insideARM--Katie Grzechnik Neill
On March 20, 2019, the Consumer Financial Protection Bureau (CFPB or Bureau) released its Fair Debt Collection Practices Act Annual Report. The report discusses trends in the complaints received by consumers as well as trends in the debt collection markets. However, the most important information for creditors and debt collectors alike is the calling-out of certain verification of debt practices where the creditor -- rather than the debt collector -- directly responds to a consumer’s debt validation requests.
Verification of Debt Practices
In the section of the Report focusing on the Bureau’s supervisory activities, the Bureau noticed that debt collectors continued collection activity despite not properly obtaining and mailing debt verification after consumer exercised his or her 1692g rights. Specifically, the Bureau calls out the practice where “debt collectors forwarded consumer debt validation requests to the relevant clients, who mailed responses directly to the consumes.” In the immediately-preceding sentence, the report summarizes the FDCPA which states that the debt collector is to cease collection activity until it obtains and mails verification of debt to the consumer. The Report also notes that "one or more debt collectors accepted client determinations, as reflected by a code that the client entered into a shared system of record, that the debt was owed by the relevant consumer for the amount claimed without taking any steps to verify the debt and without mailing the required verification to consumers."
In response to the Bureau’s findings, the debt collectors in question revised their debt validation policies, procedures, and practices to comply with the FDCPA.
Editors’ Note: It might be time to change policies and procedures, as well as inform the creditors of this Report, if this is currently the practice within an agency.
Debt Collection Market Trends
Consumer debt surpassed its 2008 peak in 2017 and was at a new high in Q4 of 2018, with a balance of $13.54 trillion. The Bureau notes that this number is not adjusted for population growth. 28% of consumers with a credit file have a debt collection tradeline.
Editor’s Note: This might not account for all accounts in debt collection. There was a drop reported collections account after the implementation of the National Consumer Assistance Plan. Additionally, some debt collectors stopped reporting accounts to credit bureaus due to credit repair organizations’ scheme of mass-mailing largely identical dispute letters in hopes of strong-arming FCRA settlements from agencies.
The growth in outstanding consumer debt is largely attributed to the growth in debt related to credit cards, student loans, and auto loans.
The Bureau’s market research shows that banking or financial services debt is the largest source of revenue for the industry, accounting for 40% of debt collection revenue in 2018. It is followed by telecommunications debt, the “other” category, and healthcare.
The Bureau’s report notes that 90+ day delinquencies in auto loans have been steadily increasing since 2012 “after years of increased lending to subprime borrowers.”
Consumer Complaints
In 2018, the Bureau received 81,500 consumer complaints related to first and third party debt collection.
The report further breaks down each of the above-listed complaint types by specific allegation. The breakdowns of the top three are as follows:
For complaints regarding attempts to collect a debt not owed:
- 53% are related to debt that does not belong to the consumer.
- 23% are related to debt that was previously paid.
- 20% are related to debt that resulted from identity theft.
- 4% are related to debt that was discharged in bankruptcy.
For complaints regarding written notification about debt:
- 72% are related to the consumer not receiving enough information to verify the debt.
- 25% are related to the consumer not receiving notification of dispute rights as required by section 1692g.
- 3% are related to not notifying the consumer that the communication is an attempt to collect a debt.
For complaints regarding communication tactics:
- 55% are related to repeated calls, either receiving several calls a day or receiving calls consistently over several months.
- 31% are related to continued contact despite requesting no more communication.
- 11% are related to the use of obscene, profane, or abusive language.
- 4% are related to calling outside of the FDCPA’s statutorily-mandated calling hours.
Debt Collection Rulemaking
The Bureau reaffirms that it expects to issue a Notice of Proposed Rulemaking in spring 2019, which will address communication practices and consumer disclosures.
insideARM Perspective
This report is chock-full of information for debt collectors and it is worth a read in its entirety. The Bureau calling out the verification of debt issue is most notable to debt collectors and creditors alike because it provides specific guidance on how to comply with the FDCPA. If an agency currently sends verification requests to the creditor and the creditor sends the debt validation directly to the consumer, it is time to revisit your policies and procedures. Since validation procedures are largely dictated by creditor clients, it would be a good idea for debt collectors to send this report to their creditor clients if they find themselves in this position currently.