Risk & Compliance

Regulator Seeks Tougher Rules on Debt Collectors

The Consumer Financial Protection Bureau says its proposal would "drastically overhaul the debt collection market."
Matthew HellerJuly 29, 2016

The U.S. Consumer Financial Protection Bureau has proposed new rules for the debt collection industry that include limiting collectors’ communications with debtors.

While the industry is already regulated by the Federal Trade Commission under the Fair Debt Collection Practices Act, the CFPB has penalized a number of large debt collectors in recent years. The agency receives more complaints about debt collection each month than any other area.

Under a proposal unveiled on Thursday by the CFPB, regulation would be strengthened by requiring collectors to make no more than six attempts to contact debtors each week, clearly disclose debt details, and make it easier to dispute the debt.

The proposals “would drastically overhaul the debt collection market,” CFPB Director Richard Cordray said in a news release. “This is about bringing better accuracy and accountability to a market that desperately needs it.”

The CFPB estimates that about one-in-three consumers, more than 70 million people, were contacted by a creditor or collector trying to collect a debt within the past year. The most common complaints involve collectors seeking to collect debt from the wrong consumer, for the wrong amount, or debt that could not legally be enforced.

The bureau’s move follows efforts by states including New York and California to adopt stricter rules about the documentation required to collect on a debt. As The New York Times reports, nearly 300,000 debt collection lawsuits were filed in New York City’s in 2008; last year, after new state regulations took effect, that number fell to 55,000.

“The problems around abusive debt collection in New York have gotten a lot better,” said Susan Shin, legal director of the New Economy Project, an advocacy group. “Strong rules make a difference.”

Roughly 13% of consumers have a debt in third-party collection, with an average amount of $1,300. Ira Rheingold, executive director of the National Association of Consumer Advocates, told Reuters that the CFPB should ban collectors outright from going after debts that have passed the statute of limitations and impose stricter limits on the number of calls each week.