The Consumer Financial Protection Bureau proposed a massive overhaul of the multibillion dollar debt-collection industry on Thursday, which would restrict collectors from calling numerous times a day, require them to have more documentation on what’s owed, and give people more ability to dispute their bills.
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If a consumer disputes the debt’s validity, the proposals would require collectors provide clearer and easier ways for that person to challenge it.
CFPB director Richard Cordray said in prepared remarks that too often third-party debt collectors are motivated to go to nearly any lengths to try to extract as much money as possible for an overdue vehicle payment, medical bill, utility bill, or any kind of unpaid invoice.
One in three consumers said they’d been contacted by a debt collector over the a year ago, according to a new study.
Under the proposed rules, debt collectors would first have to more substantially prove a debt is valid before starting collection. This would solve a major source of complaints by consumers that collectors can harass them over debts that are in dispute already. Sometimes they pay a debt that they don’t believe is accurate just to make the collector to stop contacting them, or they spend time and money to dispute the debt. Texas Sen. Ted Cruz did propose legislation in 2015 that would’ve killed the CFPB, claiming it “does little to protect consumers”. One-third of consumers contacted about a debt in the past year reported an attempt to collect the wrong amount, the CFPB said.
Making it Easier to Dispute Debts: Debt collectors would be required to clearly disclose in the collection notice the consumer’s rights and provide the consumer with a “tear-off” form that makes it easier to dispute the debt.
Some advocacy groups were optimistic, noting that the number of debt collection lawsuits have fallen in NY after the state adopted stricter rules governing the industry. Companies should not collect debt that is not owed.
Margot Saunders, an attorney with NCLC, said the CFPB’s proposal would create complicated, difficult-to-enforce rules regarding what information collectors have to verify before trying to collect.
The CFPB said it is considering proposing a 30-day waiting period after a consumer has died during which collectors would be prohibited from contacting the surviving spouse and others.
Under CFPB’s proposal, debt collectors would need to collect some minimum information before starting a collection. The bureau regularly holds such events around the U.S.as a vehicle to unveil regulatory proposals and gather feedback from stakeholders, and it is expected that the CFPB will publish an outline kicking off a multiyear rulemaking. A case in point occurred in May 2015, when Portfolio Recovery Associates LLC, one of the largest buyers of written-off debt in the US, tried to collect a $1,000 credit card debt from Maria Guadalupe Mejia, who insisted the debt wasn’t hers.
For Rheingold, the proposal should ban collectors outright from going after debts that have passed the statute of limitations and impose stricter limits on the number of calls each week.
With some 77 million people – about one in three adults with a credit report – having a delinquent debt in collections, according to the Urban Institute, the rules could potentially have a broad impact. The law prohibits robocalls or text messages to mobile phones from debt collectors unless the owner of the mobile phone has provided prior express consent. It also struck settlements with JP Morgan Chase and Citibank over selling debts to collectors with inaccurate documentation.
If a disputed debt it transferred to a new collection agency, that agency can’t try to collect on it until the dispute it resolved.
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The proposal now goes to a panel of small business owners for review.
