Debt Validation and Dispute Handling in Debt Collection: What You Need to Know Part Two

The first part of this series discussed the CFPB’s recent proposal requiring debt collectors “substantiate” or possess a reasonable basis for claims that a particular consumer owes a particular debt at different phases of the collection cycle. Part two will focus on the section of the proposal requiring the sharing of pertinent account information and the new validation notice and disclosure requirements.

  1. Point #1 on substantiation was included in part one.
  2. Information Transfer: The CFPB is considering mandating the sharing of certain information between collection agencies working in different placement tiers. The proposal details certain information that, if known, must be transferred. The information required to be transferred can be broadly categorized as information affecting a collector’s obligations to comply with the FDCPA or other federal laws. This information is generally collected by the prior collection agency during the course of collection activity. For example, information regarding a consumer’s previous dispute, prior consumer notifications of an inconvenient time or place and information pertaining to attorney representation will be required to be disclosed between debt collectors. Debt collectors may also be required to disclose certain information received after a debt is recalled.
  3. Validation Notice and Statement of Rights: The CFPB is considering requiring the inclusion of a substantial amount of account level information in the initial notice as well as an action-item “tear-off” to facilitate exercise of dispute and original creditor information rights. To simplify compliance, the CFPB will likely issue a model initial notice form. The proposal would require debt collectors to provide consumers with a one-page statement of rights document. Additionally, debt collectors would be required to offer consumers an additional copy of the Statement of Rights in the first communication made more than 180 days after the consumer received the validation notice and first copy of the Statement of Rights.

a. Non-English Language Requirements: The CFPB is considering two alternative proposals: (1) a debt collector would be required to send a translated version if the initial communication with the consumer took place in a language other than English or the debt collector received information from the creditor or prior collector that the consumer prefers to communicate in a language other than English; and the CFPB has published in the Federal Register versions of the validation notice and Statement of Rights in the relevant language OR (2) debt collectors would be required to include a Spanish translation on the reverse of every validation notice and Statement of Rights.

b. Credit Reporting: Credit reporting could not occur unless the debt collector has first sent a validation notice.

It is clear the CFPB has serious concerns regarding the quality and quality of information debt collectors possess when conducting collection activity. It is equally apparent the CFPB is frustrated with the communication gaps inherent in a multi-tier placement system. This is understandable given consumers may find themselves disputing accounts multiple times, seeing collection tradelines disappear and reappear on their credit reports, sending multiple cease and desist request or informing multiple debt collectors of a wrong number, attorney representation or inconvenient time or place.  These requirements will require creditors and debt collectors to work collaboratively to ensure sufficient information is transferred to support presumption of indebtedness necessary to initiate collection activity and remain compliant with applicable law given the circumstances of the account. This collaboration may take many forms. Additional programming efforts will likely be necessary at both the creditor and debt collector levels. Creditors may grant their debt collection vendors access to their internal systems to ensure access to the most current information. Creditors may also extend placement periods to minimize the expense and security risks inherent with transferring information between entities. Finally, training and execution on the front line will be very important as the proper identification of disputes or other account circumstances will set the tone for all future collection efforts on an account.

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