CFPB to Consider Debt Collection Practices Overhaul

The Consumer Financial Protection Bureau yesterday outlined proposals under consideration that would overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt.

Under the proposals ( being considered, debt collectors would be required to have more and better information about the debt before they collect. As they are collecting, companies would be required to limit communications, clearly disclose debt details and make it easier to dispute the debt. When responding to disputes, collectors would be prohibited from continuing to pursue debt without sufficient evidence. These requirements and restrictions would follow the debt if it were sold or transferred.

“This is about bringing better accuracy and accountability to a market that desperately needs it,” said CFPB Director Richard Cordray.

However, the proposals, for now, appear to exempt banks. Justin Wiseman, director of loan administration policy with the Mortgage Bankers Association, also noted any first-party collector appears to be exempt, so an independent mortgage banker with a balance sheet or one that bought the loan when it was current is also exempt.

However, Wiseman said MBA remains concerned about further restrictions on debt-collection practices, noting that mortgage lenders and servicers are dedicated to assisting mortgage borrowers who might be experiencing financial difficulty early in the process, so as to avoid further delinquency or foreclosure.

“These are calls designed to help the borrower,” Wiseman said. “It’s a consumer-friendly move, endorsed by CFPB rules that encourage early outreach. Some people think these calls are for collecting debts.”

The CFPB noted debt collection is a multi-billion dollar industry and affects nearly 70 million consumers who have debt in collection, some of whom may be wrongly contacted by debt collectors. The Bureau said debt collection generates more complaints to the CFPB than any other financial product or service.

According to a recent CFPB study, one-third of consumers had been contacted by a creditor or collector trying to collect a debt within the past year. Most consumers who had been contacted reported attempts to collect payment on between two and four debts. And one-third of consumers who had been contacted about a debt in the last year reported an attempt to collect in the wrong amount.

Debt collectors are already prohibited by federal law from harassing, oppressing, or abusing consumers. The main law that governs the industry and protects consumers is the 1977 Fair Debt Collection Practices Act. In 2010, the Dodd-Frank Act revised that law, making the CFPB the first agency with the power to issue substantive rules under the statute.

The CFPB proposals under consideration would increase protections pertaining to third-party debt collectors and others covered by the Fair Debt Collection Practices Act, including many debt buyers. As part of its overhaul of the debt collection marketplace, the CFPB plans to address consumer protection issues involving first-party debt collectors and creditors on a separate track. Specifically, the new protections are aimed at ensuring that debt collectors:

–Collect the correct debt: Collectors would have to scrub their files and substantiate the debt before contacting consumers.
–Limit excessive or disruptive communications: Collectors would be limited to six communication attempts per week through any point of contact before they have reached the consumer. In addition, it would make it easier for consumers to opt out.
–Make debt details clear and disputes easy: Collectors would be required to include more specific information about the debt in the initial collection notices sent to consumers. This information would include the consumer’s federal rights.
–Document debt on demand for disputes: If the tear-off sheet or any written notice is sent back within 30 days of the initial collection notice, the collector would have to provide a debt report–written information substantiating the debt–back to the consumer.
–Stop collecting or suing for debt without proper documentation: If a consumer disputes–in any way–the validity of the debt, collectors would have to stop collections until the necessary documentation is checked. Collecting on debt that lacks sufficient evidence would be prohibited. In addition, collectors that come across any specific warning signs that the information is inaccurate or incomplete would not be able to collect until they resolve the problem.
–Stop burying the dispute: If debt collectors transfer debt without responding to disputes, the next collector could not try to collect until the dispute is resolved.

As part of the review process, the CFPB is also releasing a report, Study of Third-Party Debt Collection Operations, which is available at: