The top consumer watchdog officially put debt collectors on notice Wednesday, advising companies in special bulletins that they will be held accountable for illegally collecting a consumer’s debts.
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The Consumer Financial Protection Bureau also announced that it has started accepting complaints from the public regarding debt collection practices.
Moreover, the agency is providing consumers with highly detailed guidance (see below) on communicating with debt collectors, including sample letters for obtaining answers or clarifications on debts allegedly owed.
The CFPB’s tough stance came a day after the Federal Trade Commission announced that the world’s large debt-collection outfit has agreed to pay a $3.2 million civil penalty, the largest involving allegedly illegal debt collecting practices.
On Wednesday, the CFPB published two bulletins for the debt collection industry.
The first bulletin affirms that any entity subject to the Consumer Financial Protection Act of 2010, whether a third-party collector or a creditor collecting its own debts, can be “held accountable for any unfair, deceptive, or abusive practices in collecting a consumer’s debts.”
The second bulletin warns companies to avoid deceptive statements concerning the impact of paying a debt on a consumer’s credit score, credit report, or creditworthiness.
“These bulletins make clear that it doesn’t matter who is collecting the debt — unfair, deceptive, or abusive practices are illegal,” said CFPB Director Richard Cordray at a field hearing in Portland, Maine. “Consumers need options to help them secure fair and respectful treatment from those debt collectors that fail to abide by the law. They can protect themselves by using our action letters to communicate with debt collectors and by submitting a complaint to us if they believe they are harmed by illegal conduct.”
The CFPB said that there are more than 4,500 debt collection firms in the U.S.
According to the Federal Reserve Bank of New York, almost 15 percent of all credit reports – covering an estimated 30 million consumers – show collection items from debt collection, as of the first quarter of this year.
These consumers had at least one debt in collections for amounts that averaged about $1,400.
Action Letters for Consumers
The CFPB is also publishing five action letters that consumers can consider using when corresponding with debt collectors. These letters may help consumers obtain valuable information about claims being made against them or may help consumers protect themselves from inappropriate or unwanted collection activities. The letters address the following situations when the consumer:
- Needs more information on the debt: The first letter is for consumers who need more information about a debt the collector has told them that they owe. The letter states that the consumer is disputing the charges until the debt collector answers specific questions about what is owed. This letter may be useful, for example, for a consumer who may not immediately recognize the debt as their own or for those who want to find out more about the debt before they pay it.
- Wants to dispute the debt and for the debt collector to prove responsibility or stop communication: This letter tells the collector that the consumer is disputing the debt and instructs the debt collector to stop contacting the consumer until they provide evidence that the consumer is responsible for that debt. For example, consumers who do not want to discuss the debt until they have additional information verifying the debt might use this template.
- Wants to restrict how and when a debt collector can contact them: The Fair Debt Collection Practices Act prohibits debt collectors from contacting a consumer about a debt at a time or place they should know is inconvenient. With this letter, the consumer is able to tell the debt collector how they would like to be contacted. This may be a useful option for a consumer who wants to work with a collector to resolve their debt.
- Has hired a lawyer: If a consumer has hired a lawyer, generally, the debt collector should be contacting the lawyer instead of the consumer. This letter template provides a way for the consumer to give the debt collector the lawyer’s information and instruct the collector to contact only the lawyer.
- Wants the debt collector to stop any and all contact: Consumers have the right to tell a debt collector to stop all communication. It is important, however, to note that stopping contact from a debt collector does not cancel the debt or prohibit the collector from potentially pursuing other remedies, such as filing a lawsuit. This letter template could be beneficial for those consumers who feel they are being harassed by a collector’s communications.