The Consumer Financial Protection Bureau (“CFPB”) issued a new Regulation F interpreting the Fair Debt Collection Practices Act (“FDCPA”), which took effect on November 30, 2021, after the CFPB withdrew a proposal to delay implementation of the Regulation by 60 days. One of the central elements of the Regulation is the requirement that “debt collectors,” as defined in the FDCPA and Regulation F, must send Validation Notices that contain specific information about the debt being collected in, or within 5 days after, initial communication with a consumer. The full text of the final rule regarding Regulation F can be found HERE.
Most community banks and credit unions will NOT qualify as “debt collectors” because they either originated the debt or began servicing the debt while it was not in default. Attorneys who collect debts for their clients on a regular basis, however, likely qualify and will bear the burden of providing the Validation Notices to consumers for their clients.
In foreclosure actions, attorneys qualifying as debt collectors likely need to send the Validation Notice along with the § 6111 Right To Cure letter or the FDCPA Notice sent at the time of filing the complaint. For other matters involving collection of a consumer debt, attorneys should send the Validation Notice along with the initial communication to the consumer, or within 5 days thereafter. Formal pleadings in civil actions do NOT qualify as “initial communications” for the purposes of Regulation F.
Below is an overview of some of the most important provisions of the Validation Notices required by Regulation F. If you have any questions, or would like more information regarding the FDCPA or Regulation F, please contact Eaton Peabody’s Bankruptcy & Creditor’s Rights Practice Group Chair, Shawn Doil at sdoil@eatonpeabody.com.
Validation Notices Overview:
Who: Debt collectors, as defined under the FDCPA and Regulation F, which includes law firms sending dunning letters or otherwise attempting to collect another’s debt.
What: Validation Notices are written or electronic notices that contain specific information about the debt owed, charges applied, and the consumer’s rights. The CFPB issued a model notice, which provides a safe harbor if used.
When: In the “initial communication” with the consumer regarding the debt, or within 5 days thereafter. NOTE: pleadings in civil actions are NOT initial communications.
Debt Collector Defined (15 U.S.C. § 1692a(6)/12 C.F.R. § 1006.2(i)):
The FDCPA defines a debt collector as “[A]ny person who uses any instrumentality or interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C. § 1692a(6); 12 C.F.R. § 1006.2(i)(1). Excluded from that definition, however, are lenders who originated the debt and servicers that obtained the debt while it was not in default. See id. § 1692a(6)(F); § 1006.2(i)(2). Thus, many traditional lending and servicing clients will not qualify in the majority of cases.
Lawyers and law firms who collect debts for their clients on a regular basis, however, likely qualify as debt collectors and must send the Validation Notice whenever required under Regulation F.
There is a significant split, including within the First Circuit, regarding whether enforcement of a security interest through the foreclosure process qualifies as debt collection for the purposes of the FDCPA, and the definitions of “debt collector” under the FDCPA and Regulation F indicate that the term does not cover acts solely intended to enforce a security interest. See, e.g., Beadle v. Haughey, No. Civ. 04–272–SM, 2005 WL 300060, at *3 (D.N.H. February 9, 2005) (foreclosures are actions to enforce security interests, and do not trigger FDCPA restrictions); Windham v. Harmon L. Offs., P.C., No. CV 15-12809-FDS, 2016 WL 94248, at *2 (D. Mass. Jan. 7, 2016) (assuming, without deciding, that the FDCPA applies to foreclosure actions).
There is virtually no discussion of the scope of Regulation F, though it is likely to be applied similarly to the FDCPA more broadly.
Initial Communication Defined (12 C.F.R. § 1006.34(b)(2)):
The Validation Notice must be sent along with the “initial communication” with the consumer, or within 5 days thereafter. The initial communication under Regulation F is 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.
Initial communications do NOT include: (1) a communication in the form of a formal pleading in a civil action, or (2) any form or notice that does not relate to the collection of the debt and is expressly required by the IRC, Title V of the Gramm-Leach-Bliley Act, or federal or state law or regulation requiring notice of a data security breach or privacy risk.
Validation Notice Information (12 C.F.R. § 1006.34(c)):
The following information must be included in the Validation Notice:
- Debt collector communication disclosure (i.e. attempting to collect a debt, information will be used for that purpose);
- Debt information, including:
- Debt collector’s name and mailing address;
- Consumer’s name and mailing address;
- Name of the creditor to whom the debt was owed on the itemization date;
- Account number (can be truncated);
- Name of the creditor to whom the debt is currently owed;
- Itemization Date (1 of the last statement date, charge-off date, date last payment was applied, origination date, or judgment date);
- Amount of the debt on the itemization date;
- Itemization of the current amount, including: interest, fees, payments, and credits since the itemization date (may be on separate page of same communication);
- Current amount of the debt;
- Information about consumer protections (i.e. end of validation period, consumer may dispute debt, debt assumed valid if not disputed, CFPB’s website information);
- Consumer-response information (i.e. dispute prompts, original-creditor prompts).
For residential mortgages subject to periodic statements under Regulation Z, the debt collector can omit the information in 2(f)-(h) and include the most recent periodic statement and a reference to the periodic statement where the information in 2(f)-(h) would have appeared.
Safe Harbor (12 C.F.R. § 1006.34(d)(2)):
The CFPB provided a model Validation Notice (available HERE) that contains all the above information and certain optional disclosures. A debt collector who uses the model form or a substantially similar form complies with the Regulation’s form requirements.