CU welcomes CFPB move towards cracking down on debt collectors

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November 6, 2013

Consumers Union Welcomes CFPB Move Towards Cracking Down on Debt Collectors

WASHINGTON, DC – The Consumer Financial Protection Bureau (CFPB) today announced that it is moving towards creating rules for the debt collection industry. The consumer agency will begin adding debt collection complaints to its consumer database and plans to collect information on the practices used by debt collectors.

Consumers Union, policy and advocacy division of Consumer Reports, applauded the CFPB’s move towards cracking down on the debt collection industry’s anti-consumer practices that have largely gone unchecked.

Pamela Banks, senior policy counsel for Consumers Union said, “Debt collection abuses have remained a top consumer complaint for years. Without CFPB oversight, consumers are left vulnerable to being harassed for debt that has already been paid off or that they don’t even owe. We welcome this movement for more transparency and accountability in the debt collection industry and look forward to working with the CFPB on this issue.”

Consumers Union’s 2011 report issued with the East Bay Community Law Center detailed how debt collectors are filing an increasing number of lawsuits against consumers even though often they don’t have proof to back up their claims. Without the proper documentation, debt collectors may sue on invalid debts, such as those that have been paid already. The problem is made worse when consumers don’t receive timely notice that they have been sued on the debt or when the debt is so old that the consumer does not have good records to show whether the debt is owed or the amount claimed is correct.

“Debt collection abuses have become increasingly common as more and more debt is bought and sold,” said Suzanne Martindale, staff attorney for Consumers Union.  “Some debt collectors unfairly target consumers even when the statute of limitations has passed or when they don’t have the proper documentation to prove the debt is owed.  It’s time to rein in debt collection abuses with some common sense rules that protect consumers from unfair harassment.”

Earlier this year, the Federal Trade Commission (FTC) also issued a report on the debt buying industry finding that debt collectors didn’t verify disputed debts in half of the cases studied.

To crack down on these practices, Consumers Union has urged state and federal regulators to enact a number of reforms, including:

• End robo-signing and attempts to collect without proper documentation: Debt collectors should be required to document that they are attempting to collect from the right person, for the right amount, and on a debt that they can lawfully recover.

• Establish a sell by date for all debt: It should be illegal to sell or attempt to collect debt that is more than seven years old, which is too old to be reported on a credit report under the federal Fair Credit Reporting Act.

• Require debt collectors to provide more information to consumers: All debt collectors, including debt buyers, should be required to identify the name of the original creditor and to provide an itemized record of the total principal, interest, fees, and other charges that have been added to the debt, and to provide detailed records about the debt to consumers within five days after the first notification.

• Require debt collectors to submit more detailed information when filing suit: Debt collectors should be required to submit basic information about the debt, including the name of the original creditor and an itemized record of the total principal, interest, fees, and other charges that have been added to the debt, when they sue over a debt, so that the consumer can see if it is his or her debt, and in the right amount.

• Increase oversight to ensure consumers are properly notified of lawsuits: Courts should be required to provide supplemental notice of all filed debt collection lawsuits to debtors and default judgments should be prohibited if the notice is returned to the court as undeliverable.

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Media contact: David Butler, dbutler@consumer.org, or Kara Kelber, kkelber@consumer.org, Consumers Union, 202-462-6262