As the final days of the 2020 election season drew to a close, major media outlets across the country focused on polls and prospects for the presidential candidates. At the same time, there was little coverage of a development that affects 68 million consumers: debt collection regulation.
On October 30, the Consumer Financial Protection Bureau (CFPB) released its 653-page regulatory review for the enforcement of the Fair Debt Debt Collection Practices Act (FDCPA), which was originally in effect in 1977. billion industry with more than 8,000 companies across the country.
For Black America, collecting debts was difficult even before the COVID-19 pandemic. One study found that in three major cities—Chicago, Newark, and St. Louis—the number of debt collection lawsuits was twice as high in mostly black neighborhoods than in mostly white areas. Nearly a year ago, research from the Urban Institute found that debt collection disproportionately affects 42% of communities of color. By contrast, the national average of all consumers was lower in double digits at 31%, and a wider racial gap among whites at 26%.
Most of the debt for communities of color is medical services and student loans. Given the decades of discriminatory policies and practices that perpetuated the racial wealth gap, these inequalities extend to lack of access to health care and increased reliance on debt to fund higher education. Colleges and for-profit institutions are among the newest and most visible financial predators.
In addition, the CFPB’s own 2017 survey found that 44% of borrowers of color reported having contacted them about debt, compared to 29% of white respondents. Even when differences in income are taken into account, communities of color are disproportionately sued by debt collectors. In fact, 45% of borrowers living in communities of color faced lawsuits, while only 27% of consumers in a similar situation in the white areas were sued.
The CFPB’s revised rule allows debt collectors to contact affected consumers up to seven times within seven days – or – within seven consecutive days of a previous call about a debt. It is important to note that this permitted communication is for any debt owed. Multiple numbers and types of collections can legally multiply the number of contacts allowed and lead to harassment for already struggling borrowers.
Second, collection agencies that choose to contact consumers through electronic media must also provide consumers with a “reasonable and easy method” to opt out of these communications, including social media, emails, and text messages.
Commenting on the new rule, Kathleen Kraninger, director of the CFPB said: “Our rule applies this protection to modern technologies. …And our rule will allow consumers, if they choose, to limit the collection agencies’ ability to communicate with them through these newer communication methods.”
But for the 233 consumers, civil rights and legal attorneys who have made public comments about the proposed rule, the announcement sent mixed messages about what it proposed and what delayed it.
“The devil is in the details, and we’ll have to sift through this complicated rule to make sure it doesn’t open new fronts to debt collection agencies’ ubiquitous and abusive treatment of consumers,” said Christine Hines, legislative director at the National Association of Consumers. lawyers. “Under the guise of modernization, the collection rule could open the door for payees to further harass vulnerable consumers with further harassment and a flood of electronic communications.”
While the October 30 announcement addresses emerging communications tools, it also delayed action in three specific areas of debt collection focus.
Guidelines for “zombie” debt, the term used to describe debts that have survived legal collection restrictions, are expected to be announced in December. Nor were the practices of debt collection agencies to leave messages with third parties or on postcards, nor negative information about consumer credit reports.
“As we face a severe and worsening economic crisis, we will closely monitor the ‘zombie debt’ rule, coming in December, which could leave consumers more vulnerable to deception and harassment,” said Linda Jun, senior policy advisor at Americans for Financial Reform Education Fund. “Gatherers should not be allowed to bring expired debts back to life by tricking people into making a small payment that revives a debt that would otherwise be past the timeline of a lawsuit.”
While consumers have a right to expect more and better financial regulation at the federal level, many advocates are calling on states to do their part to protect 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 collection agencies.
Titled, No New Start 2020: Will States Allow Debt Collectors to Push Families into Poverty in the Wake of a Pandemic? medical bills, rent arrears, 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” to enable debtors to pay daily living expenses, such as rent, utilities, childcare and transportation.
This loophole in state regulation became apparent when federal incentive checks were deposited into families’ bank accounts and then garnished by collection agencies. Further, and according to NCLC, no state currently meets five basic standards of debt regulation:
- Prevent collection agencies from seizing so much of the debtor’s wages that the debtor is pushed below a living wage,
- Enabling the debtor to keep a used car of minimum average value;
- Preservation of the family home – at least a medium value home;
- Keeping a basic amount in a bank account so that the debtor has minimal funds to pay essential costs such as rent, utilities and travel expenses, and
- Preventing seizure and sale of the debtor’s necessary household goods.
NCLC identified the worst states that allow debt collectors to seize almost anything a debtor owns, even the minimal items the debtor needs to continue working and provide for a family. States that received an F class were: Georgia, Kentucky, Michigan and New Jersey. Low D-class states are: Alabama, Arkansas, Indiana, Maryland, Missouri, and Pennsylvania.
“By reforming their exemption laws, states will not only protect families from poverty but also promote economic recovery by allowing families to spend their money on state and local communities,” said Carolyn Carter, NCLC deputy director and author of the report.
The Center for Responsible Lending (CRL) recalls its previous research into family wealth lost as a result of the Great Recession and argues that the effects of families of color losing $1 trillion in wealth are still affecting those same families a decade later. hinder. Until or unless regulators recognize that race and income are inextricably linked, harmful regulations will only perpetuate the nation’s wealth gap.
“We applaud the CFPB for dropping the safe haven that would have widened the door for collectors to use state courts to sue consumers for misinformation or incomplete information,” said policy adviser Kiran Sidhu of the Center for Responsible Lending. “But the CFPB’s final rule isn’t doing enough to protect communities of color, especially during COVID-19, which are still struggling to recover from the Great Recession due to discriminatory exclusion from the financial mainstream and predatory inclusion in expensive loan products.”
Sidhu also emphasized how the right kind of policy reform was important to prevent debt collection lawyers and attorneys from filing thousands of debt collection lawsuits each year that harass consumers with debts that may not even be due.
To put it another way, it’s hard to build family wealth when you’re burdened by heavy debt and harassed by abusive debt collection practices. Harassment of collectors of any kind will result in payments when there is no money available to pay delinquent bills. Furthermore, any policy that denies indebted consumers the ability to retain essential services such as housing or utilities is unsustainable. The financial inequalities that Black America is trying to navigate would diminish significantly if an inclusive financial market became a reality. At the heart of many troublesome debts is the lack of affordable and accessible financial services.
It’s time to stop confiscating our hard-earned money.
Charlene Crowell is a senior fellow at the Center for Responsible Lending. She can be reached at [email protected]
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