Recently, the Consumer Financial Protection Bureau(CFPB) released a report of proposed rules intended to clarify the scope of the Fair Debt Collection Practices Act, which in part governs the conduct of third party debt collectors. Buried in among the proposals is a potential game changing disclosure requirement mandating collectors to educate their consumer targets of the consequences that can result from debt collection litigation.
The CFPB cites a now outdated 2010 report from the Federal Trade Commission, showing that as much as 95% of all debt collection lawsuits are not contested by the consumer. The consequences of these judgments run deep. ProPublica reported in May 2016 that well over 4 million Americans are subjected to wage garnishmentsresulting from judgments to enforce consumer debts.
The volume of debt collection cases is truly staggering. The same ProPublica report shows that in New Jersey an astonishing 48% of all civil court judgments in 2011 were entered in debt collection cases. The numbers continue to go up.
Under the proposed rule, debt collectors would be required to provide a written litigation disclosure in all written and oral communications with the debtor, that set forth the (1) collectors intention to sue, (2) a court could rule against the consumer if they fail to defend a lawsuit, (3) and that additional information about defending collection lawsuits is available on the CFPB website.
These disclosures can be viewed as part of a debtors “bill of rights.” There is potential for the disclosures to lower the number of uncontested judgments, which is a good thing. Today, many consumers do not contest debt collection actions because they believe they are in the process of negotiating an out of court settlement with the collector. A debtor may trust that the collector is working with them, only to later find that no agreement is reached and wages are being garnished. The disclosures should help combat this problem.
The disclosures could be made stronger however. For example, the disclosures could (1) advise the debtors that they have a legal right to contest the collection action; (2) that the process of negotiating an agreement with the collector outside of court does not necessarily prevent the collector from simultaneously pursuing a lawsuit or obtaining a judgment; and (3) if a collection lawsuit is successfully defended, the debtor’s legal fees may be paid for by the collector. The third additional proposal is key. For many debtors, the belief that legal fees are insurmountable prevents them from making any effort to defend a collection action. Where a debt collector uses any false information, fails to provide required disclosures to the debtor, or otherwise fails to comply with a section of the Fair Debt Collection Practices Act, the debt collector becomes liable to the debtor for actual damages, a statutory fine of up to $1,000.00 and the debt collector must pay the debtor’s legal fees and court costs.
Proposed rules from the CFPB are a great start, but should be strengthened even more. Too often, the information used by third party debt collectors is inaccurate as to the interest rates, amounts owed or even identity of the debtor. Yet, because of basic system wide hurdles placed in front of the debtors up to 95% of all collection lawsuits result in uncontested judgments. In these cases, the Courts not only rubber stamps the debt collector’s request for judgment without analyzing its right to collect, the Court acts as a broker and allows the judgment to be collected by garnishing wages directly from the consumer’s paycheck. The new rules cannot come soon enough. The rules to protect consumers are already in place, the new proposals will go a long way to educating consumers of their rights before the long lasting damage of a lawsuit judgment is obtained.
