Closed Rule

Consumer Debt Collection Practices (ANPRM)

Summary

The Consumer Financial Protection Bureau (CFPB) might propose new federal rules on how creditors and debt collectors can act to get consumers to pay overdue credit card, medical, student loan, auto or other loans. This decision matters to you if you

  • had an experience with debt collection (good or bad)
  • counsel consumers with overdue debts
  • have a business where you do your own account collection or
  • work in the debt collection industry

Here, you can learn what CFPB is thinking and what it needs to know. You can share information and experiences and discuss ideas with others. At the end of the discussion, CFPB will get a detailed summary and your input will help it decide what to do next. (This phase is for gathering information and brainstorming. The next phase would be where CFPB comes up with specific proposals and asks people to comment again before it decides whether to adopt those proposals as new regulations.)

Consumers and business both have a stake in effective, responsible debt collection practices. Don't be a bystander. Help CFPB make the right decisions about new consumer debt collection regulations. Share what you know and encourage family, friends and coworkers to do the same.

Draft Discussion Summary Telling consumers what's happening with their debts - 2

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Subtopics

1|Notice that the debt has been sold - 1

Draft Summary of Discussion

[NOTE that comments reported in this section may have originally been made under another subtopic. Similarly, comments originally made on this subtopic may be reported in another, more relevant section. Information in parentheses comes from commenter response to interest survey; the “servicemember” designation may apply to the commenter or someone in their family. Numbers in parentheses for industry-perspective commenters refer to number of people involved in debt collection in the firm.]

Commenters who took the consumer point of view uniformly supported a notice requirement. At least two commenters who reported being in the debt collection industry (debt collection law firm; 20-50 and a “former bill collector for over 17 years; >50) explicitly supported the basic concept of a notice rule. No commenter opposed requiring notice to the consumer when the debt was sold.

These reasons were given for requiring notice:

  • Without notice, debtors might pay the wrong person. A notable theme, across topics in the debt collection discussion, was consumer stories of collections that came about when payments were misdirected or otherwise mistakenly not credited.
  • Sale of debt can lead to a single debt appearing multiple times on the debtor’s credit report. This makes it appear that the debtor has more defaults, or more recent defaults, than is actually the case. Notice of sale would at least make it easier for the consumer to figure out what is going on with their credit report.
  • Notice of ownership changes would also help consumer identify source of fees and other charges, and track down errors. E.g., “With regards to costs, most consumers and most debt buyers are unable to detail how a 2200.00 debt becomes a 7000.00+ debt. And I found that very few [collectors] even knew the original creditor’s named, yet still attempted to collect this debt.”
  • Notice would help consumers identify who is contacting them about a debt. It can be hard now to tell if a call is just a solicitation or even a scam, rather than a legitimate contact about the debt. “Consumers should be able to verify change in ownership for their own peace of mind.” Moreover, without a “paper trail” of ownership, consumers may make a payment to someone who claims, falsely, now to own the debt or have authority to collect. E.g., “I once paid a debt to a collection agency, only to find that I had paid one of 3 collection agencies who claimed to own the debt.” Alternatively, consumers may ignore contacts they don’t recognize and inadvertently create a more serious problem. E.g., “About a year ago we started getting phone calls from Discover in regards to student loans and we all assumed that it was a sales call because no one living at my address had student loans with them. Eventually we managed to be home when they called and we discovered that two of my brother's loans were sold to Discover and he was never notified. So all this time thinking it was a sales call, because Discover only gave a 1-800 number to call about student loans and not even the name of the person they were trying to reach, his loans were actually in default because Discover cancelled the forbearance he had upon purchase. When he attempted to put them back into forbearance, Discover told him they ‘didn't have a system for that yet’.”
  • Notice would also help identify the particular debt the consumer was being contacted about. E.g., “I have been in situations where I had no idea what a firm was actually trying to collect on because it had been passed along (presumably sold) so many times).”
  • Notice of sale might help the debtor negotiate repayment. This was often part of a larger discussion about whether the debtor should have the opportunity (or even right) to settle the debt at the discounted purchase price (see below). Even commenters who didn’t go this far thought that knowing the debt had been sold might help the debtor bargain.
  • Notice of sale might motivate debtor to attempt repayment, especially if the notice made clear that terms such as fees or minimum payments would now be less favorable. Even if such changes weren’t involved, notice “would give the debtor another chance to pay in the simplest way, before getting tangled up in idiot phone calls.”
  • Notice might help consumer avoid negative credit reporting (See Serial credit report entries below).

As to who should send the notice, one consumer commenter insisted the rule should be the same as for mortgages: a “goodbye letter” from the original creditor when the debt is sold, and a “hello letter” from the new owner. Others agreed that the notice rule should be the same as for mortgages. However, one commenter (debt collector; < 20) predicted that consumers would be confused if both seller and buyer were required to send notice. At least one consumer commenter thought notice from either the seller or buyer was sufficient.

On content of the notice, one consumer commenter suggested: name and contact info for original creditor and new owner, and effective date of sale. Another consumer commenter also wanted “the street address of the company so that face-to-face meetings can be arranged.” A third included “what [telephone] number [the debtor] can expect to receive calls from regarding the debt.” A fourth wanted the amount of the debt when sold. Another consumer asked for more extensive disclosure, including “how the change will affect the debt—will there be a change in interest? In due date? In collection fees? In the way payments are applied or minimum payment amounts? This should be done with ample time for the consumer to understand the change and take any actions.”

In terms of cost, one of the industry-perspective commenters who supported notice wrote:

“I agree that it benefits everyone when notice of sale or assignment is given to the consumer. I am not aware of any part of the industry other than mortgage servicers who presently give notice. The benefit is clear - it reduces confusion, reduces the risk of misapplied/lost payments, and produces a clear chain of ownership. It would be costly to the creditors selling the debt, but not so much as to be prohibitive. Creditors have to send notices under a variety of other laws. I don't think this addition would make that much of a difference. I think the notice should state the account number, the entity to whom it is being sold (including contact information) and the amount currently owed. It should be sent by the seller, who has the most current information for the consumer, and a copy should be provided to the debt buyer as part of the sale package.” (debt collection law firm; 20-50)

Many comments called for changes beyond simply a notice requirement. At least one commenter proposed each of the following additional rules:

  • The debtor must get proper credit for a payment made to either the seller/assignor or the buyer/assignee.
  • “If a debt is sold, then it should actually be sold to a third-party, and not a subsidiary of the original lender.”
  • Give the consumer “the opportunity to refuse this process [i.e., sale of the debt] if it entails negative financial changes” in e.g., interest, fees, minimum payment amounts, etc.
  • Require that “when the original lender sells the debt to a JDB and the consumer pays off or settles the debt it should reflect paid or settled in the original lender’s internal records.”
  • “[T]he entity selling the debt should give 90 days notice of the intent to sell giving the consumer notification of the intent to sell and maybe even offer a settlement amount. The entity purchasing the debt must honor any and all terms of the debt they are purchasing (i.e. payment plans, deferment/forbearance, etc.).” This consumer backed up this recommendation with a story: “My brother has several private student loans. About a year ago we started getting phone calls from Discover in regards to student loans and we all assumed that it was a sales call because no one living at my address had student loans with them. Eventually we managed to be home when they called and we discovered that two of my brother's loans were sold to Discover and he was never notified. So all this time thinking it was a sales call, because Discover only gave a 1-800 number to call about student loans and not even the name of the person they were trying to reach, his loans were actually in default because Discover cancelled the forbearance he had upon purchase. When he attempted to put them back into forbearance, Discover told him they ‘didn't have a system for that yet’.”
  • "There ought to be a limit on the number of times debt can be sold." (consumer)

Serial credit report entries. Another set of proposals beyond simple notice of sale was motivated by a concern that shows up in other discussion topics as well: Sales of debt can inaccurately damage the debtor’s creditworthiness when a single debt shows up multiple times on a credit report. Even some creditor/collector commenters urged action to remedy this problem.

  • On credit reports, require listing the name of the purchaser rather than merely the current practice: “sold to another lender.” Now, there can be problems matching what a consumer lists as debt vs. what is listed in the credit report. (debt collector; <20)
  • Require the seller to report the sale to credit reporting agencies so that it appears as part of the debtor’s credit report. This could help avoid the appearance of multiple bad debts: “A consumer should not be penalized twice for 1 debt.”
  • One frequent commenter (debt collection law firm; 20-50) endorsed this goal and urged:
    The FICO impact on sold debts appearing twice needs to be addressed with the credit reporting agencies and the companies that create credit scores. Creditors have a right to report the status of a debt, and shouldn't be precluded just because it already appears by the previous creditor. However, the double penalty against the consumer is certainly unfair. But it's not the collectors' fault. It should be addressed in enforcement of the FCRA.
  • “Rules should be written to discourage—no, to bar—collections companies from passing around debt for the purpose of keeping it on credit reports.”
  • “One theme we see throughout comments is that debt sold adds confusion as to whom is the creditor, and also triggers a new credit entry, making the debt appear as incremental (additional), when it is simply transferred, and fresh. The solution to this is simple; do not allow credit bureaus to ever list more than one entry for the same debt. Put the burden of accurate recordkeeping on the bureaus, because they are the only entities who have a responsibility for accurate recordkeeping and they are paid to keep accurate records. Currently the cost of sloppy systems is externalized to both creditors and borrowers, both of whom tend to re-externalize it to other creditors and borrowers in the form of higher costs. It is irrelevant whether these dual entries are caused by negligence, incompetence, or malice on the part of the creditor or collector because it is the responsibility of the credit reporting agency to make this practice impossible.” (academic focused on consumer economics)
  • “Another thing when these debts are being sold and resold and resold to where you may show up with 1,2,3,4,5, or more accounts which are the same account but since it has been resold many times with different company names and different amounts so you have to somehow piece this puzzle together and prove that they are one account and not several different ones. There needs to be some control over this and an account may be old past the 7 years and it looks currant just because it keeps being sold and they keep putting the date they acquired it not the original date of last activity.” (consumer)
  • In response to comments requesting a federal rule that the debt could be reported only once, an industry-perspective commenter (debt collector; >50) said: “[T]hat wouldn't be very efficient. The FCRA does not allow reporting of a debt that is no longer being serviced by a creditor/collector. For example, if your creditor is currently reporting the debt but sells it to a debt collector, your creditor can no longer report on that debt. The buyer can, if he subjects himself to the corresponding federal regulation.”
  • When one consumer (62 or older) complained "I have 13 lines of the same debt on the credit bureaus. The first one was bought and passed down." A creditor collecting own debts (<20) agreed: "This is a problem that needs to be corrected. In this case, the line of credit is negatively affecting your credit a multiple of times even though it is one line." A commenter who works for a consumer credit organization pointed out that this is a violation of the FCRA. S/he opined: "If the credit reporting agency refuses, there are many consumer protection attorneys that would happily take this case on contingency. This type of violation normally never sees the inside of a court room. A letter from a well know CP attorney will likely get awards and the prompt correction of the credit report." However, the number of consumer commenters complaining about this problem suggests that most are unaware of, or don't have access to, this solution.

Discounted debt buying. Finally, a set of proposals beyond simply notice requirements was motivated by a consumer sense that it is unfair for a debt buyer to pay a discounted price and the debt seller to get a tax write-off, while the debtor is still liable for the entire amount. E.g., “Debt buyers and collectors may go on a tirade about personal responsibility and windfalls. However, it is at least debatable as to which way such value judgments cut when a debt buyer is trying to get $100 from an impoverished consumer on an account for which the debt buyer paid only $3.”

  • The notice of sale should disclose the amount for which debt was sold/bought (multiple consumer commenters made this proposal; one commenter would also include how much of a tax benefit is being claimed if a 1099c is issued.)
  • The debtor should have a right to settle the debt at the sale price, or “a fair chance to bid on and purchase his/her own debt, on terms just as favorable as the terms offered to any other debt buyer.” Several consumers argued for this rule on grounds of fairness, while at least one defended it as in the creditor’s interest (“if I could get 10 cents on the dollar directly from the debtor, rather than 4 cents on the dollar from a debt buyer…”) This commenter urged “a rule that allows consumers/debtors the change to receive a onetime offer that is valid for only X amount of days (maybe 45 days)”—calling this a win-win approach that would stimulate the economy. An industry-side commenter, who participated extensively in the discussion, explained that the economics of purchasing a large portfolio of bad debt are very different than a one-on-one deal with a particular debtor.
  • “I would like to comment on the predatory practices of debt collectors in regards to their purchasing bad debt for pennies on the dollar and then attempting to collect the full amount of the balance of the original loan. State regulations should preempt them from collecting exorbitant returns on such minimal investment (usury!!!). Other items to consider pertaining to this issue are: The bad debt buyer does not disclose what he/she purchased the bad debt for. This should be disclosed and transparent as they have the original debt information, including SSN, phone and financial information. I don't begrudge them making a profit, but their predatory practices need to be regulated. A superior court judge should be able to examine the original transaction, (for instance a 2nd mortgage in default), all the documents concerning the purchase of this debt by a third party and determine a fair and equitable payment to resolve the problem, avoiding bankruptcy.” (consumer)
  • "Debts as assets is an outrageous concept." (consumer)

Personal stories on this topic included:

  • "ATT has me owing a fee for terminating my cellular contract early (due to problems with their poor service). This $300 fee has been sold so many times (I have never been notified) but it appears several times on my credit report and has been made to look like a recent debt when it is from 2008."
  • "I had the same situation with another cellular carrier. It seems it's a ploy to keep making the debt seem fresh. It was another early termination fee, and I wrote many letters before it was finally removed from my credit report. I think that the tactic of selling the same debt to keep it on a credit report definitely should stop."
  • "Very confusing if I can pay my student loans directly to DOE or to one of the many private companies who have owned my loan over the years. They continue to try to entice me to restructure the student loan debt - very misleading - without disclosure of their fees - at this point I cannot even trace a $30000 fee that was double billed to my total. It is a web of confusion that I cannot escape. I intend to take my student loans to my death as I have no other way of making the monthly payments."
  • "Debt was sold to another company. So now debt is listed on my credit twice. So debt will last more than 10 years on report. Plus I've been a victim of identity theft twice. Both times I reported it to the police and to the credit agencies. Unfortunately nothing police can do but write a report for proof. Credit agency was ordered to put a fraud alert on my social but fail to do so."

Just a reminder that the only question at this point is whether the draft summary missed, or misstated, something relevant in the comments that RegulationRoom participants made before CFPB’s public comment period closed on Friday, Feb. 28.

2|Notice that the debt has been turned over to a collector - 1

Draft Summary of Discussion

[NOTE that comments reported in this section may have originally been made under another subtopic. Similarly, comments originally made on this subtopic may be reported in another, more relevant section. Information in parentheses comes from commenter response to interest survey; the “servicemember” designation may apply to the commenter or someone in their family. Numbers in parentheses for industry-perspective commenters refer to number of people involved in debt collection in the firm.]

Almost all consumer commenters supported the idea of notice when the debt has been turned over to collection.But, in contrast to notice about sale of the debt, most commenters from the creditor/collector perspective opposed a new notice requirement.

Reasons given for a new notice requirement:

  • Consumers should be aware of who is authorized to handle collection of a specific debt. "Getting such a notice would help me understand that there is going to be a change with whom I would be communicating going forward." (consumer; 62 or older)
  • "Notice would give the debtor another chance to pay in the simplest way, before getting tangled up in idiot phone calls." A different consumer commenter predicted that giving notice would save creditors money by resolving some problems without actually going to collection. (See below for more on cost).
  • Two industry-perspective commenters supported notice: "While Demand Letters can be ineffective for the purpose of collecting a debt, ‘notice is the hallmark of fairness.’ It's more important that people are held to standards, which, in turn, help to eliminate abusive practices. Procedural safeguards, like demand letters, are an important standard regardless of their effectiveness." (involved in debt collection; > 50; third party website vendor); notice is one of “a lot of ways the industry needs to be cleaned up.” (a former bill collector for over 17 years)

Note that (as some industry commenters pointed out during the discussion) many consumer commenters seemed to assume that sending a debt to collection involved a sale to the collection agency. So, some of the reasons consumers gave for requiring notice of sale (previous subtopic) may apply in this setting as well.

Reasons given against a new notice requirement:

  • The debtor already knows she/he is in default. E.g., "My experience is intervention to collect by a third part normally occurs when the consumer is over 180 contractual [days] delinquent." (debt collector; fewer than 20) Creditors typically contact the debtor multiple times to resolve the delinquency before resorting to collection in order to avoid the added costs. One consumer commenter agreed that there would be no benefit from this notice.
  • The original creditor’s bill often already includes a notice to delinquent accounts that the debt is going to be referred to collection.
  • The consumer can always check with the original creditor to confirm the collector’s authority.
  • All the different contacts—first a warning, and then the validation notice from the collector—will be confusing. (One consumer commenter agreed with this.) One industry-perspective commenter (debt collection law firm; 20-50) explained: " When debt collectors send that Validation Notice, they are required to state the creditor to whom the debt is owed. I think that is sufficient notice that the debt is being assigned for collection. I commented on the other thread that I DO believe notice should be given when the debt is sold. But if the current creditor is retaining ownership but just assigning it to a collection agency or law firm, they will be notified when that agency contacts them and sends a Validation Notice. Besides, the collection agency or law firm may end up refusing to accept the account due to a conflict or a variety of other reasons. Giving notice that ends up being false would certainly cause confusion."
  • The reach of the requirement would be ambiguous. "[I]t is not even clear who a debt collector is, particularly under CA law."

Cost. Many creditor/collector commenters argued that new requirements would be costly, especially for small creditors. One commenter (creditor collecting own debts;>50) explained:

"My company calls, auto-dials, emails, and snail mails customers many times before they are sent to a collection agency. Many debtors simply refuse to respond to the original debtor. They only make payment after the account is assigned to a collection agency—akin to seeing just how far they can go before there's a consequence to not making payment... More notices from the creditor are useless and expensive. And the single most frequently used excuse of any debtor is ‘I didn't receive the letter/invoice/statement.’ A first class letter costs $0.55 minimum (inclusive of postage, paper, and envelope). That cost does not include overhead and employee cost. Multiply that cost by the number of notices and statements already sent (and ignored) and you begin to see the true cost of collection."

Another concurred, arguing that more legal requirements around collection ultimately increase costs to the consumer. (debt collector; >50)

Of course, the justifiability of cost is directly related to the extent of benefits, and the following exchange captures the different perspectives on this:

(consumer and collector) “I was sent to collection. Collector informed me that it was for an overdue insurance payment. Having everything on Auto-Pay, I overlooked the notice they mailed to me. One call to my agent and the problem was resolved. I'm glad they called and gave me the opportunity to get to root of problem before it jeopardized my good credit rating! I ‘know’ the majority of CFPB complaints come from people who simply don't want to pay their bill. I know this because I have worked for a collection agency for the last twenty years, privy to all complaints we receive and very, very few have any merit. I'm by no means stating that some people don't have legitimate complaints. What I am saying is if we compare the number of complaints to the number of accounts being pursued by all collection agencies the percentage of complaints would be a mere fraction of one percent. So, how much more regulation is necessary to address such a tiny percentage?"

(consumer) “The name of the agency is the CONSUMER Financial Protection Bureau not the Collector Financial Protection Bureau. The industry have their lobbyists and consumers have the CFPB. The goal is to protect consumers from illegal practices by certain industries and that sometimes means more regulations.”

(debt collection law firm; 20-50) "Preserving the industry DOES protect consumers. If there isn't a lawful and enforceable way of collecting money that is owed, then future consumers will pay the price in increased cost for credit, or denial of credit entirely due to risk."

(consumer, 62 or older) "I see what you mean, but that tiny percentage suffers incredible annoyance and harassment. Should they pay what they don't owe, merely to get out from under? All we've ever asked for is an itemized bill from the original creditor, but the collectors act as if that's too much. And they say—and probably believe—that we've received other bills, but we haven't. We've lived in the same place for 30 years--how awful it must be for people who move a lot."

The cost/benefit calculus may also depend upon the type of debt. Multiple creditor/collector commenters vehemently maintained that debtors have ample notice of delinquency problems. But other commenters argued from experience that medical debt is different. When a collector commenter pointed out that it’s in the interest of the creditor to avoid the costs of collection by contacting the debtor multiple times, one consumer wrote:

"You know, my only experience is with medical debts, but with those, we have NOT been notified several times, or sometimes, even one time. No one seems to care if the address is right (and when you're dealing with an old person, the billing address is often not the same as the physical address); sometimes the bill seems to go to what they claim is a collection agency even before the insurance company finishes with it. We are perfectly happy to pay our bills, but our contract is with the provider, and that's who we pay, not a collection agency."

Responding to another commenter’s statement that "All creditors send out multiple letters and make numerous phone calls to the consumer to give them a chance to pay their just incurred debt," this same commenter continued:

“All? It's just not so. Maybe retailers do; I have no experience with them. But medical billers are consistently mistaken, careless, and just plain wrong. One medical facility called my daughter-in-law's cell phone about a bill for my mother! (They had her number as, I think, the fourth emergency number.) And this was a GOOD place, that actually tried and finally managed to get in touch with me. I was very pleased with their billing department, compared to others we had dealt with."

Three other commenters lent support to the possibility (raised in discussion in other posts as well) that medical debt can be different:

(consumer) "In the case of 2 hospital bills many years ago they claimed to have notified me by mail several times but I had never even received the initial bill let alone the follow ups. Since I was insured at the time I only had to pay a reasonable co-pay and would have readily done so had I gotten the bills (as additional information, in both cases I offered to pay at the time of visit and was told they only bill). This particular hospital has an ‘in house’ collections department so I get the impression that they often neglect to actually send info to patients so that they can then collect the additional fees and interest as profit."

(debt collector; <20) "As a mortgage lender for an FDIC-insured bank, I'm astounded at the number of customers who sit across from me and are wholly dumbfounded when I tell them their loan request is denied because of outstanding collections. For certain there are some people who knew full well they would have collections items and are playing dumb (and not doing so very well). But many of them had no clue, and 90% of those collections are medical in nature."

"I had surgery at a hospital in 2006. I have 2 forms of insurance, both excellent. Therefore I rarely have a medical bill to pay, or it is for a very small amount. Sometime after the surgery (I do not recall how long after the procedure), there were repeated calls to my phone by an actual person who said, ‘This is (first name), give me a call at (phone number)’. Since we did not know the person, no one called back. We thought we should report it to the DO NOT CALL list, but we had no company name to report. Finally I happened to answer the phone when that number appeared and the male voice said, ‘you know what this is about, right?’ and I said, ‘no’. He said, ‘you have an overdue charge with (hospital name). You haven't paid your bill. I work with a bill collection company’. I said ‘I have never received a bill.’ He said ‘really?’. I said , ‘yes’. He said, ‘Call accounting at the hospital’. I called the hospital and they said to talk to my insurance company. I called my 2nd insurance company and they said both the first and the second insurance company had paid the hospital. The 2nd insurance company said I did owe money on the bill, something like $1.08. A bill collection company had been hired to collect $1.08 for which I had never received a bill! I asked both insurance companies to send me additional copies of the Explanation of Benefits. When I received the copies, I sent them to the billing department of the hospital with a check for the amount that the 2nd insurance company said I owed. I never did receive a bill. Nor was i warned it might go to a collection agency. A collection agency was hired for an amount just slightly over $1.00. Because of this experience, I do not plan ever to use this hospital again if I can help it."

But, even within this subcategory of debt, there may be different practices. A commenter self-identified only as a physician, wrote: "I sympathize with people who have debts, but I am also a physician and some of my [patients] owe our practice money. They receive numerous statements first, and a phone number to call to discuss. We give people a lot of leeway, and try and set up payment plans, but it's frustrating when there is no response, and then they end up going to collections which is bad for all."

What should be in the notice: Consumers seeking notice asked for the date when the debt will be turned over to collection, and the name and address of the collection company. One suggested a large type header, something like "[NAME OF CREDITOR] IS TURNING THIS DEBT OVER TO [NAME], A DEBT COLLECTION AGENCY." This same consumer also sought “a fully itemized statement,” to help the debtor identify the debt.

Going further, one consumer commenter wants the notice to include "a list of that’s company’s ‘best practices’ policies and procedures as to what the consumer can expect." Also "it would be good if there could be a single-point-of-contact for this company as well as the supervisors and owner of the collection company. Collection agencies need to be forced to deal more forthrightly with consumers and be required to deal with greater transparency." A frequent industry-side commenter (debt collection law firm; 20-50) disagreed: "It’s not the job of creditors or collectors to send notices about ‘best practices’ or personnel information." Pointing out that the debt is not being sold but “simply outsourced to someone who specializes in collecting past due debts," this commenter argued that the validation notice itself serves as notice. "The company who sends it is the collector; the letter itself will state the name of the creditor to whom the debt is owed. That’s enough."

Some consumers insisted that notice should be given whenever there is a change in debt collectors. One commenter explained that debtors who can’t make payments when they receive the initial notice might be able to do so later. Without notice that the first collector has been replaced by another, a debtor might send payment to the firm listed in the original notice.

Problems with the debtor’s address. Mistake or outdated addresses are a common theme in many posts. Commenters had divergent ideas for dealing with this problem.

An industry-perspective commenter (debt collection law firm; size unknown) proposed a requirement that consumers must notify the original creditor if their address changes. Although some creditors require this by contract, consumers don’t always comply. This commenter is concerned about new notice requirements that would make a creditor strictly liable for failure to give notice if the consumer has failed to provide updated contact information. It’s fine to require the creditor to resend notice if mail comes back with a new address, but the creditor should only be responsible for using the best information on hand.

By contrast, a consumer commenter argues for a standard of greater creditor diligence: "I recently helped out a friend whose Los Angeles business certificate/tax debt was turned over to Alliance One only after 4 years (!) of delinquency, and with no correspondence or notices whatsoever being sent to him prior or during the collection. He found out about its existence when he pulled his Trans Union credit report. Turns out, the city of Los Angeles had a wrong address for him, and never once during the 4 years bothered to check with DMV or otherwise what the correct address was; they just sent it to a collection agency after 4 years. I think creditors and government entities alike should be required to first verify the correct current address of the debtor and send the debtor a letter, certified mail return receipt requested, before they go ahead and just turn it over to collectors. Please help draft legislation to that effect!!!" An industry-side commenter (debt collection law firm; 20-50 people) responded: "From a collection standpoint, I can tell you that many creditors would LOVE to check with the DMV to get current address information. Unfortunately, many privacy laws make that impossible. It's also extremely common for people to fail to update their addresses either with their creditors or with the post office. Any legitimate collector wants to find the right person."

More than simply notice. As with the situation where the original creditor sells the debt, some commenters argued for legal restrictions beyond just notice on turning the debt over to collection. Basically, all of these ideas try to ensure that the debtor has a chance to salvage the situation before collection is invoked:

  1. "[T]here should be a requirement that the original creditor make a true, good-faith effort to contact the debtor. I've dealt with those who do this, and those who don't. Some will send you a bill, and then when they get no answer, call you and check the address, which is often wrong. Some, it seems, hardly wait for the ink to dry on their first bill before they turn it over to collection" (consumer, 62 or older)

  2. "From my experience debt collection today has become a crutch for organizations that are too lazy to do the decent thing and have a discussion with the debtor BEFORE engaging a debt collection agency. Case in point is the debt collection notice I received from a collection agency attempting to collect medical debt that was over a year old and the medical facility has never contacted me by phone or via mail about the debt. Boom - debt collection agency is involved. The debt is not valid and this is the 3rd debt collection agency that has attempted to pursue the same debt. I challenge the validity of the debt and ask that statements or invoices related to the debt be sent so I can verify if the debt actually exists - no response. Yet like clock work every five months this debt is referred to a new debt collector without closure on the challenge I made to the previous debt collector about the validity of the debt. It just keeps churning without resolution. My fear is that ultimately the medical facility will just stop trying to collect the debt and play their ultimate ace-in-the-hole and just make a notation in my credit record about the debt and I will then have to negotiate having the debt removed from my credit record whenever I apply for consumer loan. That is a major shift in power in that all the ‘protections’ I may enjoy in dealing with a debt collector, I have no power with a credit bureau. It a case of either clearing (i.e., pay) the debt or not get a loan. After all is said and done I believe that creditors should have to prove that they have contacted the consumer before they are allowed to refer and debt to collection... The goal of debt collection should be to resolve contentious debt situations not merely to brow beat the consumer into submission." (consumer)

  3. "When a debt is turned to collections I feel it might be best if a mandatory 30 day notice outlining what the debt is for, previous contact attempts, amount due, available options such as payment plans and the exact effect of the collections process on the debt is sent to the person in a manner that is trackable and shows the intended recipient had the notice in their possession—perhaps a registered receipt type of delivery." (consumer)

  4. "If the CFPB truly is about protecting the interests of the consumer, then the debt collection process needs to be simplified drastically in regard to collection items (medical, utilities, etc.). Try this on for size: after 60 days of non-payment, the account can be closed. The creditor sends a certified letter to the last known address of the debtor, informing them they have 30 days to bring the account current or make other payment arrangements, or the account will be turned over to a collection agency. Said letter also needs to contain the contact information for that collection agency, so they know in advance who to contact if they don't respond within 30 days. Yes, a lot of those letters will be returned undeliverable or will end up in someone else's hands. But that would demonstrate a good faith effort by the creditors to work with the debtors before passing the buck to a collection agency. The added benefit for the government is the increase in certified letters passing through the USPS!" (debt collector/< 20)

  5. "Debt collectors call and cannot verify that the creditor has merged with another company. The debt may have written off the books of the acquired company. I propose that the CFPB implement a rule pertaining to debts written off by an acquired company and any additional stipulations on a timeframe to which an old debt can be collected only if the consumer has been validly notified that the debt has been sold to a debt collection agency; excluding the initial call from the DCA." (consumer; income beneficiary of an original creditor)

  6. "When an account is in dispute, the creditor should not be allowed to pass it off to debt collector after debt collector for year-after-year harassment. The credit reporting agencies should also be liable for incorrect information reported on a credit report."

Finally, one commenter argues strenuously that "enforcing the existing debt collection paradigm simply legitimizes an illegitimate system." This commenter, a consumer who went into debt when he gave us his job to care for his terminally ill parents, seeks fundamental restructuring of rules around permissible credit card interest rates and fees, required disclosures, and legal defenses and remedies. His extensive comments are largely outside the scope of the current ANPRM but can be viewed at http://regulationroom.org/users/debt-neutrality-petition/comments.

Comments1

Commenting is now closed.

Just a reminder that the only question at this point is whether the draft summary missed, or misstated, something relevant in the comments that RegulationRoom participants made before CFPB’s public comment period closed on Friday, Feb. 28.

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