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Abuses by overreaching debt-collection companies need to be addressed

The CFPB moves to set new rules for an industry that has long generated consumer complaints

Published: November 2013

Some companies in the loosely regulated multibillion-dollar debt-collection industry use abusive and underhanded tactics, including harassing phone calls about debts that have already been paid or money the person doesn't even owe. Some debt collectors even make empty threats of lawsuits or jail time, without supplying the information a consumer needs to address the claim.  

So it's no surprise that, according to the federal government, consumer complaints about debt collectors have been piling up for years.

Consumers Union, the policy and advocacy arm of Consumer Reports, supports a fair, reasonable system for collecting money that is legitimately owed. That’s why we applaud the recent move by the Consumer Financial Protection Bureau to establish new rules aimed at curbing some of the most odious debt-collection practices. The CFPB is taking a hard look at the information used by debt collectors and the methods they employ to contact people and collect money, and is also pursuing ways to ensure consumers know their rights.

Banks and other creditors may choose to collect their debts themselves, or they may hire third-party companies. Some creditors sell their debts to debt buyers, who in turn may try to collect or hire another firm to recover the debts.

With all of this information sharing, the CFPB is raising questions about how accurate and up-to-date these records really are. Debt collectors might, for example, try to recover money from the wrong person or pursue the wrong amount owed, and they may not have the proper paperwork to support their claim.

In 2011, Consumers Union issued a report (PDF) with the Berkeley, Calif.,-based East Bay Community Law Center that described how debt collectors are filing an increasing number of lawsuits against consumers, even though often they don’t have evidence to back up their claims. Without the proper documentation, debt collectors may sue on invalid debts, such as those that have been paid already. The problem is made worse when consumers don’t receive timely notice that they have been sued on the debt or when the debt is so old that the consumer does not have a record to show whether the debt is owed or the amount claimed is correct.

The CFPB has issued an advance notice of proposed rulemaking for debt collection. The bureau is urging consumers to tell them their experiences, good and bad, with debt collections at RegulationRoom.org. Consumers, consumer groups, debt collectors, and other stakeholders can also comment on the notice on Regulations.gov.

This feature is part of a regular series by Consumers Union, the public-policy and advocacy division of Consumer Reports. The nonprofit organization advocates for product safety, financial reform, safer food, health reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.


Read other installments of our Policy & Action feature.



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