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Debt Collectors’ Harassment Tactics Are Put On Notice For First Time In 40 Years

Consumer Financial Protection Bureau Director Richard Cordray CREDIT: AP PHOTO/STEVE HELBER
Consumer Financial Protection Bureau Director Richard Cordray CREDIT: AP PHOTO/STEVE HELBER

Debt collectors, either in-house or third-party entities in the business of trying to get people to pay up debts that they owe for things like student loans or medical bills, have become notorious for their often harassing tactics. Consumers have complained of debt collectors calling them endlessly while threatening violence, lying, and using profane language in trying to cajole them into paying, sometimes for debts they don’t even owe.

But on Thursday, the Consumer Financial Protection Bureau (CFPB), the watchdog created by the Dodd-Frank financial reform act, released new proposed rules to rein in the industry, the first time a federal regulator is cracking down on the industry in nearly four decades. It wants to limit how many times a collector can contact a consumer, require them to have better information about the debts they try to collect, and make it easier for consumers to fight debts they say they don’t actually owe.

Congress passed a law in 1977 that was meant to get rid of abusive debt collection practices by imposing restrictions on their activities as well as disclosure requirements. But until the CFPB came along, there was no federal agency that could issue regulations to make sure that the law was being implemented.

In that time, the industry has grown such that a huge share of Americans are touched by it. As of 2014, about 77 million Americans, or about a third of people with a credit file, had a debt that was in collection. The CFPB found in a recent study that about a third of all consumers had been contacted by a collector in the last year.

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And debt collectors’ abusive behaviors have flourished. For many years, complaints about debt collectors topped those submitted about any other industry to the Federal Trade Commission. The CFPB has experienced the same thing, receiving more than 200,000 complaints about debt collection practices since it launched three years ago, more than any other kind of complaint.

Agencies and consumers have also hit the industry with an onslaught of action. The CFPB has brought more than 25 debt collection cases for unfair or abusive tactics, ordering more than $100 million in civil penalties, more than $300 million in restitution to consumers, and billions of dollars in debt relief. Last year it netted settlements against the country’s two largest debt buyers in which they agreed to stop collecting on $128 million in debt, to refund some of the money, and change some of their practices. It also struck settlements with JP Morgan Chase and Citibank over selling debts to collectors with inaccurate documentation.http://archive.thinkprogress.org/economy/2016/06/02/3784087/cfpb-payday-lending-regulations/ The FTC has also brought more than 40 cases against the industry, while states have brought their own actions. Consumers themselves have brought more than 50,000 federal actions.

Yet the abuse continues.

The biggest complaint that the CFPB hears about debt collectors is that consumers are being pursued for debts they say they don’t even owe. In response, the agency is proposing that collectors be required to prove that the debt they’re going after is in order before they contact a consumer, such as ensuring they have the correct full name, address, phone number, and amount owed, and to check documentation on a debt before taking court action. If a consumer disputes a debt by saying it isn’t valid, collectors would have to stop their actions until all of the necessary documentation is in order and would be prohibited from collecting on a debt without sufficient evidence. And if a collector finds any warning signs that the information it’s using is wrong or incomplete, such as not being able to get the documents it needs or encountering a portfolio with a high rate of disputes, it wouldn’t be able to try to collect on the debt until the problems are resolved.

Requirements would also follow debts as they pass between firms. If a debt collector hands the debt off to another firm to pursue without responding to disputes, the next collector wouldn’t be allowed to try and collect it until the dispute is resolved. Collectors would also be required to send consumers information when debts are transferred.

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Consumers also tell the CFPB that collectors harass them, make false or misleading statements, and take or threaten to take illegal actions. The agency’s proposed regulations would limit debt collectors to making just six attempts at communication a week. They would make it easier for a consumer who wanted to stop a collector from contacting him a certain way — such as on a particular phone line or during certain hours — to put up boundaries. And the agency is considering imposing a 30-day waiting period after someone passes away before their surviving family can be contacted.

The CFPB has also heard that collectors fail to send required notices or improperly share information with other parties. The agency aims to ensure more transparency by requiring collectors to send consumers more specific information about the debt in initial notices, including consumers’ federal rights. They would have to tell consumers when the debt is too old for a lawsuit. And collectors would have to include paperwork in the notices they send that a consumer could tear off, fill out, and send back to easily dispute the debt or pay it back.

The proposed rules are far from being put into action: they will now go through a lengthy review process, and the industry will have a chance to weigh in.

But they are part of the CFPB’s efforts to bring sunshine to shadowy parts of the financial industry. They come about a month after the agency unveiled proposed regulations to take on payday lenders, which have gone with little federal oversight while charging incredibly steep fees and trapping borrowers in a cycle of debt.