Debt collection seems to be a hot item this month. Not only is the Consumer Financial Protection Bureau's (CFPB) final debt collection rule slated to be released at any time, Congress seems to have taken an interest in debt collection issues as well. (Curious timing, eh?) The Congressional Research Service released an in-depth report titled, "The Debt Collection Market and Selected Policy Issues." The report suggests that, depending on what the CFPB final rule says, Congress may be interested in keeping an eye on things.
The report discusses where the debt collection market stands as of right now: the size of the market ("As of 2019, there are over 7,000 collection agencies in the United States, and the industry’s annual revenue is about $12.7 billion."), and current regulatory developments. On the latter front, the report discusses the pending CFPB rule as well as complaint volumes and supervision/enforcement actions.
The report then delves into 5 separate policy issues that might be ripe for congress' review:
- Communication frequency
- Time-barred and obsolete debt
- Validation issues
- Medical debt and credit reporting
- Federal, state, and local government debt exemptions
Below is a brief summary of the first four issues.
The report discusses the hot button issue of whether the CFPB's proposed rule regarding call caps is too restrictive or too permissive. There are two sides of this debate, according to the report, both of which may be moot since a CFPB survey that found consumers prefer email communications anyways. The CFPB rule would allow without limit but would grant consumers the power to stop such communication channels at their desire. This opens up another can of worms, as some consumer advocates believe that such communications should be opt-in rather than opt-out.
Time-barred and obsolete debts
The topic of time-barred debts tends to be one that is getting a lot of attention. The report discusses many sides of the debate, including the proposal by certain consumer advocates to outright ban collection on time-barred debt. There is a discussion about how consumers may not know what it means if their debt is time-barred, little less that certain actions they take could restart the statute of limitations. The report mentions that the CFPB's proposed rule on time-barred debts would address this.
However, the CFPB proposed rule does not address another area of consumer confusion: credit reporting of time-barred debts. Specifically, there is no mention or education to consumers about when their account becomes obsolete (meaning, when a debt can no longer be included in a consumer's credit report).
The report brings up an interesting issue about debt validation: that in some instances, there is no master database of account information that a debt collector can check against to ensure that the debts they are collecting are valid and correct. Instead, some debt collectors are only able to rely on the limited account information sent to them by the creditor, which often does not include account-level documentation unless and until a consumer disputes the debt.
Editor's Note: This is not the case in all instances. Many larger financial institutions are beginning to use certain vendor resources to store all account-level information to allow debt collectors to pull validation themselves from the moment the account is placed rather than rely on the creditor to provide the information only after a dispute.
Medical debts and credit reporting
The report discusses "inconsistent billing and reporting practices" when it comes to medical debt, which often leaves consumers—who are "unlikely to know how much various medical services cost in advance"—lost. The report discusses the IRS rule from 2014, which required separating billing and collection policies of nonprofit hospitals as an attempt to alleviate this issue.
The report then discusses the credit reporting of medical debts:
Concerns about the impact of medical debts on credit reports continue. Some observers may believe it is unfair for medical debts to appear on credit reports because these debts are generally incurred for medically necessary reasons and are less likely to indicate whether someone is financially responsible.
The report's conclusion
The report concludes that there are several areas of the debt collection market—specifically, those referenced above—that are ripe for congressional review:
As the CFPB finalizes and implements its debt collection rulemaking, stakeholders may be able to see how new regulations could impact the market. For these reasons, the debt collection market may continue to be the subject of congressional interest and legislative proposals.