Some First Thoughts About the CFPB’s Validation Proposal

Comment are off

By Jeff Sovern, St. John’s University School of Law

Brian posted this morning on the CFPB’s debt collection proposal.  I wanted to focus just on the validation requirements.  Appendix F to the Bureau’s proposal speaks to the validation notice.  The Proposal indicates that the Bureau has conducted and continues to conduct extensive consumer testing of validation notices.  I don’t know what that testing showed, but it appears the model form in the proposal is the product of such testing.  Without knowing what that testing indicated, it’s hard to be certain, but the model form certainly seems dramatically easier to read and understand than, for example, the dunning letter we tested in our study, which was based on a letter in a Seventh Circuit case.   I also should note that I don’t know much about how much latitude the Bureau has in promulgating FDCPA regulations. With the understanding that some of what I would like to be done may exceed the Bureau’s authority (and so require an amendment to the statute), here are some comments:

Overall, the Bureau’s model form seems like a huge improvement over where things stand now.  That being said, it isn’t perfect. The Bureau’s model form indicates that the Bureau is considering requiring a “tear-off’ at the bottom which consumers could remove, fill out, and return to the collector to request verification and indicate the nature of the dispute.  This would certainly be much better than the current system, which requires consumers either to create their own form or find one elsewhere, such as on the web. But many people find it more convenient to communicate via telephone call, email, or the web.  In other contexts in which consumers have had to send mailings to obtain a benefit—such as to secure rebates—they often don’t bother and forego the rebate.  Consumers redeem rebates at rates of as low as 4%, and while rebates are different from debt collection, that’s not the only case in which consumers don’t bother filling out forms to obtain a benefit.  Accordingly, the Bureau should consider alternative ways for consumers to communicate verification requests if the statute can properly be so interpreted. If that’s not possible, because it exceeds the Bureau’s authority, Congress should amend the statute.

Another concern: our study found that a non-trivial number of consumes believed that if they didn’t dispute the debt within the thirty day time frame, they would either have to pay the debt or would lose their ability to defend against a suit to collect the debt, even as to debts they didn’t owe. The Bureau should consider adding language to the model form that indicates that a failure to dispute the debt within thirty days would not have that effect. The model form now says “If we do not hear from you, we will assume that our information is correct,” but I wonder if consumers will interpret that as meaning that they can still contest payment. Maybe the consumer testing will offer reassurance on that score.

The Bureau also wants collectors to give consumers a one-page statement about their rights.  A great idea, but I wonder about information overload. Probably the Bureau tested for that in the consumer testing, but if they didn’t, I hope they will.  In that regard, I also hope that if their discretion permits, they limit the amount of extraneous statements collectors can make (like saying we haven’t made up our mind whether to sue and this could result in a judgment against you, etc.) when giving the validation notice.

In the past, when the Bureau has tested disclosures, they have examined whether consumers can understand them, but not whether consumers would actually use them. That is to say, they show them to consumers and ask questions to see if consumers get the right answers, but they don’t verify, for example,  that consumers who are being dunned by a debt collector would take the time to read them and act on them.  That latter is much harder to test, but if the disclosures are perfect, they still don’t do any good unless consumers use them. We need to find ways to convey information so that consumers use it, not just give them perfect disclosures that they ignore.  So I hope they tested the extent to which consumers would use the forms. How many consumers who think they don’t owe the debt will actually use the tear-off?  I don’t know, but I hope the Bureau does.

Just my two cents.  Our article has more.

Originally posted here.

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