The Consumer Financial Protection Bureau (CFPB) is in the process of drafting new rules in order to stop the abusive practices of debt collection companies. The CFPB’s primary goal is to make sure that consumers are being protected from “unfair, deceptive, or abusive practices and take action against companies that break the law.” In furthering their goal, they handle complaints sent in by consumers about unfair debt collection practices.
Debt collection companies should have more reliable information about the actual debt before they actually try to collect.
Last year alone the CFPB estimated that over 70 million people were contacted by a creditor or collector seeking to collect a debt owed. The CFPB handled about 85,000 debt collection complaints in 2015 and about 250,000 since 2011. Most of the complaints they received dealt with creditors or collectors contacting consumers continually to collect a debt that consumers claim is “improper, because it was not their debt in the first place or because it had already been repaid or discharged in bankruptcy.”
The CFPB states that it “receives more complaints about the $13.7 billion debt collection industry than any other issue.” In the last five years, the CFPB ordered $100 million in penalties for debt collectors, in return, provided billions of consumers with debt relief. Also, the Federal Trade Commission has “brought more that 40 cases.”
The new rules that the CFPB are drafting “would limit the number of times debt collectors can contact borrowers to collect debts, and require them to substantiate that they have the right person before doing so.” The debt collectors will also be required to make it easier for borrowers to dispute a debt.
Richard Cordray, the director of CFPB, stated at a field event in Sacramento, California, that collection businesses should be able to collect debt that is legitimately owed and to be able to do so in a fair and reasonable manner. He expressed CRPB’s intent to “rein in illegal practices that harass and rob consumers.” Cordray also stated that consumers deserve to be treated with respect and dignity when collection companies contact them and that the basic principles for the new rules that are being proposed are “grounded in common sense.” Debt collection companies should have more reliable information about the actual debt before they actually try to collect.
Many consumers do not understand their rights under the FDPCA
The imposed rules would apply to all third-party debt collectors and those covered by the Fair Debt Collection Practices Act, (FDCPA) which also includes debt buyers. The CFPB believes that under the new proposed rules, it will help eliminate some of these problems that consumers face with debt collection companies. Debt collection is governed by the FDPCA. “It is the purpose of this subchapter to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent state action to protect consumers against debt collection abuses.”
According to CFPB officials, the Fair Debt Collection Practices Act, needs to be updated. Margot Saunders, an attorney with the National Consumer Law Center (NCLC), notes that with the FDPCA being in effect for almost 40 years, there are still too many debt collectors contacting the wrong person when it comes to a debt being owed, or contacting the right person with the wrong amount of debt owed. The FDPCA gives consumers the right to dispute a debt and ask for more information concerning the debt. Many consumers do not understand their rights under the FDPCA. Under the new proposed rules, debt collection companies would be required to confirm any debt information if the consumer requests it. In addition to offering debt information a consumer requests, the proposal seeks to limit the number of times a debt collection company can contact a borrower and if requested by the borrower, prevent certain channels of communication, such as calling their work phone.
With the 77 million Americans who are hounded by debt collectors each year, the CFPB is taking a step in the right direction to illuminate abusive debt collection practices. Will the new proposals be enough to put a substantial end to the problem?
Critics believe that the new proposals offered by the CFPB, will not stop consumers from receiving harassing collection phone calls. Saunders, believes that the CFPB proposal makes the debt collection process more complicated. She is also concerned that the proposal lets collectors rely on information that may already be inaccurate, instead of just making sure that they have the right information to begin with. In addition to making debt collection more complicated, Saunders also thinks that with the new proposal in place, collectors will still be able to “mislead consumers into paying debts that are not legally enforceable.”
Collectors should not be able to harass consumers with multiple phone calls a day.
According to the NCLC, most credit card companies have a limit of 4-15 calls per account per day. Collectors on the other hand, want to be able to call consumers up to six times a day. The calling practices of most collectors can be very excessive, to the point where it can add additional stress to consumers receiving such phone calls. “Most people who owe debts simply do not have the money to pay due to unexpected illness, unemployment, or divorce.” Collectors should not be able to harass consumers with multiple phone calls a day, which can create an even more stressful environment for families. Such abusive tactics is exactly what the CFPB wants to tackle under their proposal.
James Mastriani, the president of a debt collection firm, told National Public Radio (NPR) that he believes that there should be safeguards when it comes to the rights of consumers and providing clear and effective rules for collectors to follow. But Mastriani, believes that it is also important to make sure that the law is not misused and essentially enable borrowers to make loans into de facto gifts. If such practices start to be allowed, “this will reduce the availability of credit for all consumers and make credit more expensive.”
Graciela Aponte-Diaz, the policy director of the Center for Responsible Lending in California, is very hopeful of the new proposals and believes that it is a step in the right direction. Aponte-Diaz told the Washington Informer that, “Reports have shown that these debt collection activities have a disproportionate impact on communities of color. Majority black neighborhoods are hit twice as hard by debt collection court judgments as majority white neighborhoods, even adjusting for differences in income.”
There was a recent national consumer poll conducted by Center for Research Libraries and Americans for Financial Reform that found 84 percent of consumers are being sued annually on debt collections without evidence to prove their cases in court. This is clearly a problem that needs to be addressed.
The new proposals presented by the CFPB, is a good start when it comes to addressing the problems of credit collectors and finding solutions to harassing phone calls. But there seems that there is a lot more that needs to be done when it comes to providing the correct and updated information for debt collectors and the disproportionate impact on certain communities. It will be interesting to see how the proposal plays out. NPR states that the proposed rules will be released out to the public for comments and will be rewritten in greater detail after other companies and consumer groups have weighed in.