Some new layers of government are necessary, as the Consumer Financial Protection Bureau is proving.
Created following the Great Recession, the bureau is making inroads in protecting consumers. For the first time in nearly 40 years, preparations are being made to significantly strengthen the rules that govern the sometimes-shady world of debt collection.
In the past few years, a number of debt collection companies in Western New York have been shut down for engaging in abusive practices. Others have been convicted of criminal charges.
The new regulations should make it more difficult for such rogue operators. Collectors will need to fully document the debt they are trying to collect; make it clear how a consumer can dispute the debt, and observe the state statutes of limitation barring debt collectors from legally pursuing older debts.
The bureau also wants to require lenders to verify their customers’ income and make sure that they can afford to repay a loan. In another boost for consumers, it proposed a rule in May that would “prohibit mandatory arbitration clauses and restore customers’ rights to bring class-action lawsuits against companies,” the New York Times reported.
This does not absolve Congress from acting to control what continues to be a scourge for the American public.
The recent news about tighter regulations hasn’t drawn much of a protest from the industry. Several trade group leaders “said the process was thoughtful and methodical.” That is a hopeful sign, indeed, and an indication that legitimate operators want to make it more difficult for fraudsters to stay in business.
Several states, including New York and California, have adopted stricter documentation rules to collect a debt. More should be done to make the rules uniform.
Consider that some 77 million people, which is roughly one in three adults with a credit report, are said to have delinquent debt and/or are in collections, according to an estimate by the Urban Institute. It does not help the person in debt or the company legitimately trying to collect it to have a patchwork of state, local and national laws.
Since the economic downturn, there have been reports that Americans are saving more and spending less. A recent study by the Financial Industry Regulatory Authority, Wall Street’s self-regulatory organization, found that people are in less debt and setting aside money for emergencies – with glaring exceptions being student loan debt and still-lagging retirement savings.
But there has to be some protection for people living along the margins who, despite their best efforts, find themselves in trouble. They have an obligation to repay that debt, but they should not have to suffer intimidation and abuse from crooked debt collectors.