The Consumer Financial Protection Bureau will unveil new debt collection rules in a few weeks, potentially unleashing a battle over the industry’s tactics and consumers’ rights.
The proposal, which would be the first update to the Federal Debt Collection Practices Act in more than 40 years, will address how often debt collectors can call someone and the industry’s use of emails or text messages, said CFPB Director Kathy Kraninger.
The agency will “modernize the legal regime for debt collection,” Kraninger said in her first major speech since becoming the bureau’s director in December.
The $11 billion debt collection industry has been awaiting the proposal, hopeful that the Trump administration would set out clear rules making it easier for debt collectors to avoid fines and lawsuits. Consumer advocates, meanwhile, have asked the consumer agency to stop debt collectors from harassing consumers and collecting on “zombie” debts.
New focus for the agency
The proposal comes as the CFPB undergoes a radical makeover under the Trump administration. The number of cases filed against financial companies has plummeted and the bureau has started rolling back some regulations — particularly on payday lenders.
Kraninger laid out a business-friendly vision for the CFPB before a packed crowd at the Bipartisan Policy Center on Wednesday, including a focus on educating consumers to make better decisions and reducing “unwarranted” regulatory burdens. The agency “cannot be everywhere, with everyone, at every transaction — nor should it try to be,” Kraninger said. “Empowering consumers to help themselves, protect their own interests … is vital to preventing consumer harm and building financial well-being.”
Under Kraninger, the consumer agency has proposed rolling back rules requiring payday lenders to verify customers can afford their loans — a major industry win. She has also endorsed a decision by Mick Mulvaney, her predecessor and current White House chief of staff, ending the bureau’s practice of preemptively verifying that companies are complying with the Military Lending Act, which protects military members and their families from financial fraud.
A billion-dollar industry
The proposal on debt collection rules is expected to launch another major fight. The country has more than 7,000 debt collectors, which made over $1 billion combined last year, according to data from industry researcher IBISWorld. In 2018, the consumer agency said it received about 81,500 complaints about debt collectors, making the industry one of the most common sources of consumer complaints.
But debt collectors say they have already been hampered by CFPB oversight and disparate court rulings on how aggressively they can go after consumer debts.
The industry wants “clear lines of what we should be doing and not doing,” said Leah Dempsey, senior counsel for ACA International, a large industry lobbying group.
For example, courts have split on whether debt collectors can leave consumer voicemail messages, Dempsey said. And the existing law was written before email and text messages became standard ways to communicate, she said.
“Millennials like me don’t answer their phone,” she said. “Respectful communication in a way that is helpful to the consumer will benefit both parties.”
Consumer advocates say they are concerned the federal agency will attempt to weaken existing law, in favor of an industry that racks up thousands of complaints to regulators every year. Debt collectors shouldn’t be able to call consumers more than once a week, contact them on social media such as Facebook or through work email addresses, advocates say.
“Consumer privacy should be a key concern for the CFPB,” said Christine Hines, legislative director of the National Association of Consumer Advocates.
The bureau should also prohibit the industry from attempting to collect on old debts, according to advocates. Consumers are not always aware that some state laws protect them from having to pay “zombie” debts, and that they could harm their cases if they pay even a small amount to stop harassing phone calls, they say.
“The purpose of statute limitations is to prevent cases where evidence may no longer be available,” said Lisa Stifler, deputy director of state policy at the Center for Responsible Lending.