The Federal Debt Collection Practices Act (FDCPA) requires debt collectors to provide consumers with a validation notice that includes the name of the creditor, the amount of the debt, and the disclosure of statutorily prescribed consumer protection rights. The Rule significantly expands the requirements of the FDCPA by requiring significantly more information and strong disclosures. These disclosures fall into three general categories: (i) information to help consumers identify the debt; (ii) information about consumer protections; and (iii) information to help consumers exercise their rights, including a tear-off dispute form with prescribed prompts. Additionally, the Rule allows for certain optional disclosures. The Rule also includes an optional model form and a safe harbor for those that wish to use the model form. Deviations are allowed, provided that the content, format, and placement of information remains substantially like the model form.
The Rule introduces a new concept to debt validation which will have an indirect impact on creditors—the “itemization date.” Subject to a narrow exception for certain residential mortgage debt, the Rule now requires the debt collector to include in the validation notice an itemization of the account balance from a specified “itemization date” through the date of the validation notice. Section 1006.34(b) allows debt collectors to choose as their “itemization date” one of five specified reference dates:
- the date of the last periodic statement or written account statement or invoice provided to the consumer by the creditor;
- the charge-off date;
- the last payment date;
- the transaction date; or
- the judgment date.
As to the residential mortgage debt exception, 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.
Because of the nature of the “itemization date,” its point of origin is necessarily the creditor. Banks and financial service providers will need to coordinate with their third-party debt collectors to provide the requisite documentation to support the itemization date the debt collector is using, the amount of the debt as of that date, and an itemization of any charges and fees accruing after the itemization date.
Additionally, while the FDCPA provides a consumer with thirty days to exercise its consumer protections, including disputing and requesting validation of the debt, the Rule defines the validation period to include an additional five business days by stating that a debt collector “may assume” that the consumer receives the validation notice on any date that is five days (excluding federal legal public holidays, Saturdays and Sundays) after the debt collector sent the notice.
Section 1006.34 requires the debt collector include in the validation notice the following information to help the consumer identify the debt: the debt collector’s name and mailing address at which they accept disputes and requests for original creditor information; the consumer’s name and mailing address; the identity of the creditor as of the itemization date; the current creditor; the account number or a truncated version of the same; the itemization date and amount of the debt on that date; an itemization of the debt from the itemization date forward; and the current amount of the debt.
The Rule additionally requires that the validation notice contain certain information about consumer protections, including the disclosures set forth in section 1692g(a)(3)-(5). The debt collector additionally is required to include the end date of the validation period.
The validation notice expands on the provisions of section 1692g(a) of the FDCPA by requiring the validation notice to include certain prescribed prompts, which must be conveyed in a prescribed order using the specified phrasing or substantially similar phrasing. Such prompts include dispute prompts, as well as prompts for original creditor information.
The validation notice may include certain optional disclosures, including the debt collector’s telephone contact information, availability, and reference code. Certain prescribed payment disclosures also are allowed so long as they do not overshadow the validation notice. The Rule allows for, but does not require: (i) validation notices to be sent electronically consistent with section 1006.42 of the Rule; and (ii) Spanish-language disclosures. Additionally, the Rule permits the inclusion of certain disclosures that are specifically required or that provide a safe harbor under applicable law.
For purposes of debt validation, the Rule makes clear that if the debt collector knows or should know that the consumer is deceased, and if the debt collector has not previously provided the validation notice to the deceased consumer, the debt collector must provide the debt validation notice to a person authorized to act on behalf of the deceased consumer’s estate. The Rule requires the validation notice to identify the estate’s representative by name.
The Rule interprets the FDCPA’s prohibition of false or misleading representations to prohibit legal actions or threats of legal actions against a consumer to collect time-barred debts.
Banks and other financial service providers that rely on third-party debt collectors to furnish credit reporting information should be aware of the Rule’s restrictions on credit reporting. Section 1006.30(a) generally prohibits debt collectors from furnishing information to a consumer reporting agency about a debt before the debt collector either speaks to the consumer about the debt in person or by telephone or sends its validation notice and then waits for a reasonable period of time (presumptively 14 consecutive days) to receive a notice of undeliverability.
For more information regarding the upcoming changes, please contact Deborah Gallo, Esq. at email@example.com.