Debt collectors are facing increasing pressure from the Consumer Financial Protection Bureau through aggressive regulation by enforcement. In the past few years, the CFPB has entered into consent orders with debt buyers, banks and other lenders. The orders limit debt sales, increase data requirements and forbid various collection practices.
The CFPB's enforcement actions are positive developments toward eradicating problematic collection practices. Severely limiting debt sales and data loopholes are great moves. So is limiting the volume of phone calls to borrowers. But without the agency offering an alternative to these commonly used tools, preferably through rulemaking, debt collectors resort to the next "best" alternative they know of to settle a debt: lawsuits.
Clearly, it is those lawsuits that are of particular concern to the CFPB. In the last few years, collection suit numbers have soared and the CFPB has responded by closing or fining what they call "lawsuit mills."
Still, most collection agencies follow the law and will still find a technological way to file large volumes of lawsuits without violating federal measures. Consumers will still end up losing by being subjected to aggressive yet absolutely legal tactics in the collection process.
For collection agencies to have alternatives to "lawsuit mills," the CFPB must define acceptable collection practices. This should include what form of electronic communications can be used to contact borrowers. The rules should allow good actors to still operate within reasonable limits.
Without such rules, leading debt collection companies likely will not change their operating playbooks if they worry that certain practices will subject them to enforcement. The upfront investment is huge for debt collectors to adopt new communications routes, such as texting and sending emails to consumers, so clearer guidelines are needed from the CFPB to sanction which kinds of communications are allowed.
Much like the Federal Communications Commission was willing to allow the use of automated dialers in some instances, the CFPB can provide safe harbor guidelines for debt collection agencies using consumer-friendly technologies. Texting, emails, online websites and instant messengers can all be used in perfect compliance with the Fair Debt Collection Practices Act. In fact, moving to written communication presents an opportunity for better controls on content than phone calls.
In addition to defining the appropriate communications channels, other examples of what the CFPB should do include providing clear guidelines on the allowable frequency of communications with borrowers, setting safe harbors for consumer disclosures and reaffirming the need to prove "actual damage" in the case of an FDCPA violation. All are tools that will help law-abiding collectors do their needed work.
Debt collection can be transformed into a consumer-friendly, controlled practice that relies on modern technology and clear communication. The CFPB has the power to positively influence an industry and the lives of tens of millions of Americans each year. Industry leaders would vocally support such a move.
Ohad Samet is a co-founder and chief executive of the debt-recovery company TrueAccord. Follow him on Twitter @ohadsamet.