We expect a significant increase in the number of disputed debts because of substantial updates that will soon be made to the Fair Debt Collections Practices Act (FDCPA). A new federal rule, called “Regulation F,” goes into effect on November 30, 2021. Reg F is the long-anticipated update to the FDCPA from the Consumer Financial Protection Bureau (CFPB) that has been in the works since 2013.
Among the many Reg F changes that will affect lenders and collection agencies is a provision dealing with initial letters that will make it easier for consumers to dispute their debts. Because the process of disputing debts will become so much easier, consumers will use it more often. At this point, you need to think about whether you are prepared to deal with a significantly higher volume of disputed debts. If not, you will have to take steps to get ready.
The CFPB wants consumers to be able to know everything about their debts, and it wants that information contained in the initial letters (the “model validation letters”) that lenders and collection agencies send out to consumers. To that end, when Reg F goes into effect, the CFPB will dictate what must be in the initial letters, including breakdowns of the numbers, disclosures, and so on. Lenders and agencies have always sent out initial letters, but these specific, detailed requirements from the CFPB are new.
One of the new requirements under Reg F is that an initial letter contain a tear-off section on the bottom of the letter. The tear-off section will have little boxes for the consumer to check off to indicate their choice of their next activity regarding the debt. One option for the consumer to check off will be “I dispute this debt.”
In the past, consumers who wanted to dispute their debts had to write to or call the collection agency. It took a certain amount of initiative and effort. Now, all they will have to do is check off a box, tear off the bottom of the letter, and send it back to the agency. Because it will become so much easier for people to dispute their debts, we anticipate that many more will choose to do so. In some cases, the number of disputes is likely to increase fourfold, presenting a serious challenge for dispute management.
Disputes over debts arise from many causes.
Disputes are often about balances. Consumers might not understand fees that have been added, or they may not see their payments reflected in the balance. For example, a consumer might say, “The balance shows as $1,000, but I know I made five $100 payments on it. I’m pretty sure the balance is only $500.” These balance mismatches are common, especially when the account moves from agency to agency.
Other disputes arise when consumers don't recognize the account. A consumer might say, “This isn’t even my account. I don’t even know who you are. Who are you, and who are you collecting for?” When a consumer goes into a store and gets a charge card, it’s often not the store that issues the card. For example, Synchrony Bank issues credit cards for various retail stores, including the Gap and the Limited Express. If the debt is at a collection agency, it might say it's from Synchrony Bank, but the consumer thinks of their credit card as being a card for the Limited and may not know who or what Synchrony is. This can create a lot of confusion.
If the consumer doesn’t recognize the name on the account, it could be because the account is fraudulent. It takes special handling to prove that the account is not fraudulent by showing that the consumer signed the cardholder agreement and was sent statements.
There are many ways for an agency to receive a dispute. The consumer can check off a box on the initial letter (after Reg F goes into effect on Nov. 30, 2021) or can send an email, send a regular letter in the mail, call, use a fax machine, or walk into the agency. Once a dispute is received, the agency has to reach back out to its client, the bank, and ask for help in proving the dispute.
If the bank is using the NeuAnalytics platform, then the platform serves as the hub in the middle for the back-and-forth activity. When the agency reaches back to the bank, that will go through the platform. Using the platform this way helps track all the disputes that are happening.
Say a bank is using 10 different collection agencies and is getting dispute requests from all of them via email, phone, and perhaps other ways. It can become a nightmare to try to deal with so many moving parts. For each dispute, the bank will have to dig up the cardholder agreements and statements. Typically, a bank will keep about 12-to-19 months worth of statements, and all of these will have to be retrieved. Often the records are in a system that is not easy to access. They might be with a third-party vendor. So the bank has to dig through and find all the information needed to prove the debt. Then, the bank has to send it back to the collection agency.
When the NeuAnalytics platform is used as a hub, the platform can report on the information passing through. It can tell the bank that today the bank has X number of disputes from X number of different agencies. All of the disputes can be tracked in a single report in the NeuAnalytics system. As you fulfill the requests, they get pushed back through the system. Then the system closes them out. You can very easily see your list of things that you need to do. The platform’s tracking and reporting makes sure that nothing falls through the cracks.
In NeuAnalytics’ dispute module, there’s a dashboard that tells the user at a glance how many disputes there are, how many are outstanding, how many have been completed, where they are, and who has them. It’s much easier to manage the whole process when it's organized and presented in such a clear way.
Another aspect of dispute management involves compiling information about where the dispute came from. This information includes:
You may want to be able to separate out this information for analytical purposes. For example, you might want to separately track how many people are using the new tear-off section of the initial letter to indicate they are disputing the bill.
Special challenges you are likely to encounter when handling disputes include balance mismatches, probate proceedings (when the consumer is deceased), debts owed by an active military member, and debts that are part of bankruptcy proceedings. These debts are often handled by specialty collection agencies. For example, there are agencies specializing in handling bankruptcy debts and other agencies that handle probate debts.
Each of these special situations has its own set of federal rules that collection agencies must follow. For example, agencies cannot continue to conduct collection activities if the consumer has filed for bankruptcy and the bankruptcy case is still pending in court. Agencies also cannot attempt to collect debts that were discharged in bankruptcy.
Probate debt collections are also governed by federal law. The FDCPA limits who collection agencies can contact about a deceased person’s debts, what the agencies can ask, and how often agencies are allowed to contact a specific person. The FDCPA also provides a procedure for people contacted by the agency to request that they not be connected again.
The tradeline section of a credit bureau report shows all of the consumer’s debts, such as their mortgage, auto loan, and credit cards. Once a debt gets turned over to an agency, it will show as charged-off from the creditor. The collection agency can put collection items into the public record section.
If the account is in dispute, that has to be indicated on the credit bureau report. Once an account is disputed, there are legal limits on what actions may be taken. You can’t try to collect on an account while it is in dispute status.
If an account has already been reported as a collection account, and a dispute comes in, then you must update your account to show that it is disputed. If the account has not already been reported to the credit bureau, then you can’t report it while it is in dispute.
This is one reason why it’s so important to know where or how a dispute came in. If it came from a credit bureau, not only is there a timeline that has to be followed, but there are also legal requirements concerning what you can and cannot do with the account.
If a consumer tells a credit bureau that they dispute the account, the credit bureau has 30 days to inform the collection agency or the bank that the account is in dispute. Once the agency or bank receives that notice, it then has 30 days to verify the accuracy of the disputed information and report back to the credit bureau.
If the creditors are unable to verify within the 30-day timeframe, then the credit bureau has to remove the item from the credit report. While this provision protects consumers, it can also be used in bad faith. There are serial disputers who will dispute all their debts in the hopes that the credit bureau won’t be able to get them fixed within 30 days and will have to remove them. Similarly, some credit repair companies will flood the market with disputes to try to get items removed from credit reports because they can’t be verified in time.
Another thing to watch out for is whether there are large numbers of disputes that appear to be identical. These are an indication that a consumer attorney is trying to get the agency to “slip up” on responding to disputes, in an effort to create an opportunity for a class-action lawsuit against the agency. The NeuAnalytics platform will recognize this pattern when it arises and flag it for you so that it doesn’t get overlooked.
When a debt starts going past its due date, banks, lenders, other financial institutions, and creditors will usually start their collection attempts internally. They will start with a friendly reminder call to the consumer when the debt is only one or a few days past due. When the account is more than 10 days past due, collection efforts start getting more aggressive. After it is 30 days past due, it usually goes to an in-house collection department to handle. The goal of the in-house department is to keep the account from charging off, which usually happens when it becomes 180 days past due, though sometimes it may be sooner.
At that point, the charge-off phase begins, and the creditor sends the account to a collection agency. This is the phase where about 98% of collection agencies become involved. These post-charge-off agencies are the ones that will be subject to the provisions mandated by the CFPB in the new Reg F when it goes into effect in November 2021.
NeuAnalytics works with the banks. They send us all of their charged-off inventory, and we will program the platform with all of the collection agencies the bank will be using. The banks give us a series of business rules that govern how they want the accounts placed with those agencies.
If the debt is not collected, it will progress through a series of collection agencies. Each agency tries to collect the debt for a certain period of time before passing it on to the next. Generally, the banks start with primary agencies that are a little more aggressive, and they try to resolve the debt quickly. Primary agencies usually keep the account for six months to a year.
If the debt doesn’t get paid off, or there is not an active payment arrangement made within that time frame, then the account will roll out to a secondary agency, which also tries to collect within a certain timeframe. If the secondary agency is not successful, it will sometimes roll out to a tertiary agency. Many of the banks that work with NeuAnalytics go another step and send the debt to quad agencies if the tertiary agencies are unable to collect. Sometimes banks also need to use specialty agencies, such as bankruptcy collection agencies and deceased collection agencies.
After November 30, 2021, when Reg F goes into effect, each time one of the agencies gets a debt account, the new agency has to send the consumer an initial model validation letter containing the tear-off checklist on the bottom. Sending the initial letter is required even if the previous agency or agencies already sent their own letter. If the debt ultimately gets passed on to four agencies, then the number of times that a consumer gets a chance to dispute the debt by checking off a box will quadruple.
Effective dispute resolution requires that you know who disputed the debt and how often they disputed it. You need to know whether they disputed it with each agency down the line. The NeuAnalytics platform makes it easy to keep track of this information. The platform will continuously let our creditor clients know when they have a consumer who repeatedly disputes their debt.
Collectors must also learn to spot the difference between a complaint and a dispute. Not all complaints will come through the CFPB’s complaint portal or through another federal, state, or local agency.
A complaint has a higher likelihood to be followed with a lawsuit than a dispute. Complaints happen for a variety of reasons as well, but most are of a more legal nature, including:
Complaints have to be handled differently than disputes. At the same time, an integrated approach ensures that all parties involved know what kind of accounts they are dealing with. Some accounts have both disputes and complaints, and it’s important to be able to cross-check.
Banks often handle complaints, disputes, and fraud in completely different departments. A holistic approach, though, works better than a segmented approach.
Say a fraud comes into the fraud department, and it’s being worked on, but there is no one way to “status” the consumer’s account. If the account is fraudulent, the consumer is not paying on it. It becomes past due, eventually going past the 30-day mark and then the 180-day mark, and it gets charged off and passed on to a collection agency. Then the collection agency tries to collect from the consumer, even though the consumer already told the bank that it was a fraudulent account. The consumer gets the letter from the agency and disputes the account.
The right hand doesn’t know what the left hand is doing. There’s a dispute because of the fraud, but the charge-off department and the agency don’t know that there was a fraud. But if all of the systems for complaints, disputes, and fraud were talking to each other in one platform, like NeuAnalytics, every time a fraud comes in, you could quickly put in the account number and check the system and see if there is a complaint or dispute on the account. Similarly, if there’s a complaint or a dispute coming in, you can check it for fraud. This is a much more holistic approach, and you eliminate a lot of problems.
If you use the NeuAnalytics modules and our forms, all the information you need will be presented in a way that is very easy to use. The platform will generate reports that will let you see the overall status of your accounts at a glance.
The NeuAnalytics platform also compiles the information in a way that makes it easier to perform analytics on your data, for example, to analyze what methods consumers are using to notify banks and agencies that they are disputing their debts.
NeuAnalytics gives banks more control over what the collection agencies are doing. You can set up required fields on the platform’s forms, which will force the agencies to fill in the information before they can proceed any further. This ensures that you will have the information you need to properly verify the dispute before the agency sends it on to you.
The NeuAnalytics platform:
The platform can help track ALL disputes by:
NeuAnalytics is the industry leader in operational risk and compliance management. Our suite of solutions has increased our customers’ ROI 100% in the first 12 months, increased yield 70% in the first 12 months, eliminated 99% of operational risk in the first 90 days, and led to an audit pass rate of 100%.
We invite you to talk to our experts and schedule a free demo to see for yourself how the NeuAnalytics platform, delivered as a SaaS offering, can save you money and time and prepare you to handle the onslaught of disputed debts that will soon arise because of Reg F.