The new compliance guidance accompanied the bureau’s release of new FAQs about required “validation information” disclosures under the rule.
In preparation for the upcoming Nov. 30 effective date of the debt collection rule, the Consumer Financial Protection Bureau released two new “compliance aids” to assist the accounts receivable management industry with providing validation information—including itemization of debt.
Members should note that both of these compliance aids were expressly released in accordance with the bureau’s Policy Statement on Compliance Aids, which states as follows:
“The bureau does not intend to use Compliance Aids to make decisions that bind regulated entities,” but rather to “present the requirements of existing rules and statutes in a manner that is useful for compliance professionals, other industry stakeholders, and the public.” Compliance aids “may not address all situations,” and entities may make their own business decisions regarding compliance, including via methods “not specifically addressed in a Compliance Aid. In sum, regulated entities are not required to comply with the Compliance Aids themselves. Regulated entities are only required to comply with the underlying rules and statutes.”
One of the new compliance aids that the bureau released, the “Debt Collection Rule: Disclosing the Model Validation Notice Itemization Table,” includes a discussion of the itemization table and permitted itemization dates, as well as examples of itemization tables that would comply with form requirements needed to preserve safe harbor for a debt collector using the model validation notice (MVN).
“Specifically, the rule requires debt collectors to include on the validation notice both the current amount of the debt and certain information about the debt as of a particular date called the ‘itemization date,’” the bureau states in the new compliance aid. “Most of this required information appears on the model validation notice in a tabular format.”
The bureau’s MVN itemization compliance aid provides an overview of the validation information contained in the table that appears on the MVN, which the bureau refers to as the “itemization table.” Additionally, it illustrates the steps that a debt collector may take to complete the itemization table, as well as examples showing how a debt collector might complete the Itemization Table for different types of debts, including credit card debt, medical debt and multiple debts.
According to the compliance aid, a debt collector using the MVN may—but is not required to—present the itemization table through the following four steps:
1. Select the itemization date.
2. Determine the amount of the debt as of the itemization date.
3. Determine the itemized amounts since the itemization date.
4. Determine the current amount of the debt.
Significantly, the compliance aid makes clear that where a component of a debt has accrued after the itemization date but does not fall into the categories of “interest,” “fees,” or “payments and credits,” a debt collector does not need to itemize that component of the debt.
The bureau provides an example to illustrate this idea in which the sum of the individual line items in the Itemization Table does not equal the “total amount of the debt now” that appears in the last line of the Itemization Table
See Example 1 beginning on page 12 and the conclusion of that example on page 15, which states: “Because of the circumstances … the debt collector did not include in the amount of the debt, as of the itemization date, a charge that the consumer had contested with the original creditor, which the original creditor verified after the itemization date (here, the charge off date). Note, however, that while the debt collector did not include that amount in the Itemized Amounts, the debt collector did include the amount in the current amount of the debt.”
In this example, the line items in the itemization table do not equal the “total amount of the debt now” that appears in the last line of the itemization table.
The bureau makes clear on page 10 that “[t]here may be circumstances in which an amount cannot be accurately categorized as interest or a fee, payment, or credit. In such a case, a debt collector who accurately itemizes only the interest, fees, payments, and credits complies with the Rule even if there are amounts included in the ‘current amount of the debt’ disclosure (Step 4) that are not included in the itemization of the debt.” (Emphasis added.)
The compliance aid does note, however, that a debt collector may choose “to add a field to the itemization for amounts that cannot accurately be characterized as an Itemized Amount, as long as the amount is accurately described and not combined with the Itemized Amounts.” But if that modified validation notice “is not substantially similar to the model validation notice, then the safe harbor does not apply with respect to the entirety of the validation notice.” See note 10 on pages 10-11.
By the same token, Reg F “does not require that the amount of the debt as of the itemization date, plus or minus the Itemized Amounts, equal the ‘current amount of the debt,’ even if the debt collector uses the itemization table.
The compliance aid also makes clear that Reg F “does not define interest, fees, payments, or credits for purposes of defining the Itemized Amounts.”
As a refresher, here are some highlights of Reg F’s validation information requirements and MVN:
- The CFPB’s final debt collection rule imposes new requirements for validation notices, which will be codified at 12 C.F.R. 1006.34.
- The final rule provides, in Section 1006.34(d)(2), a safe harbor for debt collectors who use the MVN, which will be codified at 12 C.F.R. 1006 Appendix B, Model Form B-1 (“Model Form for Validation Notice”).
- Debt Collectors who use the MVN or a “substantially similar form” as permitted by Section 1006.34(D)(2)(iii) will fall within the protections of the safe harbor, although the contours of the “substantially similar” standard will likely be subject to litigation for those who choose to make changes to the model validation notice not expressly discussed in the final rule.
The “substantially similar” standard as discussed in the rule (including at Comment 34(d)(2)(iii)-1 permits changes to the MVN “provided the form remains substantially similar in substance, clarity, and meaningful sequence.” (Emphasis added.)
The new compliance aid includes a few other notes related to debt collectors’ use of the MVN and the itemization table disclosures:
- Because Reg F does not require collectors to use the MVN, a debt collector may provide the validation information using a form that is not substantially similar to the MVN, so long as it otherwise complies with the requirements of the Act and Reg F.
- A custom validation notice designed by a debt collector (i.e., a non-MVN validation notice) must nevertheless provide all the validation information required by Reg F at Section 1006.34(c), but a debt collector who uses such a notice does not receive a safe harbor for the “information and form” requirements of Section 1006.34(c) (referred to in the compliance aid as the “content and format” requirements of the MVN).
- Because the compliance aid assumes use of the MVN, it assumes that the itemization will be disclosed in the tabular format set forth on the MVN. In the new compliance aid, the bureau refers to this table as the “Itemization Table.”
- The concepts discussed in the compliance aid will apply more generally, e.g., for debt collectors using a similar itemization table even if not using the MVN.
Model Validation Notice Translation and FAQs
In addition to the validation notice guidance, the bureau also recently released a Spanish translation of the model validation notice.
The bureau has also added a new section to the Debt Collection Rule Frequently Asked Questions (FAQs). The new FAQs address frequent questions on, among other things, use of the model validation notice and the validation information special rule for certain residential mortgage debts.
The Spanish translation, FAQs and Itemization Table documents are available on the CFPB’s website here.