Agencies, Congress turn up heat on debt collectors

Listen to this article

The rise in health care-related consumer debt, student loans, shoddy record keeping by creditors and abusive practices by debt collectors are leading federal regulators and lawmakers to crack down on third-party debt collectors and call for tighter rules applying to them.

Over the last several months the Consumer Financial Protection Bureau and the Federal Trade Commission have boosted enforcement efforts against companies engaging in overly aggressive debt collection practices, and reached out to consumers to educate them about the law and give them better tools to fight back. While these efforts have resulted in injunctive relief and netted millions of dollars in fines against some of the world’s largest debt collection companies, federal officials are calling for new, stricter rules on how debts are packaged and sold by financial institutions and collected by firms that buy the debts to make a profit.

“Several collectors violated the Fair Debt Collection Practices Act, the law intended to keep collectors from abusing consumers, by threatening physical harm, threatening to dig up defendants’ dead children, calling repeatedly, divulging consumers’ confidential financial information, attempting to collect debts they know do not exist, and refusing to fully review the validity of a debt, even when a consumer says they do not owe it,” said Sen. Sherrod Brown, D-Ohio, who has called on CFPB Director Richard Cordray to enact tougher rules on financial institutions and other creditors as well as debt collection agencies.

Increased enforcement actions

Federal agencies receive more consumer complaints about aggressive practices by third-party debt collectors than any other specific industry, as medical debts and student loans surpass other consumer debts. At the same time, agency officials and lawmakers say the FDCPA has become too outdated to be effective.

“Congress passed the Fair Debt Collection Practices Act when I was in high school, [long] before many of today’s communication technologies were in use, including cellphones, text messaging, email, voicemail and even faxes,” Corey Stone, Assistant Director of the CFPB’s Office of Deposits, Cash, Collections, and Reporting Markets, told a Senate subcommittee at a July 17 hearing on the debt collection industry.

James Reilly Dolan, the FTC’s Acting Associate Director for the Division of Financial Practices, told lawmakers that the agency has “focused on bringing a greater number of cases and obtaining stronger monetary and injunctive remedies against debt collectors that violate the law.”

In June, that effort led to the largest civil penalty ever obtained by the FTC against a third-party debt collector. Expert Global Solutions, the nation’s largest debt collector, and its subsidiaries agreed to stop harassing practices and pay $3.2 million for violating the FDCPA.

According to the FTC’s complaint, the company engaged in tactics including making harassing phone calls to alleged debtors’ homes and businesses and leaving phone messages that disclosed debtors’ personal information, and seeking to collect debts without verification even when consumers disputed the debt.

Dolan said that case was one of 15 FTC enforcement actions against debt collectors that have led to more than $56 million in judgments this year alone as part of the agency’s stepped-up efforts.

Meanwhile the CFPB issued two new bulletins and five action letters to address the conduct of debt collectors and debt buyers as well as original creditors and servicers. The agency also launched a new web page to allow consumers to submit complaints directly to the agency.

Call for new rules

But those efforts may not be enough to fix the problem, which federal officials blame partially on lax rules governing how old debts are packaged and sold. The rules often leave third party-collectors with scant or no documentation, leading to debtor misidentification or collection efforts for debts that have already been settled or paid.

Stone told lawmakers that in many cases debt collectors, which often buy old debts in bulk, don’t have the ability to obtain the data needed to accurately verify information about the debtor or underlying loan if they wanted to.

“In some cases, these [debts] are actually sold in an auction environment which makes it difficult for a buyer to negotiate better terms in terms of data continuity and data availability from the creditors selling the debt, who are trying to get as many dollars for that debt as they possibly can,” Stone said.

An FTC report released in January after the agency’s first large-scale empirical assessment of debt buyers found that even when a debt buyer was provided with verification data by the seller, the accuracy of the information could not be guaranteed. The report also found that buyers rarely received the dispute history of purchased debt, and were not able to access original account documentation.

Meanwhile, Brown wrote a letter to Cordray calling for increased regulation of debt collectors, including rules that would:

• Require all original creditors and third-party debt collectors to hold all relevant documentation before issuing their first debt collection notice to the consumers;
• Require that information about previous debt collection attempts travel with the debt after sale;
• Prohibit the collection of unverifiable or time-barred debt; and
• Bar manipulative issuances of credit products in exchange for the payment of debts.

Brown also asked the agency to issue updated guidance for consumer dispute procedures reflecting the changes in technology since the FDCPA was issued.

Stone said the agency is considering a broad range of possible solutions.

“We are trying to bring a soup-to-nuts, beginning-to-end approach to this,” Stone said.