Debt collectors, attorneys and consumer advocates heard details in Sacramento on Thursday of a proposed overhaul of the nation’s $13.7 billion debt collection market through rules limiting how often collection agencies can call debtors and allowing consumers to ask for verification that they are responsible for debt.
A number of consumer advocates at the Consumer Financial Protection Bureau hearing at McClellan lauded the proposals under review by the federal agency. But some who represent debt collectors and industry attorneys said consumers also have a responsibility to work with collectors when they owe money.
Director Richard Cordray, speaking to close to 200 people in attendance, said state and federal laws enacted in the late 1970s have made a difference in the lives of consumers. But, he said, more needs to be done. The Consumer Financial Protection Bureau has already handled 250,000 debt collection complaints, or about a fourth of all those received in the organization’s five-year existence.
“Even today we continue to hear about serious problems with debt collection,” Cordray said at the start of the hearing. He cited “debiting accounts without authorization, calling at all hours of the day or night, threats of arrest or criminal prosecution or threats of physical harm to consumers and even their pets.”
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The bureau, a federal consumer protection outgrowth of the recession, is considering rules that would apply to third-party debt collectors – those under contract to a company to collect debts for a fee – as well as companies that purchase debts typically for cents on the dollar and attempt to collect payment from consumers. The bureau estimates that more than 70 million people were contacted by a creditor or collector seeking to collect a debt within the past year.
“Last year alone we fielded 85,000 debt collection complaints,” Cordray said. “The largest segment had to do with continued attempts to collect a debt that the consumer said was improper because it was not their debt in the first place or because it had already been repaid or discharged in bankruptcy.”
Cordray said the basic principles for what he expects will be a drastic overhaul is that companies “should not collect debt that is not owed” and “should have more reliable information about the debt before they try to collect.”
Linda Deos, a consumer law attorney in Sacramento, was among dozens of speakers at the hearing and said she had represented hundreds of consumers being sued by debt collectors. “For every one I have represented, there has not been supporting documentation behind the debt owed. There have been harassing phone calls.”
“All I can say is we need your help,” she said. “We need clear laws for these people.”
But Los Angeles attorney Charles R. Messer, who represents debt collectors, questioned the idea that only collection agencies should be asked to validate consumer debt with thorough and accurate documentation. “It’s the creditors who have the power to create and keep those records,” he said.
Consumers can file complaints about debt collections practices at www.consumerfinance.gov/complaint.