Looking for ‘Widespread’ Abuse of Consumers in Debt Collection

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Joann Needleman

Joann Needleman

We are bombarded daily with articles, blogs and more about the “widespread” abuse of consumers by the debt collection industry. The Consumer Financial Protection Bureau was created to ensure that such pervasive abuse is curtailed or otherwise stopped all together. Don’t get me wrong, nobody and I mean nobody, should be treated unfairly or with any lack of respect, especially in times of financial distress.  But is there really widespread abuse, or just cries of a small minority with powerful voices to back them up?

Take for instance the CFPB complaint portal for debt collection, a helpful tool to align consumers with creditors and debt collectors in order to resolve complaints. The CFPB began receiving complaints in July 2013. The bureau says that they have handled 30,300 debt collection complaints. The complaints became public in November but to date, only 11,000 or so complaints have been viewable to the public.

Putting transparency aside for a moment, by the CFPB’s own admission, in 2013 approximately 30 million individuals, or 14 percent of all American adults, had debt in or that was subject to the collections process. This translates to approximately .001 percent of all consumers in debt collection filing a complaint with the CFPB about debt collection. Yet according to the CFPB, consumers are being “hounded” by debt collectors, especially for debts that are not owed.

A deeper dive into the public database of 11,000 complaints shows that only 25 percent involved debts consumers reported to be “not theirs,” or 2,750 complaints. Of those 2,750, the CFPB reports that 77 percent of the complaints were closed with explanation, meaning the debt collectors provided the information to the consumers to show that the debt in fact did belong to them. Further, when the debt collector did respond with information about the consumer’s debt, 81 percent did not dispute the debt collector’s response. To put this all into perspective, the CFPB estimated that it will have 1,359 full-time employees as of its fiscal year of 2013; that is two full-time employees for every disputed “zombie” debt by a consumer.

Several consumer organizations also speak in extreme superlatives and the press has helped them get their way. For years they have screamed that consumers are consistent victims of abusive debt collection, including abuse in the court system by attorneys engaged in debt collection litigation. Yet to date no reliable statistics have been brought forth.

All players in the debt collection industry undertook massive data gathering efforts in response to the CFPB’s Advance Notice of Proposed Rulemaking. The entire industry found a dispute rate of anywhere between one to three percent. [i] This does not suggest a pervasive problem.

Most recently a coalition of consumer organizations wrote a letter to Congress in opposition to HR 2892, which would exempt attorneys from the definition of debt collector under the Fair Debt Collections Practices Act (FDCPA) when engaged only in litigation activity. In support of their opposition, this coalition provided 12 examples of conduct, with some case citations, said to be representative of the “millions of consumers [who] have been victims of abusive debt collection through the courts…” None of the cases cited made any affirmative determination of any wrongdoing by any attorney when engaged in debt collection litigation.

Finally, the Center for Responsible Lending just issued the report, Debt Collection and Debt Buying: The State of Lending in America and the Impact on US Households. Like its counterparts, words like “abuse” are prevalent throughout the report. However, CRL undertook no study of its own and basically rehashed law review articles and FTC reports dating back to 2008 or even earlier.  CRL referred to the FTC’s 2013 Report, The Structure and Practices of the Debt Buying Industry, to support its claim that unreliable and inaccurate information was being used by the debt buying industry in its debt collection practice. However CLR completely ignored the underlying conclusion of the FTC: “The [debt buying] study does not permit any conclusions to be drawn as to the prevalence of errors or inaccuracies in debts generally sold ‘as is.’”

I am certainly not suggesting that the complaints by consumers regarding debt collection should otherwise be ignored or that the debt collection industry, like any industry, must weed out the bad apples for the sake of the good ones. But widespread abuse? The irony here is that consumer advocates, who have the ear of the CFPB, the progressive side of Congress and the all-important media, bang the drum touting collection industry incompetence and willingness to cut corners when they themselves are no better in their presentation.

The numbers suggest a very small segment of the population has not had positive experiences with the debt collection industry, and certainly that segment should not be ignored. The greater harm however is to treat that small minority as the majority when creating policy. This poses a greater risk to the general population and in the end does not help the minority, the group that the policy was supposed to protect.

[i] http://c.ymcdn.com/sites/www.narca.org/resource/resmgr/CFPB_Resources/NARCA_Comment(33)_-_CFPB-201.pdf, February 28, 2014; http://www.acainternational.org/files.aspx?p=/images/31323/aca-anpr-comments.pdf , February 28, 2014; http://dbainternational.org/memberalerts/ANPR-Response_022714.pdf , February 28, 2014;

This post originally appeared on the Consumer Financial Services Blog, run by ARM defense firm Maurice & Needleman.

Joann Needleman is Vice President of Maurice & Needleman, P.C., where she is the Managing Attorney of the firm’s Pennsylvania office. Joann has extensive litigation experience in state and federal courts, successfully defending creditors against claims brought under the Fair Debt Collection Practices Act, Fair Credit Reporting Act and, in Pennsylvania, under the Fair Credit Extension Uniformity Act. She provides counsel, consultation and litigation services to financial institutions, law firms and debt buyers throughout the country. Needleman also currently serves as the elected President of the National Association of Retail Collection Attorneys (NARCA).

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Posted in CFPB, Collection Complaints, Collection Law Firms, Collection Laws and Regulations, Featured Post, The Economy .

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  • avatar Debtor Nation says:

    I think your article makes a lot of solid points. Here is my list of abuses in regards to credit card debt.

    No Debt Suspension Rights for consumers of any kind, strategic defaulters get better treatment by the system than those who default after a long and successful payment history.

    Debt Collectors use robo servers who will falsify service documents so the default case can go to court.

    Debt Collectors call too often.

    Debt Collectors REFUSE offers from consumers with little money in which the debtor offers to do automatic payments every month for very little (3 to 5 bucks a month) to establish a payment trajectory that they will try and improve on over time.

    Debt Collectors and Credit Card Companies refuse to stop the interest rate accruals, penalties and fees even if a customers calls while the account is in good standing to tell them they have lost their income source and won’t be able to make future payments.

    Credit Card Adhesion contracts don’t reveal that “The Promise to Pay” supercedes any situation that may happen to a customer that prevents them from making regular payments.

    Credit Card Adhesion contracts do use family values in their commercials even though “The Promise to Pay” supercedes a family values situation that results in a loss of income (such as becoming a CareGiver or rendering assistance to a family member in medical need that results a loss of income).

    The Credit Card Industry routinely OVER CHARGED on debt suspension insurance by a factor of FIVE to TEN TIMES MORE than they needed to charge. The Credit Card Insurance made so much profit for credit card companies as a result of their over charging on premiums they eventually were fined by the CFPB for well over a billion dollars because of their overzealous tactics. This Credit Card Insurance fraud basically stripped away the ONE WAY a consumer could protect themselves when they had a loss of income.

    Debt Collectors NEVER will ask a credit card company to retract the humongous increases caused by interest rate hikes, penalties and fees that happen after a default even when the consumer asks them to for humane reasons related to loss of income because of family situations beyond their control.

    Debt Collectors are intentionally vague as to what the debtor gets for making payments or paying off the account with a compromise amount. Debt Collectors refuse to state if the debt will no longer be reported as delinquent or if the credit card company relinquishes the right to collect the written off amount at a later date on a different account opened up by debtor.

    ——————–

    I agree that the CFPB stayed away from many of these issues specifically because the CFPB is not the big thug as has been projected by some. The over one billion in fines on the credit card insurance fraud the CFPB collected pays for operating expenses. It’s a shame the CFPB did not go further and acknowledge that the overpricing of credit card default insurance by such an obscene amount has adversely affected tens of millions of credit card customers over the past decade to the tune of 10 billion dollars, maybe a lot more.

  • avatar John Smith says:

    “CFPB estimated that it will have 1,359 full-time employees as of its fiscal year of 2013; that is two full-time employees for every disputed “zombie” debt by a consumer.”

    Now that’s just plain sad!

  • avatar ryon gambill says:

    At what point is a debtor responsible for managing their finances responsibly. I know it sounds a little amateurish amongst a group of advanced professionals; but seriously, if you stiff someone there are consequences. Banks are not welfare divisions of the government whom are compelled to render assistance to its borrowers. The freedom we have includes the freedom to suffer the financial consequences of irresponsible credit utilization. Why does the average debtor believe there are any obligations by lenders to grant debtors a subsidy at the expense of other borrowers. You Are NOT A VICTIM, you failed to properly plan for inevitable life crisis’ we all eventually face.

  • avatar Debtor Nation says:

    Ryon, The first thing you didn’t do was address any of the specifics, including the overpricing on credit card insurance of such a degree it would make a loan shark envious.

    The second thing you did was make wrong assumptions on a personal level. In fact, we had plenty of savings. After several years, that eventually dried up.

    Then, when we qualified for CareGiving programs, it turns out they are incentivized to deter people from gaining any access.

    Thirdly, suspending a debt is a logical compromise that does not presently exist because consumers have no real voice against the debt collection lobbyists.

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