New CFPB Report Spotlights Risky Debt Collection Tactics

The Consumer Financial Protection Bureau recently issued a 29-page report, outlining its activities over the last several years.
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Most interesting to our Miami consumer protection attorneys was the portion on debt collection practices, in which the bureau highlighted risky practices on the part of an industry where revenue has ballooned 600 percent from 2003 to 2012, reaching a peak of $143 billion that year, according to the Center for Responsible Lending.

Debt buyers typically spend only about 4.5 cents on the dollar for charged-off debt, but then turn around and aggressively pursue you – the consumer – to get whatever they can for it. Many times, there is no proof you even still owe it.

The CFPB’s report analyzed its own data from November 2013 through February 2014. The review covered payday lending, fair lending, debt collection and consumer reporting.

With specific regard to debt collection, the agency took a close look at the weaknesses in compliance management systems. There appeared to be a clear failure to investigate when disputes arose regarding information given to consumer reporting agencies. There was also a failure to obtain proper authorization for recurring electronic fund transfers, so these agencies simply kept withdrawing funds from accounts from which they were not authorized to do so.

Additionally, there were numerous clear violations of the Fair Debt Collection Practice Act’s limitations regarding the use of telephone calls and the bar against misleading and false statements to consumers in an attempt to get them to pay. Primarily, these false statements had to do with either incorrect or illegal credit reporting, or legal action threatened or taken against the consumer. In some cases, the collector failed to disclose the company’s true identity or provide validation. Sometimes, callers did not verify the person with whom they were speaking, and ended up disclosing sensitive information to third parties, potentially leaving victims vulnerable to identity theft. In numerous cases, there were also contacts made prior to 8 in the morning and after 8 in the evening – clear indicators of harassment.

The CFPB recommended these collection firms establish an internal board of directors to oversee government compliance and dispute resolution. Additionally, the agency indicated the business relationships these firms held with others in the corporate world, including providers of financial services and creditors, were poor. A big part of the problem was inaccuracy of the data sold.

Of course, to some degree, that may not matter. A recent report from the New Economy Project indicated that in 2011, debt collection agencies snapped up $230 million in judgements just in New York, and of those, 80 percent were default judgment. Although 20 percent of defendants in those cases actually showed up to represent themselves, only two percent showed up with an attorney.

A 2009 report from the Federal Trade Commission report analyzed roughly 4 million traded debt accounts, and found only 6 percent were accompanied by actual documentation. That same report indicated there was a disproportionate impact on low-income and moderate-income communities. In particular, black communities were found to have the highest rates of debt-buyer default judgments.

The bottom line is that the “deals” these firms extend often aren’t deals at all. Before you agree to anything, contact an experienced consumer debt attorney. There is a fair chance you may not owe anything at all, or that the amount you ultimately pay is far less than what you are initially quoted.

If you’re battling foreclosure or consumer credit issues in Miami or the surrounding areas contact Jacobs Keeley for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.

Additional Resources:
CFPB’s Supervisory Report Highlights Concerns about Debt Collection, Spring 2014, Consumer Financial Protection Board
More Blog Entries:
Report: Debt Collectors Use New Strategy to Hose Consumers, June 5, 2014, Miami Consumer Protection Lawyer Blog