The Consumer Financial Protection Bureau (CFPB) is seeking public comment on new rules to address debt collection practices in a world where technology has advanced. The 1977 Fair Debt Collection Practices Act (FDCPA) governs debt collectors and protects consumers but it has not kept up with modern day technology.
The CFPB plans to crack down on debt collectors with new regulations to ensure collectors are pursuing the correct people for debts; making sure the debt amount is correct and addressing the aggressive tactics sometimes used by debt collectors.
About 30 million people face debt collection for unpaid bills that average about $1,400, said Richard Cordray, the bureau's director.
“While we can put a number on debt, we cannot quantify the emotional toll that it takes on consumers who live under the shadow of indebtedness and then have to cope with mistreatment by debt collectors,” he said.
The debt collection industry is a multi-billion dollar market. Banks and other original creditors often sell their debts to debt buyers for pennies on the dollar. The debt buyer may in turn collect on the purchased debts; hire third-party debt collectors to recover them or even re-sell the debts to another debt buyer. It is estimated there are more than 4,500 debt collection firms in the United States.
What’s worse is when a debt buyer purchases a debt they often only get an electronic file with very few details such as a name; account number and debt amount.
The Consumer Bureau plans to concentrate on several areas of debt collection:
How Accurate is the Information
The CFPB wants to know how documents and records are currently transferred. It is a well-known fact debt collectors often try to collect debts from the wrong person because their information is incomplete.
Suppose you live in an urban area that is densely populated and your name is “John Smith.” Debt collectors with minimal information could easily go after the wrong “John Smith.” Debt collectors are not easily swayed by a consumer stating they have the wrong person. Consumers who do not owe any money can be unfairly hounded for months over someone else’s debt.
Even worse consumers who manage to successfully dispute a debt not belonging to them may find the debt is sold to another debt buyer causing them to repeat the dispute process again.
What is the Correct Amount Owed
The CFPB is concerned that debt collectors may try to collect more than what is owed on a debt. There have been instances where a consumer has already paid the debt to a different collection agency or to the original creditor. The lack of records and documents on behalf of the debt collector can wreak havoc on a consumer trying to prove they already paid a debt. The CFPB is interested in knowing more about how debt collectors ensure they are seeking the accurate debt amount.
Lack of Documentation
The CFPB is concerned that debt collectors do not always have adequate or accurate documentation to even support their claims. Consumers have the right to dispute a debt with a collection agency and request written verification of the debt. The lack of information can make it harder for the debt collector to provide the consumer with information to identify the debt and resolve disputed debts.
The CFPB is concerned about debt collectors adhering to the FDCPA when contacting consumers. Debt collectors are already prohibited from engaging in acts that annoy, abuse, or harass consumers under the FDCPA. But with today’s various methods of communication such as cellphones, email and social media, the FDCPA does not specifically address communication through new technologies.
False Debt Collector Claims
More and more debt collectors seem to be claiming they can do things they simply cannot do. The CFPB is concerned about some debt collectors falsely threatening to initiate a lawsuit or criminal prosecution, garnish wages, damage or ruin a consumer’s credit rating, seize property, get the consumer fired from their job, or have a consumer jailed.
First, the debts may be beyond the statute of limitations which means the debt is legally uncollectible. But some consumers are unaware and lack knowledge about the extent of a debt collector’s power. Second, the United States does not have a debtor's prison. Consumers need to know their rights.
The FDCPA provides consumers with a set of rights, including the right to dispute a debt or to limit certain types of communications from collectors. The CFPB is concerned that consumers may not be receiving adequate information to make informed decisions about whether to exercise these rights.
Debt collection has been one of the most complained about subject areas to government regulators including the Federal Trade Commission. The Consumer Financial Protection Bureau is now accepting debt collection complaints and hopefully new regulation will bring a positive change to the debt collection industry.
The CFPB has a Consumer Complaint Database that allows the public to see consumer complaints and the company’s response. The database currently contains more than 155,000 complaints on a wide variety of financial consumer issues, including mortgages, student loans, and credit cards. To check it out go to: consumerfinance.gov/complaintdatabase.