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CFPB Considers Proposal to Overhaul Debt Collection Market

July 28, 2016 / Source: CFPB

Consumer Financial Protection Bureau (CFPB) outlined proposals under consideration that would overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt.  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. When responding to disputes, collectors would be prohibited from continuing to pursue debt without sufficient evidence. These requirements and restrictions would follow the debt if it were sold or transferred. 

Debt collection is a multi-billion dollar industry and affects about 70 million consumers who have debt in collection, some of whom may be wrongly contacted by debt collectors. Banks and other original creditors may collect their own debts or hire third-party debt collectors. Original creditors also often sell their consumers’ debts to debt buyers that may collect on the purchased debts or hire third-party debt collectors to recover them. It is estimated that there are more than 6,000 debt collection firms in the United States.  

According to a recent CFPB study, about one-in-three consumers had been contacted by a creditor or collector trying to collect a debt within the past year. Most consumers who had been contacted reported attempts to collect payment on between two and four debts. And one-third of consumers who had been contacted about a debt in the last year reported an attempt to collect in the wrong amount.

Debt collection generates more complaints to the CFPB than any other financial product or service. The most common complaints are about collectors seeking to collect debt from the wrong consumer, for the wrong amount, or debt that could not legally be enforced. When consumers are contacted by collectors for debt they do not recognize, they often do not know what to do next. They may feel pressure to resolve the debt but do not have a clear understanding of their rights. Sometimes consumers pay a debt they don’t believe is accurate to make the collector stop contacting them. Other times, consumers spend significant time and money to dispute the debt. They may have to dig through old records to prove information to the collector or retain a lawyer.

Proposals under consideration would increase protections pertaining to third-party debt collectors and others covered by the Fair Debt Collection Practices Act, including many debt buyers. As part of its overhaul of the debt collection marketplace, the CFPB plans to address consumer protection issues involving first-party debt collectors and creditors on a separate track. Specifically, the new protections are aimed at ensuring that debt collectors:

  • Collect the correct debt: Collectors would have to scrub their files and substantiate the debt before contacting consumers. For example, collectors would have to confirm that they have sufficient information to start collection, such as 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.
  • Limit excessive or disruptive communications: Collectors would be limited to six communication attempts per week through any point of contact before they have reached the consumer. In addition, if a consumer wants to stop specific ways collectors are contacting them, for example on a particular phone line, while they are at work, or during certain hours, it would be easier for a consumer to do that. The CFPB is also considering proposing a 30-day waiting period after a consumer has passed away during which collectors would be prohibited from communicating with certain parties, like surviving spouses.
  • 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. They would have to disclose to consumers, when applicable, that the debt is too old for a lawsuit. The proposal under consideration would also add a “tear-off” portion to the notice that consumers could send back to the collector to easily dispute the debt, with options for why the consumer thinks the collector’s demand is wrong. The tear-off would also allow consumers to pay the debt. The consumer could also verbally question the debt’s validity at any time, and prompt the collector to have to check its files again.
  • Document debt on demand for disputes: If the tear-off sheet or any written notice is sent back within 30 days of the initial collection notice, the collector would have to provide a debt report – written information substantiating the debt – back to the consumer. The collector could not continue to pursue the debt until that report and verification is sent.
  • Stop collecting or suing for debt without proper documentation: If a consumer disputes – in any way – 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. In addition, 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. Warning signs could include a portfolio with a high rate of disputes or the inability to obtain underlying documents to respond to specific disputes. Collectors also would be required to check documentation of a debt before pursuing action against a consumer in court. For example, collectors would have to review evidence of the amount of principal, interest, or fees billed, and the date and amount of each payment made after default. 

Outline of Proposal