Remember when John Oliver took the debt industry to task earlier this year? He showed how collection agencies buy our overdue bills for mere pennies on the dollar, then hound consumers for the full sum. Might someone at the Consumer Financial Protection Bureau have been watching?
On Thursday, the CFPB released long-awaited proposed rules governing the $13.7 billion debt-collection industry. If ultimately adopted, they would reshape the way debt-collection agencies are allowed to interact with the people they believe owe them money, giving Americans new rights and putting a stop to some of the industry’s worst practices and abuses.
“Consumers should not be limited to being passive participants in a system they do not trust or understand,” CFPB Director Richard Cordray said in remarks he is scheduled to deliver later Thursday in California. “We are determined to put the burden of proof on the debt collector and take some of the weight off the consumer.”
Imagine that.
It’s a powerful reminder of why we need the CFPB, the federal agency initiated by now-Sen. Elizabeth Warren, one that stands as a defender of Americans against the all-too-often predatory financial services industry.
The CFPB is also, of course, an agency any number of Republicans say they would like to do away with. Donald Trump says he would push to repeal to the Dodd-Frank Act, which gave birth to the CFPB, though he won’t actually get any more specific about the CFPB than that. Texas Sen. Ted Cruz did propose legislation in 2015 that would’ve killed the CFPB, claiming it “does little to protect consumers.” There’s yet another Republican-sponsored congressional bill that would turn the leadership of the CFPB over to a committee consisting of members of both major political parties. That would likely render the CFPB toothless, since the Republicans oppose its very existence. “Consumers’ primary advocate in the U.S. government would have to fight with one hand tied behind its back,” Hillary Clinton said in a statement last year opposing this Republican initiative. “It puts the interests of powerful corporations and lobbyists ahead of the needs of consumers and families.” The Republican platform embraces all these schemes, calling the CFPB a “rogue agency” that “if not abolished” should be funded by Congress, something that would increase lawmakers’ control over it.
No doubt they will squawk about this, too.
At the core of the proposed debt-collection changes is the matter of documentation. Collection agencies are not the originators of debt. Instead, they purchase debt consumers are said to have defaulted on in bulk, almost always for a mere fraction of its value, and then try to get consumers to make good on their bills. It’s a fraught process. Information is frequently not transferred in full when the debt is sold, the result being that people are hounded for debt they’ve already repaid, disgorged via bankruptcy filings, or perhaps never even owed at all.
Debt collectors will, if the new regulations are adopted, need not only to be able to prove the debt is real, they’ll also be required to inform consumers that they have a right to insist on that. Before ever contacting a debtor, collectors must be able to verify the person they’re contacting actually owes the debt. They must have such details as the borrowers’ full name, last known address, telephone number, how much was owed both when the debt went to collections and if any other payments have been made toward it.
In addition, bill collectors cannot file lawsuits to reclaim money without full and complete documentation including, in the words of the CFPB, “evidence of the amount of principal, interest, or fees billed, and the date and amount of each payment made after the default.”
The proposed regs will also give consumers greater rights when it comes to so-called zombie debt—that is, debt so aged consumers can’t remember or say they paid off at some time in the past, or is no longer due thanks to the statute of limitations (which varies by state). All official collection letters would need to contain a “tear off” sheet, allowing the recipient to dispute the debt. If a consumer claims the debt is not accurate in any way, the debt collector would need to demonstrate that they are wrong. Till they do that, they can’t hound the debtor.
As for debt that is past the statute of limitations, the collection letter would need to clearly state if the debt is, as the CFPB put it, “too old for a lawsuit.” In addition, collectors would be banned from taking consumers to court in order to try and collect on this aged debt.
Moreover, the CFPB’s suggested rules, if ultimately adopted, will limit debt collectors to a maximum of six attempts a week to get in touch with debtors—and that includes all telephone calls and emails. Yes, voicemails count. Ditto unanswered calls. Moreover, if a consumer asks a bill collector not to contact them in a particular way—say, at work—they need to listen. Full stop.
Finally, if the debt collector sells off a debt, it needs to transfer all information it has about the unpaid bill with it, and if the debtor is disputing any part of it, the matter needs to be handled before the new holder of the debt can attempt to collect on it.
These rules aren’t final, not by a long shot. There will be public hearings and various reviews before the CFPB can issue new rules—which the public and business interests alike can comment on for several months. The agency then will evaluate those submissions before releasing a revised, final rule. It’s highly unlikely all of this will be accomplished before next year, making this a timely reminder on the day Hillary Clinton is set to accept her party’s nomination for president of the United States of what a Democratic president can do for us and what a Republican president can possibly take away.
