Prepared Remarks of CFPB Director Richard Cordray at the CFPB Debt Collection Event

Washington, D.C.

I want to thank my friend, Karl Racine, for hosting us here in City Hall. As most of you know, he serves as the first elected Attorney General in the history of Washington, D.C. He is also a great partner for us at the Consumer Financial Protection Bureau and he cares deeply about protecting and supporting all the citizens and consumers here in the District. Thank you all for joining us as well. Today we will shed more light on how consumers experience debt collectors and about some troublesome aspects of the market for buying and selling debts.

Today’s announcement has three pieces. First, we are releasing a new survey that spotlights the debt collection experiences of a nationally representative sample of consumers. Second, and relatedly, we are launching a web page to highlight personal stories consumers have shared with us about their experiences, which echo many of our survey findings. People have told us, for example, about being pursued for debts they do not owe or feeling threatened by debt collectors. Many of their stories are quite vivid and detailed. Third, we are releasing a study of a particular segment of the online marketplace, where debt is quite old and offered for sale at rock-bottom prices, often for fractions of a penny on the dollar. Some of these portfolios are advertised as having supporting documentation, but many are not. The low cost, age, and lack of supporting information almost inevitably invite the potential for abuse.

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What we are talking about today is important, because debt collection is a multi-billion-dollar industry that touches the lives of 70 million consumers who have at least one debt outstanding. Banks and other creditors may collect their own debts or they may turn to third-party debt collectors to do it for them. Others sell their debt to debt buyers, again either to collect on it themselves or to utilize a third-party collector. Six thousand debt collection firms are estimated to be operating in the United States.

We recognize that debt collection is part of the proper functioning of consumer credit markets. If people owe money that they borrowed on their credit card, or because they took out a student loan or received service from their telephone company, they are obligated to pay the money back, and they should do so. Responsible debt collectors that do their work with care and treat consumers with respect are a natural and even an essential part of the financial marketplace.

Yet nobody should be surprised that debt collection drives more consumer complaints than any other financial product or service. Most debt collectors are compensated based on how much they collect, which can create the kind of serious incentive problems that we have noted elsewhere in the financial marketplace. And because people have little or no say over who does business with them once the original creditor sells the debt, the risks to consumers are magnified even more. So we have seen that many consumers report being harassed or threatened with illegal actions, such as threats of arrest or jail time. Some collectors fail to send required notices. Others make improper contact, such as by sharing information about debts with employers or family members. Another common complaint comes from people contacted for debts they say they do not owe. Still others describe being given false or misleading information by collectors.

Taken together, these kinds of problems can just pummel consumers. Because people do not exert any meaningful control here through consumer choice, they may know little or nothing about the collector or the debt until a letter arrives or the phone rings. And the collectors may know little or nothing about the debt they are collecting. Collectors that act on inaccurate information can inflict substantial harm.

Some debt collectors care only about squeezing as much as they can from the names on their lists. The typical collector is paid on commission and may have only a passing relationship with the debtor. Some make the calculation that their chances of being called to account later are remote. But the urgent impetus to secure immediate payment is ever present.

The Consumer Bureau has made it a priority to improve the debt collection marketplace. So far, we have brought more than 25 debt collection cases over tactics that deceive or abuse consumers. These enforcement actions have led to $100 million in civil penalties, more than $300 million in restitution to consumers, and billions in debt relief for consumers.

We also have taken numerous steps to study the industry and improve the quality of its conduct. In October 2012, we issued a larger participant rule that established supervisory authority over nonbank debt collectors with more than $10 million in annual receipts from consumer debt collection. This covers some 175 debt collectors that account for more than 60 percent of the industry’s annual receipts. The Bureau has also ordered creditors and debt collectors to stop collecting on debt based on bad information and to modify or eliminate many unlawful collection practices. We have issued an outline of proposals under consideration for a rulemaking and we continue to consider other effective ways to reform and improve this industry. 

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The Consumer Bureau’s survey on consumer experiences with debt collectors is the first of its kind. The sample for the survey was drawn from our Consumer Credit Panel, which itself is a random and de-identified sample of records maintained by one of the large national credit repositories. We mailed surveys to over 10,000 consumers and obtained responses from over 2,000 of them – a very strong response rate. By using the panel, we were able to obtain a large number of responses from consumers with debts in collection while still reporting results that are nationally representative. We also can use the data to analyze the results by differentiated segments of consumers, while carefully preserving the confidentiality of each respondent. All of this data is invaluable to understand the experiences of consumers who are contacted about debt.

So we asked consumers about their dealings with debt collectors for consumer loans and other unpaid bills. We asked whether they had been contacted by debt collectors and how frequently. We asked about the types of debt they had, whether they paid the debt after being contacted, and whether they thought any of those collections were made in error.

Our survey indicated that one out of three consumers report having been contacted over the past year. We found that one-in-four consumers said they felt threatened, even though collectors are generally prohibited by law from harassing, oppressing, or abusing consumers. Even more people reported being contacted at highly inconvenient times:  about one-third said the creditor or collector had called them most recently between 9 p.m. and 8 a.m. For most people, these contacts violate the law, which says that debt collectors generally cannot call people at times they know or should know are inconvenient unless the consumer specifically agrees to it. Nearly 40 percent of consumers reported that a single debt collector tried to contact them four or more times per week, and 17 percent said they usually were contacted eight or more times per week. Well over half were contacted about two or more debts. And even more told us they asked the collector to stop contacting them, though most said their requests were not honored.

We found that litigation is a common mechanism for collecting debts. In the past year, about one out of every seven consumers who said they were contacted about a debt reported being sued as well – which amounts to many millions of people. But of those who were sued, only one out of four even attended the court hearing. This means that collectors can usually count on consumers ignoring or overlooking a lawsuit, which makes it easier to hold them responsible for the debt regardless of whether it can be documented or verified. For consumers who are struggling under the weight of financial burdens, harassing threats, and legal actions, these experiences only magnify their crippling levels of stress.

We also learned that more than half of Americans contacted in the past year by debt collectors reported substantial inaccuracies in what they were told about the debt. To be specific, many consumers said they did not believe they owed the debt at all, that the creditor or collector sought an incorrect amount, or that the debt was owed not by them but by another family member.

It is important to note that these same statistics also indicate that many debt collectors and creditors respect the laws governing their industry and have good practices in place. Many of the consumers who responded to our survey did not report any negative issues with those collecting debts from them. They were clearly informed about the nature of the debt, they were treated politely, and they reported no harassment or threats. This all goes to show that with the right amount of attention and effort, many debt collectors are able to fulfill their role responsibly.

But our survey also reflects a grim reality for many consumers who find themselves on a debt collector’s radar. They may be threatened or harassed with incessant contacts. They may be contacted about debts they do not owe. They may be given incorrect information about debts they do owe. We believe these findings will help policymakers and the public understand more about this important marketplace. Going forward, the results of our survey will inform the Consumer Bureau’s approach to overseeing the debt collection industry.

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A hallmark of our perspective on the consumer financial marketplace is the broad range of stories we hear from consumers themselves that help illuminate the bare statistics. They are not just names on a debt collector’s call list, but real people who deserve to be treated with fairness and respect. All over the country, people have come forward to tell us about their experiences with debt collection. Over the next few weeks, we will be sharing some of these stories and we want more consumers to tell us their own stories. Their voices will help guide our efforts to protect consumers and create a fairer marketplace. So today, along with our survey, we are unveiling our first set of videos presenting consumer experiences with debt collection.

Reinforcing what we found in our survey, for example, we heard from William of Manassas, Virginia, who said he was pursued by a credit card company for an $8,000 debt he did not owe. William explained he was a victim of identity theft, and it led to a struggle that lasted for over four years and damaged his financial life. Eventually the struggle over this phantom debt left William’s credit ruined, and he was denied an opportunity to refinance his house. His personal story puts much-needed flesh on the bones of the statistical figures.

We also heard from Bernadette in Pittsburgh. She said she felt harassed and greatly stressed by repeated contacts from debt collectors. They left messages on her cell phone, at work, and with friends and family members, talking about what they described as a serious legal matter. When she tried to resolve the issue, she learned that her debt had been sold to someone else just a few days after she was initially contacted.

These stories are personalized examples of experiences that are shared by many, many people who are being pursued by debt collectors. They help motivate us at the Consumer Bureau as we work to make sure all consumers are treated with dignity. You can hear for yourselves the stories that William and Bernadette have told us at the CFPB’s website, and again, we want to hear from other consumers as well.

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In studying the results of our survey and listening to consumer stories, we find some disturbing patterns of debt collection practices among certain companies. A number of these practices extend to the cavalier way the debts may be sold to collectors and what happens next.

When a creditor fails in its efforts to collect a debt, one alternative is to sell it off for whatever price can be had. This is often referred to as charged-off debt, and some of it is sold for extremely low prices, particularly as the debt gets older. Whoever buys it then has the legal right to pursue collection of the full amount of the original debt. Studies have shown that third-party debt buyers do not always get complete information about the debt. As a result, some pursue consumers over debts they do not owe or for the wrong amount. This can lead to consumers being wrongly and needlessly harassed.

So the third part of what we are releasing today is a report on the online marketplace for charged-off debt. Through these internet bazaars, buyers can acquire debt at bargain-basement rates. The asking price can be not pennies on the dollar, but mere fractions of a cent per dollar of original debt. Notably, these portfolios or bundles of debt may contain sensitive information about hundreds or thousands or even hundreds of thousands of consumers. These online marketplaces are a small but notable segment of the debt collection industry. Handled appropriately, they can efficiently connect responsible debt buyers with responsible debt sellers. But the ease with which debts are bought and sold online raises the risk that debts, and the sensitive information that comes with them, could fall into the hands of irresponsible parties or outright criminals.

Our report on online markets is based on a review of 298 portfolios of charged-off debt that surfaced in any of three online marketplaces that we monitored between January and August 2015. All told, these portfolios were advertised as containing the information of more than 1.2 million consumers, with a combined face value of almost $2 billion. The median asking price per dollar of original debt was less than one cent.

Debt portfolios typically include the consumer’s name, street address, social security number, and home and work telephone numbers. They also generally include financial information such as an account number, the name of the original creditor, current balance, date of last payment, and date of charge-off associated with the debt.

This is, of course, highly sensitive information that should be protected and kept confidential. Unfortunately, that is not always the case. In 2014, an FTC complaint alleged that two online debt markets posted at least 21 portfolios of purported debts containing unencrypted, sensitive personal information for more than 28,000 consumers. The companies failed to protect this information, which could be viewed by anyone who simply visited their websites.

A more recent and highly publicized story about the sale of debt appeared on John Oliver’s television show. He described how he created a company that acquired a portfolio of almost $15 million in written-off medical debts by paying about $60,000, which amounts to less than half a penny on the dollar. And he explained that the transaction netted the names, addresses, and social security numbers of nearly 9,000 people who purportedly owed these debts.

If we credit his story, it appears that Mr. Oliver bought this debt for the altruistic purpose of forgiving it, which is perfectly legal. But no individual consumers can exert effective control over whether their personal information is included in such lists. So all of this serves as a cautionary tale that parties with more nefarious motives could find it just as easy to harvest confidential details on thousands of consumers and misuse the information to disrupt their lives. The risks thus posed are substantial, and they should be of grave concern to all of us.

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The materials we are releasing today underscore some of the persistent problems with debt collection. They include consumer reports of misinformation or a lack of information, improper contact with employers or third parties, phone calls at inappropriate times, and the burdens posed by a great mass of legal actions. The lack of basic protections for sensitive personal information can pose severe risks for consumers. Without clear rules of the road that can be enforced in an even-handed and effective manner, companies that collect or sell debts responsibly and lawfully may find it hard to compete against those that bend or break the rules to their own advantage.

The Consumer Bureau has the authority and the duty to enforce the law to protect consumers, and we will not tolerate those who harm them by violating the law. Our work to ensure that all consumers are treated with dignity and fairness will continue. And our deep concerns about the integrity of information in this marketplace will remain top of mind as we consider further how to fashion helpful, common-sense boundaries for the debt collection industry.

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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers  to take more control over their economic lives. For more information, visit consumerfinance.gov.