For the first time, a single federal government agency will oversee the debt collection industry starting next year, marking a monumental victory for the year-old Consumer Financial Protection Bureau.
The agency said Wednesday that starting Jan. 2, 2013, it will begin oversight of the largest debt collectors, making sure they are following the law collecting overdue bills. Most of the nation's debt collectors, though, are small enough to duck the regulator's oversight.
Once the CFPB begins regulating large debt collectors, consumers like Cebilla DeCastro, 48, of Bronx, N.Y., will have the aid of the federal government to help fight illegal debt collection practices. DeCastro was forced to turn her phone off at night to stop the calls from debt collectors, even though she filed for bankruptcy protection months earlier. Though she didn't owe any more money, these kinds of calls are not unusual. The debt collection industry is notorious for breaking the law and harassing consumers who owe or have owed money.
“We want all companies to realize that the better business choice is to follow the law -- not break it," CFPB Director Richard Cordray said in a statement.
Under the new rules, the CFPB will oversee any company with more than $10 million in annual receipts from collections, which make up around 60 percent of the industry's $12.2 billion in revenue. At least 30 million Americans are currently in debt collection, with an average outstanding bill of around $1,500, the bureau said.
The CFPB said it intends to make sure debt collectors properly disclose the amount owed and use the most accurate data to pursue debts. The bureau will also look at how collection agencies handle disputes. Lastly, the CFPB wants to make sure collection agencies communicate in civil ways with consumers, rather than threatening and harassing them.
But for consumers, the victory is only partial. Of the 4,500 collection firms in the U.S., only 175 are big enough to be supervised under the new rules. That means smaller firms -- along with collections agencies overseas -- will not be under the same scrutiny by the CFPB.
The Federal Trade Commission is also cracking down on debt collectors, with recent actions on overseas debt collectors and fraudulent firms scamming people out of money. This spring, the FTCshuttered at least one company that operated from a call center overseas. The FTC has also taken steps to close fake debt collection firms. The CFPB and the FTC will share enforcement duties for firms of all sizes.
An FTC spokesman said the agency receives more complaints about debt collectors than any other single industry -- 180,000 complaints in 2011.
The debt collection industry expands the CFPB's regulatory portfolio of financial companies. In September, the CFPB began oversight of the credit reporting industry. It also keeps tabs on mortgage originators, mortgage servicers and payday lenders.
Under the Fair Debt Collection Act, a collector must send a written statement indicating how much money is owed within five days of first contacting a customer. By law, collection agencies cannot contact a person before 8 a.m. or after 9 p.m. Collectors cannot threaten arrest or harm or pretend to be some kind of legal enforcement officer or agency.
For a full list of guidelines about what is allowed consult the Federal Trade Commission's website.
UPDATE: This story has been revised to clarify that the CFPB and the FTC will share enforcement duties for debt collection firms of all sizes.
