Financial Watchdog Agency to Monitor Debt Collectors

The Consumer Financial Protection Bureau released its new rules for overseeing debt-collection agencies Oct. 23. Beginning Jan. 2, debt collection firms with more than $10 million in annual revenue will be regulated by the government watchdog agency. Although just 175 firms fall into the category, they account for 63 percent of the $12.2 billion collection market.

Collection agencies have long been a burden on cash-strapped consumers. Known for aggressive, unrelenting tactics, the companies have earned particular criticism from regulators and consumer protection groups since the Great Recession has sent more Americans down on their luck.

“Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly,” Richard Cordray, the director of the consumer bureau, said in a statement. “We want all companies to realize that the better business choice is to follow the law—not break it.”

Consumers are already legally protected from harassment and deceptive practices of collection agencies. For example, the 1977 Fair Debt Collection Practices Act, enforced by the Federal Trade Commission, outlines the many circumstances in which a collector cannot call a debtor’s workplace or relatives. Currently, regulators can only respond to consumer complaints, although the FTC says it collected more than 180,000 complaints linked to debt collectors in 2011. The new rules will allow the CFPB to monitor debt collectors’ records to sniff out violations.

FTC assistant director Thomas Paul welcomes the CFPB oversight. He told the Washington Post the bureau’s assessments will be a “valuable new tool for the government to use in addressing unlawful conduct by debt collectors.

“When examinations are combined with a continuation of the FTC’s history of enforcement…the result will be a more comprehensive and effective protection of consumers,” Paul said.

Starting next year, CFPB examiners will be able to inspect debt collectors’ files, evaluating their compliance with federal laws requiring them to provide consumers with disclosures and accurate information. Consumers Union reported last year debt collectors increasingly filed suit against borrowers without proper documentation, sometimes suing to retrieve debts that had already been paid. In some cases, collectors were awarded judgments without providing any proof of debt.

“Larger companies tend to be the ones routinely filing mass cookie-cutter lawsuits, having huge databases of information that might be inaccurate, which is part of what causes all of these problems,” Suzanne Martindale, a lawyer with Consumers Union, told the Post. “The CFPB did cast a pretty wide net and should be capturing those companies.”

The CFPB will also monitor companies to confirm they not only properly identify themselves during collection calls, but communicate “civilly and honestly” with debtors. Likewise, collection agencies must institute a process from which to resolve disputes.

“There has been an explosion of shady debt collection tactics in recent years,” Martindale told the New York Times. “Businesses have a right to collect what they are owed but not to harass consumers for debt that has been already paid off or doesn’t belong to them.”

The CFPB will not only monitor companies that collect personal, family and household debt from consumers, but it will also monitor collectors contracted with the Education Department to contact past-due student loan debtors. Officials say more than $850 billion in outstanding federal student loans are currently past due.