When it comes to personal finance, multiple issues confront consumers every day. Ever-deepening student debt, denials on mortgage applications, and small-dollar borrowing known as payday loans that come with legal triple-digit interest rates in 33 states — all contribute to a series of financial challenges.
But there is also another form of consumer finance that acts as a kind of glue that affects these and other issues: debt collection. In 2017, The Urban Institute found that 71 million consumers had a debt collection in their credit reports.
By 2018, 620,800 debt collection complaints were filed. Of these, 475,000 were brought to the attention of the Federal Trade Commission (FTC). At the Consumer Financial Protection Bureau (CFPB), 80% of last year’s debt collection complaints focused on one of three concerns: collector calls persisting after “stop calling” notices (29%), repeated phone calls (27%), and false representation about debt (24%).
And once again, communities of color are disproportionately affected.
By the CFPB’s own survey on debt collection experiences, 44% of consumers of color reported contact by a debt collector, compared to only 29% of whites. This finding of racial disparity was consistent with a report by the Urban Institute that analyzed location as a factor in debt collection. That report revealed that 45% of consumers in communities of color had a debt in collection, compared to 27% of consumers in predominantly white areas. Further, an investigative report by ProPublica found that in Chicago, Newark, New Jersey, and St. Louis, the risk of collection lawsuits, judgments and wage garnishments were twice as high in Black census tracts as it was in white ones.
So, when the CFPB proposed a new rule on debt collection on May 7, a swarm of interest emerged.
“The bureau is taking the next step in rulemaking to ensure we have clear rules of the road where consumers know their rights and debt collectors know their limitations,” said CFPB Director Kathleen Kraninger.
Lawmakers and consumer advocates expressed distinctly different views from that of Kraninger.
“Last year, the Consumer Bureau received about 81,500 consumer complaints regarding predatory debt collection practices, which disproportionately affect minority and low-income consumers,” noted Rep. Maxine Waters, chair of the House Financial Services Committee. “This proposed rule does not come close to protecting consumers from predatory behavior. Instead, it allows debt collectors to needlessly harass and threaten consumers by sending unlimited emails and text messages and calling them seven times a week to collect debts. Hardworking Americans deserve better than this.”
The congresswoman is correct. As announced, the proposed rule would allow debt collectors to place up to seven unanswered calls each week to consumers. Once that limit is reached, the collector could not resume communications until the following week. However, if more than one debt collector was contacting a given consumer, the number of authorized communications would be multiplied per collector.
Secondly, debt collectors are explicitly authorized to have unlimited text messages, emails, and social media communications. Thirdly, debt collectors would now send consumers a new disclosure form identifying how debts could be paid or disputed.
“Seven calls per debt, per week is simply too many, especially when combined with unlimited emails and texts,” said April Kuehnhoff, an attorney at the National Consumer Law Center (NCLC) who focuses on debt collection. “A student with eight loans could receive 56 calls per week. The proposed rule would also allow for critical notice to consumers to be provided by email or text message without a consumer’s consent as required by federal law. Other emails and text messages have no limits unless the consumer opts out.
“Debt collectors could leave messages on voicemail that may not be private,” Kuehnhoff said. “And protections from time-barred ‘zombie’ debts would be limited to prohibiting lawsuits and threats of suits on such debts, meaning that the consumer will face continued collection attempts out of court.”
Margot Saunders, also an NCLC attorney, agreed.
“The proposed rule allows critical notices to be sent by email to consumers who may not have regular internet access,” Saunders said. “They may not be able to use their phones to read emails, open attachments, and click on hyperlinks to see critical disclosures.”
Melissa Stegman, a senior policy counsel with the Center for Responsible Lending, said she had hoped for a rule that would effectively halt “illegal and harassing industry practices.”
“Instead, the agency is again catering to businesses instead of consumers,” Stegman said. “CFPB is expanding the authorized ways debt collectors can communicate by adding text messages and email. Consumers will now bear the burden of opting out of these new communications. Real reform could call for consumers to opt in, not out.”
Lisa Stifler, CRL’s state policy deputy director, cast a critical eye toward the White House.
“The best consumer protections utilize a combination of state and federal enforcement,” Stifler said. “But in the Trump administration, federal agencies are frequently failing to regulate, or secure restitution for harmed consumers while hamstringing states that can and should act in defense of their consumers and residents.
“Instead of protections, the proposal will harm people who are impacted by the most abusive and deceptive debt collection practices: communities of color, older Americans, and service members,” she said. ”Today’s proposed rule will widen the berth given to bad actors with a nodding approval by the one agency created to solely protect consumers: CFPB.”
Charlene Crowell is the deputy communications director with the Center for Responsible Lending. She can be reached at Charlene.firstname.lastname@example.org.