One of the most common complaints about debt collectors is that they harass people over debts that are either no longer owed, or weren’t owed in the first place. Federal regulators are now proposing rules that — among other protections — would cut down on these annoying, bogus collections actions by requiring that debt collectors have some sort of evidence that the person they are calling actually owes money.
The 2010 Dodd-Frank financial reforms not only created the Consumer Financial Protection Bureau, but tasked the CFPB with issuing regulations to prohibit unfair and deceptive practices by certain financial institutions and services, including debt collectors.
After a three-year process of consulting the industry, consumer advocates, and everyday Americans, the CFPB is releasing the outline for new protections intended to cut down on nuisance, zombie, and mistaken-identity debt collections.
Debt Collectors Are The Worst
The problems with errant debt-collection attempts are many. Having to repeatedly tell debt collectors you are not “Zeke Zekeson” and you have never been hospitalized in Tucson is an annoyance. It puts the onus on you to try to prove a negative:
You: “Look, here’s my ID and my current phone bill.”
Them: “You could have changed your name. Pay up.”
The Fair Debt Collection Practices Act already requires collectors to stop calling or contacting you — unless it’s to notify you of an actual legal action — if you ask them to. That would be fine, if it (A) always worked [it doesn’t], and (B) that debt collector didn’t just sell off the debt to yet another collector a few months later, starting the cycle all over again.
A 2013 study by the Federal Trade Commission found that debt buyers — the companies that purchase debt for pennies on the dollar in the hope of being able to collect — rarely get the information they need to ensure the people they hassle are bona fide debtors, or that the relevant statute of limitations hasn’t expired on the debt.
The companies selling these debts are frequently not telling buyers if any of the individual debt accounts have been disputed, nor are they supplying the debt buyers with supporting documentation regarding these accounts. Usually, the only information that regularly transfers from one company to another is: name, amount allegedly owed, last known phone number, last known address; all the info you need to begin hassling someone, but nothing you need to prove you have the right person or that the debt is legitimate.
Yes, some people complain — tens of thousands of them a year to the CFPB, FTC, and state consumer protection agencies — or take legal action against collectors that overstep their bounds, but those who don’t have the resources or know-how to dispute these collections attempts may feel trapped and choose to pay debts they no longer owed or never owed to begin with.
The New Rules
While some companies and financial institutions do their own debt collection, most of the problematic collections actions involves third-party collectors and debt buyers. Thus, the rules being proposed by the CFPB at this juncture primarily deal with these companies.
The CFPB’s proposal tries to combat nuisance collections actions in three ways: limiting excessive calls and messages; providing more information about the supposed debt and how to dispute it; and, most importantly, making sure collectors are connecting the right debt to the right person.
Here’s a breakdown of what would be required if the rules are enacted as they stand now:
• More than just a phone number:
Before contacting any consumer about an alleged debt, the collector would need to have more than just a name, dollar figure, and phone number. According to the CFPB, the collector would have to confirm it has — in addition to the usual info — account number associated with the debt, date of default, amount owed at default, and the date and amount of any payment or credit applied after default.
This way, if you’re being hassled for a cable bill that was defaulted on in 2012 and you can show you didn’t live at the address associated with that specific account until 2015, it makes disputing the debt easier.
• Enough already with the calls every five seconds:
Rather than receiving six debt collection calls a day (on a good day), third-party debt collectors would be limited to six communication attempts — of any kind — per week. So two calls, one letter, and an email in one would would be four total communications attempts. Thus, collectors can’t spam your phone, mailbox, or inbox, with annoying notices and demands for payment.
• This debt is old (but please still pay us):
Many people don’t know that there are statutes of limitations for many forms of debt, meaning that after a given number of years, you can no longer be sued for non-payment. However, collectors can still ask you to pay, because you do still technically owe the money.
What they don’t tell you is that, by making a payment on that otherwise dead debt, you could be restarting the statute of limitations, effectively resurrecting the debt and creating a financial zombie that can possibly end up in a lawsuit if you can’t make payments this time around.
Under the new rules, the collector would have to disclose on the notice that a particular debt is too old for the debtor to be sued over. Pay those debts at your own risk.
• E-Z debt disputes:
“Dispute that thing!” your friends say when you tell them about the $700 debt payment demand you received for a gym membership your former roommate ran up in your name.
“How do I do that?” you ask. Your friends shrug. “Send a letter or something maybe?”
The CFPB is proposing that collections notices include a “tear-off” dispute/pay stub that recipients could easily tear off and send back to the collector. It would include options for why the recipient of the notice thinks the collector’s demand is wrong.
• Right to a speedy dispute:
If you send back that stub — or dispute the debt through any other written form — within 30 days of your first notice, the CFPB proposes that the collector would have to provide you with a debt report that states in writing all the information it has substantiating the debt.
The debt collector would be barred from pursuing the debt further until it provides this report, so it would be in their best interest to respond quickly to your dispute.
• No documentation, no collection:
If that dispute turns up a lack of documents to support the collections action, the collector would have to stop chasing the debt, at least until it can gather all the info it needs to make its case.
• Looking for red flags:
Collectors would be required to look at the debt information they obtain and if they notice certain red flags — a high rate of disputes in a particular portfolio of debts, a debt seller that is unwilling or unable to provide supporting documents — they must stop collections actions.
• No passing the buck on disputes:
Currently, you might spend weeks or months trying to dispute a debt with Collector X only to find out your debt has been sold to Collector Y and they know nothing about your dispute.
Under the proposed rules, if Collector X sells that under-dispute debt, Collector Y can’t try to to collect on it until the dispute is resolved.
This would mean that collectors would be required to transfer dispute information along with the debts they resell, a practice that appears to be largely unheard-of in the industry today.
“This is about bringing better accuracy and accountability to a market that desperately needs it,” said CFPB Director Richard Cordray in a statement.
Far From Perfect
Consumer advocates have long pushed for reform in the debt collection market, and today’s announcement is met with applause, but also with the acknowledgement that this is just a beginning for an industry that has been rife with anti-consumer practices for decades.
Suzanne Martindale, our colleague at Consumers Union, notes that it’s incredibly important to hold debt collectors accountable by requiring them to have a reasonable basis to collect a debt, but the CFPB proposal falls short of putting the full burden of proof on the collector.
“Requiring third-party collectors to obtain and review key information throughout the process will prevent the most abusive collection practices,” notes Martindale. “However, we urge the CFPB to require that collectors review actual documents related to the original account in question. Relying on the prior owner’s claims that the information is ‘accurate’ could still cause collectors down the line to pursue the wrong people or the wrong amounts.”
Margot Saunders of the National Consumer Law Center is similarly critical, saying that the proposal “sets up a complicated and inadequate system that lets collectors rely on information that may be inaccurate.”
Both Consumers Union and the NCLC also question whether or not telling someone a debt is to old to be sued over is sufficient.
“We urge the CFPB to do more to protect consumers and simply ban all collection attempts on ‘time-barred’ debts, both in and out of court,” says Martindale about CU’s position on the issue.
The proposal released today only addresses third-party debt collectors. A forthcoming proposal from the CFPB will deal with debt collection actions that regulated financial services — like banks and credit card companies — take on their own behalf.