The CFPB’s debt collection proposal empowers consumers

Consumer Financial Protection Bureau (CFPB) Director Kathleen Kraninger recently made her way up to Capitol Hill for her semiannual testimony on CFPB operations. During the hearing, few subjects drew as much congressional ire as the CFPB’s proposed debt collection rule. Numerous members of Congress expressed deep concern that the proposal would neglect consumer interests in favor of debt collectors.

Rhetoric, however, doesn’t match reality. The CFPB’s proposal empowers borrowers by putting them in control of how their debt is collected. This is good policy, and consumers should benefit from it.

The proposal introduces new consumer protections governing communications and mandated disclosures, dragging debt collection communications into 2019 by authorizing the use of electronic messaging, beefing up opt-out mechanisms and establishing strict limits for phone conversations. The straightforward rules also bring clarity to ambiguous statutes, establishing clear lines for appropriate behavior by debt collectors.

Unintended consequences are the scourge of consumer protection regulations. Typically, we can trace their origin to a narrow understanding of consumer harm, one that focuses too much on the immediate loss of money or time, while neglecting other kinds of harm.

Failing to pay debt, for instance, carries serious financial consequences, including lower credit ratings, potential lawsuits and increased borrowing costs. Any of these outcomes are likely to precipitate more financial hardship in the future.

The first principle of any debt collection rules should be that consumers are best off when they can properly satisfy their debts in the easiest possible way while being treated fairly and with respect.

Facilitating effective, but non-harassing, communication among creditors, collectors and borrowers is key to implementing that principle and making debt resolution as painless as possible. As such, the CFPB’s proposal grants companies permission to use modern forms of communication in collecting debts.

To clarify, “modern” here doesn’t include FaceTime or the Amazon Echo; “modern” means text messages and email. Current debt collection means are dictated by technology that was “modern” when Congress passed the Fair Debt Collection Practices Act — in 1977.

Restricting debt collectors to 50-year-old technology is no service to consumers. The country’s communication norms have changed. It’s better for both collectors and borrowers if debt collection rules reflect that change.

It must also be emphasized that permission to contact does not mean license to harass. The CFPB’s rules give consumers broad authority to ensure collectors treat them with respect. 

The proposed rules require clear opt-outs in communications, allowing the consumer –  not the collectors or the CFPB – to decide how and when businesses can communicate with them. A consumer might choose to communicate with collectors on email one week and through telephone another.

These opt-out mechanisms provide the secondary benefit of making it easier for the CFPB to crack down on abusers and harassers. When a consumer reports an abusive collector to the CFPB, the bureau will know exactly what it’s looking for in its investigation. Harm a consumer, and the CFPB can easily respond.

The proposal also restricts how often collectors can call borrowers without a response: seven phone calls in a seven-day period. If the borrower answers, callers are then required to observe a seven-day cooling off period before calling again. These regulations are reasonable, striking a balance between the interests of both parties.

A final observation on the rule change: Rules governing how collectors interact with consumers, including rules on appropriate language, have not changed. The CFPB’s proposal does nothing to change the existing requirements obligating collectors to treat borrowers with respect.

This spring, in her first major speech as director of the CFPB, Kraninger outlined her vision for the agency. She said that “empowering consumers to help themselves, protect their own interests, and choose the financial products and services that best fit their needs is vital to preventing consumer harm and building financial well-being.”

By empowering borrowers in their dealings with debt collectors, the CFPB acknowledges that consumers — not regulators — often know the best way to prevent harm. Each financial situation is complex and warrants an agile consumer response. In facilitating that flexibility, the CFPB would establish rules that are not only equitable, but also effective.

The CFPB’s proposal on debt collection may not be flashy, but good regulation that prevents long-term harm doesn’t have to be.

Beau Brunson is director of policy and regulatory affairs at Consumers’ Research.