After nearly 40 years without change, the CFPB has dropped new regulations today that will rein in the practices of debt collectors nationwide.
The long anticipated regs lay out the new oversight the federal government will be pouring into the market place – regs that include new requirements for debt collectors to gather “more and better information” about the debt they collect and those that seek to limit “excessive or disruptive” communications with customers. The industry encompasses nearly 9,000 businesses with $13.7 billion in annual revenue, according to an estimate by Pew Charitable Trusts.
“The problem that the debt-collection industry has had is there were no regulations,” said Joann Needleman, a lawyer at Clark Hill PLC who served as president of the National Creditors Bar Association until recently. “Of course the industry wants clarity. The question becomes what do the rules say?”
Collectors – however enthusiastic they say they are about the concept of clear regulations – are less enthusiastic about the new requirements, since they will push up compliance costs while lowering the net number of collections.
In 2015 alone, the CFPB logged 85,200 complaints about debt collection, making it by far the largest source of complaints among the sectors it watches over.
“Companies should not collect debt that is not owed,” CFPB Director Richard Cordray said in prepared remarks. “They would have to limit the number of attempts to make contact and should give consumers better information and more control over the process.”
The debt collection rules make up a trifecta of sorts with pending moves on payday loans and prepaid card products – all three areas primarily affect the low- and middle-income earners which the CFPB exists largely to protect.
These regulations are the first the marketplace has seen since 1977 when the Fair Debt Collection Practices Act was enacted to protect consumers from abusive practices in debt collection. Dodd Frank made the CFPB the primary enforcement authority for the FDCPA in 2010.
CFPB officials are mainly concerned with inaccurate and insufficient information used by debt collectors, which leads to consumers being contacted for debts they don’t recognize. Going forward, firms would be required to both scrub their files and substantiate debts before reaching out to consumers. Once collection begins, collectors can attempt outreach no more than 6 times per week. It will also make it easier for consumers to request no contact at work or during certain hours.
The CFPB is also working to get consumers better information about debts and the laws around them – and a system that makes claim disputes more direct.