Debt collection practices have come under the spotlight in recent years as complaints regarding the activities of less scrupulous debt collection agencies have poured into the Consumer Financial Protection Bureau (CFPB), a federal bureau created in the wake of the financial crisis. As we all know, the practices of some debt collection agencies have damaged the reputation of the industry. While federal law has been in place since the 1970s governing how debt collection may be done, the CFPB has made updating the standards governing debt collection a primary mission, and this past month it released proposed rules for debt collecting which, if approved, could go into effect next year. Below we take a look at an overview of these proposed new rules.
Substantiation of Debts Prior to Collection Efforts
The proposed rules will require that debt collectors go through procedures to make sure that the debts they are trying to collect are valid. Some collection agencies will purchase debt for a fraction of the value and will only receive very limited information on the debt itself such as a name and amount. In some cases, the debt was not valid to begin with or it has already been paid. Current rules already require that a collection agency follow up with written information on the debt if the consumer requests, but the new rules would require the debt collector to take steps to verify the debt before contacting the debtor.
Limits on the Frequency of Collection Efforts
Currently, there is not a specific limit on how many times a debt collector can call a debtor, although they may not harass the debtor. The new rules would limit calls to six times a week.
Disclosure of Intent to Sue
Under the proposed rules, debt collectors would need to disclose to debtors their intent to actually sue in court to collect the debt. At this point, the majority of cases brought in court related to debt collection result in default judgment (where the defendant does not appear in court), so this effort would promote consistency in putting the debtor on notice.
Time-Barred Debt Collection Efforts
States have set in place statutes of limitation which require creditors to bring suit on a debt within a certain period of time or else they lose the right to sue. Debt collectors can still pursue payment from the debtor, but, under the proposed rules, the debt collector would need to inform the debtor that a lawsuit on the debt would be time-barred. This proposed rule should make creditors more inclined to work with debt collection professionals to collect payment as soon as possible so that they do not lose the leverage to demand payment at a later date through this required disclosure.
Work With Experienced Debt Collection Attorneys
Regardless of what new rules are put in place, it is important as a creditor to work with experienced debt collection attorneys who understand the relevant rules and laws and can take effective steps to collect on your behalf. Whether it’s a personal loan or a non-paying customer, The Martin Law Firm, P.C. collection attorneys provide efficient and cost-effective solutions for our clients. Contact us today to discuss your debt collection matter.