CFPB Proposes New Rules Governing Fair Debt Collection

For those who are struggling with debt this holiday season, few things are more cringe-inducing than the voice of a debt collector on the other end of a line.
Debt collectors have established an increasingly poor reputation due to widespread practices that skirt consumer protection laws and tend to hurt most those who can least afford it.

Now, the Consumer Financial Protection Bureau has issued a notice of proposed rulemaking, which requests public comment, data and information regarding the practices of the $12.2 billion debt collection industry. This could ultimately lead to the most significant reforms to the Fair Debt Collection Practices Act since it was passed in 1977, as the CFPB is the first federal agency to possess any significant authority to issue such reforms.

Officials representing the government watchdog have been quoted as saying that it expects to formalize the rules by next year.

One of the main issues identified is whether creditors and collection agencies are accurately representing consumers’ outstanding debts. Consumers also report being harassed and threatened at all hours of the night, as well as being forced to go to court to defend their non-payment of bills that it turns out they don’t actually owe. In other cases, consumers say they only become aware of a collection account once it is filed on their credit report, as opposed to be given the opportunity to pay or dispute it sooner.

Since the agency began allowing debt collection complaints earlier this summer, it has obtained more than 5,000 grievances from customers.

To be sure, the industry has a valid interest in lawfully recovering debt. However, their tactics have been heavily criticized and sometimes identified as abusive – despite the protections outlined by federal law.

One of the primary benefits to filing bankruptcy in Louisville is that creditors must immediately halt all debt collection efforts. It provides relief that allows the debtor to collect his or her bearings, consult with legal and financial professionals and determine the most effective course of action.

Still, that’s not to say the proposed reforms aren’t welcome.

Take for example the concerns raised by judges nationwide that a number of civil lawsuits filed by third-party debt collection buyers have involved generic testimony that ultimately failed to prove the outstanding debt. The response to this has been that attorneys general in 13 states have launched investigations into the practices of these firms, as well as the credit card companies and banks that are responsible for selling the debt in the first place.

It’s the same kind of complaint that we saw in the wake of the housing market crash, when foreclosure practices were revealed to be shoddy and in some cases illegal. As countless homeowners defaulted on predatory loans, mortgage services were found to have routinely falsified records and “robo-signed” hundreds of thousands of documents without first verifying their accuracy.

Now, we are seeing hundreds of thousands of lawsuits that have been filed against delinquent credit card holders. The financial crisis caused millions of Americans to fall behind on their payments, with one in 10 Americans holding an average of $1,400 in debt that could be considered subject to collections.

But just because someone has fallen on hard times doesn’t give collection agencies the right to bully, harass, threaten or treat debtors with any less respect or dignity.

If you need to speak to a Kentucky bankruptcy attorney or Louisville foreclosure defense firm, contact the Schwartz Bankruptcy Law Center at 866-270-4495 for a free and confidential consultation to discuss your rights.

Additional Resources:
Debt collectors face new rules under proposal from Consumer Financial Protection Bureau, Nov. 5, 2013, By Danielle Douglas, The Washington Post
More Blog Entries:
Are You in a Debt Crisis? Recognizing It is the First Step, Oct. 28, 2013, Louisville Chapter 7 Bankruptcy Lawyer Blog

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