What the CFPB Should Do About Debt Collectors

On July 21, 2009, the Plain Dealer reported that then-Ohio Attorney General Richard Cordray sued debt collection firm National Enterprise Systems Inc., accusing the firm of violating Ohioans’ rights under the Fair Debt Collection Practices Act (FDCPA) and harassing them over past-due debts. Exactly two years later, the Dodd-Frank Wall Street Reform Act, which lays the groundwork for the new Consumer Financial Protection Bureau, goes into effect and Cordray has been nominated by President Obama to lead the agency. If he is confirmed as head of the CFPB, this gives him the opportunity to protect consumers from overzealous debt collectors on a national scale.

While the new agency will have its work cut out for it, regulating the debt collection industry—especially debt buyers that purchase lots of old debts and then try to collect based on sketchy information—should be near that top of the list. It’s well-known that complaints about the debt collection industry have generated more complaints to the Federal Trade Commission than any other single industry. The FTC, which will share enforcement duties with the CFPB, has laid the groundwork for new rules by holding a series of workshops around the country in which consumer advocates, members of the collection industry and attorneys have weighed in. The CFPB is in a position to write rules to help regulate the industry, something the FTC never could do.

There’s been enough talk on this issue; it’s time for action. Here are six things the Bureau should do:

Create Easy-To-Understand Debt Collection Letters

Here’s the easy-peasy suggestion for the CFPB: Develop uniform standards for the letters debt collectors can send to debtors. Under the FDCPA, collectors are required to send written notice of a debt within five business days of initially contacting a debtor. While the basic elements of that letter are already described in the FDCPA, there’s a lot left out, and too much left to the interpretation of sometimes aggressive collectors who want to scare up payment as quickly as possible.

Much like the mortgage disclosures for which the CFPB has been soliciting comments, a standard collection letter means, “debt collectors can just plug in the numbers,” says Philadelphia-based consumer law attorney Michael Forbes, who has sued debt collectors.

[Resource: What to do if a Debt Collector Calls]

What should go into such a debt collection letter? The basics consumers need to know:

Details of the debt

Complete contact information for the current collector
Name and address of original creditor
The date the original account was opened
Date of default date (or perhaps last payment) with the original creditor
Charge-off date
Amount owed at the time of default or charge-off
Interest and fees charged since that date
Amount currently owed
Clear explanation of right to request verification of the debt, and how to do that
Chain of title (list of all firms that have attempted to collect the debt after the original creditor)
Credit reporting information (how long it can be reported)

Summary of Consumer Rights

Information about the statute of limitations
Where to get more information about the consumer’s rights and resources
How and where to file a complaint against the collector if necessary

[Resource: 11 Ways A Debt Collector May Be Breaking the Law]

Most importantly, these letters should not include other language designed to intimidate or confuse the debtor. Letters that include veiled threats to “investigate” a consumer for possible fraud, for example, or that look like pseudo-legal or government documents, have no place in the collection process. A standardized format would discourage collectors from trying “creative” approaches that may later be determined to be illegal anyway.

“Why can’t they play it straight?” asks Forbes. “Just tell the consumer exactly what he or she owes, ask them to pay, and if they don’t, they can turn it over for legal action.”

At a minimum, the Bureau should crack down on debt collectors that fail to send this or any notice. The FTC reported last year that nearly 30% of consumer complaints alleged that debt collectors failed to send the notice currently required by law. That’s unacceptable.

Rein in Reckless Debt Buyers »

Image: Quazie, via Flickr.com