The Honorable Richard Shelby, Mitch McConnell and -- to quote Spiro Agnew -- "those nattering nabobs of negativism" (by which I mean the 43 senators who always say "never") -- sure had their turkey shoot last week. The innocent bystander was Richard Cordray, the president's nominee for Director of the Consumer Financial Protection Bureau. The targets were Barack Obama and the CFPB itself. However, when dinner is served, consumers throughout the land will come to realize that they are the plat du jour, and ultimately only have themselves to blame.
It has been said that the members of the minority party in the Senate (whose favorable ratings compare with a hat size) wouldn't confirm Ronald Reagan as Director of the CFPB unless and until its structure and funding mechanisms are amended -- which means that it will remain in a state of regulatory limbo until after the 2012 elections. You see, Congress' approval ratings may be in the toilet (it's between 11 and 13 percent depending on which poll you believe), but that doesn't seem to bother most of us. According to OpenSecrets.org, re-election rates for both the Senate and the House of Representatives were 84% in 2010. But there is a glimmer of hope. A just released Pew survey indicates that a record number of voters intend to vote incumbents out of office.
The study notes, "Public discontent with Congress has reached record levels, and the implications for incumbents in next year's elections could be stark. Two-in-three voters say most members of Congress should be voted out of office in 2012 -- the highest on record. And the number who say their own member should be replaced matches the all-time high recorded in 2010, when fully 58 members of Congress lost reelection bids -- the most in any election since 1948."
But talk is cheap and incumbent re-election rates have been near or over 80 percent for more than thirty years. Plus, the study notes that while the number of voters who want their representatives replaced is at 33 percent, 50 percent of voters want their representatives to remain in office. So it's entirely possible that despite our collective dissatisfaction, most of us will give them a free pass come election time.
Unfortunately, just as time waits for no man, many of the abuses that the CFPB was created to address continue unabated, and in fact, by all indications, seem to be accelerating. So, as we approach November 6, 2012, there are a few things you should ponder before reflexively casting a ballot for the guy whose name seems most familiar. First, let's look at the numbers.
There are two kinds of statistics: the kind you look up, and the kind you make up. Let's deal with the first kind, and let's stick to only one broad area of Bureau responsibility that is today largely unregulated -- debt collection abuse and debt collection fraud. Because of the persistently vegetative state of the economy, the debt collection industry is booming. In 2010, approximately $150 billion worth of problematic debt was bought from its originators. In the same year the Federal Trade Commission received 140,036 consumer complaints about attempts made to collect that debt, up 17% from 2009. There was only one consumer fraud category for which more complaints were registered with the FTC -- and that was, of course, identity theft. The FTC does not keep count of complaints made to state consumer protection agencies, police departments, or law firms -- so the number of actual consumer complaints about debt collection practices was likely geometrically larger.
The FTC regulates many things, including things like large-scale mergers between multinational oil companies, and Verizon's proposed $3.6 billion deal with the cable companies. It seems unlikely that your complaint about getting that 3 a.m. phone call will get much attention, doesn't it? Worse, the agency is statutorily unable to do much. It enforces the Fair Debt Collection Practices Act, a 1978 statute that is good as far as it goes, but since it was written before things like cell phones and computers, it leaves a lot to be desired. Moreover, the FTC has no authority to issue rules or regulations pursuant to the act, which is one of the principal reasons that the CFPB was created in the first place.
Looking at the kinds of abuses that have been reported is enough to make anyone lose sleep, even if you are pathologically punctual about paying your bills. Late-night calls, robo-calls, calls to neighbors and friends, threats of lawsuits and much worse are commonplace. Then there are the out-and-out frauds.
Consider a recent California case brought by the Federal Trade Commission against Rincon Management Services, LLC. According to the complaint, Rincon (note that second syllable) employees contacted consumers and told them that that they would be sued or arrested, if they did not call back promptly.
"They gave them a phony case number making it sound like it was a filed case in court, all in what was an apparent attempt by the debt collector to get the debtor to call back," said Thomas Syta, assistant regional director for the FTC, in an interview with CaliforniaWatch.org. This proved to be a reasonably successful tactic, as Rincon had earned at least $9.4 million since 2009, doing business under at least 10 different names, with 10 different "shell" corporations. The lawsuits and garnishments referred to by the debt collectors over the phone in this case were imaginary; in other cases the debts themselves were imaginary, but many people paid them anyway just to stop the harassment. Unfortunately, this is what happens when a business that can create quick and large personal rewards for unscrupulous behavior -- behavior which can be rendered more effective and more illegal by technological means -- remains virtually unregulated. Except for large, organized, and often nationwide abuses, the FTC is generally toothless absent the ability to promulgate regulations. And although almost every state has some kind of equivalent to the Fair Debt Collection Practices Act, most often enforcement procedures and staffing are underfunded and many cases are never brought.
Commenting on the action in California against Rincon, Victoria Kirk, executive director of the California Association of Collectors said that such illegal practices were "incredibly rare." (Is that optimism or denial?) "Debt collectors must abide by rules laid out in the federal Fair Debt Collection Practices Act, as well as the state's Rosenthal Act. This is one of the most highly regulated industries imaginable," Kirk told Californiawatch.org.
And that, of course, is an example of the second kind of statistic.
Let's make two assumptions: first, let's assume that if an industry trade group can make unfounded generalizations about the amount of illegality and abuse found in the debt collection business, so can we; second, let's assume that flagrant illegality is incredibly rare -- say one in 20 cases, and that abuse is itself rare, say one in 10.
This would mean, if we limited the universe only to complaints made to the FTC, every day in 2010 about 20 consumers were subjected to truly illegal practices, and another 40 were unduly harassed. And all indications are that that number is increasing in 2011. At this point, we're probably above three people per hour -- 24 hours a day, seven days a week -- being persecuted.
In the face of this, Congress, or part thereof, saw fit to continue its effort to render the CFPB impotent by stopping the nomination of Richard Cordray.
So the next time (or if ever) you, your spouse, your significant other, your parent, your child, your sibling, friend or neighbor receives one of those "incredibly rare," yet disturbing, calls from someone who claims that they are owed money -- especially if they aren't -- think about the gang of 45 and remember this:
They didn't come from a test tube. They aren't the descendents of extra-terrestrials. They weren't appointed by Zeus and the Pantheon of gods. They didn't magically appear next to a burning bush.
A bunch of us elected them.
How's that working for you?
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