Midwest Fidelity Services believes debt collectors need more solidly defined guidelines and regulations. Several of the major debt collection rules and regulations were written long ago and have not been substantively updated. For example, the Fair Debt Collection Practices Act (FDCPA) was written in 1978 and the Telephone Consumer Protection Act (TCPA) was written in 1991.
The gray area created by a lack of clear definition has created frustration for debt collectors and consumers, and has fostered a cottage industry of plaintiffs’ attorneys that exploit these concerns in the courts. The debt collection industry is constantly undergoing changes, and because of this, both collectors and consumers need laws and regulations to be modernized to reflect the current environment in which we live.
“When it comes to laws and regulations, consumers and collectors both want to have clear rules and regulations to guide the important work of recovering rightfully owed debt,” says Mike Powell of Midwest Fidelity Services. He continued, “With a patchwork of outdated regulations, the industry is likely to continue to cause frustration and remain exposed to frivolous litigation risk."
The following are examples of areas where clarification is needed to avoid confusion, frustration, and lawsuits:
- There is no national documentation standard outlining exactly the type of information that must be made available by a debt collector to a consumer to verify a debt.
- There is no national statute of limitations for a debt. Each state creates its own statute of limitations, which outlines the length of time legal action by a debt collector can be threatened or takes place. Furthermore, a statute of limitations only governs legal action and does not prohibit a debt collector from contacting a consumer to seek recovery of a debt, so long as the debt collector follows the law when communicating with the consumer.
- There is no national standard for the number of telephone calls that can be placed to a consumer per week.
- There is also a “catch-22” with debt collection calls prompting more frequent calling instead of leaving voice mail messages. Under the FDCPA a debt collector can not divulge the existence of a consumer debt of a third-party. There is currently no safe harbor language for leaving a voice mail that assures a debt collector can comply with the FDCPA. ACA is calling on the CFPB for the creation of safe harbor language to allow collectors to leave voice mail messages that comply with FDCPA.
Consumer Debt Explodes
A look at history indicates that consumer debt has consistently risen since the 1980s, driven in large part by consumers to a third-party. According to The Wall Street Journal, consumer debt peaked at 127% of income in 2007, and is now down to 112%. This is still a huge burden for many families and individuals.
With so many people living from paycheck to paycheck experiencing job losses, medical emergency, or other mishap, missed monthly bill payments contribute to the volume of debt that is being turned over to collection agencies. This reinforces the need for laws and regulations that are clear to both consumers and collection agencies.
The U.S. economy is built on the premise that those who provide credit, goods, and services have the expectation of being repaid. Recovery of consumer debt by third-party debt collectors on behalf of America’s public, private, and non-profit sectors has significant effects on our nation’s economic health. For instance, recovering consumer debts:
- Promotes organizational survival (e.g., pay bills, payroll, operational expenses, etc.)
- Prevents layoffs
- Keeps credit, goods, and services available at an affordable price
- Reduces the need for tax increases to cover government budget shortfalls
Third-party debt collectors do more than recover consumer debt. They are businesses that are engaged in their local communities as valued civic leaders, employers, volunteers, philanthropists, and taxpayers.
In 2013, the Consumer Financial Protection Bureau (CFPB) issued an Advanced Notice of Proposed Rulemaking (ANPR) to signal its intent to create new rules targeting debt collection. The ANPR featured 162 multiple-part questions that were wide-ranging in scope. Based on thoughtful comments and data received from its diverse membership, in addition to answering the questions posed in the ANPR, the debt collection industry trade association ACA International’s submission centered around four important priorities:
- The CFPB should recognize that the debt collection market is extremely varied in the types of debt being collected and the nature and size of the nation’s debt collectors encompasses a broad scope.
- The CFPB should appropriately tailor requirements to the specific circumstances for which any perceived problem exists when imposing additional regulatory requirements on industry participants.
- The CFPB should address outdated, unnecessary, or unduly burdensome requirements under the FDCPA.
- The CFPB should strive for maximum clarity in any forthcoming regulations to ensure the regulatory compliance obligations of industry participants are certain. They should also endeavor to develop model language, disclosures, forms and examples of compliant behavior, whenever practicable. That would serve to create appropriate "safe harbors" from regulatory enforcement and private civil litigation that seeks to exploit legal and regulatory uncertainty to the detriment of debt collectors.
“It is our hope that the proposed regulation can bring some stability to the regulations governing debt collection,” says Midwest Fidelity Services founder, Mike Powell. “Both collection agencies and consumers will be well served by much needed clarity.”
There is also confusion over the TCPA, which ACA International is seeking clarification. The TCPA prohibits a debt collector from contacting a consumer on a mobile device through use of an automatic telephone dialing system without prior consent. While the intent of the TCPA was to prevent unwanted solicitations from telemarketers, it is applied in a manner that covers non-solicitation. Informational calls that are normal business communications should be expected by consumers
Many businesses, including collection agencies, choose to use autodialing technology to efficiently and effectively reach consumers to communicate. Automatic dialing technologies help assure compliance by avoiding human errors in dialing and by systematically assuring that calls are placed to consumers with reasonable frequency, at convenient times of day, and help to limit the number of phone calls to a consumer in any given period of time.
Unfortunately, plaintiff’s attorneys are exploiting unclear areas in this law to file individual and class-action lawsuits against businesses, including third-party collection agencies. This practice leaves it to courts to interpret the TCPA, potentially in conflicting ways, at great expense and with no benefit to consumers.
In 1991, when the TCPA was passed, mobile phones were not widely used and expensive for consumers. As technology has evolved, mobile phones and other mobile communication devices are not only more affordable but also have all but replaced landlines as consumers’ preferred means of communication. An increasing number of consumers live in homes that no longer have landline telephones at all, preferring instead the convenience and mobility of a cellular phone (or similar).
The TCPA has had the unintended consequence of not being technology neutral and is outdated, making it ripe for reform. Here are several examples of their failure to stay abreast of changing technologies:
- A call from a debt collector is not a solicitation; it is informational with a specific business purpose.
- The definition of “prior consent” remains a widely debated topic with little clarity.
- Automatic telephone dialing systems used by debt collectors do not call consumers at random. They only call telephone numbers of people with the purpose of recovering a rightfully owed debt.
- It is permissible for a debt collector to manually call a consumer’s mobile device – they just can not use today’s efficient automatic dialing technology to do so.
In the absence of any clear regulations, lawyers are taking to filing suit for any complaint. This has created a boom for lawyers and the number of lawsuits filed for alleged FDCPA and TCPA violations. Many of the suits have little or no merit, but because of the ambiguous precedent decisions that are split by district, it leaves a question to argue.
The intention of these attorneys is not to get an answer or to “change” the industry. Instead, they aim to quickly settle for damages. The lawyers know that it is financially safer and more cost effective for collection agencies to settle than to fight suits. This is especially true for the small agencies.
With more and more consumers finding it difficult to make payments and without clear rules and regulations, the complications of the industry will only grow. Midwest Fidelity Services believes it is in the best interest of all parties to have these glitches addressed as quickly as possible.