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.

Final Discussion Summary Debt collection litigation

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Subtopics

1|Where the lawsuit can be brought

Final 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 Similarly, comments originally made on this subtopic may be reported in another, more relevant section.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.]

Several commenters with experience in the legal aspects of debt collection responded to CFPB’s request for information about venue of collection actions:

“Depending on the nature of the suit the closest court location to the debtor's home address.” (debt collector; <20)

“The court location should be in the city where the account was opened.” (creditor collecting own debts)

“County in which it was opened or the county in which the debtor/Defendant resides. If filed in the improper court a change of venue can be requested and in most cases granted by the court in which the suit was filed.” (commenter who works for a consumer protection organization)

“The state in which I practice does not allow jurisdiction based solely on where the contract was signed. As such, we limit our filings to the venues where we reasonably believe the consumer resides. The states typically define what is the proper court thereafter, whether it’s based on amount, location, etc. so even if there is a large judicial districts we do not have the choice to file elsewhere by local rules.” (debt collection law firm; number of persons unknown)

“As a Director for Collections now for Kennedy Space Center Federal Credit Union, which is over $500 Million in asset size, I try (as I have for [a] prior [credit] union) to file suit closest to the Consumer’s current address. One method is to assign over to an attorney within the current residence-venue of the Consumer. In legal terms we attempt to get service when filing a suit out of state, its method is called obtaining if possible an Alien Judgment outside from the County and or State the contract/note was originally signed. There are states in the Union that do not accept foreign judgments. So recording a judgment obtained for example in Florida and rerecorded in another State may not be possible.” (creditor collecting own debts; <20)

“This question is most interesting with respect to student loans. Unlike most other debts, student loans have the potential to be greater than $75k, which means a consumer can be sued in Federal Court under supplemental jurisdiction provisions. Additionally, should the current creditor be able to achieve complete diversity, the consumer can be sued in an entirely different state.” (consumer) When asked by the moderator whether anything should be done to protect consumers in this situation, this commenter responded: “I think the cost of education needs to be reduced to a more reasonable amount or repayment plans need to be income based. As far as consumer protection, legal aid needs to be made available, affordable and effective, and consumers need to take time to really know their rights and stop complaining about harassment because that's a completely different cause of action than restitution.”

On whether current venue rules should be changed, both industry- and consumer-perspective commenters who addressed this issue favored a rule that suit be brought where the consumer resides:

“I recommend that the option to bring a suit in the jurisdiction where the consumer signed the contract should be removed. In many situations, consumers may not actually sign a contract (e.g. credit cards), they may sign an agreement in a distant location (for medical payment at a hospital on vacation), or they may have moved in the years since opening the account. I believe the most consumer-friendly option is to file suit where the consumer resides at time of commencement (unless it concerns real property and then it should be where the property is located). With respect to geographic size concerns, it is important to note that many states are facing budget crises that affect the civil divisions of state courts. In one of our largest districts, our options for filing suit [were] reduced from 32 courts down to 2. If there is a concern for protecting consumers in this particular area, I recommend a section of the rule that prohibits collections from choosing a court venue with the intention of interfering with the consumer's ability to participate in the action. To prove a violation, the consumer (or regulatory agency) would need to demonstrate that the collector had had no reason to file suit in that court other than burdening the consumer (thus demonstrating intent).” (debt collection law firm; 20-50)

“I believe lawsuits should be initiated in the jurisdiction in which the consumer resides, and that the case should be subject to the laws of that jurisdiction, especially concerning the statute of limitations. (Yes, I realize that a SOL defense is an affirmative one).” (consumer)

“Filing suit in the state that the consumer lives in is the most practical. If a state has a large district there is nothing that can be done unless judges want to allow tele-conferencing,, or phone conferencing. However, if that is allowed it should be allowed for both sides provided the evidence of the debt is supplied to the court in advance.” (debt collector; >50) (For more on allowing technology-assisted appearances, see below).

Another commenter noted that arbitration clauses can subvert venue designation rules: “Recently, courts have held that debt collectors can escape 1692i's venue provisions entirely by pursuing debt collection through arbitration instead. As the NAF studies reflect, arbitration has not proven a satisfactory alternative. I urge the CFPB to include in a rule language interpreting 1692i as requiring debt collectors to proceed in court, not through largely unregulated arbitral forums.” (law student; former intern at consumer law organization)

A consumer commenter made a suggestion that addressed the difficulty that consumers have successfully navigating court processes: “The documentation sent to the defendant should include a link or instructions on how to proceed according to the rules of the [court] if the venue is incorrect.” (adverse action taken against commenter for another person’s debts) [For comments on consumer difficulty understanding court procedures, see “Litigation in state and local courts.”]

Other comments:

“I am not a lawyer, but I have noticed that credit card agreements often contain statements advising consumers that if suit is brought, it will occur in a specified jurisdiction or ‘as provided for by law.’ At the point where collectors start suing consumers is where many consumers say enough and hire a bankruptcy attorney. That does everyone a lot of good, right? The only winner in that situation is the bankruptcy attorney.” (consumer)

“How about allowing arbitrators to not be bound entirely by the law, but also by common sense when it comes credit card defaults? Common sense tells us that if a Colorado flood washes away a community, those in the community are possibly not going to be able to pay their credit card bills for a few months. Common sense tells us that a medical emergency, being the victim of a hit and run accident, destruction of a home, or becoming an unpaid CareGiver for a family member should take precedence over the monthly payment requirement. This is not about debt forgiveness, it’s about declaring a debt neutral, no more penalties, fees or interest rate charges are applied to the debt, and the debtor agrees to pay off the debt in a reasonable manner, even if it takes 10 years to do so.” (consumer)

2|Litigation in state and local courts

Final 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.]

There was an exceptional amount of comment on debt collection litigation, much of it seemingly outside the scope of CFPB’s authority. In general, there is a lot of confusion about the variations in court structure and jurisdiction, procedure, and substantive law across the states, and how these interact with federal law.

The first part of the summary deals with comments on why consumer defendants so often don’t appear to defend collections actions. Several explanations were offered and debated by commenters:

  1. When court proceedings are scheduled
  2. Misunderstandings/misinformation about the law and court procedures
  3. Lack of legal representation
  4. Problems with service of process
  5. Inertia/knowledge that the debt is valid

The second part of the summary covers substantiation of the debt in court filings. The third part includes a set of miscellaneous issues:

  1. Garninshment
  2. Special problems with attorney collectors
  3. Industry concerns about frivolous lawsuits against collectors
  4. Other comments.

The fourth and final part includes two interchanges, each of which involved multiple commenters who discuss (and debate) the larger question of whether federal rules should actively discourage debt collection litigation. In the end, these interchanges touch on many of the issues debated in the entire consumer debt collection discussion.

Part I: Why Consumer Defendants So Often Don’t Appear To Defend Collections Actions

Several commenters identified the scheduling of court proceedings making it difficult for debtors to appear and defend. Some possible solutions were proposed:

“State and local court rules sometimes make default judgments much more likely. For example, when a person who allegedly owes a debt is told to come to court on a work day, they may be forced to choose between a default judgment and their job. I urge the CFPB to find practices that involve scheduling hearings at inconvenient times unfair, deceptive, and abusive, or inconsistent with 1692i.” (law student; intern at consumer law organization) Industry-perspective commenters responded pointing out that courts are generally open only during regular business hours, and that the plaintiff’s attorney wouldn’t necessarily know what time is convenient for the debtor.

“In NYC courts, a lawyer representing a particular party (doesn't have to be collection related) will have a full day of cases lined up which leads me to believe at least some scheduling preference is given [to lawyers].” (consumer; adverse action taken for another’s debt)

Several people proposed using technology to allow phone or video conference appearances, at least a certain stages:

“I have often wondered why many times a Plaintiff/attorney may handle the hearings telephonically but the same is not available to the Defendant/debtor. This does not appear just. I suggest that most Defendants choose not to appear because of the loss of wages or choose not to show at all because they are intimidated by counsel. If given the opportunity to appear telephonically I believe that more cases will be heard.” (works for consumer credit organization)

“Telephonic pretrial-hearings can be scheduled in support of a consumer having to work; times set and or scheduled with a court representative could [pacify] this issue.” (credit union that collects own debts; <20)

[See also one comment from an industry-perspective commenter in the previous subtopic.]

Another frequent complaint was consumers not understanding, or being misinformed about, the law and court procedures. A local court clerk discussed the problem, and the difficulties of remediating it, in detail:

"I am a clerk at a local city court. I am the civil clerk and I feel that debtors are treated extremely unfairly by debt collection laws. The Court cannot give legal advice so it is saddening to have to try and explain and console upset litigants who have no idea what they are in for. I think there should be more avenues for pro se litigants who cannot afford to retain a private attorney (which is 95 % of the litigants in my city). I can say that most people do not answer summonses because they either were not properly served or they just straight up do not care, or most often, do not understand the legalese. BUT, I do have to say that I get many litigants who call and ask what they do now that they are served. On the occasions that people do file answers, most of them are in letter form, not a ‘legal’ verified answer. Most debt collection attorneys jump right on that and request a summary judgment. Our Court does not turn away letters, and we send a copy to the attorney and set the matter up for a pretrial conference with a judge or court attorney to help try to get both parties together to come to some sort of resolution. The Court does have to adhere to a scheduling policy for these conferences, but we are very flexible if a defendant has a scheduling conflict we try to accommodate them as best we can. When summonses are filed with the court, half of them have tons of information about the debt, others only have the amount due! I find that sometimes it's hard for litigants to obtain further proving documents from attorneys, even with the court telling them they have to. When entering default judgments, I take my time and examine the whole file, like comparing the contents of the summons/complaint and the default judgment submitted, rechecking the affidavit of service of the summons (to make sure the defendant had the legal time to answer the summons), and ensuring that attached to the default judgment is the proper documentation as to purchasing the debt, a non-military affidavit, etc. I also make sure that they are being charged the proper interest rate and court costs. The bottom line is that the debtors still do not have enough and/or sufficient laws to protect them, and the Court's hands are tied based on these laws, even if they wanted to help, they couldn't. I know the Court is to remain impartial, but in a small city, everybody knows everybody and sometimes it's hard to see these practices occurring.” (commenter works for state, local or tribal government)

The moderator referred this commenter to CFPB’s materials on consumer rights as a possible source of information for consumer defendants and asked about suggestions for plain language and about the kind of substantiation that should be provided. The commenter responded:

“Well, I get at least one call per week from a litigant saying ‘I was served with a summons today, and it says I must appear within 10 (or 30) days to answer this complaint, but there is no court date on the papers for me to appear’, and I have to tell them the procedure (and point out to them the blurb about you not physically having to come to court to answer). I'm not sure how much clearer the wording in the summons has to be. I understand them fully, and not just because I'm familiar with the forms, I'm just smarter than the average litigant I have to deal with I guess. The complaints do state that they have the rights to the debt, under verification that is notarized, at first... but they cannot enter the default judgment unless they provide the affidavit signed by both parties who owned and now owns the debt, which is generally attached to their judgments.”

This commenter’s experience was borne out by one consumer’s story:

“I have one debt in the court. Here is my issue. I never received any paperwork saying there was a court date. I did receive a letter from my bank a month after the court hearing saying they received a garnishment notice. They could've saved the court costs since I already had told them I was unemployed. Secondly, after I received the bank letter, I then received three (that's right three) garnishment hearing notices from three different companies for the same debt. Since I was unemployed I could not afford to get an attorney. It would've been nice if I could have provided the court (telephonically or by pre-trial documents) with documentation to explain why I was unable to pay the debt, but the paperwork said to only respond if you did not owe the debt. I believe court documents and debt companies should have easier and clearer paperwork for the lay person to understand their rights. And yes, debt collectors should have to provide documentation that the debt is owed and they have the right to collect.” (consumer)

Another consumer’s story:

“I was flat out lied to by the attorney for a credit card company who brought a small claims suit against me. I disputed the debt (and still do even after they garnished my wages) but they intimidated me into a payment arrangement then lied to me and said there was no court date anymore since I ‘settled.’ I was skeptical and called the clerk of court's office only to find out they lied and I did need to show up. I showed up for the court date, even as I argued that this court had no jurisdiction over me because I never lived in that county but no-one even the clerk's office would listen to me and I was denied the right to go before a judge. I was only given an opportunity to talk to the attorney for the credit card company and sign papers saying we had a payment arrangement. Long story short, I made 1 of 2 payments then lost my job. I called them immediately to tell them I would make the 2nd and final payment 2-3 weeks late because I had to wait for a final check. They told me okay, but unbeknownst to me, they went back to court without me and got a default judgment for $1600 on what would on what have been a $709 payment. I never got notice of the court hearing nor did I ever get a copy of the judgment. I didn't find out about it until I got a wage garnishment notice from my new employer 2 1/2 years later....VERY humiliating! I also might add 2 things. My employer got the wage garnishment notice a week before I did so I couldn't even dispute it before my employer was involved. Second, I called the clerk of court's office in that county (3 hours from my home) and argued that you can't go to court without giving me a chance to defend myself and I shouldn't be forced to drive 3 hours each way to a county I never lived in. I was told by the clerk's office that they can file it wherever they want and I have to show up. I asked ‘So if they wanted to file this in California to be jerks you're telling me I'd have to get on a plane and fly to California to defend a $709 lawsuit???’ She said ‘Yes.’ That has to change.” (consumer) [For other comment on garnishment, see below.]

Consumer-perspective commenters urged CFPB to do something to address collection defendants’ lack of knowledge/understanding. Industry-perspective commenters reacted negatively, seeing federal intervention as unnecessary, inappropriate, and/or futile:

“When alleged debtors are served with state court summonses, they are not always comprehensible to laypersons. I suggest that the CFPB encourage or mandate the use of a standard-form, plain English letter advising defendants in collection lawsuits of the following: Any requirements to file papers to avoid default judgment; The date of any scheduled hearing and procedures for changing the date; Local and online sources of information for pro se defendants, and possibly local non-profit advice organizations; That the debtor may wish to consider bankruptcy if they cannot pay their debts.” (law student; intern for consumer law organization)

A creditor collecting own debts (<20) responded to this comment: “The law is fine as it is.” Another agreed: “Allow the States and/or local courts [to] administer lawsuits. Regardless of any added rules, documents, etc. none will help increase debtors attending hearings. Since 1964 I have seen no significant increase of consumers attending hearings. I have, however, seen the major reason being attributed to not understanding due process by consumers.” (debt collector; <20)

“Debt collectors are very experienced at what they do. Consumers and defendants often have little or no experience with fighting a debt collector. They have no idea what their rights and defenses are. I strongly recommend the CFPB to require all debt collectors to provide consumers with their basic rights. The rights could be state-specific or federal. For example, New York collectors should be required to advise that there is a statute of limitations that may be based on where the defendant is located or where the original creditor is located, whichever one is less. They should also be required to advise what the statute of limitations means. Plaintiffs or their counsel should be required to inform the defendant that he or she has the right to deny the allegations in the complaint and then require the plaintiff to prove its case. Defendants should also be advised that he or she may demand documents from the plaintiff and require the plaintiff to answer questions about the account (i.e. is it owned by the original creditor or debt buyer? How much interest was charged? When was the last payment? etc.) Other important rights and defenses could be related to FDCPA rights or, in the subject state, how they may have the right to vacate a default judgment if they have a reasonable excuse and meritorious defense. Other requirements that the CFPB should consider: Require collectors and collection law firms to provide copies of pleadings, judgments and affidavits of service within seven days of a demand by an individual or an attorney when a judgment creditor attempts to enforce a default judgment. Require lawsuits to include the original contract and documents showing a valid chain of title. At the very least, help consumers understand the law, their rights and their defenses.” (attorney working for legal services organization)

Industry-perspective commenters took exception to the idea that this should be the creditor’s responsibility:

“Debt collectors are very knowledgeable in what they do. We are professionals. But debtors are not stupid and should be expected to do their own research and educate themselves to participate in their defense. Why should a creditor have to explain to a debtor how to avoid paying their debt. By the time it's reached litigation, those conversations should have already occurred and the debtor should be ready to offer his defense without being ‘taught’ by the person to whom he owes money.” (creditor collecting own debts; <50)

“In other words, remove any liability the consumer may have for resolving a debt? We live in the Information Age. All the information this individual is requesting is readily available with a few keystrokes.” (creditor collecting own debts; <20)

“It sounds like you believe the creditor/debt collector's attorney should be responsible for giving legal advice to the consumer (i.e. the opposing party). This is a serious conflict of interest and a violation of his duties to his client. Even worse, it sounds like you also want debt collectors who are NOT attorneys or employed by attorneys to also give legal advice to consumers. This is a violation of the prohibition on the unauthorized practice of law. I understand that the ignorance and lack of sophistication exhibited by defendant debtors is a concern. I recommend that the CFPB develop a model notice of rights under the FDCPA. If it so chooses, it can also maintain on its website an area for state-specific resources related to State laws, and reference this website on the form notice. (debt collection law firm; 20-50) [For more comments on CFPB’s providing information on consumer rights, see “The validation notice: Info about the consumer’s right to dispute the debt.”]

“By the time a file reaches litigation, the debtor has already received at least one prior opportunity to resolve the debt with the collector (the initial demand letter, which by law must inform the debtor of his/her right to challenge the veracity of the debt being pursued). By making default judgment more difficult, the CFPB would only be rewarding the debtors who choose to take no action to resolve their complaints. Furthermore, the CFPB arguably has no authority to impose new, more burdensome requirements upon litigants in state court fora. Doing so would constitute an admission that state court rules of civil procedure deny due process in other types of proceedings that are not granted the ‘benefit’ of Federal oversight.” (debt collection law firm; >50)

Lack of legal representation was also given as a reason that consumers don’t appear:

“I would suggest that debtors who involuntarily defaulted on a debt don't have the money to hire an attorney, so they don't see the point to going to court without an attorney. Why doesn't the court give access to free legal counsel to debt defaulters the way they do to those who are accused of committing a crime? (Pro Se can easily become a mess as no one will actually help with the paperwork, even state funded pro se agencies are simply paid to show where to get the right papers, not to fill them out." (consumer)

A second consumer commenter agreed that this would put debtors and creditors “on equal footing.” A third consumer argued that people who became delinquent because of hardship beyond their control (called “involuntary default by this commenter) did not have money for lawyers, in contrast to “strategic defaulters” who simply wanted to reduce their indebtedness and had (and used) resources to hire representation in collections suits.

Problems with service of process: A common consumer commenter complaint was unawareness that suit had been filed against them until after a default judgment was entered. Several commenters with relevant experience debated the frequency of this problem:

(commenter 1) “I am curious to know if the consumer is ever properly notified of the suit? Statistics show that something like 90% of the consumers don’t show up to court. I don’t think the real issue is where the case is held [i.e., venue] , but more to do with does the consumer even know they are being sued.” (debt collector; >50).

(commenter 2) “I'm in agreement with that statement. Having worked for a Sheriff's Office where we served many debt collection processes, I found that not much effort is made to locate the proper address for the defendant. When we would find the defendant had moved, we would return it not found. However, the same cannot be said about private process servers who go out and post processes on the door without confirming they live there.” (works in a sheriff’s office where process is served; 20-50)

(commenter 3) “I believe that most Defendants are properly served. I review about 200-300 civil cases a month and very rarely is service done improperly. This does vary a bit from state to state but in my experience the majority of defendants have been properly served.” (commenter works for consumer credit organization). [This commenter went on to suggest that scheduling hearings during the work day was the bigger problem].

Other comments on process-serving problems:

“. . . I have been victimized by two false subservices. I think both were done by the same service company. . . My Subservice stories: I found an unsealed envelope in my mail box that had court documents in them. I contacted the debt collection company and asked what was going on since I had not been served. They claimed a subservice had already been done to someone at my residence. I explained that was probably not likely because I am a Caregiver and I would have been the only one to answer the door and I did not get any service. I had to pay to file a response and was late by one day, and then had to challenge the default because of the nonservice. The judge agreed that there had been no valid subservice based on the fact that the service company used the most generic ‘guess’ they could come up with, a women in her mid 30's to late 40's, around 5 foot 4 inches, weight around 130 pounds to 150 pounds. That is about as generic of a description as one could give, and it was completely wrong because that person did not exist. They even made up a name of someone I had never heard of and when I googled the name, could not find it anywhere on the internet. The second time a false subservice happened, a very similar description was given as the first time, and the alleged subservice recipient was identified as "Jane Doe". . . Debt Collection companies get a very unfair debt negotiation advantage against an alleged defaulter when they hire an unscrupulous service company that has lied about giving a proper service or subservice to the alleged debtor's residence . . . This needs to be fixed and false servers need to be fined along with the debt collection companies who hire them and keep hiring them even after they receive complaints of false service. . .If I have been falsely served or subserved, … I should have the right to file an errors and omissions insurance claim against the debt collection company for false service that resulted in a verdict against me.” (consumer)

“I knew a man who was sued by a debt collector and he was not served. ‘Someone’ was served, but not at his address and he was denied due process. He learned of the suit when it was a judgment on his credit report. He attempted to have the judgment overturned for lack of due process and the judge would not grant it. Unfortunate, but yes they are allowed to deny due process and get away with it.” (consumer)

“I've heard multiple stories of summons being dropped off or served to the wrong individual and summons being mailed to old addresses when the new address was clearly available. I don't believe that a summons should ever be served by mail. If the debt collector wants to sue, they should be required to serve the person directly in the city and state in which they currently reside. It's an especially dirty tactic to serve someone by mail. It's unreliable and puts the debtor at a disadvantage.” (consumer)

One consumer commenter urged a rule that the substantiation required to file suit include: “if accused of a false service or subservice, they bring the process server to court with them on the court date, or, if asked, produce errors and omissions insurance policy so those false served or subserved can file a claim.”

The final set of comments on reasons for high default-judgment rates came from industry-perspective commenters who believe that most debtors know there are no grounds for defense:

“I believe most default judgments occur for one reason: the consumers know they owe the debt and see no reason to prolong the situation. Many consumers will call us and make payment arrangements after being served. We advise them they have the opportunity to be heard in court but most decline. They simply want to resolve the debt.” (debt collector; 20-50)

“With increased and onerous liability for making calls and sending letters to debtors, creditors and debt buyers have had little option but to file suit rather than repeatedly attempt to contact an uncooperative or uncommunicative debtor. Most complaints provide adequate and identifying information about the debt. In my experience, most debtors don't feel taken advantage of by lawsuits, they simply understand they owe the debt so there is little point in filing an answer or taking time to appear in court. In fact, the vast majority never respond to a Federal Law letter inviting them to dispute the debt. Filing suits and appearing in court is expensive and time consuming for creditors and debt buyer, but there is little alternative, nor should there be as these matters have always been governed appropriately by State law and State judges. As more credit is granted (and the US is a credit economy - over 70% of our economy is based on consumer spending which comes mainly from credit extensions and not consumers pay increases), there are simply more defaults, particularly in a Great Recession. Any heavy handed Federal regulation will hamper and restrict credit granting and debt buying, both of which are needed by the economy and the credit industry. While credit grantors should make their documentation retention systems more accessible and share more documents upon a sale of accounts, a lack of documentation should not hamper State court lawsuits when a debtor offers no dispute so long as the account is adequately identified in a complaint. In Michigan, efforts to ‘make it more likely that consumers would defend themselves’ have fell very flat for the reasons mentioned above. As it has always been, the protections are in place and are used by those debtors that wish to avail themselves of them. Judges are there to listen. However, most debtors (bless them) understand they simply owe the debt.” (debt collection law firm; <20)

Another industry-perspective commenter agreed with this explanation, but nevertheless suggested a new rule that might prevent debtor surprise in some jurisdictions:

“Debt collectors file a large number of default judgments because quite simply consumers do not take action, not because they are unaware of the issue. Usually at the time a lawsuit is filed, a debt collector has attempted to resolve the issue via telephone calls and/or letters. This doesn't even include the efforts the original creditor may have made. A lawsuit is never a first response. It is usually done after numerous and repeated failed efforts to work with a consumer to resolve an outstanding debt. A default judgment is just a further extension of that. Even after we file suit, we may attempt to reach the consumer to resolve the lawsuit prior to judgment being taken. I have seen numerous files where we have spoken to the consumer and told them they can file an answer, and they still don't. In my opinion, default judgments are largely the result of consumer's deliberate uninvolvement with the process, rather than a collector taking deceptive steps. I will state that many states have local rules that if there is no response to a summons and the consumer has defaulted, they do not need to be noticed on a motion for a default judgment. Therefore, the actual entry of the judgment may in fact come as a surprise, despite the summons stating if you don't answer a judgment may be taken. However, an attorney who follows the local rules is not acting deceptively. In order to curb this shock for the consumer who doesn't answer, it wouldn't be bad to require all motions for judgment be served upon the consumer, despite local rules which may require otherwise. I would point out [that] many default judgment motions are not noticed for motion hour. They may simply be submitted for a ruling without a court hearing.” (debt collection law firm; number of persons unknown)

Part II. Substantiation in court filings

In parallel to the consumer complaints about lack of substantiation in the collections process (see “When consumes dispute the debt” and Talking to other people: Trying to locate the consumer”), several consumers complained vehemently about the ease with which they could be subjected to litigation expense and risks without what they consider to be adequate proof that they are the debtor, or that they owe the debt:

“One business in particular needs to be investigated...Legal Recovery Law Offices. We sent them a letter asking for a copy of a signed credit card agreement bearing my signature to prove that I owned the credit card account, which they failed to do for a credit card they claimed we owed. Instead of following the FDCPA, they filed suit and their complaint included NO DOCUMENTED PROOF that I even own the account. Before any company is allowed to file suit, one document that should be in the complaint before a judge even will accept the filed complaint is a copy of the original credit card agreement bearing the defendants signature. All legal recovery attached with the complaint was pleadings with written accusations and no documented proof of the debt.” (consumer) [See also comments below on Special problems with attorney collectors.]

A commenter from a debt collection law firm (>50) responded to this comment: “ If the account was opened 20 years ago, the bank is going to hold on to this agreement for the 20 years?? That makes no sense. Either you have a dispute meaning you did not charge on the account and you need to file fraud charges or you owe the money and should have been sued for stalling. Sounds like they did the right thing.” An academic focused on consumer economics agreed with the original consumer that “if the account is still open the bank must hold onto the agreement for 20 years.” Three commenters discussed whether the statute of limitations would be a bar in this situation.

“I do NOT owe any debt but have a common first and last name. My Constitutional rights are violated every time a lawyer fails to perform due diligence, per rule 137, before signing and filing court paper against me. The clerks are helpless, the judges & attorney disciplinary do nothing favoring ‘lawyer zealousness.’ I then have to spend time & money, going to court to prove I am NOT the person who owes the debt. I urge the CFPB to create mechanisms for clerks & citizens that make it 1) easier to fix these messes &, 2) to bring sanctions against lawyers & judges for misuse of legal procedure, abuse of process, wrongful civil proceedings, & malicious prosecution.” (victim of ID theft; dragged into court for other people’s debt)

Asked by the moderator for more details, this commenter continued: “I have learned there is a significant legal difference between 1) identify theft, 2) mistaken identity (see contract law) and 3) wrong person (mistake) and their related remedies. Furthermore, that these three words need to be separated, clarified and their legal handling completely examined. There is almost zero legal remedy for wrong person found. More information would NOT have helped. The lawyer had plenty information but he did not validate any of it after he found my address. The clerk told me these lawyers and their agents are ‘just going through the phone book/internet’ hauling people with the same first and last name into court thinking they will eventually find the debtor. A complete waste of court resources, an enormous expense to the innocent citizen, and the unlawful detainment and threatening of an innocent citizen and their assets. The debtor, it has since been discovered has left the county. The lawyer could have easily validated his information using online public property records from both the Clerk of courts and the County Clerk and found out the middle initial was not a match along with over 7 other pieces of identifying information that were not a match. The lawyer did not even do the simplest checking. I filed with the IARDC and nothing happened. … As it stands now, most judges will not hear motions for sanctions under rule 137, and most lawyers will not file motions for sanctions against their colleagues. However, some mechanism has to [be] created to give power back to those wrongly accused of owing debt, such that there are serious consequences for lawyers who recklessly abuse the court process and harm the personal and professional reputations of innocent citizens.”

Another consumer responded to this comment: “I am in the same situation. I have been denied credit and loans as a result of these adverse actions which have impacted both my personal and professional life.”

A different consumer commenter reacted: “The solution to this problem is a mandate that account numbers and names on them not change during their life, no matter how many times transferred. This goes for credit reporting agencies as well.” However, the original commenter reacted: “[H]ow does this help prevent Joe Smith the innocent from being served for Joe Smith the debtor? Perhaps full and complete name, birthdate, race, gender, etc. should be required on every document submitted. Also, any changes of address post-default judgment should require accompanying paperwork that demonstrates that the lawyer/agent actually certified and validated the change to be true with actual automatic sanctions to the lawyer when it is not.” [For this commenter’s more extended list of proposed new requirements, see the next section.]

“I live in Florida where proof of the debt is getting difficult for debt buyers to prove without them falsifying documents. I currently have a case where the Debt bill of sale was whited out in three places. [S]adly these documents were filed by an attorney at law registered with the Florida Bar Association. Debt buyers have no scruples.” (consumer)

Commenters concerned about inadequate substantiation proposed several new requirements:

“CA has already made great strides as to debt buyers. This should be the rule for all collectors: that when they file, they must produce properly authenticated backing for the debt sued upon.” (consumer)

“Current validation guidelines do nothing to prevent wrong people from being dragged into court (common first and last name etc.). Debt validation ought to be a continual process, enacted: 1) any time the debt is sold, transferred, reassigned etc. 2) any time the creditor or its agents "lose track of" the debtor 3) any time new information is found and ASSUMED to be the debtors such as a new address, 4) any time a person presents legitimate ID to the clerk that proves they are not the right person (wrong middle initial, wrong birthdate, wrong race, wrong gender, etc.), 5) at each phase of the court process particularly after time lapse, transfer, reassignment 6) any time the debt records or court files concerning the debt records are destroyed (fire, flood etc.), 7) any time a clerk loses or accidently destroys all the court records, 8) any time a discrepancy is known or should have been known, 9) any time an ambiguity exists or (when viewed by a reasonable person would have been found to have existed) in the identity (i.e. common first and last name without middle initial etc.)” (victim of ID theft; dragged into court for other people’s debt)

Industry-perspective commenters reacted with information about their own practices, and disputed the likelihood that the consumer defendant had not already had ample information about the debt and opportunity to resolve errors:

“In order to get a default judgment through a State Court, a collector's pleadings have to spell out the theory of their case (usually contract) with sufficient specificity that a reasonable person can understand the basis for the claim. Without some form of affidavit from the actual creditor, very few courts will award a default judgment. Also, most state court approved forms are already written for the ‘least sophisticated debtor.’ I don't see any reason to impose a more stringent standard on collection lawsuits than are imposed on any other lawsuit.” (debt collection law firm; <20)

“As to the inquiry as to what is required to support a default judgment, this varies court to court and judge to judge. The courts that I have seen require more documentation are largely looking for affidavits of debt, charge off statements and statement showing payments or charges, and the assignment (if the plaintiff is a debt buyer).” (debt collection law firm; number of persons unknown)

“Let's remember that most debtors have had the original creditor, from 2 to 4 collection agencies, and the creditor’s attorney’s office before a suit is ever filed. That process usually takes as much as 2 years or more. So it is difficult to think that the courts should make special accommodations for these individuals. Every person called into court has had many opportunities to have the debt validated or payment arrangements made prior to a default judgment. I do believe basic evidence should be supplied. This would be a statement or bill copy with a matching name of the consumer and proof of address at the time the debt was incurred. This proof of address could be provided by other confirming data available through skip tracing companies. There were significant problems with how debt buyers were allowed to file suit and receive default judgments with virtually no evidence. So improvements and consistency is needed in evidence but it should also not be expected to show every single bill copy.” (debt collector; >50)

Two industry-perspective commenters offered ideas on how CFPB might approach the issue of litigation substantiation apart from promulgating new mandatory federal rules:

“If this is an area that the CFPB is interested in regulating, I believe it will be necessary to initiate cooperative actions with local State judiciaries. Because the CFPB is a federal agency, it doesn't have authority to tell State governments (including the judicial branch) how to operate or how to interpret its own law. Since some states are already taking steps in this direction (like New York), it is likely that the CFPB would find positive reception toward this effort. But trying to accomplish change through federal rulemaking is not an option in this particular area.” (debt collection law firm; 20-50)

“The agency needs to be careful of new rules that will, though unintended, be harmful to the free market. However, it is important that litigation is monitored to ensure that the system does not allow reward with no risk. A plaintiff in a lawsuit cannot be placed in a situation where it is rewarding to sue with insufficient cause and minimal risk. Creditors and those following in the process of recovery do not need additional regulation in this area since their efforts are monitored by the CFPB. The CFPB does not need to set standards for the industry, but make it clear that only those documents provided to the court in the original filing will be considered in a CFPB review. If in the course of a CFPB review, it is found that litigation was filed without a successful verification of the facts, the CFPB could award the amount sought by the filing to the defendant of the case and a fine to the CFPB of no less than $2,000 but no more than the amount sought. This position would motivate the litigant to ensure their facts were correct before any filing took place. This position would allow CFPB to review cases filed no matter how they were adjudicated by the involved court. This review could be conducted at CFPB offices since it only requires the original filings. This review could be initiated simply based on a complaint to the agency's offices. The penalty could be adjustable based on a variety of agency standards. I would have to take more time to consider when the plaintiff was not the original creditor or a member of the recovery industry, but, again, there must be a risk associated with the reward to stop nuisance suits.” (debt collection; <20)

Part III. Miscellaneous Issues

Garnishment:

“A debt collector did not litigate a credit card debt, but summarily garnished our joint checking account. It was two weeks later that notification was received from the debt collector. This occurred September-October 2012. Debt Collectors must provide advance notice of their intent to garnish a checking account. It took several weeks including an Order from the Judge to release the funds, only after the Debt Collector took all of a tax refund.” (consumer; servicemember) [The moderator referred this commenter to CFPB’s information page on garnishment.]

“There is currently a split between the Ninth and First Circuits as to whether 1692i and other FDCPA provisions apply in garnishment proceedings. In many states, the nominal defendant is the judgment debtor's employer, but the judgment debtor is the real party in interest. To allow consumers to better assert the defenses to and exemptions from garnishment available under state law, the CFPB should issue a rule applying 1692i to garnishment proceedings.” (law student; intern at consumer law organization)

Special issues about attorney collectors. (See also comments in “Unlawful collection practices: False or misleading conduct"). There was disagreement among commenters about the current regulatory status of attorneys as collectors:

(commenter 1) “When an attorney is a 'Debt Collector' (as per their own documents) and not legally considered a 'Collection Agency' the attorney is not held accountable for consumer protection law violations (both local and federal) within civil court. This loophole needs to be addressed. The attorneys/debt collectors are not monitored by the state bar because it is a collection practice (the attorneys buy old debt and then collect upon that debt in civil court) and the state and federal civil courts are not monitoring the attorneys because it is an attorney’s office and not considered a collection agency - even though the attorneys buy old debt then take alleged debtors to civil court. I personally know of a very large attorney agency in Washington State that even gives classes thru the Washington state bar to other attorneys because it is an easy caseload to win.” (consumer)

(commenter 2) “Attorneys are not exempted from the FDCPA, and most State Bars take reports of unethical conduct by attorneys very seriously. There is no need for additional regulation of attorneys.” (debt collection law firm; 20-50)

(commenter 3) “In CA they are [accountable for consumer protection law violations] and they should be federally too.” (consumer)

(commenter 4) “In Michigan a company had its Collection Agency Revoked due to unethical practices 2008. But this did not stop them. Now they practice as attorneys and continue the unethical practices. Yes states must figure out how to close this loophole.” (consumer)

Other comments about attorney involvement:

“…Using a lawyer to send a letter is often a way to intimidate. People become too frightened to even respond…” (consumer)

Frivolous lawsuits against collection agencies.

“What about when it's the other way around? The agency I work for is small and follows FDCPA to the letter of the law. And yet we are still sued constantly by attorneys representing debtors. These attorneys count on the fact that it's less costly to settle than to go to court to prove that we have not violated the law. Our retail division is in trouble because we've recently lost our two largest clients -- for this reason. They're now getting slapped with bogus lawsuits as well. People don't even have to pay their bills anymore; they just send a ‘cease and desist’ letter, hire an attorney, and wait for a settlement to roll in. All this will lead to are more stringent rules around extending credit, which is not a good thing for the economy. If we keep going down this slope, the only people who will be able to get credit will be those who don't need it.” (debt collector; <20) When the moderator asked for suggestions, this commenter responded: “I don't have the answers, but it seems that someone in government or law should be able to do something about unscrupulous attorneys who create a claim out of thin air just to make a buck.”

“There needs to be something in place to stop the frivolous law suits that agencies have to spend thousands of dollars to defend even though they have tried to explain to the consumers / attorneys that there was no wrong doing and no case - a lot of these consumers file the suits Pro Se and continue pushing for a settlement or trial - in these cases the agencies spend monies to prove there was no cause for action to begin with and to have a judge agree with the agency. Please look at putting some kind of penalty on consumers or their attorneys when they send settlement demands or file law suits when they have been shown that there is/was no case.” (debt collector; >50)

Other comments:

Multiple lawsuits on same debt. “To avoid consumers getting sued repeatedly on the same debt, the CFPB should require or encourage states to adopt rules requiring that judgments be preclusive of future consumer-collector litigation on the same debt; instead, if there is a dispute between assignees as to who has title to the debt, they should work it out between themselves instead of risking subjecting the consumer to multiple liability.” (law student; intern for consumer law organization) A consumer commenter agreed: “Absolutely and it should be the kind of information [that] is admissible in a court of law.”

Proposed minimum dollar amount requirement for suit. “There should be a monetary ‘floor’ required before debt collectors can pursue uncollected debts in court. The idea that corporations that already charge punishing interest rates and fees can clog the court systems trying to collect a few hundred bucks from someone who is unemployed, ill, or otherwise unable to pay is counterproductive. There should be a minimum amount of consumer debt owed before creditors can sue debtors. Another issue with using state and local courts to settle debt collection suits is that it burdens jurisdictions already heavily burdened with cases and strapped for cash.” (consumer) Another consumer expressed concern that this approach “could open the floodgates to interest rate padding the debt until it reaches one of the ‘floors’ you are suggesting.”

Increased litigating authority for CFPB. “Is it possible for the CFPB [to] be given proxy, POA, or other authority in individual cases, or groups of cases, to pursue debt collectors for violations of the FDCPA? The enforcement mechanism of the FDCPA is laughable from the point of view of the debtor. For example, a debt collector said that since they are out of the country they are not required to adhere to the FDCPA. Luckily, I knew better, but most folk don't. The CFPB's voluntary reporting combined with proxy enforcement power may curb the industry's activities, and may be cheaper and faster than class action lawsuits.” (consumer; worked as legal assistant at debt collection law firm)

Mandatory settlement attempts and limits on interest. “The courts should also mandate that if a debtor has reached out to the creditor in an attempt to negotiate the creditor must continue to try to reach a settlement rather than seeking judgment against the debtor. Also, the collection agency should not be able to add interest on top of debt they seek judgment for if the debtor agrees to pay since they will make a profit over what they paid the original creditor.” (consumer) [For more comments seeking a limit on post default interest, fees and charges, see “When consumers dispute a debt: What should count as a dispute?”]

Backdoor to imprisonment for debt. “There are a few states that have the barbaric practice of actually arresting people for their debts by using a legal loophole. Some of the most egregious examples are in Minnesota, Illinois, and Missouri. The creditor sues the debtor in court. If the person fails to show, a warrant can be issued for their arrest. The police can actually arrest and jail the debtor until a court hearing, or until they pay the bond (which is usually the amount of the debt). This is a downright abuse of the legal system. These loopholes need to be closed in all states.” (consumer)

Easier Recovery of unlawful interest and fees. “Many if not all banks have been involved and lost class action lawsuits for improperly imposing interest rate changes and fees as well as conducting deceptive and abusive practices especially 1999 through 2008.I have no legal background but what I don't understand is why there is no simple avenue for consumers to prove improperly imposed fees dating back to early 2000's and to establish the true amount owed if money is still owed. In addition there is no recourse for consumers if ironically the bank after imposing these abusive practices owes the consumer a refund of over-payments? Law or no law it is simply the right thing to do. Why are banks, debt collection agencies and JDB's not forced to recalculate the amount owed after removing the improper and illegal practices? I don't understand why nobody is stopping this horrid abuse. In Michigan alone today, one JDB is getting over 3000 judgments even after a collection license has been revoked. . . I have spreadsheet that can recalculate daily interest to show how much I should owe after the improper and illegal practices. But because I have no legal background, live in a rural area and don't have an extra $5000 to retain an attorney how am I as a defendant to prove what is truly owed against these "mafia-like" attorney collection agencies? . . . If you can afford an attorney good luck finding one that will dig deep into the statements to see how much a person should really owe. Most attorneys only want to defend based on ‘account stated’ if you can even find an attorney in a rural area. Many folks like myself have not only paid off all transactions but have over-paid above reasonable interest rate yet I find myself with horrible a credit report and now trying to get law degree in one week to defend against these JDB's trying to squeeze more money out of me. . . All I want is my good name back and I deserve it. I never received free money and have paid back every penny to these banks and more. We need laws to prevent these abusive practices....” (consumer)

Fraudulent claim. “A contractor who did work unlicensed was able to file bogus claims against both me and my wife amounting to double the original bid price. There was no court action. I managed to get rid of the debt collector but there seems nothing I could do to stop another contractor doing the same thing. There should be a penalty for the people filing the false debt. The amount in question was almost $10,000.” (consumer) In response to the moderator’s question, the commenter added: “The contractor was just able to make up an invoice and send it to the collection agency. At the time legal action was being pursued against the contractor and we then had to deal with collection agencies as well as a unlicensed contractor. So in answer to your question, I don’t think it would have made much difference as it appears that an invoice is sufficient grounds to file a claim.”

Part IV. Avoiding Debt Collection Litigation Entirely?

In two separate interchanges, commenters discussed the more fundamental idea of how to avoid debt collection litigation entirely. In the course of these interchanges (especially the second one), many of the issues raised in the entire consumer debt collection discussion were reprised.

Interchange 1:

(commenter 1) “Why is it that debt collection agencies feel like litigation is needed? I have helped over 4.5 million people settle their accounts without ever using litigation. What the debt buying and collection industry needs to realize, is that most people want to pay their debts – and will if given an opportunity. When a customer is threatened with litigation they begin to panic, often times leading to bankruptcy. Once a bankruptcy occurs the customer ends up in FICO hell and all of the customer’s other creditors suffer the consequence caused by one litigation happy debt buyer. The empirical data now conclusively proves the non-litigation collection model is more profitable than the litigation collection model. It is also safer and more profitable for the banks who sell loans. It is safer because it creates no bank exposure or risk for improper litigation by the purchaser of their debt and it is more profitable because non-litigation debt buyers can afford to pay the bank a higher price for the same distressed loans. What is the true way to help someone who is deep in debt? It isn’t to sue them into oblivion but rather to offer them a way out of their predicament. This way out can be accomplished by helping them resolve their other obligations; helping them find new/better employment or providing them needed social services. Sometimes it is simple as just listening to their plight and offering them patient understanding. The entire robo-suing; inadequate documentation, sewer service, mistaken identity problem involving 10 million lawsuits a year could be avoided simply and easily. If debt selling banks were persuaded not to sell loans to debt buyers who utilized a litigation collection model, these ills would be stopped overnight. This simple solution would end the living nightmare now suffered by more than 30 million American families.” (consumer advocate; debt buyer and collector; >50)

When asked by the moderator for “suggestions on how [CFPB] can craft rules that will encourage the debt collection industry to use non-litigation techniques or banks not to sell to those who utilize a litigation collection model,” this commenter replied:

“[B]anks can simply add this provision to their Loan Sale Agreements. All buyers executing a Loan Sale Agreement containing such a provision would be contractually obligated to refrain from litigating or threatening litigation. Some current buyesr would refuse to purchase with such a provision and other current buyers would expect a price discount because they would not be able to sue. In both instances, any inventory not acquired by current buyers would be quickly snapped up by other purchasers who would be willing to comply with these contractual provisions. Such a resolution would obviate the necessity of legislation or regulation as the matter would have been taken care of under the contract between a willing seller and a willing buyer. There would be no constitutional question regarding the restricting of law suits nor would there be any delay in implementation. All that would be required is the cooperation of the selling banks which could be induced readily with some Safe-Harbor language for banks that follow this protocol.”

(commenter 2) “I think your idea is an excellent one. . . I can state from personal experience that when our savings ran out I became eligible for in home support services in which I as an unpaid caregiver could be paid a very modest amount (at minimum wage payment) because I was a caregiver. By being an in home CareGiver, I was saving the state a lot more money than it would cost to pay me a small amount every month via in home support services. I told this to all of my creditors, none of them cared. Then reality hit, my state agency that was supposed to help me obtain in home support services instead cast fear into both me and my parent by stating to me on the phone that whatever they paid me, they would file a lien on the home to get back if I outlived my parent. It turns out this application of the law did not apply to me. However the damage was done. I lost 1.75 years of eligibility and probably enough money to pay all of my vendors, and, I would have never had to prolong the default for more than a couple of months if any of my vendors had cared enough to just help me get through the process of applying for in home support services. . . My concern is that [your approach] might force interest rates even higher. Ideally, there would probably be less overall defaults if consumers, when first getting credit were required to pay at least 5% of the total due each and every month.” (consumer)

(commenter 3) ”I don't understand-- you believe creditors should just wait until consumers feel like they can afford to pay? What if that takes years? Litigation preserves the creditor's right to recover the money owed and allows it to be collected later, when the consumer is able to do so. If litigation cannot be used to enforce creditors' rights, the debt could become uncollectable in as little as three years. As noted by another commentator, this will most certainly have a negative impact on the economy and the cost of credit because it will drive up prices to cover that risk. It will also make obtaining credit next to impossible for high-risk individuals.” (debt collection law firm; 20-50)

(commenter 4) “In the end, the entire issue boils down to 1.) Who owes what to whom? 2.) Can that debt be resolved? 3.) Are both parties working in good faith? To the first question, due diligence is a must. Even if collectors are allowed to continue litigation (which I do not see going away,) there must be a penalty for the collector if false claim is made. If a collector starts litigation and it is found to be against the wrong person, compensation and additional penalty should be paid by the entity initiating the litigation in the form of a reasonable fee to the victim and an additional (and substantial) fee to the governing authority to help cover oversight expenses. To the second question, I believe an overwhelmingly large portion of consumer debt can be repaid. However, there are always going to be exceptions to this. In cases where debt cannot be collected for whatever reason, it should be written off as truly not collectable and not be allowed to be sold again as debt to be collected. Fine tuning and definitions of ‘Not Collectable’ will have to be worked out by the appropriate oversight bureau or agency. To the third question, both parties must be measured. There are currently established credit reporting agencies to monitor the consumer side of this issue and an additional, numerical evaluation score can be added to the consumer's already established credit report. That would be a starting point that can be expanded on as the system is fine tuned. The collector, on the other hand, would require a new measuring system that would not only score the company as a whole, but the individuals taking part in any debt resolution activities. For successful examples of such a system I would direct you to the Department of Transportation, Federal Motor Carrier Safety Administration and their Compliance-Safety-Accountability system. Admittedly, their system is much more complex and dives much deeper than would be required for the debt industry. However, their point system is valid and flexible for future change. It would also allow for measurement of the initial creditor. Such measurement would give the government and investors a better idea of a given business' risk level. Add to this mix, the recommendations from [commenter 1] and you have a system whereby collectors and financial institutions will better regulate themselves to achieve an ethical and responsible outcome and not hide behind the ‘what I did was legal’ defense. It would be a Win-Win for both sides and bring many consumers out of the debt death spiral. Lastly, the federal government could implement this system with a minimal impact on state autonomy. It would reduce the number of litigation in state and local courts, thereby motivating the states to take part.” (commenter worked in the business operations side of debt collections several years ago and has followed the industry since then)

In response to the moderator’s question, commenter 4 replied:

“Regarding my experience, I did file bankruptcy about eighteen years ago and have regretted it ever since. About two years after the bankruptcy, I started working on the operations side of a collections company. It was an eye opening experience to say the least. Had I known two years earlier what I learned in that company, I would never have done the bankruptcy. The company I worked for kept detailed hard copy files on every single case. Even though I saw all these documents, I was not aware at the time of the exact impact each document had on the case it was connected to. As a result, I feel the documents required would be an escalating burden of proof for the collector as would be the case for any other litigation. Start with the loan/credit/service/purchase contract with signatures and progress from there. Include payment documentation in the form of checks or ACH records used to pay said debt including dates, locations and account numbers to confirm said debt was historically paid by an account owned by the defendant. Each step of the process would be utilized only to the degree of the court asking the defendant ‘Is this your debt?’ To this end, what documents would be needed would only be limited by the degree to which the collector wishes to actually prove their case. Even so, the more I study [commenter 1’s] proposal, the more I am convinced litigation should not even be allowed until all other avenues of resolution have been exhausted including, but not limited to arbitration, consolidation and counseling. We are working on the basis of ‘the least sophisticated consumer.’ Should an individual with a 9th grade education, who is issued a credit card with a credit line of $500, be held responsible in a court of law for failing to properly manage his finances? Should this same person have his financial weakness used to prevent him from advancing his quality of life? As I said before, this only puts the debtor in a ‘debt death spiral’ initiated by a credit issuing entity and exasperated by an overzealous, cold and non-empathetic group of legalized bounty hunters. I saw another post where someone mentioned the ‘check box’ options. I interpret that to mean, ‘Have you, as a collector, taken the steps needed to identify the debtor, contact the debtor and offer solutions to said debt?’ What solutions are being offered other than ‘pay up or I'll sue you?’ Has the debtor been offered job counseling, financial counseling and assistance from other organizations who would assist the debtor, but just don't know he exists yet? While I don't believe in a free ride, I also don't believe in kicking a person when they are down. This is what the current legal framework not only allows, but encourages. If you are going to encourage something, encourage the creditors to limit how a third party collects on the initial creditor's decision to issue a person credit. Once a reasonable effort is made to collect, don't allow credit to be sold off from one Bounty Hunter to another. This ‘tag team’ allowance is part of the problem. Limiting the sale of debt to one collector will encourage the collector to work WITH the debtor. Will this cut into the profits for the collectors? I believe a strong case has already been made showing the opposite to be the case.”

(commenter 5) “The CFPB doesn't need to craft rules to encourage non-litigation alternatives or not to sell to those who utilize litigation models. [Commenter 1]s data is suspect as to 10M lawsuits filed yearly and likely his models comparing litigation and nonlitigation data has not been published. The facts are consumers need to reach out and communicate to a lender, agency, or debt buyer rather than not communicating at all. Debts not repaid usually result in the debt being charged off so the consumer had a minimum of 180 days to seek alternative repayment options. Lenders, collection agencies and debt buyers have a right to sue a legal debt just like the IRS. Keep in mind that judgments last longer than open credit accounts looking at statute of limitations. To [the] comment that filing bankruptcy creates hell as far as FICO scores, consumers face that issue with nonpayment of debt and bankruptcy is an alternative for a consumer to have a fresh start. That was the intent of the bankruptcy law and still is. Consumers with little or no hope to repay debts care more about moving forward with their lives instead of worrying about FICO scores.” (debt collector; <20)

Asked by the moderator about his/her data concerns, this commenter replied: “The data is difficult to obtain and likely not attainable considering lawsuits can be filed in magistrate, county, state, and federal courts. Also the data could be inaccurate since a case can be postponed and renewed later. I do not know if there is any central data base for either court. Also, lawsuits are filed in bankruptcy proceedings as well so these would need to be considered as well. This is why I am concerned when numbers just get tossed out without and substance verification. Based on my experiences I would estimate about 1.5% of delinquent accounts were forwarded to filing a lawsuit.”

(commenter 6) “I appreciate [commenter 1]'s comments but they appear to be grounded in a collection agency perspective (there is always business and market share tension between collection agencies and law firms). The reality is that (and this was voiced by other participants) many (not all but many) debtors simply won't/can't pay until they have to. To get to the Moderator's question as to what the CFPB can do to make it easier for debt collectors and consumers to settle accounts before litigation, I make these comments: The FDCPA and TCPA have truly made communications with debtor both difficult and hazardous for the collector. For instance, the fact that you can't safely leave a voice message for a debtor should be very troubling. At what point are privacy concerns (real and imagined) driven roughshod over basic communications with people in the 21st century? Over the years, our firm has stopped initial outbound calling (responding only to inbound calls) and also limited our pre-suit letters to just two. We send the required disclosure letter and (there being no response and the account reviewed for suit) then send a discounted payment offer that says we are going to file suit but would rather settle. We offer reasonable terms to the debtors to avoid a costly suit but the response rate is absolutely miserable, probably in the single digits percentage wise. Believe me, suits are time consuming and expensive, but they are often simply the only option. Even when the debtors are served, few contact us, and even fewer when the court sends them the judgment. Worse, a judgment doesn't guarantee payment on the account. So, what can be done? Clarification via Regulations as to what we can say and do in communications would at least promote more communication between the parties. With that, perhaps more points of contact could resolve debts before suit. I strongly disagree that litigation should be ‘discouraged’ as it is not only a simple reality in much of debt collection but a fundamental right of a creditor. However, I think Regulations making it clear what can and cannot be done in communications that can shield the industry from the wild west of FDCPA and TCPA lawsuits would greatly encourage more communication. I also think a reasonable, good faith attempt to resolve the case (offering a payment plan and/or lump sum) before suit is filed is still a good idea as well even though our own response rate has not been great. Anything more will infringe on a creditor's rights and interfere with state law. Perhaps the CFPB Portal could have a debt resolution aspect to it where a debtor could try to resolve an account in a ‘safer’ more disarming manner.” (debt collection law firm; <20)

Interchange 2

(commenter A)Default judgments should not be allowed. In Arapahoe county (Littleton, CO) it is well known that a landlord can get a judgment and evict a tenant even if there is no justification. Republican judges always side with the property owners at the tenants’ expense."(consumer)

(commenter B) “I think it would be better to focus on avoiding the law suits rather than avoiding defaults. The validation of debt process is unfair to the consumer. A debt collector should not be able to file a law suit prior to validating the debt. A proper validation should include the following: (A) A signed statement from the original creditor, on their letter head, establishing who is the assignee and what specific acts they have been authorized to perform on behalf of the creditor. Debtors are required to provide Letters of Representation or Specific POA to the creditor/debt collector. Why should the Creditor not have to perform in the same manner. (B) This validation letter should state the amount of the alleged debt, at the time it was assigned to the law office (collection office) or the amount of debt at the time it was "charged off" by the original creditor. (C) It should give a deadline to cure the alleged debt. (D) It should include several options to settle prior to the deadline. (E) It should include a ‘sample’ debt validation notice [verification request?] for the debtor to mail in.” (works for a consumer protection organization)

(commenter C) “Unfortunately, a few of the suggestions you made would actually violate the FDCPA. Debt collectors are not permitted to ‘overshadow’ the validation notice by giving consumers deadlines, making demands for payments, or giving settlement offers. Further, I don't believe consumers need a ‘sample’ dispute notice. If the consumer truly has a disagreement or dispute with the debt being collected, he or she should be able to articulate that dispute.” (debt collection law firm; 20-50)

(commenter B) “Your point about the overshadowing is well taken. My comments are based upon suggested changes to the debt collection process. You are correct, if the FDCPA remained the way it is currently it may be considered a violation. The FDCPA allegedly is geared to the ‘least sophisticated individual.’ However, I currently speak to many people that are not able to properly respond to a debt validation (even when they have a credible dispute). I am currently dealing with a 72-year old woman whose son ‘stole’ her identity. He was convicted of fraud and deported for other credit cards that he took out in her name. She received a dunning notice and now is being sued on another card that she was not even aware of. Our experiences are just different. I once felt the same way as you when I was in commercial debt collection. I truly appreciate your response but you and I will have to disagree that ’he or she should be able to articulate that dispute.’ I enjoyed reading your well thought out response and look forward to the continued debate.”

(commenter D) “As a creditor collecting my own debt, I assert that by the time I move to litigation, I've exhausted all other forms of collection. I've talked to, emailed, and snail mailed the debtor. I've tried to negotiate a payment plan or settlement offer all to no avail. Litigation is our last attempt. Once we are litigation, we present our best case and let the debtor present their defense. My experience is that debtors don't participate in their defense out of either fear or lack of knowledge about the legal process. But the burden of educating the debtor shouldn't be put on the creditor's shoulders. If debtors prefer to ignore the issue, then a default judgment is justified. There should be consequences to the inaction of the debtor.” (>50)

(commenter B) “When you say that you have ‘exhausted all options,’ I am curious as to over how long of a period have you attempted to collect when you choose to file a suit? Hardships are not all the same and some hardships can last for a year or longer. As a consumer advocate I see very few creditors that are willing to do anything more than refer to CCC or reduce rates for a short period of time.”

(commenter D) “[W]hile this isn't the best forum for me to go into my company's entire collection process, we work a debt for at least 120 days with letters, live agent calls, robo calls, emails, mailed invoices, and by suspending subscription service (where allowed) as part of our collection campaign. Even then, we only go to litigation after the debtor has been unresponsive to our attempts to contact them. I've found that if a debtor talks to their creditors, many times creditors will take their situation into account. I've offered lengthy repayment plans, reduced or waived interest or late fees, or partial settlement for those [who] explain their hardship. But if a debtor is uncooperative or doesn't respond to our attempts to work out a balance, what other alternatives do creditors have?”

(commenter B) “I do not believe that it is ‘just’ to allow a third party to buy a past due debt and sue for the entire balance, plus attorney fees, court costs, and other fees associated with ‘mediators or arbitrators’. I believe that a third party debt buyer should be limited as to how much they can sue for above their initial investment. Too many times the original creditor is a publically traded company and the loss has already been taken by the shareholders. Then some debt buyer buys a portfolio of un-performing debt and pays a dime on a dollar for it. Sends all of it to a ‘law office’ to collect 100% or more of the original alleged obligation. The debt buyer should not be able to sue for 900% of their investment. They should be limited to a percentage of true damage. I know of no other civil process where this would be considered ethical.”

(commenter D) “But private arrangement between these entities doesn't change the fact that the money is still owed. Just because the original creditor took a loss on it, doesn't change what is really due. Is it ethical for someone to rack up tens of thousands of dollars of debt and never pay it back?”

(commenter B) “Though I do not agree with ‘someone to rack up tens of thousands of dollars of debt and never pay it back,’ my current [under]standing is that the laws of each and every state allow for higher interest rates to be charged for non-secured debt. This is because the lenders take more losses ‘the risk should be in alignment with the award’. In many cases the principal has been paid back in full or the majority of the debt has been paid back. To allow a ‘third party’ to buy it at a significantly reduced price, after the debt has been charged off by the original ‘lender/creditor’ AND allow the third party to collect the full alleged balance and interest is not just. This is the way I am leaning at this time. Explain to me why you or I feel differently? I believe that many default judgments are because the Defendant/debtor does not know what to do. They cannot afford to retain an attorney and they do not know how to answer a complaint. I believe that if every ‘debt collection law firm’ is required by the CFPB to provide an answer form with check boxes. Example to include: Check box 1 if you admit to the allegations in paragraph 1 of Plaintiff’s complaint. Check box 2 if you deny the allegations in paragraph 1 of Plaintiff’s complaint. C heck box 3 if after reasonable investigation the defendant does not have sufficient information to form a belief as to the allegations in paragraph 1 of plaintiff’s complaint. Something so that the least sophisticated consumer has a chance at avoiding a default. It should also delineate of any filing fees necessary to be paid (varies by state) in order for the Defendant’s Answer to be accepted by the court. In most states all that a debt collection law office needs to provide is a complaint. The average consumer has no idea what the difference is between a balance and a sum. They do not know how to calculate the interest and certainly do not know what is ‘legal’ pursuant to state or Federal Credit Card Act limitations. The name of the Plaintiff may not even be recognizable to them. They just know that they owed some money and fell behind on bills. More times than not, they do not respond at all.”

[Omitted from this interchange are comments from a consumer commenter who argues strenuously that the law should recognize “involuntary” default on debt when the consumer is unable to make payments for good reason, should prohibit the continued accrual of interest, fees, etc. while the hardship continues, and should curtail various harmful practices by credit card companies. This commenter appeared in front of the CFPB in May 2013; his 67 comments can be viewed at http://regulationroom.org/users/debt-neutrality-petition/stats].

[A long interchange about credit card terms, consumer financial literacy, and relative responsibility for consumers getting into credit card and other debt has also been omitted; it can be viewed at http://regulationroom.org/rules/consumer-debt-collection-practices/discussion/debt-collection-litigation#nid-189].

3|State exemptions and bad-debt diversion programs

Final 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.]

“In many districts where bad check diversion programs exist, there is anecdotal evidence that the companies administering the programs threaten with prosecution individuals who do not come within the state's bad check law - for example, checks that bounce due to printing errors, checks for which there were funds available when written but not when presented, and individuals who pay the amount due by other means within grace periods permitted by state law. The CFPB should ensure that bad check diversion programs have a realistic means of ensuring that only individuals realistically subject to prosecution are targeted, and should also require that, in order to qualify for the 1692p safe harbor, diversion programs prohibit misleading communications and misstatements of state bad check law.” (law student and former intern in consumer law organization)


Several commenters debated the appropriate role of federal law. Two industry-perspective commenters strongly opposed federal rules – a theme that also appears in “Litigation in state and local courts”: “No federal rules. Allow States continued enforcement of their state laws.” (debt collector; <20); “State rules should apply.” (creditor collecting own debts; <20 ). However, the first of these commenters thought there might be some room for a federal standard defining “bad check”:

“Maybe a definition of ‘bad check’. If a consumer sends a postdated check(s) and it bounces then it may not fall under the bad check enforcement. Also, consumers use ACH capability to repay a debt, so if the amount is not available, then this may also not fall under bad check enforcement. My experience is more consumers use ACH rather than personal check distribution. There are numerous reasons why checks bounce so I suggest a look see as to determining the reason or cause why the check bounced.”

Another industry-perspective commenter proposed a different approach to the bad-check problem, with no preference for whether state or federal law provided it:

“Either State or Federal law should provide some penalty for passing an NSF or ‘closed account’ check that includes a presumption of guilt. The check either bounced or it did not. There's not a lot of grey area here. That said, either State or Federal law should also allow the drafter of the check a ‘safe harbor’ wherein they can pay the face value of the check and some nominal compensation for the hardship suffered by the recipient of that check in order to avoid this penalty. Michigan has such a procedure and it seems relatively equitable.” (debt collection law firm; <20)

In response to the moderator’s question, this commenter provided further details:

“The Michigan program for handling NSF checks is outlined in Michigan statute (MCL 600.2952). The statute provides the exact language to be used in the demand notice to the debtor but does not include the FDCPA Miranda language-- which we add to the notice. We also send a copy of the dishonored check with the notice. The statute allows the debtor to pay the value of the check plus $25 is paid within 30 days of the notice, or $35 if paid thereafter. IF the creditor brings suit (after the first 30 days) they can sue for the value of the check, PLUS damages of 2 times the amount of the dishonored check PLUS $250 in costs. This may even be used in small claims court. It seems that the idea is to penalize those who pass bad checks such that merchants will be willing to accept checks from customers.”

Consumer commenters, by contrast, favored federal rules in order to provide uniformity and a minimum level of protection:

“[Leaving enforcement to state law] might work if each state had reasonable, intelligent and realistic collection rules. But just the fact that the cost of getting a report varies wildly shows such disparities from state to state. My opinion is that there desperately needs to be some uniformity. This would help people to know what is expected of them, and what to expect.”

“[I]t would seem appropriate for Federal law to establish a framework of requirements for states to meet. This would level the playing field for debtors and creditors in all states. And would provide an equal basis for states to proceed with adding or amending their own laws affecting debt collection lawsuits.”

“There needs to be some federal protections for the consumer and a clear appeals process. The state run by private company programs seem to see the alleged debtor as already guilty. For example, some consumer groups have suggested that entities may not be including a ‘clear and conspicuous statement’ that the consumer may dispute the validity of the alleged bad check violation. What kind of financial incentives are there for these companies to meet certain benchmarks that may not be in the consumer's best interest? It kind of sounds like those arbitration programs for credit card debt where everything was stacked in the favor of the creditor.”

“[It is the wild fluctuation in rules across the country. This is not a ‘state's rights’ issue as someone wants to make it, but a way to bring some fairness and intelligence to this process. … I say: 1) clear out the scammers; 2) require some uniformity in the rules. If these agencies are honest who could object to a standard set of rules and regulations that make the process transparent (no, not violation privacy) and make it understandable to all.”

Other comments:

“Judges at the local level have become too biased in favor of the debt collectors who appear in their courtrooms. Judges live the very definition of insanity in terms of saying and doing the same thing over and over and over, and expecting the same result. That is not what a courtroom should be about. Judges should be allowed to consider the following evidence in a default case...Did the debtor have an excellent payment history, or not and for how long. Has the debtor paid in interest rate charges an amount that was actually more than the amount still owed. If either or both of these scenarios were true, the judge should have latitude to allow the debt to be paid back with no more interest rate charges, penalties or fees tacked on from the time of the default. A judge should also be able to use the FACT that credit card debt suspension insurance is OVER PRICED by a factor of 1000% to 2000% which is possibly the number one reason there has been an amplified amount of credit card defaults, as a reason to deny ongoing interest rate charges, penalties and fees after the default has occurred.” (consumer)

“I contacted the debt collection company and tried to make arrangements for payment of debt, the reason I could not pay my bills is my husband was laid off work and he had started a new job. I wanted to make payments of $100. a month, debt collectors said NO, so I said the most I could afford was $200 a month the said NO they wanted $1,000. a month. Now we have 4 children, a mortgage and utility payment, debt collection said $500 a month my husband brought home after taxes $1,100 twice a month. My mortgage is $1,300 per month not including utilizes so I told debt company that I couldn't pay. I always thought something was better than nothing and that a debt company would try to work with you. I learned that they won't work with you.” (consumer) Another commenter responded: “Not every debt collection agency is like that. The one I work for certainly isn't.” (debt collector; <20)

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