Consumer Watchdog Will Oversee Debt Collectors
Consumer Financial Protection Bureau continues to expand its jurisdiction
Friday, October 26, 2012
A day after announcing it would police credit reporting agencies, the Consumer Financial Protection Bureau (CFPB) proposed a rule that would allow it to supervise the larger consumer debt collectors for the first time.
The CFPB also released the field guide that examiners will use to ensure that companies and banks engaging in debt collection are following the law.
“Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly,” said CFPB Director Richard Cordray. “Today we are announcing that we will be supervising the larger debt collectors in the market for the first time at the federal level. We want all companies to realize that the better business choice is to follow the law — not break it.”
Source of complaints
Debt collectors are a frequent source of complaints from consumers, who feel they are being unfairly pursued. Often times they complain of harassment both at home and at work.
Debt collectors are, in fact, allowed to collect legitimate debts but must abide by the Fair Debt Collection Practices Act. Under the law, a collector may contact you in person, by mail, telephone, telegram, or fax. However, a debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves of such contacts.
Approximately 30 million Americans have, on average, $1,500 of debt subject to collection. Debt collectors often report consumers’ collection status to the credit bureaus.
If they get the information wrong, this can be the difference between getting approved or denied for such financial products as a mortgage or a car loan.
Types of debt collectors covered
The consumer debt collection market covered by the rule includes three main types of debt collection: first, firms that may buy defaulted debt and collect the proceeds for themselves; second, firms that may collect defaulted debt owned by another company in return for a fee; and third, there are debt collection attorneys that collect through litigation.
A single company may be involved in any or all of these activities. By expanding the supervision program to oversee the non-banks that are larger participants in the consumer debt collection market, the CFPB would have a window into every stage of the process – from the origination of credit to debt collection.
The CFPB’s supervision authority over these entities will begin when the rule takes effect on January 2, 2013. Under the rule, any firm that has more than $10 million in annual receipts from consumer debt collection activities will be subject to the CFPB’s supervisory authority. This authority will extend to about 175 debt collectors, which account for over 60 percent of the industry’s annual receipts in the consumer debt collection market.
In the past the Federal Trade Commission (FTC) has had jurisdiction over debt collectors. Once the new rule takes effect, consumers will have another avenue to air their complaints about debt collectors they believe to be abusive.