Consumer Financial Protection Bureau Takes Critical First Step toward Reining in Debt Collection Industry
This morning, the Consumer Financial Protection Bureau (CFPB) announced the release of an initial framework for how it intends to regulate the debt collection industry. Coming off the heels of its recent proposal to regulate unscrupulous payday lenders, the Bureau's proposed framework marks another important step toward ensuring that all Americans have a fair shot at participating in the financial mainstream.
The reasons why consumers need strong protections from the debt collection industry are clear. Approximately 70 million consumers have debt that is in collection and the Consumer Financial Protection Bureau receives more complaints about debt collection practices than any other lending activity, including credit reporting and credit cards, bank accounts, mortgage lending and student loans. As we reported in 2014, the rate of complaints related to debt collection has grown exponentially, increasing by more than 900% from 2000-2011. For low-income consumers who are most likely to be preyed upon by companies that purchase debt to turn a profit and are not beneath using heavy-handed tactics to make sure they are paid, these practices wreak havoc on already-unstable household balance sheets.
"The debt collection industry is one in which regulation to protect consumers is desperately needed. Too many Americans have become victims of predatory practices in the industry, which has had little and inconsistent regulation," said Prosperity Now President Andrea Levere. "The regulatory framework proposed today takes basic steps like limiting how collectors can contact consumers and forcing them to verify claims in advance. We welcome this action by the CFPB and look forward to providing feedback on ways to strengthen these rules as the regulatory process continues."
Highlights of the Bureau's plan include:
- Debt must be "Substantiated" by Collectors: The most common debt-related complaint concerns debt-related error. Collectors assign debt to the wrong consumer, or try to collect the wrong amount. Under the proposal, collectors will be required to verify basic information about the debt before attempting to collect.
- Curbing Aggressive Collection Tactics: Collectors would not be able to contact consumers more than six times per week, and consumers would have some control over the specific ways collectors try to contact them, such as where they can contact them and at what times.
- Notice of Consumer Rights: When collectors send notices regarding outstanding debts to a consumer, they will have to include a clear disclosure of a consumer's rights under federal law. The notice will also have to provide an easy way for consumers to dispute the claim (via a "tear-off" notice that can be sent back the collector).
- No Recourse Without Verification: Collectors would be barred from pursuing a disputed claim if documentation or evidence of the debt's legitimacy is missing, and if a collector sells disputed debt to a third party, that party would also be required to resolve the dispute before pursing collection.
We are excited the bureau is taking active steps to regulate this industry, but more work remains ahead for consumer advocates. We will continue to monitor the progress of these rules as they undergo further review and revision, and will be engaging advocates, including members of the Assets & Opportunity Network, to ensure that the needs of vulnerable consumers—those who need strong protections the most—are atop the list of priorities.
In an opportunity economy, there is no room for predatory industries to be left unchecked. Prosperity Now applauds the CFPB for taking yet another step toward strong consumer protections, and we look forward to engaging advocates on this topic in the months to come.