Good News for Consumers with Debt Problems
In what can surely be hailed as welcome news for consumers in our struggling economy, the Consumer Financial Protection Bureau (CFPB) has published a rule that will enable it to regulate and oversee large consumer debt collectors.
The Dodd-Frank Act, passed in 2010, gave the CFPB the authority to oversee a wide range of institutions that could potentially engage in debt collection. This includes some banks and their affiliates; non-bank entities in the residential mortgage, payday lending, and private education lending markets; and their service providers.
The CFPB's authority over these entities began on January 2, 2013 when the rule went into effect. Under the new rule, any entity with over $10 million in annual receipts from consumer debt collection activities will fall under the purview of the CFPB's supervisory authority. The agency says that this will encompass approximately 175 debt collection companies, which comprise roughly 60% of the industry's annual receipts in the consumer debt collection market.
The debt collection agencies that will be subject to the supervision of the CFPB will be required to comply with several debtor/creditor laws and their implementing regulations. These laws include:
- The Fair Debt Collection Practices Act, which regulates collection activities and prohibits deceptive, unfair, and abusive collection practices.
- The Fair Credit Reporting Act, which requires that those who furnish information to consumer reporting agencies follow reasonable policies and procedures regarding the accuracy and integrity of data they enter into the consumer reporting system.
- The Gramm-Leach-Bliley Act, which provides limitations on when financial institutions can share non-public personal information with third parties.
- The Electronic Fund Transfer Act, which places requirements on entities to protect individual consumer rights when obtaining electronic payments from consumers.
- The Equal Credit Opportunity Act, which prohibits discrimination in a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age (an applicant must be of age to sign a contract), receipt of public assistance income, or exercise in good faith of any right under the Consumer Credit Protection Act.
"Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly," said CFPB Director Richard Cordray. "[W]e are announcing that we will be supervising the larger debt collectors in the market for the first time at the federal level. We want all companies to realize that the better business choice is to follow the law — not break it."
The CFPB reports that about 30 million Americans have an average $1,500 of debt that is liable to be turned over to debt collection agencies. Consumers often have their collection status reported to credit bureaus by collection agencies. If this information is inaccurate, it can have significant implications for consumers. For example, if a young man receives a poorer credit score than he actually deserves based on falsely reported debt, this unlucky guy can see his dreams of buying a new home or car vanish due to his failure to get loan approval.
Another important part of this new rule is the release of a field guide that CFPB examiners will consult to ensure that those involved in debt collection are following the law and to assess potential risks to consumers. This will include making sure that debt collectors do the following:
- Properly identify themselves and properly disclose the amount of debt that consumers owe. The CFPB wants debt collectors to be "upfront and clear" with consumers.
- Use accurate data when contacting consumers to collect debt.
- Resolve complaints adequately and in a timely manner and maintain a process to address consumer disputes.
- Perhaps most important to consumers, communicate "civilly and honestly," with no harassment or deception in an attempt to collect debt.
The CFPB has issued similar procedures for other companies under its supervision, such as consumer reporting agencies, mortgage originators, mortgage servicers, and payday lenders. Hopefully, these new rules will improve how debt collectors treat consumers and result in a more positive experience for both parties when working together to resolve consumers' debt issues.
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