New Consumer Debt Collection Regulations

On September 15, 2016, a coalition of 59 different consumer advocacy groups sent the Consumer Financial Protection Bureau a letter detailing their concerns regarding the CFPB’s proposed debt collection regulations. The coalition includes, among others, Americans for Financial Reform, Center for Popular Democracy, NAACP, National Association of Consumer Bankruptcy Attorneys, and US PIRG. The CFPB issued an outline of proposed regulations on debt collection on July 28, 2016. The new regulations are designed to protect consumers more effectively and expand the applicability of the Fair Debt Collection Practices Act and other statutory authorities.

Debt collection is a multi-billion-dollar industry in the United States. It includes 6,000 debt collection firms and affects about 70 million consumers. The outline was issued in response to the number of complaints received by the CFPB regarding debt collection, which generates more complaints that any other financial product or service. The most common complaints to the CFPB are about collectors seeking to collect debt from the wrong consumer, for the wrong amount, or debt that could not be legally enforced. The proposal would essentially overhaul debt collections from when third-party collectors first examine their portfolios of debt to their last attempts to collect.

The coalition supports several aspects of the CFPB’s proposal and states that several of the proposed changes will address certain debt collector conduct that hurts consumers. The coalition supports the CFPB’s proposal in that it will: (1) require the transfer of information from prior attempts to collect the debt; (2) prohibits collectors from “parking debts on credit reports without informing the consumer about the debt; (3) require collectors to tell subsequent collectors about unresolved disputes; and (4) require the resolution of those disputes before collection activity can continue.

However, the letter sent by the advocacy groups also states, “The proposal represents a missed opportunity to fundamentally improve protections for consumers victimized by predatory debt collection practices.” The letter identifies six significant shortcomings of the CFPB’s outline. The highlighted issues regarding the proposal include that it:

  1. Permits collection without sufficient substantiation
  2. Effectively prevents private enforcement
  3. Allows disputes to remain inadequately investigated
  4. Allows lawsuits and default judgements to be obtained based on faulty documentation
  5. Allows call harassment to continue
  6. Undermines many of the state protections

It also identifies other concerns regarding abusive debt collection practices. The letter states that the proposal would allow collectors to leaves messages with third parties, even though this conduct is illegal under 15 U.S.C. 1692b. Additionally, the letter identifies other concerns including: inadequate protections for dealing with time-barred debt; confusing validation notices; failure to prohibit mandatory arbitration clauses; insufficient detail and clarification on credit bureau reporting; and failure to properly address language concerns for consumers with limited English proficiency.

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