John Rossman and Mike Poncin of Moss and Barnett have a Debt Collection Drill podcast, and a recent episode was particularly relevant to our audience. Here, we share three mistakes gleaned from a study of Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) enforcement actions. These are important for debt collectors to avoid, especially because they’ve been emphasized recently. Read on to learn about trending items, and the hosts recommendations for collection agencies to avoid these pitfalls!
Enforcement actions involving servicemembers.
As you may or may not know, there are additional considerations that govern military members and debt collections. One important piece of legislation to be aware of is the Servicemembers Civil Relief Act. As for recent enforcement actions, the Debt Collection Drill hosts have this to say for debt collectors:
(Mike Poncin) “Once you know somebody is a member of the military - like you said, you see this everywhere, with the CFPB, you see it in news articles, servicemembers being harassed - I think you have to be very, very careful with those collection efforts. You want to make sure you’re abiding by the law and treating them with the proper deference. But personally, if they’re overseas in combat or whatnot, you might even want to talk about holding off on active collections on those individuals just because it is such a sensitive topic.”
Did you know that of the 29,000+ complaints made by service members to the CFPB between July 2011 and December 2014, almost 40% were related to debt collection and collection agencies? That’s not an insignificant number! While it’s ultimately up to each agency to decide how to proceed with debt collections against servicemembers, one thing that would behoove all agencies is a better reporting system between creditors and debt collectors. That is, whether a debtor is a military member or not is helpful information to know, and should be passed along with other collection information (such as whether they are represented by an attorney, address, etc).
Distinguishing and investigating disputes.
The Fair Debt Collection Practices Act (FDCPA) and Fair Credit Reporting Act (FCRA) both have avenues for consumers to lodge disputes regarding debt collection practices. Unfortunately, one of the shortcomings recently noted by the CFPB is that collection agencies are not accurately logging whether a dispute has occurred, or what the nature of a dispute is, especially when it comes to credit reporting bureaus. Most notably, it appears as though many accounts are deleted without an investigation - and this can become a big compliance problem for collection agencies. Here’s what the Debt Collection Drill hosts have to say about the processes agencies should have in place when it comes to consumer disputes:
(John Rossman) “The investigation needs to include - and this needs to be the standard policy of the collection agencies - what the consumer stated in their dispute, and what the purpose of the dispute was. We can look and see if the debt was valid, but if there are some other circumstances that arose, or the consumer is disputing for some other factors, that needs to be factored into the dispute. So I think the key to doing an investigation and deleting a trade line is ensuring that the investigation criteria that the collection agency has is broad enough to encompass enough factors to allow deletion after investigation.”
The information sent to credit reporting agencies can have pretty serious impacts on a consumer’s financial abilities; this is why the CFPB looks into consumer disputes (and why many consumers care in the first place!). Of course, debt collectors are well within their bounds to report accurate - though adverse - information, but it’s better for all parties involved if the collection agency has a thorough process in place to confirm whether a debt is disputed or not.
Race-based bias in collection activities.
In the article “The Color of Debt: How Collection Suits Squeeze Black Neighborhoods,” a study was done in Missouri examining differences in collection tactics among different ethnic groups. One relevant finding:
(John Rossman) “The author found that the percentages of judgments against African-Americans was radically higher than any other ethnic group...one interesting comment that the author made was ‘These findings could suggest racial bias by lenders or collectors. But we found there’s another explanation: that generations of discrimination have left black families with grossly fewer resources to draw on when they come under financial pressure.’”
Rossman goes on to share an example of how this bias could be manifested: namely, in the ability of an individual collector to use discretion in offering settlements. For instance, if the collector is authorized to arrange a 50% settlement, what criteria are they using to determine whether to offer 20%, 40%, or the full 50%? There is certainly room for individual bias to play a part in a scenario like that, although hopefully it does not happen often. Poncin and Rossman both advocate for better education from the CFPB, geared particularly towards debtors. Obviously, another solution is for agencies to scrub their processes and policies to ensure that discriminatory practices aren’t inadvertently written in.
The CFPB gets thousands and thousands of complaints each year, but it’s especially helpful to keep track of the highest trending complaints. By incorporating some of the tips shared in this episode of the Debt Collection Drill, collection agencies can avoid enforcement action and stay out of the bad apples column. Of course, there are other mistakes to avoid as well (read here and here for examples), but these three focus areas are currently garnering special attention.
If you’re searching for a reputable, reliable collection agency that is well aware of standards compliance and will represent your business well, you might want to consider National Service Bureau. To learn more about NSB’s services, please contact us to see whether we would be a good fit for your organization!