Major changes may be coming to the debt collection industry. The Consumer Financial Protection Bureau (CFPB) published an announcement asking for comments on issues facing consumers and the industry, while it prepares to develop new rules around debt collection practices.
This is a big deal — perhaps the biggest news since the Fair Debt Collection Practices Act went into law in 1977.
And more importantly, it’s a chance for consumers like you who are dealing with debt collectors to weigh in.
The stories we’ve published about debt collection on the Credit.com blog have been among the most popular with our readers, generating hundreds of questions and comments ranging from readers who don’t owe a penny but can’t stop collection calls coming in for the wrong person, to those who don’t have a penny to spare but are being hauled into court for old debts.
Based on comments from our readers, I picked a few recurring complaints and created a wish list of changes I’d like to see the CFPB address. We plan to share these with regulators, so feel free to weigh in using the comments section below if you have something you’d like to add. And the CFPB also invites you to submit your comments to them as well.
Collection Calls for the Wrong Person
The CFPB says it is concerned that debt collectors may try to collect money for debts from the wrong consumers.
We agree, and believe consumers should be given tools to prevent multiple (and often ongoing) calls for the wrong person. I previously shared how when my daughter got her first cellphone at the age of 11, it rang constantly with calls from collectors trying to reach the person who previously held that number. It’s now some four years later, and the calls persist, albeit less frequently, despite our repeated request to collectors to have them remove her number from their databases.
She’s hardly alone. Our story on the Credit.com blog about collection calls for the wrong person currently lists 124 comments with a range of complaints from consumers, including one from Kay, who says:
I keep getting phone calls for someone looking for a man with the same name as my ex father-in-law. I have been divorced for about 25 years, and he has been dead for about 20 years. I have told them every time they call there is no one living here by that name, and that the only one I ever knew by that name I haven’t seen in over 20 years BECAUSE HE IS DEAD. They keep calling back again and again.
Robocalls are particularly frustrating, as they do not always provide adequate information for the recipient to identify who is calling, or provide an option to allow someone who does not owe the debt to “opt out” of future calls without having to talk to collectors, who are not always accommodating.
A couple of suggestions: The CFPB could consider requiring that all robocalls provide an option for consumers in this situation, “press 5 if you believe this call is in error,” for example, as well as a central database that could be used by collectors to scrub their phone lists before they start dialing.
Confusing Collection Accounts on Credit Reports
- What is this collection account listed on my credit reports for?
- Why didn’t I get a bill before it went to collections?
- Isn’t this too old to be on my credit reports?
- Why is the same account listed with multiple collection agencies?
These are a few of the most common complaints we hear about collection accounts on credit reports. One of our readers reports that she fell behind on three credit cards and now has 14 collection accounts on her credit reports!
In some cases, the first time consumers hear about a collection account is when checking their credit reports. They may find out about one of these accounts when they apply for a loan, get their free credit reports, or when they use Credit.com’s Credit Report Card to get a free credit score.
This problem seems to be especially prevalent in the case of medical debt. In some cases, consumers have told us they never received a bill before the debt was turned over to collections. But this may be too late. Once a collection account is on their credit reports, consumers are usually stuck with the damage for up to seven and a half years, sometimes even when there is a legitimate underlying problem.
Neverending, Growing Debts
Consumers who can’t pay their debts and wind up in collection are often surprised to find they actually owe more — sometimes substantially more — to the collection agency — than when they defaulted. For example, one of our readers wrote that a collection agency had doubled their debt:
I have an old credit card collection that started as a $4,000 charge-off and the collector is telling me that I now owe double that amount. Can collectors arbitrarily charge whatever they want and call it “interest and fees”? Is there a limit to what they can charge? I want to pay the debt, and I now have a great job with decent income to do so, but I don’t want to pay more than I actually owe.
Collectors often can charge fees and/or interest, but how much they can (or do) charge is a mystery. When pressed for explanation, many collectors can’t explain how exactly they came to the figure they say consumers owe.
Just as troubling, consumers who are making payments may not be told they will be charged interest and as a result, they think that their entire payments are going to pay off the debt, when in fact only a small portion is going to principal. Without any kind of period statement or accounting of charges, consumers may make payments for years only to discover they still owe a substantial amount even though they thought their debt was paid off.
The CFPB has discussed the possibility of requiring collectors to provide better explanations of what consumers owe, and how the collector arrived at those figures. That’s a crucial first step. In addition, for consumers who are making payments on their debt, some kind of statement showing payments, interest and the current balance should be required, even if it is provided once or twice a year upon request.
Statute of Limitations
Over the years, we’ve heard numerous complaints from consumers who say a debt collector is trying to collect a very old debt from them. And even consumers with more recent debts also wonder how long a debt collector can try to collect. For example, one of our readers recently wrote:
How long will I be harassed by collection agencies? I was sick in 2007 and ended up with a bill for nearly $4,000. I have not been able to pay said bill and it has gone from one collection agency to another.
Our advice for these consumers? Research the statute of limitations for that debt in your state or talk with a consumer law attorney. Quite honestly, though, that can be easier said than done. Researching the applicable statute of limitations for various types of debts is confusing for consumers. Whom do you ask? Your state attorney general’s office may be able to help — or may not. And most people dealing with unpaid debt hardly feel like they have funds to pay an attorney for advice.
What I’d like to see: It would be helpful for the CFPB to publish and maintain an online consumer guide to the statute of limitations in all 50 states with general information on how they work. We understand it can’t cover every situation, but it could make it easier for consumers to research their options when they receive collection calls or letters for older debts.
What’s Your Wish?
These aren’t the only problems consumers are dealing with; there are certainly many more. I’d like to hear what’s at the top of your list — and the CFPB would like to hear your comments and suggestions, as well. Share your comments below, then visit RegulationRoom.org to join the discussion.
This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its affiliates.