Good news for consumers this week--the Consumer Financial Protection Bureau (CFPB) has just released new rules for supervising large debt collection firms, marking the first time that the industry will be subject to federal oversight. The CFPB was created as part of the 2010 Wall Street Reform bill to ensure that we have a federal agency whose focus is on protecting consumers from the sorts of financial tricks and abuses that caused the 2008 financial crisis.
The new rules allow the CFPB to regulate firms that bring in more than $10 million annually and to examine whether these firms are complying with requirements of federal consumer financial law. Specifically, the bureau will protect consumers against firms that have not been providing consumers with accurate information regarding their debt and payment options, collectors that have harassed or deceived consumers in pursuit of payments, firms that would report inaccurate information to credit bureaus that affect a consumer's ability to obtain important loans, and, perhaps most importantly, firms that have been filing costly lawsuits against borrowers over debts that in a number of cases have already been paid off or for which the firm has no proper documentation proving the consumer actually ever owned the debt.
The need for these sorts of protections was made clear by a 2011 report by the East Bay Consumer Law Center, which highlighted the need to reform debt collection practices. Among others noted in the report, the report highlighted a Richmond resident named Noah, who faced two companies trying for months to collect a debt that had already been paid off to a third company. These kinds of abuses need to stop, which is why these new rules are so important.
In short, this announcement is great news for the everyday consumer, who will now be protected from abuses by large collection firms that cause unnecessary difficulties for consumers and take advantage of consumers to increase their own profit.
An article in the Washington Post describes the importance of the new rules:
Starting Jan. 2, the government watchdog will regulate 175 debt-collection firms that each bring in more than $10 million in annual receipts -- accounting for 63 percent of the market.
Examiners at the bureau will begin assessing whether debt collectors are complying with requirements of federal consumer financial law, including providing consumers with disclosures and accurate information. They will also investigate whether debt collectors have harassed or deceived consumers in the pursuit of payment.
The bureau estimates that about 30 million Americans have an average of $1,500 in debt subject to collection. Debt collectors typically report consumers' collection status to credit bureaus, meaning any inaccuracy could affect the ability to get a mortgage, car loan or credit card.
The article also quoted CFPB Director Richard Cordray as saying:
"Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly. We want all companies to realize that the better business choice is to follow the law-not break it."
The article goes on to quote Thomas Pahl, and assistant director at the Federal Trade Commission:
"CFPB examinations of large collectors are a valuable new tool for the government to use in addressing unlawful conduct by debt collectors. When examinations are combined with a continuation of the [Federal Trade Commisions's] history of enforcement the result will be more comprehensive and effective protection of consumers."