What the CFPB Should Do About Debt Collectors

Collection Accounts and Credit Reports

The CFPB is going to be taking a look at both the credit reporting industry and the debt collection industry. So here’s a chance to kill two birds with one stone:

Require collection agencies to notify consumers in writing before they report collection accounts to credit reporting agencies, and give consumers the opportunity to dispute a debt before it can be reported.

Right now, the way the system works is that consumers may not even know about collection accounts until they’ve been turned down for credit due to the negative info on their credit reports. And while consumers already have the right to dispute a debt that appears on their credit, that’s often too late. The damage has already been done.

The initial collection letter I described in the first part of this post should include whether the collection agency reports to credit reporting agencies, the date that the account will be removed from the debtor’s credit reports (the collection agency has to know this if it’s going to report the account, right?), along with the names of the credit reporting agencies to which the collector reports information and a disclosure of the consumer’s right to get free copies of those reports.

Debt Collection Account Statements

When you owe your credit card company money, you get a monthly statement spelling out the previous balance, the amount you owe, interest and fees charged, payments made, etc. If there is a mistake, you have the right to dispute it. But when that account goes to collections, you are usually operating blind. You make payments, but good luck trying to get a statement that shows what you owe, how payments have been applied, etc.

The collection industry should be held to the same standards as the industries for which they collect debts. They should be required to put payment agreements in writing, and then provide detailed information about balances and payments; if not on a regular basis, then at least upon request.

From all indications, Richard Cordray will do an excellent job at the helm of the CFPB, which the White House says will “level the playing field between banks and non-banks like … debt collectors.” Let’s hope he gets to do his job.