Director Cordray Remarks at the CFPB Debt Collection Field Hearing
Director of the Consumer Financial Protection Bureau
Debt Collection Field Hearing
July 10, 2013
Thank you for joining us here in Portland for this field hearing. We are here today to say more about a very difficult marketplace, which is the marketplace for the collection of consumer debt. This topic has long been a source of frustration for many consumers, generating a heavy volume of consumer complaints at all levels of government. This subject is also the focus of considerable enforcement activity by the Federal Trade Commission, by state attorneys general, and most recently now by the new Consumer Financial Protection Bureau. We are all determined to make steady progress, together, to protect consumers in this area.
Debt collection also has more salience today than perhaps at any time in our country’s history. In the wake of the recent financial crisis, we see far too many people who have fallen into financial difficulties. Many lost their jobs, much of their savings, and even their homes. Bills piled up and sat unpaid. Many consumers fell behind, either because of bad decisions they made or because they were victims of tough economic conditions during the Great Recession. The best estimates are that thirty million Americans – nearly one out of every ten of us – came out of the financial crisis with one or more debts in collection, for amounts that average about $1,400 per person.
While we can put a number on debt, we cannot quantify the emotional toll that it takes on consumers to live under the shadow of indebtedness – especially if they are treated poorly by debt collectors. Such experiences are almost inevitably accompanied by mounting feelings of frustration and helplessness. While many debt collectors play by the rules, and treat consumers fairly and respectfully, others try to get ahead by flouting the rules. Our job is to root out bad actors and protect consumers against unfair, deceptive, or abusive practices and other legal violations, which damage both consumers and also every debt collector that tries to operate within the law.
We recognize that debt collectors represent a wide spectrum of firms. They are an essential part of the credit system. Congress has concluded that much lending should be done on the basis of the borrower’s ability to repay, and we underscored this notion with the important Qualified Mortgage rule we recently adopted. But the principle of lending based on the ability to repay runs in tandem with the broader and accepted notion that people who owe money to others should in fact repay the money they have borrowed, and they should feel their obligation and responsibility to do so.
In fact, I have served as a debt collector myself, in two distinct positions in local and state government. When I served as Franklin County Treasurer, I set new records for the collection of unpaid delinquent property taxes. As Ohio Attorney General, I was the primary debt collector for the state government, where we also set records for repayment of funds; but I was also charged with enforcing the law against debt collectors that were operating in the state. I came to appreciate how challenging all of this work can be. At the same time, I came to know that debt collection can be done the right way, treating people honestly and with respect for the circumstances in which they may find themselves. I also came to know how hard it is on people when debt collection is done the wrong way.
In January, the Consumer Bureau first began to exercise its authority to supervise firms that have more than $10 million in annual receipts from consumer debt collection activities. Our supervision authority extends to about 175 debt collectors and debt buyers, which account for over 60 percent of the consumer debt collection industry as measured by annual receipts. Through our examinations, we are now in a position to evaluate whether federal consumer laws are being followed at every stage of the process – from credit origination to debt collection. And through our enforcement authority, we can take action when we see the law being violated.
Last month, we held a joint roundtable with our partners at the Federal Trade Commission to gather information and solicit input from a wide range of stakeholders on the integrity of information used in debt collections and in lawsuits against debtors. We often hear about collectors who pursue payments from the wrong consumers or for the wrong amounts. This can happen when information about a debt changes as it gets sold off and this data may be unrecognizable to the consumer as the debt gets passed down the line. At our joint roundtable, we heard strong consensus about the need for robust national documentation standards and the need to maintain the accuracy of information used to collect debts. We will keep that in mind as we move toward a rulemaking process on debt collection issues. Today, we are announcing other steps in our efforts to ensure accountability in this market and make sure that all consumers are being treated fairly.
We have already learned a great deal about the debt collection marketplace from our ongoing supervision and enforcement work. Based on that work, and in support of it, we are issuing two bulletins that warn companies about practices that will receive particular attention.
The first bulletin makes clear that certain practices in the collection of consumer financial debts violate the law regardless of what kind of entity engages in them. Only the conduct of third-party debt collectors and debt buyers is subject to the specific restrictions and prohibitions set out in the federal statute known as the Fair Debt Collection Practices Act. First-party collectors (those seeking to collect directly on debt they extended to a consumer) are generally not covered by this statute. Today’s bulletin makes clear, however, that these first-party collectors are subject to the general prohibition against unfair, deceptive, or abusive acts or practices in the Dodd-Frank Act, and many of the same kinds of restrictions may be applicable here too.
Some collection methods violate the law because they involve deception. Our bulletin identifies a number of practices that we view as likely to be illegal in this regard. For example, no matter who owns the debt, the person collecting cannot use any false, deceptive, or misleading representation to get a consumer to pay. Debt collectors should not threaten legal action, like arrest or prosecution or imprisonment, when they do not have the authority to pursue it. They should not falsely represent the amount of debt that is owed or misrepresent that a consumer’s debt could be forgiven. It is also improper to fail to post a customer’s on-time payment correctly and then charge them late fees. And intimidation, abusive tactics, or profane language are simply out of line. These are just a few examples of debt collection practices that can harm consumers.
So today’s bulletin makes clear that we will be working to ensure that everyone collecting on consumer debts is following the law. This is consistent with our new responsibility to engage in evenhanded oversight of entire markets, regardless of whether or not individual participants are chartered institutions, like banks, or non-chartered institutions, like debt collectors and debt buyers. Illegal practices by anyone harm consumers, erode consumer confidence, and undermine fair competition by responsible providers in the financial marketplace. The law clearly recognizes that debt collectors can significantly hurt consumers in ways that go beyond pure dollars and cents. Much of the law was deliberately crafted to protect the dignity and privacy of the individual consumer and to ensure that he or she is treated with the respect we all deserve – even if we have fallen behind on one or more of our financial obligations.
Our second bulletin warns companies that they must be especially careful whenever they make statements about how paying a debt will affect a consumer’s credit score, credit report, or creditworthiness. Our experience indicates that the debt collection industry would benefit from cautionary counsel on how to have these discussions with consumers. Debt collectors use all sorts of strategies – some legitimate, and some illegitimate – to convince consumers to pay their debts. One strategy is to discuss how the unpaid debt affects a person’s creditworthiness, and we are concerned that some of these discussions could be illegal.
The text of this bulletin highlights some of the potentially deceptive claims that debt collectors may make to consumers about their credit reports and credit scores. Debt collectors know that the information in a credit report can have a powerful influence over a consumer’s further access to credit, and they may use this as leverage when talking to consumers. But some debts are too old, under federal law, to be included on a consumer’s credit report for most purposes. Collectors may try to conceal this fact, telling consumers that paying the debt would remove it from their credit report even though the debt does not show up there anyway. We have also seen other types of cases where debt collectors mislead consumers by telling them that paying a debt would improve their credit score or creditworthiness.
The bulletin is intended to serve as a warning that such practices are wrong and that the Consumer Bureau will be attentive to hold people accountable for illegal actions.
Today, we are also announcing two ways we are helping consumers help themselves to hold debt collectors accountable under the law. First, the Consumer Bureau now will accept consumer complaints about debt collection, which has long been one of the issues that consumers complain about most frequently at all levels of government. So we will be able to address consumer debt collection complaints and help individual consumers try to reach appropriate resolutions with their collectors. Consumers can submit a complaint against any company that tries to collect a debt from them. But consumers can also do more: they can choose to submit a separate complaint against the company with whom they had the original account. This intake system will be useful as a feedback mechanism for creditors that have hired third-party debt collectors or sold their debts. They will be made aware of the kinds of struggles that consumers are having with their continuing debts and can potentially rethink what is happening to their customers or cut off those collectors they deem to be problematic.
We have found, consistently, that complaints provide us with essential insight into the actual experiences of consumers who are navigating the complex financial marketplace. It is through our consumer response function that we are able to have the most direct and immediate impact on the lives of individuals. Once a consumer submits a complaint to us, it is screened and forwarded to the appropriate company. The company reviews the information, communicates with the consumer as needed, and determines what action to take in response. It then reports back to us and to the consumer. We invite the consumer to review the response and provide feedback. We review the feedback, using this information along with other information, such as the timeliness of the company’s response, to help prioritize complaints for investigation. We already accept complaints on many other consumer financial products and services, and we are pleased now to be able to take debt collection complaints as well. We will learn much from these efforts.
The second way we are helping consumers is by publishing five different action letters that consumers themselves can use to communicate with a debt collector. This approach reflects our view that self-protection can be an effective form of consumer protection in some situations. Several of the letters are designed to help consumers gain valuable information about the debt being collected. Putting a specific request to a debt collector in writing is often the best way to do this. Other letters help consumers protect themselves from unscrupulous behavior by debt collectors. These action letters are valuable because consumers have rights under the law, but they often do not know what rights they have or how to assert them. For many Americans, self-help is a good starting place in the struggle for dignity and respect. These letters are not a substitute for legal advice or representation that consumers may want to seek as a means to preserve their legal rights, but they are important initial tools that consumers can use to protect themselves.
The first letter is for consumers seeking more information about a debt the collector has told them they owe. It asks specific questions about the debt and can be used to inform the collector that the consumer is disputing the charges until they have more information. This letter is useful for a consumer who may not immediately recognize the nature or amount of the debt or who needs to find out more about the debt before deciding whether to pay it.
The second letter tells the debt collector to stop contacting the consumer unless the debt collector can show evidence that the consumer is responsible for that particular debt. The letter also makes clear that the consumer is disputing the debt. Consumers who affirmatively believe they have no responsibility to pay the claimed debt may want to send this kind of letter.
The third letter is for consumers who want to restrict how and when a debt collector can contact them. Under the Fair Debt Collection Practices Act, debt collectors are prohibited from contacting a consumer about a debt at a time or place they know, or should know, is inconvenient. Until the collector is put on more specific notice of the consumer’s individual circumstances, much contact might occur that the consumer would find harassing. In this letter, the consumer tells the debt collector how they would like to be contacted, which is a useful option for a consumer who wants to work with the collector to resolve a debt.
The fourth letter is for consumers who have hired a lawyer. Generally, the debt collector should be directed to contact the lawyer instead of the consumer in this situation. So in this letter, the consumer provides the debt collector with the lawyer’s information and puts the collector on notice by specifying that any further contact should be made only with the lawyer from that point forward.
The fifth letter tells the debt collector to stop any and all contact. Under the Fair Debt Collection Practices Act, a collector generally must stop contacting a consumer after it receives a written request to do so. But it is also important for consumers to note that stopping contact from a debt collector does not cancel the debt and does not prevent the collector from suing them. For consumers who find that they are being harassed by a collector, this letter can be a valuable option.
The point of these action letters is to place debt collection activities on the plane where they belong: they should be business dealings and should not become personal in nature. It is simply not true that every consumer contacted by a debt collector is a so-called “deadbeat,” and even those mired in tough economic situations are entitled to the dignity and respect they deserve as free and equal human beings. Giving someone grief and making their life miserable are familiar but unacceptable debt collection tactics. Armed with knowledge of their rights and how to pursue them, consumers will be better able to stand up for themselves and defend against such tactics. We ask those in the consumer movement to help us make people aware of these resources that are now available as part of our Ask CFPB page on the Consumer Bureau’s website at www.consumerfinance.gov.
The marketplace for the collection of consumer debt remains a very challenging market for consumers. It did not get this way in a hurry, and it will take time to change it in a lasting way. But we will work closely with our partners across the country to achieve that important result. Consumers need to know that they have someone who will stand on their side, and we want to ensure them the dignity of being treated fairly, even in adverse economic conditions. We take these goals to heart, and they will guide our actions. Those debt collectors that are treating consumers fairly have nothing to worry about and should go on about their business. But those using illegal means to collect consumer debts should be forewarned that we will not tolerate such behavior. We will use our supervisory and enforcement authorities to identify and eliminate illegal practices while simultaneously empowering consumers to stand up more effectively for their rights under the law.
Promoting honest behavior in the marketplace is in our country’s best interest. Both responsible businesses and consumers stand to benefit by enforcing adherence to these basic norms. There is no reason why debt collectors cannot treat consumers with dignity and respect, even as businesses are able fairly to collect the money that is actually due to them.
Thank you for joining us here today and I look forward to vigorous and enlightening discussions.