When many consumers think of billion-dollar industries, banks and Wall Street often come to mind. Yet there is another industry in the same lucrative league that affects over 70 million consumers each year: debt collection.
In recent years, debt collection has consistently topped the list of consumer complaints received by the Federal Trade Commission, the Consumer Financial Protection Bureau (CFPB) and state Attorneys General. Further and according to the CFPB, more than 25 federal debt collection cases have been filed for deceiving and abusing consumers. Collectively, the cases have brought more than $300 million in restitution and another $100 million in civil penalties have resulted from these filings.
As state legislatures convene across the country for 2017 sessions, it appears that the National Black Caucus of State Legislators (NBCSL) has taken note of the harms that are caused by illegal debt collection practices. An NBCSL resolution calling for an end to abusive debt collection practices was ratified during the group’s annual December meeting.
Sponsored by North Carolina’s state Senator Floyd B. McKissick Jr., the resolution notes that “the overwhelming majority of people who are in debt and being pursued by debt collectors are not in debt by choice; but due to circumstances such as unexpected job loss, divorce or other marital problems, and serious illness.”
Many black neighborhoods are more likely to have residents with debts in collection. The resolution further states that our neighborhoods also have double the number of debt judgments compared to White areas – regardless of income levels.
“Unfair, abusive, and deceptive debt collection practices are hurting consumers and as a result, court judgments are entered against people for debts they do not legally owe,” said McKissick.
“The NBCSL resolution affirms the need for strong consumer protections at the state and federal level. This is critically important as abusive debt collection practices frequently target not only African-American communities, but seniors and military families as well.”
In calling for state legislatures to adopt initiatives requiring more detailed and accurate information and documentation in debt collection actions, the resolution also notes and supports CFPB’s efforts to promulgate a federal rule to address debt collection abuses.
Consumer advocates agree – a call for continued and coordinated support from both states and federal regulators is needed before consumers can find financial relief.
“States should continue to strengthen the rules and laws for debt collection to better protect consumers,” said Lisa Stifler, deputy director of State Policy with the Center for Responsible Lending. “Too often we’ve seen debt collectors file lawsuits in state courts against the wrong person or for a debt not owed. State legislatures and courts must stop this abusive financial practice by holding debt collectors accountable for initiating unwarranted legal actions.”
The need for reforms is supported by a recently-released CFPB report on consumer experiences with debt collection. The report, based on a survey explored a range of issues such as frequency of contact, lawsuits, and the accuracy or inaccuracy of claims. Prominent among survey findings:
- About 75 percent of consumers sued do not go to the court hearing, which generally makes them responsible for the debt;
- 53 percent of consumers reported receiving collection attempts that were incorrect because the debt was not theirs, was the wrong amount, or was owed by a family member;
- More than 40 percent of non-white consumers reported being contacted about a debt in collection, while only 29 percent of white consumers reported having the same experience.
“Some debt collectors care only about squeezing as much as they can from the names on their lists,” said CFPB Director Richard Cordray. “The typical collector is paid on commission and may have only a passing relationship with the debtor. Some make the calculation that their chances of being called to account later are remote. But the urgent impetus to secure immediate payment is ever present.”
"The Bureau's survey demonstrates the urgent need for a strong federal rule on debt collection," said Melissa Stegman, a CRL Senior Policy Counsel. “We commend the CFPB for exploring this important topic in depth and look forward to the Bureau proposing a strong rule that frees consumers from abusive debt collection practices.”
Charlene Crowell is the communications deputy director with the Center for Responsible Lending. She can be reached at firstname.lastname@example.org.