The Safe Harbor Wears No Clothes

Jessica Lamoreux

April 6, 2023

If a recent ruling by a federal judge in Florida holds, complying with the CFPB’s tough 2021 collections rules (Regulation F) may not be as simple as copy and paste.

One of the bright sides to the Consumer Financial Protection Bureau’s Regulation F was the Model Validation Notice (MVN), a complete template for what the industry calls a G-Notice, the information that collectors must provide debtors when beginning to collect a debt under the Fair Debt Collection Practices Act (FDCPA). Regulation F explicitly provided a ‘safe harbor,’ stating that collectors using the CFPB’s model notice would be in compliance with the validation notice requirements.

But the Florida case, Roger v. GC Services, suggests that this “safe harbor” may not offer much shelter. The plaintiff was a debtor who claimed that the validation notice he received from a collection agency was confusing and misleading, even though it was undisputed that the notice precisely followed the language of the bureau’s model. Judge Cecilia M. Altonaga of the U.S. District Court for the Southern District of Florida rejected a motion to dismiss the case, saying the collector’s notice may have violated the FDCPA notwithstanding Regulation F’s safe harbor provision. The case, which will now go to trial, could disrupt the new normal that the collections industry has adjusted to in the wake of Regulation F.

What happened?

The Rogers case revolves around one simple fact: a validation notice sent in August 2022 by GC Services to collect a bank debt did not have a date on it. The notice had a section that listed the interest and fees incurred “Between December 31, 2021 and today.” Another line read, “Total amount of the debt now.” This language matched the Model Validation Notice set forth by the CFPB.

The plaintiff argued that because the notice was undated, the debtor would not be able to interpret “today” and “now” and thus couldn’t determine whether the amount listed was the full amount owed or if additional interest or fees had accrued.

The debt collector responded that the CFPB’s model validation notice has no date and uses the same references to “today” and “now.” Indeed, the bureau includes “date the form is generated” on its list of optional—but not required—elements of a validation notice.

The motion to dismiss the case argued that this notice could not be considered misleading or confusing because it uses the exact form and language required by Regulation F. It cited the regulation’s “Safe Harbor” section that says “a debt collector who uses [the model form] complies with the information and form requirements” for validation notices.

What did the court rule?

Judge Altonaga, however, rejected this interpretation of the safe harbor. She wrote that there is no reason to assume that complying “with the information and form requirements” of Regulation F ensured compliance with the FDCPA itself.

This interpretation may raise some eyebrows in the industry, as it is not clear why anyone would follow Regulation F other than to comply with the FDCPA. After all, government enforcement actions and private lawsuits must be brought for violations of the FDCPA. Regulation F creates no enforcement mechanisms or causes of action in itself.

Indeed, the reason that collectors have worked to comply with Regulation F as fully as possible is they believed it would shield them against liability under the FDCPA. If the regulations don’t offer that protection, it is unclear what purpose or utility they have.

A Safe Harbor from what?

One of the biggest frustrations for the collections industry is that it saw this coming. Over the many years that Regulation F was being developed, the bureau was warned of several ways that the model notice was confusing and not consistent with the underlying law.

For example, the MVN specifies the items to include in a table that itemizes the debts being collected, but there is no line for some items, like court costs, that creditors can legitimately collect. As a result, the sum of the items in the table can be lower than the total amount owed. When the industry protested that this format would be confusing to debtors, the bureau ignored them.

In other situations, the bureau’s MVN requires disclosures that directly conflict with disclosures mandated under state law. Collectors were so afraid that the MVN would invite litigation claiming it was confusing or misleading that they didn’t adopt the format until Regulation F became effective in November 2021. By contrast, collectors began conforming much earlier to other aspects of the regulation, such as the rule that limited them to contacting a consumer no more than seven times in a seven-day period.

Despite the problems with the bureau’s model notice, collectors used it once the regulation was in effect precisely because of the safe harbor that was offered. Judge Altonaga’s decision raises the question of what exactly this safe harbor keeps them safe from?

What happens next?

For now, the Florida court did not set any precedent for other cases, as it only ruled on a preliminary motion to dismiss. If the court determines the G-notice in the Roger case was actually misleading, the decision could then be appealed to the Eleventh Circuit, where the industry can try to get this situation clarified.

You might wonder whether the CFPB would speak up to defend its regulation against a judge who, in effect, said the bureau misinterpreted the law. That’s unlikely as the bureau’s mission isn’t to defend debt collectors, even against its own poorly worded rules.

What does it mean for the collections industry?

One thing is clear: consumers’ rights attorneys will pounce on undated G-notices, and the safest practice is to assume that a date is required and not optional.

The bigger question is whether future courts will hold that notices that use the CFPB’s model are not completely protected from challenges under the FDCPA.

Given the many problems with the MVN, we suspect that consumers’ attorneys have already started to develop arguments about additional ways that their clients are confused by G-Notices that follow the Regulation F model.

With the Regulation F safe harbor in question, debt collectors may want to consider the relative risk of strictly following the MVN template. Ask yourself whether the validation notice you are using could be considered confusing or misleading to the least-sophisticated consumer? The answer will depend on the nature of the debts you are collecting and the applicable state law.

If you conclude that using the MVN format is likely to be confusing or misleading, you will have to make a difficult choice. You are caught between the unpredictable court system and the powerful CFPB. It is anything but a safe harbor.

Jessica D. Lamoreux is the Director of Risk and Compliance at Oliver Technology Corporation. She regularly presents to industry groups on a wide range of compliance-focused topics, including Regulation F. She has experience supporting compliance for both debt collection firms and original creditors.

Share this:


Get the latest from Oliver, straight to your inbox.