Protecting Consumers from Abusive Debt Collection Practices

Over 70 million people – roughly one-third of Americans with a credit report – have debt subject to collection. This debt is often owned by collections agencies, who purchase the debt from lenders for pennies on the dollar in exchange for the right to collect it. And too often these “third-party” debt collectors make a business out of harassment, repeatedly calling individuals and their relatives, garnishing their wages, even visiting them at work – putting a heavy burden on families trying to get back on their feet.

As the debt collection industry has grown, so too have complaints from consumers. Last year, debt collection generated more complaints to the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) than any other issue, with nearly a million complaints filed at the two agencies combined. In some cases, consumers lodged a complaint for harassment related to legitimately owed debt, while hundreds of thousands of other cases involved consumers who had no debt at all, or were asked to pay more than they owed.

On Thursday, the CFPB announced it is considering a set of proposals to reform the third-party debt collection industry, bringing greater accountability to the market and desperately needed relief for consumers working to resolve their financial burdens. Let’s be clear: people should repay their debts, and debt repayment is important for a well-functioning credit market. But Americans working to pay back the money they owe should not have to face harassment, intimidation, or illegal threats. And Americans who do not owe debt should not be subject to collection.

The CFPB’s proposal would ensure that third-party debt collectors do not take advantage of consumer vulnerabilities. Under the proposal:

• Debt collectors may only collect the amount that is due from the person who owes it;
• Before contacting consumers to begin the collection process, collectors would be required to confirm the names, addresses, and amount owed with the debt owner;
• In debt collection notices, collectors must send consumers specific information about their debt and their rights under federal law, as well as a “tear-off” that consumers can send back to repay the debt or explain why the collection is wrong; and
• In the case of a dispute, the collector must respond with written documentation in the form of a debt report to verify the legitimacy of the collection. Without verification, the collection process could not continue.

The proposal also includes important measures to protect borrowers from harassing and disruptive treatment. The new proposals limit the number of times collectors may contact the consumer to six communication attempts per week. And to address the particularly egregious practice of contacting family members of someone who has recently died, the proposal would require collectors to wait at least 30 days after a consumer has passed away before attempting to contact surviving family members.

These new protections would enable Americans struggling under financial burdens to better repay their debt with dignity. This is just one more important step in the CFPB’s work to make sure that as consumers interact with the financial system, they’re getting a fair shake. We’ve got to keep doing everything we can to protect the CFPB from attacks in Congress, so it can continue to do this important work of building a financial system where responsibility is rewarded, people are treated fairly, and big financial institutions can’t get away with the kinds of tricks and traps that we saw leading up to the financial crisis.