Regulation F, 12 CFR part 1006 (Reg F), implements the Fair Debt Collection Practices Act (FDCPA) and has, until recently, largely been devoid of guidance to lenders and debt collectors in their efforts—especially when utilizing newer methods of communication. No longer -- the Consumer Financial Protection Bureau (CFPB) is in the eleventh hour of rolling out a comprehensive set of provisions to the new-and-improved Reg F, which is set to become effective November 30, 2021 (though the CFPB has, as of the publication of this article, proposed pushing it back 60 days to January 29, 2022).
As it stands in its nearly-final form, Reg F is certain to significantly alter best practices for both originating and collecting loans. The new Reg F’s most notable changes will offer guidelines for modern modes of communication, namely text message and email communications with a borrower, and, provide a safe harbor for inadvertent prohibited third-party disclosures.
- A Shift to Newer Communication Methods
In the past, debt collectors have avoided the use of email and text message communications because of legal uncertainty amidst statutory silence. In the new Reg F, the CFPB seeks to provide clarity to debt collectors when utilizing these newer communication methods. At the same time, Reg F limits the number of phone calls a debt collector may place to a consumer. Therefore, we may see debt collectors shifting away from traditional methods (calling) to newer methods of communication (emails and text messages) in their debt collection efforts.
Reg F clarifies the definition of “harassing, oppressive, or abusive” telephone communications to include placing a call to a consumer either: (1) more than seven times within seven consecutive days; and (2) within a period of seven consecutive days after having had a telephone conversation with the consumer in connection with collection of a debt (including the date of the conversation as day “1”).[i]
Additionally, we may see lenders getting more involved in protecting down-the-line debt collectors at the origination phase. Reg F provides broad categories of safe harbors for debt collectors having made an inadvertent prohibited third-party disclosure. Importantly, this safe harbor can be based on prior “reasonable procedures” by the debt collector or the lender. This will almost certainly give rise to a new demand in the debt market for (and with a premium upon) loans that come with the safe harbor protections prepackaged.
- Safe Harbor for Inadvertent Third-Party Disclosures
The FDCPA generally prohibits third-party disclosures of debt collections to non-debtors.[ii] Reg F, as written, will provide a safe harbor from liability for such disclosures over email or text message if it is determined, after the disclosure, that the debt collector or, in some cases, the lender followed certain “reasonable procedures” to avoid inadvertent disclosures before they happen.[iii]
For email communications, the safe harbor can be based on past acts (reasonable procedures) by the lender if: (1) the lender obtained the email address from the consumer; (2) the lender used the email address to communicate with the consumer “about the account” (i.e., not general solicitations) or the consumer consented to use of the email address; (3) the consumer did not opt out; (4) the lender sent the consumer a written or electronic notice that “clearly and conspicuously” made certain disclosures before the debt collector used the email address (such as that the debt will be transferred to a debt collector); (5) the lender provided a “reasonable and simple” opt-out procedure; and (6) the consumer was given 35 days to opt out.
The CFPB’s Official Interpretation of Reg F provides that prior communications by the lender “about the account” may include, for example, required disclosures, bills, invoices, periodic statements, payment reminders, and payment confirmations but does not include, for example, marketing or advertising materials unrelated to the consumer’s account.
If the lender has not met all of the procedures listed in Reg F, then the debt collector’s reliance on the safe harbor must be based on its own “reasonable procedures,” which means the debt collector must have “received directly from the consumer” prior consent to use the email address to communicate with the consumer about the debt.
Unlike safe harbor for email communications, the safe harbor for text message communications cannot be based on prior acts by the lender, but only the debt collector’s own “reasonable procedures.” A debt collector utilizes reasonable procedures in text message communications if the consumer consents, or, if the debt collector confirms that the telephone number belongs to the consumer and has not been reassigned. Reg F provides certain procedures for confirming a consumer’s telephone number, such as receiving a text message from the consumer, or searching a complete and accurate database of telephone numbers.
The Official Interpretation also provides that “prior consent” to communications may be obtained when a consumer provides an email address or phone number to a lender or debt collector, including by registering on the lender’s or debt collector’s website if the website discloses clearly and conspicuously that the lender or debt collector may use the email address or phone number to communicate with the consumer about the debt. Under this standard, lenders should consider obtaining prior consent in the loan origination documents.
Finally, all electronic communications must be accompanied by a “clear and conspicuous statement” describing “reasonable and simple” opt-out procedures. The CFPB’s Official Interpretation provides samples of reasonable and simple opt-out procedures, such as a link in an email address or responding “STOP” to a text message. The Official Interpretation likewise provides, by way of example, unreasonable opt-out procedures, such as requiring opt-out by postal mail, telephone, or visiting a website without providing a link.
- Limited Content Messages
As a threshold matter, the FDCPA generally only regulates “communications,” defined in Reg F as the “conveying of information regarding a debt directly or indirectly to any person through any medium.” Limited content messages are excluded from this definition.[iv]
A limited content message is a voicemail message that must contain: (1) a business name for the debt collector that does not indicate that it is a debt collector or engaged in the collection of debt (e.g. not “Debt Collectors Inc.” or John Smith with the “credit card receivables group”); (2) a request that the consumer reply; (3) the name of one or more natural persons whom the consumer may contact; and (4) a telephone number that the consumer can use to reply. A limited content message may, but is not required to contain: (1) a salutation; (2) a date and time of the limited content message; (3) a preferred date and time for the consumer to reply; and/or (4) a statement that if the consumer replies, the consumer may speak to any of the company’s representatives or associates.[v]
Reg F is shaping up to provide some clarity and guidance as to how lenders and debt collectors can, by instituting reasonable procedures to avoid the inadvertent disclosure of debt collection efforts to third-parties, avail themselves of the safe harbor provision of 12 CFR 1006.6(d). It is also important for lenders to take note as they will likely see a quick demand from the debt market for debt that comes with the safe-harbor protections prepackaged. And this issue is likely to be of increasing importance as the new CFPB indicates plans to hold lenders and debt collectors more accountable than we have seen in the recent past.
Reg F is not a panacea for all questions FDCPA, however, and lenders and debt collectors will still be left relying on counsel to guide them through ad hoc and court-made definitions and tests for when communications are “in connection with the collection of a debt,” or when a message is “false, deceptive, or misleading.”[vi]
[i] 12 CFR part 1006.14(a)(2).
[ii] 15 U.S.C. § 805(b).
[iii] 12 CFR part 1006.6(d).
[iv] 12 CFR part 1006.2(d).
[v] 12 CFR part 1006.2(j).
[vi] Please keep in mind that Reg. F has not yet become effective as of the publication of this Article.