Debt Collection Regulation: Areas Ripe for Reform

The Fair Debt Collection Practices Act was enacted in 1978. The FDCPA is a federal law that’s part of the Consumer Credit Protection Act, and it serves to regulate the debt collection industry. While it contains some important protections for consumers, a lot has changed in the three decades since it’s been enacted.If you’ve been the victim of debt collector abuse, you undoubtedly understand the ways in which the law can be improved. Although U.S. Senator Al Franken (D-MN) introduced legislation in September 2010 called “The End Debt Collector Abuse Act,” Congress didn’t consider the bill. Nevertheless, there are many areas of the FDCPA that are ripe for reform. Here are a few:Penalties: If a debt collection agency is taken to court and the judge rules that the debt collector violated the FDCPA, a consumer can be awarded up to $1,000 plus attorney fees. The penalty today is the same as it was in 1978, and isn’t adjusted for inflation. Senator Franken’s legislation would have tied the maximum penalty to the Consumer Price Index. It makes sense to raise the penalty, since a $1,000 fine is little incentive for collectors to stay on the right side of the law.Prohibiting the Collection of Stale Debt: A few months ago, the Federal Trade Commission called upon states to more strongly regulate the debt collection industry, particularly in regards to collecting debt that is past the statute of limitations. Since that time, some states, such as New Mexico, have done so, requiring collectors to notify consumers that the agency can’t take the consumer to court in order to collect. All too often, debt collectors trick consumers into making a payment, thus “resetting the clock” on the debt and making it current again. Each state has a different statute of limitations, but the bottom line is that debt buyers shouldn’t be able to deceive consumers about a debt’s legal status.More Stringent Requirements Regarding Lawsuits: These days, debt collection agencies often bypass the usual collection methods and almost immediately take consumers to court. Consumers often don’t realize they’re being sued or can’t afford legal representation, and so collection agencies win judgments by default. In other words, it’s not an even playing field. Nevertheless, agencies can file hundreds of lawsuits a month, essentially making taxpayers foot the bill (because of the costs associated with the judicial system) for collection activities. Requiring debt collection agencies to furnish validation of the debt prior to filing suit would be a good first step in fighting legal system abuse. Perhaps some kind of arbitration board, similar to the arbitration boards set up by states for enforcement of vehicle lemon laws, might work.Licensing Agencies and Collectors. Many states have licensing requirements for debt collection agencies, but all states should license both agencies and collectors. Time and again, bad collectors or agencies that violate the law lay low for a while, and then pop back up under a different name. To truly clean up the system, collectors should be licensed; if they violate the FDCPA, their licenses should be suspended. If they do it again, their licenses should be revoked, and they should be prohibited from participating in the debt collection industry.

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