Debt collection is big business. The Consumer Financial Protection Bureau estimates debt collection is now an $11.5 billion industry employing 118,500 people at 7,700 agencies. The New York Times recently reported more than 70 million Americans now have a debt in collection.
Debt collection also tops the charts (right up there with robocalls) in generating complaints with the CFPB and Federal Trade Commission. This is nothing new. The debt collection industry has never had a stellar reputation, and its bad behavior led to the 1977 passage of the federal Fair Debt Collection Practices Act. Colorado’s Fair Debt Collection Practices Act soon followed .
Under the federal and Colorado statutes, deceitful and harassing activities are blatantly illegal. Also, debtors are given a bundle of important rights. For example, if a debtor notifies a debt collector that the debtor wants the debt collector to cease further communications, the debt collector must honor that request.
Debt collectors are required to give debtors a Miranda-like warning at each contact: “We are trying to collect a debt, and any information you provide to us can be used against you for that purpose.” Debt collectors are required to inform debtors in writing that, if the debtor notifies the debt collector within 30 days that the debt in question is disputed, the debt collector must verify the debt and mail a copy of the verification to the debtor.
A violation of the federal and state debt collection laws can, in theory at least, lead to civil damages, fines and attorneys fees. However, compliance has been spotty. That’s in part because the rulebook has left many unanswered questions. Congress can be blamed for some of this because it failed to assign regulatory responsibility to any agency when the federal law was enacted.
That didn’t happen until 2010, when Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, giving regulatory responsibility for the act to the CFPB, an agency created by Dodd-Frank.
Nine more years have passed before the CFPB got around to proposing a comprehensive set of rules intended to clarify what debt collectors can and cannot do. The regulatory proposal spans more than 500 pages (several pages of which deal with the federal Paperwork Reduction Act) and is subject to a 90-day public comment period before the CFPB rule can become final. The CFPB website, consumerfinance.gov, has a link to the proposal, which contains an interesting discussion of the history and operation of the debt collection industry.
Assuming the final regulation looks much like the proposal , as is usually the case, here are a few highlights:
• Debt collectors will be limited to seven attempts at a telephone contact with a debtor in a single week. Once contact is made, the debt collector cannot make another contact for a week.
• Debt collectors will, for the first time, be able to use emails and text messages as collection tools. However, debtors will be able to opt out of contacts by email and text messaging.
• Detailed rules will cover communications between debt collectors and personal representatives administering an estate.
• Debt collectors will not be allowed to file a report with a consumer reporting agency (credit bureau) before making contact with the debtor.
• Debt collectors will not be allowed to sue or threaten to sue on a debt that can no longer be legally enforced due to a statute of limitations.
It’s important to remember that parties collecting their own debts (first-party creditors) are not covered by these laws. So, if you owe money to, say, your dog groomer and he or she is regularly calling you to discuss the matter, these rules won’t help.
Jim Flynn is with the Colorado Springs firm of Flynn & Wright LLC. Contact him at firstname.lastname@example.org.