May 28, 2014
Looking for ‘Widespread’ Abuse of Consumers in Debt Collection
We are bombarded daily with articles, blogs and more about the “widespread” abuse of consumers by the debt collection industry. The Consumer Financial Protection Bureau was created to ensure that such pervasive abuse is curtailed or otherwise stopped all together. Don’t get me wrong, nobody and I mean nobody, should be treated unfairly or with any lack of respect, especially in times of financial distress. But is there really widespread abuse, or just cries of a small minority with powerful voices to back them up?
Take for instance the CFPB complaint portal for debt collection, a helpful tool to align consumers with creditors and debt collectors in order to resolve complaints. The CFPB began receiving complaints in July 2013. The bureau says that they have handled 30,300 debt collection complaints. The complaints became public in November but to date, only 11,000 or so complaints have been viewable to the public.
Putting transparency aside for a moment, by the CFPB’s own admission, in 2013 approximately 30 million individuals, or 14 percent of all American adults, had debt in or that was subject to the collections process. This translates to approximately .001 percent of all consumers in debt collection filing a complaint with the CFPB about debt collection. Yet according to the CFPB, consumers are being “hounded” by debt collectors, especially for debts that are not owed.
A deeper dive into the public database of 11,000 complaints shows that only 25 percent involved debts consumers reported to be “not theirs,” or 2,750 complaints. Of those 2,750, the CFPB reports that 77 percent of the complaints were closed with explanation, meaning the debt collectors provided the information to the consumers to show that the debt in fact did belong to them. Further, when the debt collector did respond with information about the consumer’s debt, 81 percent did not dispute the debt collector’s response. To put this all into perspective, the CFPB estimated that it will have 1,359 full-time employees as of its fiscal year of 2013; that is two full-time employees for every disputed “zombie” debt by a consumer.
Several consumer organizations also speak in extreme superlatives and the press has helped them get their way. For years they have screamed that consumers are consistent victims of abusive debt collection, including abuse in the court system by attorneys engaged in debt collection litigation. Yet to date no reliable statistics have been brought forth.
All players in the debt collection industry undertook massive data gathering efforts in response to the CFPB’s Advance Notice of Proposed Rulemaking. The entire industry found a dispute rate of anywhere between one to three percent. [i] This does not suggest a pervasive problem.
Most recently a coalition of consumer organizations wrote a letter to Congress in opposition to HR 2892, which would exempt attorneys from the definition of debt collector under the Fair Debt Collections Practices Act (FDCPA) when engaged only in litigation activity. In support of their opposition, this coalition provided 12 examples of conduct, with some case citations, said to be representative of the “millions of consumers [who] have been victims of abusive debt collection through the courts…” None of the cases cited made any affirmative determination of any wrongdoing by any attorney when engaged in debt collection litigation.
Finally, the Center for Responsible Lending just issued the report, Debt Collection and Debt Buying: The State of Lending in America and the Impact on US Households. Like its counterparts, words like “abuse” are prevalent throughout the report. However, CRL undertook no study of its own and basically rehashed law review articles and FTC reports dating back to 2008 or even earlier. CRL referred to the FTC’s 2013 Report, The Structure and Practices of the Debt Buying Industry, to support its claim that unreliable and inaccurate information was being used by the debt buying industry in its debt collection practice. However CLR completely ignored the underlying conclusion of the FTC: “The [debt buying] study does not permit any conclusions to be drawn as to the prevalence of errors or inaccuracies in debts generally sold ‘as is.’”
I am certainly not suggesting that the complaints by consumers regarding debt collection should otherwise be ignored or that the debt collection industry, like any industry, must weed out the bad apples for the sake of the good ones. But widespread abuse? The irony here is that consumer advocates, who have the ear of the CFPB, the progressive side of Congress and the all-important media, bang the drum touting collection industry incompetence and willingness to cut corners when they themselves are no better in their presentation.
The numbers suggest a very small segment of the population has not had positive experiences with the debt collection industry, and certainly that segment should not be ignored. The greater harm however is to treat that small minority as the majority when creating policy. This poses a greater risk to the general population and in the end does not help the minority, the group that the policy was supposed to protect.