I was excited to see the announcement that the CFPB is seeking public comment about debt collection practices in America. As comments roll in you are going to be overwhelmed by the stories of victimization and abuse that is routine from an out of control industry.
Some complaints will be leveled at banks and other complaints at debt collectors. It would be wrong to think of banks as the enabler of debt collectors who abused consumers. Banks are not the culprit. Banks, who for good and sound business reasons sold accounts to debt buyers were duped and their trust betrayed by those same debt buyers. Consumers cannot easily distinguish the action of a debt buyer who purchased a loan versus the action of a bank employee.
You are going to hear from millions of consumers who have been victims of lawsuits filed by those debt buyers. You will hear how those lawsuits are "robo-signed" - an insidious practice of falsified affidavits and documents that overwhelms our courts. You will hear about service agents who lie and how a judgment obtained illegally drives up the cost of credit and denies opportunities to those who otherwise would qualify for jobs that are badly needed.
There will also be many testimonials to the personal abuse that debt collectors dish out on a routine basis - the profanity, the illegal threats, and the embarrassment caused for family, friends and neighbors. You will discover that too often the wrong person is the subject of the abuse only because their name is similar.
You will also hear from the debt collection industry. They will paint themselves as doing a thankless job that is critically important to the financial health of the nation. They will plead that all they ask from the CFPB is a fair shake. They will concede that some abusive behavior exists but that it is all the result of a "few bad apples" and the media who is obsessed with demonizing debt collectors.
I was dumbstruck as I read the CFPB's request for public comment. The request document devotes considerable space to a recitation of the 35-year history of efforts by Congress, the Federal Trade Commission, state regulators and state attorney generals to prevent debt collectors from abusing consumers.
Guess what? Those 35 years of focused effort were wasted. The debt collection industry is more abusive and generates more consumer complaints than ever. It is an industry that is incorrigible. If we were talking about organized crime we would use the term "criminal enterprise" to describe the behavior of the debt collection industry.
There are two reasons that debt collectors behave the way they do and both reasons are attitudinal. First, debt collectors believe that consumers who owe money are "deadbeats" and the only way to get a "deadbeat" to cough up what they owe is with threats and intimidation. Second, debt collectors justify their behavior by telling themselves the "deadbeat who suffers gets what they deserve".
Changing those attitudes requires radical action. Just as stopping a "criminal enterprise" requires strong medicine; so does changing the trajectory of 4,500 debt collection companies that have unhealthy attitudes and habits that cause harm to consumers.
The key phrase here is "harm to consumers." Preventing harm to consumers is the explicit mission of the CFPB and the end goal of everything the agency does. "Harm to consumers" means more than the everyday common violation of consumer protection laws. "Harm to consumers" means the denial of opportunities to build a stable family life.
Consumers don't deserve a "free ride." Neither do they deserve a kick in the mouth. The way debt collectors work is destructive and is actually counterproductive to a strong economy. A far more effective debt collection strategy would be to help the consumer to financial recovery so that he or she could responsibly take care of their financial obligations.
Having spent a lot of time thinking about this problem, I want to offer to you five simple ideas that will suppress the "criminal enterprise," uplift families, protect the safety and soundness of the banking system and ensure a functional credit and debt collection process. Debt buyers should be prohibited from:
1. Using litigation as a tool to collect charged off consumer debt.
2. Attempting to collect any debt that is beyond the statute of limitation.
3. Adding interest to the purchased balance of a charged off debt.
4. Attempting to contact a consumer more than two times in any 24 hour period.
5. Reselling purchased debt.
The guidelines are not a "free ride" for consumers. Adopting these guidelines will result in a healthier industry and ensure minimum "harm to consumers". Ultimately, that is what it is all about.
The debt collection industry will scream bloody murder simply because they don't like making the choice between changing their behavior or being marginalized. There will be a lot of hot air and noise. But, in the end, it will be just hot air and noise. No one can reasonably defend the behavior of the debt collection industry. There is no acceptable remedial action short of a dose of very strong medicine.
I have credentials to back up what I say. According to industry publications I created the world's largest, best trained and most profitable debt collection company. I never filed one lawsuit against the 4.5 million consumers we helped. I also never once was sued or fined by the FTC or a state Attorney General. There is no other agency who can say any of those things.
It is important that the CFPB fulfill its duty to protect the 30 million middle class consumers who have found themselves temporarily upside down financially; largely victims of an economy over which they had no control. Not a one of them wanted their situation.
I believe in the mission of the CFPB. I believe you are up to the task.