SACRAMENTO, Calif. — At a field hearing held here today, the Consumer Financial Protection Bureau (CFPB) outlined proposals its considering that would overhaul the debt-collection market. One of the proposals on the table is capping collector contact attempts.
Under the proposals being considered, debt collectors would be required to have more and better information about the debt before they collect. As they are collecting, companies would be required to limit communications, clearly disclose debt details, and make it easier to dispute the debt. And when responding to disputes, collectors would be prohibited from continuing to pursue debt without sufficient evidence.
These requirements and restrictions would also follow the debt if it were sold or transferred.
“I am glad to be here in California, which has actively sought to protect its consumers from bad debt-collection practices,” said CFPB Director Richard Cordray, noting that California enacted the Rosenthal Fair Debt Collection Practices Act at the same time as its federal counterpart was enacted in 1977.
“But there is still much work to be done to assure that consumers are treated with the dignity and respect they deserve through the debt-collection process. And that is what we are here to talk about today,” he added.
Motivating the CFPB’s efforts is a recent study the regulator released. It showed that a third of consumers who had been contact about a debt in the last year reported an attempt to collect in the wrong amount. They study also showed that about one in three consumers were contacted by a creditor or collector trying to collect a debt within the past year, with most consumers reporting attempts to collect payment on two to four debts.
According to the bureau, debt collection generates more complaints to the CFPB than any other financial product or service — the most common complaints being about collectors to collect debt from the wrong consumer, for the wrong, or debt that could not legally be enforced. The CFPB also noted that when consumers are contacted by collectors, they often don’t know what to do next and may feel pressured to resolve the debt without having a clear understanding of their rights.
“In the debt-collection market … consumers do not have the crucial power of choice over those who do business with them when creditors turn their debts over to third-party collectors,” Cordray said. “They have no say over who collects their debts, and they likely know next to nothing about the collector until they receive a call or a letter. This can quickly lead to a barrage of communications, which in some cases are designed to be harassing or intimidating.”
Debt collectors, including many debt buyers, are already prohibited from harassing, oppressing, abusing consumers under the 1977 Fair Debt Collection Practices Act. Now, the CFPB is proposing to address consumer protection issues involving first-party debt collectors and creditors on a separate track. Specifically, the new protections are aimed at the following:
- Collect the correct debt: Collectors would have to scrub their files and substantiate the debt before contacting consumers. They would have to confirm they have sufficient information to start collection, including the full name, last known address, last known telephone number, account number, date of default, amount owed at default, and the date and amount of any payment or credit applied after default.
- Make debt details clear and disputes easy: Collectors would be required to include more specific information about the debt in the initial collection notices sent to consumers. This information would include the consumer’s federal rights, and disclose, when applicable, that the debt is too old for a lawsuit. Also under consideration is the addition of a “tear-off” portion to the notice consumers could send back to the collector to easily dispute the debt. The tear-off would also allow consumer to pay the debt. Consumer would also be able to verbally question the debt’s validity at any time.
- Stop collecting or suiting for debt without proper documentation: If a consumer disputes the validity of the debt, collectors would have to stop collections until the necessary documentation is checked. Collecting on debt that lacks sufficient evidence would be prohibited. Additionally, collectors that come across any specific warning signs that the information is inaccurate or incomplete would not be able to collect until they resolve the problem. They would also have to check documentation of a debt before pursuing actions against a consumer in court.
- Stop burying the dispute: If debt collectors transfer debt without responding to disputes, the next collector could not try to collect until the dispute is resolved. The proposals under consideration also outline information that collectors would have to send when they transfer the debt to another collector so that a consumer does not have to resubmit this information to the new collector.
In October 2012, the CFPB issued a Larger Participant rule establishing supervisory authority over nonbank debt collectors with more than $10 million in annual receipts resulting from consumer debt collection. This covers approximately 175 debt collectors accounting for more than 60% of the industry’s annual receipts. The bureau also ordered creditors and debt collectors to stop collecting on debt based on bad information, and to refund hundreds of millions of dollars for unlawful debt collection.
According to a CFPB press release, today’s outline of the proposals under consideration is in preparation for convening a Small Business Review Panel to gather feedback from small industry players, which is the next step in the rulemaking process. The announcement added that the bureau will continue to seek input from the public, consumer groups, industry, and other stakeholders before continuing the rulemaking process.