On May 8, the biggest players in the American debt collection business traveled to Philadelphia to have a talk with Kathy Kraninger, the new director of the Consumer Financial Protection Bureau.
A day earlier, Kraninger’s agency had introduced a slate of regulations ostensibly designed to curb the worst abuses in the notoriously predatory world of debt collection. But the proposal appalled consumer advocates; instead of reforming debt collection, the plan had transformed into an excuse to legalize a host of shady practices. Instead of cracking down on bad actors, the CFPB planned to unleash their worst instincts.
Under the new rules, debt collectors would be entitled to call households every day, indefinitely, for each debt a consumer owes. For medical debts ― in which a single visit to the hospital can incur charges from multiple providers ― a simple accident could result in debt collectors deluging a household more than 40 times a week, a prospect that 22 senators raised in a letter objecting to the new rules. They could spam consumers with unlimited text messages and emails, and would be granted immunity for filing abusive, robo-signed lawsuits against people who don’t actually owe any money.
They’d even make it easier for debt collectors to pressure family members into paying the debts of deceased loved ones ― even though family members are generally not responsible for the financial obligations of dead parents or relatives unless they co-signed for the loan.
“The new rules do a lot more to protect abusive debt collectors than consumers,” said Lauren Saunders, associate director of the National Consumer Law Center.
“The new rules do a lot more to protect abusive debt collectors than consumers.”
- Lauren Saunders, associate director of the National Consumer Law Center
And yet the debt collectors went to Kraninger to demand more. The real problem with the debt collection business, they claimed, wasn’t the barrage of phone calls harassing debtors and their relatives. It wasn’t the industry’s chronic habit of demanding payment from people who didn’t actually owe any money. The real problem with debt collection, according to an account of the meeting debt collectors filed with the agency, was the wave of “frivolous lawsuits” targeting debt collectors themselves, filed by lawyers “who have done little to protect consumers.”
If the CFPB “arbitrarily” limited the number of phone calls a collector could make, it could make it harder for consumers to learn about options for debt relief, like “waiving fees” and a vague set of unspecified “other benefits.” Everybody knows the debt collector calls to help.
We won’t know how the debt collectors fared in their effort to extract additional rewards from the Trump CFPB until at least September, when the official public comment period for the new rules comes to an end. But the agency’s proposal offers little ground for optimism.
“The CFPB’s one-sided proposed rule would unleash already reckless debt collectors to intensify their abuses,” said Ed Mierzwinski, senior director of the federal consumer program at the U.S Public Interest Research Group, who says the rule will “invade the privacy of debtors and cause numerous harms and untold stress.”
Debt And Destruction
Debt collector outrages fall into two basic categories: attempts to collect money that people don’t actually owe and abusive tactics used to try to collect legitimate debts. These legitimate debts include just about every kind of payment a person can owe, from credit card debt to emergency room bills.
Reading the official complaints that consumers have filed with the CFPB can be harrowing. “Sometimes they curse at me and tell me that they know I am that woman and that they will have me thrown in jail,” one woman reported in 2016.
“I’ve received multiple phone calls within the week, threatening me with undefined action and that they will be ‘actively pursuing’ me at my home and place of employment,” complained another in 2017. “They do not provide the name of their company, nor information regarding the ‘debt.’ They have called my sister and have left the same message on her home phone.”
Debt collectors contact about 70 million Americans every year. But they pose a particularly big problem for older Americans, who are more likely to fall victim to outright fraud than members of younger generations, and are for the first time bringing substantial loads of consumer debt accumulated earlier in life into retirement.
More than 68% of households headed by someone at least 55 years of age are now carrying debt, with an average burden of $76,679, according to the Employee Benefit Research Institute. As they move into retirement, many simply cannot afford to pay their bills. According to a 2018 study by four bankruptcy law professors, the number of people ages 65 to 74 filing for bankruptcy has tripled since 1991, while the number of people 75 and older seeking bankruptcy protection has more than quadrupled.
Part of the problem is new types of debt. About 2.8 million Americans older than 60 owe a total of $86 billion in student debt. And according to CFPB data, nearly 40% of student loan debtors over 65 are in default. That didn’t happen in previous generations, when tuition costs were lower and people didn’t really accumulate student debt or co-sign for the student debts of their children, much less carry that debt into retirement.
This generation of retirees is simply less financially secure than previous generations, thanks to rising costs of living and a stingier social safety net. Since 1997, out-of-pocket costs for people on Medicare have increased from 12% of their total income to 20%, and Social Security benefits don’t fully phase in until age 70 ― five years later than when the program began.
When people can’t afford to retire, they don’t. Since 1993, the share of the U.S. workforce that is at least 55 years of age has roughly doubled, and experts at the Census Bureau expect it to continue increasing over the coming years. The debt that older Americans carry in the 21st century encourages them to work longer than they did in the 20th.
So older Americans do have more debt than they used to, and their expenses are going up. This means that they’re more likely to be targeted by debt collectors if and when they can’t meet their bills.
Most families don’t like talking about it, but consumer debts can create serious headaches when family members die. Relatives are not typically responsible for the debts of their deceased loved ones, but there are exceptions. And the new CFPB rules incentivize debt collectors to harass relatives by creating a new, legally valid excuse for debt collectors who wrongly pursue debts they cannot actually collect on.
When a parent dies, debts are passed on to the estate ― the pool of assets the parent leaves behind. These debts must be paid by the estate before anything can be inherited by the family. This means that sorting out legitimate from illegitimate claims on your parents’ estate can matter quite a bit to the surviving family’s future finances.
If parents owe more than their estates are worth, then the debts disappear once the assets of the estate are exhausted. Children have no obligation to pay the remaining debts of their parents out of their own pockets. But debt collectors are allowed to contact the adult children of deceased parents if those children are executors of the parent’s estate. And when they do, debt collectors are not super scrupulous about distinguishing which debts must be paid from those that do not. They often try to trick or scare people into paying debts they don’t actually owe.
It’s not just the debts of dead relatives. Sometimes collection agencies go after debts that have already been discharged in bankruptcy or old debts that are past the statute of limitations. And sometimes debt collectors just got their records scrambled and are going after the wrong people, full stop.
This happens all the time. The most common complaints filed to the CFPB since the agency was formed in 2011 are about wrongful debt collection. And they’re typically legitimate complaints. In 2018 alone, the CFPB had jurisdiction over 51,700 complaints about debt collectors. And when the agency reached out to debt collectors to inquire about the complaints, in more than 90% of cases, debt collectors acceded to consumer demands.
This represents just a fraction of the rampant abuse in the industry. The Federal Trade Commission received more than 457,500 consumer complaints about debt collectors last year and won $58.9 million in judgments against 52 different defendants in court cases against debt collectors. The CFPB, meanwhile, has three Obama-era cases still pending against eight debt collectors, including Pioneer Credit, the debt collection arm of Navient, the nation’s largest student loan servicing company. Under the CFPB’s first director, Richard Cordray, the agency brought 25 cases against debt collectors, generating $100 million in penalties, more than $300 million in restitution and billions of dollars in debt relief for consumers.
But the agency has become more debt collector-friendly during the Trump years. And the new rules are particularly troubling for older Americans. The unlimited text and emails, for instance, do require debt collectors to notify people that they have a right to opt out of electronic communications ― but this can be hidden in a hyperlink.
“Did anyone take Internet Security 101?” says Linda Jun, senior policy counsel at Americans for Financial Reform. “I always tell my elderly parents, whatever you do, don’t click on anything! How do you know it’s legit? How do you know it isn’t a scam?”
Debt collectors would even be permitted to contact you through the direct messaging applications on social media platforms, deluging your Facebook Messenger feed.
But the reduced legal liability for abusive lawsuits may be the most infuriating aspect of the new rules. Under current law, debt collectors simply aren’t allowed to file lawsuits against people for debts those people don’t owe. If they do it, they can be countersued for damages. And some bad actors have been hit with substantial fines for trying. Even though it’s illegal, debt collectors are still tempted by the easy revenue it can generate.
If a debt collector files a lawsuit against someone who doesn’t show up for the court date, the judge typically rules against the consumer, and the verdict can include penalties that simply transfer the person’s money directly to the debt collector by seizing assets or garnishing wages.
The elderly are particularly vulnerable to this tactic, which can be used against totally bogus debts or very old debts that are well past the statute of limitations and are no longer legally collectible. “Seniors ... are unlikely to show up in court to defend themselves,” notes NCLC’s Saunders. It’s expensive to hire an attorney, and it can be hard for older people to distinguish between a legitimate lawsuit and a scam. Even if they want to go to court, many may have health and mobility limitations that make doing so difficult.
So some debt collectors simply file loads of lawsuits and see what happens. In 2018, Encore Capital paid $6 million to settle allegations from 42 state attorneys general that the company robo-signed bogus debt collection lawsuits against consumers without bothering to see if they really owed anything. Three years earlier, the CFPB ordered the same company to pay $52 million for the same type of behavior.
Under the new rule, debt collectors will be liable only if consumers can show that the collectors “should have known” that they were pursuing a debt they had no right to pursue ― a standard that the CFPB leaves essentially undefined in the rule. In practice, consumer advocates say the regulation will result in more lawsuits over fake debts.
“That will especially affect older people who are more likely to owe debts from a very long time ago, and also get more flustered when a debt collector calls and tries to intimidate them,” said Saunders.
The debt collectors, meanwhile, are still playing offense. The industry is currently flooding the CFPB with identical form letters claiming that debt collectors uphold the integrity of the U.S. economy and make government more efficient.
“Without an effective collection process, the economic viability of … businesses and the American economy is threatened,” the letters read. “Recovering rightfully owed debt enables organizations to keep credit, goods and services available, and reduces tax hikes.”
Just your friendly neighborhood debt collector, trying to lower your taxes, one phone call at a time.