Feb 21, 2013 Philip Burgess
Debt collection laws are created and enforced by both federal and state-level entities, while legislation has increased following the Dodd-Frank Wall Street Reform and Consumer Protection Act. Possibly the biggest impact the legislation had on the debt collection industry was the formation of the Consumer Financial Protection Bureau and its authority over entities covered by the Fair Debt Collection Practices Act.
Now, state legislation has continued to progress, largely the product of higher debt collection activity today than ever before. Following the financial crisis, businesses and consumers began to hold extremely high volumes of debt, but with the recovery in process, debtors are looking to re-obtain the outstanding loans in a timely fashion.
Agencies and professionals in this industry need to ensure that policies are aligned with long-standing and new collections laws, as failure to oblige the best practices and regulations could result in devastating penalties, such as fines, lost rights to the outstanding loans and crippling sanctions. Additionally, debt collectors need to be especially careful in their practices to avoid the growing stigma facing the industry at large.
FTC flexes muscles
The Federal Trade Commission recently wrote a public letter, addressed to the CFPB, regarding its latest annual report of its debt collection enforcement efforts. While the CFPB is now the leading enforcement agency overseeing the industry, the FTC still maintains various responsibilities related to the upholding of the FDCPA.
The FTC explained that its debt collection program includes research and policy initiatives, public outreach and educational offerings and vigorous law enforcement, and refers to this strategy as a three-pronged approach. The Commission was highly active in the past year, spearheading efforts to ensure all businesses know their responsibilities under the FDCPA, consulting with the public regarding consumer rights and more.
In the letter, the FTC asserted that it is capable of filing federal court actions to seek injunctions following complaints of abusive or illegal debt collection practices. In some instances, the Commission will hand over each case to the U.S. Department of Justice.
In the past year, the FTC explained that it resolved seven debt collection cases in the last year, which is the highest such total for a single year in the Commission's history. Four of the resolutions pertained to deceptive, unfair or abusive actions on behalf of debt collectors, and all ended in judgments exceeding $35.5 million in restitution paid by the defendants.
Finally, the FTC explained that the biggest concern it had going into 2013 was the proliferation of phantom debt collectors, which are those that attempt to collect debts that either do not exist or are not owed to the agency. The Commission cited one case in October 2012 that involved such an issue, and it ended in a $5.4 million judgment and a permanent injunction against the debt collector.
Several other cases related to phantom or abusive debt collection practices were handled by the FTC throughout 2012, and many ended in serious sanctions against the defendant agencies.
While the FTC and CFPB have been highly active in recent years, debt collectors can completely avoid enforcement issues stemming from consumer or corporate complaints by following the FDCPA and going a step beyond when it comes to customer service. The stigma facing the debt collection industry today is strong, especially as the few agencies that do violate the law make the national news fairly regularly.
By complying with federal regulations and following best practices, debt collection agencies can ensure timely turnarounds on all efforts to obtain outstanding loans and maintain strong reputations among consumers and businesses.