For the first time, debt collectors have a federal regulator. Starting January 2, the Consumer Financial Protection Bureau will supervise companies that collect at least $10 million a year in consumer debts. In the past, debt collectors had some supervision at the state level, and consumers could complain to the Federal Trade Commission. But there was no federal agency actively policing the beat.
The CFPB says its examiners will try to ensure that debt collectors provide proper disclosures and accurate information, that they have good complaint and dispute resolution processes, and that they “communicate civilly and honestly” with consumers. The authority will cover the three main types of debt collectors: companies that buy up debts for pennies on the dollar then get to keep whatever they collect for themselves; companies that get a fee to collect debts on behalf of other companies; and lawyers who pursue debt collection through litigation.
This new regulation is part of the authority the Dodd-Frank financial reform bill gave the CFPB to identify and oversee companies that aren’t banks but are still “large participants” in consumer finance. In its first use of that power, last month the CFPB began supervising credit reporting bureaus for the first time. Other areas it may begin overseeing soon include auto financing, installment loans, and remittances, according to the agency.
The Bureau announced plans to regulate debt collectors in July and asked for comments on how to identify which companies to police. The industry has advocated for a $250 million threshold– that only companies who collect that much per year should be regulated– arguing that much of the money they collect is passed on to their corporate clients and doesn’t represent their own revenue. This morning the industry trade group criticized the final $10 million cut off. It believes the burdens of adhering to the new regulation will be too much for smaller businesses, hindering their ability to collect debts.
Debt collectors have come under heightened scrutiny in recent years. As the economy soured, more people fell behind on their bills and had a diminished ability to repay once the debts moved to collection. That left companies more desperate to recoup losses and led some collectors to be more aggressive in their push to get consumers to pay up on a range of debts, including student loans, credit cards, and medical bills.
The CFPB said 30 million Americans are pursued by debt collectors, for an average debt of $1,500. The bureau estimates that 63 percent of the market will fall under its watch.
