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What the CFPB Should Do About Debt Collectors

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On July 21, 2009, the Plain Dealer reported that then-Ohio Attorney General Richard Cordray sued debt collection firm National Enterprise Systems Inc., accusing the firm of violating Ohioans’ rights under the Fair Debt Collection Practices Act (FDCPA) and harassing them over past-due debts. Exactly two years later, the Dodd-Frank Wall Street Reform Act, which lays the groundwork for the new Consumer Financial Protection Bureau, goes into effect and Cordray has been nominated by President Obama to lead the agency. If he is confirmed as head of the CFPB, this gives him the opportunity to protect consumers from overzealous debt collectors on a national scale.

While the new agency will have its work cut out for it, regulating the debt collection industry—especially debt buyers that purchase lots of old debts and then try to collect based on sketchy information—should be near that top of the list. It’s well-known that complaints about the debt collection industry have generated more complaints to the Federal Trade Commission than any other single industry. The FTC, which will share enforcement duties with the CFPB, has laid the groundwork for new rules by holding a series of workshops around the country in which consumer advocates, members of the collection industry and attorneys have weighed in. The CFPB is in a position to write rules to help regulate the industry, something the FTC never could do.

There’s been enough talk on this issue; it’s time for action. Here are six things the Bureau should do:

Create Easy-To-Understand Debt Collection Letters

Here’s the easy-peasy suggestion for the CFPB: Develop uniform standards for the letters debt collectors can send to debtors. Under the FDCPA, collectors are required to send written notice of a debt within five business days of initially contacting a debtor. While the basic elements of that letter are already described in the FDCPA, there’s a lot left out, and too much left to the interpretation of sometimes aggressive collectors who want to scare up payment as quickly as possible.

Much like the mortgage disclosures for which the CFPB has been soliciting comments, a standard collection letter means, “debt collectors can just plug in the numbers,” says Philadelphia-based consumer law attorney Michael Forbes, who has sued debt collectors.

[Resource: What to do if a Debt Collector Calls]

What should go into such a debt collection letter? The basics consumers need to know:

Details of the debt

  • Complete contact information for the current collector
  • Name and address of original creditor
  • The date the original account was opened
  • Date of default date (or perhaps last payment) with the original creditor
  • Charge-off date
  • Amount owed at the time of default or charge-off
  • Interest and fees charged since that date
  • Amount currently owed
  • Clear explanation of right to request verification of the debt, and how to do that
  • Chain of title (list of all firms that have attempted to collect the debt after the original creditor)
  • Credit reporting information (how long it can be reported)

Summary of Consumer Rights

  • Information about the statute of limitations
  • Where to get more information about the consumer’s rights and resources
  • How and where to file a complaint against the collector if necessary

[Resource: 11 Ways A Debt Collector May Be Breaking the Law]

Most importantly, these letters should not include other language designed to intimidate or confuse the debtor. Letters that include veiled threats to “investigate” a consumer for possible fraud, for example, or that look like pseudo-legal or government documents, have no place in the collection process. A standardized format would discourage collectors from trying “creative” approaches that may later be determined to be illegal anyway.

“Why can’t they play it straight?” asks Forbes. “Just tell the consumer exactly what he or she owes, ask them to pay, and if they don’t, they can turn it over for legal action.”

At a minimum, the Bureau should crack down on debt collectors that fail to send this or any notice. The FTC reported last year that nearly 30% of consumer complaints alleged that debt collectors failed to send the notice currently required by law. That’s unacceptable.

Rein in Reckless Debt Buyers »

Image: Quazie, via Flickr.com

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  • Kathy S.

    What should also take place is that a consumer should not be penalized numerous times on their credit report if multiple collection agencies purchase and/or repurchase the date. For example, if your account with Ace Mastercard was closed due to non-payment in 2006, the drop off year should be in 2013. But collection agencies who purchase & repurchase the debt reset the date of the debt, so it stays current. And you get 2 sometimes three or more collection agencies posting the same debt over & over on your credit report which makes it extremely confusing. And it’s not only credit reports consumers should worry about. Most employers use a service called “The Work Number” that verifies employment history for current & former employers. This is used instead of contacting the former employer. Well, collection agencies are starting to use this as well to report collection accounts. I found that nasty little secret out when I tried to apply for employment, & they needed verification of my employment.

    • http://www.Credit.com Gerri Detweiler


      You are absolutely correct that the way these collection accounts are reported can be a big problem. Legally, collection accounts may be reported for seven and a half years from the date you fell behind with the original creditor. Collection agencies are supposed to accurately report that date. In addition, FICO tells me that the fact that an account was recently placed for collection should “update” the account to make it appear more recent. You are also right that it is not uncommon for multiple collection accounts to be listed for the same debt. When this happens, you should dispute the older ones as duplicates. (I would be interested in hearing what kind of responses you get from the bureaus when you do.)

      I am very interested in learning more about your experience with the collection accounts and the Work Number. Will you email me at creditexperts (at) Credit.com?

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  • Kathy S.

    Gerri, I would not only be happy to e-mail you, but also provide you with proof, if necessary, as I am afraid I am not getting either interviews or job offers based upon a combination of my credit history and my age.

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  • Bob

    Kathy, would you e-mail me at Bob dot Sullivan at msnbc dot com?

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