February 20, 2013

Today, the CFPB Consumer Advisory Board held its second meeting. CFPB Director Richard Cordray began the meeting with some opening remarks, which are available here.

Cordray made statements about the debt buying/debt collection industry during his remarks that were inconsistent with previous statements made during the CFPB field hearing last October (below).

Cordray characterizes the industry as a “dysfunctional dynamic” that results in the mistreatment of consumers and there is no incentive for debt collectors to “maintain and use accurate information.”

  • Another problem that consumers face on the pathway to opportunity is that in certain important markets – such as debt collection, loan servicing, and credit reporting – they are unable to choose their provider of financial products or services. When people cannot “vote with their feet,” their clout is limited, even though these products and services can have a profound influence on their lives. When a market’s central focus is on the nature of the financial relationship between two businesses, consumers can become collateral damage to the dynamics that actually drive the economics of such markets.
  • Take, for example, the market for debt collection. When a consumer does not pay back a debt, the creditor may decide to sell it to or contract with a debt collector to secure payment of what is still owed. Once this occurs, the paying business relationship has shifted; it now lies between the debt collector and the creditor, not the consumer and the creditor. This can lead to mistreatment of the consumer, who becomes, in effect, a kind of “bystander” to the new business relationship. In this situation, creditors may have little reason to ensure that debt collectors treat consumers fairly and appropriately or that they maintain and use accurate information. Given this dysfunctional dynamic, there is little wonder that debt collection has proven to be one of the most common sources of complaints in the realm of consumer finance.

Cordray’s full remarks from the October 2012 field hearing are available here. Two examples from that hearing include:

  • “I started out as a county tax collector, making a point to apply myself to collect tens of millions of dollars in property taxes, back taxes that had gone unpaid, in some instances for many years. It seemed to me grossly unfair to all the law-abiding taxpayers, who somehow managed to scrounge up their payments on time, to know that others were shirking their obligations and getting away with it.”
  • “We know that debt collectors represent a wide spectrum of firms. Many play by the rules and are simply doing their jobs, trying to collect what is legally owed. Indeed, the work they do is integral to the functioning of the consumer credit market. But others cut corners and seek to gain an advantage by ignoring the rules. Our job, and that of our partners at the FTC, is to root out those bad actors. Not only do they hurt consumers, but they are also a detriment to every debt collector who is faithfully following the law.”