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NYC Consumer Debt Defense Project

New Federal Rules for Debt Collectors

Wednesday, October 24, 2012

Debt collection agencies, whose sometimes aggressive tactics have earned them scrutiny from consumer protection groups and state regulators, will come under federal supervision for the first time beginning Jan. 2, when the Consumer Financial Protection Bureau begins oversight.

In addition to companies that specialize in collecting money from consumers for personal, family or household debt, the consumer bureau will begin monitoring debt collectors that contract with the Education Department to collect overdue student loans. The department has more than $850 billion in student loans outstanding, officials said.

“Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly,” Richard Cordray, the director of the consumer bureau, said in a statement issued before the public release of the bureau’s rules on Wednesday. “We want all companies to realize that the better business choice is to follow the law — not break it.”

The authority to oversee debt collection agencies comes under the portion of the Dodd-Frank regulatory law that deals with so-called nonbank financial companies.

The consumer agency will examine companies to ensure that they properly identify themselves to consumers and properly disclose the amount of debt owed. In addition, collectors must have a process to resolve disputes and communicate “civilly and honestly” with consumers.

The rules will cover collectors that have annual receipts of more than $10 million, roughly 175 companies. They account for about 63 percent, or $7.7 billion, of the industry’s $12.2 billion in annual collections, the bureau said. Over all, there are about 4,500 debt collection companies in the United States.

Debt collection agencies have long been a target of consumer protection agencies, which accuse collectors of abusive practices like repeatedly engaging consumers or threatening to have them imprisoned for failure to pay debts.

The industry accounts for a large portion of consumer complaints to the Federal Trade Commission, which enforces restrictions against abusive practices. The F.T.C. said it collected more than 180,000 complaints about debt collectors in 2011, up from 13,950 in 2000

“There has been an explosion of shady debt collection tactics in recent years,” Suzanne Martindale, a staff attorney for Consumers Union, said. “Businesses have a right to collect what they are owed but not to harass consumers for debt that has been already paid off or doesn’t belong to them.”

But debt collectors said that regulators, including the consumer bureau, have characterized the companies inaccurately, particularly about how they respond to consumer complaints. They said the number of complaints increased in large part because it has become easier to file them online.

This year, ACA International, a trade group representing collection companies, objected to the consumer agency’s proposed rules, saying in a letter to the bureau that the regulations are arbitrary and do not follow the law.

The bureau has the authority to regulate “larger participants” in the debt collection market, but ACA said that the $10 million threshold was too low because the way the bureau measures annual receipts takes into account loan amounts that once collected are simply passed on to the company that originated the debt, less a commission.

The group said that the threshold should be $250 million. On the other side, the National Consumer Law Center recommended that the threshold be lowered to $7 million.

Beginning in January, the consumer bureau will begin requiring reports from debt collectors and conducting examinations of companies’ compliance and procedures, and to detect risks to consumers and financial markets from their practices.

The consumer agency is releasing its final rules identifying the types of companies it will oversee on Wednesday, when it also will conduct a public hearing in Seattle on debt collection practices.

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