It’s official! We have our first-ever federal court opinion evaluating the requirements of Regulation F! Okay, maybe “evaluating” isn’t the right word. “Reading Regulation F out loud” is more like it.
- The Question: Does Regulation F require debt collectors to use the CFPB’s model validation notice (“MVN”) to comply with the FDCPA?
- The Court’s Answer: “[I]t clearly does not.”
The court explained:
The CFPB provides a model form along with Regulation F. See id. § 1006.34(d)(2). Use of the model form is a safe harbor; if used, a debt collector complies with the information and form requirements of Regulation F. Id. § 1006.34(d)(2)(i)….The phrase ‘safe harbor’ indicates that use of the form is sufficient but not necessary for compliance. See 12 C.F.R. § 1006.34(d)(2). A debt collector may comply by using a different form so long as the required information is provided in a clear and conspicuous manner. Id. § 1006.34(d)(1).
You can read the case here: Collectional Professionals, Inc. v. McDonough District Hospital. The ending may be predictable but the story is a little surprising.
First surprise: This is not your standard consumer v. collector case. This story is about a debt collector and a client who had been working together since 2007. In 2021, the debt collector, Collectional Professionals, Inc. (“CPI”), was working with its letter vendor to implement a new letter template based on the CFPB’s MVN. They had hoped to have it ready before Regulation F took effect on November 30, 2021. Sadly, it was not meant to be. So, CPI told its client, McDonough District Hospital (the “Hospital”), about its efforts and reassured them that, in the meantime, they could keep using their own version of the letter which was compliant. The Hospital disagreed, telling CPI that “failure to use the safe-harbor model amounted to a violation of Regulation F and the FDCPA.” The Hospital claimed CPI was in breach of contract and demanded they immediately cease all activity on their account.
Second surprise: Both parties obtained opinion letters from their attorneys who came to opposite conclusions about whether the MVN was optional or required. To end the dispute, CPI filed in state court seeking “a declaration that its initial contact letter complies with Regulation F.” The Hospital removed it to federal court, arguing the state breach of contract claim depended on a question of federal law. CPI asked the federal court to remand it back to state court, which they ultimately did. But not before taking one last jab:
[W]hile resolution of this dispute is important to these parties, it would not be important to the federal system as a whole. Having found that the federal issue in the claim is not substantial enough to warrant exercise of federal jurisdiction over a state law claim, the Court finds that it has no subject matter jurisdiction over this case.
Here’s the takeaway:
- Regulation F’s model validation notice (“MVN”) is optional, not required. But using it (or something like it) gives you a safe harbor, so it’s highly recommended.
- All of this could have been avoided with a little careful reading. Don’t believe me? Read these excerpts and decide for yourself:
- “Safe harbor…A debt collector who uses Model Form B–1 complies with the information and form requirements…A debt collector who uses Model Form B–1…may make changes to the form and retain a safe harbor for compliance with the information and form requirements…provided that the form remains substantially similar to Model Form B–1.” See CFPB, Regulation F Final Rule, 12 C.F.R. § 1006.34(d)(2) (Dec. 18, 2020).
- “[A]s discussed in the section-by-section analysis of § 1006.34(d)(2), the Bureau is adopting a more flexible framework in which debt collectors need not use either the model validation notice, specified variations of the model notice, or a substantially similar form, but debt collectors who do so will receive a safe harbor for compliance with the information and form requirements of § 1006.34(c) and (d)(1).” See CFPB, Regulation F Final Rule, Section-by-Section Analysis at pg. 198 (Dec. 18, 2020).
- “[A] debt collector may comply with the requirements in § 1006.34(c) and (d)(1) without using the model validation notice.” See CFPB, Regulation F Final Rule, Section-by-Section Analysis at pg. 205 (Dec. 18, 2020).
- “Is use of the model validation notice required? No. The Debt Collection Rule does not require a debt collector to use the model validation notice provided in Appendix B of the Rule. Instead, the Rule requires compliance with the validation information content and format requirements in Regulation F…The model validation notice provides one way to comply with those requirements. There are other ways to comply with the Rule’s validation information content and format requirements…However, if a debt collector makes changes to the content or format of the model validation notice such that the notice is not substantially similar to the model validation notice, the debt collector generally will not obtain the Rule’s safe harbor for the validation information content and format requirements. 12 CFR § 1006.34(d)(2); see also 12 CFR § 1006.34(c) and 34(d)(1).” See CFPB, Debt Collection Rule FAQs: Validation Information FAQ #3 (Oct. 29, 2021).