The Puzzle Box That is the Validation Notice Provision in the CFPB's New Rules

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