Debt collection reform needed

3/17/2017, 8:59 p.m.
When many consumers think of billion-dollar industries, banks and Wall Street often come to mind. Yet there is another industry ...

Charlene Crowell

When many consumers think of billion-dollar industries, banks and Wall Street often come to mind. Yet there is another industry in the same lucrative league that affects more than 70 million consumers each year — debt collection.

In recent years, debt collection has consistently topped the list of consumer complaints received by the Federal Trade Commission, the Consumer Financial Protection Bureau and state attorneys general. According to the CFPB, more than 25 federal debt collection cases have been filed for deceiving and abusing consumers. Collectively, the cases have brought more than $300 million in restitution and another $100 million in civil penalties have resulted from these filings.

As state legislatures convene across the country for 2017 sessions, the National Black Caucus of State Legislators has taken note of the harms that are caused by illegal debt collection practices. An NBCSL resolution calling for an end to abusive debt collection practices was ratified during the group’s annual meeting in December.

Sponsored by state Sen. Floyd B. McKissick Jr. of North Carolina, the resolution notes that “the overwhelming majority of people who are in debt and being pursued by debt collectors are not in debt by choice, but due to circumstances such as unexpected job loss, divorce or other marital problems and serious illness.”

Many black neighborhoods are more likely to have residents with debts in collection. The resolution further states that our neighborhoods also have double the number of debt judgments compared to white areas, regardless of income levels.

“Unfair, abusive and deceptive debt collection practices are hurting consumers and as a result, court judgments are entered against people for debts they do not legally owe,” said Sen. McKissick.

“The NBCSL resolution affirms the need for strong consumer protections at the state and federal level. This is critically important as abusive debt collection practices frequently target not only African-American communities, but seniors and military families as well.”

In calling for state legislatures to adopt initiatives requiring more detailed and accurate information and documentation in debt collection actions, the resolution also notes and supports CFPB’s efforts to promulgate a federal rule to address debt collection abuses.

Consumer advocates agree that a call for continued and coordinated support from both state and federal regulators is needed before consumers can find financial relief.

“States should continue to strengthen the rules and laws for debt collection to better protect consumers,” said Lisa Stifler, deputy director of state policy with the Center for Responsible Lending. “Too often we’ve seen debt collectors file lawsuits in state courts against the wrong person or for a debt not owed.”

The need for reforms is supported by a recently released CFPB report on consumer experiences with debt collection. The report, based on a survey, explored a range of issues such as frequency of contact, lawsuits and the accuracy or inaccuracy of claims. Prominent among survey findings:

• About 75 percent of consumers sued do not go to the court hearing, which generally makes them responsible for the debt;

• 53 percent of consumers reported receiving collection attempts that were incorrect because the debt was not theirs, was the wrong amount or was owed by a family member;

• More than 40 percent of non-white consumers reported being contacted about a debt in collection, while only 29 percent of white consumers reported having the same experience.

The CFPB survey demonstrates the urgent need for a strong federal rule on debt collection, said Melissa Stegman, a CRL senior policy counsel. “We commend the CFPB for exploring this important topic in depth and look forward to the bureau proposing a strong rule that frees consumers from abusive debt collection practices.”

The writer is communications deputy director with the Center for Responsible Lending.