3 Priorities Lenders Should Focus on To Comply with Reg F
Even though the Consumer Financial Protection Bureau (CFPB) released its updates to the Fair Debt Collection Practices Act (FDCPA) under Regulation F (Reg F) last year, many lenders are still evaluating the impact of the latest rules on their business. Given lenders often outsource their collection practices to third parties, any Reg F non-compliance detected in their network can put their brand reputation at risk as well. Additionally, any lender that chooses not to comply with the new regulation may invite lawsuits of their own in case of Reg F violation.
Therefore, it becomes extremely important for the lender to determine their network’s (debt buyers, forwarding networks, servicers, etc.) liability in ensuring Reg F compliance and building systems that foster the oversight and collaborative efforts within their network. Are you confident about your network's ability to comply with Reg F? Are you already monitoring compliance KPIs?
Regardless of whether you are just getting started or already have a compliance monitoring program in place, here are a few priority items and best practices you can follow, even if you can only roll them out one-by-one.
1. Collaborate with your servicer network for better oversight
Reg F still predominantly regulates third-party collectors; however, the rules suggest that lenders keep an eye on their collection network. This begs the question - if the lender has a third-party debt collector, does it have oversight responsibilities under the Regulation F regime? The answer is YES. Now lenders are bound to take a critical look at how and to what extent Regulation F impacts their vendors’ collection practices and strategies. The expanded role that lenders may play in third-party collections could require them to:
- Provide more information to enable agencies or law firms to contact each consumer and collect debts in compliance with the regulations. Furnish "accurate and complete" information on each account before passing it on to the collection network; this will come in handy if the consumer ends up disputing the debt in the future.
- Revisit Collection Services Agreements with agencies and law firms to ensure they are consistent with the new rule, particularly regarding validation and disputes, credit reporting, and communication frequency.
- Ask contracted agencies to regulate the number of calls to consumers per week and permit certain use of electronic communications for the collection of debt as per the Reg F framework. Educate them that giving consumers the right to opt-out of electronic communications is a new must-do under the latest rule. Ask them to pay special attention to an expanded list of disclosures (to a consumer at the outset of collection communications) and third-party disclosures for communicating with a consumer by email or text message.
2. Conduct a gap analysis to identify immediate compliance gaps
Regardless of where you are in your compliance journey, the best place to begin is with a comprehensive compliance audit. When conducting an audit of your third-party debt collection agencies, we recommend that you:
- Divide a compliance audit into stages, giving each about a week to complete.
- Collect crucial debt documentation for the initial review. Review all material, templates, and material guidance on the new regulations thoroughly. Ask yourself specific questions about compliance to uncover the gaps.
- Internally discuss policies, procedures, and internal controls.
- Prepare an Assessment Report which outlines the internal controls to help ensure compliance. The report should also include modifications recommendations to existing internal controls or inclusion of new policies to help mitigate the risk of any potential violations.
- If you do not have a team of data scientists, partner with an expert analytics provider such as Provana that can help you pull all data points together from various disperse data sources to unlock the account-level risk and places where new controls are needed to be implemented immediately.
3. Automate network management for long-term compliance
Sign up for a comprehensive turnkey solution that can help you oversee your network’s performance and Reg F compliance going forward. We recommend that you:
- Partner with a service provider whose product provides actionable network management and call performance insights. This will help you identify risk alerts, train non-compliant servicers, and instruct them on how to mitigate risk.
- Make sure the platform integration is seamless and doesn’t disturb existing collection workflows, facilitating the bi-directional flow of transaction-level data and media.
- Perform network audits regularly with the centralized tools that help automate controls and call compliance.
Confused about the latest regulatory updates?
While Reg F looks fairly clear, it is far more complex than it might appear on the surface. It contains broad prohibitions on certain collection conduct and does not set clear accountability for lenders, which may prompt them to ignore supervising Reg F controls of their collection network. The result? Certain situations may arise that put a lender at the risk of operating outside of a safe harbor. Want a comprehensive step-by-step checklist to help you ensure full compliance with the new Debt Collection Rules? Download the Reg F Go-To-Guide for Lenders here.