If the OCC finds evidence of abuses in debt collection, it could levy fines and issue an order compelling a bank to amend its practices. Banks could also face enforcement action from the CFPB, which is responsible for enforcing laws to protect consumers from abusive practices.
The bureau took its first debt collection action in October against American Express, which agreed to pay $112.5 million to resolve allegations of abusive collection practices, late-fee charges and deceptive marketing. Customers, in some cases, were misled to believe that if they partially paid off their debts, the remaining balance would be forgiven.
CFPB officials said they are taking a close look at debt collection practices but declined to comment on whether the agency is pursuing any individual companies.
Peter Holland, who runs the Consumer Protection Clinic at the University of Maryland Francis King Carey School of Law, said the problems in debt collection extend from the banks to the companies who purchase delinquent accounts for pennies on the dollar.
Iowa Attorney General Tom Miller, the architect of last year’s $25 billion national mortgage settlement, is leading a multi-state investigation of these so-called debt buyers and overall debt collection practices, according to his office.
Debt buyers often purchase just a spreadsheet with names of delinquent borrowers from banks after accounts become more than 180 days past due, Holland said. Judges, he noted, grew alarmed by the number of cases involving debt buyers that lacked proof of outstanding debt or that contained generic testimony.
Chief Judge Ben C. Clyburn of the District Court of Maryland said he dismissed 3,168 debt collection cases in October because the debt buyer, in part, misstated the amounts owed. The state Court of Appeals adopted new rules in 2011 that required debt buyers to provide more evidence when seeking judgments against consumers based on sworn statements.
“Most of the abuses that we’ve seen have been in the affidavits of the debt buyers,” said W. Thomas Lawrie, assistant attorney general in Maryland’s Department of Labor, Licensing and Regulation. “There are debt buyers signing affidavits without having the consumer’s account files. There’s evidence that some are signing upwards of 400 affidavits a day.”