The Impact of the CFPB’s Regulation F on Creditors
It’s been a month now since the implementation of Regulation F. If, as a creditor, you haven’t made the necessary changes to your operation, you face serious compliance risk and exposure. The stated intent of Regulation F was to interpret and advance the goals of the Fair Debt Collection Practices Act (FDCPA). Its enactment fundamentally changed how third-party collection agencies interact and communicate with consumers. In doing so, creditors should be aware of the potential impact of Reg F and take appropriate action to ensure that both they and their collection vendors are compliant with the new requirements.
I have always advocated that it is a best practice for creditors to follow the spirit and intent of the FDCPA when it comes to consumer interaction. I use the term “spirit and intent” because congress wrote the act to regulate the interaction between the consumer and the third-party agency. Therefore specific parts may not be applicable. However, its overriding theme is one of fairness and respect. The FDCPA sets boundaries and creates a level playing field for reputable companies to operate.
While generally, creditors are exempt from specific adherence to the FDCPA by definition, they are not exempt from the basic tenants of vendor oversight or compliance with UDAAP (Unfair Deceptive Acts and Practices).
Hold-harmless clauses in your collection agency contracts shield you from liability for actions made by collectors. These will not protect you from actions taken against you for UDAAP violations or failure to provide oversight of your vendor network by the CFPB.
Vendor oversight is essential since a creditor is indirectly responsible for actions the collection agency commits on their accounts. To negate liability, you must ensure that your vendors perform to the highest ethical standards and the strictest adherence to applicable rules and regulations.
The following is a brief synopsis of the changes codified at the end of November. While not all-inclusive, it’s imperative that you ensure your collection vendors have implemented the following changes and that you are auditing to these new standards.
The impact of Regulation F will severely restrict debt collector communications with consumers via telephone. I believe that the standards outlined in the Regulation will be more detrimental to recoveries than the TCPA’s restrictions surrounding the use of an automated dialing system when contacting mobile phones. The new rules prohibit debt collectors from calling a consumer regarding a specific obligation more than seven (7) times over seven days. At an initial glance, the parameters of limiting consumer contact to no more than seven times over seven days seem highly reasonable. It’s important to understand that calling is not contacting the consumer at phone numbers associated with the consumer; it is simply the act of placing the call to the consumer’s phone number. Once telephone contact has been achieved, collectors are prohibited from calling the consumer again within seven days of that conversation regardless of the outcome. It is worth mentioning that these limitations are restricted to the transaction level. If the consumer has multiple debts, the number of attempts allowed increases proportionately.
For third-party debt collectors to communicate with consumers via email and text messages, they must have their prior consent. Obtaining this will require creditors to include specific contractual language informing consumers of their intent to share this information with debt collectors retained by the creditor. The debt collector must use reasonable means to confirm that the creditor has followed all required procedures before utilizing the email address. The consumer has the right to opt out of receiving such communication methods by contacting either the creditor or the debt collector. A bi-lateral notification mechanism must be in place to share the opt-out requests between the creditor and the debt collector.
Collection Action According to Time-Barred Debt
While already a prohibited practice, creditors must ensure that no claims or threats of legal action are made against a consumer where they know or should have known that the statute of limitations to take legal action to recover the debt has expired. Regulation F outlines a specific liability cause of action that can be asserted against the collector.
Debt Validation Notices
Creditors will need to provide their third-party agencies with additional information that will be now required in debt validation notices. The CFPB has provided a form notice that can be used as a “safe harbor” to avoid violations of the new rule. The shared responsibility between the creditor and the collector remains that the information provided is complete and accurate.
Collectors will be required to retain all evidence of compliance to FDCPA and Regulation F for a minimum period of three years from the date of last collection activity. This rule applies to all records of telephone conversations or other communications related to debt collection activity. (At the time of this publication, I am seeking clarification as to the interpretation of “records of telephone conversations” to determine if this pertains to written documentation or a requirement of call recordings with included metadata.)
There is no question that Regulation F will expand your scope of vendor oversight. However, creditors can negate numerous aspects by aligning themselves with highly reputable and regulatory concentric vendors. However, that process is more often easier said than achieved. Where do creditors turn when looking to find reputable vendors? What questions should be asked? What should I expect to pay, and who will manage the process?
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To learn more about these and other exciting new enhancements and determine how you can implement these features to benefit your company, don’t hesitate to contact your Vergent LMS customer service representative for more details.
This article is not intended to give, and should not be relied on for, legal advice in any particular circumstance or fact situation. No actions should be taken in reliance upon information contained in this article without obtaining the advice of an attorney.
About the Author
Mr. Louis Nash is a highly recognized collection industry executive and expert in the field of account receivable management. His illustrious career has spanned nearly four decades while traversing nearly all sectors of the accounts receivable industry. Engaged in his most recent endeavor, he serves as Managing Partner and Chief Solutionist at Outsourcing Solutions Group.
OSGroup is a consortium of best-in-class independent service providers dedicated to assisting creditors with services covering the entire accounts receivable spectrum. OSGroup offers the convenience of being your primary resource for all business backroom operational needs.
Please visit our website to learn more about how OSGroup can assist your business at www.OSGroup.biz.