Analyzing the GAO Recommendations for FDCPA Reform
It’s been only a few days since the Government Accountability Office (GAO) released its report on credit card debt collection practices, complete with specific recommendations to Congress on modifications to the Fair Debt Collection Practices Act (FDCPA), (“Government Report Recommends Significant Changes to FDCPA,” Oct. 22).
But the accounts receivable management industry has certainly taken note.
First, if you haven’t had a chance to read the report in its entirety, take some time to do so: http://www.gao.gov/new.items/d09748.pdf. Yes, it’s a long government report, but it’s a fascinating look at how this country’s rulemaking apparatus rationalizes the regulatory environment it creates. There’s some really interesting stuff in there.
Second, understand that the report is directed to members of Congress. The recommendations that are laid out in the document will have to go through the formal lawmaking process.
And that’s the point of one of the recommendations. The GAO said that the Federal Trade Commission (FTC), the debt collection industry’s current regulator, should have the authority to make changes to the law when it sees fit. This would mean that the agency could take input from the industry and consumers and alter the law without having to go through Congress. It would also mean that collection agencies would not need to rely on very rare FTC opinions and case law to interpret some of the gray areas of the FDCPA.
For that and other reasons, ACA International sees the report as a major positive. Adam Peterman, ACA’s government affairs director, told me in a message last week that the group is “happy that they’ve pointed out a lot of the issues we’ve been trying to point out.”
Indeed, the recommendation that stands out the most is the one where the GAO charges Congress to update the FDCPA to “reflect technologies that were not prevalent when the act was originally enacted.” The ARM industry has been noting the antiquated nature of the FDCPA, originally passed in 1977, for years. With the backing of a group like the GAO, the FDCPA may soon clarify issues surrounding the use of cell phones, answering machines, predictive dialers, and even email.
But I’ve also heard some words of caution surrounding the report. The third official recommendation to Congress was that the FDCPA be modified to “help ensure that debt collectors and debt buyers have adequate information about the debts transferred and adequate documentation to verify the debts they seek to collect from consumers.”
A debt buyer that I spoke to last week noted that this language was very scary. Asking specifically not to be identified, he said that Congress could interpret this many different ways. And in the current legislative and regulatory environment – with consumer protection being the operative theme in Washington – he said there is no reason to be optimistic about lawmakers’ interpretation of that recommendation.
When forced to put a silver lining on things, our anonymous debt purchaser said that Congress could put the onus on creditors on the documentation/media side of things.
One thing is clear from the report, however: meaningful reform is coming for the FDCPA.
The FTC in early December wraps up its series of three panel discussions on legal collections in Washington, after issuing an FDCPA report earlier this year. Expect recommendations from the regulator to come quickly in light of the GAO report.
Of course, the whole matter then goes before Congress, where the real battle begins. The industry should definitely view all of these reports and recommendations as a beginning rather than an end.
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Comments
Comment from SpyBoy on October 26, 2009 at 12:55PM EST
I'm curious; since the FDCPA currently mandates that debt collectors verify (ok; actually it says " validate " ) the debt they seek to collect from consumers ( yes; there is and continues to be disagreement between the various interested parties, including both State and Federal courts, as to what that term actually means, as a practical matter ),why, I wonder, would the debt buyers find the language re-articulating the mandate, so scary.
Maybe because it specifically articulates " debt buyers ", thereby bring them directly into potential liability for potential violations, as opposed to merely the " debt collectors " ?
Any other thoughts about that ?
Comment from jay on October 26, 2009 at 5:54PM EST
your probably correct with your assumptions, but i , personally would always want to vero the debt, prior to call or working a file....i mean if you were in their shoes i think you would feel this way also. I always try to put myself in the debtors shoes when working a file, this; (i feel) allow myself creativity when collecting accounts. thanks
Comment from Anonymous on October 26, 2009 at 8:18PM EST
After first reading the section I felt it would be a benefit to the debt collector/buyer because it would put more of an onus on the debt placer/seller to validate the debt is good before placement/sale - thus taking heat off the collector/buyer that comes with dealing with bad debt.
However, I could see the buyer's concern that Congress would turn it around and put the onus on the collector/buyer. I.e., the placer/seller could give you pile of garbage but you'd feel the brunt (even more so than today) when it turns out some of those debts weren't valid.
Comment from mottola on October 26, 2009 at 8:41PM EST
I think that there should be reform on debt collections.. and agree it should begin with debt buyers... unfortunately alot of comapanies have received a bad name because of the debt buyers business that they then place with a 3rd party agency. I feel as if the whole situation is a mess and don't know where to begin
Comment from -K on October 26, 2009 at 2:17AM EST
>>why, I wonder, would the debt buyers find the language re-articulating the mandate, so scary.
The line "help ensure that debt collectors and debt buyers have adequate information about the debts transferred and adequate documentation to verify the debts they seek to collect from consumers" could be interpreted to mean that all accounts must come with a copy of the signed contract/original documentation and a complete billing history breakdown. Or at least that's how I would read it if I were a consumer protection attorney.
That being the case, there would be two problems. First of all, original account documentation is prohibitively expensive. Secondly, in many cases it's simply unavailable.
I think it has little to do with liability. Instead, you're looking at a cost armageddon, where the price of compliance and loss of collectability for some of the accounts would rival the total value of the portfolio. Thus certain (low account balance?) segments of the debt buyer industry could end.
Comment from josh on October 27, 2009 at 11:56AM EST
Seems to me the onus for media transfer should be put on the original issuer and subsequent sellers thereafter. This can be taken care of by implementing sufficient electronic media storage on the front end of non-performing portfolio management. Considering the weight of financial lobbies in Washington and the cost this would incure to those players, I see the ball being thrown into the court of the buyers. How that could be considered a solution or even be effectively managed I do not know. We all must remember that Washington is NOT in the business of making things easier for 2nd and 3rd tier businesses. If ACA is worth their weight in memeber fees than they will fight to put the responsibilty of media transfer in the hands of the creditors. We shall see.
Comment from khl on October 28, 2009 at 4:03PM EST
The ACA has a history of supporting legislation that is destructive to the industry. They have supported increased exemption, NY, in particular and helped credit states become debtor states. They are anti-attorney which means they are anti-debt buyer which is eventually bad even for the arm industry. They have failed to take on legislation that is dangerous to our livelihoods. Clearly the dues are not being spent wisely. The only thing they ever accomplished was allowing us to call user supplied cell phone numbers.
Today's congress wants to socialize all credit losses. This means that they are attempting to immunize debtors from the consequences of their actions. How this will benefit anyone, especially a capitalistic society is beyond me.
Comment from josh on October 28, 2009 at 5:51PM EST
@ khl
I see you and I see eye to eye on this issue. I would add a couple of thoughts though.
The socialization of credit losses is most definately a deliberate policy, but not perhaps for the direct purpose of protecting debtors form the consequences of their irresponsible actions. That is more of a favorable consequence for the politicians who will tout the measures as protecting the American public, thus garnering votes of those who don't understand any better.
The real reason IMHO is they are trying to prevent the liquidation of markets in order to keep the large mega-banks afloat. By invoking the "too big to fail argument" and implementing a series of bailouts the mega-banks are able to unload a sack of trash on the American public as collateral and borrow against that trash dollar for dollar at the Fed. They then park their ill-gotten gains at their Fed Reserve accounts instead of lending, patiently waiting for rates to rise. This is what's happening right now. Unfortunately we live under a quasi facsist system, not a capitalist structure as so many wrongly believe. If we did what we would have seen in Sept/Oct last year was the failure of Citi, Goldman, JPMorgan, B of A, Wells, and the like. Can you imagine what the debt buying industry would have looked like if that were to play out? The restructuring would have been tough on the economy beyond our imagination, but the debt would have been worked through the system in a few years and the economy would be allowed to rebuild from the ground up. Instead what we have is the creation of another major bubble bigger than the first, and when this one pops it will be much more tramatic than what we witnessed last year.
Personally I think if you're too big to fail, you're to big to be.