Human rights watch — proposed debt collection rule fails consumers

According to Human Rights Watch, proposed rules on debt collection companies in the United States would severely undermine protections for consumers. (photo courtesy of Kiosea39,dreamstime.com)

The Trump administration’s proposed rule on debt collection companies in the United States would severely undermine protections for consumers, Human Rights Watch said today. The Consumer Finance Protection Bureau (CFPB) rule would give wide leeway to abusive debt collectors and collection attorneys by allowing them to try to collect debts by using false, deceptive, or misleading representations, even after the statute of limitations has ended.

Human Rights Watch joined 232 organizations from across the United States in a statement calling for the CFPB to increase protections for consumers against harassment and abuse of rights by debt collectors. Between a quarter and a third of adults with a credit report has a debt in collection. Debt collection abuses are regularly among the top reason for consumers to complain to the CFPB.

“The Trump administration’s proposed rule better protects abusive debt collection companies than consumers,” said Komala Ramachandra, senior business and human rights researcher at Human Rights Watch. “The CFPB should do more to rein in debt collectors’ abusive practices and ensure that federal law is enforced.”

Debt collectors buy third-party debt, often for pennies on the dollar, and often without documentation of the original debt. Many collectors use aggressive legal and collection tactics to recoup the whole debt, plus interest, even though they never lent any money to the alleged debtors. Collection attorneys file thousands of lawsuits every year without adequate review, and sometimes against the wrong person, for the wrong amount, or by an entity without legal authority to collect that debt.

Courts decide many of these lawsuits without the debtors present or without adequately scrutinizing the claims. These result in default judgments in favor of debt collectors, with some judges entering hundreds of judgments in the space of a few hours. This can lead to wage garnishment and other consequences for debtors, sometimes without their knowledge. Human Rights Watch examined the devastating financial impact of collection lawsuits on the poor in a 2016 report, ‘Rubber Stamp Justice: U.S. Courts, Debt Buying Corporations, and the Poor.’

Federal law prohibits false, deceptive, or misleading representations by debt collection attorneys. However, the proposed rule is so vague on the steps required by lawyers to verify information in a debt collection lawsuit that it may be meaningless to protect consumers from frivolous litigation. Civil society groups called on the CFPB to require collection attorneys to review original documentation of the debt they are attempting to collect and make an independent determination that they are filing a lawsuit against the right person, for the right amount, based on accurate information about the age of the debt, and that their client has the legal authority to file the lawsuit.

Residents in communities of color are more likely to have debt sent to collections. A CFPB survey found that 44% of borrowers of color reported having been contacted about a debt, compared to 29% of White respondents. Strong rules on debt collection practices are needed to protect consumers living in poverty and communities of color, Human Rights Watch said.

“Debt collection lawsuits not only threaten the rights of people living in poverty, but also disproportionately impact communities of color,” Ramachandra said. “The proposed rule should be significantly strengthened for the sake of all consumers.”

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