs the consumer that additional information
regarding consumer protections in debt collection is available on the
Bureau's website at www.cfpb.gov/debt-collection (i.e., the information
specified in Sec. 1006.34(c)(3)(iv)). The Bureau determines that
receipt of this
[[Page 5832]]
information may be helpful for consumers.
34(d)(4) Validation Notices Delivered Electronically
As discussed in the proposal and in the November 2020 Final Rule,
promoting electronic communications may benefit consumers and debt
collectors.\367\ As also discussed in the proposal, allowing debt
collectors to make certain formatting modifications to validation
notices delivered electronically may help consumers exercise their
verification rights under FDCPA section 809 and may facilitate a debt
collector's ability to process and understand a consumer's response to
such an electronically delivered validation notice. Proposed Sec.
1006.34(d)(4) therefore provided several modifications, discussed in
the section-by-section analysis of Sec. 1006.34(d)(4)(i) and (ii)
below, that a debt collector could make, at its option, to the
formatting of a validation notice delivered electronically.
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\367\ See 84 FR 23274, 23351 (May 21, 2019); 85 FR 76734, 76755
(Nov. 30, 2020).
---------------------------------------------------------------------------
An industry trade group commenter expressed support for proposed
Sec. 1006.34(d)(4)'s facilitation of validation notices delivered
electronically. The Bureau received no other comments specifically
addressing proposed Sec. 1006.34(d). Accordingly, the Bureau is
finalizing Sec. 1006.34(d)(4) with only minor wording changes.
The Bureau is finalizing Sec. 1006.34(d)(4) to implement and
interpret FDCPA section 809(b) by establishing formatting requirements
that facilitate the consumer's right to dispute a debt and request
original-creditor information, and pursuant to its FDCPA section 814(d)
authority to prescribe rules with respect to the collection of debts by
debt collectors. The Bureau also is finalizing Sec. 1006.34(d)(4)
pursuant to its authority under section 1032(a) of the Dodd-Frank Act
to prescribe rules to ensure that the features of consumer financial
products and services are disclosed fully, accurately, and effectively.
34(d)(4)(i) Prompts
Proposed Sec. 1006.34(d)(4)(i) provided that a debt collector
delivering a validation notice electronically pursuant to Sec. 1006.42
could display any prompt required by Sec. 1006.34(c)(4)(i) or (ii) or
(d)(3)(iii)(B) or (vi)(B) as a fillable field.\368\
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\368\ 84 FR 23274, 23405 (May 21, 2019).
---------------------------------------------------------------------------
One industry trade group commenter supported proposed Sec.
1006.34(d)(4)(i). According to the commenter, if a validation notice is
delivered by email, a debt collector should be permitted to format the
prompts in the consumer-response information section so that the debt
collector receives an email if a consumer selects them. Another
industry trade group commenter asked the Bureau to clarify whether a
fillable field includes a checkbox.
A consumer advocate commenter raised concerns about permitting a
debt collector to format the payment prompt described in Sec.
1006.34(d)(3)(iii)(B) as a fillable field. According to the commenter,
scammers could impersonate legitimate debt collectors and attempt to
convince consumers to make payments on fraudulent debts using the
payment prompts. The commenter urged the Bureau to evaluate the
security risks associated with fillable payment prompts and consider
other approaches.
The Bureau determines that allowing a debt collector to design a
validation notice delivered electronically to include fillable prompts
will benefit consumers and industry by making it easier for consumers
to exercise their verification rights, make a payment, or request a
Spanish-language translation of the notice. The Bureau does not find
that permitting a debt collector to format the payment prompt described
in Sec. 1006.34(d)(3)(iii)(B) as a fillable field entails substantial
security risks. The Bureau acknowledges that, in general, electronic
communications present certain security risks to consumers. However,
the Bureau finds that these general risks do not justify preventing
debt collectors from including in electronic communications common
design modifications, such as prompts, that are convenient to
consumers. Thus, the Bureau declines to limit the ability of legitimate
debt collectors to include on validation notices a common design
modification that will benefit consumers.\369\
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\369\ With respect to the comment about whether a fillable field
includes a checkbox, the Bureau confirms that a fillable field may
appear as an unmarked checkbox that a consumer can select.
---------------------------------------------------------------------------
Accordingly, the Bureau is finalizing Sec. 1006.34(d)(4)(i)
largely as proposed, with only minor wording changes for consistency
with other provisions in the final rule.
34(d)(4)(ii) Hyperlinks
Proposed Sec. 1006.34(d)(4)(ii) provided that a debt collector
delivering a validation notice electronically could embed hyperlinks in
the validation notice that, when clicked, would connect consumers to
the debt collector's website or permit consumers to dispute a debt or
request original-creditor information.
Industry trade group commenters supported proposed Sec.
1006.34(d)(4)(ii). For example, a commenter stated that hyperlinks are
an important feature used to reduce the complexity of email and text
messages while allowing readers to access important information. A
consumer advocate commenter recommended that the Bureau also permit
debt collectors to embed a hyperlink that connects consumers to the
Bureau's website address described in Sec. 1006.34(c)(3)(iv).
The Bureau determines that hyperlinks are a formatting modification
that may benefit consumers and debt collectors if included in
validation notices that are delivered electronically. And the Bureau
agrees that debt collectors should be permitted to include a hyperlink
that connects consumers to the Bureau's website address described in
Sec. 1006.34(c)(3)(iv). Accordingly, the Bureau is finalizing Sec.
1006.34(d)(4)(ii) to provide that debt collectors may embed hyperlinks
that, when clicked, connect consumers to the debt collector's website,
connect consumers to the Bureau's debt collection website as disclosed
pursuant to Sec. 1006.34(c)(3)(iv), or permit consumers to dispute the
debt or request original-creditor information.
34(e) Translation Into Other Languages
The Bureau proposed Sec. 1006.34(e) to provide that a debt
collector could send a consumer a validation notice completely and
accurately translated into any language if the debt collector also sent
an English-language validation notice that satisfied Sec.
1006.34(a)(1). Proposed Sec. 1006.34(e) also provided that, if a debt
collector already provided a consumer an English-language validation
notice that satisfied Sec. 1006.34(a)(1) and subsequently provided the
consumer a validation notice translated into any other language, the
debt collector would not need to provide an additional copy of the
English-language notice. Proposed comment 34(e)-1 clarified that the
language of a validation notice obtained from the Bureau's website
would be considered a complete and accurate translation, although debt
collectors would be permitted to use other validation notice
translations if they were accurate and complete.
Industry and industry trade group commenters supported proposed
Sec. 1006.34(e) and its optional approach to providing validation
notices translated into other languages. An industry trade group
commenter stated that this approach was appropriate
[[Page 5833]]
because some debt collectors may not have the resources to conduct
collections activities in languages other than English. Other industry
trade group commenters stated that requiring debt collectors to provide
validation notices in other languages would be burdensome and costly.
An industry trade group commenter stated that, if a debt collector
provided a validation notice in another language, a consumer would
expect the debt collector to communicate in that language. According to
this commenter, if the debt collector was unable to do so, this
unfulfilled expectation would frustrate consumers and expose debt
collectors to litigation risk.
Other commenters, including consumer advocates, legal aid
providers, and faith groups, recommended that debt collectors be
required to provide non-English validation notices to LEP consumers.
According to these commenters, LEP consumers tend to experience poverty
at much greater rates, face significant challenges navigating the debt
collection process, and are often subject to harassment and deception.
Commenters stated that English-language validation notices would not
enable LEP consumers to understand their rights in debt collection or
to take appropriate action if they did not believe that they owed a
debt. Commenters cited demographic statistics showing the growing
population of LEP consumers, particularly in certain localities. A
consumer advocate commenter stated that case law suggests that a debt
collector's failure to provide a non-English validation notice to an
LEP consumer may violate the FDCPA.\370\
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\370\ The commenter cited, for example, Evory v. RJM
Acquisitions Funding LLC, 505 F.3d 769, 774 (7th Cir. 2007).
However, the Bureau disagrees with the commenter's premise that this
opinion and the others it cited imply a general requirement under
the FDCPA to provide translated notices to all Spanish-speaking LEP
consumers. The Bureau believes, instead, that those holdings were
dependent on the facts of those cases. For example, Evory discussed
in dicta a hypothetical in which a debt collector targeted
vulnerable Spanish-speaking LEP consumers with English-language
validation notices, 505 F.3d at 774, but that particular scenario
involved targeting, which is beyond the scope of Sec. 1006.34(e).
---------------------------------------------------------------------------
To address these concerns, these commenters suggested various
mandatory frameworks that would require debt collectors to provide
translated validation notices to consumers. These suggested alternative
frameworks included requiring debt collectors to provide a translated
validation notice: (1) In Spanish and located on the back of every
English-language validation notice; (2) with every English-language
validation notice if the debt collector knows or should know the
consumer has another language preference; (3) if the original
transaction or the debt collector's prior communication was conducted
in a foreign language; (4) upon a consumer's request; (5) if the debt
collector received information in the file from the creditor or a prior
debt collector indicating the consumer's non-English language
preference; or (6) if and when the debt collector at a later point
communicates with the consumer in a foreign language. In some cases,
commenters framed these interventions as narrow or measured. A group of
consumer advocates also urged the Bureau to make available on its
website Spanish-translated validation notices as well as translations
in the next seven most common languages spoken by LEP consumers in the
United States.
The Bureau determines that LEP consumers may benefit from
translated validation notices. Further, some debt collectors may want
to provide translated validation notices to LEP consumers, if doing so
is consistent with their business practices.
The Bureau, however, declines commenters' requests to require debt
collectors to provide a Spanish-language translation to all consumers
on the back of every English-language validation notice or a translated
notice to consumers in other languages if the debt collector knows or
should know the consumer has a different language preference. As
discussed in the proposal,\371\ these types of mandatory approaches
would result in significant, industry-wide costs on both an upfront
(implementation) basis and an ongoing basis, especially for smaller
debt collectors and in connection with translations of the validation
notice in languages whose use is not prevalent in the United
States.\372\ The Bureau acknowledges that some LEP consumers may
experience particular challenges in the debt collection process.
However, commenters did not provide information about the costs and
benefits of requiring debt collectors to provide translated validation
notices to all consumers, regardless of whether the consumer requests
the translation, that persuades the Bureau that such mandatory
requirements are justified. The Bureau, as stated above, recognizes the
benefits of providing translated disclosures to consumers. However, the
Bureau concludes that the approach in the proposal, supplemented by
certain changes in the final rule, strikes a better balance than a
mandatory requirement. The final rule permits debt collectors to
provide disclosures carrying safe harbor protection that notify and
encourage consumers to request a Spanish-language translation of the
validation notice or additional information in Spanish, which can
assist the largest group of LEP consumers in the United States by a
wide margin compared to other languages. At the same time, the final
rule does not require debt collectors to provide all consumers with
translated validation notices, whether in Spanish or other languages,
and irrespective of whether the consumers request it or speak a
language that is uncommon among LEP consumers in the United States.
---------------------------------------------------------------------------
\371\ See also the section-by-section analysis of Sec.
1006.34(d)(3)(vi).
\372\ See 84 FR 23274, 23352 (May 21, 2019).
---------------------------------------------------------------------------
Regarding the request by a group of consumer advocate commenters
that the Bureau translate the validation notice into Spanish and seven
other languages and deem the Bureau translations as complete and
accurate, the Bureau plans to make available on its website, prior to
the effective date of the final rule, a Spanish-language translation of
the validation notice, and it will consider taking such action in the
future with respect to one or more of the other languages cited by
these commenters following implementation of the final rule.
The Bureau also declines to implement the other mandatory
approaches suggested by consumer advocate, faith group, and legal aid
provider commenters. As discussed above, these commenters suggested a
variety of interventions, such as requiring the debt collector provide
the translated notice in circumstances in which the consumer had
expressed a language preference to a prior debt collector or the
creditor and that preference is noted in the file for the debt, or in
which, at a later point in the process, the consumer communicates in a
foreign language.
The Bureau disagrees with some commenters' characterization of
these interventions as targeted or narrow in scope, as each suggestion
would entail a mandatory requirement with associated upfront and
ongoing costs and complexity (which would be compounded if more than
one or even all of these interventions were adopted collectively). In
some cases, these suggested interventions are beyond the scope of the
proposal. As to others, the Bureau concludes that the costs of such
interventions to debt collectors, particularly smaller entities, would
not outweigh the benefits to consumers because they would add undue
complexity to the rule from an
[[Page 5834]]
operational, compliance, and supervisory perspective.
For these reasons, the Bureau declines to adopt a final rule that
requires debt collectors to provide translated validation notices.
Nevertheless, because the Bureau determines that, as discussed in the
proposal, LEP consumers may benefit from receiving translated
validation notices, the Bureau is finalizing Sec. 1006.34(e) to
clarify how debt collectors may provide such notices if they choose.
The Bureau is finalizing proposed Sec. 1006.34(e) as Sec.
1006.34(e)(1), with certain revisions and organizational changes for
clarity; no substantive change is intended. Furthermore, as discussed
in the section-by-section analysis of Sec. 1006.34(d)(3)(vi), the
Bureau is finalizing new Sec. 1006.34(e)(2) to provide that, if a debt
collector includes in the validation information either or both of the
optional disclosures notifying a consumer that the consumer can request
a copy of the validation notice in Spanish, the debt collector must
provide the consumer a Spanish-language validation notice if the
consumer requests one. The Bureau intended this result in the proposal
and is including Sec. 1006.34(e)(2) for clarity and in response to
feedback. Finally, the Bureau is finalizing comment 34(e)-1 with
revisions to conform to the revisions and organizational changes made
to Sec. 1006.34(e); no substantive change is intended.
Section 1006.38 Disputes and Requests for Original-Creditor Information
FDCPA section 809(b) requires debt collectors both to refrain from
taking certain actions during the 30 days after the consumer receives
the validation information or notice described in FDCPA section 809(a)
(i.e., during the validation period) and to take certain actions if a
consumer either disputes the debt in writing, or requests the name and
address of the original creditor in writing, during the validation
period. The Bureau proposed Sec. 1006.38 to implement and interpret
FDCPA section 809(b) and (c), and the Bureau finalized the majority of
proposed Sec. 1006.38 in the November 2020 Final Rule.\373\ The Bureau
now is finalizing the remainder of proposed Sec. 1006.38 as follows.
---------------------------------------------------------------------------
\373\ 85 FR 76734, 74843-48, 76893 (Nov. 30, 2020).
---------------------------------------------------------------------------
Comment 38-1
The Bureau proposed comment 38-2 (renumbered in the November 2020
Final Rule as comment 38-1) to set forth examples of written and
electronic communications consumers can use in disputing the debt or
requesting the name and address of the original creditor.\374\ The
second proposed example, proposed comment 38-2.ii, would have clarified
that a consumer could return to the debt collector the consumer-
response form that proposed Sec. 1006.34(c)(4)(i) would have required
to appear on the validation notice and indicate on the form a dispute
or request. The Bureau received no comments on proposed comment 38-
2.ii.\375\ The Bureau did not finalize proposed comment 38-2.ii in the
November 2020 Final Rule because the Bureau did not finalize Sec.
1006.34 as part of that final rule. The Bureau now is finalizing
comment 38-2.ii as proposed, renumbered as comment 38-1.ii, except that
the Bureau is correcting a typographical error in the proposed comment
such that the final comment cross references Sec. 1006.34(c)(4) rather
than Sec. 1006.34(c)(4)(i).
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\374\ 84 FR 23274, 23353 (May 21, 2019).
\375\ The Bureau addressed comments received on other aspects of
proposed comment 38-2 in the November 2020 Final Rule. 85 FR 76734,
76843-44 (Nov. 30, 2020).
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Comment 38-3
The Bureau proposed comment 38-1 (renumbered in this final rule as
comment 38-3) to clarify the applicability of Sec. 1006.38 in the
decedent debt context. Proposed comment 38-1 would have clarified that,
if the consumer has not previously disputed the debt or requested the
name and address of the original creditor, then a person who is
authorized to act on behalf of the deceased consumer's estate operates
as the consumer for purposes of Sec. 1006.38. Proposed comment 38-1
also would have clarified that, if a person who is authorized to act on
behalf of the deceased consumer's estate submits either a written
request for original-creditor information or a written dispute to the
debt collector during the validation period, then Sec. 1006.38(c) or
(d)(2), respectively, would require the debt collector to cease
collection of the debt until the debt collector has responded to that
request or dispute.
For the reasons discussed in the section-by-section analysis of
Sec. 1006.2(e), the Bureau is interpreting the term consumer to mean
any natural person, whether living or deceased, who is obligated or
allegedly obligated to pay any debt. And, pursuant to its authority
under FDCPA section 814(d) to prescribe rules with respect to the
collection of debts by debt collectors, the Bureau is adopting
commentary clarifying how this definition operates in the decedent debt
context, including debt collectors' obligations for providing the
validation information and responding to disputes and requests for
original-creditor information. Accordingly, the Bureau is finalizing
comment 38-1 as proposed, renumbered as comment 38-3 in this final
rule.
38(a) Definitions
38(a)(2) Validation Period
The Bureau proposed in Sec. 1006.38(a)(2) to provide that the term
validation period as used in Sec. 1006.38 has the same meaning given
to it in proposed Sec. 1006.34(b)(5).\376\ Because the Bureau did not
finalize Sec. 1006.34 in the November 2020 Final Rule, the Bureau
finalized the definition in Sec. 1006.38(a)(2) with revised wording to
refer to the 30-day period described in FDCPA section 809 as defined by
Regulation F.\377\ The Bureau noted that it might, as part of this
final rule, revise the definition of validation period as finalized in
the November 2020 Final Rule to cross-reference any definition of that
term that the Bureau adopts in this final rule. As discussed in the
section-by-section analysis of Sec. 1006.34(b)(5), the Bureau is
finalizing the definition of validation period.\378\ Therefore, the
Bureau is making a technical change revising Sec. 1006.38(a)(2), as
finalized in the November 2020 Final Rule, to provide that the term
validation period as used in Sec. 1006.38 has the same meaning given
to it in Sec. 1006.34(b)(5).
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\376\ 84 FR 23274, 23353 (May 21, 2019).
\377\ 85 FR 76734, 76844, 76893 (Nov. 30, 2020).
\378\ The Bureau addresses comments received regarding the
definition of validation period in the section-by-section analysis
of Sec. 1006.34(b)(5).
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38(b) Overshadowing of Rights To Dispute or Request Original-Creditor
Information
FDCPA section 809(b) provides that, for 30 days after the consumer
receives the validation information described in FDCPA section 809(a),
a debt collector must not engage in collection activities or
communications that overshadow or are inconsistent with the disclosure
of the consumer's right to dispute the debt or request information
about the original creditor.\379\ The Bureau proposed in
[[Page 5835]]
Sec. 1006.38(b) to implement this prohibition and generally restate
the relevant statutory language, with only minor changes for style and
clarity.\380\
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\379\ This language was added to the FDCPA by the Financial
Services Regulatory Relief Act of 2006, Public Law 109-351, sec.
802(c), 120 Stat. 1966, 2006 (2006), after an FTC advisory opinion
on the same subject. See Fed. Trade Comm'n, Advisory Opinion to
American Collector's Ass'n (Mar. 31, 2000) (opining that the 30-day
period set forth in FDCPA section 809(a) ``is a dispute period
within which the consumer may insist that the debt collector verify
the debt, and not a grace period within which collection efforts are
prohibited'' but that ``[t]he collection agency must ensure,
however, that its collection activity does not overshadow and is not
inconsistent with the disclosure of the consumer's right to dispute
the debt specified by [s]ection 809(a)'').
\380\ 84 FR 23274, 23353-54 (May 21, 2019).
---------------------------------------------------------------------------
As the Bureau discussed in the November 2020 Final Rule,\381\ the
Bureau received a few substantive comments addressing proposed Sec.
1006.38(b). Two industry commenters requested that the final rule
define the term ``overshadowing.'' These commenters observed that debt
collectors' communications of validation information almost always
expressly advise the consumer of the right to dispute the debt and to
request the name and address of the original creditor. These commenters
asserted that overshadowing claims are nonetheless some of the most
common allegations in FDCPA lawsuits. These commenters also requested
clarity as to whether the safe harbor in proposed Sec. 1006.34(d)(2)
for debt collectors who use the model validation notice also would
provide a safe harbor for compliance with the overshadowing prohibition
in proposed Sec. 1006.38(b). One industry commenter requested that the
final rule clarify that credit reporting during the validation period
does not constitute overshadowing.\382\
---------------------------------------------------------------------------
\381\ 85 FR 76734, 76844 (Nov. 30, 2020).
\382\ In addition, one industry commenter stated that it
generally agreed with proposed Sec. 1006.38, and a group of
consumer advocates that addressed proposed Sec. 1006.38(b) did not
object to the proposal.
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In the November 2020 Final Rule, the Bureau finalized proposed
Sec. 1006.38(b) as Sec. 1006.38(b)(1) and reserved Sec.
1006.38(b)(2).\383\ As noted above, proposed Sec. 1006.38(b) generally
restated the relevant statutory language, with only minor changes for
style and clarity, and Sec. 1006.38(b)(1) in the November 2020 Final
Rule did the same. In the November 2020 Final Rule, the Bureau stated
that it expected to address, as part of this final rule, the comments
it received requesting further clarity about the safe harbor provided
by Sec. 1006.34(d)(2), and the Bureau reserved Sec. 1006.38(b)(2) for
that purpose.\384\
---------------------------------------------------------------------------
\383\ 85 FR 76734, 76844, 76893 (Nov. 30, 2020).
\384\ Id.
---------------------------------------------------------------------------
After considering the comments, the Bureau is finalizing in Sec.
1006.38(b)(2) a safe harbor from the prohibition in Sec. 1006.38(b)(1)
against overshadowing.\385\ Section 1006.38(b)(2) provides that a debt
collector who uses Model Form B-1 in appendix B of this part in a
manner described in Sec. 1006.34(d)(2) has not thereby violated Sec.
1006.38(b)(1). Therefore, a debt collector who uses Model Form B-1 in
appendix B to Regulation F, specified variations of the model notice,
or a substantially similar form, has not thereby violated Sec.
1006.38(b)(1). The safe harbor protects only the use of the model
validation notice to comply with the information and form requirements
of Sec. 1006.34(c) and (d)(1). If a debt collector uses the model
validation notice as described in Sec. 1006.34(d)(2) and conducts
other collection activities during the validation period, the debt
collector does not receive a safe harbor for those other collection
activities. A debt collector also does not receive a safe harbor for
the manner in which a model validation notice is provided, such as the
envelope in which a model validation notice is provided.
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\385\ Accordingly, the heading for final Sec. 1006.38(b)(2)
refers to the safe harbor, and the Bureau is revising: (1) The
heading for Sec. 1006.38(b)(1) as finalized in the November 2020
Final Rule to clarify that that paragraph relates to the
overshadowing prohibition; and (2) Sec. 1006.38(b)(1) to omit a
reference to the fact that the Bureau may provide in this part a
safe harbor for debt collectors when they use certain Bureau-
approved disclosures because the Bureau is providing that safe
harbor in this final rule.
---------------------------------------------------------------------------
The Bureau declines to otherwise define the term ``overshadow'' or
to clarify whether other collection activities during the validation
period either violate or comply with the prohibition in final Sec.
1006.38(b)(1). The Bureau finds that the safe harbor in Sec.
1006.38(b)(2) provides sufficient clarity for debt collectors.
38(c) Requests for Original-Creditor Information
FDCPA section 809(a)(5) states that the validation information a
debt collector provides to a consumer must include a statement that,
upon the consumer's written request within the 30-day validation
period, the debt collector will provide the consumer with the name and
address of the original creditor, if different from the current
creditor. FDCPA section 809(b) provides that, if a consumer requests
the name and address of the original creditor in writing within 30 days
of receiving the validation information described in FDCPA section
809(a), the debt collector must cease collection of the debt until the
debt collector obtains and mails that information to the consumer. The
Bureau proposed in Sec. 1006.38(c) to implement this prohibition and
generally restate the relevant statutory language.
As the Bureau discussed in the November 2020 Final Rule, the Bureau
received a number of comments addressing proposed Sec.
1006.38(c).\386\ Three industry commenters requested that the final
rule provide that, if a debt collector's communication of the
validation information to a consumer identifies the original creditor,
the debt collector need not give the consumer the option of requesting
original-creditor information from the debt collector. These commenters
stated that, if the original creditor has already been identified to a
consumer, it would be confusing to the consumer to provide the option
to request the name and address of the original creditor. Further, they
stated, consumers could use unnecessary requests for original-creditor
information as a tactic to delay or avoid collection. One industry
commenter requested that the final rule clarify that a debt collector
is not required to include original-creditor information in its
communication of validation information to a consumer. This commenter
stated that lawsuits are often filed alleging that a debt collector has
violated the FDCPA by not identifying the original creditor in the
validation information.
---------------------------------------------------------------------------
\386\ 85 FR 76734, 76844-45 (Nov. 30, 2020).
---------------------------------------------------------------------------
Several commenters recommended that the Bureau define ``original
creditor'' to mean the creditor at the time of charge off. According to
an industry trade group, this definition would be consistent with other
laws, including the Uniform Rules for New York State Trial Courts.\387\
Other industry and industry trade group commenters stated that this
definition would be appropriate for older debts because a consumer may
no longer recognize the original creditor, particularly if an account
has been sold. An industry trade group suggested that defining
``original creditor'' as the creditor at the time of charge off may
resolve some compliance challenges in the retail installment sales
context. According to the commenter, in retail installment sales, the
original creditor is the retail seller, not the entity that ultimately
buys the contract, and retail-seller information may not be readily
available to the debt collector or helpful to the consumer.
---------------------------------------------------------------------------
\387\ ``Original creditor means the financial institution that
owned the consumer credit account at the time the account was
charged off, even if that financial institution did not originate
the account. Charged-off consumer debt means a consumer debt that
has been removed from an original creditor's books as an asset and
treated as a loss or expense.'' 22 NYCRR 208.14-a(a)(2).
---------------------------------------------------------------------------
A group of consumer advocate commenters who addressed proposed
Sec. 1006.38(c) generally noted the importance of original-creditor
information to consumers in helping them recognize the debt in
question. One commenter stated that the rule
[[Page 5836]]
should require debt collectors to identify the original creditor in the
validation information.\388\
---------------------------------------------------------------------------
\388\ Consumer advocates also addressed the proposal's
provisions regarding electronic delivery of original-creditor
information (and other information) in proposed Sec. 1006.42. These
comments regarding electronic delivery were addressed in the
November 2020 Final Rule. Id. at 76848.
---------------------------------------------------------------------------
In the November 2020 Final Rule, the Bureau finalized proposed
Sec. 1006.38(c) as Sec. 1006.38(c)(1) and reserved Sec.
1006.38(c)(2).\389\ As noted above, proposed Sec. 1006.38(c) generally
restated the relevant statutory language, and Sec. 1006.38(c)(1) in
the November 2020 Final Rule did the same.\390\ In the November 2020
Final Rule, the Bureau stated that it expected to address, as part of
this final rule, how a debt collector may respond to a request for
original-creditor information if the original creditor is the same as
the current creditor, and the Bureau reserved Sec. 1006.38(c)(2) for
that purpose.\391\ The Bureau also noted that it would respond in this
final rule to the comments asking the Bureau to define the term
original creditor.
---------------------------------------------------------------------------
\389\ Id. at 76893.
\390\ While this final rule republishes in Sec. 1006.38(c) some
of the text of Sec. 1006.38(c)(1) as finalized in the November 2020
Final Rule, this final rule makes no change to the substance of
Sec. 1006.38(c)(1) from what the Bureau finalized in the November
2020 Final Rule.
\391\ 85 FR 76734, 76845 n.557 (Nov. 30, 2020).
---------------------------------------------------------------------------
The Bureau has determined that a debt collector's communication of
the validation information must include disclosure of the option to
request original-creditor information. As noted above, FDCPA section
809(a)(5) states that the validation information must include ``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.'' \392\ Because FDCPA section 809(a) requires the validation
information to include disclosure of the consumer's right to request
original-creditor information, the Bureau finds that consumer confusion
would result if the final rule were to permit a debt collector not to
respond to a consumer's timely request for that information if the
original creditor is the same as the current creditor. Further, FDCPA
section 809(b) states that ``[a]ny collection activities and
communication during the 30-day period may not overshadow or be
inconsistent with the disclosure of the consumer's right to dispute the
debt or request the name and address of the original creditor.'' \393\
The Bureau therefore has determined to require a debt collector to
respond to a consumer's request for original-creditor information if
the original creditor is the same as the current creditor.
---------------------------------------------------------------------------
\392\ 15 U.S.C. 1692g(a)(5).
\393\ 15 U.S.C. 1692g(b) (emphasis added).
---------------------------------------------------------------------------
However, the Bureau also has determined that FDCPA section
809(a)(5) and (b) permits a debt collector to respond differently to
the consumer's request for original-creditor information when the
original creditor is the same as the current creditor. Specifically,
the Bureau has determined that FDCPA section 809(b), when read together
with FDCPA section 809(a)(5), requires the debt collector to provide
the name and address of the original creditor to the consumer only if
the original creditor is different from the current creditor.
Accordingly, the Bureau is finalizing new Sec. 1006.38(c)(2) to set
forth an alternative procedure that a debt collector may use to respond
to a consumer's request for original-creditor information if the
original creditor is the same as the current creditor. Specifically, if
a debt collector receives a request for the name and address of the
original creditor submitted by the consumer in writing within the
validation period, the special rule set forth in Sec. 1006.38(c)(2)
provides that the debt collector must cease collection of the debt
until the debt collector reasonably determines that the original
creditor is the same as the current creditor and either (i) notifies
the consumer in writing or electronically in the manner required by
Sec. 1006.42 that the original creditor is the same as the current
creditor and refers the consumer to the debt collector's earlier
provision of the validation information or (ii) satisfies Sec.
1006.38(c)(1).
Under the final rule, a debt collector is not required to use the
alternative procedure in Sec. 1006.38(c)(2); a debt collector can
always comply with the rule by complying with Sec. 1006.38(c)(1). By
adopting the Sec. 1006.38(c)(2) alternative procedure, the Bureau
strikes the best balance between providing debt collectors with a less
burdensome method of responding to consumer requests for original-
creditor information and protecting consumers.
The Bureau adopts the alternative procedure in Sec. 1006.38(c)(2)
as an interpretation of FDCPA section 809(a)(5) and (b), and pursuant
to its authority under FDCPA section 814(d). In particular, Sec.
1006.38(c)(2) is an interpretation of what it means for a debt
collector, pursuant to FDCPA section 809(b), to ``obtain[ ] . . . the
name and address of the original creditor'' and send that information
to the consumer when, pursuant to FDCPA section 809(a)(5), the debt
collector already provided the name of the current creditor to the
consumer within the validation information (as required by FDCPA
section 809(a)(2) and Sec. 1006.34(c)(2)(v)) and the original creditor
is not different from the current creditor. If the original creditor is
the same as the current creditor, the Bureau interprets FDCPA section
809(b)'s requirement to provide original-creditor information to the
consumer to mean that a debt collector must cease collection of the
debt until the debt collector either provides the name and address of
the original creditor to the consumer in compliance with Sec.
1006.38(c)(1) or, in compliance with Sec. 1006.38(c)(2), notifies the
consumer in writing or electronically in the manner required by Sec.
1006.42 that the original creditor is the same as the current creditor
and refers the consumer to the debt collector's earlier provision of
the validation information.
The Bureau declines to require all debt collectors to include the
name of the original creditor in the validation information because the
Bureau believes such a requirement is not necessary or warranted. The
statute prescribes a method for a consumer to obtain this information
upon request. Further, the Bureau interprets FDCPA section 809(a)(2) as
requiring debt collectors to disclose in the validation information the
name of the current creditor; i.e., ``the name of the creditor to whom
the debt is owed.''
The Bureau declines to define ``original creditor'' in the manner
commenters suggested. Although the definition suggested by commenters
might be accurate for some debts, it is not clear to the Bureau that
the suggested definition would be accurate for all debts. The Bureau
did not propose such a definition and the Bureau does not have
sufficient information to develop and include a definition of
``original creditor'' in the rule.
Taking into consideration the provisions of FDCPA section 809(a)
and (b), the final rule provides debt collectors an alternative
response procedure, described above, when the original creditor--which
in many cases will be the creditor as of the itemization date--is the
same as the current creditor. The alternative procedure permits debt
collectors to respond to some consumer requests for original-creditor
information in a less burdensome way, while also protecting consumers.
Therefore, the Bureau believes that defining original creditor in the
final rule is unnecessary and unwarranted.
[[Page 5837]]
Section 1006.42 Sending Required Disclosures
42(a) Sending Required Disclosures
42(a)(2) Exceptions
The Bureau proposed in Sec. 1006.42(a)(2) to provide that a debt
collector need not comply with Sec. 1006.42(a)(1) when providing the
disclosure required by Sec. 1006.6(e) or Sec. 1006.18(e) in writing
or electronically, unless the disclosure was included on a notice
required by Sec. 1006.34(a)(1)(i) or Sec. 1006.38(c) or (d)(2).\394\
Because the Bureau did not finalize Sec. 1006.34 in the November 2020
Final Rule, the Bureau finalized Sec. 1006.42(a)(2) with a reference
to the notice required by FDCPA section 809(a), as implemented by
Regulation F, in lieu of a reference to the notice required by Sec.
1006.34(a)(1)(i).\395\ Because the Bureau is now finalizing Sec.
1006.34, the Bureau is making a technical change revising Sec.
1006.42(a)(2) to refer to the notice required by Sec.
1006.34(a)(1)(i), as originally proposed. The Bureau addressed comments
received regarding proposed Sec. 1006.42(a)(2) in the section-by-
section analysis of Sec. 1006.42(a)(2) in the November 2020 Final
Rule.\396\
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\394\ 84 FR 23274, 23357-59 (May 21, 2019).
\395\ 85 FR 76734, 76893 (Nov. 30, 2020).
\396\ Id. at 76850-51.
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42(b) Requirements for Certain Disclosures Sent Electronically
Proposed Sec. 1006.42(b)(1) generally would have required a debt
collector who provided the validation notice described in Sec.
1006.34(a)(1)(i)(B) electronically to do so in accordance with section
101(c) of the E-SIGN Act.\397\ Because the Bureau did not finalize
Sec. 1006.34 in the November 2020 Final Rule, the Bureau finalized
Sec. 1006.42(b) with a reference to the notice required by FDCPA
section 809(a), as implemented by Regulation F, in lieu of a reference
to the validation notice described in Sec. 1006.34(a)(1)(i)(B).\398\
Because the Bureau is now finalizing Sec. 1006.34, the Bureau is
making a technical change revising Sec. 1006.42(b) to refer to the
validation notice required by Sec. 1006.34(a)(1)(i)(B), as originally
proposed. The Bureau addressed comments received regarding proposed
Sec. 1006.42(b)(1) in the section-by-section analysis of Sec.
1006.42(b) in the November 2020 Final Rule.\399\
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\397\ 84 FR 23274, 23356-57 (May 21, 2019).
\398\ 85 FR 76734, 76893 (Nov. 30, 2020).
\399\ Id. at 76850-51.
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Subpart C--Reserved
Subpart D--Miscellaneous
Section 1006.100 Record Retention
100(a) In General
Section 1006.100(a), as finalized in the November 2020 Final Rule,
requires a debt collector to retain records that are evidence of
compliance or non-compliance with the FDCPA and Regulation F. The
Bureau proposed comment 100-1 to clarify that, for purposes of Sec.
1006.100(a), evidence of compliance includes, among other things,
copies of documents provided by the debt collector to the consumer in
accordance with the requirements of proposed Sec. 1006.34.\400\
Because the Bureau did not finalize Sec. 1006.34 in the November 2020
Final Rule, the Bureau finalized comment 100(a)-1 to include, as an
example of evidence of compliance, copies of documents provided by the
debt collector to the consumer in accordance with FDCPA section 809(a),
as implemented by Bureau regulation.\401\ Because the Bureau now is
finalizing Sec. 1006.34, the Bureau is making a technical change
revising comment 100(a)-1 to include, as an example of evidence of
compliance, copies of documents provided by the debt collector to the
consumer in accordance with Sec. 1006.34, as originally proposed. The
Bureau addressed comments received regarding proposed comment 100-1 in
the section-by-section analysis of Sec. 1006.100(a) and comment
100(a)-1 in the November 2020 Final Rule.\402\
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\400\ 84 FR 23274, 23367 (May 21, 2019).
\401\ 85 FR 76734, 76907 (Nov. 30, 2020).
\402\ Id. at 76858 n.600.
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Section 1006.104 Relation to State Laws
FDCPA section 816 provides that the FDCPA does not annul, alter, or
affect, or exempt any person subject to the provisions of the FDCPA
from complying with the laws of any State with respect to debt
collection practices, except to the extent that those laws are
inconsistent with any provision of the FDCPA, and then only to the
extent of the inconsistency. FDCPA section 816 also provides that, for
purposes of that section, a State law is not inconsistent with the
FDCPA if the protection such law affords any consumer is greater than
the protection provided by the FDCPA.\403\ The November 2020 Final Rule
finalized Sec. 1006.104 to implement FDCPA section 816.\404\
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\403\ 15 U.S.C. 1692n.
\404\ 85 FR 76734 at 76860 (Nov. 30, 2020).
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Proposed comment 104-1 clarified that a disclosure required by
applicable State law that describes additional protections under State
law does not contradict the requirements of the FDCPA or the
corresponding provisions of Regulation F.\405\ In the November 2020
Final Rule, the Bureau indicated that it was not finalizing proposed
comment 104-1 as part of that rule and would determine whether and how
to finalize the comment as part of this final rule.\406\
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\405\ 84 FR 23274, 23368 (May 21, 2019).
\406\ 85 FR 76734, 76860 (Nov. 30, 2020).
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As discussed in the November 2020 Final Rule, some commenters asked
the Bureau to clarify how proposed comment 104-1 would interact with
State law disclosure requirements.\407\ According to these commenters,
the proposed commentary did not track FDCPA section 816's statutory
language and therefore would be susceptible to competing
interpretations. These commenters expressed concern that proposed
comment 104-1 could be interpreted to mean that Sec. 1006.104 would
preempt State law disclosure requirements that afford the same
protections as the FDCPA and the corresponding provisions of Regulation
F. These commenters opposed such an interpretation as inconsistent with
FDCPA section 816.
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\407\ Id.
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With proposed comment 104-1, the Bureau did not intend to
communicate that Sec. 1006.104 would preempt disclosures required by
State law that describe State laws that afford the same protections as
the FDCPA and the corresponding provisions of Regulation F. To mitigate
the risk that the proposed commentary could be interpreted in this
manner, the Bureau is modifying proposed comment 104-1 to more closely
track FDCPA section 816's statutory language.
Accordingly, the Bureau is finalizing comment 104-1 to clarify that
the FDCPA and the corresponding provisions of Regulation F do not
annul, alter, or affect, or exempt any person subject to these
requirements from complying with a disclosure requirement under
applicable State law that describes additional protections under State
law that are not inconsistent with the FDCPA and Regulation F. In
addition, comment 104-1 clarifies that a disclosure required by State
law is not inconsistent with the FDCPA or Regulation F if the
disclosure describes a protection such law affords any consumer that is
greater than the protection provided by the FDCPA or Regulation F.
[[Page 5838]]
VI. Effective Date
As discussed in the November 2020 Final Rule, the Bureau proposed
an implementation period of one year after publication of the final
rule in the Federal Register.\408\ The Bureau received several comments
on the proposed effective date. As noted in the November 2020 Final
Rule, a few industry commenters supported the proposed effective date,
stating that a one-year implementation period would provide debt
collectors with enough time to comply with the rule. Two other industry
commenters supported an 18-month and a 24-month implementation period,
respectively, arguing that it would take longer than one year to update
policies and procedures, train employees, and make programming changes
necessary to come into compliance. A government commenter encouraged
the Bureau to provide small entities more than one year to comply, if
such entities were not exempted from the rule altogether. Several
industry commenters asked the Bureau to clarify that a debt collector
is permitted to comply with all or part of the final rule before the
effective date.
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\408\ 85 FR 76734, 76863 (Nov. 30, 2020); see also 84 FR 23274,
23276 (May 21, 2019).
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The Bureau considered those comments in finalizing the November
2020 Final Rule and determined that that final rule would take effect
one year after publication in the Federal Register. The Bureau
determined that the revisions made to the proposal and discussed in
that Final Rule would permit debt collectors to meet that effective
date. The Bureau also recognized that all stakeholders might benefit if
the November 2020 Final Rule and this final rule had the same effective
date.
As noted in part III, the November 2020 Final Rule was published in
the Federal Register on November 30, 2020 and will take effect on
November 30, 2021. The Bureau concludes that all stakeholders will
benefit if the November 2020 Final Rule and this final rule have the
same effective date. The Bureau also determines that setting the
effective date for this final rule as November 30, 2021, consistent
with the effective date of the November 2020 Final Rule, will provide
debt collectors nearly one year, and therefore sufficient time, to come
into compliance with this final rule.
The Bureau notes that debt collectors may, but are not required to,
comply with the final rule's requirements and prohibitions before the
effective date. Until that date, the FDCPA and other applicable law
continue to govern the conduct of FDCPA debt collectors. Similarly, to
the extent the final rule establishes a safe harbor from liability for
certain conduct or a presumption that certain conduct complies with or
violates the rule, those safe harbors and presumptions are not
effective until the final rule's effective date.
VII. Dodd-Frank Act Section 1022(b) Analysis
A. Overview
In developing the final rule, the Bureau has considered the
potential benefits, costs, and impacts as required by section
1022(b)(2)(A) of the Dodd-Frank Act.\409\
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\409\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
(12 U.S.C. 5512(b)(2)(A)) requires the Bureau to consider the
potential benefits and costs of the regulation to consumers and
covered persons, including the potential reduction of access by
consumers to consumer financial products and services; the impact of
the rule on insured depository institutions and insured credit
unions with less than $10 billion in total assets as described in
section 1026 of the Dodd-Frank Act (12 U.S.C. 5516); and the impact
on consumers in rural areas.
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Debt collectors play a critical role in markets for consumer
financial products and services. Credit markets function because
lenders expect that borrowers will pay them back. In consumer credit
markets, if borrowers fail to repay what they owe per the terms of
their loan agreement, creditors often engage debt collectors to attempt
to recover amounts owed, whether through the court system or through
less formal demands for repayment.
In general, third-party debt collection creates the potential for
market failures. Consumers do not choose their debt collectors, and, as
a result, debt collectors do not have the same incentives that
creditors have to treat consumers fairly.\410\ Certain provisions of
the FDCPA may help mitigate such market failures in debt collection,
for example by prohibiting unfair, deceptive, or abusive debt
collection practices by third-party debt collectors.
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\410\ Consumers do choose their lenders, and, in principle,
consumer loan contracts could specify which debt collector would be
used or what debt collection practices would be in the event a loan
is not repaid. Some economists have identified potential market
failures that prevent loan contracts from including such terms even
when they could make both borrowers and lenders better off. For
example, terms related to debt collection may not be salient to
consumers at the time a loan is made. Alternatively, if such terms
are salient, a contract that provides for more lenient collection
practices may lead to adverse selection, attracting a
disproportionate share of borrowers who know they are more likely to
default. See Thomas A. Durkin et al., Consumer Credit and the
American Economy 521-25 (Oxford U. Press 2014) (discussing potential
sources of market failure and potential problems with some of those
arguments). See also Erik Durbin & Charles Romeo, The Economics of
Debt Collection: With attention to the issue of salience of
collections at the time credit is granted, Journal of Credit Risk
(Sept. 4, 2020) (discussing how rules that limit debt collection
affect consumer welfare when debt collection is not salient to
consumers when they borrow).
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Any restriction on debt collection may reduce repayment of debts,
providing a benefit to some consumers who owe debts and an offsetting
cost to creditors and debt collectors. A decrease in repayment will in
turn lower the expected return to lending. This can lead lenders to
increase interest rates and other borrowing costs and to restrict
availability of credit, particularly to higher-risk borrowers.\411\
Because of this, policies that increase protections for consumers with
debts in collection involve a tradeoff between the benefits of
protections for those consumers and the possibility of increased costs
of credit and reduced availability of credit for all consumers. Whether
there is a net benefit from such protections depends on whether
consumers value the protections enough to outweigh any associated
increase in the cost of credit or reduction in availability of credit.
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\411\ See Thomas A. Durkin et al., Consumer Credit and the
American Economy 521-25 (Oxford U. Press 2014) (discussing theory
and evidence on how restrictions on creditor remedies affect the
supply of credit). Empirical evidence on the impact of State laws
restricting debt collection is discussed in section G below. The
provisions in this final rule could also affect consumer demand for
credit, to the extent that consumers contemplate collection
practices when making borrowing decisions. However, there is
evidence suggesting that consumer demand for credit is generally not
responsive to differences in creditor remedies. See James Barth et
al., Benefits and Costs of Legal Restrictions on Personal Loan
Markets, Journal of Law & Economics, 29(2) (1986).
\411\ See 15 U.S.C. 1692(e).
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The final rule will further the FDCPA's goals of eliminating
abusive debt collection practices and ensuring that debt collectors who
refrain from such practices are not competitively disadvantaged.\412\
However, as discussed below, it is not clear based on the information
available to the Bureau whether the net effect of the final rule will
be to make it more costly or less costly for debt collectors to recover
unpaid amounts, and therefore not clear whether the rule will tend to
increase or decrease the supply of credit. The final rule will benefit
both consumers and debt collectors by increasing clarity and certainty
about what the FDCPA prohibits and requires. When a law is unclear, it
is more likely that parties will disagree about what the law requires,
that legal disputes will arise, and that litigation will be required to
resolve disputes. Since 2010, consumers have filed approximately 8,000
to 12,000 lawsuits under the FDCPA each year, some of which involve
issues on
[[Page 5839]]
which the law is unclear.\413\ The number of disputes settled without
litigation has likely been much greater.\414\ Perhaps more important
than the costs of resolving legal disputes are the steps that debt
collectors take to prevent legal disputes from arising in the first
place. This includes direct costs of legal compliance, such as auditing
and legal advice, as well as indirect costs from avoiding collection
practices that might be both effective and legal but that raise
potential legal risks. In some cases, debt collectors seeking to follow
the law and avoid litigation have adopted practices that appear to be
economically inefficient, with costs that exceed the benefits to
consumers or even impose net costs on consumers.\415\
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\412\ See id.
\413\ See WebRecon LLC, WebRecon Stats for Dec 2019 & Year in
Review, https://webrecon.com/webrecon-stats-for-dec-2019-and-year-in-review-how-did-your-favorite-statutes-fare/ (last visited Dec. 1,
2020). Greater clarity about legal requirements could reduce
unintentional violations and could also reduce lawsuits because,
when parties can better predict the outcome of a lawsuit, they may
be more likely to settle claims out of court.
\414\ Some debt collectors have reported that they receive
approximately 10 demand letters from attorneys asserting a violation
of the FDCPA for each lawsuit filed. See Small Business Review Panel
Outline, supra note 39, at 69 n.105.
\415\ For example, as discussed further below, debt collectors
typically may disclose only the information that FDCPA section
809(a) specifically references and may provide the FDCPA section 809
information using statutory language, rather than plain language
that consumers can more easily comprehend.
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This final rule relating to disclosures could make debt collection
either more or less costly in ways that are difficult to predict. For
example, the validation notice requirements will provide consumers with
more information than they currently receive about debts, which could
reduce costs to consumers and debt collectors from disputes that arise
when consumers do not recognize the debt or do not understand the basis
for the alleged amount due. At the same time, the final rule's clearer
explanation of dispute rights could make consumers more likely to
dispute, which could provide benefits to consumers while increasing
costs for debt collectors. Disputes are costly for debt collectors to
process, so these requirements could either increase or decrease debt
collector and consumer costs depending on the net effect on dispute
rates.
In developing the final rule, the Bureau has consulted, or offered
to consult with, the appropriate prudential regulators and other
Federal agencies, including regarding consistency with any prudential,
market, or systemic objectives administered by such agencies.
B. Provisions To Be Analyzed
The analysis below considers the potential benefits, costs, and
impacts to consumers and covered persons of key provisions of the final
rule (provisions), which include:
1. Time-barred debt: Prohibiting suits and threats of suit.
2. Notice for validation of debts.
3. Required actions prior to furnishing information.
C. Data Limitations and Quantification of Benefits, Costs, and Impacts
The discussion in this part VII relies on publicly available
information as well as information the Bureau has obtained. To better
understand consumer experiences with debt collection, the Bureau
developed its 2015 Survey of Consumer Views on Debt, which provided the
first comprehensive and nationally representative data on consumers'
experiences and preferences related to debt collection.\416\ In
addition, the Bureau relies on its Consumer Credit Panel (CCP) to
understand potential benefits and costs to consumers of the rule.\417\
To better understand potential effects of the rule on industry, the
Bureau has engaged in significant outreach to industry, including
through the CFPB Debt Collection Operations Study.\418\ In July 2016,
the Bureau consulted with small entities as part of the SBREFA process
and obtained important information on the potential impacts of
proposals that the Bureau was considering at the time for the topics
covered by the final rule; many of those proposals are included in the
final rule.\419\
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\416\ See CFPB Debt Collection Consumer Survey, supra note 292.
\417\ For more information about Bureau data sources, see Bureau
of Consumer Fin. Prot., Sources and uses of data at the Bureau of
Consumer Financial Protection (Sept. 26, 2018), https://www.consumerfinance.gov/data-research/research-reports/sources-and-uses-data-bureau-consumer-financial-protection/.
\418\ See CFPB Debt Collection Operations Study, supra note 37.
\419\ See Small Business Review Panel Report, supra note 40.
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The sources described above, together with other sources of
information and the Bureau's market knowledge, form the basis for the
Bureau's consideration of the likely impacts of the final rule. The
Bureau makes every attempt to provide reasonable estimates of the
potential benefits and costs to consumers and covered persons of this
final rule given available data. However, available data sources
generally do not permit the Bureau to quantify, in dollar terms, how
particular provisions will affect consumers. With respect to industry
impacts, much of the Bureau's existing data come from qualitative input
from debt collectors and other entities that operate in the debt
collection market rather than from representative sampling that would
allow the Bureau to estimate total benefits and costs.
General economic principles and the Bureau's expertise in consumer
financial markets, together with the data and findings that are
available, provide insight into the potential benefits, costs, and
impacts of the final rule. Where possible, the Bureau has made
quantitative estimates based on these principles and the data
available. Some benefits and costs, however, are not amenable to
quantification, or are not quantifiable given the data available to the
Bureau. The Bureau provides a qualitative discussion of those benefits,
costs, and impacts. The Bureau requested additional data or studies
that could help quantify the benefits and costs to consumers and
covered persons of the May 2019 Proposed Rule and the February 2020
Proposed Rule. The Bureau summarizes comments on this subject below,
but few comments explicitly addressed quantifying the costs and
benefits of the rule or provided additional data or studies. Comments
on the benefits and costs of the rule are also discussed in part V
above.
D. Baseline for Analysis
In evaluating the potential benefits, costs, and impacts of the
final rule, the Bureau takes as a baseline the current legal framework
governing debt collection. This includes debt collector practices as
they currently exist, responding to the requirements of the FDCPA as
currently interpreted by courts and law enforcement agencies, other
Federal laws, and the rules and statutory requirements promulgated by
the States.\420\ In the consideration of potential benefits, costs, and
impacts below, the Bureau discusses its understanding of practices in
the debt collection market under this baseline and how those practices
are likely to change under the final rule.
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\420\ These requirements, and the specificity of the
requirements, may vary depending upon the jurisdiction in which the
collection occurs. This baseline does not include any potential
impacts of the November 2020 Final Rule, however. The November 2020
Final Rule included a separate Dodd-Frank Act Section 1022(b)
analysis, and that rule's provisions do not go into effect until
November 30, 2021.
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Until the creation of the Bureau, no Federal agency was given the
authority to write substantive regulations implementing the FDCPA,
meaning that
[[Page 5840]]
many of the FDCPA's requirements are subject to interpretations in
court decisions that are not always consistent or do not always
definitely resolve an issue, such as a single district court opinion on
an issue. Debt collectors' practices reflect their interpretations of
the FDCPA and their decisions about how to balance effective collection
practices against litigation risk. Many of the impacts of the final
rule relative to the baseline would arise from changes that debt
collectors would make in response to additional clarity about the most
appropriate interpretation of what conduct is permissible and not
permissible under the FDCPA's provisions.
The Bureau received no comments regarding its choice of baseline
for its section 1022(b) analysis.
E. Goals of the Rule
The final rule is intended to further the FDCPA's goals of
eliminating abusive debt collection practices and ensuring that debt
collectors who refrain from such practices are not competitively
disadvantaged. To these ends, an important goal of the rule is to
benefit both consumers and debt collectors by increasing clarity and
certainty about what the FDCPA prohibits and requires, which could
improve compliance with the FDCPA while reducing unnecessary litigation
regarding the FDCPA's requirements.
As discussed in part V and in this part VII, other goals of the
rule's provisions regarding validation information include providing
more information to consumers about their debts, which may help
consumers determine whether a debt is theirs and whether the reported
amount owed is accurate and may reduce unnecessary disputes. The
validation information is also intended to help consumers to know their
rights and be able to exercise them, including by disputing a debt. In
addition, the model validation notice is intended to provide
information to consumers in a more appealing and easy-to-read format,
making it more likely that consumers read and comprehend the
information than with the validation notices currently in use.
The rule's provision requiring debt collectors to take certain
actions prior to furnishing information about a debt to a consumer
reporting agency is intended to increase the likelihood that consumers
learn about an alleged debt before furnishing occurs, giving them an
opportunity to resolve the debt or dispute it if appropriate.
The rule's provision prohibiting debt collectors from suing or
threatening to sue on time-barred debts is intended to mitigate the
consumer harms that can result from such actions, including causing
some consumers to pay or prioritize time-barred debts over other debts
in the mistaken belief that doing so is necessary to avoid litigation
or adverse judgments, when in fact consumers have meritorious defenses
based on the statute of limitations.
F. Coverage of the Rule
The final rule applies to debt collectors as defined in the FDCPA
and Sec. 1006.2(i) of the November 2020 Final Rule. Creditors that
collect on debts they own generally will not be affected directly by
the final rule because they typically are not debt collectors for
purposes of the FDCPA. Creditors, however, may experience indirect
effects if debt collectors' costs increase and if those costs are
passed on to creditors.
G. Potential Benefits and Costs to Consumers and Covered Persons
The Bureau discusses the benefits and costs of the rule to
consumers and covered persons (generally FDCPA debt collectors) in
detail below.\421\ The Bureau believes that an important benefit of
many of the provisions to both consumers and covered persons--compared
to the baseline of the FDCPA as currently interpreted by courts and law
enforcement agencies--is an increase in clarity and precision of the
law governing debt collection. Greater certainty about legal
requirements can benefit both consumers and debt collectors, making it
easier for consumers to understand and assert their rights and easier
for firms to ensure they are in compliance. The Bureau discusses these
benefits in more detail with respect to certain provisions below but
believes that they generally apply, in varying degrees, to all of the
provisions discussed below.
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\421\ For purposes of the section 1022(b)(2) analysis, the
Bureau considers any consequences that consumers perceive as harmful
to be a cost to consumers. In considering whether consumers might
perceive certain activities as harmful, the Bureau is not analyzing
whether those activities would be unlawful under the FDCPA or the
Dodd-Frank Act.
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1. Time-Barred Debt: Prohibiting Suits and Threats of Suit
Section 1006.26(b) prohibits a debt collector from suing or
threatening to sue a consumer to collect a time-barred debt.
As discussed in part V above, multiple courts have held that the
FDCPA prohibits suits and threats of suit on time-barred debt. The
Bureau understands that most debt collectors do not knowingly sue or
threaten to sue consumers to collect time-barred debts. Although the
final rule applies a strict liability standard to this prohibition,
under which debt collectors may be liable for suits or threats of suit
even if they do not know that the debt is time-barred, the Bureau
believes that debt collectors have multiple ways of managing such risk
including, but not limited to, confirming that the statute of
limitations has not expired before bringing or threatening to bring a
legal action or, if a debt collector is unable to make such a
determination, refraining from bringing or threatening to bring a legal
action while, in most States, continuing with non-litigation collection
activities. Therefore, the Bureau does not expect this provision of the
rule to have a significant effect on most debt collectors.
To the extent that there are costs to covered persons or benefits
to consumers from this provision, they will most likely come from
reduced payments on time-barred debts, to the extent that some debt
collectors currently sue or threaten to sue on time-barred debts as a
strategy to elicit payment.\422\ If it is currently true that (1) suing
or threatening to sue on debts is an important means of collection for
debts for which the statute of limitations is close to expiring, and
(2) most debt collectors stop suing or threatening to sue once the
statute of limitations for a debt expires, then one would expect
repayment rates to drop after the statute of limitations expires, and
that drop might be made more significant by the provision. Such a
reduction in payments would benefit consumers who owe the debts while
imposing costs on debt collectors and creditors and potentially
increasing the cost of credit generally.
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\422\ The final rule may also increase costs to covered persons
to the extent that debt collectors who currently sue or threaten to
sue to collect time-barred debt increase their efforts to determine
whether or not a debt is time barred. As discussed above in part V,
The Bureau recognizes that, in most jurisdictions, expiration of the
statute of limitations provides the consumer with an affirmative
defense to liability, but it does not bar a debt collector from
bringing suit. As such, some debt collectors who sue or threaten to
sue on older debts may currently expend less time and effort
verifying the time-barred status of a debt than they will under the
final rule.
---------------------------------------------------------------------------
The Bureau therefore attempted to indirectly measure the potential
effect of the provision by examining the behavior of consumers who owe
debts that either recently expired or are close to expiring under their
State's statute of limitations. To do so, the Bureau used data from its
Consumer Credit Panel (CCP), which contains information from one of the
[[Page 5841]]
three nationwide CRAs. The Bureau used data from the CCP to attempt to
estimate the current effect of State statutes of limitation on the
propensity of consumers to pay old debts in collection.
The CCP contains information on collections tradelines--records
that were furnished to this nationwide CRA by third-party debt
collectors or debt buyers. The Bureau analyzed these data to determine
whether the probability of payment declines around the expiration of
the statute of limitations in the consumer's State. Specifically, the
Bureau followed debts reported in the CCP from the time they were first
reported on a consumer's credit record until they either showed some
record of payment or disappeared from the credit record. In this
analysis, the Bureau assumed that the applicable statute of limitations
is the one applicable to written contracts in the consumer's State of
residence and that the statute of limitations begins for a debt on the
date that the debt first appears on the consumer's credit report. The
Bureau assumed this starting date because there was no other date in
the available data on which to reasonably base the beginning of the
statute of limitations. There is likely to be some inaccuracy in this
assumption due to a variety of factors, including delays between the
beginning of the period defined by the statute of limitations and the
first report of information to the CRA and cases in which the
applicable statute of limitations is not the one in the consumer's
State. However, if the estimated expiration of the statute of
limitations is at least approximately correct in most cases, then one
would expect to observe whether the expiration of the statute of
limitations has an effect on the likelihood that a debt is reported to
have been paid.
The Bureau calculated the probability of payment occurring after a
given number of days, conditional on no payment occurring before--in
technical terms, the ``hazard rate'' for payments--for all collections
tradelines in the CCP. The Bureau then calculated the average hazard
rate based on the number of months before or after the estimated
expiration of the applicable statute of limitations. This calculation
is plotted in Figure 1, below. The figure shows that the probability of
a collections tradeline showing evidence of payment declines steadily
for at least a year leading up to the estimated expiration of the
statute of limitations and continues to decline at roughly the same
rate afterwards. Thus, while the probability of payment declines over
time, the reduced ability of debt collectors to pursue litigation does
not seem to materially affect payments on collections tradelines.
Combined with the Bureau's understanding that debt collectors generally
do not knowingly sue or threaten to sue on time-barred debt, this
suggests that the provision would be unlikely to cause any further
reduction in the rate of repayment on time-barred debt.
[GRAPHIC] [TIFF OMITTED] TR19JA21.027
Because the available data do not permit the Bureau to identify the
expiration of the statute of limitations precisely, the analysis above
may fail to identify some effects.
2. Notice for Validation of Debts
Section 1006.34 implements and interprets FDCPA section 809(a),
(b), (d), and (e). Specifically, Sec. 1006.34(a) provides that,
subject to certain exceptions, a debt collector must provide a consumer
the validation information described in Sec. 1006.34(c). Section
1006.34(c) implements FDCPA section 809(a)'s content requirements
[[Page 5842]]
and specifies that validation information includes certain information
about the debt and the consumer's protections with respect to debt
collection that debt collectors do not currently provide to consumers.
Section 1006.34(d) sets forth a general requirement that such
information be clear and conspicuous. Section 1006.34(d) also provides
safe harbors for using the model validation notice, specified
variations of the model notice, or a substantially similar form, and
permits the inclusion of certain optional information. Section
1006.34(e) affirmatively permits debt collectors to provide validation
notices translated into other languages and requires debt collectors
who offer to provide consumers translated notices to provide them to
consumers who request them.
Potential benefits and costs to consumers. The required validation
information may benefit consumers in four ways. First, the disclosures
will provide more information about the debt, which may help consumers
determine whether the debt is theirs and whether the reported amount
owed is accurate. Second, the notice will provide a plain-language
disclosure of the consumer's rights in debt collection, in particular
the right to dispute, which should help consumers to know their rights
and be able to exercise them. Third, the validation information will
include consumer-response information that should make it easier for
consumers to take certain actions, including disputing a debt. Finally,
the model validation notice form is intended to provide information to
consumers in a more plain-language and visually appealing format,
making it more likely that consumers will read and comprehend the
information than with the validation notices currently in use.
To quantify the benefit of providing more and clearer validation
information, the Bureau would need to estimate the impact of this
additional information on consumers' ability to recognize their debts
compared to what is currently provided on validation notices, as well
as how consumers would respond to that additional information. Although
the Bureau is not aware of data that would permit a full accounting of
these benefits, below is a summary of information the Bureau is aware
of that is relevant to assessing these benefits.
The Bureau understands that, in general, validation notices
currently include little or no information about the debt beyond the
information specifically listed in section 809(a) of the FDCPA (e.g.,
the current amount of the debt and the name of the current creditor).
This information may not be sufficient for the consumer to recognize
the debt, particularly if: (1) The amount owed has changed over time
due to interest, fees, payments, or credits; (2) the debt collector has
changed since an original collection attempt; or (3) the creditor's
name is not one the consumer associates with the debt (as with some
store-branded credit cards issued by third-party financial
institutions). Consumers who do not recognize a debt because the
information on a validation notice is insufficient may incur costs if
they mistakenly dispute a debt they owe, make a payment on a debt they
do not owe, or ignore a debt on the assumption that the collection
attempt is in error.
Relative to current validation notices, the validation information
under the final rule will include more specific details about the debt,
such as the debt's account number and an itemization of the debt. The
Bureau has determined that this information will benefit consumers by
making it easier for them to determine whether they owe a debt and,
therefore, reducing the likelihood of incurring costs due to mistakes
like those noted above. The consumer can also use the consumer-response
information to request the name and address of the original creditor,
which may further help the consumer to recognize the debt.
To fully evaluate the benefits to consumers of disclosing this
additional information, the Bureau would need representative data to
estimate how often consumers would read and understand the additional
information on the notice and the extent to which that information
increases consumer recognition and understanding compared to a notice
without it. For example, the Bureau could further quantify some of the
consumer benefits of the additional information if the Bureau were able
to estimate: (1) How many consumers ignore notices out of a mistaken
conclusion that the debt is not theirs; (2) how many consumers dispute
correct debts, and subsequently, how much time the validation notice
saves by obviating later interactions that result from improper
disputes; and (3) how many consumers fail to dispute or make payments
on incorrect debts. The Bureau is not aware of a source of information
on the number of consumers in these categories or the possible time
savings that could result from the validation information. The Bureau's
Debt Collection Consumer Survey suggests that the required validation
information would likely be helpful in recognizing a debt.
Specifically, when asked how helpful various pieces of information
would be in figuring out whether they owed a debt, consumers were most
likely to indicate that the creditor name, type of debt, and an
itemization of the amount owed (such as principal, interest, and fees)
were especially valuable.\423\ These opinions were echoed in focus
groups in which consumers noted that, after a debt is sold, it is more
difficult to recognize, and that they wanted as much information as
possible to help them recognize the debt as theirs (especially the
account number, creditor, and amount due) with the exception of
sensitive information like social security numbers.\424\
---------------------------------------------------------------------------
\423\ CFPB Debt Collection Consumer Survey, supra note 292.
\424\ FMG Focus Group Report, supra note 26, at 15-16.
---------------------------------------------------------------------------
To quantify the benefits of the provision requiring a clear and
conspicuous disclosure of a consumer's right to dispute a debt, the
Bureau would need to estimate the number of consumers who fail to
dispute debts that they do not owe because they are unaware of, or do
not comprehend, their right to dispute. The Bureau cannot precisely
quantify this benefit; however, the discussion below identifies several
applicable considerations and estimates.
The Bureau estimates that at least 49 million consumers are
contacted by debt collectors each year.\425\ Twenty-eight percent of
consumers who said they had been contacted about one or more debts in
collection reported that the contacts included attempts to collect at
least one debt that the consumers believed they did not owe.\426\ One-
third of consumers who had been contacted said the amount the creditor
or debt collector was trying to collect was wrong for at least one of
these debts, and 16 percent said the contacts included at least one
contact about a debt that was instead owed by a family member. (Some
consumers reported more than one of these issues). Taken together, more
than half of consumers (53 percent) who said they had been contacted
about one or more debts in collection reported that they thought at
least one of the debts they were contacted about was in error. This
suggests that there are many consumers who receive the validation
notices in use today who might be likely
[[Page 5843]]
to dispute based on their perception that either the debt is not theirs
or is wrong.
---------------------------------------------------------------------------
\425\ See CFPB Debt Collection Consumer Survey, supra note 292,
at 13, 40-41.
\426\ The survey questions concerning consumer beliefs about
errors in collections did not ask respondents to distinguish between
debts owed to a debt collector and debts owed to a creditor. If
consumers are more or less likely to believe there is an error for
collection attempts by debt collectors, then this percentage and
those below may over- or under-estimate the likelihood that a
consumer believes a debt is in error when the consumer is contacted
by a debt collector.
---------------------------------------------------------------------------
Among the 53 percent of consumers who cited one of the issues noted
above, 42 percent reported that they disputed a collection in the prior
year, and 11 percent of consumers who had not cited one of those issues
indicated that they had disputed a debt. The fact that less than half
of consumers who questioned a debt about which the creditor or debt
collector contacted them reported disputing a debt is consistent with
the possibility that some consumers do not dispute in response to a
collection effort because they are not aware of the option to dispute
or do not understand the steps required to do so. The required clear-
and-conspicuous statement of the dispute right could benefit these
consumers by making them aware of their right to dispute and informing
them how to dispute.
The survey's finding that only 42 percent of consumers who thought
they experienced an error with a debt in collection disputed the error
suggests consumers are uncertain about how to dispute a debt in
collection or that they believe that disputes require too much time and
effort relative to the expected benefit. The required consumer-response
information could reduce these impediments to disputing debts that
consumers believe are in error. Specifically, the consumer-response
information will provide a clear means of disputing a debt in a way
that triggers the protections provided by the FDCPA and this rule.
Furthermore, the convenience of the consumer-response information,
which is formatted on the model validation notice as a tear-off with
prompts for various actions, could reduce barriers to responding by
eliminating or reducing the burden of, for example, deciding what
information is relevant and how to phrase the response.\427\ This could
allow some consumers to save time and avoid other negative
consequences, such as lower credit scores due to a debt they may not
owe being listed as unpaid on their credit reports.
---------------------------------------------------------------------------
\427\ A 2016 research report by the United Kingdom's Financial
Conduct Authority showed that, in a large randomized control trial,
a tear-off form (with a text or email reminder) led to more
consumers switching from a current savings account to one with a
better interest rate relative to getting only an informational text
or email reminder and relative to an informational box with
instructions on how to switch. Paul Adams et al., Attention, Search
and Switching: Evidence on Mandated Disclosure from the Savings
Market (UK Fin. Conduct Authority, Occasional Paper No. 19 2016),
https://www.fca.org.uk/publication/occasional-papers/occasional-paper-19.pdf.
---------------------------------------------------------------------------
Additionally, the consumer-response information includes an option
to request information about the original creditor. Original-creditor
information may help consumers in determining whether the debt is
theirs.
The Bureau has tested a model validation notice. Several
considerations went into the content and design of the model validation
notice. First, consumers must have relevant and accurate information to
make informed decisions about how to act with regard to the debt. The
Bureau therefore conducted consumer testing to identify what pieces of
information consumers considered to be important to help them identify
whether a debt was theirs, whether the amount stated was correct, and
how the amount the debt collector was attempting to collect has changed
over time (e.g., due to fees, interest, and payments).\428\ However,
there is some indication that consumers tend to not read certain types
of standard-form disclosures.\429\ To try to avoid this result, the
Bureau conducted consumer testing exploring how consumers interacted
and engaged with the notice and the pieces of information contained
therein.\430\ This helped the Bureau understand whether consumers were
inclined to engage with the document in general and which pieces of the
validation notice received more or less consumer attention.
---------------------------------------------------------------------------
\428\ FMG Summary Report, supra note 29.
\429\ See, e.g., Ian Ayres & Alan Schwartz, The No-Reading
Problem in Consumer Contract Law, 66 Stan. L. Rev. 545 (2014);
Yannis Bakos et al., Does Anyone Read the Fine Print? Consumer
Attention to Standard-Form Contracts, 43 J. Legal Studies 1, 1-35
(2014); George R. Milne & Mary J. Culnan, Strategies for Reducing
Online Privacy Risks: Why Consumers Read (or Don't Read) Online
Privacy Notices, 18 J. Interactive Mktg. 3, 15-29 (2004); Jonathan
A. Obar & Anne Oeldorf-Hirsch, The Biggest Lie on the internet:
Ignoring the Privacy Policies and Terms of Service Policies of
Social Networking Services (York U., draft version, 2018), http://dx.doi.org/10.2139/ssrn.2757465.
\430\ FMG Cognitive Report, supra note 27.
---------------------------------------------------------------------------
The Bureau incorporated the findings from this consumer testing in
its design of the model validation notice. To increase both consumer
engagement with and comprehension of the validation information, the
Bureau designed the model notice to be visually engaging. The notice
uses plain language wherever possible and conforms to recommendations
the Securities and Exchange Commission (SEC) set forth in its plain
English handbook.\431\ To reduce the perceived complexity of the
information, the form uses a clear hierarchy of information through
positioning in a columnar format, varying type size, and bold-faced
type for subsection headings. It uses shading to highlight the amount
due and plain language rather than technical terms. Usability testing
analyzing eye-tracking suggests that participants were able to locate
relevant information on the form, with most participants able to
quickly locate their account number and the contact information of the
creditor.\432\ The information presented in the form is also concise,
presenting consumers with a manageable amount of information about the
debt and what they can do in response to the information. This is
important, as the perceived and actual cost to a consumer of reading a
disclosure increases with the amount of information provided.\433\
---------------------------------------------------------------------------
\431\ See Sec. & Exchange Comm'n, A Plain English Handbook (Aug.
1998), https://www.sec.gov/pdf/handbook.pdf.
\432\ FMG Summary Report, supra note 29.
\433\ The idea that consumers may decrease their engagement with
information when more information is provided is somewhat supported
by research on ``choice overload.'' This work indicates that, if
choice sets are large, some people opt to make no choice at all.
See, e.g., Sheena Iyengar et al., How Much Choice is Too Much?
Contributions to 401(k) Retirement Plans, in Pension Design and
Structure: New Lessons from Behavioral Finance, at 83 (Oxford U.
Press 2004).
---------------------------------------------------------------------------
A number of consumer advocate and academic commenters asserted that
the proposed model notice was not adequately tested. Some of these
commenters stated that the Bureau's testing included too few
participants to generate valid conclusions about the proposed model
notice's efficacy or to evaluate the comprehension of consumers,
particularly of the least sophisticated consumers. For instance, a
consumer advocate expressed concern that only 60 consumers were
included in the cognitive and usability testing rounds.\434\ Likewise,
an academic commenter stated that the Bureau's consumer testing focused
too heavily on observing what testing participants looked at on the
model notice (based on the use of eye tracking techniques) at the
expense of testing participants' comprehension of the notice. Another
commenter stated that the Bureau should have tested more diverse
groups, including consumers with limited English proficiency, students,
older consumers, and consumers from more diverse socioeconomic
backgrounds. Some consumer advocate and academic commenters recommended
that the Bureau field test the proposed model notice with consumers
with real debts. A consumer advocate expressed concern about the
performance of certain aspects of the proposed model notice in
quantitative testing, noting in particular that approximately 40
percent of respondents who received the model
[[Page 5844]]
notice failed to identify the correct entity the consumer should
pay.\435\
---------------------------------------------------------------------------
\434\ See FMG Summary Report, supra note 29, at 5-7.
\435\ Several comments in response to the May 2019 proposal also
criticized the consumer testing as being outdated because, when that
proposal was published, the most recent testing had occurred in
2016. However, the Bureau does not find any reason to believe that
consumer understanding of the model notice has changed since 2016,
and the commenters did not provide any evidence to support such a
claim. Moreover, since the May 2019 proposal, the Bureau has
conducted two additional testing rounds.
---------------------------------------------------------------------------
The Bureau disagrees that the model validation notice was not
adequately tested. The model validation notice was developed and
validated over multiple rounds of testing between 2014 and 2020, and
the Bureau determines that these multiple rounds of testing were
sufficient to assess the model validation notice's efficacy and
comprehensibility. Further, the Bureau disagrees that its testing
focused on eye-tracking at the expense of comprehension testing as
consumer comprehension of the model validation notice was assessed in
three rounds of testing. The Bureau's testing used eye-tracking in
conjunction with consumer responses to inform its conclusions.
The Bureau disagrees that it did not sample sufficiently diverse
groups. The Bureau selected respondents with the goal of developing
diverse testing pools that would serve as a proxy for the population at
large. For example, in one round of usability testing, participants
reflected a range of demographic characteristics broken down by race
and ethnicity, household income, education level, and employment
status.\436\ With respect to the criticism that the Bureau did not
``field test'' the model validation notice, testing the form with
consumers with real debts would have been impractical.
---------------------------------------------------------------------------
\436\ FMG Usability Report, supra note 28, at 85-87.
---------------------------------------------------------------------------
Regarding comments that the model validation notice did not perform
well during the quantitative testing round, the Bureau disagrees. As
noted above, in that testing round, the model validation notice
consistently performed better than or equal to the status quo notice,
including on the question of to whom the consumer should send a
payment.\437\ Additionally, the Bureau conducted qualitative follow-up
testing of the model notice in October 2020. In this testing 88 percent
of respondents reported that the notice was either ``very easy'' or
``easy'' to understand.\438\ Between 71 percent and 100 percent of
participants responded correctly to 14 different comprehension
questions. Although some participants expressed confusion about a few
aspects of the notice, the initial reactions to the notice were that
information was clear and the available actions were obvious.
---------------------------------------------------------------------------
\437\ In response to the question ``According to the notice, if
Person A wanted to make a payment on the debt, who should he or she
sent the payment to?'' approximately 60 percent of consumers who
received the model validation notice answered correctly compared to
approximately 40 percent of consumers who received a status quo
notice. CFPB Quantitative Testing Report, supra note 31, at 14.
\438\ See id. at 16.
---------------------------------------------------------------------------
In summary, the Bureau's testing establishes that consumers will
benefit from the use of the model notice compared to the baseline of
status quo validation notices.
The Bureau expects consumers to experience few costs as a result of
the provision.
Potential benefits to covered persons. The provision provides debt
collectors with a safe harbor if they use the model validation notice,
specified variations of the model notice, or a substantially similar
form to meet the requirements in Sec. 1006.34(c). The Bureau
understands that debt collectors currently face litigation risk
associated with the validation notices they send, reflecting, in part,
conflicting court decisions about what language is required and what
language is permitted in the notices.\439\ The Bureau expects a
significant number of debt collectors will use the model notice,
specified variations of the model notice, or a substantially similar
form and, therefore, will face significantly reduced litigation risk
when providing validation notices because they will receive the safe
harbor. This will benefit debt collectors directly, by reducing
litigation costs related to validation notices. The provision's
requirements to provide specific information about the debt and about a
consumer's protections in debt collection could also indirectly benefit
debt collectors by adding information to validation notices that would
be helpful to consumers but that debt collectors currently do not
include for fear that it would increase litigation risk. The validation
information may also make consumers more likely to dispute, which could
increase costs for debt collectors, as discussed under ``Potential
costs to covered persons'' below.
---------------------------------------------------------------------------
\439\ See Small Business Review Panel Report, supra note 40, at
22.
---------------------------------------------------------------------------
The validation information includes specific information about the
debt intended to help consumers identify the debt and understand the
amount the debt collector claims is owed. The Bureau's qualitative
consumer research and the Bureau's complaint data suggest that the
information currently included in validation notices is often not
sufficient for consumers to identify a debt or whether the amount owed
is correct. If consumers are better able to identify debts, they may be
less likely to dispute or ignore a debt that they in fact owe, and at
the same time may be better able to articulate the basis for a dispute
of a debt that they do not owe. These effects could benefit debt
collectors by reducing the costs associated with consumer disputes.
Although it is possible that debt collectors could currently provide
such information on validation notices, the Bureau understands that
some debt collectors who would like to provide additional information
do not do so largely due to the legal risks associated with including
information in the validation notice beyond what is expressly required
by the FDCPA.\440\ The form will significantly reduce this legal risk.
To quantify the benefits of this provision to covered persons, the
Bureau would need data on how frequently consumers do not recognize the
debt or the amount owed as identified on a validation notice, how many
consumers would better recognize the debt if they received the required
validation information, and how consumers would act in response to that
information. While the Bureau is not aware of available data that would
permit it to estimate these numbers, the Debt Collection Consumer
Survey does provide some basis for concluding that the required
validation information will be helpful to consumers and, therefore,
beneficial for debt collectors.
---------------------------------------------------------------------------
\440\ See Small Business Review Panel Report, supra note 40, at
22 (finding that small entities would benefit from a model notice
that reduced litigation risk arising from conflicting court
decisions about what information is permitted on a validation
notice).
---------------------------------------------------------------------------
The validation information could reduce debt collector costs
associated with disputes by preventing some disputes from consumers who
are more likely to recognize that they owe a debt and by making the
disputes that debt collectors receive clearer and easier to resolve.
Debt collectors report that processing disputes is a costly
activity and that it can be especially difficult to process disputes if
the consumer provides little or no detail about the basis for a
dispute. Debt collectors surveyed by the Bureau indicated that most
disputes took between five minutes and one hour of staff time to
resolve, with 15 to 30 minutes being the most common amount of
time.\441\ Respondents said that disputes took the longest amount of
time to resolve if the basis of the dispute
[[Page 5845]]
was unclear or if the consumer said the debt was not theirs.\442\
---------------------------------------------------------------------------
\441\ CFPB Debt Collection Operations Study, supra note 37, at
31.
\442\ Id.
---------------------------------------------------------------------------
One commenter noted that 40 percent of disputes at their debt
collection agency are non-generic and generally resolvable. This
commenter asserted that the tear offs on the model validation notice
will make these non-generic disputes less informative. An industry
commenter noted that 99.4 percent of accounts it received were not
disputed. Of the 0.6 percent that are disputed, 80 percent are accurate
once more information is gathered. Given this, the commenter argued
that providing consumers itemized statements for medical bills, which
can run into many pages, is unnecessary.
The Bureau does not have a basis to estimate how much the
validation information might affect dispute rates. As an illustration
of potential cost savings if dispute rates fall, if the information
were to reduce the number of consumers who dispute by 1 percent of all
validation notices sent, and assuming that there are 140 million
validation notices sent per year,\443\ the overall number of annual
disputes would fall by 1.4 million. Assuming time to process each
dispute of 0.375 hours, the overall savings to industry would be
estimated at 525,000 person-hours, or approximately 250 full-time
equivalents. Assuming labor costs for debt collectors of $22 per
hour,\444\ this would represent industry cost savings of about $11.5
million.
---------------------------------------------------------------------------
\443\ The assumption of 140 million validation notices per year
is based on an estimated 49 million consumers contacted by debt
collectors each year and an assumption that each consumer receives
an average of approximately 2.8 notices during the year.
\444\ This assumes an hourly wage of $15 and taxes, benefits,
and incentives of $7 per hour. See CFPB Debt Collection Operations
Study, supra note 37, at 17 (reporting estimated debt collector
wages between $10 and $20 per hour plus incentives).
---------------------------------------------------------------------------
The validation notice could also reduce the cost of processing
disputes by making it easier for consumers who dispute to provide at
least some information about the basis of their disputes. This could
reduce the costs to covered persons of processing disputes by making it
easier for debt collectors to investigate disputed debts in order to
verify the debt.
Potential costs to covered persons. Debt collectors already send
validation notices to consumers to comply with the FDCPA, so the
validation information will generally affect the content of existing
disclosures debt collectors are sending rather than require debt
collectors to send entirely new disclosures. Nonetheless, debt
collectors will incur certain costs to comply with the form. These
include one-time compliance costs, the ongoing costs of obtaining the
required validation information, and potentially ongoing costs of
responding to a potential increase in the number of disputes.
The provision will require debt collectors to reformat their
validation notices to accommodate the validation information
requirements. The Bureau expects that any one-time costs to debt
collectors of reformatting the validation notice will be relatively
small, particularly for debt collectors who rely on vendors, because
the Bureau expects that most vendors will provide an updated notice at
no additional cost.\445\ The Bureau understands from its outreach that
many covered persons currently use vendors to provide validation
notices.\446\ Surveyed firms, and their vendors, told the Bureau that
vendors do not typically charge an additional cost to modify an
existing template (although this practice might not apply given that
the final rule likely will require more extensive changes to validation
notices than vendors typically make today).\447\ Debt collectors and
vendors will bear costs to understand the requirements of the provision
and to ensure that their systems generate notices that comply with the
requirements, although these costs will be mitigated somewhat by the
availability of a model notice.
---------------------------------------------------------------------------
\445\ See id. at 33.
\446\ In the Operations Study, over 85 percent of debt
collectors surveyed by the Bureau reported using letter vendors. Id.
at 32.
\447\ Id. at 33.
---------------------------------------------------------------------------
The validation information will require debt collectors to provide
certain additional information about the debt, which will require that
debt collectors receive and maintain certain data fields and
incorporate them into the notices. The Bureau believes that the large
majority of debt collectors already receive and maintain most data
fields included in the final validation information. However, some
respondents to the Debt Collection Operations Study reported that they
do not receive from creditors information about post-default interest,
fees, payments, and credits.\448\ These debt collectors will have to
update their systems to track these fields. The Bureau understands that
such system updates would be likely to cost less than $1,000 for each
debt collector.\449\
---------------------------------------------------------------------------
\448\ In the Bureau's Operations Study, 52 of 58 respondents
reported receiving itemization of post-charge-off fees on at least
some of their accounts. Id. at 23.
\449\ Id. at 26.
---------------------------------------------------------------------------
At least one industry commenter asserted that one-time compliance
costs would be significantly higher than $1,000, at least for
collectors of medical debt. This commenter estimated costs of between
$22,000 and $31,000 for implementation. The commenter noted that, for
collectors of medical debt, an itemization of charges requires
information about payments by the consumer's health insurance,
increasing the complexity and cost of tracking the necessary
information. The Bureau acknowledges that costs may be higher for some
debt collectors. However, the Bureau's estimate is based on responses
to the CFPB Debt Collection Operations Study, more than half of which
came from debt collectors of medical debt. As such, the Bureau believes
that, on average, its estimate of less than $1,000 in one-time costs is
reasonable.
If debt collectors adjust their systems to produce notices
including the new validation information, the Bureau does not expect
there would be an increase in the ongoing costs of printing and sending
validation notices. However, there could be ongoing costs related to
the validation information requirements if the required data are not
always available to debt collectors.\450\ The Bureau understands that
some creditors do not currently track post-default charges and credits
in a way that can be readily transferred to debt collectors. However,
the Bureau's understanding is that most creditors, including medical
providers, do track this information, and many debt collectors already
provide this information on validation notices. Further, debt
collectors are already
[[Page 5846]]
required to disclose an itemization for some types of debt in at least
one jurisdiction, New York State.\451\
---------------------------------------------------------------------------
\450\ One industry trade group estimated that an itemization
requirement would cost $600 million in professional fees to conduct
legal analyses of HIPAA compliance for medical debt, $30 million for
one-time system reprogramming for debt collectors, and $3 billion
for one-time system reprogramming for creditors. The proposal
allegedly would also result in billions of dollars in ongoing
support costs and uncompensated medical care because, according to
the commenter, the proposed requirement, if adopted, would increase
the risks that hospitals might be unable to use debt collectors. As
discussed in part V, the itemization requirement should not raise
issues of HIPAA compliance that would require creditors to engage
legal counsel in order to provide the required information, as HIPAA
privacy regulations explicitly permit disclosure where required by
law. While some one-time costs will be required so that collection
and billing systems can incorporate the data needed to comply with
the requirement, as discussed in this section, the Bureau
understands that the required changes would not be far outside the
scope of normal adjustments to billing and collection systems and
does not have reason to believe the changes would be so expensive as
to prevent hospitals from using debt collectors. The final rule
permits debt collectors to use the date of the last statement or
invoice provided to the consumer by a creditor as the itemization
date. If providing a debt collector with itemization information
were prohibitively expensive for a medical provider, such providers
could avoid these costs by simply issuing a statement to the
consumer.
\451\ See 23 NYCRR 1.2(b) (requiring debt collectors to provide
an itemized accounting of the debt within five days after the
initial communication with a consumer in connection with the
collection of certain types of charged-off debt, such as credit card
debt). The fact that debt collectors subject to New York's
requirements continue to operate and send validation notices in New
York suggests that, although the itemization requirement may impose
one-time adjustment costs on some creditors and debt collectors,
ongoing costs are not prohibitive, at least for the types of debts
for which New York has required itemization.
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In addition, as discussed in the section-by-section analysis of
Sec. 1006.34(b)(3), the final rule's itemization date definition
permits debt collectors to select an itemization date that is feasible
for the type of debt in collection and the information debt collectors
receive. And Sec. 1006.34(c)(2)(viii) requires itemization of fees,
interest, and credits only subsequent to the selected itemization date.
Thus, for example, if a debt collector selects the last statement date
as the itemization date under Sec. 1006.34(b)(3), and if the creditor
has recently issued a statement to the consumer, the debt collector
need only obtain and provide to the consumer an itemization with fees,
interest, and credits subsequent to that last statement date. And, as
discussed in the section-by-section analysis of Sec. 1006.34(d)(2), a
debt collector may provide the itemization on a separate page and
retain the safe harbor for the rest of the validation notice.
Industry commenters asserted that there would be additional
printing and mailing costs of the provision due to the tear-off portion
of the model notice, which is formatted for use with a return envelope.
The commenters argued that many debt collectors do not currently
include return envelopes with their validation notices and that
including a return envelope would increase mailing costs. The Bureau
disagrees that this would be a cost of the rule, as the rule does not
require including a return envelope with a mailed validation notice,
the format of the tear-off portion notwithstanding. Given that it is
not required, the Bureau expects that debt collectors will only begin
including return envelopes if they find, in their own analysis, that
the benefit exceeds the additional costs.
Several commenters discussed the potential for ongoing costs of
providing the new validation information. One industry commenter
expressed concern about the availability of the information required on
the model validation notice for medical debt, as the commenter believed
that the only available itemization date permitted by the proposal for
these debts would be date of service (i.e., the transaction date), and
the commenter stated that date of service was currently only available
from 17.2 percent of its clients. Another industry commenter noted that
there would be costs associated with providing updated itemization
dates for a debt that transfers between debt collectors.
Industry trade association commenters noted that there would be
costs to creditors of providing the fields to debt collectors and that
not all of the required fields are necessarily tracked by all creditors
currently, particularly credit unions. The Bureau acknowledges that the
FDCPA and this final rule may create indirect costs for creditors that
use debt collectors, because the costs to debt collectors of complying
with FDCPA requirements may be passed on to creditors and because debt
collectors must receive certain information about debts in order to
comply with FDCPA requirements. The information available to the Bureau
does not suggest that any indirect costs to creditors of this provision
will be large.
Further, one industry commenter asserted that the itemization
requirement could competitively harm collectors of medical debt. This
commenter asserted that medical care providers are currently unable to
provide the required itemization information, and rather than incurring
costs to provide this information, would switch to using debt
collectors who do not comply with the law. This would put compliant
debt collectors at a competitive disadvantage. As noted above, the
Bureau acknowledges that the provision may affect the costs to
creditors, including medical care providers, of using FDCPA debt
collectors, because creditors must provide debt collectors with the
necessary information for the validation notice. It is also possible
that in some cases a less sophisticated creditor may employ a debt
collector who does not attempt to comply with the rule. However, the
Bureau finds it unlikely that this provision of the rule would lead to
widespread non-compliance, at the expense of debt collectors who comply
with the requirements of the rule. The Bureau, the FTC, and other
Federal and State law enforcement agencies have and will continue to
maintain vigorous enforcement of the FDCPA.\452\ Any debt collector who
obtained enough business through non-compliance with the rule to do
material harm to debt collectors who comply with the rule would be
likely to attract enforcement action from regulators. Moreover, the
risk of reputational harm is likely to deter some medical providers
from intentionally employing debt collectors who knowingly do not
comply with the rule.
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\452\ See, e.g., Bureau of Consumer Fin. Prot., CFPB, FTC,
State, and Federal Law Enforcement Partners Announce Nationwide
Crackdown on Phantom and Abusive Debt Collection (Sept. 29, 2020),
https://www.consumerfinance.gov/about-us/newsroom/cfpb-ftc-state-and-federal-law-enforcement-partners-announce-nationwide-crackdown-phantom-and-abusive-debt-collection.
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Other potential costs to debt collectors could arise if changes to
the validation information affect how consumers respond, particularly
whether they dispute the debt. As discussed above, because the
validation information would include more detail, consumers might be
more likely to recognize the debt and less likely to mistakenly dispute
debts that they owe. On the other hand, the new consumer-response
information would make it easier to dispute debts or request the name
and address of the original creditor. Together with the additional
information about consumers' ability to dispute that will be provided,
this could increase the number of consumers who dispute or request
original-creditor information. Similarly, some industry commenters
argued that the tear-off portion of the model notice would make
disputes easier, resulting in more disputes. The overall impact on
dispute rates is unclear.
Any increases in dispute rates would not be likely to substantially
reduce collection revenue, but increased dispute rates would increase
debt collector costs. With respect to collections revenue, the Bureau
expects that, with some fairly limited exceptions, consumers who choose
to pay a debt are generally those who recognize that they owe the debt
and want to pay it, and that in most cases the validation information
would be unlikely to cause such consumers to dispute rather than
pay.\453\ With respect to costs, the disclosures could lead consumers
who do not recognize the debt or who believe there is a problem with
the amount demanded to dispute
[[Page 5847]]
the debt rather than ignoring it. Responding to disputes is a costly
activity for debt collectors, so an increase in dispute rates would
increase these costs. As discussed above, covered persons surveyed by
the Bureau indicated that most disputes took between five minutes and
one hour of staff time to resolve, with 15 to 30 minutes being the most
common amount of time.\454\
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\453\ While there is some evidence that consumers sometimes pay
alleged debts even though they do not believe they owe them, such
consumers may be motivated by factors, such as credit reporting
concerns, that are not addressed by the validation notice itself.
See Jeff Sovern et al., Validation and Verification Vignettes: More
Results from an Empirical Study of Consumer Understanding of Debt
Collection Validation Notices, at 46-47 (St. John's U., Working
Paper No. 18-0016, 2018), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3219171.
\454\ CFPB Debt Collection Operations Study, supra note 37, at
31. The discussion in ``Benefits to covered persons'' above provides
an illustration of the potential impact on debt collectors of a
change in dispute rates. Using the assumptions in that illustration,
if the net impact of the proposal were to increase industrywide
disputes by 1 million disputes per year, it could imply increased
industry costs totaling around $8.25 million per year.
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Alternative proposals to require Spanish-language disclosures. The
Bureau considered proposals that would require debt collectors to
provide a Spanish-language translation of the validation information
under certain circumstances, such as on the reverse side of any
English-language validation notice or if requested by a consumer.
Consumers with limited English proficiency may benefit from
translations of the validation information, and Spanish speakers
represent the second-largest language group in the United States after
English speakers.\455\
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\455\ In 2013, 38.4 million residents in the United States aged
five and older spoke Spanish at home. See U.S. Census Bureau, Facts
for Features: Hispanic Heritage Month 2015 (Sept. 14, 2015), https://www.census.gov/newsroom/facts-for-features/2015/cb15-ff18.html.
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Requiring Spanish-language disclosures would impose costs on some
debt collectors. A requirement to send a Spanish-language disclosure on
the back of each validation notice could increase mailing costs for all
validation notices that are sent by mail, because it would require
information that would otherwise be printed on the back of validation
notices, such as State-mandated disclosures, to be provided on a
separate page. A requirement to provide Spanish-language validation
notices upon request could lead to a smaller increase in mailing costs
but could require debt collectors to develop and maintain systems for
tracking a consumer's language preference and responding to that
preference.
The Bureau understands that some debt collectors currently send
validation notices in Spanish to some consumers. These debt collectors
presumably believe that the increase in revenues from sending them to
these consumers exceeds the costs of doing so. To the extent sending
such notices is already prevalent, it would limit the consumer benefits
of a provision that requires Spanish-language translations as well as
the costs to debt collectors of such a provision, although there would
still be costs associated with ensuring that such disclosures were made
as required by regulation.
Consumer advocate and academic commenters argued that the Bureau
should have required that the validation notice be in the language of
the original transaction, including languages other than English or
Spanish. The commenters noted that procedural hurdles, such as a
mismatch between the consumers' primary language and the language of a
disclosure, can have large effects on behavior. The Bureau notes that
this alternative would impose significantly greater costs on debt
collectors than the final rule, as they would need to maintain versions
of the model notice for each such language. At the same time, the
marginal benefit to consumers of the alternative suggested by
commenters would be smaller, as fewer consumers communicate in
languages other than English and Spanish.
3. Required Actions Prior to Furnishing Information
Section 1006.30(a)(1) prohibits a debt collector from furnishing
information to a consumer reporting agency (CRA) about a debt before
taking specific actions to contact the consumer about that debt. A debt
collector can satisfy this requirement by: (i) Speaking to the consumer
about the debt in person or by telephone; or (ii) placing a letter in
the mail or sending an electronic message to the consumer about the
debt and waiting a reasonable period of time to receive a notice of
undeliverability, provided certain other conditions are satisfied. A
validation notice is one type of letter or electronic communication
debt collectors can use to satisfy Sec. 1006.30(a)(1)(ii).
Potential benefits and costs to consumers. The final rule will help
consumers to learn about an alleged debt before a debt collector
furnishes adverse information to a CRA. If consumers believe that the
information is incorrect, they will have an opportunity to dispute the
debt.
When debt collectors furnish information about unpaid debts to
CRAs, that information can appear on consumer credit reports,
potentially limiting consumers' ability to obtain credit, employment,
or housing. If consumers are unaware that information about a possible
unpaid debt is being furnished to a CRA, then they may not realize that
their ability to obtain credit, employment or housing may be affected
by the debt's presence on their credit reports. They may pay more for
credit or lose out on employment or housing because they are unaware
that their credit scores have been negatively affected or they may
discover the adverse information only when they apply for credit,
employment, or housing.
To quantify the potential consumer benefits from the final rule,
the Bureau would need to know: (1) How frequently consumers are unaware
that debt collectors furnished information about their debts to CRAs
but would become aware of it if debt collectors informed consumers
prior to furnishing information; and (2) the benefit to these consumers
of becoming aware they had a debt in collections.
In many cases, consumers will not be affected by the provision
because many debt collectors already take one of the actions required
by the final rule before furnishing information to CRAs. Many other
consumers will not be affected by the provision because not all debt
collectors furnish information to CRAs about the debts on which they
are seeking to recover.
The Bureau understands that most debt collectors mail validation
notices to consumers shortly after they receive accounts for
collection.\456\ A minority of debt collectors sometimes or always mail
validation notices only after speaking with consumers (whether contact
was initiated by the debt collector or the consumer).\457\ The Bureau
does not have representative data to estimate how often consumers would
be affected by the provision, but the evidence suggests that a
relatively small share of debt collectors furnish information to CRAs
before providing a validation notice or taking one of the other actions
required by the final rule. If, for example, debt collectors sent
[[Page 5848]]
validation notices for an additional five percent of debts in
collection, the provision could result in up to approximately seven
million additional validation notices sent each year (assuming that no
debt collectors would cease furnishing in response to the
provision).\458\
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\456\ See CFPB Debt Collection Operations Study, supra note 37,
at 28. One large industry commenter, which does furnish to the CRAs,
also confirmed that it almost always mails a validation notice
before furnishing. To comply with the final rule, these debt
collectors would also need to wait a reasonable period of time to
allow for notifications of non-delivery, and only furnish if they
don't receive such notifications. The Bureau does not have
information as to how many of these debt collectors currently take
these additional steps. However, the Bureau expects that taking
these additional steps would impose minimal costs on debt collectors
that do not already take them.
\457\ In the Bureau's Operations Study, 53 of 58 respondents
said that they send a validation notice shortly after debt
placement, and of those that do not, three respondents that said
that they furnish data to CRAs. Id. During the meeting of the SBREFA
Panel, only one small entity representative described additional
burdens it would face as a result of a requirement to communicate
with consumers before furnishing information to credit bureaus.
\458\ This estimate assumes 140 million validation notices are
sent each year, based on an estimated 49 million consumers contacted
by debt collectors each year and an assumption that each receives an
average of approximately 2.8 notices during the year.
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Learning that a debt is in collections shortly after the
collections process begins can help consumers prevent or mitigate harm
from adverse information on their credit reports. This can be
particularly important if the information about the debt is inaccurate
because in those cases consumers who learn of the alleged debt can
dispute the debt under the FDCPA or dispute the item of information
under the FCRA. By informing consumers about the collection item before
it is furnished to a CRA, the final rule will make it less likely that
consumers learn about a collection item when they are in the process of
applying for credit or other benefits, at which point they may feel
pressure to resolve the item and may not have the opportunity to fully
dispute the item.
An FTC report addressed the prevalence of collections-related
errors in credit reports.\459\ The FTC report analyzed data from a
sample of 1,001 consumers and identified errors in the credit records
of three nationwide CRAs. The report found collections-related errors
in 4.9 percent of credit reports, and credit reports with documented
errors contained, on average, 1.8 errors per report. The Bureau's Debt
Collection Consumer Survey also suggests that debt collectors make
collection errors, finding that 53 percent of consumers who said they
had been contacted about one or more debts in collection said that
these contacts included at least one debt the consumer thought was in
error.\460\
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\459\ Fed. Trade Comm'n, Report to Congress under Section 319 of
the Fair and Accurate Credit Transactions Act of 2003, (Dec. 2012)
https://www.ftc.gov/sites/default/files/documents/reports/section-319-fair-and-accurate-credit-transactions-act-2003-fifth-interim-federal-trade-commission/130211factareport.pdf (FTC Report to
Congress).
\460\ CFPB Debt Collection Consumer Survey, supra note 292, at
24.
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Credit scores are based on a wide variety of information in
consumer credit files. While many errors have only small effects on
consumers' credit scores,\461\ in some cases information in credit
files about unpaid debts can have a reasonably large impact on credit
scores. For example, analysis of telecommunications collection items in
credit reports has shown that, while additional collection items have
relatively small effects in some cases, they can have substantial
effects for some consumers, with an average reduction in credit score
of more than 41 points for super-prime consumers.\462\ In some
circumstances, these changes could lead to higher interest rates for
consumers or denial of credit, particularly for borrowers with
otherwise high credit scores.
---------------------------------------------------------------------------
\461\ See FTC Report to Congress, supra note 459, at 43.
\462\ See Brian Bucks et al., Bureau of Consumer Fin. Prot.,
Collection of Telecommunication Debt, https://files.consumerfinance.gov/f/documents/bcfp_consumer-credit-trends_collection-telecommunications-debt_082018.pdf (Aug. 2018).
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Potential benefits and costs to covered persons. The final rule
will affect the practices of debt collectors who sometimes furnish
information about consumers' debts to CRAs before taking one of the
required actions under the final rule. The Bureau understands that most
debt collectors mail validation notices to consumers shortly after they
receive the accounts for collections and before they furnish
information on those accounts. These debt collectors either already
would be in compliance with the final rule or could come into
compliance with minimal additional cost.\463\ Forty-five out of 58 debt
collectors responding to the Bureau's Operations Study said that they
furnish information to CRAs.\464\ Of these respondents, all but three
said that they send a validation notice upon account placement, such
that the final rule's requirement would be satisfied as long as the
debt collectors also wait a reasonable period of time to allow for
notifications of non-delivery, and only furnish if they do not receive
such notifications. These debt collectors will likely need to review
their policies to ensure that validation notices are always sent (or
validation information is provided in an initial communication) prior
to reporting on the account, which the Bureau expects would involve a
small one-time cost. Debt collectors that do not currently wait a
reasonable period of time prior to furnishing to allow for
notifications of non-delivery, accept non-delivery notifications, and
only furnish if they do not receive such notifications would need to
adopt these practices, but the Bureau expects this would impose minimal
ongoing operational costs. Other debt collectors do not furnish
information to CRAs at all and will not be affected by the requirement.
---------------------------------------------------------------------------
\463\ In the Operations Study, 53 of 58 respondents said that
they send a validation notice shortly after debt placement. CFPB
Debt Collection Operations Study, supra note 37, at 28. To comply
with the final rule, these debt collectors would also need to wait a
reasonable period of time to allow for notifications of non-
delivery, accept non-delivery notifications and only furnish if they
don't receive such notifications. The Bureau does not have
information as to how many of these debt collectors currently take
these additional steps. However, the Bureau expects that taking
these additional steps would impose minimal costs on debt collectors
that do not already take them.
\464\ Id. at 19.
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Debt collectors who furnish information to CRAs prior to
communicating with consumers but provide validation notices to
consumers only after they have been in contact with consumers will need
to change their practices and would face increased costs as a result of
the final rule. Because these debt collectors are already required to
provide validation notices to consumers (unless validation information
is provided in an initial communication or the debt has been paid), the
Bureau expects that many already have systems in place for sending
notices and will not face one-time compliance costs greater than those
of other debt collectors.\465\ However, these debt collectors will face
ongoing costs from sending validation notices to more consumers than
they otherwise would, at an estimated cost of $0.50 to $0.80 per debt
if sent by mail.\466\ To the extent debt collectors take advantage of
opportunities to send validation notices electronically, the marginal
cost of sending each notice is likely to be approximately zero.
Alternatively, these debt collectors could cease furnishing information
to CRAs until after they take the specific steps identified in the
final rule, which could impact the effectiveness of their collection
efforts.\467\ Because debt collectors could choose the less burdensome
of these options, the additional costs of delivering notices represent
an upper bound on the burden of the provision for debt collectors.
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\465\ Debt collectors who do not currently have systems in place
for sending notices will face one-time compliance costs to implement
those systems.
\466\ See CFPB Debt Collection Operations Study, supra note 37,
at 32-33. One small entity representative on the Bureau's SBREFA
Panel indicated that, for about one-half of its accounts, it
currently sends validation notices only after speaking with a
consumer, and that, if it were required to send validation notices
to all consumers, it would incur additional mailing costs of $0.63
per mailing for an estimated 400,000 accounts per year. A small
industry commenter asserted that mailing costs were significantly
higher than $0.50-$0.80 per debt but did not provide an alternative
figure.
\467\ If debt collectors furnish information to CRAs less
frequently this could make consumer reports less informative in
general, which could have negative effects on the credit system by
making it harder for creditors to assess credit risk.
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[[Page 5849]]
Commenters noted several specific situations in which the proposed
provision could, in the commenters' view, unduly burden debt
collectors. One small industry commenter raised the concern that a bad
address, which occurs in 15 percent of accounts at their agency, would
stop collections. Another industry commenter noted that 3 percent of
its notices are returned as undeliverable and argued that attempting to
deliver a validation notice should count as a communication and thus
allow furnishing. Another industry commenter noted that some States are
``closed'' in the sense that debt collectors based in other States are
not allowed to deliver notices into those States. This commenter was
concerned that the proposed provision would not allow furnishing of
information about consumers in those States and argued that this will
reduce credit report accuracy. A joint comment by an industry commenter
and CRA argued that the proposed provision would be particularly
problematic in the check verification space. The commenter noted that,
in the case of bad checks, the debt collector generally does not have
the consumer's address or telephone number and cannot communicate with
the consumer directly. In these cases, the debt collector would report
the bad check to a check verification CRA, but this could be prohibited
under the proposed provision. The commenter argued that the proposed
provision could undermine the reliability of the check payment system
by making it impossible to track check fraud, among other things.
The Bureau agrees with some of the commenters with respect to these
additional costs and has revised the final rule from the proposal to
reduce or eliminate these costs. In particular, the Bureau has revised
Sec. 1006.30(a) to specify that, if a debt collector places a letter
in the mail or sends an electronic message to the consumer about the
debt, the debt collector must wait a reasonable period of time (with a
safe harbor for waiting 14 consecutive days) before furnishing
information about the debt to a CRA and, during that period, permit
receipt of, and monitor for, notifications of undeliverability for mail
and electronic messages. A debt collector who places a letter in the
mail or sends an electronic message, does not receive a notice of
undeliverability during that period, and furnishes information to a
consumer reporting agency after the period ends has not violated the
rule even if the debt collector subsequently receives a notice of
undeliverability. Section 1006.30(a)(2) of the final rule also
specifies that Sec. 1006.30(a)(1) does not apply to the furnishing of
information about a debt to a specialty check verification CRA. The
Bureau believes these changes will reduce or eliminate many of the
costs cited by the commenters.
H. Potential Reduction of Access by Consumers to Consumer Financial
Products and Services
Economic theory indicates that it is possible for changes in debt
collection rules, such as those contained in this final rule, to affect
consumers' access to credit. Under economic theory, creditors should
decide to extend credit based on the discounted expected value of the
revenue stream from that extension of credit. This entails considering
the possibility that the consumer will ultimately default and expected
payments will decrease. If this final rule addressing disclosures were
to increase collection costs or reduce revenue collected from
delinquent debt, then this would reduce the return to lending, which in
theory could lead lenders to increase the cost of lending, restrict
availability of credit, or both.
As discussed in the November 2020 Final Rule, the Bureau has
considered the available empirical data and research on the effect of
State debt collection laws on the price and availability of
credit.\468\ That research shows that State debt collection laws affect
the price and availability of credit in ways that theory would predict,
but that effects are relatively small even for changes in State laws
that are likely more significant than the provisions in this final
rule.\469\ In light of that research and the CCP analysis above, the
Bureau concludes that the provisions in this final rule are unlikely to
cause any significant reduction in access to consumer credit.
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\468\ See 84 FR 23274, 23389-91 (May 21, 2019).
\469\ For example, one study found that additional State
regulations on debt collectors' conduct caused the rate at which a
credit inquiry led to a successful account opening to decline by
less than 0.02 percentage points off a base rate of about 43
percent. See id. at 23389-90.
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I. Potential Specific Impacts of the Rule
1. Depository Institutions and Credit Unions With $10 Billion or Less
in Total Assets, as Described in Section 1026
Depository institutions and credit unions are generally not debt
collectors under the FDCPA and therefore would not be covered under the
final rule. Creditors could experience indirect effects from the final
rule to the extent they hire FDCPA debt collectors or sell debt in
default to such debt collectors. Such creditors could experience higher
costs if debt collectors' costs increase and if debt collectors are
able to pass those costs on to creditors. The Bureau understands that
many depository institutions and credit unions with $10 billion or less
in total assets rely on FDCPA debt collectors to collect uncollected
amounts, but the Bureau does not have data indicating whether such
institutions are more or less likely than other creditors to do so. The
Bureau did not receive any comments on this issue with respect to the
provisions in this final rule.
2. Impact of the Final Rule on Consumers in Rural Areas
Consumers in rural areas may experience benefits from the final
rule that are different in certain respects from the benefits
experienced by consumers in general. For example, consumers in rural
areas may be more likely to borrow from small local banks and credit
unions that may be less likely to outsource debt collection to FDCPA
debt collectors.
The Bureau requested interested parties to provide data, research
results, and other factual information on the impact of the proposed
rule on consumers in rural areas, but the Bureau did not receive any
comments on this subject.
VIII. Final Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA) generally requires an agency
to conduct an Initial Regulatory Flexibility Analysis (IRFA) and a
Final Regulatory Flexibility Analysis (FRFA) of any rule subject to
notice-and-comment rulemaking requirements.\470\ Section 604(a) of the
RFA sets forth the required elements of the FRFA. Section 604(a)(1)
requires a statement of the objectives of, and the legal basis for, the
rule.\471\ Section 604(a)(2) requires a statement of the significant
issues raised by the public comments in response to the initial
regulatory flexibility analysis, a statement of the assessment of the
agency of such issues, and a statement of any changes made in the
proposed rule as a result of such comments. Section 604(a)(3) requires
the response of the agency to any comments filed by the Chief Counsel
for Advocacy of the Small Business Administration in response to the
proposed rule and a detailed statement of any change made to the
proposed rule in the final rule as a result of the comments. Section
604(a)(4) requires a description of and,
[[Page 5850]]
where feasible, an estimate of the number of small entities to which
the rule will apply.\472\ Section 604(a)(5) requires a description of
the projected reporting, recordkeeping, and other compliance
requirements of the rule, including an estimate of the classes of small
entities that will be subject to the requirement and the types of
professional skills necessary for the preparation of the report or
record.\473\ Section 604(a)(6) requires a description of any
significant alternatives to the rule that accomplish the stated
objectives of applicable statutes and that minimize any significant
economic impact of the rule on small entities.\474\ Finally, section
604(a)(7) requires a description of the steps the agency has taken to
minimize any additional cost of credit for small entities.\475\
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\470\ 5 U.S.C. 603(a), 604(a).
\471\ 5 U.S.C. 604(a)(1).
\472\ 5 U.S.C. 604(a)(4).
\473\ 5 U.S.C. 604(a)(5).
\474\ 5 U.S.C. 604(a)(6).
\475\ Id.
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A. Statement of the Objectives of, and Legal Basis for, the Final Rule
As discussed in part IV, the Bureau issues this rule pursuant to
its authority under the FDCPA and the Dodd-Frank Act. The objectives of
the final rule are to clarify and implement the FDCPA's provisions and
to further the FDCPA's goals of eliminating abusive debt collection
practices and ensuring that debt collectors who refrain from abusive
debt collection practices are not competitively disadvantaged.\476\ As
the first Federal agency with authority under the FDCPA to prescribe
substantive rules with respect to the collection of debts by debt
collectors, the Bureau is requiring consumer disclosure requirements to
provide greater clarity for both consumers and industry participants as
to the information debt collectors must provide consumers to comply
with the law. The Bureau intends that these clarifications will help to
eliminate abusive debt collection practices and ensure that debt
collectors who refrain from abusive debt collection practices are not
competitively disadvantaged.\477\
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\476\ See 15 U.S.C. 1692(e).
\477\ See id.
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As amended by the Dodd-Frank Act, FDCPA section 814(d) provides
that the Bureau may ``prescribe rules with respect to the collection of
debts by debt collectors,'' as that term is defined in the FDCPA.\478\
Section 1022(a) of the Dodd-Frank Act provides that ``[t]he Bureau is
authorized to exercise its authorities under Federal consumer financial
law to administer, enforce, and otherwise implement the provisions of
Federal consumer financial law.'' \479\ ``Federal consumer financial
law'' includes title X of the Dodd-Frank Act and the FDCPA. The legal
basis for the final rule is discussed in detail in the legal authority
analysis in part IV and in the section-by-section analysis in part V.
---------------------------------------------------------------------------
\478\ 15 U.S.C. 1692l(d).
\479\ 12 U.S.C. 5512(a).
---------------------------------------------------------------------------
B. Significant Issues Raised by the Public Comments in Response to the
Initial Regulatory Flexibility Analysis
The Bureau received comments on the IRFA from the Acting Chief
Counsel for Advocacy of the Small Business Administration, which are
discussed in the next section. The Bureau did not receive other
comments that referenced the IRFA specifically; however, several
commenters did raise issues about the burdens of the proposed rule's
provisions, and the Bureau's response to these issues is discussed in
parts V and VII above and in this part below.
C. Response to Any Comments Filed by the Chief Counsel for Advocacy of
the Small Business Administration
The Acting Chief Counsel for Advocacy of the Small Business
Administration filed a public comment letter on the May 2019 proposed
rule that discusses both the IRFA and certain of the proposed
requirements (the ``first SBA letter''). The Acting Chief Counsel for
Advocacy of the Small Business Administration also filed a public
comment letter on the February 2020 supplemental proposed rule that
discusses both the IRFA and the proposed requirements (the ``second SBA
letter''). This section first responds to comments on the IRFA and then
responds to the substantive comments on the proposed rule's provisions.
The first SBA letter notes that the proposed rule could impose
costs to read and understand the rule and to train employees in new
practices. The Bureau had discussed these costs in the context of some
specific provisions but has added a more general discussion of these
costs to section E of the FRFA, below.
The first SBA letter also notes that the Bureau claims some
provisions will cause no significant impact because those provisions
are already part of debt collectors' business practices, and argues
that the Bureau should clarify what the benefit of such provisions is
to consumers if they will not change debt collector practices. As
discussed in part V above and the section 1022(b)(2) analysis of the
proposed rule, the Bureau believes that, by clarifying the FDCPA's
requirements, the rule will benefit both consumers and debt collectors,
including small entities. Many market participants have identified a
need for greater clarity in interpreting many of the FDCPA's
provisions. For example, a trade group commenter emphasized that
ambiguities in the FDCPA lead to unnecessary and costly litigation. The
Bureau believes that there is a benefit to providing additional clarity
about the FDCPA's requirements even where the vast majority of debt
collectors follow practices that meet those requirements. The
additional clarity helps those debt collectors to avoid unnecessary
litigation and to have confidence in what practices do and do not
violate the FDCPA. The additional clarity also makes it easier to
establish when less scrupulous debt collectors have violated the
statute and to hold them accountable, which benefits consumers as well
as debt collectors who do comply with the law.
[[Page 5851]]
The first SBA letter points out that the proposed rule's Paperwork
Reduction Act (PRA) section estimates 1,029,500 burden hours and argues
that this could translate into millions of dollars in recordkeeping and
reporting costs. Most of this burden is not attributable to the rule
itself but rather to the requirements of the FDCPA. As discussed in the
supporting statement accompanying the Bureau's information collection
request, the PRA estimates include the burden not only of complying
with the new requirements introduced by the final rule but also of
complying with the FDCPA itself. These burdens had not previously been
accounted for under the PRA. Thus, the large majority of the estimated
burden hours represent the burden of complying with existing FDCPA
provisions that exist independent of the rule, in particular the
requirement to provide a validation notice under Sec. 809(a) of the
FDCPA and the requirement to respond to consumer disputes under Sec.
809(b) of the FDCPA. There are, of course, burdens associated with
other information collections that are being introduced or modified by
the final rule, and those burdens are discussed in this FRFA as well as
in the supporting statement.
The SBA letters also expressed several concerns about specific
provisions of the proposed rule and recommended changes to those
provisions. These concerns and recommendations, and the Bureau's
response, are discussed in the section-by-section analysis of the
relevant provisions in part V above.
D. Description and, Where Feasible, Provision of an Estimate of the
Number of Small Entities to Which the Final Rule Will Apply
As discussed in the Small Business Review Panel Report, for the
purposes of assessing the impacts of this final rule on small entities,
``small entities'' is defined in the RFA to include small businesses,
small nonprofit organizations, and small government jurisdictions.\480\
A ``small business'' is determined by application of SBA regulations in
reference to the North American Industry Classification System (NAICS)
classifications and size standards.\481\ Under such standards, the
Small Business Review Panel (Panel) identified four categories of small
entities that may be subject to the final rule: Collection agencies
(NAICS 561440) with annual receipts at or below the SBA size standard
(currently $16.5 million), debt buyers (NAICS 522298) with annual
receipts at or below the size standard (currently $41.5 million),
collection law firms (NAICS 541110) with annual receipts at or below
the size standard (currently $12 million), and servicers who acquire
accounts in default. These servicers include depository institutions
(NAICS 522110, 522120, and 522130) with assets at or below the size
standard (currently $600 million) or non-depository institutions (NAICS
522390) with annual receipts at or below the size standard (currently
$22 million). The Panel did not meet with small nonprofit organizations
or small government jurisdictions.\482\
---------------------------------------------------------------------------
\480\ 5 U.S.C. 601(6).
\481\ The current SBA size standards are found on SBA's website,
http://www.sba.gov/content/table-small-business-size-standards.
\482\ Small Business Review Panel Report, supra note 40, at 29.
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The following table provides the Bureau's estimate of the number
and types of entities that may be affected by the final rule:
Table 1--Estimated Number of Affected Entities and Small Entities by Category
----------------------------------------------------------------------------------------------------------------
Estimated
Estimated number of
total number small-entity
Category NAICS Small-entity threshold of debt debt
collectors collectors
within within
category category
----------------------------------------------------------------------------------------------------------------
Collection agencies............ 561440................. $16.5 million in 9,000 8,800
annual receipts.
Debt buyers.................... 522298................. $41.5 million in 330 300
annual receipts.
Collection law firms........... 541110................. $12.0 million in 1,000 950
annual receipts.
Loan servicers................. 522110, 522120, and $600 million in annual 700 200
522130 (depositories); receipts for
522390 (non- depository
depositories). institutions; $22.0
million or less for
non-depositories.
----------------------------------------------------------------------------------------------------------------
Descriptions of the four categories:
Collection agencies. The Census Bureau defines ``collection
agencies'' (NAICS code 561440) as ``establishments primarily engaged in
collecting payments for claims and remitting payments collected to
their clients.'' \483\ According to the Census Bureau, in 2012 (the
most recent year for which detailed data are available), there were
approximately 4,000 collection agencies with paid employees in the
United States. Of these, the Bureau estimates that 3,800 collection
agencies have $16.5 million or less in annual receipts and are
therefore small entities.\484\ Census Bureau estimates indicate that in
2012 there were also more than 5,000 collection agencies without
employees, all of which are presumably small entities.
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\483\ As defined by the U.S. Census Bureau, collection agencies
include entities that collect only commercial debt, and the proposed
rule would apply only to debt collectors of consumer debt. However,
the Bureau understands that relatively few collection agencies
collect only commercial debt.
\484\ The U.S. Census Bureau estimates average annual receipts
of $95,000 per employee for collection agencies. Given this, the
Bureau assumes that all firms with fewer than 100 employees and
approximately one-half of the firms with 100 to 499 employees are
small entities, which implies approximately 3,800 firms.
---------------------------------------------------------------------------
Debt buyers. Debt buyers purchase delinquent accounts and attempt
to collect amounts owed, either themselves or through agents. The
Bureau estimates that there are approximately 330 debt buyers in the
United States, and that a substantial majority of these are small
entities.\485\ Many debt buyers--particularly those that are small
entities--also collect debt on behalf of other debt owners.\486\
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\485\ The Receivables Management Association, the largest trade
group for debt buyers, states that it has approximately 300 debt
buyer members and believes that 90 percent of debt buyers are
current members.
\486\ The Bureau understands that debt buyers are generally
nondepositories that specialize in debt buying and, in some cases,
debt collection. The Bureau expects that debt buyers that are not
collection agencies would be classified by the U.S. Census Bureau
under ``all other nondepository credit intermediation'' (NAICS Code
522298).
---------------------------------------------------------------------------
Collection law firms. The Bureau estimates that there are 1,000 law
firms in the United States that either have as their principal purpose
the collection of
[[Page 5852]]
consumer debt or regularly collect consumer debt owed to others, so
that the proposed rule would apply to them. The Bureau estimates that
95 percent of such law firms are small entities.\487\
---------------------------------------------------------------------------
\487\ The primary trade association for collection attorneys,
the National Creditors Bar Association (NCBA), states that it has
approximately 600 law firm members, 95 percent of which are small
entities. The Bureau estimates that approximately 60 percent of law
firms that collect debt are NCBA members and that a similar fraction
of non-member law firms are small entities.
---------------------------------------------------------------------------
Loan servicers. Loan servicers would be covered by the final rule
if they are covered by the FDCPA because, among other things, they
acquire the right to service loans already in default.\488\ The Bureau
believes that this is most likely to occur with regard to companies
that service mortgage loans or student loans. The Bureau estimates that
approximately 200 such mortgage servicers may be small entities and
that few, if any, student loan servicers that would be covered by the
final rule are small.\489\
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\488\ The Bureau expects that loan servicers are generally
classified under NAICS code 522390, ``Other Activities Related to
Credit Intermediation.'' Some depository institutions (NAICS codes
522110, 522120, and 522130) also service loans for others and may be
covered by the final rule.
\489\ Based on the December 2015 Call Report data as compiled by
SNL Financial (with respect to insured depositories) and December
2015 data from the Nationwide Mortgage Licensing System and Registry
(with respect to non-depositories), the Bureau estimates that there
are approximately 9,000 small entities engaged in mortgage
servicing, of which approximately 100 service more than 5,000 loans.
See 81 FR 72160, 72363 (Oct. 19, 2016). The Bureau's estimate is
based on the assumption that all those servicing more than 5,000
loans may acquire servicing of loans when loans are in default and
that at most 100 of those servicing 5,000 loans or fewer acquire
servicing of loans when loans are in default.
---------------------------------------------------------------------------
E. Projected Reporting, Recordkeeping, and Other Compliance
Requirements of the Rule, Including an Estimate of Classes of Small
Entities That Will Be Subject to the Requirements and the Type of
Professional Skills Necessary for the Preparation of the Report or
Record
The final rule will not impose new reporting or recordkeeping
requirements, but it will impose new compliance requirements on small
entities subject to the rule.\490\ The requirements and the costs
associated with them are discussed below. In addition to the specific
costs discussed below, all small entities will incur costs to read the
rule and incorporate its provisions into their policies and procedures,
and small entities with employees will need to train employees in new
policies and procedures. The extent of training required will depend on
debt collectors' existing practices and on the roles performed by
individual employees. Debt collectors employ an estimated 123,000
workers.\491\ If, on average, the rule required an additional hour of
training for each of these employees, at an average cost of $22 per
hour, the total training cost would be approximately $2,700,000.\492\
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\490\ While the final rule does not include new recordkeeping
requirements, the Bureau notes that, by introducing a new compliance
requirement, the rule may increase the cost of complying with
recordkeeping requirements of the November 2020 Final Rule. This is
because debt collectors would need to retain evidence of compliance
with any additional compliance requirement.
\491\ 2020 FDCPA Annual Report, supra note 12, at 7.
\492\ The estimated hourly cost is based on an estimated wage of
$15 per hour and taxes, benefits, and incentives of $7 per hour. See
CFPB Debt Collection Operations Study, supra note 37, at 17
(describing estimated debt collector wages ranging from $10 to $20
per hour).
---------------------------------------------------------------------------
In evaluating the potential impacts of the rule on small entities,
the Bureau takes as a baseline conduct in debt collection markets under
the current legal framework governing debt collection. This includes
debt collector practices as they currently exist, responding to the
requirements of the FDCPA as currently interpreted by courts and law
enforcement agencies, other Federal laws, and the rules and statutory
requirements promulgated by the States. This baseline represents the
status quo from which the impacts of this rule will be evaluated.
The Bureau requested that interested parties provide data and
quantitative analysis of the benefits, costs, or impacts of the
proposed rule on small entities but did not receive any comments on
this subject.
The Bureau believes that, except where otherwise noted, the impacts
discussed in part VII would apply to small entities to the same extent
as to larger entities.
F. Description of Any Significant Alternatives to the Rule That
Accomplish the Stated Objectives of the Applicable Statutes and
Minimize Any Significant Economic Impact of the Rule on Small Entities
Section 604(a)(6) of the RFA requires the Bureau to describe in the
FRFA any significant alternatives to the rule that accomplish the
stated objectives of applicable statutes and that minimize any
significant economic impact of the rule on small entities.\493\ In
developing the rule, the Bureau has considered alternative provisions
and believes that none of the alternatives considered would be as
effective at accomplishing the stated objectives of the FDCPA and the
applicable provisions of title X of the Dodd-Frank Act while minimizing
the impact of the rule on small entities. Some of these alternatives
are discussed in part V, above.
---------------------------------------------------------------------------
\493\ 5 U.S.C. 604(a)(6).
---------------------------------------------------------------------------
G. Discussion of Impact on Cost of Credit for Small Entities
Section 603(d) of the RFA requires the Bureau to consult with small
entities regarding the potential impact of the proposed rule on the
cost of credit for small entities and related matters.\494\ To satisfy
these statutory requirements, the Bureau provided notification to the
Chief Counsel for Advocacy of the Small Business Administration (Chief
Counsel) that the Bureau would collect the advice and recommendations
of the same small entity representatives identified in consultation
with the Chief Counsel through the SBREFA process concerning any
projected impact of the proposed rule on the cost of credit for small
entities. The Bureau sought to collect the advice and recommendations
of the small entity representatives during the Small Business Review
Panel meeting regarding the potential impact on the cost of business
credit because, as small debt collectors with credit needs, the small
entity representatives could provide valuable input on any such impact
related to the proposed rule.
---------------------------------------------------------------------------
\494\ 5 U.S.C. 603(d).
---------------------------------------------------------------------------
The Bureau's Small Business Review Panel Outline asked small entity
representatives to comment on how the proposals under consideration
would affect the cost of credit to small entities. During the SBREFA
process, several small entity representatives said that the proposals
under consideration at that time, which included time-barred debt
disclosures among several other proposals, could have an impact on the
cost of credit for them and for their small business clients. Some
small entity representatives said that they use lines of credit in
their business and that regulations that raise their costs or reduce
their revenue could mean they are unable to meet covenants in their
loan agreements, causing lenders to reduce access to capital or
increase their borrowing costs.
The Bureau believes that the disclosures in the final rule will
have little impact on the cost of credit to small entities. The Bureau
does recognize that consumer credit could become more expensive and
less available as a result of requirements that restrict the collection
of debt; however, the Bureau does not anticipate that the requirements
of this final rule will have any significant impact on the cost or
availability of consumer credit. Many
[[Page 5853]]
small entities affected by the disclosures in the final rule use
consumer credit as a source of credit and may, therefore, see costs
rise if consumer credit availability decreases. The Bureau does not
expect this to be a large effect and does not anticipate measurable
impact.
IX. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA),\495\ Federal
agencies are generally required to seek approval from the Office of
Management and Budget (OMB) for information collection requirements
prior to implementation. Under the PRA, the Bureau may not conduct or
sponsor, and, notwithstanding any other provision of law, a person is
not required to respond to, an information collection unless the
information collection displays a valid control number assigned by OMB.
---------------------------------------------------------------------------
\495\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
As part of its continuing effort to reduce paperwork and respondent
burden, the Bureau conducts a preclearance consultation program to
provide the general public and Federal agencies with an opportunity to
comment on the information collection requirements in accordance with
the PRA. This helps ensure that the public understands the Bureau's
requirements or instructions, respondents can provide the requested
data in the desired format, reporting burden (time and financial
resources) is minimized, collection instruments are clearly understood,
and the Bureau can properly assess the impact of collection
requirements on respondents.
The final rule amends 12 CFR part 1006 (Regulation F), which
implements the FDCPA. The Bureau's OMB control number for Regulation F
is 3170-0056; it expires April 30, 2022. This final rule along with the
November 2020 Final Rule would revise the information collection
requirements contained in Regulation F that OMB has approved under that
OMB control number.
Under the final rule, the Bureau requires two information
collection requirements in Regulation F beyond those required by the
November 2020 Final Rule:
1. Validation notices (final rule Sec. 1006.34).
2. Communication with consumers prior to furnishing information
(final rule Sec. 1006.30(a)).
These information collections are required to provide benefits for
consumers and will be mandatory. Because the Bureau does not collect
any information, no issue of confidentiality arises. The likely
respondents are for-profit businesses that are FDCPA debt collectors.
The collections of information contained in this rule, and
identified as such, as well as the information collections contained in
the November 2020 final rule have been submitted to OMB for review
under section 3507(d) of the PRA. A complete description of the
information collection requirement, including the burden estimate
methods, is provided in the information collection request (ICR)
supporting statement that the Bureau has submitted to OMB under the
requirements of the PRA. The Bureau will publish a separate notice in
the Federal Register when these information collections have been
approved by OMB.
Please send your comments to the Office of Information and
Regulatory Affairs, OMB, Attention: Desk Officer for the Bureau of
Consumer Financial Protection. Send these comments by email to
[email protected] or by fax to (202) 395-6974. If you wish to
share your comments with the Bureau, please send a copy of these
comments as described in the Addresses section above. The ICR submitted
to OMB requesting approval under the PRA for the information collection
requirements contained herein is available at www.regulations.gov as
well as on OMB's public-facing docket at www.reginfo.gov.
Title of Collection: Regulation F: Fair Debt Collection Practices
Act.
OMB Control Number: 3170-0056.
Type of Review: Revision of a currently approved collection.
Affected Public: Private Sector.
Estimated Number of Respondents: 12,027.\496\
---------------------------------------------------------------------------
\496\ The Bureau shares enforcement authority under the FDCPA
with the Federal Trade Commission. To avoid double-counting, the
Bureau allocates to itself half of the estimated paperwork burden
under the final rule by dividing the burden hours even between the
agencies. However, since the Bureau has joint authority over the
respondents themselves, the Bureau retains the entity count of all
affected respondents as shown above.
---------------------------------------------------------------------------
Estimated Total Annual Burden Hours: 881,000.
The Bureau has a continuing interest in the public's opinion of its
collections of information. At any time, comments regarding the burden
estimate, or any other aspect of the information collection, including
suggestions for reducing the burden, may be sent to the Consumer
Financial Protection Bureau (Attention: PRA Office), 1700 G Street NW,
Washington, DC 20552, or by email to [email protected].
Where applicable, the Bureau will display the control number
assigned by OMB to any documents associated with any information
collection requirements adopted in this rule.
X. Congressional Review Act
Pursuant to the Congressional Review Act,\497\ the Bureau will
submit a report containing this rule and other required information to
the U.S. Senate, the U.S. House of Representatives, and the Comptroller
General of the United States at least 60 days prior to the rule's
published effective date. The Office of Information and Regulatory
Affairs has designated this rule as a ``major rule'' as defined by 5
U.S.C. 804(2).
---------------------------------------------------------------------------
\497\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------
XI. Signing Authority
The Director of the Bureau, Kathleen L. Kraninger, having reviewed
and approved this document, is delegating the authority to
electronically sign this document to Grace Feola, a Bureau Federal
Register Liaison, for purposes of publication in the Federal Register.
List of Subjects in 12 CFR Part 1006
Administrative practice and procedure, Consumer protection, Credit,
Debt collection, Intergovernmental relations.
Authority and Issuance
For the reasons set forth above, the Bureau is further amending
Regulation F, 12 CFR part 1006, as revised on November 30, 2020, at 85
FR 76734, effective November 30, 2021, as set forth below:
PART 1006--DEBT COLLECTION PRACTICES (REGULATION F)
0
1. The authority citation for part 1006 continues to read as follows:
Authority: 12 U.S.C. 5512, 5514(b), 5532; 15 U.S.C. 1692l(d),
1692o, 7004.
Subpart A--General
0
2. Section 1006.1 is amended by adding paragraph (c)(2) to read as
follows:
Sec. 1006.1 Authority, purpose, and coverage.
* * * * *
(c) * * *
(2) Section 1006.34(c)(2)(iii) and (c)(3)(iv) applies to debt
collectors only when they are collecting debt related to a consumer
financial product or service as defined in Sec. 1006.2(f).
0
3. Section 1006.2 is amended by revising paragraph (e) and adding
paragraph (f) to read as follows:
Sec. 1006.2 Definitions.
* * * * *
[[Page 5854]]
(e) Consumer means any natural person, whether living or deceased,
obligated or allegedly obligated to pay any debt. For purposes of Sec.
1006.6, the term consumer includes the persons described in Sec.
1006.6(a).
(f) Consumer financial product or service has the same meaning
given to it in section 1002(5) of the Dodd-Frank Act (12 U.S.C.
5481(5)).
* * * * *
Subpart B--Rules for FDCPA Debt Collectors
0
4. Section 1006.26 is added to read as follows:
Sec. 1006.26 Collection of time-barred debts.
(a) Definitions. For purposes of this section:
(1) Statute of limitations means the period prescribed by
applicable law for bringing a legal action against the consumer to
collect a debt.
(2) Time-barred debt means a debt for which the applicable statute
of limitations has expired.
(b) Legal actions and threats of legal actions prohibited. A debt
collector must not bring or threaten to bring a legal action against a
consumer to collect a time-barred debt. This paragraph (b) does not
apply to proofs of claim filed in connection with a bankruptcy
proceeding.
0
5. Section 1006.30 is amended by adding paragraph (a) to read as
follows:
Sec. 1006.30 Other prohibited practices.
(a) Required actions prior to furnishing information--(1) In
general. Except as provided in paragraph (a)(2) of this section, a debt
collector must not furnish to a consumer reporting agency, as defined
in section 603(f) of the Fair Credit Reporting Act (15 U.S.C.
1681a(f)), information about a debt before the debt collector:
(i) Speaks to the consumer about the debt in person or by
telephone; or
(ii) Places a letter in the mail or sends an electronic message to
the consumer about the debt and waits a reasonable period of time to
receive a notice of undeliverability. During the reasonable period, the
debt collector must permit receipt of, and monitor for, notifications
of undeliverability from communications providers. If the debt
collector receives such a notification during the reasonable period,
the debt collector must not furnish information about the debt to a
consumer reporting agency until the debt collector otherwise satisfies
this paragraph (a)(1).
(2) Special rule--information furnished to certain specialty
consumer reporting agencies. Paragraph (a)(1) of this section does not
apply to a debt collector's furnishing of information about a debt to a
nationwide specialty consumer reporting agency that compiles and
maintains information on a consumer's check writing history, as
described in section 603(x)(3) of the Fair Credit Reporting Act (15
U.S.C. 1681a(x)(3)).
* * * * *
0
6. Section 1006.34 is added to read as follows:
Sec. 1006.34 Notice for validation of debts.
(a) Validation information required--(1) In general. Except as
provided in paragraph (a)(2) of this section, a debt collector must
provide a consumer with the validation information required by
paragraph (c) of this section either:
(i) By sending the consumer a validation notice in the manner
required by Sec. 1006.42:
(A) In the initial communication, as defined in paragraph (b)(2) of
this section; or
(B) Within five days of that initial communication; or
(ii) By providing the validation information orally in the initial
communication.
(2) Exception. A debt collector who otherwise would be required to
send a validation notice pursuant to paragraph (a)(1)(i)(B) of this
section is not required to do so if the consumer has paid the debt
prior to the time that paragraph (a)(1)(i)(B) of this section would
require the validation notice to be sent.
(b) Definitions. For purposes of this section:
(1) Clear and conspicuous means readily understandable. In the case
of written and electronic disclosures, the location and type size also
must be readily noticeable and legible to consumers, although no
minimum type size is mandated. In the case of oral disclosures, the
disclosures also must be given at a volume and speed sufficient for the
consumer to hear and comprehend them.
(2) Initial communication means the first time that, in connection
with the collection of a debt, a debt collector conveys information,
directly or indirectly, regarding the debt to the consumer, other than
a communication in the form of a formal pleading in a civil action, or
any form or notice that does not relate to the collection of the debt
and is expressly required by:
(i) The Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.);
(ii) Title V of the Gramm-Leach-Bliley Act (15 U.S.C. 6801 through
6827); or
(iii) Any provision of Federal or State law or regulation mandating
notice of a data security breach or privacy risk.
(3) Itemization date means any one of the following five reference
dates for which a debt collector can ascertain the amount of the debt:
(i) The last statement date, which is the date of the last periodic
statement or written account statement or invoice provided to the
consumer by a creditor;
(ii) The charge-off date, which is the date the debt was charged
off;
(iii) The last payment date, which is the date the last payment was
applied to the debt;
(iv) The transaction date, which is the date of the transaction
that gave rise to the debt; or
(v) The judgment date, which is the date of a final court judgment
that determines the amount of the debt owed by the consumer.
(4) Validation notice means a written or electronic notice that
provides the validation information required by paragraph (c) of this
section.
(5) Validation period means the period starting on the date that a
debt collector provides the validation information required by
paragraph (c) of this section and ending 30 days after the consumer
receives or is assumed to receive the validation information. For
purposes of determining the end of the validation period, the debt
collector may assume that a consumer receives the validation
information on any date that is at least five days (excluding legal
public holidays identified in 5 U.S.C. 6103(a), Saturdays, and Sundays)
after the debt collector provides it.
(c) Validation information. Pursuant to paragraph (a)(1) of this
section, a debt collector must provide the following validation
information.
(1) Debt collector communication disclosure. The statement required
by Sec. 1006.18(e).
(2) Information about the debt. Except as provided in paragraph
(c)(5) of this section:
(i) The debt collector's name and the mailing address at which the
debt collector accepts disputes and requests for original-creditor
information.
(ii) The consumer's name and mailing address.
(iii) If the debt collector is collecting a debt related to a
consumer financial product or service as defined in Sec. 1006.2(f),
the name of the creditor to whom the debt was owed on the itemization
date.
(iv) The account number, if any, associated with the debt on the
itemization date, or a truncated version of that number.
(v) The name of the creditor to whom the debt currently is owed.
(vi) The itemization date.
(vii) The amount of the debt on the itemization date.
[[Page 5855]]
(viii) An itemization of the current amount of the debt reflecting
interest, fees, payments, and credits since the itemization date. A
debt collector may disclose the itemization on a separate page provided
in the same communication with a validation notice, if the debt
collector includes on the validation notice, where the itemization
would have appeared, a statement referring to that separate page.
(ix) The current amount of the debt.
(3) Information about consumer protections. (i) The date that the
debt collector will consider the end date of the validation period and
a statement that, if the consumer notifies the debt collector in
writing on or before that date that the debt, or any portion of the
debt, is disputed, the debt collector must cease collection of the
debt, or the disputed portion of the debt, until the debt collector
sends the consumer either verification of the debt or a copy of a
judgment.
(ii) The date that the debt collector will consider the end date of
the validation period and a statement that, if the consumer requests in
writing on or before that date the name and address of the original
creditor, the debt collector must cease collection of the debt until
the debt collector sends the consumer the name and address of the
original creditor, if different from the current creditor.
(iii) The date that the debt collector will consider the end date
of the validation period and a statement that, unless the consumer
contacts the debt collector to dispute the validity of the debt, or any
portion of the debt, on or before that date, the debt collector will
assume that the debt is valid.
(iv) If the debt collector is collecting debt related to a consumer
financial product or service as defined in Sec. 1006.2(f), a statement
that informs the consumer that additional information regarding
consumer protections in debt collection is available on the Bureau's
website at www.cfpb.gov/debt-collection.
(v) If the debt collector sends the validation notice
electronically, a statement explaining how a consumer can, as described
in paragraphs (c)(4)(i) and (ii) of this section, dispute the debt or
request original-creditor information electronically.
(4) Consumer-response information. The following information,
segregated from the validation information required by paragraphs
(c)(1) through (3) of this section and from any optional information
included pursuant to paragraphs (d)(3)(i) and (ii), (d)(3)(iii)(A),
(d)(3)(iv) and (v), (d)(3)(vi)(A), and (d)(3)(vii) and (viii) of this
section, and, if provided on a validation notice, located 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) Original-creditor information prompt. 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. Mailing addresses for the consumer and the
debt collector, which are the debt collector's and the consumer's names
and mailing addresses as disclosed pursuant to Sec. 1006.34(c)(2)(i)
and (ii).
(5) Special rule for certain residential mortgage debt. For
residential mortgage debt, if a periodic statement is required under
Regulation Z, 12 CFR 1026.41, at the time a debt collector provides the
validation notice, a debt collector need not provide the validation
information required by paragraphs (c)(2)(vi) through (viii) of this
section if the debt collector:
(i) Provides the consumer, in the same communication with the
validation notice, a copy of the most recent periodic statement
provided to the consumer under Regulation Z, 12 CFR 1026.41(b); and
(ii) Includes on the validation notice, where the validation
information required by paragraphs (c)(2)(vi) through (viii) of this
section would have appeared, a statement referring to that periodic
statement.
(d) Form of validation information--(1) In general. The validation
information required by paragraph (c) of this section must be clear and
conspicuous.
(2) Safe harbor--(i) In general. Model Form B-1 in appendix B to
this part contains the validation information required by paragraph (c)
of this section and certain optional disclosures permitted by paragraph
(d)(3) of this section. A debt collector who uses Model Form B-1
complies with the information and form requirements of paragraphs (c)
and (d)(1) of this section, including if the debt collector:
(A) Omits any or all of the optional disclosures shown on Model
Form B-1; or
(B) Adds any or all of the optional disclosures described in
paragraph (d)(3) of this section that are not shown on Model Form B-1,
provided that any such optional disclosures are no more prominent than
any of the validation information required by paragraph (c) of this
section.
(ii) Certain disclosures on a separate page. A debt collector who
uses Model Form B-1 as described in paragraph (d)(2)(i) of this section
and who, pursuant to paragraph (c)(2)(viii) or (c)(5) of this section,
includes certain disclosures on a separate page in the same
communication with the validation notice and, on the notice, the
required statement referring to those disclosures, receives a safe
harbor for compliance with the information and form requirements of
paragraphs (c) and (d)(1) of this section except with respect to the
disclosures on the separate page.
(iii) Substantially similar form. A debt collector who uses Model
Form B-1 as described in paragraph (d)(2)(i) or (ii) of this section
may make changes to the form and retain a safe harbor for compliance
with the information and form requirements of paragraphs (c) and (d)(1)
of this section provided that the form remains substantially similar to
Model Form B-1.
(3) Optional disclosures. A debt collector may include any of the
following information when providing the validation information
required by paragraph (c) of this section. A debt collector who
includes any of the following information receives the safe harbor
described in paragraph (d)(2) of this section, provided that the debt
collector otherwise uses Model Form B-1 in appendix B to this part, or
a variation of Model Form B-1, as described in paragraph (d)(2) of this
section.
(i) Telephone contact information. The debt collector's telephone
contact information.
(ii) Reference code. A number or code that the debt collector uses
to identify the debt or the consumer.
(iii) Payment disclosures. Either or both of the following phrases:
(A) The statement, ``Contact us about your payment options.'',
using that phrase or a substantially similar phrase; and
(B) Below the consumer-response information required by paragraphs
(c)(4)(i) and (ii) of this section, the statement, ``I enclosed this
amount:'', using that phrase or a substantially similar phrase, payment
instructions after that statement, and a prompt.
(iv) Disclosures under applicable law--(A) Disclosures on the
reverse of the validation notice. On the reverse of
[[Page 5856]]
the validation notice, any disclosures that are specifically required
by, or that provide safe harbors under, applicable law and, if any such
disclosures are included, a statement on the front of the validation
notice referring to those disclosures. Any such disclosures must not
appear directly on the reverse of the consumer-response information
required by paragraph (c)(4) of this section.
(B) Disclosures on the front of the validation notice. If a debt
collector is collecting time-barred debt, on the front of the
validation notice below the disclosure required by paragraph (c)(2)(ix)
of this section, any time-barred debt disclosure that is specifically
required by, or that provides a safe harbor under, applicable law,
provided that applicable law specifies the content of the disclosure.
(v) Information about electronic communications. The following
information:
(A) The debt collector's website and email address.
(B) If the validation information is not provided electronically, a
statement explaining how a consumer can, as described in paragraphs
(c)(4)(i) and (ii) of this section, dispute the debt or request
original-creditor information electronically.
(vi) Spanish-language translation disclosures. Either or both of
the following disclosures regarding a consumer's ability to request a
Spanish-language translation of a validation notice:
(A) The statement, ``P[oacute]ngase en contacto con nosotros para
solicitar una copia de este formulario en espa[ntilde]ol'' (which means
``Contact us to request a copy of this form in Spanish''), using that
phrase or a substantially similar phrase in Spanish. If providing this
optional disclosure, a debt collector may include supplemental
information in Spanish that specifies how a consumer may request a
Spanish-language validation notice.
(B) With the consumer-response information required by paragraph
(c)(4) of this section, the statement ``Quiero este formulario en
espa[ntilde]ol'' (which means ``I want this form in Spanish''), using
that phrase or a substantially similar phrase in Spanish, next to a
prompt.
(vii) The merchant brand, affinity brand, or facility name, if any,
associated with the debt.
(viii) If a debt collector is collecting debt other than debt
related to a consumer financial product or service as defined in Sec.
1006.2(f), the information specified in paragraph (c)(2)(iii) or
(c)(3)(iv) of this section.
(4) Validation notices delivered electronically. If a debt
collector delivers a validation notice electronically, a debt collector
may, at its option, format the validation notice as follows:
(i) Prompts. Any prompt required by paragraph (c)(4)(i) or (ii) or
paragraph (d)(3)(iii)(B) or (d)(3)(vi)(B) of this section may be
displayed electronically as a fillable field.
(ii) Hyperlinks. Hyperlinks may be embedded that, when clicked:
(A) Connect a consumer to the debt collector's website;
(B) Connect a consumer to the Bureau's debt collection website as
disclosed pursuant to paragraph (c)(3)(iv) of this section; or
(C) Permit a consumer to respond to the dispute and original-
creditor information prompts required by paragraphs (c)(4)(i) and (ii)
of this section.
(e) Translation into other languages--(1) In general. A debt
collector may send a consumer a validation notice completely and
accurately translated into any language if the debt collector:
(i) Sends the consumer an English-language validation notice in the
same communication as the translated validation notice; or
(ii) Previously provided the consumer an English-language
validation notice, in which case the debt collector need not send the
consumer an English-language validation notice in the same
communication as the translated validation notice.
(2) Spanish-language validation notice--requirement to provide
after optional disclosure. A debt collector who includes in the
validation information either or both of the optional disclosures
described in paragraph (d)(3)(vi) of this section, and who thereafter
receives a request from the consumer for a Spanish-language validation
notice, must provide the consumer a validation notice completely and
accurately translated into Spanish.
0
7. Section 1006.38 is amended by revising paragraphs (a)(2), (b), and
(c) to read as follows:
Sec. 1006.38 Disputes and requests for original-creditor information.
(a) * * *
(2) Validation period has the same meaning given to it in Sec.
1006.34(b)(5).
(b) Overshadowing of rights to dispute or request original-creditor
information--(1) Prohibition. During the validation period, a debt
collector must not engage in any collection activities or
communications that overshadow or are inconsistent with the disclosure
of the consumer's rights to dispute the debt and to request the name
and address of the original creditor.
(2) Safe harbor. A debt collector who uses Model Form B-1 in
appendix B to this part in a manner described in Sec. 1006.34(d)(2)
has not thereby violated paragraph (b)(1) of this section.
(c) Requests for original-creditor information. Upon receipt of a
request for the name and address of the original creditor submitted by
the consumer in writing within the validation period, a debt collector
must cease collection of the debt until the debt collector:
(1) In general. Sends the name and address of the original creditor
to the consumer in writing or electronically in the manner required by
Sec. 1006.42; or
(2) Special rule if the current creditor and the original creditor
are the same. In lieu of taking the actions described in paragraph
(c)(1) of this section, reasonably determines that the original
creditor is the same as the current creditor, notifies the consumer of
that fact in writing or electronically in the manner required by Sec.
1006.42, and refers the consumer to the validation information
previously provided pursuant to Sec. 1006.34(a)(1).
* * * * *
0
8. Section 1006.42 is amended by revising paragraphs (a)(2) and (b) to
read as follows:
Sec. 1006.42 Sending required disclosures.
(a) * * *
(2) Exceptions. A debt collector need not comply with paragraph
(a)(1) of this section when sending the disclosure required by Sec.
1006.6(e) or Sec. 1006.18(e) in writing or electronically, unless the
disclosure is included on a notice required by Sec. 1006.34(a)(1)(i)
or Sec. 1006.38(c) or (d)(2).
(b) Requirements for certain disclosures sent electronically. To
comply with paragraph (a) of this section, a debt collector who sends
the notice required by Sec. 1006.34(a)(1)(i)(B), or the disclosures
described in Sec. 1006.38(c) or (d)(2)(i), electronically must do so
in accordance with section 101(c) of the Electronic Signatures in
Global and National Commerce Act (E-SIGN Act) (15 U.S.C. 7001(c)).
0
9. Appendix B to part 1006 is added to read as follows:
Appendix B to Part 1006--Model Forms
B-1 Model Form for Validation Notice
BILLING CODE 4810-AM-P
[[Page 5857]]
[GRAPHIC] [TIFF OMITTED] TR19JA21.028
BILLING CODE 4810-AM-C
0
10. In supplement I to part 1006:
0
a. Under Section 1006.30--Other Prohibited Practices, the headings
30(a) Required actions prior to furnishing information, and 30(a)(1) In
general, and paragraphs 1 and 2 are added.
0
b. Section 1006.34--Notice for Validation of Debts is added.
0
c. Under Section 1006.38--Disputes and Requests for Original-Creditor
Information, the introductory text before 38(a) Definitions is revised.
0
d. Under Section 1006.100--Record Retention, 100(a) In general,
including the heading, is revised.
0
e. Section 1006.104--Relation to State Laws is added.
The additions and revisions read as follows:
Supplement I to Part 1006--Official Interpretations
* * * * *
Subpart B--Rules for FDCPA Debt Collectors
* * * * *
Section 1006.30--Other Prohibited Practices
30(a) Required actions prior to furnishing information.
30(a)(1) In general.
1. About the debt. Section 1006.30(a)(1) provides, in relevant
part, that a debt collector must not furnish to
[[Page 5858]]
a consumer reporting agency, as defined in section 603(f) of the Fair
Credit Reporting Act (15 U.S.C. 1681a(f)), information about a debt
before taking one of the actions described in Sec. 1006.30(a)(1)(i) or
(ii). Each of the actions includes conveying information ``about the
debt'' to the consumer. The validation information required by Sec.
1006.34(c), including such information if provided in a validation
notice, is information ``about the debt.''
2. Reasonable period of time. Section 1006.30(a)(1)(ii) provides,
in relevant part, that a debt collector who places a letter about a
debt in the mail, or who sends an electronic message about a debt to
the consumer, must wait a reasonable period of time to receive a notice
of undeliverability before furnishing information about the debt to a
consumer reporting agency. The reasonable period of time begins on the
date that the debt collector places the letter in the mail or sends the
electronic message. A period of 14 consecutive days after the date that
the debt collector places a letter in the mail or sends an electronic
message is a reasonable period of time.
3. Notices of undeliverability. Section 1006.30(a)(1)(ii) provides,
in relevant part, that, if a debt collector who places a letter about a
debt in the mail, or who sends an electronic message about a debt to
the consumer, receives a notice of undeliverability during the
reasonable period of time, the debt collector must not furnish
information about the debt to a consumer reporting agency until the
debt collector otherwise satisfies paragraph (a)(1) of this section. A
debt collector who does not receive a notice of undeliverability during
the reasonable period and who thereafter furnishes information about
the debt to a consumer reporting agency does not violate paragraph
(a)(1) of this section even if the debt collector subsequently receives
a notice of undeliverability. The following examples illustrate the
rule:
i. Assume that, on May 1, a debt collector mails the consumer a
validation notice as described in Sec. 1006.34(a)(1)(i)(A). On May 10,
the debt collector receives a notice of undeliverability and, without
taking any additional action described in Sec. 1006.30(a)(1),
subsequently furnishes information regarding the debt to a consumer
reporting agency. The debt collector has violated Sec. 1006.30(a)(1).
ii. Assume that, on May 1, a debt collector mails the consumer a
validation notice as described in Sec. 1006.34(a)(1)(i)(A). On May 10,
the debt collector receives a notice of undeliverability. On May 11,
the debt collector mails the consumer another validation notice as
described in Sec. 1006.34(a)(1)(i)(A). From May 11 to May 24, the debt
collector permits receipt of, monitors for, and does not receive, a
notice of undeliverability and thereafter furnishes information
regarding the debt to a consumer reporting agency. The debt collector
has not violated Sec. 1006.30(a)(1).
iii. Assume that, on May 1, a debt collector mails the consumer a
validation notice as described in Sec. 1006.34(a)(1)(i)(A). From May 1
to May 14, the debt collector permits receipt of, monitors for, and
does not receive, a notice of undeliverability and thereafter furnishes
information regarding the debt to a consumer reporting agency. After
furnishing the information, the debt collector receives a notice of
undeliverability. The debt collector has not violated Sec.
1006.30(a)(1) and, without taking any further action, may furnish
additional information about the debt to a consumer reporting agency.
* * * * *
Section 1006.34--Notice for Validation of Debts
34(a) Validation information required.
34(a)(1) In general.
1. Deceased consumers. Section 1006.34(a)(1) generally requires a
debt collector to provide the validation information required by Sec.
1006.34(c) either by sending the consumer a validation notice in the
manner required by Sec. 1006.42, or by providing the information
orally in the debt collector's initial communication. If the debt
collector knows or should know that the consumer is deceased, and if
the debt collector has not previously provided the validation
information to the deceased consumer, a person who is authorized to act
on behalf of the deceased consumer's estate operates as the consumer
for purposes of Sec. 1006.34(a)(1). In such circumstances, to comply
with Sec. 1006.34(a)(1), a debt collector must provide the validation
information to an individual that the debt collector identifies by name
who is authorized to act on behalf of the deceased consumer's estate.
34(b) Definitions.
34(b)(2) Initial communication.
1. Bankruptcy proofs of claim. Section 1006.34(b)(2) defines
initial communication and states that the term does not include a
communication in the form of a formal pleading in a civil action. A
proof of claim that a debt collector files in a bankruptcy proceeding
in accordance with the requirements of the United States Bankruptcy
Code (Title 11 of the U.S. Code) is a communication in the form of a
formal pleading in a civil action and therefore is not an initial
communication for purposes of Sec. 1006.34.
34(b)(3) Itemization date.
1. In general. Section 1006.34(b)(3) defines itemization date for
purposes of Sec. 1006.34. Section 1006.34(b)(3) states that the
itemization date is any one of five reference dates for which a debt
collector can ascertain the amount of the debt. The reference dates are
the last statement date, the charge-off date, the last payment date,
the transaction date, and the judgment date. A debt collector may
select any of these dates as the itemization date to comply with Sec.
1006.34. Once a debt collector uses a reference date for a debt in a
communication with a consumer, the debt collector must use that
reference date for that debt consistently when providing the
information required by Sec. 1006.34(c) to that consumer. For example,
if a debt collector uses the last statement date to determine and
disclose the account number associated with the debt pursuant to Sec.
1006.34(c)(2)(iv), the debt collector may not use the charge-off date
to determine and disclose the amount of the debt pursuant to Sec.
1006.34(c)(2)(vii).
2. Subsequent debt collectors. When selecting an itemization date
pursuant to Sec. 1006.34(b)(3), a debt collector may use a different
reference date than a prior debt collector who attempted to collect the
debt.
Paragraph 34(b)(3)(i).
1. Last statement date. Under Sec. 1006.34(b)(3)(i), the last
statement date is the date of the last periodic statement or written
account statement or invoice provided to the consumer by a creditor.
For purposes of Sec. 1006.34(b)(3)(i), the last statement may be
provided by a creditor or a third party acting on the creditor's
behalf, including a creditor's service provider. However, a statement
or invoice provided by a debt collector is not a last statement for
purposes of Sec. 1006.34(b)(3)(i), unless the debt collector is also a
creditor.
Paragraph 34(b)(3)(iii).
1. Last payment date. Under Sec. 1006.34(b)(3)(iii), the last
payment date is the date the last payment was applied to the debt. A
third-party payment applied to the debt, such as a payment from an auto
repossession agent or an insurance company, can be a last payment for
purposes of Sec. 1006.34(b)(3)(iii).
Paragraph 34(b)(3)(iv).
1. Transaction date. Section 1006.34(b)(3)(iv) provides that the
itemization date may be the date of the transaction that gave rise to
the debt.
[[Page 5859]]
The transaction date is the date that the good or service that gave
rise to the debt was provided or made available to the consumer. For
example, the transaction date for a debt arising from a medical
procedure may be the date the medical procedure was performed, and the
transaction date for a consumer's gym membership may be the date the
membership contract was executed. In some cases, a debt may have more
than one transaction date. This could occur, for example, if a contract
for a service is executed on one date and the service is performed on
another date. If a debt has more than one transaction date, a debt
collector may use any such date as the transaction date for purposes of
Sec. 1006.34(b)(3)(iv), but the debt collector must use whichever
transaction date is selected consistently, as described in comment
34(b)(3)-1.
34(b)(5) Validation period.
1. Assumed receipt of validation information. Section 1006.34(b)(5)
defines the validation period as the period starting on the date that a
debt collector provides the validation information required by Sec.
1006.34(c) and ending 30 days after the consumer receives or is assumed
to receive it. Section 1006.34(c)(3)(i) through (iii) requires
statements that specify the end date of the validation period. If a
debt collector provides the validation information in writing or
electronically, then, at the time that the debt collector calculates
the validation period end date, the debt collector will know only the
date on which the consumer is assumed to receive the validation
information. In such cases, the debt collector may use that date to
calculate the validation period end date even if the debt collector
later learns that the consumer received the validation information on a
different date.
2. Updated validation period. If a debt collector sends a
subsequent validation notice to a consumer because the consumer did not
receive the original validation notice and the consumer has not
otherwise received the validation information required by Sec.
1006.34(c), the debt collector must calculate the end date of the
validation period specified in the Sec. 1006.34(c)(3) disclosures
based on the date the consumer receives or is assumed to receive the
subsequent validation notice. For example, assume a debt collector
sends a consumer a validation notice on January 1, and that notice is
returned as undeliverable. After obtaining accurate location
information, the debt collector sends the consumer a subsequent
validation notice on January 15. Pursuant to Sec. 1006.34(b)(5), the
end date of the validation period specified in the Sec. 1006.34(c)(3)
disclosures is based on the date the consumer receives or is assumed to
receive the validation notice sent on January 15.
34(c) Validation information.
34(c)(1) Debt collector communication disclosure.
1. Statement required by Sec. 1006.18(e). Section 1006.34(c)(1)
provides that validation information includes the statement required by
Sec. 1006.18(e). Section 1006.18(e)(1) requires a debt collector to
disclose in its initial communication that the debt collector is
attempting to collect a debt and that any information obtained will be
used for that purpose. Section 1006.18(e)(2) requires a debt collector
to disclose in each subsequent communication that the communication is
from a debt collector. A debt collector who provides a validation
notice as described in Sec. 1006.34(a)(1)(i)(A) complies with Sec.
1006.34(c)(1) by providing on the validation notice the disclosure
required by Sec. 1006.18(e)(1). A debt collector who provides a
validation notice as described in Sec. 1006.34(a)(1)(i)(B) complies
with Sec. 1006.34(c)(1) by providing either the disclosure required by
Sec. 1006.18(e)(1) or the disclosure required by Sec. 1006.18(e)(2).
The following example illustrates the rule:
i. ABC debt collector has an initial communication with the
consumer by telephone. Within five days of that initial communication,
ABC debt collector sends the consumer a validation notice using Model
Form B-1 in appendix B to this part. ABC debt collector has complied
with Sec. 1006.34(c)(1) even though Model Form B-1 includes the
disclosure described in Sec. 1006.18(e)(1) rather than the disclosure
described in Sec. 1006.18(e)(2).
34(c)(2) Information about the debt.
Paragraph 34(c)(2)(i).
1. Debt collector's name. Section 1006.34(c)(2)(i) provides, in
part, that validation information includes the debt collector's name. A
debt collector may disclose its trade or doing-business-as name,
instead of its legal name.
2. Debt collector's mailing address. Section 1006.34(c)(2)(i)
provides, in part, that validation information includes the mailing
address at which the debt collector accepts disputes and requests for
original-creditor information. A debt collector may disclose a vendor's
mailing address, if that is an address at which the debt collector
accepts disputes and requests for original-creditor information.
Paragraph 34(c)(2)(ii).
1. Consumer's name. Section 1006.34(c)(2)(ii) provides, in part,
that validation information includes the consumer's name. To satisfy
the requirement to provide this validation information, a debt
collector must disclose the version of the consumer's name that the
debt collector reasonably determines is the most complete and accurate
version of the name about which the debt collector has knowledge. A
debt collector does not disclose the most complete and accurate version
of the consumer's name if the debt collector omits known name
information in a manner that creates a false, misleading, or confusing
impression about the consumer's identity. For example, assume the
creditor provides the consumer's first name, middle name, last name,
and name suffix to the debt collector. In this scenario, the debt
collector would reasonably determine that the most complete and
accurate version of the consumer's name about which the debt collector
has knowledge includes the first name, middle name, last name, and name
suffix. If the debt collector omits any of this information, the debt
collector has not satisfied the requirement to provide the consumer's
name pursuant to Sec. 1006.34(c)(2)(ii).
Paragraph 34(c)(2)(iii).
1. Creditor's name. Section 1006.34(c)(2)(iii) provides that, if a
debt collector is collecting debt related to a consumer financial
product or service as defined in Sec. 1006.2(f), validation
information includes the name of the creditor to whom the debt was owed
on the itemization date. Pursuant to Sec. 1006.34(c)(2)(iii), a debt
collector may disclose this creditor's trade or doing-business-as name,
instead of its legal name.
Paragraph 34(c)(2)(iv).
1. Account number truncation. Section 1006.34(c)(2)(iv) provides
that validation information includes the account number, if any,
associated with the debt on the itemization date, or a truncated
version of that number. If a debt collector uses a truncated account
number, the account number must remain recognizable. For example, a
debt collector may truncate a credit card account number so that only
the last four digits are provided.
Paragraph 34(c)(2)(v).
1. Creditor's name. Section 1006.34(c)(2)(v) provides that
validation information includes the name of the creditor to whom the
debt currently is owed. A debt collector may disclose this creditor's
trade or doing-business-as name, instead of its legal name.
Paragraph 34(c)(2)(vii).
1. Amount of the debt on the itemization date. Section
1006.34(c)(2)(vii) provides that validation information includes the
amount of the debt on the itemization
[[Page 5860]]
date. The amount of the debt on the itemization date includes any fees,
interest, or other charges owed as of that date.
Paragraph 34(c)(2)(viii).
1. Itemization of the debt. Section 1006.34(c)(2)(viii) provides
that validation information includes an itemization of the current
amount of the debt reflecting interest, fees, payments, and credits
since the itemization date. If providing a validation notice, a debt
collector must include fields in the notice for all of these items even
if none of the items have been assessed or applied to the debt since
the itemization date. A debt collector may indicate that the value of a
required field is ``0,'' ``none,'' or may state that no interest, fees,
payments, or credits have been assessed or applied to the debt; a debt
collector may not leave a required field blank.
2. Itemization required by other applicable law. If a debt
collector is required by other applicable law to provide an itemization
of the current amount of the debt with the validation information, the
debt collector may comply with Sec. 1006.34(c)(2)(viii) by disclosing
the itemization required by other applicable law in lieu of the
itemization described in Sec. 1006.34(c)(2)(viii), if the itemization
required by other applicable law is substantially similar to the
itemization that appears on Model Form B-1 in appendix B to this part.
3. Itemization on a separate page. Section 1006.34(c)(2)(viii)
provides that a debt collector may disclose the itemization of the
current amount of the debt on a separate page provided in the same
communication with a validation notice if the debt collector includes
on the validation notice, where the itemization would have appeared, a
statement referring to that separate page. A debt collector may comply
with the requirement to refer to the separate page by, for example,
including on the validation notice the statement, ``See the enclosed
separate page for an itemization of the debt,'' situated next to the
information about the current amount of the debt required by Sec.
1006.34(c)(2)(ix).
4. Debt collectors collecting multiple debts. A debt collector who
combines multiple debts on a single validation notice complies with
Sec. 1006.34(c)(2)(viii) by disclosing either a single, cumulative
itemization on the validation notice or a separate itemization of each
debt on a separate page or pages provided in the same communication as
the validation notice.
Paragraph 34(c)(2)(ix).
1. Current amount of the debt. Section 1006.34(c)(2)(ix) provides
that validation information includes the current amount of the debt
(i.e., the amount as of when the validation information is provided).
For residential mortgage debt subject to Regulation Z, 12 CFR 1026.41,
a debt collector may comply with the requirement to provide the current
amount of the debt by providing the consumer the total balance of the
outstanding mortgage, including principal, interest, fees, and other
charges.
2. Debt collectors collecting multiple debts. A debt collector who
combines multiple debts on a single validation notice complies with
Sec. 1006.34(c)(2)(ix) by disclosing on the validation notice a single
cumulative figure that is the sum of the current amount of all the
debts.
34(c)(3) Information about consumer protections.
Paragraph 34(c)(3)(v).
1. Electronic communication media. Section 1006.34(c)(3)(v)
provides that, if the debt collector provides the validation notice
electronically, validation information includes a statement explaining
how a consumer can, as described in paragraphs (c)(4)(i) and (ii) of
this section, dispute the debt or request original-creditor information
electronically. A debt collector may provide the information required
by Sec. 1006.34(c)(3)(v) by including the statements, ``We accept
disputes electronically at,'' using that phrase or a substantially
similar phrase, followed by an email address or website portal that a
consumer can use to take the action described in Sec.
1006.34(c)(4)(i), and ``We accept original creditor information
requests electronically,'' using that phrase or a substantially similar
phrase, followed by an email address or website portal that a consumer
can use to take the action described in Sec. 1006.34(c)(4)(ii). If a
debt collector accepts electronic communications from consumers through
more than one medium, such as by email and through a website portal,
the debt collector is required to provide information regarding only
one of these media but may provide information on any additional media.
34(c)(4) Consumer-response information.
1. Prompts. If the validation information is provided in writing or
electronically, a prompt required by Sec. 1006.34(c)(4) may be
formatted as a checkbox as in Model Form B-1 in appendix B to this
part.
34(c)(5) Special rule for certain residential mortgage debt.
1. In general. Section 1006.34(c)(5) provides that, for residential
mortgage debt, if a periodic statement is required under Regulation Z,
12 CFR 1026.41, at the time a debt collector provides the validation
notice, a debt collector need not provide the validation information
required by Sec. 1006.34(c)(2)(vi) through (viii) if the debt
collector provides the consumer, in the same communication with the
validation notice, a copy of the most recent periodic statement
provided to the consumer under 12 CFR 1026.41(b), and the debt
collector includes on the validation notice, where the validation
information required by paragraphs (c)(2)(vi) through (viii) of this
section would have appeared, a statement referring to that periodic
statement. A debt collector may comply with the requirement to refer to
the periodic statement in the validation notice by, for example,
including on the validation notice the statement, ``See the enclosed
periodic statement for an itemization of the debt.''
34(d) Form of validation information.
34(d)(2) Safe harbor.
1. In general. A debt collector who provides a validation notice
that is neither a notice described in Sec. 1006.34(d)(2)(i) or (ii),
nor a substantially similar notice as described in Sec.
1006.34(d)(2)(iii), does not receive a safe harbor for compliance with
the information and form requirements of Sec. 1006.34(c) and (d)(1).
34(d)(2)(i) In general.
1. Disclosure required by Sec. 1006.18(e). Section 1006.18(e)(1)
requires a debt collector to disclose in its initial communication that
the debt collector is attempting to collect a debt and that any
information obtained will be used for that purpose. Section
1006.18(e)(2) requires a debt collector to disclose in each subsequent
communication that the communication is from a debt collector. Model
Form B-1 in appendix B to this part includes the disclosure required by
Sec. 1006.18(e)(1). A debt collector who uses Model Form B-1 to
provide a validation notice as described in Sec. 1006.34(a)(1)(i)(B)
may replace the disclosure required by Sec. 1006.18(e)(1) with the
disclosure required by Sec. 1006.18(e)(2) without losing the safe
harbor described in Sec. 1006.34(d)(2). See comment 34(c)(1)-1 for
further guidance related to providing the disclosure required by Sec.
1006.18(e) on a validation notice.
34(d)(2)(iii) Substantially similar form.
1. Substantially similar form. Pursuant to Sec.
1006.34(d)(2)(iii), a debt collector who uses Model Form B-1 as
described in Sec. 1006.34(d)(2)(i) may make changes to the form and
retain the safe harbor for compliance with the information and form
requirements of
[[Page 5861]]
Sec. 1006.34(c) and (d)(1) provided that the form remains
substantially similar in substance, clarity, and meaningful sequence to
Model Form B-1. Permissible changes include, for example:
i. Modifications to remove language that could suggest liability
for the debt if such language is not applicable. For example, if a debt
collector sends a validation notice to a person who is authorized to
act on behalf of the deceased consumer's estate (see comment 34(a)(1)-
1), and that person is not liable for the debt, the debt collector may
use the name of the deceased consumer instead of ``you'';
ii. Relocating the consumer-response information required by Sec.
1006.34(c)(4) to facilitate mailing;
iii. Adding barcodes or QR codes, as long as the inclusion of such
items does not violate Sec. 1006.38(b);
iv. Adding the date the form is generated; and
v. Embedding hyperlinks, if delivering the form electronically.
34(d)(3) Optional disclosures.
34(d)(3)(i) Telephone contact information.
1. In general. Section 1006.34(d)(3)(i) permits a debt collector to
include telephone contact information. Telephone contact information
may include, for example, a telephone number as well as the times that
the debt collector accepts consumer telephone calls.
34(d)(3)(iv) Disclosures under applicable law.
34(d)(3)(iv)(A) Disclosures on the reverse of the validation
notice.
1. In general. Section 1006.34(d)(3)(iv)(A) permits, in relevant
part, a debt collector to include on the reverse of the validation
notice any disclosures that are specifically required by, or that
provide safe harbors under, applicable law. If a debt collector
provides a validation notice in the body of an email, the debt
collector may, in lieu of including the disclosures permitted by Sec.
1006.34(d)(3)(iv)(A) on the reverse of the validation notice, include
them in the same communication below the content of the validation
notice. Disclosures permitted by Sec. 1006.34(d)(3)(iv)(A) include,
for example, specific disclosures required by Federal, State, or
municipal statutes or regulations, and specific disclosures required by
judicial or administrative decisions or orders, including
administrative consent orders. Such disclosures could include, for
example, time-barred debt disclosures and disclosures that the current
amount of the debt may increase or vary due to interest, fees, or other
charges, provided that such disclosures are specifically required by
applicable law.
2. Statement referring to disclosures. If a debt collector includes
disclosures pursuant to Sec. 1006.34(d)(3)(iv)(A), the debt collector
must include a statement on the front of the validation notice
referring to those disclosures. A debt collector may comply with the
requirement to refer to the disclosures by including on the front of
the validation notice the statement, ``Notice: See reverse side for
important information,'' or a substantially similar statement. If, as
permitted by comment 34(d)(3)(iv)(A)-1, a debt collector places the
disclosures below the content of the validation notice, the debt
collector may comply with the requirement to refer to the disclosures
by stating, ``Notice: See below for important information,'' or a
substantially similar statement.
34(d)(3)(iv)(B) Disclosures on the front of the validation notice.
1. In general. Section 1006.34(d)(3)(iv)(B) provides, in relevant
part that, if a debt collector is collecting time-barred debt, the debt
collector may include on the front of the validation notice any time-
barred debt disclosure that is specifically required by, or that
provides a safe harbor under, applicable law, provided that applicable
law specifies the content of the disclosure. For example, if applicable
State law requires a debt collector who is collecting time-barred debt
to disclose to the consumer that the law limits how long a consumer can
be sued on a debt and that the debt collector cannot or will not sue
the consumer to collect it, the debt collector may include that
disclosure on the front of the validation notice. See Sec.
1006.26(a)(2) for the definition of time-barred debt. For purposes of
Sec. 1006.34(d)(3)(iv)(B), time-barred debt disclosures may include
disclosures about revival of debt collectors' right to bring a legal
action to enforce the debt.
34(d)(3)(vi) Spanish-language translation disclosures.
Paragraph 34(d)(3)(vi)(A).
1. Supplemental information in Spanish. Section
1006.34(d)(3)(vi)(A) permits a debt collector to include supplemental
information in Spanish that specifies how a consumer may request a
Spanish-language validation notice. For example, a debt collector may
include a statement in Spanish that a consumer can request a Spanish-
language validation notice by telephone or email, if the debt collector
accepts consumer requests through those communication media.
Paragraph 34(d)(3)(vii).
1. Merchant brand. Section 1006.34(d)(3)(vii) permits a debt
collector to include the merchant brand, if any, associated with debt.
For example, assume that a debt collector is attempting to collect a
consumer's credit card debt. The credit card was issued by ABC Bank and
was co-branded XYZ Store. ``XYZ Store'' is the merchant brand.
2. Affinity brand. Section 1006.34(d)(3)(vii) permits a debt
collector to include the affinity brand, if any, associated with the
debt. For example, assume that a debt collector is attempting to
collect a consumer's credit card debt. The credit card was issued by
ABC Bank, and the logo for the College of Columbia appears on the
credit card. ``College of Columbia'' is the affinity brand.
3. Facility name. Section 1006.34(d)(3)(vii) permits a debt
collector to include the facility name, if any, associated with the
debt. For example, assume that a debt collector is attempting to
collect a consumer's medical debt. The medical debt relates to a
treatment that the consumer received at ABC Hospital. ``ABC Hospital''
is the facility name.
34(e) Translation into other languages.
1. Safe harbor for complete and accurate translation. Section
1006.34(e) provides, among other things, that, if a debt collector
sends a consumer a validation notice translated into a language other
than English, the translation must be complete and accurate. The
language of a validation notice that a debt collector obtains from the
Bureau's website is considered a complete and accurate translation.
Debt collectors are permitted to use other validation notice
translations if they are complete and accurate.
Section 1006.38--Disputes and Requests for Original-Creditor
Information
1. In writing. Section 1006.38 contains requirements related to a
dispute or request for the name and address of the original creditor
timely submitted in writing by the consumer. A consumer has disputed
the debt or requested the name and address of the original creditor in
writing for purposes of Sec. 1006.38(c) or (d)(2) if the consumer, for
example:
i. Mails the written dispute or request to the debt collector;
ii. Returns to the debt collector the consumer-response form that
Sec. 1006.34(c)(4) requires to appear on the validation notice and
indicates on the form the dispute or request;
iii. Provides the dispute or request to the debt collector using a
medium of electronic communication through which the debt collector
accepts
[[Page 5862]]
electronic communications from consumers, such as an email address or a
website portal; or
iv. Delivers the written dispute or request in person or by courier
to the debt collector.
* * * * *
3. Deceased consumers. If the debt collector knows or should know
that the consumer is deceased, and if the consumer has not previously
disputed the debt or requested the name and address of the original
creditor, a person who is authorized to act on behalf of the deceased
consumer's estate operates as the consumer for purposes of Sec.
1006.38. In such circumstances, to comply with Sec. 1006.38(c) or
(d)(2), respectively, a debt collector must respond to a request for
the name and address of the original creditor or to a dispute timely
submitted in writing by a person who is authorized to act on behalf of
the deceased consumer's estate.
* * * * *
Subpart D--Miscellaneous
Section 1006.100--Record Retention
* * * * *
100(a) In general.
1. Records that evidence compliance. Section 1006.100(a) provides,
in part, that a debt collector must retain records that are evidence of
compliance or noncompliance with the FDCPA and this part. Thus, under
Sec. 1006.100(a), a debt collector must retain records that evidence
that the debt collector performed the actions and made the disclosures
required by the FDCPA and this part, as well as records that evidence
that the debt collector refrained from conduct prohibited by the FDCPA
and this part. If a record is of a type that could evidence compliance
or noncompliance depending on the conduct of the debt collector that is
revealed within the record, then the record is one that is evidence of
compliance or noncompliance, and the debt collector must retain it.
Such records include, but are not limited to, records that evidence
that the debt collector's communications and attempts to communicate in
connection with the collection of a debt complied (or did not comply)
with the FDCPA and this part. For example, a debt collector must
retain:
i. Telephone call logs as evidence of compliance or noncompliance
with the prohibition against harassing telephone calls in Sec.
1006.14(b)(1); and
ii. Copies of documents provided to consumers as evidence that the
debt collector provided the information required by Sec. Sec. 1006.34
and 1006.38 and met the delivery requirements of Sec. 1006.42.
* * * * *
Section 1006.104--Relation to State Laws
1. State law disclosure requirements. The Act and the corresponding
provisions of Regulation F do not annul, alter, or affect, or exempt
any person subject to these requirements from complying with a
disclosure requirement under applicable State law that describes
additional protections under State law that are not inconsistent with
the Act and Regulation F. A disclosure required by State law is not
inconsistent with the FDCPA or Regulation F if the disclosure describes
a protection that such law affords any consumer that is greater than
the protection provided by the FDCPA or Regulation F.
Dated: December 18, 2020.
Grace Feola,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2020-28422 Filed 1-15-21; 8:45 am]
BILLING CODE 4810-AM-P
