If you’ve ever been hounded by a debt collector at all hours of the day and night, or had your credit rating wrecked because someone with your same name happened to stiff the bank on a car loan, here’s your chance to sound off.
The Consumer Financial Protection Bureau (CFPB), which was created in the wake of the recent financial collapse as part of the sweeping Dodd-Frank Act of 2010, is asking for public input about alleged credit collection abuses here.
Consumers and debt collectors are operating under outdated rules created by the Fair Debt Collection Practices Act (FDCPA) of 1977 and overseen by the Federal Trade Commission. A quarter of a century ago, no one anticipated the rise of fax machines, mobile phones, the internet, email, social media, robo-dialing, eloans and other products and technologies we take for granted today. Although the FDCPA was amended in 1996, it still doesn’t address most of these advacements.
“The laws covering consumer debt collection are old and antiquated,” says Mark Shiffman, spokesperson for ACA International, the association that represents collection professionals. “But we also believe there has to be a balance between the ability to collect a debt and consumers’ rights.”
For instance, under current law, it is illegal for third-party debt collectors to use intimidation tactics or threaten you with anything they cannot legitimately do, such as ruin your credit rating or foreclose on your house. Only the business you actually owe the money to can put a negative comment in your credit record or file a foreclosure suit.
“They can’t mislead you by making fraudulent statements,” says Shiffman. In addition, third-party debt collectors are only permitted to call between 8:00 a.m. and 9:00 p.m.- in your time zone. And, if you tell them to stop calling, they must.
As Shiffman readily admits, “there are debt collectors who violate the rules. And you should throw the book at them.” But he maintains that these individuals represent a small minority of the industry, and that “the vast majority of debt collectors are seeking to recover a rightfully owned debt” and play by the rules.
For the record, the CFPB says it also welcomes input from the debt collection industry, explaining that the goal is to implement added protections for consumers while at the same time not “hamstringing legitimate debt collection practices.”
Debt collection firms would like clarification about voice messaging concerns. As of right now, there’s no “safe-harbor script” that a debt collector can use to leave a message on an answering machine or phone. If someone other than the debtor hears the message, the collection agency runs the risk of being sued. “That’s why people get more frequent calls,” explains Shiffman.
Let’s face it: We are a credit-based society. Just think about how many times this year you pulled out plastic to pay for something or filled out an application for a loan. Mistakes are made. Information is not always accurate or up to date. The CFPB has received complaints from consumers claiming they were called about debts they didn’t incur or had already paid off.
It's easy for information to get mangled because multiple parties often get involved in the collection process. The initial contact comes from the entity you actually owe the money to, this could be someone from the accounting department of a hospital or Bank of America (BAC). According to Shiffman, these “first party” debt collectors are not governed by the 1977 Act.
If, after three to six months, you fail to respond to the initial lender, your case may be turned over to a third-party collection agency. These are the folks ACA International represents and, according to Shiffman, they are “highly regulated by both state and federal law,” including the Fair Debt Collection Act. Third-party debt collectors work on commission, receiving a percentage of the amount they are able to collect.
However, there are also other options available to a business trying to collect outstanding debt. For instance, they could file a lawsuit against you or sell your account to a so-called “debt buyer.”
According to Shiffman, the problem is that “all ‘debt collectors’ get lumped together.” You don’t necessarily understand--or care--who the person calling you represents. You’re just upset that they’re insisting you owe money. And, he understands that, “you’re not thrilled about getting that call.”
Nonetheless, the worst thing you can do is ignore these attempts to contact you. “The paramount problem is communication,” says Shiffman. “It just creates additional headaches and isn’t consumer friendly. A debt collector is not going to stop pursuing you. There’s no law saying if you can duck a debt collector for six years you no longer owe the money.”
Often, the only details about your case that a collection agency receives from the store or car dealership is the amount of you owe and your contact information. It’s more common that you might think for two individuals with the same or similar names to have their credit records crossed. This is one area the CFPB is especially interested in. One of the first things a legitimate debt collector wants to confirm is that you are, in fact, the individual who owes the money. But if you don’t set the record straight, the debt collector doesn’t know to stop contacting you.
Keep in mind that it’s in a debt collector’s best interest to resolve the situation. That’s how they get paid. “There may be mitigating circumstances,” says Shiffman. “Maybe you’re sick, you lost your job, or you are in the military and were called to active duty.”
The debt collector has no knowledge of your personal circumstances. Though the final decision lies with your creditor and not the debt collection agent, there may be flexibility to work out a payment arrangement or settle for less than the amount you actually owe.
But you’ll only know this if you take the call.
“Ninety-five percent of Americans pay what they owe,” says Shiffman. “Really, these are the people who pay for [those who don’t pay their bills] because it costs them more” in terms of higher rates."
Unlike many federal agencies (such as the Federal Trade Commission), the CFPB does not have to wait for Congress to pass new regulations. Dodd-Frank gave it the power to can issue them itself. If you want to see what’s being proposed, go to here.
Ms. Buckner is a Retirement and Financial Planning Specialist and an instructor in Franklin Templeton Investments' global Academy. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content.
If you have a question for Gail Buckner and the Your $ Matters column, send them to: firstname.lastname@example.org, along with your name and phone number.