Federal regulators prepare to rein in debt collectors

How finance companies and buy-here, pay-here dealerships execute one of their most important functions – collections – now potentially has six additional layers of compliance requirements stemming from the regulatory proposal rolled out by the Consumer Financial Protection Bureau on Thursday.

CFPB Director Richard Cordray said the proposal is about “bringing better accuracy and accountability to a market that desperately needs it”.

Santander allegedly marketed and enrolled consumers in its “Account Protector” overdraft service and charged them $35 per overdraft.

In its spring 2016 rulemaking agenda, the CFPB said the federal government, for many years, has received more consumer complaints about debt collectors than about any other single industry.

According to a summary, the proposal would ensure collectors “substantiate the debt before contacting consumers”, by confirming their identities and the amount owed, as well as checking for any payments made after a default. The CFPB will next convene a small-business review panel, and seek more input from the public before issuing final regulations.

Companies should not collect debt that is not owed.

The debt collection business operates largely in the shadows of the mainstream financial industry, doing the messy, time-consuming and often contentious work of chasing up unpaid debts.

The proposal, which will be discussed Thursday at a CFPB hearing in Sacramento, would require collection companies to do more to verify information about debts before contacting consumers, limit the number of times a collector can call or email consumers, and make it easier for consumers to dispute debts and put the collections process on hold. That would include a proposed “tear off” portion of a collection notice where someone can specify why the amount is wrong or why the debt is invalid, or allowing consumers to start disputing the debt over the phone. When a consumer disputes a debt, a debt collector would not be able to continue collection efforts without providing sufficient evidence that the debt is real. They must have such details as the borrowers’ full name, last known address, telephone number, how much was owed both when the debt went to collections and if any other payments have been made toward it. The CFPB is issuing a proposal for the rules that the watchdog agency plans on creating. The CFPB is also considering proposing a 30-day waiting period after a consumer has passed away during which collectors would be prohibited from communicating with certain parties, like surviving spouses. The CFPB’s proposal calls for debt collectors to inform consumers if their debts are too old to result in a lawsuit. The CFPB found in a recent study that about a third of all consumers had been contacted by a collector in the past year. A case in point occurred in May 2015, when Portfolio Recovery Associates LLC, one of the largest buyers of written-off debt in the USA, tried to collect a $1,000 credit card debt from Maria Guadalupe Mejia, who insisted the debt wasn’t hers.

The National Consumer Law Center is among the groups who have long advocated for tighter restrictions on collectors.

Collectors would also have to provide clearer and easier ways for someone to dispute the debt.

Graciela Aponte-Davis, director of California policy at the Center for Responsible Lending, said the proposals “endorse the common-sense idea that people should not be harassed for debts they do not owe”.

-Stop burying the dispute: If debt collectors transfer debt without responding to disputes, the bureau pointed out the next collector could not try to collect until the dispute is resolved. Once the consumer is reached, the collector could make only three attempts total per week, including phone calls, emails and texts.