What consumer protection law is about as old as the arcade game Pong and nearly as antiquated?
The Fair Debt Collection Practices Act — the law that governs what’s become a multi-billion-dollar financial industry segment made up of companies that chase past-due debts from an estimated one in 10 Americans.
When the FDCPA was put into place nearly four decades ago, there were none of the technological conveniences we take for granted today: smartphones, personal computers, the Internet, social media and the like.
All this comes into play with the sophisticated business of tracking down and collecting past-due loan obligations from consumers who are unable (or unwilling) to honor them. These modern day marvels have also opened the door to abuses that the framers of the FDCPA never contemplated.
According to the Consumer Financial Protection Bureau, roughly one-third of the complaints it receives pertain to debt-collection-related matters involving after work hours phone calls, texts and email messages, and inappropriate social media postings. Consumers are also being harassed by incorrect account information and wrongful assertions of indebtedness. Some may not even know they’re being pursued until they read their personal credit bureau report.
Part of the reason for this is that consumer loans have become a currency of sorts. Some creditors sell the loans they originate to other lenders, many outsource their day-to-day management and still more pitch severely delinquent and defaulted loans to liquidation firms for pennies on the dollar even when the borrowers remain obligated for the full amount.
The CFPB believes the time has come to develop a national standard within the context of a modernized FDCPA — one that not only governs companies to which loans are outsourced or sold outright, but also for lenders that retain and service the loans they make (entities that are not at this time subject to the law).
There’s also the matter of medical and municipal debts (e.g. tickets, fines, and so forth), which, as the Bureau points out, aren’t treated the same way as loan-related obligations. And how about evolving a set of rules for the minimum level of required information to be conveyed to the debt collector when a loan is outsourced or sold? I’m talking about giving direct access to the underlying contracts, original credit files and system-generated reports that detail payment histories, customer-service inquiries and prior collections efforts.
I don’t know how any subcontracting loan servicer can think of undertaking an assignment without this fundamentally important background information. In fact, I would take this a step further by recommending that all the participating parties (creditors, servicers and liquidation firms) be held financially responsible for mistakes that result in financial hardships for consumers who are then forced to miss work and engage legal representation in order to untangle a mess they had no part in creating.
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Student Loan Relief
Finally, I’d also like to see the FDCPA broadened to protect student loan borrowers that are the victims of a different type of abuse—the sin of omission.
I’m talking about servicers that fail to inform cash-strapped debtors about the relief programs for which they may be eligible, and shunt them instead into negatively amortizing forbearances and other arrangements that prolong the pain while perpetuating the flow of interest and fees.
To be clear, the FDCPA is by no means an escape hatch through which debt-dodgers can slip unnoticed. The point, however, is for creditors, the servicers they engage and the liquidation firms that become involved to fairly collect what they are legitimately owed from consumer-borrowers who, by and large, are decent folks who want to pay their bills.
This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its affiliates.
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