Debt Collection Regulation

As of July 2016, the Consumer Financial Protection Bureau announced that it intends to overhaul the debt collection market by capping collector contact attempts and by ensuring that companies have more and better information about a debt before they attempt to collect. Under its proposal, the CFPB would require companies to limit communications, clearly disclose debt details, and make it easier for consumers to dispute a debt. Additionally, collectors would be prohibited from continuing to pursue a debt without sufficient evidence. These proposed requirements and restrictions would follow a debt, even if the it is sold or transferred to another company.

The Consumer Financial Protection Bureau receives more complaints about debt collection than any other financial product that it currently tracks. Approximately 30% of CFPB complaints involve debt collection. In the United States, debt collection is a multi-billion-dollar industry and affects approximately 70 million consumers. An estimated 6,000 debt collection companies currently operate and 76% of these firms have fewer than 20 employees.

In many cases, consumers are wrongly contacted by debt collectors for debts they do not owe or for amounts higher than the actual debt owed. Banks and other original creditors may collect their own debts or hire third-party collectors to collect the debts owed. In the case of third party collectors, original creditors sell their consumer debts to these third parties, who may then in turn collect on the purchased debts. According to a recent study conducted by the CFPB, one in three consumers has been contacted by a creditor or collector trying to collect a debt within the past year. Additionally, approximately one-third of consumers who had been contacted about a debt reported that the debt alleged was in the wrong amount.

The proposals offered by the CFPB are aimed at increasing the protections pertaining to third-party debt collectors and others covered by the Fair Debt Collection Practices Act. The new protections are aimed at ensuring that debt collectors: (1) collect the correct debt; (2) limit excessive or disruptive communications; (3) make debt details clear and allow consumers to easily dispute collection claims; (4) document debt on demand for disputes; (5) stop collecting or suing for debt without proper documentation; and (6) stop burying the dispute.

While an overhaul of the debt collection industry is important to improve consumer protections, consumers must also be educated of their rights and the remedies available to them should they be wrongly contacted by a debt collector. Many consumers are unaware of the obligations and responsibilities imposed upon debt collectors by existing legislation such as the Fair Debt Collection Practice Act or the Dodd-Frank Wall Street Reform and Consumer Protection Act. This lack of knowledge allows debt collection companies to maintain the upper hand in collection attempts and allow them to pressure consumers into paying debts that are greater than actually owed or are not owed at all. Many consumers pay inaccurate debts in an effort to stop collectors from contacting them or out of fear of the consequences of non-payment. Providing consumers with easily accessible information about debt collection and their rights could improve their ability to defend themselves from unwarranted debt collection attempts.