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Debt Collection, Debt Buyers, and the Consumer Financial Protection Bureau


The CFPB has issued a request for comments regarding debt collection practices. This is the first step in the CFPB's rule making process. The CFPB is seeking comments and anecdotes relating to the debt collection industry. It seeks information from all aspects of the industry--collectors, consumers, and attorneys alike.

From the CFPB's announcement:

Getting input from the public - you - is an important part of the process. Debt collection is a complicated topic, with many consumer protection concerns. We are issuing an ANPR in order to ask a number of questions about different aspects of the industry and the consumer experience. The ANPR will be published in the Federal Register, where anyone can submit comments to respond to the questions. We're particularly interested in learning about the accuracy of information in the debt collection industry, whether consumers are aware of the debt and their rights, and whether consumers are being treated fairly.

This is an important topic and I am glad to see the CFPB ramping up the rule making process. As I noted in my post about the proposed amendments to the FDCPA, the debt collection process is coming under increased scrutiny. Each day that I am in court, I see the impact of the debt collection industry on our society.

Debt buyers, companies that purchase charged-off debts, rely on the tendency of people to ignore lawsuits and to confess to judgment in order to collect what are otherwise uncollectable debts. When a credit originator charges off a debt, it is usually because that debt cannot be collected. The reason why it cannot be collected will vary. The most common are that the debt is past the statute of limiations, that it has been discharged in bankruptcy, or that it is simply just too hard to do--the bank is better off taking a tax writeoff and selling the debt to some other sucker.

Debt buyers purchase these charged-off debts for a fraction of their value. The profit in the industry comes from the deep discount and volume. If more people fought back on debt buyer cases, then the industry would not be as profitable. It is my opinion that debt buyers usually cannot prove the accuracy of their records or their ownership of a specific debt.

On cases where the debt has been discharged or is past the statute of limitations, debt buyers should be prohibited from collecting those debts. Debts discharged in bankruptcy obviously get protection from the U.S. Bankruptcy Code, but there is less protection for debts that are past the statute of limitations. In general, if nobody fights the lawsuit, the fact that the debt is too old to sue upon goes unnoticed and a jugment is entered against the consumer.

As part of my comments to the CFPB, I will be advocating for a rule explicitly prohibiting debt collectors and debt buyers from collecting upon, suing upon, or otherwise acting on debts that are past the statute of limitations. It is both unfair and deceptive to attempt to collect these debts that can no longer be collected upon via judicial means.

The practice must stop. If you are also concerned about the issue, then let the CFPB know.