John Tonetti: Flow During the Debt Cycle

These are bullet points from John Tonetti’s presentation at the CFPB’s “Life of a Debt” roundtable.

• Name, address, credit history are all obtained by the original creditor.
• Creditors may report to consumer reporting agencies; those agencies may share information back to the original creditor.
• When it works right, those first two bullets are sort of a continual loop.
• However: when a debt falls past due…
• Some, but not all, of a consumer’s info is shared with an external/third-party collector.
• Information that a consumer may have shared with the original creditor may not make it to the collection agency.
• So, a consumer is being contacted by an entity with whom she has no relationship — until now.
• Any updates from the collector to the creditor — or the creditor to the collector — is often severely hampered by lag.
• Most companies have a mechanism to correct errors.
• The FTC found limits to the types of documents a debt buyer can receive — and how much it would cost for the buyer to get the full complement.
• No federal requirement that the original creditor be disclosed in a G-notice.
• A collector the consumer has never heard of for a creditor the consumer has never heard of on a balance the consumer does not recognize — all from a lack of shared data.
• Banks want audited financials, processes for document handling, resale restrictions.
• Agencies are feeling pressure from reductions in market share, increased scrutiny, eroding margins, and loss of autonomy.
• Consolidation to improve economies of scale.