COLLECTION RULES

New rules proposed to curb abuses

Noting that debt collectors trigger more consumer complaints than any financial product or service, the Consumer Financial Protection Bureau unveiled plans Thursday to rein in the most serious abuses.

“We are considering proposals that would drastically overhaul the debt collection market,” the bureau’s director, Richard Cordray, said. “This is about bringing better accuracy and accountability to a market that desperately needs it.”

Roughly 1 in 3 consumers were contacted by a creditor or collector trying to collect a debt in the past year, the bureau said.

The most common complaints in recent years were about collectors trying to get money from the wrong consumer, for the wrong amount, or debt that could not legally be enforced. Collectors often go to court with faulty information but win default judgments when consumers, claiming they weren’t notified, don’t show up.

When consumers are contacted about a debt they don’t recognize, they often don’t know what to do, the bureau said.

“They may feel pressure to resolve the debt but do not have a clear understanding of their rights.” Sometimes consumers pay a debt they don’t owe just to stop a collector from hounding them, the bureau said.

The largest segment of complaints involve continued attempts

to collect a debt that a consumer said was not their debt in the first place, or had already been repaid or discharged in bankruptcy, Mr. Cordray said.

One proposed new rule would require collectors to scrub their files and substantiate the debt before contacting consumers. In addition, collectors would not be allowed to collect on accounts with certain “warning signs,” such as large amounts of missing data or a high dispute rate.

Some other proposals would impose more limits on how often consumers could be contacted, require collectors to explain clearly how a consumer can dispute a debt and require that more specific information about the debt be included in initial collection notices.

The changes would apply to third-party debt collectors, including many debt buyers. New rules for firstparty collectors, such as credit card companies and payday lenders, will be addressed “soon” but separately, Mr. Cordray said.

The National Consumer Law Center in Washington, D.C., praised the proposed curbs, saying they would “significantly strengthen” consumer protections. Still, the group said the changes did not go far enough.

An attorney with the law center said collectors could still rely on information that may be inaccurate or mislead consumers.

The group also said it was disappointed that the proposal did nothing to raise penalties for abusive practices.

A spokeswoman for ACA International, a trade association for debt collectors, did not comment on specific parts of the proposal, saying the group hadn’t fully analyzed it.

But she said the ACA hoped the bureau would carefully consider how the proposed rule could affect small businesses.

“Many of these small businesses are a few unpaid invoices away from having to close their doors or eliminate jobs,” the ACA’s Cindy Sebrell said.

New regulations could put debt collection services out of reach, leaving small businesses with “no real alternative to collect debts rightfully owed to them,” she said.

The bureau will take comments from the debt collection industry, consumer advocates, the public and others before issuing final rules.

An outline of the proposal is available at http:// files.consumerfinance.gov/ f/documents/20160727_cfpb_Outline_of_proposals.pdf.

The bureau’s news release plus a copy of remarks by Mr. Cordray at a field hearing on debt collection are available at www.consumerfinance.gov under “Latest updates” at the bottom of the home page. The website also has consumer tips on debt collection.