Research and Statistics

Survey: Debt collection problems widespread


For the one-third of Americans who face collection attempts, threats, falsehoods and other abuses not unusual, U.S. consumer bureau finds

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 Survey: Debt collection problems widespread

Aggressive and sometimes unfounded debt collection efforts harm a wide swath of U.S. consumers, according to a survey released Thursday by the U.S. Consumer Financial Protection Bureau.

The agency released the survey results – plus a report on online debt sales and videos of individuals’ run-ins with hardball collectors – as it prepares to finalize regulations on debt collection.

“Some debt collectors only care about squeezing as much as they can from the names on their lists,” CFPB Director Richard Cordray said in a written announcement. Responsible debt collection is essential for the financial market, he said, but commission-based pay gives collectors a powerful incentive to bypass rules and maximize their take. Cordray called the findings “troubling,” and noted, “More than 1 in 4 consumers report feeling threatened by a debt collector, and a majority of those contacted about debt say the calls persist even after requests to stop.”

Survey findings
About a third of all consumers reported being dunned by a collector or a creditor in the year before the survey, the report said. Of them:

  • 53 percent said the debt was not theirs, or the collector sought the wrong amount.
  • 54 percent were contacted more than four times a week.
  • 27 percent said they felt collectors threatened them.
  • 15 percent were sued by a creditor or collector, but only a quarter of them attended a court hearing.
  • 42 percent told collectors to stop contacting them, with little success. Only one in four such requests were honored.

About 70 million consumers have a debt in collection or are contacted about one, according to the CFPB’s survey, and an estimated 6,000 collection firms operate in the U.S. Credit cards were the most common type of debt consumers were contacted about. Card debt was followed by student loans, car loans, mortgage or home equity loans and payday loans. The survey findings, “Consumer Experiences with Debt Collection,” included 2,000 responses between December 2014 and March 2015, based on a nationally representative panel of consumers with credit reports, the CFPB said.

More than 1 in 4 consumers report feeling threatened by a debt collector, and a majority of those contacted about debt say the calls persist even after requests to stop.

\u2014 Richard Cordray
U.S. Consumer Financial Protection Bureau

The survey contradicts industry claims that problems with collectors are relatively rare. ACA International, the largest collection industry group, has disputed CFPB complaint data showing that collection is the No. 1 target of consumer complaints. Considering the approximately 1 billion calls that collectors make annually, “The complaint rate is very small,” ACA President Patrick Morris said in a May 2016 statement.

Morris struck back at the survey Thursday, calling it a flawed analysis designed to shore up the agency politically. In a statement, the ACA head said the survey sample was insufficient to represent the experiences of 77 million people with debts in collections. “The CFPB has made a calculated move to release inflammatory but unreliable findings in an obvious attempt to strengthen its justification for its very existance in Washington,” his statement said.

Run-ins with collectors were much more common for people in lower income brackets, the survey found. About half of consumers with household income under $20,000 said they had been contacted within the past year, compared to 16 percent of those with household income of $70,000 or more.

Consumers tell their stories
Aggressive debt collection can lead to worse problems than annoying phone calls, videos of consumer experiences with collectors show. Consumers describe being hounded for debts they didn’t owe, being threatened with jail, having their credit ruined and having private financial matters exposed.

In one video, a Pittsburgh resident identified only as Bernadette tells of receiving calls at her workplace about a payday loan she had taken out. “Shortly after that, they contacted my dad, my two sisters and one of my friends,” she says. During those calls the collectors suggested they were taking legal action against her. “It was very overwhelming for them to contact my family,” she said. After the woman filed a complaint with the CFPB, the original lender contacted her and arranged a resolution that bypassed the debt collector.

Online debt sales troubling
Another CFPB report released Thursday describes the online debt sale market, where consumers’ account information and sensitive identity data are bought and sold along with the right to collect their unpaid debts.

Online markets may help legitimate debt collection business, Cordray said. “But the ease with which debts are bought and sold online raises the risk that debts, and the sensitive information that comes with them, could fall into the hands of irresponsible parties or outright criminals.”

Debt portfolios typically contain consumer names, Social Security numbers, home and work telephone numbers and street addresses, as well as information about the account.

The report, “Market Snapshot: Online Debt Sales,” examined three online marketplaces where 298 portfolios of charged-off debt were offered. The accounts had a total face value – if every dollar was collected – of $2 billion, while their asking price was about $18 million, or less than one penny on every dollar owed. At those prices, most consumer accounts could be bought for less than $5 each.

The median age of a debt portfolio in the study was five years since being charged-off by the lender, while 18 portfolios were nine or more years beyond charge-off. The age of the debts means a substantial portion would be “time-barred,” or beyond the statute of limitations for collection via court action. That leaves them with little value for legitimate collection attempts.

Existing rules passed in 1977
The existing law governing the industry, the Fair Debt Collection Practices Act, passed in 1977, prohibits harassment, threats and false information. It also forbids revealing consumers’ debts to others and gives them the right to dispute debts and demand a halt to further collection attempts. It applies to hired or “third-party” collection agencies that work on behalf of lenders, utilities, health care providers and other businesses. Creditors themselves are not covered by the FDCPA rules when they contact their own customers to collect unpaid bills.

The CFPB studies released Thursday buttress the case for updating rules on debt collection and debt sales. New regulations, however, likely face challenges from the majority in Congress and the incoming administration of president-elect Donald Trump. Republicans have proposed restructuring the agency, and two lawmakers have written Trump urging he remove Cordray as director. The changing political environment puts a question mark over the agency’s proposed collection rule and other regulations in the works aimed at payday loans and mandatory arbitration clauses that block consumers from taking companies to court.

See related: How Trump’s election may affect credit, consumers

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