One byproduct of the pandemic has been more debtors, and now collection agencies have new ways to track down the people who owe them money.
The changes to the Fair Debt Collection Practices Act (FDCPA), which is intended to eliminate abusive debt collection practices, were introduced during the Trump administration when the Consumer Financial Protection Bureau (CFPB) became friendlier to the business community.
The CFPB director at the time, Kathy Kraninger, a Trump appointee who resigned at Biden’s request, said the rules were intended to “modernize the legal regime for debt collection.”
But if left unchecked, this expanded access to consumers could very well contribute to new ways to harass struggling consumers.
At the end of the third quarter this year, 77.6 million consumers had at least one debt in collections with $188 billion in outstanding balances, according to a report by TransUnion.
The collection industry praised the update, arguing that text and email are now the preferred methods for communication for many people.
“The CFPB’s debt collection rule is a small step forward in modernizing communications with consumers,” Mark Neeb, chief executive of ACA International, the association of credit and collection professionals, said in a statement.
The rules establish certain contact limitations to protect people’s privacy and spare them from harassment, abuse or unfair practices. If you’re contacted on your social media account, the message has to be private. The debt collectors can’t post something that is viewable by the general public or by your friends or followers.
And no subterfuge is allowed. If a debt collector sends you a private message requesting to add you as a friend or contact, the company must make it clear they are attempting to collect a debt, according to the rule changes. They must also give you a way to opt out of receiving further communications from them on that social media platform.
I’ve followed this issue for years, and while many companies operate within the law, illegal operations can do a lot of damage to innocent consumers. Debt collection isn’t wicked. But it can lead to embarrassing, unethical and illegal tactics.
Debt collectors have a limited number of years in which they can sue someone to collect. After the time runs out, unpaid debts are considered “time-barred.” But unscrupulous companies try to revive this “zombie debt,” as it’s called.
Many consumers aren’t aware that their debt is no longer collectible. The statute of limitations varies from state to state. Debtors also don’t know that many states allow the time-barred clock to reset if they make a small payment on the debt.
Allowing companies to track down people on Facebook, Twitter or Instagram is risky given current illegal practices. Under the changes, telephone calls are limited to seven per week per debt.
Last year, the Federal Trade Commission led an initiative with other federal and state law enforcement agencies against phantom debt collection, which is a practice of coercing consumers to pay debts that don’t exist or that they don’t really owe. The FTC alleges that one company collected more than $12 million from consumers through illegal debt collection practices. In most cases, the debts never existed or had been previously paid off.
This summer, an Atlanta-based debt collection company, subsequently shut down by the FTC, threatened consumers with arrest and imprisonment to collect nonexistent debts. The collectors posed as law enforcement officers, attorneys, mediators or process servers, the agency said in its complaint against the company.
Debt buyers, who pay pennies on the dollar for defaulted debt, often have scant information other than the person’s name, last known address, Social Security number and debt amount. The records may contain little or no documentation at all — no bills or printouts showing purchases, or previous payments. This leads to mistakes and inflation of what folks owe, including exorbitant collection fees.
The CFPB, now under new leadership, needs to watch debt collection companies like a hawk looking for its prey.
“Too many people are hounded to pay debts they don’t even owe,” CFPB director Rohit Chopra said. “Abuse and harassment by debt collectors are strictly prohibited under federal law, regardless of whether consumers are being contacted in person, over the phone, or on social media. The new debt collection rules will be useless unless they’re enforced.”
Chopra said the agency will be checking to see if the rules are working or need to be strengthened further.
In the meantime, be forewarned: The person asking to “friend” you on Facebook may be no friend at all.