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Getting Ready for Regulation F

This piece originally appeared in the November 2021 edition of DS Newsavailable here.

As if servicers did not already have enough on their plates—think the Consumer Financial Protection Bureau’s (CFPB) final servicing rules, new loss mitigation mandates from FHA and VA, as well as ongoing state-specific pandemic moratoriums—beginning November 30, they will have to be ready for a new federal debt collection rule known as Regulation F.

The CFPB had initially proposed delaying Regulation F—the final Fair Debt Collection Practices Act (FDCPA) rule—until the end of January, but then backtracked and decided to stick with the original effective date of November 30. While the new rule focuses primarily on unsecured consumer debt and third-party debt collectors, it also applies to residential mortgages servicers in certain situations. And, as always, there are state-specific debt collection requirements that servicers need to be aware of as well.

Specifically, the final version of Regulation F:

  • Limits the number of calls a debt collector can make to a consumer regarding the debt
  • Provides a regulatory framework for communicating with consumers via voicemail, email, text, or social media
  • Clarifies the information that a debt collector must provide to a consumer at the outset of debt collection communications
  • Addresses consumer protection concerns related to passive collections
  • Addresses the collection of debt that is beyond the statute of limitations

The new rule specifies how third-party debt collectors should provide information about the debt and protections available to consumers and provides a model validation of debt notice. It also provides guidance for debt collectors when consumers dispute a debt or request information about the original creditor.

Residential mortgage servicers, in many cases, are not considered third-party collectors and are, therefore, not subject to most of the FDCPA or Regulation F. There is one major exception, however, and that is in the case of mortgage servicers that have acquired loans already in default. These loans are subject to the FDCPA, so servicers will need to adhere to the FDCPA and Regulation F’s new requirements.

In the past, most servicers have treated newly acquired loans—whether in default or not—as if they were subject to the old FDCPA and did not try to segregate loans in default. Under the new rule, this practice may change. Some servicers, for example, are adding “flags” in their systems to indicate whether the FDCPA applies, because some of the procedures in the new rule could unnecessarily slow the collection process for loans in default or conflict with other state or federal legal requirements.

Regulation F also comes with a new translation requirement that requires the mini-Miranda disclosure to be provided “in the same language or languages used for the rest of the communication” with a consumer. This means that collectors will need to include a translated version of the mini-Miranda if some or all of the communication is in a language other than English.

State and Local Versions
While most state debt collection statutes follow the FDCPA and do not apply to creditors engaged in first-party collections, a substantial minority of states include first-party creditors within the definition of debt collectors. California, Maryland, Texas, and Vermont all fall into this category.

Some of these states include creditors within the definition of debt collectors, but then exempt creditors from many of the statutory requirements applicable to debt collectors, such as licensing requirements. Texas and New York City, for example, have different regulatory requirements for first- and third-party debt collectors.

Other states do not include creditors within their debt collection statutes but have additional laws that specifically regulate the conduct of creditors. For example, in Connecticut, a “consumer collection agency” is “a person engaged as a third-party in the business of collecting or receiving payment for others on any account, bill, or other indebtedness from a consumer debtor.”

In addition to different applicability, several states have different versions of mini-Miranda disclosures that servicers must use.

Over the past few months, servicers have been working to absorb and adjust to a number of new rules and requirements, including significant loss mitigation mandates released in late July from various federal agencies; the CFPB’s new COVID-19 servicing rules effective at the end of August; and ongoing federal, state, and local pandemic relief efforts. The new FDCPA rule and related state requirements add to the growing compliance to-do list, and they could not have come at a busier time.

About Author: Jennifer Keys

Jennifer Keys is SVP of Compliance Solutions at Covius and oversees the compliance line of business that supports Covius’ origination, servicing, and capital market solutions. Keys has over 19 years’ experience in the mortgage industry, supporting both origination and servicing operations. She has led both on- and offshore teams responsible for maintaining compliance programs for several large servicers and nationwide service providers, working with regulatory entities including the OCC and CFPB. Keys is based in Dallas.
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