[Note: This article has been updated to include additional information about the Post-Examination Survey Program]

In its recently published Annual Report to the Director, the CFPB’s Ombudsman Office describes a beta program launched this year to survey companies post-CFPB examination.

Starting on page 14 of the report, the CFPB’s Ombudsman, Wendy Kamenshine, lays out the process the Bureau went through in conceiving, developing, and beta-testing these post-examination surveys.

[There’s a chance you may not be entirely clear as to what an ombudsman does. An ombudsman is an impartial, disinterested party that reviews a company’s practices from all sides, with the goal of providing information and insight to the company about the company’s behavior and perception in the marketplace. An ombudsman’s role is complicated: they are the employee of the company, but they do not necessarily represent the company. Think of them as an outside advocate.]

According to the CFPB’s ombudsman, the goal of this post-examination survey is to

[E]stablish a survey tool to be used solely by the Ombudsman to confidentially gather feedback from supervised entities in accordance with our professional ombudsman standards of practice. […] The Ombudsman will review survey outcomes, using techniques that not only inform our work but also allow us to provide unattributed feedback and any recommendations to the CFPB from our unique perspective. At the same time, the Ombudsman survey tool will not collect, analyze, or report on examiner performance or the specific details of any given supervisory examination.

The Ombudsman’s office identified the following examination practice areas to focus on in its post-examination survey. From page 16:

• Supervision materials and resources – Includes topics such as information availability, functionality, and content for review by entity representatives who will engage with any part of the examination.
• Interpersonal communications – Includes communications between entity representatives and anyone at the CFPB before, during, or after an examination, using any medium or format.
• End of the examination – Includes topics such as timing, knowledge of outcomes or resolutions, clarity in expectations of closure, and awareness of the appeals process.

Companies for the beta test were drawn from CFPB supervised entities across the spectrum. To protect the privacy of those companies, and to ensure answers were as candid and honest as possible, only the CFPB Office of the Ombudsman knows the identites of the companies chosen. (Were you one of the companies? Do you want to tell us what the post-examination survey was like for your company? We’d LOVE to hear it: editor@insidearm.com. We, too, guarantee your privacy.)

Members of the Office of Ombudsman asked three questions in this beta survey:

1) What worked?

2) What didn’t?

3) What would you change?

What will be done with the information those companies in the beta process provided?

Great question. In the beta version, the Ombudsman reported, “We plan to provide the CFPB with a summary of the beta test survey participants’ unattributed feedback and recommendations, for the agency’s consideration.”

It seems likely the Ombudsman’s Office will continue this method of data-sharing with the Bureau when this post-examination survey is rolled out in its final version.

Are these post-examination surveys going to be a regular thing?

From a blog post written by Wendy Kamenshine: “Following completion of our annual report, we concluded our beta test evaluation and determined that our office will conduct a post-examination survey of supervised entities as a new initiative going forward.” So yes. These are a new initiative for the CFPB.

Our friends at TCPAWorld are providing “live” coverage of arguments in front of the Supreme Court regarding just what, finally, after all these years, were we ever so young, an ATDS is.

Follow this page (and refresh frequently) for updates: Realtime, Unfiltered Coverage of The SCOTUS ATDS Argument

insideARM will provide a full write-up of the arguments, and analysis, after the session.

It’s hard to believe we’re one day away from our 3rd annual Women in Consumer and Commercial Finance conference. 

This event started as a pilot three years ago when we hosted just over 100 women in Baltimore. We were overjoyed that those women took a leap of faith on our event. Many more have done the same since. This year, we asked women to take a different kind of leap of faith – on a virtual experience. And as we wrap up the final details of our first-ever virtual women’s conference, I can’t help but be overwhelmed by the 600 women, from all stages of their career, who are gearing up to meet new people, learn and have some fun. 

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Although this year’s event is virtual, the mission now is the same as it’s always been: to create an environment where women can build meaningful relationships, win new allies, and feel a sense of community, support, and camaraderie. We want every woman to walk away feeling inspired, renewed, and equipped with the knowledge they need to embark on another year. 

Although we are disappointed we could not convene in Savannah as originally planned, we’re really excited about the digital format. Thanks to the reduced price and the accessibility of the conference to anyone who is interested, many women are attending who may not have been able to attend otherwise. 

We’re seeing some companies send really big groups of attendees, too. (Scroll down to see which companies are sending big teams.) When entire teams attend, those attendees can see that their companies really do care about professional development. Those teams of attendees will go through this experience together and bring that sense of connection and camaraderie right back to the office. That’s a tremendous benefit.

Here’s what a few of those companies had to say about sending teams of attendees:

“Investing in the growth and development of our female leaders will only help build a strong foundation for our future success.”

– Mike Ferris, SVP, Loss Control and Recovery, Small Business Lending, Wells Fargo

“This is our third year of participation in the WCCF conference and we look forward to seeing this event grow and gain the participation of the multitude of brilliant women in our industry.”

– Chris Repholz, Chief Customer Officer, MRS BPO

Who knows, maybe we’ll have a hybrid event next year so that these benefits can be an option going forward. Stay tuned for more. In the meantime, a big thank you to all the companies sending attendees this year. A special thank you to the companies who sent entire teams. 

By the way, we start tomorrow at 11:45 AM EST. It’s not too late to join us. Thanks,

-Amy Perkins, Chair

Women in Consumer & Commercial Finance

Companies sending large teams of attendees to WCCF this year include:

On Friday, Representative Maxine Waters (D-CA-43)—the Chairwoman of the House Financial Services Committee—sent a letter to President-elect Biden urging him and Vice President-elect Harris to rescind the Consumer Financial Protection Bureau’s recently-released final debt collection rule and to take several other actions.

The 45-page-long letter covers a wide range of topics. Under the topic of consumer protection during the COVID-19 pandemic, the letter states that Biden should fire Director Kathy Kraninger and put in place a Bureau leadership that would “aggressively protect consumers.” Specifically related to debt collection, the letter states:

• The CFPB should rescind a recent rule that would allow debt collectors to harass consumers over email or text, and instead bolster consumer protections against abusive debt collection practices.
• Issue a Presidential executive order directing the Treasury and other agencies to immediately suspend the collection of debts owed by consumers to the federal government until after the pandemic ends.

The letter also urges Biden to take a strong stance toward promoting diversity and inclusion in the financial services industry as well as in the industry’s regulators. In support of this, the letter suggests that the new administration:

Require disclosure of public companies and regulated entities of their boards’ diversity, including by approving proposals by national exchanges to change their listing standards to require such disclosure, as well as setting minimum board diversity levels.

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MINNEAPOLIS, Minn. –Chartwell is pleased to announce that Spring Oaks Capital, LLC (“Spring Oaks” or the “Company”) has received a substantial structured capital investment, accelerating the Company’s establishment as the premier, technology-enabled consumer debt investment and collections platform in the industry.

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The substantial private investment, coupled with a $150 million senior secured revolving credit facility provided solely by Ares Global Management, LLC (“Ares”), will support the Company’s opportunistic portfolio acquisition strategy along with the continued development of industry leading technology tools. Further supporting the Company’s growth, Ares has included an incremental $100 million of capital, via an accordion, available for additional capital deployment. In partnering with the leading provider of credit solutions to the consumer finance sector, Spring Oaks is positioned to execute upon a robust pipeline of investment opportunities. Simultaneous with closing, Spring Oaks financed a meaningful investment in selected consumer finance assets, with continued acquisitions scheduled during the remainder of 2020.

Chartwell served as Spring Oaks’ exclusive financial advisor, providing strategic counsel to the Company as it evaluated its capital structure alternatives in pursuit of sustainable growth. The junior structured capital infusion will allow Spring Oaks to build a platform that empowers consumers on their journey to resolve the burden of financial debt through machine learning, behavioral science, and deep industry expertise. The Company now has the necessary capital to rapidly scale its portfolio acquisition platform, leveraging unmatched compliance procedures, best-in-class technology platform, and a team of long-standing industry executives. The investor’s belief in the Company is evidenced by the substantial capital commitment, through both the initial investment and significant monetary commitment in the future.

Spring Oaks Capital, LLC is an innovative and technology-focused consumer debt purchasing and collections platform spearheaded by some of the most credible and experienced executives in the industry. The Company leverages data-driven analytics, AI, and machine learning integration to enhance underwriting, purchasing, and collections, supported by industry-leading cloud-based tools. The Company maintains an unmatched compliance focus, ethically collecting portfolios with a team-based approach.

Chartwell Value Add

“Spring Oaks is extremely pleased with this investment outcome as it positions us for significant growth as we build the premier debt buyer in the industry. Our long-standing partnership with Chartwell has been instrumental in the early development of the Company, and we are grateful for their leadership of our capital raising process. We look forward to many years of continued partnership with their team.”

— Marcelo Aita, Executive Chairman, Spring Oaks Capital, LLC

“This is a significant milestone for Spring Oaks as we continue to build our leading portfolio acquisition platform and deepen our relationships with high quality financial institutions seeking a well-capitalized, technology-enabled partner to transition customer relationships. The Ares credit facility, along with our structured capital investor, positions us to be the buyer of choice for sellers seeking a long-term partner, ranging from leading-edge financial technology lenders to global banking institutions.”

— Tim Stapleford, President & CEO, Spring Oaks Capital, LLC

About Spring Oaks Capital

Spring Oaks Capital is a national financial technology company, focused on the acquisition of non-performing credit portfolios. The Company subscribes to an employee and consumer-centric operating philosophy that creates high-value jobs, a significant performance lift and highest standards of compliance. Spring Oaks’ business strategy is rooted in innovative data-driven technology to maximize collection results and a contact platform that offers multi-channel options to meet each consumer’s communication preference. Spring Oaks has the management vision and experience to nurture a culture and DNA that is unique in the space. To learn more about Spring Oaks, please visit www.springoakscapital.com.

“The Spring Oaks team possesses unmatched experience and we are excited to be a trusted advisor to the Company. With a fulsome understanding of the Company’s objectives and a review of the capital alternatives available to support the Company’s initial growth, the preferred capital structure exceeded the initial investment expectations, with an ability to facilitate significant future investment over time. The selected institutional private investor also provides complimentary benefits to Spring Oaks’ technology strategy. We are excited to support Spring Oaks’ continued growth. Further, Spring Oaks is well-positioned for sustainable growth through its partnership with Ares, one of the world’s premier institutional credit platforms. We are incredibly excited to witness the Spring Oaks growth story over the next several years, and continue to build on our partnership with Marcelo Aita, Tim Stapleford, and the entire Spring Oaks team.”

— Will Bloom, Managing Director & Head of Capital Markets, Chartwell Financial Advisory

About Chartwell Financial Advisory

Chartwell provides comprehensive financial advisory solutions and investment banking services to the middle market. With substantial corporate finance and capital markets expertise, the Chartwell team works with clients and their advisors to deliver independent, solutions-based advisory services that are unbiased to outcome, free from conflicts, and focused on optimizing client objectives. For additional information on this transaction, please contact Will Bloom, Managing Director and Head of Chartwell’s Capital Markets team. To learn more about Chartwell’s overall corporate finance capabilities, please contact Greg Fresh, Managing Director and Head of Chartwell’s Corporate Finance group.

SUNNYVALE, Calif. — The receivable management industry, comprised of companies who provide a wide array of fundamental financial services centered around the purchase, finance and/or collection on consumer and commercial related accounts receivables continues to be the cornerstone in the credit ecosystem, and a major influence behind credit availability to consumers, both in the U.S., Canada and abroad. The receivables management industry ensures that the overwhelming majority of U.S. consumers (and small businesses) who pay their respective outstanding debt(s) on time have access to credit at affordable interest rates.

Like every other industry, the receivables management industry is also undergoing wide-scale digitization of core operations, catalyzed by a fundamental shift in remote working (work from home operations), including collectors, during the COVID-19 pandemic.  This paradigm shift to remote workforces has forced companies to employ next-generation technologies, including Artificial Intelligence (“AI”) to help maximize the accuracy & effectiveness of compliance and quality assurance oversight, while also maximizing collection performance on client assets.  

Prodigal, a software company whose technology is pioneering collection intelligence, is excited to announce its partnership with the FFAM360 Alliance® of Companies (collectively “FFAM360”).  FFAM360 is a world-class organization that provides financial solutions that address all phases of the credit and revenue lifecycle. Recognized as an industry-leader, FFAM360 delivers comprehensive business process outsourcing, accounts receivable management, healthcare revenue cycle management, and receivables purchasing & specialty finance through their vast network of affiliated companies.

“We are very excited about the early-stage results of our engagement with Prodigal” said Paul Allen, Chief Operating Officer, at FFAM360.  Mr. Allen further stated, “The Prodigal technology has enabled us to quickly identify important compliance metrics, as well as drill down into operational strategy & productivity KPI’s, that when in combination, has significantly improved our feedback loop and agent training modules across our 3rd-party agency network.  Further, FFAM360 can now track and score every call across a number of parameters and compliance aspects within about 10% of the time it used to take, thus improving our productivity ten-fold.”

Prodigal helps automate auditing workflows for both captive collection operations and the network of third-party agencies across all stages of debt recovery.

Single, integrated view across the network of agencies: Monitoring the performance and compliance of multiple agencies is a daunting task. Prodigal provides valuable AI-powered tools to FFAM360 that help track the performance of internal collectors and various external agencies through a unified dashboard. Any compliance violation across the network is immediately flagged.

Benchmarking captive operations vs 3rd party network: Prodigal enables FFAM360 to effectively monitor and benchmark the performance of its captive collection operations versus the third-party agencies that it outsources. The overall performance of the portfolio held by FFAM360 has improved as benchmarking enables FFAM360 to improve agent training modules as well as share actionable insights with third-party collectors.

Standardized reporting & analytics: Prodigal facilitates FFAM360 to customize analytics dashboards and streamline reporting workflows through web UI. Such standardization further helps FFAM360 monitor agent performance and compliance violations across captive and network operations more effectively.

Faster quality review: Prodigal’s industry-leading compliance suite powered by advanced speech AI allows FFAM360 to monitor 100% of calls for compliance and assure quality across its vast operations in a highly automated fashion. The Quality management team at FFAM360 is now able to review calls 10x faster.  

In our personal lives, AI is everywhere, simply ask Alexa or Siri what’s on your calendar today. Debt buyers are increasingly looking for ways to leverage machine learning to increase overall recovery revenue. Enhanced agent productivity and reduced compliance cost can significantly boost profit margins.   

Forward-looking debt buyers are increasingly realizing the boundless potential AI harbors for debt collection processes. Speech AI is revolutionizing the debt collection industry with each passing day. Efficient and compliant communication with borrowers combined with automated workflows can meaningfully improve the profit margins for debt buyers.

AI-powered solutions can bring customers with a high propensity and ability to pay, back into the mainstream fold before they are lost while transforming how collections are handled, ultimately helping financial institutions to ensure collection compliance and create exponential value simultaneously.

Editor’s Note: This article, authored by Jacob Rheaume and Joseph Messer, originally appeared on the Messer Strickler, Ltd. Blog and is republished here with permission.

—

On Nov. 3, 2020, California voters approved Proposition 24, which enacted the California Privacy Rights Act of 2020 (CPRA). The CPRA will substantially expand the existing California Consumer Privacy Act (CCPA), which became effective in January of 2020. In addition to increasing the CCPA’s consumer privacy protection provisions, the CPRA establishes the California Privacy Protection Agency (the “Privacy Agency”). This first of its kind Privacy Agency will replace the California Attorney General as the chief enforcer of consumer privacy in California and will be vested with the full “power, authority, and jurisdiction to implement and enforce” the CCPA and CPRA.

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In addition, the CPRA, which will be incorporated into the CCPA, expands the types of liability businesses may face for privacy or information security violations. The CRPA will take effect on January 1, 2023, but will have a “look-back” period to January 1, 2022. Provisions related to the Privacy Agency and requirements to adopt new privacy regulations take effect immediately.

CPRA Amendments to CCPA

The CPRA contains amendments and modifications to the CCPA, such as extending enforcement exemptions, defining the term “consent,” and imposing additional privacy policy disclosures. Of note is the CPRA’s expansion of California resident privacy rights, new protections for “sensitive personal information” and the expansion of the CCPA’s private cause of action.

Expanded Consumer Privacy Rights

The CPRA creates the Right to Correct Inaccurate Personal Information. Specifically, the CPRA states that a “consumer shall have the right to request a business that maintains inaccurate personal Information about the consumer correct such inaccurate personal information …” This right is limited based on the nature and purpose of the processing of personal information.  

Sensitive Personal Information

The CPRA creates a new subcategory of personal information called “Sensitive Personal Information.” Identifiers that qualify as Sensitive Personal Information include:

·       Government-issued identifiers (e.g., social security number, driver’s license number, passport number);

·       Financial information (e.g., financial account information, credit/debit card information);

·       Precise geolocation information;

·       Biometric information and genetic information;

·       Racial or ethnic origin, religious or philosophical beliefs, or union membership;

·       Personal information collected and analyzed concerning a consumer’s health, sex life, or sexual orientation; and

·       The contents of a consumer’s mail, email, and text messages, unless the business is the intended recipient of the communication.

Businesses that receive Sensitive Personal Information will be subject to additional requirements, and consumers will have the affirmative right to limit the use of their Sensitive Personal Information.

Expansion of Private Right of Action for Data Breaches

The CPRA expands the CCPA’s private right of action related to data breaches to include the compromise of email addresses in combination with a password or security questions that could grant access to a user’s account.

As we all took our first pass at reading through the 653-page-long release of the Consumer Financial Protection Bureau’s (Bureau or CFPB) final debt collection rule, most of our eyes immediately went to sections that cause complexity in implementation and practicality. That’s a natural reaction for a businessperson trying to identify how to comply with a regulation as robust as this. However, it’s also important to take a step back and look at the rule as a whole. Doing so, it’s impossible to ignore the many things that the Bureau got right. Below is a list of just a few.

1. Safe harbors, but not restrictions

For a long time, the industry has been asking the Bureau to provide clear rules of the road on how to comply with the Fair Debt Collection Practices Act (FDCPA), especially in the light of the non-stop FDCPA litigation that debt collectors face in their day-to-day business. How is a debt collector suppose to email a consumer? What phrasing should be used to provide a specific disclosure? So on and so forth.

What the Bureau did with its final rule is, arguably, better than that: it provided instructions on how to obtain safe harbors but refrained from restricting compliance solely to what is outlined. In other words, the rule provides one way to comply and get a safe harbor, but leaves flexibility for debt collectors whose business might require something else. They’d lose the safe harbor, but that doesn’t mean it can’t be compliant.

Let’s take, for example, the email and text message provisions. One of the Bureau’s big concerns regarding these new electronic forms of communication is the risk of third-party disclosure, specifically in the context of text messages since mobile phone numbers are reassigned at an alarmingly high rate. The Bureau laid out several procedures which, if followed, would provide debt collectors safe harbor from third-party disclosure in the form of a bona fide error defense. 

However, the Bureau repeatedly states throughout the preamble of the final rule that the procedures they outlined are not the sole way to comply with the FDCPA:

• “Although the Bureau is not finalizing notice-and-opt-out or prior-use safe habor procedures for text messages, the Bureau notes that the final rule does not prohibit debt collectors from communicating with consumers by text message outside of the safe harbor.” (p. 205.)
• “To the extent a debt collector regards the limitations in § 1006.6(d)(4)(ii)(E) as overbroad—because, for example, it does not cover a debt collector who sends an email to an ‘.edu’ address—the Bureau reiterates that a debt collector may communicate by email without following the procedures in § 1006.6(d)(4)(ii). Such a debt collector would, however, lose the protection of the safe harbor (unless the debt collector’s use of the email address otherwise satisfies the requirements of § 1006.6(d)(3)).” (P. 200.)

What does this mean in plain English?

• If a debt collector follows the outlined procedures, then it gets what amounts to a de facto finding that its procedures are reasonable to prevent third-party disclosure for the purposes of the bona fide error defense. Meaning, the judge or jury cannot find that such procedures are unreasonable.
• A debt collector may deviate from the outlined procedures, but they would lose that de facto finding that its procedures were reasonable. Instead, if sued, the debt collector would have to prove that the procedures were reasonable and leave the decision in the hands of a judge or jury.

Guardrails if you want them, but not a prohibition on deviations that would have the same intended result.

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2. Handoff letter passing the account from the creditor to the debt collector

I’m a highly-educated person and, prior to joining the industry, it never occurred to me that anyone other than the bank could ever contact me about any of my accounts. So it’s understandable that consumers can get confused when this happens, especially when they are contacted by a company whose name they don’t know and a telephone number they don’t recognize. 

One great concept introduced in the final rules that will tremendously assist consumers—and the debt collectors who are trying to convince consumers that they are legitimate and not scammers—is the concept of the handoff letter. While this concept only applies to the use of an email address that the consumer provided to the creditor, it is one that will make the transition much simpler for consumers, something that the Consumer Relations Consortium has been advocating for a while.

In the context of the final rule, if a debt collector wants to take advantage of the safe harbor against third-party disclosure by sending an email to a consumer at an email address that the consumer provided to the creditor, one of the requirements to do so is that the creditor must have sent a handoff letter to the consumer at least 35 days prior to the debt collector using that email address. Among other things, the handoff letter must be sent by the creditor and must “clearly and conspicuously” disclose that the debt has or will be transferred to the debt collector.

The first thought on everybody’s mind is that, because this requires action on the part of the creditor, the industry is out of luck. I challenge this view, as creditors have the same goal as debt collectors: collect the right amount from the right person as efficiently as possible. If they can take steps that don’t overly burden them to help this process, they likely will.

While this method proposes to limit the risk of third-party disclosure, it does something more: it puts the consumer on notice that someone other than the creditor will be contacting him or her about the account, and it lists the name of the debt collector in question. That way, when the debt collector emails or otherwise tries to communicate with the consumer, the consumer will be more comfortable and less likely to think that the communication is spam or fraud. Considering the scorpion dance that occurs when debt collectors attempt to communicate with consumers—specifically, to ensure they are speaking to the correct person—the handoff letter will prove itself invaluable.

3. E-SIGN’s consumer-consent goes the way of the dodo, at least for validation notices

In the preamble of the final rule, the Bureau very clearly states in footnote 584:

FDCPA section 809(a) permits the validation notice information to be contained in the initial communication. In turn, FDCPA section 807(11) indicates that the initial communication with the consumer may be oral. Accordingly, the Bureau interprets the FDCPA as not requiring that the validation notice information be provided in writing when it is contained in the initial communication.

Then, in fn 585, the Bureau states:

The E-SIGN Act’s consumer-consent requirements apply only when a “statute, regulation, or other rule of law” requires that a disclosure be provided in writing. . . Because the Bureau has determined that the FDCPA does not require that the validation notice information be provided in writing when it is contained in the initial communication (see previous footnote) and the Bureau is not imposing such a requirement through Regulation F, the Bureau has also determined that the E-SIGN Act’s consumer-consent requirements do not apply to electronic delivery of the validation notice information when it is contained in the initial communication.

Despite the little conundrum that my colleague wrote about last week, these are very important footnotes. While it’s believed that the Bureau intended to imply this in the Notice of Proposed Rulemaking, it was not very clearly stated and led to some confusion for the industry. The Bureau has now done one better: they explicitly state that E-SIGN does not apply to the validation notice. 

While some debt collectors send a validation notice letter only after they have been able to reach the consumer by phone, many send the initial validation letter (soon-to-be email) immediately once the account is placed. Usually, this is due to non-negotiable creditor-client requirements. One of the benefits of sending emails—other than communicating with consumers through their preferred communication method—is that sending an email is much more cost-efficient than sending a physical letter. If the consumer-consent portion of E-SIGN applied to validation notices, it would have likely wiped out that efficiency and the adoption of email in the debt collection process and instead we’d be stuck with a New York-like requirement that, in practice, destroys the practicality of using email. The Bureau recognized this and decided to provide clarification to ensure a different result.

4. Consumer preference is king

The debt collection experience is, by its very nature, a downer—most people don’t set out to fall behind on their obligations. Anything that makes the debt collection experience smoother is better, and one such thing is communicating with a consumer through their preferred method. It’s more comfortable for the consumer, and it’s helpful for debt collectors because the consumer is not caught off guard and is likely in a better state of mind if they are contacted according to their preference. If one thing is clear throughout the final rule, it is that consumer preference is king. There are exceptions, of course. For example, while a consumer can request that a debt collector not use a specific method of communication to contact them, the debt collector is permitted to do so if required by applicable law. Whether it’s where, how, or when the consumer is contacted—or whether the consumer is contacted at all—the choice lies in the hand of the consumer to the highest extent practicably.

In the Notice of Proposed Rule-Making, the Consumer Financial Protection Bureau (CFPB or BCFP) appeared to be exploring providing “safe harbor” provisions for validation notices sent in the body of an email or electronic communication.

(Throughout this article, I’ll pause every now and again to define terms. You can skip the definitions if you don’t need them; however, this is a 600+ page document and some people are new to the industry.)

safe harbor: This is a provision of any statute or regulation that states that certain conduct/action will be deemed not to violate a given rule. If there is safe harbor language in a law, statute, or regulation, it means you cannot be succesfully sued on that activity.

validation notice: Outlines what the debt is, how much you owe and other information. This is going to get confusing, though, because the CFPB introduced a weird wrinkle that I’m getting to.

However, in its published Final Rule, the CFPB has decided not to “finalize the safe harbor for email delivery of the validation notice information within the initial communication.” (p 440.)

What does this mean?

Great question. It means that if you email a consumer their initial validation notice, you are not protected if that consumer files a Fair Debt Collection Practices Act (FDCPA) claim against you for violating 1692(g) of the FDCPA.

FDCPA & the CFPB: The CFPB is a regulatory body created by the Dodd–Frank Wall Street Reform and Consumer Protection Act. The CFPB oversees implementation of the FDCPA.

A lot of this has to do with how the Bureau has decided to view email and electronic communications. The Bureau gives priority to written and post-mailed communications from a debt collector because of something called the “common-law mailbox rule.” This comes from a United States Supreme Court decision in 1884: “The rule is well settled that if a letter properly directed is proved to have been either put into the post-office or delivered to the postman, it is presumed, from the known course of business in the post-office department, that it reached its destination at the regular time, and was received by the person to whom it was addressed.” (Cf Castillo v. State of Texas, for example.)

The Bureau does not believe that email has the same guarantee of delivery. And, in the Final Rule, it even makes explicit in a footnote (fn 579 on page 437) that “quantitative testing completed by the Bureau after publication of the proposal shows consumer preference for receiving validation notices through the mail and less consumer willingness to receive validation notices by email or text message.”

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What is protected then?

This is where things get…weird. And it’s why I asked you to open to page 438 of the Final Rule.

Page 438 contains a section called “Safe harbor for validation notices sent in the body of an electronic initial-communication.” It is not the rule itself, but describes the Bureau’s thinking and decision-making process.

Page 440 is where I, personally, started pulling my hair out.

1) “The Bureau has determined that the FDCPA does not require the validation notice information to be provided in writing when it is contained in the initial communication.”

Fine. If you are reading this the way I am reading this, it sounds like a validation notice can be “delivered” to a consumer over the phone if the initial communication with the consumer is a phone call. You would, of course, need to make sure that, when providing the validation notice orally, you cover all the points that would have been written in a letter.

But.

The FDCPA does require that “Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice.” (1692(g)(a))

And there we have my first confusion: Is the validation notice required to be mailed if it was delivered to the consumer in the first phone call? In the Final Rule, the CFPB seems to be saying — or, rather, literally writes — “the FDCPA does not require the validation notice information to be provided in writing when it is contained in the initial communication.”

2) “the initial communication with the consumer may be oral”

The Bureau, in its Final Rule, in a footnote on page 440 (fn 584), even says:

FDCPA section 809(a) permits the validation notice information to be contained in the initial communication. In turn, FDCPA section 807(11) indicates that the initial communication with the consumer may be oral. Accordingly, the Bureau interprets the FDCPA as not requiring that the validation notice information be provided in writing when it is contained in the initial communication.

So, if the initial communication is oral, and that oral commuincation delivers the validation notice, it would seem that a collector would not have to send a letter within the 5-day window in the FDCPA.

3) “validation notice information (whether or not contained in the initial communication) is a disclosure required by the FDCPA”

This takes us to 1006.42(a)(1) of the Final Rule:

A debt collector who sends disclosures required by the Act and this part in writing or electronically must do so in a manner that is reasonably expected to provide actual notice, and in a form that the consumer may keep and access later.

(p. 584.)

And if we look back on page 440, we read, “The Bureau also has determined that the validation notice information (whether or not contained in the initial communication) is a disclosure required by the FDCPA.”

And because the validation notice is a disclosure, the Bureau says this triggers 1006.42(a)(1), which requires that a disclosure be provided “in a form that the consumer may keep and access later.”

Which would seem to counter the Bureau’s position that the FDCPA allows for validation notices to be given orally, since an oral communication, by its nature, unless both parties record it, is not in a form a consumer could “keep and access later.”

What does provide a consumer a form that can be kept and accessed later is…an email. Which the Final Rule has decided not to afford safe harbor.

Hey, Mike: Does it get even more convoluted?

It sure does! I’m glad you asked.

Here is the Bureau’s reasoning for not affording safe harbor protections for email communications — besides the fact that consumer groups aren’t keen on it:

However, because email communications in general are not widely used in debt collection currently, the Bureau lacks evidence to show that a debt collector sending an email pursuant to the proposed safe harbor would have a reasonable expectation of actual notice to the consumer. The Bureau is thus declining to finalize the proposed safe harbor.

The reason the Bureau doesn’t have the data or evidence about email communication is because it has not easily allowed email communication. And because it hasn’t allowed it, it is tough to get the data. And because they don’t have the data, they don’t allow it. (What if I just kept writing this forever and ever and this is what Hell is for me?)

What do we do then?

Don’t email initial validation notices.

But we’re emailing validation notices

Then make sure the platform you’re using for emails has extensive analytics and alerts you when a consumer has not only opened the email, but clicked whatever they are supposed to click. If you don’t track this, then you can’t claim that you provided the written notice to the consumer within the 5-day window mandated by the FDCPA.

And yet, I’d still caution you on emailing validation notices under the New Rule, even if it’s allowed (however convolutedly), because of the 5-day provision on when a collection agency needs to mail a validation notice and when a consumer can reasonably expect to receive it. (Let’s also keep in mind that things are still not running as usual at the Post Office.) 

But you just spent quite a while telling us that we could do that orally?

There are a lot of things you can do orally. But the safest oral thing to do here is: not to deliver the validation notice orally and think you’re in the clear. Which is frustrating because the Bureau’s language is unclear, contradictory, and poorly reasoned.

Is there any good news?

The heat death of the universe might bring sweet relief to all of us.

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This article originally appeared in insideARM’s weekly newsletter, Compliance Weekly. If you’re not a subscriber to this free newsletter, you can do so here: Compliance Weekly Subscription

Editor’s Note: This article, authored by Christopher Willis and Stefanie Jackman of Ballard Spahr, previously appeared on Ballard Spahr’s CFPB Monitor and is re-published here with permission.

Part 1 of the CFPB’s final debt collection rule, which was released on October 30, applies only to “debt collectors” as defined by the FDCPA, as was the case with the proposed rule released in May 2019. Creditors were justifiably concerned about the impacts of the proposed rule on them, but how do they fare under the final rule?

First, let’s discuss creditors’ fears that the rule would be applied to them by the CFPB through the Bureau’s UDAAP authority. The CFPB has done a couple of things to reassure creditors in this regard. While the proposed rule relied on the Bureau’s UDAAP authority for certain provisions, the final rule does not – it is predicated solely on the FDCPA. The Bureau also noted that it “declines to expand the rule to apply to first-party debt collectors who are not FDCPA debt collectors,” and noted that “the Bureau did not solicit feedback on whether or how such provisions should apply to first-party debt collectors.” In addition, in discussing the call frequency restrictions in the final rule, the Bureau drew a distinction between creditors and FDCPA debt collectors:

The Bureau understands commenters’ concerns that conduct the Bureau deemed to be prohibited by the FDCPA and Dodd-Frank when undertaken by FDCPA debt collectors could be construed also to be prohibited when undertaken by other entities collecting debts, even if they are not FDCPA debt collectors.  In response to commenters’ concerns, the Bureau notes … that the FDCPA recognizes the special sensitivity of communications by FDCPA debt collectors relative to communications by creditors, and, therefore, the FDCPA provides protections for consumers receiving such communications from debt collectors but not creditors.

But the Bureau stopped well short of promising that it would never apply any aspect of the final rules to creditors, and indeed noted explicitly that it “declines to clarify whether any particular actions taken by a first-party debt collector who is not an FDCPA debt collector would constitute an unfair, deceptive or abusive practice under Dodd-Frank section 1031.” Elsewhere, the Bureau states that where it has identified conduct that violates the FDCPA, the Bureau does not take a position on whether such practices also would constitute an unfair, deceptive or abusive act or practice under section 1031 of the Dodd-Frank Act.”

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What’s more, the CFPB did not comment on (and really could not comment on) what states may choose to do in terms of incorporating elements of the final rule into state laws that apply to creditors. So where does this leave creditors?  Probably somewhat, but not completely, reassured. And still asking the question of what portions of the final rule, if any, they should adopt as a best practice to avoid UDAAP violations.

In addition to the prospect of some portions of the final rule being applied to their internal collection operations, the final rule also has important implications for how creditors interact with debt collection agencies. In particular, the rule provides a safe harbor method for allowing debt collectors to communicate with consumers via e-mail, but a creditor must send a notice to the consumers involved and give them a 35-day opt-out right before providing the email address to the debt collector. And in addition, the email addresses are only transferable (in terms of consent) to the debt collector if they are on a domain that is available to the general public. This means creditors may be required, by practical necessity, to run these notice-and-opt-out campaigns, and to scrub email addresses to identify domains that are generally available to the public, as opposed to others. Both of these will be new processes that creditors do not currently undertake.

Creditors and debt collectors together will also have to make decisions about whether to conduct activities that appear to be permitted by the final rule, but as to which there is no guidance or safe harbor. For example, the rule leaves open the possibility of the creditor transferring consent to text messaging from a creditor to debt collector, but does not provide a safe harbor mechanism for doing so. Likewise, the rule is silent about whether E-SIGN consent given to a creditor could be transferred to a debt collector. The CFPB noted in numerous places in the rulemaking release that debt collectors have the option of operating outside of the safe harbors in the final rule – e.g., “[a]lthough the Bureau is not finalizing notice-and-opt-out or prior-use safe harbor procedures for text messages, the Bureau notes that the final rule does not prohibit debt collectors from communicating with consumers by text message outside of the safe harbor.” It will be interesting to see if creditors and debt collectors are willing to take the risk of experimentation outside these safe harbors.

The CFPB is planning to release part 2 of the final rule in December, and this part will contain the new provisions relating to validation notices. The proposed rule would impose several obligations on creditors related to validation notices, such as providing itemizations of credits and charges after the “itemization date.” Stay tuned for our coverage of part 2 when it is released later this year.

Finally, of course, creditors will need to incorporate the elements of the final rule into their oversight of debt collectors, including ensuring that e-mails and text messages are sent only at convenient times; monitoring to see if mini-Miranda warnings are given in every language in which a debt collection communication occurs; monitoring call frequency under the presumptive limits in the final rule; and monitoring for the potential for harassment from aggregated contact attempts across all communication channels.

So, although the final rule applies unambiguously only to FDCPA debt collectors, there are significant implications for creditors, both in terms of their internal collection operations and with respect to their relationships with debt collectors. The one-year compliance period for the final rule should be a period of intense effort by creditors to be prepared to handle these impacts.