The federal Consumer Financial Protection Bureau will expand its oversight to the nation’s largest consumer debt collectors. What will this mean for borrowers?
The Consumer Financial Protection Bureau is expanding its oversight to include the nation’s largest consumer debt collectors, according to a rule published today by the federal agency.
“Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly,” Richard Cordray, who became the CFPB’s first director in January, said in a prepared statement.
The new rule is scheduled to take effect on Jan. 2, 2013 and will apply to any firm that collects more than $10 million in consumer debt a year. That includes roughly 175 debt collectors who bring in 60 percent of the industry’s annual receipts.
Roughly 30 million American consumers are currently subject to debt collection, according to the CFPB, and they own an average of $1,500. Approximately 4,500 debt collection firms currently do business in the United States and they take in approximately $12.2 billion in receipts each year.
“Debt collectors often report consumers’ collection status to the credit bureaus,” according to the CFPB release. “When they get it wrong, this can be the difference between getting approved or denied for such financial products as a mortgage or a car loan.”
The rule applies to the three main types of consumer debt collection, collectors who buy bad debt and collect it for themselves, firms who collet debt for a fee and attorneys who collect debt through litigation.
The rule authorizes the CFPB to determine whether debt collectors are complying with federal consumer financial law. Examiners will evaluate whether consumer debt collectors are “upfront and clear” with consumers, and properly identify themselves and accurately disclose the amount of debt that is owed, according to the CFPB.
The CFPB will also determine whether debt collectors are using accurate data when pursuing debt so that they do not attempt to collect debt that consumers do not owe or have already paid. The bureau will also assess whether the consumer debt collectors have a formal process for handling complaints and whether the complaints are resolved in a timely manner.
A consumer debt collector’s language and methods will also come under federal review. According to the CFPB, examiners will assess whether a consumer debt collector has “harassed or deceived consumers in the pursuit of debt.” Harassment can include obscene or profane language, or repetitive or abusive phone calls. Among other restrictions, consumer debt collectors cannot threaten to imprison consumers who do not pay their debt, nor can collectors threaten to tell employers about the outstanding debt, the CFPB said.
The CFPB, created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has previously announced oversight of large consumer reporting agencies, mortgage originators and servicers, and payday lenders. The agency describes itself has now having “a window” into every state of the consumer debt process – from origination to collection.