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COVID-19 worsens debt collector harassment

New CFPB rule leaves room for state actions

Op Ed By Charlene Crowell | 11/19/2020, midnight
Scant news coverage reported on a development affecting 68 million consumers: debt collection regulation...

As the final days of the 2020 election season drew to a close, major media across the nation focused on polls and prospects for the presidential candidates. At the same time, scant news coverage reported on a development affecting 68 million consumers: debt collection regulation.

On Oct. 30, the Consumer Financial Protection Bureau (CFPB) released its regulatory revision for enforcement of the Fair Debt Collection Practices Act (FDCPA), originally enacted in 1977. Since that time, the debt collection industry has grown into a multi-billion industry with over 8,000 firms throughout the country.

For Black America, debt collection was troublesome even before the COVID-19 pandemic. Nearly a year ago, Urban Institute research found that debt collection disproportionately affects 42 percent of communities of color. By contrast, the national average of all consumers was lower, at 31percent, and a wider racial gap among Whites at 26 percent.

The largest portion of debt for communities of color are medical services and student loans. Given the decades of discriminatory policies and practices that perpetuated the nation’s racial wealth gap, these disparities extend to a lack of access to health care as well as a greater dependence on debt to finance higher education. For-profit colleges and institutions are among the latest and most visible financial predators.

In addition, the CFPB’s own 2017 survey found that 44 percent of borrowers of color reported having been contacted about a debt, compared to 29 percent of White respondents. Even when accounting for differences in income, communities of color are disproportionately sued by debt collectors. In fact, 45 percent of borrowers living in communities of color faced litigation, while only 27 percent of similarly situated consumers in White areas were sued.

CFPB’s revised rule will allow debt collectors to contact affected consumers up to seven times within seven days – or – within seven consecutive days of a prior telephone conversation about a debt. It is important to note that this allowed communication is for each debt owed. Multiple numbers and types of debt collection can legally multiply the number of allowed contacts and result in harassment for already struggling borrowers.

Secondly, debt collectors who opt to contact consumers by electronic media, must also offer consumers a “reasonable and simple method” to opt out of these communications that include social media, emails and text messages.

Commenting on the new rule, CFPB’s Director, Kathleen Kraninger, said, “Our rule applies these protections to modern technologies. …And our rule will allow consumers, if they prefer, to limit the ability of debt collectors to communicate with them through these newer communications methods.”

But for the consumer, civil rights and legal advocates who filed public comments on the proposed rule, the announcement sent mixed messages for what it proposed as well as what it delayed.

“The devil is in the details, and we will have to scour this complicated rule to make sure that it does not open up new fronts for debt collectors’ pervasive and abusive treatment of consumers,” said Christine Hines, legislative director at National Association of Consumer Advocates. “Through the guise of modernization, the debt collection rule could open the gate for collectors to aggravate vulnerable consumers with even more harassment and a flood of electronic communications.”

Although consumers have a right to expect more and better financial regulation at the federal level, many advocates are calling for states to do their fair share on protecting consumer rights.

A new survey from the National Consumer Law Center (NCLC) analyzed how the 50 states, District of Columbia, Puerto Rico, and the Virgin Islands currently protect wages, bank account assets, and personal property from seizure by debt collectors.

Entitled, “No Fresh Start 2020: Will States Let Debt Collectors Push Families into Poverty in the Wake of a Pandemic?,” the survey warns that once the pandemic recedes, families struggling to get back on their feet are likely to face a wave of debt collector lawsuits for medical bills, back rent, credit card debt, the balance due on repossessed cars, and even utility bills. It recommends that states “protect a living wage for working debtors – a wage that can meet basic needs and maintain a safe, decent standard of living within the community.”

The report also recommends that states allow debtors to keep “a reasonable amount of money” to enable debtors to pay daily living costs such as rent, utilities, day care, and transportation.

It’s hard to build family wealth when you’re burdened with heavy debts and harassed by abusive debt collection practices. No amount of collector harassment will result in payments when no funds are available to pay past due bills. Further, any policy that denies indebted consumers the ability to preserve essential services like housing or utilities is unsustainable.

The financial disparities that Black America strives to endure would significantly diminish if an inclusive financial marketplace became a reality. The crux of many burdensome debts is the lack of affordable and accessible financial services.

Charlene Crowell is a senior fellow with the Center for Responsible Lending. She can be reached at charlene.crowell@responsiblelending.org.

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