Past Due! New Rules to Rein in Nasty Debt Collectors

Plus: How to Protect Your Rights

Consumer Financial Protection Bureau proposed changes to rules for debt collectors. Consumer advocates differ on how effective that the rules will be, and prospects for the rules’ enactment are clouded by the efforts of lobbyists and politicians to counteract them.

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Profanity. Forged signatures. Court summons. Contacting your boss. Threats of jail time, public embarrassment, even death.

These nasty techniques and more form the basis for tens of thousands of consumer complaints that are filed each year about the $13.6 billion debt-collection business, those third-party bounty hunters who often skirt consumer-protection laws in their pursuit of past-due payments.

What’s even worse, exasperated consumers say they’ve been hassled over debts that they paid off, settled in bankruptcy or never owed in the first place. Frightened senior citizens report being brutally quizzed about a late spouse’s assets or told that their Social Security and veteran’s benefits would be seized if they didn’t pay up.

In extreme cases, collectors threatened to harm pets or desecrate the bodies of consumers’ deceased loved ones as part of their shakedown attempts.

Thanks to consumers and the massive volume of complaints that they’ve made, new rules to govern debt collectors are in the works—but why has the consideration of new rules taken so long, and will they provide enough clout to rein in the worst offenders? We aren’t so sure. Bureaucracy, the large number of players and partisan politics add up to lots of leeway for debt collectors that are determined not to comply with the law.

NEW PROTECTIONS? Past-due accounts often find their way to third-party debt collectors when the original lenders or creditors outsource collection efforts or sell off the accounts for cents on the dollar.

Unfortunately, existing laws fail to shield millions of consumers from aggressive collection tactics that are designed to annoy, frighten and humiliate. The Fair Debt Collection Practices Act (FDCPA) of 1977 outlines the dos and don’ts for debt collectors. However, it places most of the burden of proof for disputing a claim on the consumer. In the meantime, debt collectors can file lawsuits, add black marks to credit reports and make a barrage of dunning phone calls.

Since 2011, Consumer Financial Protection Bureau (CFPB) logged a quarter of a million consumer complaints about debt-collection companies.

Thirty-eight percent of complainants say they’ve been approached for debt that they don’t believe that they owe—the top reason for consumers to file a report with CFPB. Communications tactics account for the second-highest number among the thiousands of debt-collection complaints that are posted monthly to CFPB’s website.

CFPB says the complaint system is a portal that connects consumers with the collection companies, which can log on to address complaints. When companies respond, the action is made public. If companies don’t respond within 15 days of the complaint’s posting, the complaint is designated as unanswered.

AH, THAT'S EASY. This proposed form that debt collectors would be required to send to consumers makes disputing a debt simple. Debt collectors aren't happy.

AH, THAT'S EASY. This proposed form that debt collectors would be required to send to consumers makes disputing a debt simple. Debt collectors aren't happy.

For the most part, the nature of the responses seems to be at the debt-collection companies’ discretion, with most being disclaimers, such as “company believes it acted appropriately as authorized by contract or law.” It’s unclear how often consumers are satisfied with the result; CFPB monitors complaints but generally doesn’t get involved in the resolution. (Our calls for comment to numerous companies that are named in complaints went unreturned.)

It was welcome news to us when, in July 2016, CFPB announced an overhaul of debt-collector regulations to protect delinquent consumers from harassment.

Until CFPB was established in 2011, Federal Trade Commission was the go-to enforcer of the FDCPA. FTC still has enforcement powers, so the two agencies share information about complaints and investigations. However, only CFPB can modify the language of the law.

CFPB’s proposals would: make debt collectors more accountable for documenting debt; limit the frequency of consumer contact; create a multiple-choice mail-in form to help consumers to dispute a collection effort; address the way that creditors approach recently bereaved consumers; and add provisions to help those who aren’t proficient in English.

“We envision a debt-collection market where consumers are treated with dignity and respect,” says John McNamara, who is a former debt-collections-industry executive and who now serves as an acting assistant director at CFPB. “We foresee a market where consumers are better informed and that debt collectors are communicating with the right person about the right amount.”

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