Yesterday the Consumer Lending Subcommittee of the CFPB’s Consumer Advisory Board met to discuss debt collection. Committee member input was predictable, but clearly identified the latest arguments.
The major themes were: Disclosures are unclear, inconsistent, intimidating and confusing to consumers – in part because there are too many of them; The problem of substantiating purchased debt needs to be addressed; Medical debt is unique and introduces additional challenges for consumers and healthcare providers; Use of modern communication channels may address the need for contact caps; Debt collection rules are badly needed (this was the primary area of agreement among all parties).
insideARM connected with Ohad Samet following the session. He offered this comment about the meeting,
"Today's subcommittee call about debt collection regulation again demonstrated the importance of using any opportunity to represent debt collectors who adhere to rules and regulation and continue to differentiate between those and the actions of a few who blatantly violate the law. A new rule for debt collection will allow the legitimate players to serve consumers the way consumers want to be served, simplify compliance, and improve consumer protection. We can all agree these are noble goals."
Most of the committee members are consumer advocates, including
- Josh Zinner, the committee chair, and CEO of the Interfaith Center on Corporate Responsibility
- Kathleen Engle, a Research Professor of Law at Suffolk University in Boston
- Lisa Servon, Professor and Chair of City and Regional Planning at the University of Pennsylvania
- Howard Slaughter, President & CEO for Habitat for Humanity of Greater Pittsburgh
- Chi Chi Wu, Staff Attorney at National Consumer Law Center (NCLC)
Members of the subcommittee representing industry are:
- Max Levchin, founder and CEO of Affirm
- Ohad Samet, co-founder and CEO of TrueAccord
- James Wehmann, Executive Vice President of FICO’s Scores business unit
Not on the subcommittee but also contributing to the conversation were:
- Ann Baddour, Director of Fair Financial Services Project at Texas Appleseed
- Judith Fox, a Clinical Professor of Law at the Notre Dame Law School
CFPB staff attending the meeting were:
- John McNamara, Assistant Director, Consumer Lending, Reporting & Collections Markets
- Kristin McPartland, Senior Counsel, Regulations
- Gandhi Eswaramoorthy, Debt Collection Program Manager
The meeting opened with a review by John McNamara of the debt collection rulemaking process to date, which began with an Advance Notice of Proposed Rulmaking in November 2013, moved to a Small Business Regulatory Fairness Enforcement Act (SBREFA) hearing in August 2016, and then led to a decision in June 2017 to separate the debt collection rulemaking into two parts – deferring the “Right consumer, right amount” topic to be addressed later.
McNamara concluded by sharing that – consistent with the direction we’ve heard about -- Acting Director Mulvaney has directed the staff to undergo a review of where the rulemaking now stands.
[Editor's note: If you are interested in more detail, this insideARM article provides further information and links to additional posts about the CFPB's debt collection rulemaking proposals and process.]
Which brings us to the current meeting. Josh Zinner invited comments about current issues facing the consumer as it relates to debt collection. The following input was offered:
Chi Chi Wu of NCLC
She said debt collection touches one in three consumers who have a credit report; the number is even higher in some places, like South Carolina, where 43% of the population has a debt in collection. Wu also noted that over half of the debt collection items on credit reports are for medical debt. She mentioned that debt collection generates many consumer complaints – 41% of those claiming continued attempts to collect debts not owed. She referenced the CFPB’s 2014-2015 debt collection survey, and focused on consumers’ complaints that debt collectors contact them too often – which she then connected to the Outline of Proposals that suggests 6 total contact attempts per week per account. She extrapolated this to calculate that this means a consumer could receive over 300 attempts per year.
[Editor’s note: The CFPB’s proposal says that 6 contact attempts would be allowed during the phase when the collector does not have confirmed consumer contact (in other words – they may need to try several phone numbers, at different times of the day or week, in order to reach someone or even to know whether those numbers are correct). After that, the contact attempts limit drops to 3 in total, or 2 per unique address or phone number.]
Finally, Wu noted that so many collection accounts are a drag on the economy, as having debts noted on a credit report makes it difficult for consumers to get a loan, buy a car or home, start a business, etc. She also noted that medical debts are “parked” on credit reports without even contacting the consumer. So the first time a consumer may learn of the debt is when they apply for credit.
James Wehmann of FICO
Wehmann said there seems to be a broad consensus among scoring companies that paid collections should not be included in scores, and medical accounts have shown that they are not as predictive, so they have been weighted lower. He offered that there is still wide disagreement about how consumers establish their very first credit file, and what should happen in the case of those (7 million) files where there are no trade lines, but only a collection record.
Ohad Samet of TrueAccord
Samet offered that debt collection is part of the credit market; defaults are going to happen. Currently, what happens with those who default are that they are deprived of being treated as consumers: They are deprived of their choice of channel in which to be contacted, and they are deprived of information that is clear, understandable and relatable. The current process, including disclosures, are over-legalized. We need solutions that promote a positive experience.
He also suggested that debt collectors who try to follow the rules are overburdened by an overly legalized market with “gotchas” and lawsuits that aren’t protecting consumers.
Max Levchin of Affirm
Levchin added that one debt collection reality is that the rules were written in the time of post cards… the next set shouldn’t pass up the opportunity to encompass the latest technology.
Commenting on some of the proposals, he said the notion of the proposed contact caps may not be needed, especially in channels where consumers have control, and that the proposed tear-off makes sense in paper form but not online. He said progressive firms have been trying to elevate the conversation with the consumer; however the strict disclosure requirements set a bad/cold/legal tone which puts collector and consumer at odds from the beginning. He encouraged the Bureau to revisit this.
Kathleen Engle of Suffolk University Law School
Engle expressed concerns about lending and debt collection becoming one transaction, such as in the case of hospitals offering financing to a patient at the time of admission. She described that this type of transaction occurs under pressure and without underwriting. Also, she suggested that consumers who pay in this manner end up being charged full-freight versus a reduced or negotiated rate that is offered to those with insurance.
Later, Engle expressed the need to educate the courts on any new rules related to debt collection litigation, including that they must look at the documentation before issuing a default judgment.
Josh Zinner of the Interfaith Center on Corporate Responsibility
Zinner referenced his former work at the New Economy Project, which identified the fact that debts have been sold on spreadsheets for pennies on the dollar, with no accompanying documentation. He said litigation is widely used to collect purchased debt, and substantiation is a real problem. They had seen cases of law firms employing “sewer service” firms (where defendants never actually get served), filing fraudulent or “robo-signed” affidavits to obtain default judgments, and attempts to collect the wrong amount from the wrong person, or out of statute debt, or debts that resulted from identity theft.
Judith Fox of Notre Dame
Fox agreed with Zinner and reinforced the concept that the lack of documentation in law suits must be dealt with. She has seen situations where the documentation is not available, or when it is found it contradicts affidavits. She suggested that technology is needed to track the documentation, and ensure that the information passed to debt collectors is correct.
Ann Baddour of Texas Appleseed
Baddour offered that she conducted a study in Texas which mirrored some of the comments made by Chi Chi Wu regarding contacts and threats by debt collectors. She told the story of a man who was scared into paying more than he should have to settle a debt. He had been threatened.
She also raised the issue of time barred debt, and the need to address the fact that a payment can re-start the statute of limitations clock.
A brief conversation about disclosures took place with Samet suggesting the current language is inaccessible, that disclosures are too long/numerous, and that more disclosures will not solve the problem.
Chi Chi Wu responded that the NCLC philosophy is that disclosures are necessary but not sufficient for consumer protection. She specifically highlighted three disclosures they feel are necessary: time barred debt, debts that are past the 7 year mark and therefore can’t be credit reported, and the right consumers have to end collection communication (which should also be able to be given orally vs. only in writing). She said, “We think the FDCPA is not perfect but has worked for 40 years. If there are flaws, the law should be strengthened, not watered down.”
Judith Fox agreed that too many disclosures can confuse consumers. They should be simple – maybe even bullet pointed.