Regulation F: What It Means for Educational Debt Collections
The Consumer Financial Protection Bureau (CFPB) has finalized new debt collection rules. This is the first major update to requirements put in place in 1978. The changes include definitions of communication tools, such as email and text messaging, that were not envisioned when the laws were enacted over 40 years ago. These new requirements, known as “Regulation F”, are designed to provide more consumer-oriented information and communications to those owing debts while providing a more structured environment for the agencies to conduct their business.
When Regulation F takes effect on November 30, 2021, third party collectors in all industries, including higher education, must comply with a variety of process changes. These include providing more detailed notifications and disclosures and limiting the number of contacts with consumers. While most changes are internal to the collection agencies’ operations, they will be required to obtain more detailed documentation from school clients before initiating their collection efforts.
Agencies will be required to send consumers a new, more detailed validation notice that provides actual dates of service and other related events, such as last dates for statements, payments or other transactions, as well as the current amount of the debt (principal, interest, collection costs, late fees or other related charges). Agencies also will have to provide new consumer protection information with the numerous disclosures about the debt. Under Regulation F, consumers will have a 30-day period to dispute a debt, otherwise it is assumed to be valid.
Agencies also will be restricted to the use of “limited content messages”, defining what can be disclosed when leaving voicemail messages for delinquent borrowers to help protect their privacy. Also, agency collectors will be prohibited from making more than seven telephone calls in a 7-day period, unless they’ve made direct contact with the individual. In this case, the clock restarts. These call limits are designed to eliminate any perceived harassment of consumers.
Other items contained in Regulation F that may impact educational debt collections include:
- Prohibiting some contacts where students work if banned by employers.
- Disallowing use of litigation to collect “time-barred” debt, or balances more delinquent than a state’s statute of limitations on a consumer debt.
- Using email addresses to communicate with students. Some legal counsel have suggested that when institutional policies require bills and notices be sent to students’ institutional email addresses (e.g. .edu address), schools should obtain students’ personal email addresses to communicate with them after they leave the institution.
- Using social media to communicate personal student information on a public site.
Collection agencies, specializing in educational debt collections, are contacting their clients to discuss how Regulation F is changing their business processes. Also, they are explaining what new steps schools must take to refer delinquent accounts for external collection. Again, the new rules apply to collection companies. However, institutional collection staff should work with each of their agencies to understand specific expectations, differences in account handling and placement of delinquent debts.
Schools should consult with their legal counsel to identify and mitigate potential compliance risks associated with internal business processes and forms. Specifically ask that Financial Responsibility Agreements (FRAs) be reviewed, and updated if necessary, to comply with Regulation F.