The “Validation Notice” and Complying with New FDCPA Regulations
By: Allen Warren
If your association refers delinquent accounts to our firm (or any other law firm or collection agency), you may notice a few changes to debt collection policies and procedures, such as references in collection status reports to sending a “validation notice” as the first written communication sent to a debtor. Why? Because on November 30, 2021, new federal regulations went into effect that govern how debt collectors must comply with the federal Fair Debt Collection Practices Act (FDCPA) when attempting to collect consumer debt. These new regulations (collectively referred to as Regulation F) were issued by the federal Consumer Financial Protection Bureau (CFPB) to address various restrictions intended to protect consumer debtors. These include, for instance, restrictions on how and when to communicate with debtors by telephone and by email, and restrictions on attempting to collect a deceased debtor’s debt. In addition, Regulation F confirms existing law by expressly prohibiting debt collectors from suing for, or threatening to sue for, debt for which the applicable statute of limitations has expired (so-called “time-barred debt”).
However, one of the most significant parts of Regulation F is a burdensome restriction on the type of information that can be included in a debt collector’s first written communication to a debtor.
This initial communication – referred to as a “validation notice” – can only include certain limited information regarding the debt and the debtor’s consumer protection rights, including how to dispute the debt during the initial 30-day dispute window provided by the FDCPA. By using the CFPB’s model (sample) validation notice and not adding extraneous information or demands to the notice, debt collectors demonstrate compliance with Regulation F’s content requirements and the requirement that the notice be clear and conspicuous. Unfortunately, this model validation notice was developed by the CFPB without regard to differences in the type of debt being collected (whether credit card debt, medical bills, association assessments, etc.); and, frankly, is likely to do exactly the opposite of what the CFPB intended – causing debtors to be more confused about the debt than if they had received the debt collector’s standard initial 30-day demand letter being used prior to Regulation F. For instance, the one-page validation notice includes only an itemization of certain limited types of debt that accrued during a specified timeframe.
Consider for a moment that the CFPB’s official publication of Regulation F and its related commentary and official interpretations are contained in a 653-page “Final Rule” and a 354-page supplemental Final Rule; these were then followed by a 116-page Compliance Guide, a 27-page “compliance aid” document to further explain just how to itemize the debt on the validation notice, and a 30-page FAQ document. What may have initially been a well-intentioned effort, in part, to provide clearer standards for complying with the FDCPA, instead ended up being an overly burdensome, one-size-fits-all approach that increases the cost of compliance for debt collectors (and thus ultimately the costs incurred by creditors or debtors) and likely creates more confusion and potential for legal disputes.
As the late John Madden said, “the fewer rules a coach has, the fewer rules there are for players to break.” The CFPB seems to just like more rules, placing ever-increasing burdens on debt collectors regardless of what type of debt is being collected and regardless of whether they result in substantive practical benefits for consumer debtors.