Dec 31, 2012 Philip Burgess
The debt collection industry will have to adjust to new regulations including oversight by the Consumer Financial Protection Bureau (CFPB) and alterations of student loan issuing and repayment practices. The looming Fiscal Cliff might mean that America is teetering on economic insolvency, with student loan debts adding and increasing strain on financial institutions and the overall economy. Graduates may be facing unparalleled debt that can be very difficult to pay back if jobs are not readily available and lawmakers are turning their attention to this problem. Collection agencies will have to respond to these regulations with new compliance practices.
A recent CBS Boston news report states that there were over 150,000 complaints against collectors to the Federal Trade Commission (FTC) last year. This fact, alongside concerns about consumer privacy, have brought some debt collectors under fire. The Consumer Financial Bureau (CFPB) will be regulating debt collection practices, protecting consumers from acts that can be perceived as harassing. The organization will monitor the ways debts are sold or exchanged, and collectors will need to ensure that all practices are within regulations. This new oversight might also be used to enforce changes in student loans collections, in order to prevent students from defaulting on loans. Collectors that acquire loans may face additional scrutiny, as the Fiscal Cliff debates heat up and new policies for student loan and credit card debt collection are established. Further, these regulations could impact short term lenders, making alternative credit services more difficult for lenders and borrowers.
Student loan debt
The accrued debt from student loans exceeded all other consumer debt in the United States for the first time in 2012. There is also a growing number of graduates who are unable to pay back outstanding loans due to a poor economic outlook and a scarcity of high-paying jobs, leading to a greater number of defaulted-upon credit lines. For students who couple high-price private education with credit cards to pay for books and other university essentials, substantial damage could be done to consumer credit reports within a year of graduating. This means that many graduates are digging themselves out of a deep economic hole, postponing the ability to obtain new credit and invest in new cars or homes. US lawmakers believe that this problem could suffocate the economy for years to come unless new solutions are reached quickly.
Pay-as-you earn loans
One solution might take collection responsibilities away from third-party agencies for cases of delinquency as it allows students to pay a proportion of income from paychecks directly to student loan companies for debt repayment. Many educators and lawmakers believe that this would help many students stay on track with payments and better manage spending budgets. One major question invokes a statute of limitations - if this method is adopted, does it only apply to new loans or is it retroactive? Debates over solutions to student loan and other debt is likely to increase in the new year, but the ramifications for collections agencies could be huge.
These new regulations and applications of student loan debt should suggest to collectors that 2013 will be a year to get the house in order - establish legal, business and response plans. Agencies that handle new regulations carefully, thoroughly and calmly will be able to have a successful new year. Although it won't be business as usual, this is by no means the end of the collections industry. In the end, better governmental policies and greater cooperation within the sector will allow for a positive increase in public relations and greater confidence from consumers.