Debt Collection Rules Draw Zero Fans

As is often the case with federal rules, nobody seems happy with the CFPB’s proposed regulations governing the debt collection industry.

To debt collectors, the rule is too strict and does not allow them to take the necessary steps to contact debtors.

To consumer groups, the rule is so loose that it will continue to allow debt collectors to harass consumers.

After years of research, the CFPB on May 7 released a 538-page proposed rule implementing the Fair Debt Collection Practices Act. The proposal specifies rules for third-party debt collectors covered under that law. Among other things, the rule addresses technological advances that have taken place since the law was enacted in 1977.

Credit union trade groups said while the rule only governs third-party debt collectors, many credit unions hire those firms.

“We are pleased that the bureau is taking steps to promulgate rules on a segment of the industry that has operated without adequate regulation and has been subject to judicial orders for several decades,” CUNA Chief Advocacy Officer Ryan Donovan said. “This should bring some certainty to the operation of third-party collectors and may provide consumers with additional protections.”

“We appreciate the bureau working to ensure consumers are provided with clear, upfront disclosures on the terms, conditions and obligations of their loans,” NAFCU Director of Regulatory Affairs Ann Kossachev said.

NAFCU officials said they will continue to press the bureau to exempt credit unions from any rules governing first party and third-party debt collection rules, adding that they are not the bad actors in the industry.

“Any rulemakings could have a negative impact on the credit union industry and would make it more difficult for credit unions to offer affordable, high-quality products to their members,” NAFCU said in a statement.

There are about 8,000 debt collection firms in the U.S., CFPB Director Kathy Kraninger said at a May 8 town hall in Philadelphia, Penn., on the new proposal.

“Over the past decade, consumers have submitted more complaints about debt collection to federal financial regulators than about any other financial service,” she said. “The bureau receives tens of thousands consistently each year.”

The 1977 law mentioned debt collection through postcards and telegrams, she said, adding that cell phones and the internet did not exist back then.

Among other things, the proposed rule would:

• Limit the number of telephone calls from debt collectors to a borrower to no more than seven per week.
• Require debt collectors to send consumers a disclosure about the debt and consumer protections. The information would be required to include an itemization of the debt and plain-language information about how the consumer may respond.
• Clarify how debt collectors may communicate with borrowers. For instance, consumers could decide that they did not want to be contacted by email, voicemail messages and text messages.
• Prohibit a debt collector from suing or threatening to sue a consumer if the debt collector knows the statute of limitation has expired. Debt collectors would also be prohibited from furnishing information to a consumer reporting agency unless the debt collector has contacted the consumer.

“The accounts receivable management industry has been seeking clear regulatory guidance on the FDCPA since its enactment in 1977,” Mark Neeb, president of the Association of Credit and Collection Professionals, said at the town hall. However, he added that the rules are too prescriptive.

“We don’t believe that one size fits all,” he said, adding that the rules would place arbitrary limits on how debt collectors may operate.

Neeb said such limits lead to litigation and collection companies reporting a consumer to a credit bureau, adding that direct contact with a consumer is a key to resolving problems.

“Nothing beats an old-fashioned phone call,” Neeb said. “We just encourage consumers to pick up the phone.”

“The industry has been looking forward to this rule,” Jan Steiger, executive director of the Receivables Management Association International, said. She agreed that direct conversation between a consumer and a debt collector is the key to resolving a debt.

But Patricia Hasson, president and executive director of Clarifi, a debt counseling group in the Philadelphia area, said if a consumer has more than one debt, the seven phone calls a week for each debt can mount quickly.

“I don’t answer my phone when I don’t recognize the caller,” she told Kraninger. “I would implore you to go lower.”

And a key lawmaker said she does not think the rules go far enough in protecting consumers.

“This is yet another example of an anti-consumer action at the consumer bureau by a Trump Administration appointee,” House Financial Services Chairwoman Maxine Waters (D-Calif.) said, adding that last year, the agency received about 81,500 complaints about debt collection practices.

“This proposed rule does not come close to protecting consumers from predatory behavior,” she said. “Instead, it allows debt collectors to needlessly harass and threaten consumers by sending unlimited emails and text messages and calling them seven times a week to collect debts.”

A consumer group agreed.

“If you’re one of the millions of Americans who have dealt with constant harassment from debt collectors, you’re going to be dismayed, because the proposed rule expressly authorizes more ways to harass you,” Linda Jun, senior policy counsel at Americans for Financial Reform, said.

Kraninger said there has already been some misunderstanding about the rule.

“The FDCPA prohibits collectors from harassing or abusing consumers or engaging in unfair practices,” she said. “These standards apply today and under the proposed rule, they would continue to apply.”

But the proposal would add additional clarity about how the law applies to consumers and debt collectors.

“It would make clear the rules of the road for industry and consumers,” she said.