There’s good news for the 70 million Americans who are being pursued by debt collectors: The Consumer Financial Protection Bureau rolled out new plans to overhaul the debt collections industry.
The CFPB’s long-awaited plans to tackle the multi-billion-dollar business of debt collection were laid out in a proposal Thursday. The proposal would require debt collectors to gather “more and better information about the debt before they collect.”
“This is about bringing better accuracy and accountability to a market that desperately needs it,” said CFPB Director Richard Cordray.
Here are the 5 most remarkable changes in the CFPB’s new rules:
Collectors must know that they are collecting the right amount of debt from the right person. Oftentimes, debt passes through the hands of so many debt buyers and sellers that by the time they reach a consumer, they could have lost important identifying information along the way. This proposed rule would put the onus on collectors to verify the debt they are pursuing before they begin contacting the consumer. Millions of consumers are pursued by collectors for debts they don’t actually owe, or for amounts of debt that are incorrect.
Collectors would only be able to contact consumers six times per week. As it stands, credit card companies allow collectors to call consumers up to 15 times per day. The new proposed rules would limit all contact — phone, email, snail mail, etc. — to only six times per week.
No more zombie debt collections. The CFPB is proposing a rule that would force debt collectors to tell a consumer when they are contacting them about a debt that is too old to collect. As it stands, debts can only be collected for a certain number of years (this varies by state). But it’s almost impossible for a consumer to know when they no longer have a legal obligation to repay a debt. That makes it easy for collectors to pursue people for debts that are too old. The nastiest part about this tactic is that by enticing consumers to make even the smallest payment, they effectively restart the clock on that old debt, and the consumer is once again legally obligated to pay up. If this passes, this would be a major game changer in the debt collections industry.
Consumers could easily find out more information about their debts. The CFPB would have every debt collector include a “tear-off” sheet that consumers to fill out and return to them to dispute the debt. If they mail the dispute to a collector within 30 days, then the collector would have to send a detailed debt report and could no longer pursue the debt until that report is sent.
No more passing on unverified debts to other debt buyers. Debt is bought and sold at a rapid rate. Important information can easily be lost along the way, making it difficult for consumers to know if a debt actually belongs to them. The CFPB would stop debt collections agencies from selling debts that have not yet been verified.
Not everyone was cheering the CFPB’s new rules.
The National Consumer Law Center, a consumer legal advocacy group, is already calling on tougher rules than the CFPB lays out.
“Instead of simply requiring collectors to have full and accurate information, the CFPB proposal sets up a complicated and inadequate system that lets collectors rely on information that may be inaccurate,” said Margot Saunders, an attorney with the National Consumer Law Center.
The rules are also missing a key component, according to the NCLC: Stiffer penalties for bad actors.
“We are also disappointed that the proposal does nothing to increase penalties for abusive collectors,” said April Kuehnhoff, an NCLC attorney who specializes in debt collection. “Stronger penalties are essential to stop especially abusive collectors from continuing business as usual.”
Settle in for the long haul. This list of proposed rules is just the first step in what could be a year-long (or more) process to implement these new rules. The CFPB has to send this proposal to a panel of industry experts who will no doubt want to weigh in and propose their own changes. You can make your voice heard by submitting a public comment through the CFPB’s website.
Have you been pursued by a debt collector for a debt you don’t owe? File a complaint with the CFPB.