CFPB takes aims at debt collection

The Consumer Financial Protection Bureau (CFPB) has set out plans to overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt, in a move which the National Automobile Dealers Association and others suggest could impact auto finance lenders.

Under the proposals being considered, debt collectors would be required to have more and better information about the debt before they collect. As they are collecting, companies would be required to limit communications, clearly disclose debt details, and make it easier to dispute the debt.

When responding to disputes, collectors would be prohibited from continuing to pursue debt without sufficient evidence. These requirements and restrictions would follow the debt if it were sold or transferred.

“We are considering proposals that would drastically overhaul the debt collection market,” said CFPB director Richard Cordray. “This is about bringing better accuracy and accountability to a market that desperately needs it.”

Complaints on the up

Debt collection generates more complaints to the bureau than any other financial product or service. The most common complaints are about collectors seeking to collect debt from the wrong consumer, for the wrong amount, or debt that could not legally be enforced.

According to a recent CFPB study, about one-in-three consumers had been contacted by a creditor or collector trying to collect a debt within the past year.

Most consumers who had been contacted reported attempts to collect payment on between two and four debts. And one-third of consumers who had been contacted about a debt in the last year reported an attempt to collect in the wrong amount.

The CFPB’s proposals include requiring collectors to confirm that they have sufficient information to start collection, such as the full name, last known address, last known telephone number, account number, date of default, amount owed at default, and the date and amount of any payment or credit applied after default.

Collectors would be limited to six communication attempts per week through any point of contact before they have reached the consumer. In addition, if a consumer wants to stop specific ways collectors are contacting them, for example on a particular phone line, while they are at work, or during certain hours, it would be easier for a consumer to do that.

The CFPB is also considering proposing a 30-day waiting period after a consumer has passed away during which collectors would be prohibited from communicating with certain parties, like surviving spouses.

If a consumer disputes – in any way – the validity of the debt, collectors would have to stop collections until the necessary documentation is checked. Collecting on debt that lacks sufficient evidence would be prohibited.

If debt collectors transfer debt without responding to disputes, the next collector could not try to collect until the dispute is resolved.