What the CFPB Should Do About Debt Collectors

On July 21, 2009, the Plain Dealer reported that then-Ohio Attorney General Richard Cordray sued debt collection firm National Enterprise Systems Inc., accusing the firm of violating Ohioans’ rights under the Fair Debt Collection Practices Act (FDCPA) and harassing them over past-due debts. Exactly two years later, the Dodd-Frank Wall Street Reform Act, which lays the groundwork for the new Consumer Financial Protection Bureau, goes into effect and Cordray has been nominated by President Obama to lead the agency. If he is confirmed as head of the CFPB, this gives him the opportunity to protect consumers from overzealous debt collectors on a national scale.

While the new agency will have its work cut out for it, regulating the debt collection industry—especially debt buyers that purchase lots of old debts and then try to collect based on sketchy information—should be near that top of the list. It’s well-known that complaints about the debt collection industry have generated more complaints to the Federal Trade Commission than any other single industry. The FTC, which will share enforcement duties with the CFPB, has laid the groundwork for new rules by holding a series of workshops around the country in which consumer advocates, members of the collection industry and attorneys have weighed in. The CFPB is in a position to write rules to help regulate the industry, something the FTC never could do.

There’s been enough talk on this issue; it’s time for action. Here are six things the Bureau should do:

Create Easy-To-Understand Debt Collection Letters

Here’s the easy-peasy suggestion for the CFPB: Develop uniform standards for the letters debt collectors can send to debtors. Under the FDCPA, collectors are required to send written notice of a debt within five business days of initially contacting a debtor. While the basic elements of that letter are already described in the FDCPA, there’s a lot left out, and too much left to the interpretation of sometimes aggressive collectors who want to scare up payment as quickly as possible.

Much like the mortgage disclosures for which the CFPB has been soliciting comments, a standard collection letter means, “debt collectors can just plug in the numbers,” says Philadelphia-based consumer law attorney Michael Forbes, who has sued debt collectors.

[Resource: What to do if a Debt Collector Calls]

What should go into such a debt collection letter? The basics consumers need to know:

Details of the debt

Summary of Consumer Rights

• Information about the statute of limitations
• Where to get more information about the consumer’s rights and resources
• How and where to file a complaint against the collector if necessary

[Resource: 11 Ways A Debt Collector May Be Breaking the Law]

Most importantly, these letters should not include other language designed to intimidate or confuse the debtor. Letters that include veiled threats to “investigate” a consumer for possible fraud, for example, or that look like pseudo-legal or government documents, have no place in the collection process. A standardized format would discourage collectors from trying “creative” approaches that may later be determined to be illegal anyway.

“Why can’t they play it straight?” asks Forbes. “Just tell the consumer exactly what he or she owes, ask them to pay, and if they don’t, they can turn it over for legal action.”

At a minimum, the Bureau should crack down on debt collectors that fail to send this or any notice. The FTC reported last year that nearly 30% of consumer complaints alleged that debt collectors failed to send the notice currently required by law. That’s unacceptable.

Rein in Reckless Debt Buyers »

Image: Quazie, via Flickr.com

Rein in Reckless Debt Buyers

ACA International, the collection industry’s main trade group, recently unveiled its own Blueprint for the CFPB. While I don’t agree with several parts of the proposal (including an attempt to lengthen the statute of limitations in many states to seven years), there is one part with which I can agree:

Assure Proper Debt Documentation: Improve the flow of information by clarifying the specific debt information that must be maintained by creditors and asset buyers in order to allow debt collectors to provide documentation responsive to a consumer’s dispute regarding the amount of the debt, to whom the debt is owed or who is responsible for paying the debt.

While Forbes isn’t a fan of the ACA’s Blueprint, dismissing it as being “completely self-serving,” he agrees that lack of proper documentation is a huge problem that often comes up when debt buyers sue consumers. Since most consumers don’t show up in court, much less challenge these suits, the abuse often goes undetected. “A lot of the states do require specific documentation (for a debt collector to bring a lawsuit). They don’t comply with it anyway,” he points out.

As ACA International recommends, this documentation should be provided to the consumer when he or she requests verification of the debt, as permitted under the FDCPA. As it stands now, this verification process is often a joke. When challenged, debt buyers just produce another letter that doesn’t provide enough information for the debtor to figure out whether her or she owes the debt, the amount is inflated, or the debt is too old.

[Article: What Can Debt Collectors Say On Answering Machines?]

Better Info About Debt Collection Complaints

According to Elizabeth Warren, the CFPB will be unveiling its new consumer complaint process this week. While the FTC’s system for gathering complaints about collectors has been helpful for understanding the problems consumers are experiencing, it can be improved. Specifically, it would be helpful for the CFPB to break down complaint categories even further than in the past, and clearly flag complaints about debt collectors:

1. Calling cell phones
2. Calling about a debt for a person other than the debtor—ideally noting if that person is a relative, stranger, or right name/wrong person
3. Trying to collect a debt belonging to a deceased relative when the debtor is not a cosigner
4. Contacting debtors online/through social media

How can the CFPB write effective rules if it doesn’t know how widespread specific problems are? More detailed complaint data would be helpful.

[Related: Daddy, Make the Bad Man Go Away]

Debt Collection Do No Call List

We don’t know how many consumers repeatedly get calls from debt collectors trying to reach someone else because the FTC doesn’t define this as a specific complaint category. But as I described in my story about my young daughter’s experience with debt collectors calling her cell phone looking for someone else, these kinds of calls can be an enormous hassle, and getting them to stop can be nearly impossible at times.

The CFPB needs to look into creating some kind of Do Not Call List for the debt collection industry that would give consumers the opportunity to instruct debt collectors not to call them at a particular number if they don’t believe they owe the debt, or if there are other concerns such as paying for calls on a cell phone.

The counterargument will be, “What about debt collectors trying to collect legitimate debts? How will they reach debtors if they can’t call them on their cell phones?” The answer? “It’s called U.S. mail,” says Forbes.

Collection Accounts and Credit Reports »

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.

[Related: How to Order Your Free Credit Report]