CFPB Outlines Proposals to Protect Consumers from Abusive Debt Collection Practices

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Consumers Union Praises CFPB & Offers Recommendations for Strengthening Proposal

The debt collection industry is rife with abuse. The CFPB’s proposal will help protect consumers from being unfairly harassed and hold debt collectors accountable for showing they have a reasonable basis to collect past debts.

The Consumer Financial Protection Bureau (CFPB) announced today that it is considering a series of proposals to address the record number of complaints it has received from consumers about abusive debt collection practices. The proposals would establish important protections to help ensure debt collectors can verify a debt is owed and make it easier for consumers to dispute unfair collection efforts, according to Consumers Union, the policy and advocacy division of Consumer Reports.

“The debt collection industry is rife with abuse,” said Suzanne Martindale, staff attorney for Consumers Union. “Current law leaves consumers vulnerable to being hounded for debts that they may have already paid off or that don’t even belong to them. The CFPB’s proposal will help protect consumers from being unfairly harassed and hold debt collectors accountable for showing they have a reasonable basis to collect past debts.”

“However, the outline falls short of requiring debt collectors to check actual records associated with the consumer’s original account, and would still permit collection of stale debts so long as the collector discloses that the consumer can no longer be sued for it under state law,” Martindale continued. “We urge the CFPB to close those loopholes in the official proposed rule.”

In 2014, the CFPB issued a report based on over 30,000 complaints received during the previous year and found that debt collection abuses are all too common. According to the CFPB, more than one-third of consumers said they were repeatedly contacted by debt collectors about debts they didn’t owe because the debt had already been paid, didn’t belong to them, or was the result of identity theft. Roughly one-quarter of consumers also complained that debt collectors used harassing tactics like repeated phone calls and threats of legal action, even after consumers had informed the collectors that the debt didn’t belong to them or they requested more information about the debt.

Debt collection abuses have become more common as more debt is bought and sold. Debt buyers purchase large portfolios of consumer debt from the original creditor or secondary debt buyers for pennies on the dollar. The buyers hope to make a profit by collecting a small percentage of those accounts and then resell the portfolio to another debt buyer who then restarts efforts to collect. A 2011 Consumers Union report found that debt buyers were filing an increasing number of lawsuits against consumers even though they didn’t have proof to validate their claims. Some debt buyers had little more than a robo-signed affidavit to back up their claims in court.

Under the proposal outlined by the CFPB today, third-party debt collection agencies and others covered by the Fair Debt Collection Practices Act would be required to abide by a number of reforms, including:

  • Documenting the Debt is Owed: Debt collectors would need to substantiate that a debt is owed by obtaining and reviewing information that confirms the borrower’s full name, last known address and phone number, account number, default date, amount owed at default, and the date and amount of any payment made after default.
  • Limiting Excessive Contacts: Debt collectors would be limited to six attempts per week to reach the consumer before contact is made, regardless of the communication method they use. Consumers would have the right to stop debt collectors from contacting them in specific ways, such as preventing contacts on certain phone lines at certain locations or during certain times that are inconvenient.    
  • Making it Easier to Dispute Debts: Debt collectors would be required to clearly disclose in the collection notice the consumer’s rights and provide the consumer with a “tear-off” form that makes it easier to dispute the debt.
  • Stopping Unsubstantiated Debt Collection: If the consumer disputes the debt within 30 days, the debt collector would be prohibited from continuing collection efforts until it provides the consumer with documentation on the amount that is owed. Debt collectors would be required to check the documentation of the debt before filing suit against the consumer in court.

The CFPB is also considering restrictions on the buying and selling of debt, where the potential buyer has a track record of violating or evading the law.

In 2013, Consumers Union helped pass legislation in California that strengthened state oversight over debt buyers by requiring them to provide consumers and the courts the documentation to prove a debt is actually owed. The law also requires debt buyers to access records from when the original account was active and show how the debt was calculated, stating principal, interest and other charges separately.
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Consumers Union is the public policy and advocacy division of Consumer Reports. Consumers Union works for health reform, food and product safety, financial reform, and other consumer issues in Washington, D.C., the states, and in the marketplace. Consumer Reports is the world’s largest independent product-testing organization. Using its more than 50 labs, auto test center, and survey research center, the nonprofit rates thousands of products and services annually. Founded in 1936, Consumer Reports has over 8 million subscribers to its magazine, website, and other publications.

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Michael McCauley