Released: July 28, 2016

CFPB proposes to strengthen debt collection rules

Consumer Action says proposal is step in right direction

July 28, 2016—The Consumer Financial Protection Bureau today released its proposed rules to limit debt collection abuses by third-party debt collectors and others covered by the Fair Debt Collection Practices Act, including many debt buyers. The proposal addresses many concerns of consumer advocates but stops short of protecting consumers in several key areas:

• Would allow as many as six contacts per week—which amounts to harassment in our book, and harassment is against the law.
• Does not ban outright the collection of time-barred debts, which encourages debt buyers to attempt to revive and collect old “zombie” debts.

“We welcome the Bureau’s proposal to strengthen debt collection consumer protections but we wish it had gone further in a few areas,” said Linda Sherry, director of national priorities for Consumer Action. “Our consumer hotline receives hundreds of complaints about debt collectors each year. It’s frustrating for our organization to observe abusive practices by debt collectors going unpunished, so we hope the CFPB tightens its proposal and adopts the rule as quickly as possible.”

In the proposed rule released today, the CBPB outlines a plan to:

Ensure that it’s your debt

• Collectors would be required to scrub their files and substantiate debts before contacting consumers.

Limit excessive or disruptive communications

• Collectors would be limited to six communication attempts per week through any point of contact before they have reached the consumer.
• Stop contacts or calls at times and places that consumers say are inconvenient.
• Thirty-day waiting period following the death of a consumer to contact survivors about debts owed by the deceased.

Make debt details clear and disputes easy

• Collectors must include more specific information about the debt in the initial collection notices, including a statement about rights under the Fair Debt Collection Practices Act.
• Disclose to consumers when a debt is too old for a lawsuit, and that making a payment could revive a collector’s ability to sue.
• A “tear-off” portion would be added to the notice allowing consumers to easily dispute the debt and say why it’s wrong. (The tear-off also would allow consumers to pay the debt.)
• Consumers may orally question the debt’s validity at any time and require a collector to double check the debt.

Document debt on demand for disputes

• If the tear-off sheet or any written notice is sent back within 30 days of the initial collection notice, the collector would have to provide the consumer with written substantiation of the debt (a “debt report”).
• The collector could not continue to pursue the debt until the report and verification is sent.

Stop collecting or suing for debt without proper documentation

• If a consumer disputes—in any way—the validity of the debt, collectors must stop collections until the necessary documentation is checked.
• Collecting on debts that lack sufficient evidence would be prohibited.
• Collectors that come across any specific warning signs that the information is inaccurate or incomplete must halt collection until they resolve the problem. (CFPB’s examples of warning signs include “a portfolio with a high rate of disputes or the inability to obtain underlying documents to respond to specific disputes.”)
• Collectors must check documentation of a debt before pursuing action against a consumer in court. For example, collectors must have solid evidence of the amount of principal, interest and fees as well as the date and amount of each payment made after default before filing a lawsuit.

Stop burying disputes

• If a debt is sold to a new collector, the new collector must not start collection until outstanding disputes are resolved.
• Collectors would have to send along specific information when they transfer a debt to another collector so that a consumer does not have to resubmit this information to the new collector.

Following publication of the proposed regulations in the Federal Register, the public may submit written comments in response to the proposal.

About Consumer Action

Consumer Action has been a champion of underrepresented consumers nationwide since 1971. A non-profit 501(c)(3) organization, Consumer Action focuses on consumer education that empowers low- and moderate-income and limited-English-speaking consumers to financially prosper. It also advocates for consumers in the media and before lawmakers to advance consumer rights and promote industry-wide change.

By providing consumer education materials in multiple languages, a free national hotline, a comprehensive website (www.consumer-action.org) and annual surveys of financial and consumer services, Consumer Action helps consumers assert their rights in the marketplace and make financially savvy choices. Nearly 7,000 community and grassroots organizations benefit annually from its extensive outreach programs, training materials and support.