Collection letters have been a pain point for many agencies in recent years due to the constant change and new regulations. The FDCPA and multiple states have individual requirements that must be followed in order to remain compliant. Failure to comply can result in negative audit findings, fines and lawsuits. Most recently the New York State Department of Financial Services (NYSDFS) released a compilation of codes, rules and regulations including initial statute of limitations and substantiation disclosures, itemization, payment schedules, quarterly statements and email restrictions. Case law suggests that agencies itemize the initial letter to avoid unfair practices. It is recommended or in some cases required to have a collection attorney review your written correspondence annually for risk assessment. Below are a few suggestions:
1. The text of each letter should be in black ink and not less than 11 point font size.
2. The mini-miranda should be stated verbatim on all letters: “This communication is an attempt to collect a debt by a debt collector. Any information obtained will be used for that purpose.”
3. The consumer name and address should be the only thing visible through the window envelope.
4. Settlement offer letters should state the following language after the offer, “We are not obligated to renew this offer.”
5. Avoid using 1099c or IRS reporting language.
Required disclosures have increased at the state and federal levels as a way to protect consumers from unfair, deceptive or abusive acts or practices. In addition to the 30-day validation disclosure, agencies are also required to include specific state text, credit reporting, obsolete debt and in some cases safe harbor language. Below are some examples of the required disclosures.
When collecting debt that is 1) beyond the statute of limitations, 2) not too old to credit report or 3) you are credit reporting the account to one or more credit bureaus, your initial communication letter should contain the following disclosure on the front side of the letter:
6. The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, we may continue to report it to the credit reporting agencies.
When collecting debt which is beyond the statute of limitations and too old to credit report, your initial communication letter should contain the following disclosures on the front side of the letter:
7. The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency.
If the consumer is being charged any fee for any reason, including a convenience fee, vendor fee, payment processing fee, the letter referencing the fee should contain disclosure which is truthful, clear, and prominent of the following information:
8. The fact a fee will be charged.
9. The amount of the fee.
10. The number of times the fee will be charged.
11. The reason for the fee.
12. How consumers can avoid paying the fee.
In preparation of the CFPB’s final rules, I have created a list of items from their proposed rules. Agencies should be prepared to satisfy the requirements below and will need to work with their letter vendor to ensure the necessary changes won’t impact timing of working accounts.
13. The CFPB has proposed updates to the validation notice.
14. The CFPB has proposed requiring a Statement of Rights be sent in the initial communication and after 180 days if no confirmed consumer contact.
15. Are versions available in Spanish?
16. Proposed disclosures for time barred, intent to sue and credit reporting on obsolete debts.
The expense and time invested to create, manage, update and send letters affect overall profit margin. Agencies typically have two options: 1) send only the required letters by law or 2) create a series of letters to be sent during the lifecycle of an account. Agencies should analyze what letter strategy works best for their organization considering many factors including the type of account, duration of placement and return of investment. I suggest having a dedicated number assigned to your letters in order to fully understand the return on investment. Having a dedicated number allows you analyze key metrics such as right party contacts, number of payments and revenue generated. Divide the revenue generated by the cost of the letters to determine whether you are behind or ahead on cost.
Sam Eidson is the Director of Compliance for Delta Outsource Group, Inc. He also serves on the Board of Directors for the Missouri Collectors Association.