The Consumer Financial Protection Bureau made it clear Wednesday that it would be using complaint data gathered from consumers to heavily pursue debt collection firms at every level through both enforcement actions and new rulemakings.
The agency said it would now accept complaints on debt collectors as well as separate complaints about the original creditor through its massive online database. That information, as it has in other areas such as credit cards, will help shape the agency's actions going forward.
Speaking at a field hearing in Portland, Maine, agency officials appeared anxious to flex their regulatory muscles against abusive debt collectors.
"Those debt collectors that are treating consumers fairly have nothing to worry about and should go on about their business. But those using illegal means to collect consumer debts should be forewarned that we will not tolerate such behavior," said CFPB Director Richard Cordray during the field hearing. "We will use our supervisory and enforcement authorities to identify and eliminate illegal practices while simultaneously empowering consumers to stand up more effectively for their rights under the law."
The complaint database is clearly key to the CFPB's plans. It issued bulletins on Wednesday warning debt collectors that they will be closely watched in how they communicate with consumers. The agency also released forms designed to make it easier for consumers to communicate with collectors.
The CFPB's reliance on complaints clearly spooked some debt collectors, who raised concerns at the hearing that many consumers just don't understand how the business works.
"In nearly 25 years of begin a collection attorney I've had had several complaints but they've always been resolved and not because there was a problem that something has been done wrong. It's because someone didn't understand the process," said one audience member who introduced himself as Steve Parker. "Not all complaints equal a problem or equal something that someone else has done wrong. Very often, it's someone who didn't completely understand the process."
Representatives of other financial sectors have raised similar issues about the CFPB's focus on consumer complaints since the agency began accepting them last year.
But debt collection is a particularly complaint-heavy sector, given what's involved. Because of this, some supporters are concerned that complaints derived from debt collections will overburden the CFPB.
"If the volume the FTC [Federal Trade Commission] was seeing here plays out with the CFPB or anything close to that, it will be very difficult to really pay as much attention to those complaints as they want," said Dalié Jiménez, professor at the University of Connecticut School of Law, who was a panelist during the hearing.
Still, Jiménez said the system will allow the CFPB to target complaints that may involve potential violations of consumer protection laws.
"Our members have welcomed the development of the complaint portal," said Patrick Morris, chief executive of the Association of Credit and Collection Professionals International. "I believe they're ready for it and most already have robust internal compliance departments."
However, it's likely the complaint portal will also reveal significant flaws in the system. Regulators and consumer advocates have frequently noted how some collectors automatically file suits in court without verifying accurate documentation, known as robo-signing.
"Historically debt collection agencies have always claimed it is only a few bad apples. Gathering data on all complaints will quickly prove this is a systematic problem," said Bill Bartmann, chief executive of debt collector CFS II, in an emailed response. "The CFPB can now take appropriate actions against the violators."
Jiménez said during the hearing that when a collection suit is filed, the consumer does not make a court appearance between 70% and 90% of the time. This often causes a default judgment against the consumer regardless of whether documents were verified. The CFPB and the FTC met recently at a roundtable to discuss such issues, particularly when it comes to problems with the litigation process.
"At our joint roundtable, we heard strong consensus about the need for robust national documentation standards and the need to maintain the accuracy of information used to collect debts," Cordray said. "We will keep that in mind as we move toward a rulemaking process on debt collection issues."
This might encourage some creditors to either stop selling credit portfolios or offering riskier types of credit altogether. Already, JPMorgan Chase has said it plans to halt most of its debt sales to third party collectors in anticipation of regulatory criticism by the Office of the Comptroller of the Currency. On Tuesday, the world's largest collector, Expert Global Solutions in Texas, was fined $3.2 million for allegedly not verifying debt it attempted to collect and unlawfully harassing consumers.
During the Wednesday hearing, Cordray emphasized that the bulletins were not just meant for third parties that buy and collect debt, but for the banks and other companies that originated the debt.
"Today's bulletin makes clear, however, that these first-party collectors are subject to the general prohibition against unfair, deceptive, or abusive practices in the Dodd-Frank Act, and many of the same kinds of restrictions may be applicable here as well," Cordray said.
But some observers argue that the CFPB oversight of all parties is beneficial because it will make creditors closely evaluate who they sell debt to.
"It is going to cause the banks to quit selling delinquent loans to debt buying companies that use litigation as a collection technique," Bartmann said. "Robo-suing and robo-signing is the most significant problem that the CFPB is trying to eradicate."