Unfair, Deceptive & Abusive: Recommendations
RECOMMENDATIONS FOR CFPB RULEMAKING
In light of consumers’ experiences as evidenced in the complaint database records, the CFPB should adopt rules that strengthen protections for consumers against unfair, deceptive, and abusive debt collection practices. Recommendations for CFPB rulemaking include:
Apply new debt collection rules to original creditors — which include payday lenders, credit card companies, and banks — along with third-party collectors and debt buyers.
Currently, the provisions of the Fair Debt Collection Practices Act, for which the CFPB has primary enforcement responsibility, apply only to third-party debt collectors and debt buyers (not to original creditors). Yet, six of the top 15 entities with the most debt collection-related complaints in the CFPB consumer complaint database operate primarily as original creditors. Applying fair debt collection rules to original creditors is necessary to correct this double standard and protect consumers from unfair, deceptive and abusive collection practices, regardless of the primary line of business of the entity seeking to collect payment on a debt.
Strengthen remedies and increase penalties to enable consumers to stop abusive debt collection practices.
The CFPB should clarify that consumers have the right to injunctive relief to stop unfair debt collection practices, and that multiple statutory damages may be awarded for multiple statutory violations of fair debt collection rules. The CFPB should also clarify that the law allows courts to award separate statutory penalties of $1,000 for each violation of the FDCPA. In addition, the CFPB should clarify that all amounts collected by a collector in connection with these violations should be treated as actual damages and returned to consumers.
Require debt collectors to have complete documentation (including information about the consumer, the debt itself, previous communications, and proof of the collector’s legal right to collect the debt) prior to initiating collection actions, and require debt sellers to furnish full documentation to future collectors of the debt.
The top consumer complaint in the CFPB database — with 42 percent of all complaints — is that collectors are asking for payments on a debt that is not owed. Currently, collectors have little incentive to conduct due diligence and verify that the debts they are attempting to collect are legitimate, and consumers pay the price. The CFPB should require debt collectors to have the following information before initiating collection actions:
►►Information about the consumer (including identifying information, primary language, receipt of exempt funds, disability status, conditions of financial hardship, military status, and whether or not the consumer is represented by an attorney);
►►Information about the debt itself (including original creditor; type of debt; account number; date of origination; terms and conditions; principal due; an itemization of fees, charges and interest; documentation of consumer responsibility; any settlement agreements or payment plans previously established; and information about the applicable statute of limitations);
►►A record of previous communications (including all previous communications and attempts to collect payments on the debt, cease contact demands, previous disputes about the debt, and details about inconvenient times/places to contact the consumer); and,
►►Proof of the collector’s legal right to collect the debt.
The CFPB should make clear that the collector will be held responsible for having this information 37
(failure of a prior collector or debt seller to furnish this information will not release the collector from responsibility and the possibility of enforcement action by the CFPB). The CFPB should also require debt sellers to convey this information to debt buyers and make clear that sellers will be held liable for failure to do so.
Set specific limits on phone calls from debt collectors to prevent harassment of consumers and ensure that consumer requests to cease communication are honored.
Nearly one in five complaints to the CFPB cite communication tactics employed by collectors. Nearly two-thirds of those complaints involve “frequent or repeated calls.” The CFPB should limit the number of times a debt collector can call a consumer to no more than three times per week and no more than one conversation per week. Calls or text messages to cell phones should be prohibited without consumer opt-in. The CFPB should prohibit calls to consumers in their place of work if consumers request not to be contacted at work. In addition, the CFPB should require debt collectors to notify consumers of their right to request a cease of communications during each contact, and it should require collectors to accept cease communication requests in forms including verbal request, written letter, online form submission, and email. The CFPB should strongly enforce the requirement that collectors abide by cease communication requests once made.
Strengthen enforcement of the prohibition against debt collectors contacting third parties (such as employers and family members).
Complaint records implicate debt collectors engage in improper contact with third parties (sometimes used as a tactic to embarrass and put pressure on consumers), despite the fact that such third-party contact is illegal. The CFPB should strengthen enforcement of this prohibition.
Prohibit the sale, purchase, and collection of time-barred debt.
When collectors seek to collect time-barred debts, which cannot be pursued through the legal system, the danger of deceptive collection tactics is great. To address this, the CFPB should prohibit the sale, purchase, and collection of time-barred debt.
Stop deceptive and abusive credit reporting practices by debt collectors.
The CFPB should require debt collectors to report any disputes over allegedly owed debts to credit reporting agencies. It should also require collectors to notify consumers that paying a debt that is already reported on a credit report will not eliminate information about previous non-payment from that credit report.
Stop unfair and abusive practices in the collection of medical debt.
The CFPB should clarify that reporting a debt to a credit reporting agency before attempting to collect the debt from the consumer constitutes an unfair practice in violation of the FDCPA. It should establish a 120-day waiting period after first billing before health care entities or third-party collectors can report an unpaid debt to a credit reporting agency. It should also establish that errors in billing and disputes with health insurers constitute disputes for the purposes of the FDCPA. In cases where consumers qualify based on income for financial assistance, the CFPB should prohibit collectors from attempting to collect “gross” or “chargemaster” prices.
Protect student loan holders from abusive collection practices.
The CFPB should require debt collection communications relating to private student loans to include clear information that consequences associated with federal loans (such as garnishment of federal benefits) do not apply. The Bureau should require debt collection communications relating to federal student loans to include clear information about circumstances where debt discharge is an option, such as closed schools, permanent disability, false certification, and unpaid refund discharges.
In enforcement actions, levy penalties on a scale to serve as meaningful deterrents to prevent companies from engaging in unfair, deceptive and abusive debt collection practices.
For companies with annual profits in the hundreds of millions or even billions of dollars, penalties of a few million dollars for violating the rules fail to serve as a meaningful deterrent. Instead, companies can simply budget for and absorb these small penalties as a “cost of doing business.” The CFPB should levy penalties against violators that are sufficient to act as a meaningful deterrent against future violations.
RECOMMENDATIONS FOR LEGISLATIVE ACTION
In addition to new rules from the CFPB, action from Congress is needed to ensure full protection for consumers against unfair debt collection practices. Congress should:
Close loopholes in existing law that leave consumers vulnerable to unfair, deceptive or abusive debt collection activities associated with consumer debts not directly related to a financial product or service.
Under current laws, collection activities of original creditors on consumer debts not related to a financial product or service — such as municipal debts and medical debts — fall into a grey area where regulatory authority is unclear. This leaves consumers vulnerable to abuse. Congress should enact legislation that clarifies that all collection activities relating to consumer debts (including municipal and medical debts), whether initiated by an original creditor or a third-party collector, fall within the rulemaking and enforcement authority of the CFPB.