For the first time, debt collectors have a federal regulator. Starting on Jan. 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 faced 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 disclosure 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 and 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 soon begin to oversee 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 should be policed. The industry has advocated a $250 million threshold—that only companies collecting at least that much annually should be regulated—arguing that much of the money collected is passed on to corporate clients and doesn’t represent company revenue. On Wednesday, Oct. 24, the industry trade group criticized the final $10 million cut-off. It believes the burdens of adhering to the new regulation will be too heavy 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 in paying bills and confronted 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 pushing consumers to pay up on a range of debts, including student loans, credit cards, and medical bills.
The CFPB said 30 million Americans are are currently being 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.