Without Creditor Cooperation, Debt Collectors Cannot Safely Work Accounts After November 29th

Creditors: did that headline grab your attention? Hopefully it did, since this article is speaking directly to you and was meant to bring light to a significant issue regarding Reg F preparedness. If this issue is not corrected by creditors, debt buyers, and anyone else placing consumer accounts for collections, it will disturb current collections practices and prevent accounts from being worked after November 29, 2021.

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Here’s the issue: Once Reg F goes into effect on November 30, 2021, in order for agencies to safely collect debt (and protect their clients), creditors must take certain action and provide specific information regarding the debt. Debt collectors cannot take these actions, do not have this information, and cannot generate it; it can only come from the creditor.  Despite these requirements and the fast-approaching effective date of Reg F, we have heard from too many sources to count that creditors have not committed to taking these actions or providing the required information. 

To be clear: if creditors do not engage with their agencies and do not listen to the agency’s needs, collection efforts may come to a screeching halt on November 29, 2021. 

What information do creditors need to provide?

While several pieces of Reg F require actions from creditors, the most significant information gap we see right now pertains to the Itemization Dates needed for an agency to use Reg F’s Model Validation Notice. The Model Validation Notice must include an Itemization date which can be one of five different dates. There are no substitutions and no exceptions; it is one of these five dates, and these five dates only:

1. The Last Statement Date – The date of the last periodic statement, written account statement, or invoice provided to the consumer by the creditor or their service provider. Note: a statement generated by a previous debt collector is insufficient.

2. Charge Off Date – The date the debt was charged off (written off the books as a loss or “uncollectable” debt). Note: It is a fixed date that never changes. It is NOT the same as the placement date which would change every time the debt is placed with a new agency.
   

3. Last Payment Date – The date the last payment was applied to the debt. Note: this can be a payment made by a 3^rd party such as an insurance company, repo agent, or a previous debt collector.
   

4. Transaction Date – The date the loan originated or the date the good or service giving rise to the debt was provided or made available to the consumer.

5. Judgment Date – The date of the final court judgment, which determines the amount of the debt owed by the consumer.

     In addition to the above dates, creditors need to provide:

1. The name of the creditor to whom the debt was owed on the itemization date.

2. The amount of the debt on the itemization date.

3. The amount of any fees, charges, interest, credits, payments, refunds, or adjustments applied after the itemization date; some of these must be listed in separate buckets; your agency should have already told you which need to be separated. Note: the debt itemization should add up to the current balance on the account.
   

What if another agency says they do not need an itemization date, or you can use a different date?

Simply put, any agency which says they do not need one of the above five dates is wrong.

It is true that the Model Validation Notice is a “safe harbor” under Reg F, and Reg F does not say “use this or else be subject to the wrath of the CFPB.” However, the CFPB’s intent in creating the Model Validation Notice is clear: it was designed to reduce consumer confusion. The CFPB has explicitly stated that the itemization date is intended to be a date that a consumer will recognize. Although the CFPB does not regulate creditors, in light of that explicitly stated purpose, it is not out of the ballpark to assume that failing to provide this information to debt collectors may be seen as an unfair practice to consumers, creating other regulatory exposure.

Additionally, we can - and should - expect an avalanche of litigation around Reg F coming from consumer attorneys. One of the easiest places for consumer attorneys to generate money is going to be looking for inaccuracies in the Model Validation Notice. It’s easy. It either matches the model form the CFPB put out or it doesn’t, and letter issues make nice class-action suits. Any agency that chooses not to comply with the Model Validation Notice is engaging in extremely risky business. Creditors are not immune from the risks an agency takes by failing to follow the model form; creditors will feel the impact through lawsuits, enforcement actions, or simply brand degradation.

What happens if a creditor can’t or won’t provide this information to its agencies?

Without this information from creditors, agencies cannot use Reg F’s Model Validation Notice. This will leave them two choices: (1) continue to collect without complying, creating regulatory exposure, branding problems for the creditor, and an abundance of lawsuits filed against both agencies and creditors (and hefty legal bills for both); or (2) stop collecting on November 30^th when Reg F goes into effect.

What does a Creditor need to do to ensure its accounts will continue to be collected on and after November 30, 2021?

To limit or eliminate significant downtime in collections, creditors must immediately do the following:

1. Refer back to the emails and other information sent to you by your agencies. See what your agency has told you they need from you to comply with Reg F. Call and ask questions if you have any.
   

2. Look at your systems, see which itemization date(s) it can provide, confirm your system can convey the accurate balance on that date, and any interest, fees, credits, or adjustments that occurred after that date.
   

3. Talk to your agency about the itemization dates your system can provide and discuss which date will be best with your agency.
   

4. Look at the other information or actions your agency has told you they need you to provide and start providing it.
   

5. If you have questions or something isn’t clear, engage with your agencies and create an expeditious plan of action to give your agencies what they need so they can continue to collect your accounts. 

Reg F is the biggest change to the ARM industry in over 40 years. The industry has fifty days left to get ready. If those involved prioritize, focus, work with each other, and make decisions, compliance is achievable and downtime can be avoided.