Consumer Regulatory Agency Takes On Debt Collectors

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The consumer agency created by the Dodd-Frank financial reform law is asserting authority over debt collection actions by large banks. A post on the Consumer Financial Protection Bureau’s (CFPB) blog Wednesday laid out the agency’s new effort to guard against abusive and deceptive practices involving consumer debt.

In addition to opening their consumer complaints hotline and web tools to debt collection abuse complaints, the CFPB posted five “action letters” for common consumer responses to debt collectors. The documents include instructions on when and how individuals should use the paperwork, as well as advice on debtors’ rights. The letter templates range from requests for further information about a debt claim to notifications that the debtor has hired legal counsel.

The number of Americans in need of such assistance has shot up in recent years. In 2012, consumers were twice as likely to be pursued by collectors as they had been at the turn of the century, with one in seven Americans facing third-party debt collection claims. Complaints about debt collector abuses tripled from 2002 to 2010. At the same time, the consequences for borrowers grew much more severe, with collector claims landing thousands in modern-day debtor’s prisons, often despite erroneous paperwork.

In May, regulators at the Office of the Comptroller of the Currency (OCC) expanded an investigation of credit card debt collection abuses that had previously been focused on JPMorgan Chase. As far back as 2009, JPMorgan allegedly instructed employees in its credit card collections division to knowingly sign off on erroneous documents, echoing “robosigning” abuses in the mortgage industry. The bank dropped tens of billions of dollars’ worth of collection claims in the spring of 2011 after the allegations became public.

But because of the way consumer debt gets sold and resold to small firms specializing in collections, the bank’s decision to drop its own collections efforts did not mean the alleged paperwork abuses stopped plaguing consumers. The Washington Post reported in May that OCC had widened its investigation to include other large banks.

In addition to the OCC’s ongoing credit card investigation, the Federal Trade Commission has been pursuing cases against the smaller companies that buy debt from the original lenders and then work to collect it.

The CFPB’s new effort seeks to close what the New York Times terms “the regulatory void” around debt collection and give consumers hounded by debt collectors some relief. Different forms of debt fall under different regulatory jurisdictions, so responsibility for policing collectors is messy to sort out. But the collection practices of lenders themselves have fallen into a crack in the laws that prohibit harassment and other abusive collector practices, according to CFPB head Richard Cordray.