The U.S. government's consumer financial regulator
warned debt collectors
July 10 to stop using forbidden tactics, and gave consumers new
tools to communicate with collectors and fight shakedowns.
The U.S. Consumer Financial Protection Bureau took the steps the
same day it began accepting complaints about collectors from the
Those moves -- coming a day after the Federal Trade Commission
announced a record $3.2 million
penalty against the largest global collection
-- amount to a powerful warning shot across the bow of outlaw
"Those debt collectors that are treating consumers fairly have
nothing to worry about," CFPB Director Richard Cordray said during
a hearing on debt collection in Portland, Maine. "But those using
illegal means to collect consumer debts should be forewarned that
we will not tolerate such behavior."
Bad practices cited
The agency cited the federal Dodd-Frank Act's prohibitions against
unfair and deceptive practices as its authority for acting and gave
several examples. Prohibited practices include:
- Falsely threatening lawsuits, arrest and imprisonment for
- Adding on amounts not authorized by the credit agreement
- Revealing the debt to your employer or co-workers.
The agency issued a separate bulletin warning debt collectors
against false statements about how
paying a collector might affect your credit
. Collectors may recommend paying a defaulted debt in order to
boost your creditworthiness, but they don't really know how a
payment will affect your score, the bulletin states.
"One strategy (collectors use) is to discuss how the unpaid debt
affects a person's creditworthiness, and we are concerned that some
of these discussions could be illegal," Cordray said.
The Dodd-Frank powers extend to original creditors such as
card-issuing banks, as well as contractor or "third-party" debt
collectors working on commission.
In addition to signaling that it would be watching for
unscrupulous debt collectors, the agancy also issued five sample
debt collection letters that consumers can use to protect
Industry agrees it needs weeding
The collection industry's trade group approved the moves, while
saying that all collectors should not be tarred with the same
"We agree there are bad actors out there, and like any industry,
those bad actors are making it increasingly difficult for the good
ones to go about their business," said Mark Schiffman, director of
public affairs for ACA International, formerly called the American
ACA International Chief Executive Patrick Morris, who spoke at
the CFPB hearing, said that the organization welcomes the CFPB's
complaint process, which will loop in the collector and seek a
resolution of the problem. Collectors have long objected to FTC
complaint reports, which gathered complaint totals without checking
to see if the collector was at fault.
"Debt collectors are not an enemy of consumers," Morris said.
"Our members take consumer complaints seriously and want to resolve
In the aftermath of the Great Recession, about 30 million U.S.
consumers have one debt in collection, or close to 15 percent,
according to estimates by the Federal Reserve Bank of New York.
People with debts in collection owed an average of $1,400.
"Our job is to root out bad actors and protect consumers against
unfair, deceptive, or abusive practices and other legal
violations," Cordray said. In addition to the initiatives announced
July 10, the agency began conducting examinations of large
collection companies in January 2013.
Debt collection collects complaints
Collection attracts the most complaints
of industries regulated by the Federal Trade Commission, with
125,136 lodged in 2012. An
in 2010 called collection a "broken system," citing lack of
protection for consumers in legal cases or arbitration.
Separately July 10, the Wall Street Journal reported that
Chase Bank's internal review of its collection
against credit card customers -- the subject of a lawsuit by
California's attorney general -- found mistakes in 9 percent of
cases. Mistakes included incorrect amounts of interest and fees,
and sometimes higher balances than were actually owed, the report
State regulators at the CFPB hearing said the job of reining in
hardball collectors will not be easy. "The question for us now in
the public sector," Maine Attorney General Janet Mills said, "is
how to separate the predators from the benefactors."
Agency issues sample letters to send to debt
California blasts Chase for robo-signing collection