CFPB Director Kathleen L. Kraninger's Speech at the Debt Collection Town Hall

Thank you all for coming. I’m delighted to be at my first CFPB town hall.  Philadelphia has always been a special place to me. With Independence Hall as the foundation, this city always reminds me of the importance of democracy and public service. I could not think of a better city to be in as the Bureau continues to focus on developing and promoting the right policies for the American people.

The Bureau issued a Notice of Proposed Rulemaking yesterday on debt collection. Clear rules of the road, where consumers know their rights and debt collectors know their limitations, are a step towards fulfilling the intent of the law. 

The practice of debt collection predates the use of money.  Debt collection is an important part of any credit ecosystem. And there is no doubt that a healthy credit ecosystem is vital to the lives of most Americans. It enables us to make purchases and repay the costs over time. It enables us to pay for services and pay in arrears. It enables us to weather financial storms.  

But when consumers do not make timely payments on their debts they become delinquent and they enter the collections part of the ecosystem. A collections item can start as an overdue medical bill, utility bill, or any kind of unpaid loan or invoice. Sometimes it affects a person who has overextended themselves financially; and sometimes the individual has lost a job, fallen ill, had an accident, or something else has happened to set them back financially. Whatever the reason, large numbers of Americans fall behind on their debts at one time or another.  

During the early stages of delinquency, creditors typically engage in in-house collection efforts. But frequently, after a certain period of delinquency, creditors place debts with third-party debt collectors who specialize, and thereby may be more efficient, in recovering what is owed. Creditors also may sell debts to debt buyers who collect on the debts for themselves or use other collectors to collect the debts.  

When consumers hear about an unpaid debt from their telephone company or credit card company, they can usually understand who is calling and why. But it can be harder for consumers to understand why they are being contacted by a different company collecting the debt, especially if the debt was incurred some time ago and if penalty fees or other charges have been added to the amount that was previously billed. 

Consumers can find these interactions frustrating and stressful. When consumers get a notice in the mail from a party they don’t recognize and with limited information about the debt, they often find themselves asking: Who is this? Is this really the amount I owe? 

In the United States, debt collectors have hundreds of millions of interactions with consumers each year to arrange payments or to resolve debts. Indeed, debt collection is a multi-billion dollar industry, with nearly 8,000 debt collection firms in the U.S. It touches the lives of millions of consumers, with Bureau research finding that one out of three consumers with a credit report had debts in collection within a 12-month period.   

Over the past decade, consumers have submitted more complaints about debt collection to federal financial regulators than about any other financial service. The Bureau receives tens of thousands consistently each year. Consumers also file thousands of private court actions each year against debt collectors.  

Some of the friction in the market can be attributed to the fact that the governing statute in this market is more than 40 years old. The Fair Debt Collection Practices Act (commonly referred to as the FDCPA) is from 1977. Think about that. That’s the year the first Star Wars movie was released, Jimmy Carter became president, and a small company called Apple was trying to introduce the world to personal, home computers. Back then, when I was just a toddler, phone booths were on almost every corner and the ubiquity of cell phones wasn’t even imaginable. The FDCPA explicitly addressed the use of postcards, collect calls, and telegrams. I don’t know about you, but I’ve literally never received a telegram and wouldn’t even know how to send one. The upshot is that the FDCPA was written largely to address communications between debt collectors and consumers but it hasn’t always been easy to discern how it might apply to technologies today.  

The FDCPA already prohibits debt collectors from, among other things, harassing, oppressing, or abusing consumers; from revealing debts to third parties; and from contacting consumers at certain times. It also requires them to provide certain disclosures – and legitimate collectors try to comply.  But how do these rules apply in today’s age of cell phones, email, and text messages? What does that mean in today’s age of 24-hour, worldwide communications? It has largely been up to the courts to decide, and they’ve come to sometimes different interpretations of the law. This has created great uncertainty for both consumers and debt collectors.  

Prior to the Dodd-Frank Act, no agency had the authority to issue substantive rules to implement the FDCPA. The Bureau was given that authority under the Dodd-Frank Act. So we are issuing proposed rules to address some persistent issues in debt collection more than forty years after the FDCPA’s enactment.   

I want to add that the Bureau’s Notice of Proposed Rulemaking, issued yesterday, takes into account much research and effort. As I have said before, I believe in a rulemaking process that is transparent; that allows stakeholders to submit comments; that reflects rigorous economic and market analysis; and that provides for judicial review. Under my leadership, the CFPB will proceed deliberately and transparently in its rulemakings. So I am glad to say that for more than five years now—before my time and across administrations—the Bureau has been studying the debt collection market and researching the best ways to bring it much-needed clarity. 

Our newly proposed rules are grounded in common sense. They provide clear rules of the road that will limit, when, where and how often collectors can communicate or seek to communicate with consumers. And they would mandate that collectors provide consumers with more and better information at the outset of collections to help consumers identify debts and understand their options, including their rights in disputing debts or paying them. Both consumers and debt collectors would benefit from clarity regarding the requirements of the law. The bottom line is that entities should be able to operate according to the law; and consumers should be treated in accordance with the law. Our proposal contains a balanced set of provisions designed to achieve those ends.  

Let me run through some of the specifics of what we are proposing:

First, in a world in which most consumers are accessible 24 hours a day wherever they happen to be, consumers need protection when it comes to when, where, and how collectors communicate with them. The current law already prohibits debt collectors from engaging in acts that have the natural consequence to harass, oppress, or abuse consumers and bars collectors from contacting consumers at certain times of the day or when a consumer has said a time or place is inconvenient.  But like I said, that law was written in the time of telegrams not emails, landlines not cell phones, and postcards not texting. Many consumers today complain about frequent or repeated phone calls, and about being contacted at inconvenient times and places.  

Our proposal says a debt collector would be limited to no more than seven attempts by telephone per week to reach a consumer about a particular debt. Once a debt collector has a telephone conversation with a consumer, the collector would need to wait at least a week before calling the consumer again.  

Second, our proposal would allow consumers to stop collectors from using specific channels to contact them or from contacting them at specific times; they would, for example, be able to tell collectors not to call on a phone line or during work hours or not to send emails to a particular email account. In addition, when using electronic media, such as emails and text messages, debt collectors would have to give consumers an “unsubscribe” option.  

There has also been a lot of misreporting about emails and text messages, here are the facts: the FDCPA prohibits collectors from harassing or abusing consumers or engaging in unfair practices. These standards apply today and under the proposed rule, they would continue to apply. A collector who emails or texts too frequently may face liability. But, the proposed rule would provide additional clarity for consumers and collectors on how the law specifically applies to newer technology and particularly to emails. It would make clear the rules of the road for industry and consumers. And, it would add a requirement that collectors must provide in every text or email an unsubscribe option. Consumers are accustomed to seeing and using an unsubscribe option and they will be able to use it to stop emails and texts. And, the proposed rule makes clear that collectors must honor requests to stop certain channels of communication so that a consumer could simply say “never text me” and the collector must comply.

Our proposal would improve the transparency of the debt collection process for consumers. When consumers are contacted by debt collectors for a debt they do not recognize, this creates confusion.  Debt collectors must already provide certain information either in their initial communication or within five days of the first communication about the debt and consumer rights, but our research indicates that this information is not always sufficient or clear to consumers. So our proposal would enhance the information consumers receive from collectors. We propose to make clear that the required information includes an itemization of the debt to make it more recognizable for consumers, and plain language information about how a consumer may respond. We also propose that collectors be able to explain, in plain language rather than statutory language, how the consumer could dispute the debt, if he wanted. Our proposal would also require the disclosure to include a “tear-off” (or email reply) that consumers could send back to the debt collector to dispute or otherwise address the debt.  

Additionally, our proposal would make clear that debt collectors cannot sue or threaten to sue a consumer on debt for which the period under a statute of limitation has expired, commonly referred to as “time-barred debt.” Collectors would still be permitted to try to collect on such debts apart from litigation. We will continue testing to determine what disclosures, if any, would be effective and appropriate relating to debt that is time-barred. Depending on the results of that research, we may propose disclosures and take public comment on them later in the process.

And lastly, we would prohibit debt collectors from furnishing information about a debt to a consumer reporting agency unless the debt collector has communicated about the debt to the consumer, such as by sending the consumer a letter.  

Our proposed rules are designed to provide clarity where it has been lacking so consumers know their rights and collectors know their limitations.

As the CFPB moves to modernize the legal regime for debt collection, we are keenly interested in the views of stakeholders and look forward to engagement. The public will have 90 days to submit written comments before we make a decision on issuing final rules. When we hear all sides of an issue, we all benefit.  

Thank you for joining us today.