Having proposed a rule last month to protect consumers from the payday lending debt trap, the Consumer Financial Protection Bureau (CFPB) has its next target on the debt collection industry. With the passage of the Federal Debt Collection Practices Act (FDCPA) nearly 40 years ago, Congress set out to eliminate abusive debt collection practices. It held that unfair practices lead to personal bankruptcies, marital instability, job loss, and invasion of privacy. Not until the enactment of the Dodd-Frank Act in 2010, however, was a federal agency authorized to issue comprehensive regulations to implement the FDCPA. In an effort to protect and improve the financial well-being of consumers, the CFPB recently outlined new debt collection rules.
Since the passage of the FDCPA, the debt collection industry has experienced dramatic growth. Currently, debt collection is a multibillion-dollar industry made up of a network of first- and third-party collectors, debt buyers, collection law firms, and millions of affected consumers. Approximately 70 million people (one in three consumers) has a debt in collection. Thousands of collection firms exist, generating about $14 billion in revenue.
Not surprisingly, debt collection is a major source of consumer complaint. In the three years that the CFPB has been collecting them, the Bureau has received about 250,000 complaints regarding debt collection practices, more than any other financial service or product. The leading cause for complaint is that consumers are being contacted for debts they don’t owe, and a separate CFPB survey suggests that approximately 28 percent of all consumers have experienced this very issue.
To tackle the problem, the CFPB announced at a field hearing this week that it is considering a proposal to overhaul the debt collection industry. The proposal under consideration aims to protect consumers from unfair collection practices, ensuring that all consumers are treated with dignity.
The CFPB’s proposals aim to ensure debt collectors:
-Collect the correct debt.
-Limit excessive or disruptive communications.
-Make debt details clear and disputes easy.
-Document the debt by providing written information substantiating the debt to the consumer.
-Stop collecting or suing for debt without proper debt documentation.
-Stop burying the dispute by requiring collectors who transfer debt to respond to disputes.
These protections are critically important for people who have outstanding debt and are attempting to pay it down, free from coercive or intimidating collection practices. The National Council of La Raza (NCLR) Affiliates report that in their communities, Hispanic clients, who often live in mixed-status households, are threatened by debt collectors who claim they will report family members for being undocumented.
This type of intimidation has no place in the financial marketplace. We look forward to working with the CFPB to improve the draft proposal to ensure that Latinos, and all consumers, are better served by the debt collection industry.
Renato Rocha is a Policy Analyst for the Wealth-Building Initiative of National Council of La Raza.