November 30, 2021 was a much-anticipated date in the debt collection industry. After more than eight years of back and forth about a new regulation for the debt collection industry, the CFPB finally enacted Regulation F. We’re now six months wiser, and it’s a good time to look back and explore the impact on the industry.
The Road to Regulation F
- 2013: Updates to the debt collection regulations started in November 2013, when the CFPB released a press release announcing an Advanced Notice of Proposed Rulemaking (ANPR). In their press release, the CFPB sought comments from the public about debt collection practices. Their intention was to consider new rules designed to protect consumers “without imposing unnecessary burdens” on the industry. This was followed up by the ANPR, posted in the Federal Register on November 12, 2013.
The form of the 114-page ANPR was an explanation of what information they were seeking and why, with a list of 162 questions to the public about debt collection. Their questions covered the data transferred between both creditors and collectors and creditors and debt buyers, as well as validation notices, disputes, communications (including contact methods and inconvenient times and places), caller ID, newer technologies, UDAAP, time-barred debts, litigation practices, state & local regulations, recordkeeping, monitoring, and compliance regulations.
Answers to these questions could be submitted via physical letter, fax, email, or via an online portal. Initially the public was given 90 days to respond, but the feedback period was extended an additional 18 days after tens of thousands of responses were submitted to the CFPB.
- 2014: The CFPB gathered focus groups of consumers to discuss the proposed rule. Their feedback was considered as they were drafting the rule.
- 2016: Responses from the public comments received by the CFPB were formed into an outline of their proposal. This 117-page outline was used to conduct the panel review required by the Small Business Regulatory Enforcement Fairness Act (SBREFA).
- 2016: SBREFA meetings were held to determine the potential impacts to small businesses (in this case, debt collection agencies) if the rule were to go into effect. The CFPB issued a report 60 days after the completion of the SBREFA meeting.
- 2016: CFPB sent a survey out to 10,000 consumers to ask about experiences with debt collection.
- 2019: The CFPB circulated an updated proposed rule with another request for public comment. This 538-page version is what became Reg F. Of particular note was that first-party debt collections, which were discussed in the earlier proposed rule, were now removed. The comment period for the proposed rule ran through September 2019.
- 2020: The CFPB published the final rule to the Federal Register in two parts, set to be effective one year after publication.
New Regulations Meant A Lot of Prep Work
There was much speculation about Reg F prior to the enactment date, especially from the consumer groups who were loudly warning consumers that debt collectors would be barraging them with text messages and emails and flooding their social media accounts with friend requests, only to be used against them later.
Third-party debt collection agencies and industry vendors were all diligently working to ensure compliance as of November 30, 2021. New letter formats were required with new data fields. New call limits had to be programmed into dialers. New fields for tracking consumer preference, opt-ins, and opt-outs were added to host systems. Staff was being trained in the updated regulation and policies & procedures were updated.
On the creditor side of the business – creditors were working hard to ensure their agencies had the data they needed to comply with the new rules, especially the new itemization requirement on the model validation notice. Additionally, for those creditors who were forwarding emails to agencies to use for collections, a new process needed to be built to allow for the ’35-day letter’ to go out to consumers.
Software companies who support the debt collection industry were also hard at work creating new data fields, new audits, and pushing out those updates. Here at NeuAnalytics, we were meeting weekly for almost a year to review the new regulation, determine how we could help our clients monitor it, and create new solutions specific to Regulation F.
Expectation vs. Reality
What has actually happened in the six months since Reg F went into law? Are consumers getting bombarded with unwanted communications? Were agencies ready? Were creditors ready? Were vendors ready?
First and foremost, November 30 came and went, and the world continued to turn. Most agencies, creditors, and vendors were 100% ready for the changes. And despite the dire warnings from the consumer groups, in general, only consumers who wanted to be contacted by email and text were actually being contacted by email and text.
But some things have changed:
As of the first of May, we have seen nine (9) lawsuits that mention Regulation F. The first one came in just 10 days after the regulation went into effect. However, most of these lawsuits, including the first one on December 10, initially allege other debt collection violations, such as the FDCPA, and only mention Regulation F almost as an aside.
- Militev v. Wakefield & Associates – Texting without proper disclosure
- Jaramillo v. National Credit Systems – Reporting a debt to a credit bureau that had already been paid (has since been dismissed)
- Miterin v. Global Payment Check Service – Calls after cease & desist, calls within 7 days after RPC
- Walker v. TrueAccord – Sending emails after unsubscribing
- Vespo v. Bass & Associates – More than 7 calls in a rolling 7 day period
- Cansler v Vidant Medical Group – Aggressive manipulative and illegal collection practices
- Wilson-Albright v. Rash Curtis – Calls made after cease & desist
- Willich v. Midwest Fidelity Services – Missing itemization date in letter
- Green v. InDebted – Opt-out in email not conspicuous enough
The general consensus is that if an agency wasn’t already set up for emailing, they’re not going to jump into it just yet. While there are a couple of agencies that specialize in emailing communications, most still prefer the letters and phone calls.
And what about creditors providing the email address to an agency, and sending the 35-day notification letter to the consumer? Most feel it’s just too risky at this time to provide the email to an agency for consumer contact.
However, many agencies will agree to communicate with a consumer, if the email is initiated by the consumer. As consumers grow more interested in emailing about their debts, this practice is likely to grow.
Similar to email, texting is starting slow. Many companies were already involved in using a texting service to send payment reminders to consumers. But as a replacement for letters and phone calls, it’s not likely text will take over that part of collections.
However, as the population of consumers in debt collection moves to a younger and more technically savvy demographic, agencies will need to keep up with the wishes of the consumers. And texting is one of the top ways younger consumers prefer to communicate.
The 7/7/7 Rule
It’s not a surprise that only one of the first nine lawsuits alleged a violation of the “7 calls in a 7-rolling day” rule. Because most agencies were prepared for this change, very few violations are popping up for this rule.
Model Validation Notice
The vast majority of the agencies were up and running with the new model validation notice by November 30 to use as a replacement for the previous initial demand letter. While it took additional formatting and additional information from the creditors, agencies and letter vendors were ready for the change and adopted the new format ahead of the rule’s effective date.
The tear-off section of the model validation notice has caused an increase in disputes in some agencies. There’s also the question of what to do with the torn-off piece of paper that is mailed back to the agency. With the CFPB’s new data retention rule, these must be kept for three years. Just about every agency we’ve heard from is scanning them in and keeping an electronic version in order to avoid losing the small piece of paper.
There has been some speculation that some of the increase in disputes comes from confusion by the consumers, who think they HAVE to check a box and respond. It will be interesting to see if the CFPB will do a follow-up survey of consumers and agencies to see how the new rule is working and if it’s causing more confusion in certain areas.
As with any debt collection regulatory change, consumer attorneys have also been preparing to respond. Unfortunately, we have heard that there has been an increase in call-baiting, with a slant towards the new regulation. Some of the various baiting tactics we have heard from agencies so far:
- “Call me back at 2:03 tomorrow afternoon,” as an attempt to force a violation of inconvenient times
- “Wait, let me start again,” so the caller starts reading the script from the top
- “What is your process for sending me a letter?” as an attempt at a Hunstein/letter vendor
There will always be call-baiting. The best thing you can do is to properly train your staff to listen for the telltale signs of call baiting. There are also several good webinars and podcasts out there in the industry to learn more.
Was Regulation F Worth the Hype?
In many ways, yes:
- We now have clearer direction from the CFPB on their expectations relating to emailing, texting, and consumer contact.
- With specific call limits, we no longer have to guess the volume of calls a consumer will consider “harassment.”
- With the new model validation notice, there is a safe harbor from the CFPB if the format is followed exactly.
- Agencies, creditors, and vendors partnered together to comply with the new rules and support each other through the process.
As with any new regulation, it’s important to take it seriously, do your research on the impacts to your company, and talk with your compliance and legal teams to ensure compliance. Most major regulatory changes will require updates to your risk management framework, as well as employee training. Thankfully most changes aren’t as huge as Regulation F, but it’s always a best practice to keep your eye on industry news and participate in industry events to keep up.
A Neu Way Forward
NeuAnalytics is the industry leader in operational risk and compliance management. Our solutions provide the world’s leading creditors with comprehensive business intelligence while continuously monitoring for compliance.
The NeuAnalytics Compliance Management System allows your staff to holistically manage compliance, beyond the consumer level down to the individual activity level. It is a powerful set of tools for determining if vendors are acting on your behalf in compliance with the, at times, an overwhelming multitude of federal, state, and local consumer protection regulations.
With NeuAnalytics, you can avoid compliance-related fines and penalties that can result in reputational damage to your brand.
To learn more about how NeuAnalytics provides creditors compliance and auditing automation, visit us at www.neuanalytics.com.