Federal government to oversee debt collectors

Federal government to oversee debt collectors »Play Video
The government's financial industry watch dog is about to shake things up in the debt collection industry. For the first time, the big players in the collection agency game will supervised by the federal government.

The announcement comes from the Director of the Consumer Financial Protection Bureau, Richard Corodray, who held a public hearing in Seattle Wednesday, to get first hand in put from real people.

During the hearing, Cordray announced his agency will start physically inspecting collection agencies. Starting in January, field inspectors will check the records, the documentation, the call logs -- everything. The move is part of an effort to crack down on rogue operators who make repeated harassing phone calls, threaten consumers with jail time, and fail to provide actual documentation of the debt.

Consumers, consumer attorneys and non-profit assistance agencies say the industry is rampant with debt buyers, companies who buy unpaid debt from creditors for pennies on the dollar and then aggressively move to collect inflated debt balances from consumers who have no income and no ability to pay. Debt buyers routinely sell uncollectable debt to other debt buyers, disregarding the fact that the debt is not collectable.

Debt collection law firms, which advertise heavily on radio and TV are also a big problem. Consumer advocates report only a tiny fraction of customers who pay thousands up front are ever helped. In many cases, very little of the money consumer pay ends up going to pay off debt.

Industry representative at the hearings say the relatively few bad actors give the entire industry a black eye. They say the majority of collection agencies follow legal guidelines and refrain from contacting consumers who are willing, but not able to repay their debt. Industry representatives say part of the problem is new technology- which virtually makes the decades old Fair Debt Collections Practices Act obsolete.

Starting next year large debt collection firms will be subject to the CFPB's supervisory authority. The new rule extends the government's regulatory reach to about 175 debt collectors which account for more than 60 percent of the industry's annual receipts. Cordray says the new rule is just the beginning. His agency will be working to address other areas of the debt collection process and he still wants to hear from you about your debt collection concerns.

More information is available online.