Consumers could no longer receive multiple calls per day from debt collectors and would have more ability to dispute their bills under proposals released Thursday to overhaul the multibillion-dollar debt collection industry.
The new rules from the Consumer Financial Protection Bureau would also require collectors to have more documentation to prove a debt is owed, and initiate a 30-day waiting period for loans tied to someone who has recently died — halting all collection attempts from a spouse or child during that time.
Regulators estimate roughly 70 million Americans are contacted by debt collectors each year, and more Americans submit complaints to state and federal agencies about unfair or deceptive practices than any other part of the consumer financial system. These would be the biggest changes to the industry since Congress passed the Fair Debt Collections Practices Act nearly 40 years ago.
“This is about bringing better accuracy and accountability to a market that desperately needs it,” said CFPB Director Richard Cordray.
The changes, likely to face strong resistance from the industry and its allies in Washington, would affect only third-party debt collectors. The agency has yet to propose rules that would affect first-party debt collection practices, such as credit card companies and payday lenders.
Third-party collectors typically buy large databases of past-due loans and credit cards for pennies on the dollar, but those files can include loans discharged in bankruptcy or some too old to legally collect. Under the new rules, they would first have to more substantially show a debt is valid before starting collection.
Collectors would also have to provide clearer and easier ways for someone to dispute the debt. That would include a proposed “tear off” portion of a collection notice where someone can specify why the amount is wrong or why the debt is invalid, or allowing consumers to start disputing the debt over the phone. Right now, most disputes must be handled in writing.
If a consumer disputes a debt, collectors would be required to pause until they collect enough evidence to substantiate it. If the debt is sold, the new collector would inherit the dispute and would still have to provide validation, the CFPB says. This would solve a major source of complaints by consumers that collectors can harass them over debts that are in dispute already.
Once a debt is proven valid, a collector would be limited to no more than six communication attempts per week. If someone wants a collector to stop calling a certain number, such as a workplace, the new rules would make it easier to request that.
An advocacy group praised the CFPB for tackling the issue, but said the proposal does not go far enough. Margot Saunders with the National Consumer Law Center said the rules are overly complicated and still lets debt collectors rely on databases that may be inaccurate. The CFPB proposals do not address or increase the penalties that abusive debt collectors could face.
The agency will hold a hearing Thursday in Sacramento, California, to discuss the proposed rules. This is the first step in CFPB’s rulemaking process. Once formal rules are written, likely later this year, the public will have 90 days to comment before they go into effect.