Oct. 25, 2012 at 8:09 AM ET
The figure is staggering: Approximately 30 million Americans have a debt subject to collection. Many of these people insist they do not owe the debt attributed to them. Complaints about debt collectors are legion – from abusive tactics to outright fraud.
The Consumer Financial Protection Bureau published a rule on Wednesday that will give the agency the power (starting Jan. 2) to supervise the larger consumer debt collectors. The agency says this is the first time there will be such supervision at the federal level.
(Read more: CFPB to oversee debt collectors)
“We're going to do everything we can to see that people are treated fairly,” said CFPB director Richard Cordray.
Cordray sat down with me for a one-on-one interview just before a public hearing in Seattle on Wednesday. The CFPB was gathering feedback on its debt collector oversight proposal. Here are the highlights of our conversation.
Q: It seems like sending people to collection is now the ultimate threat to get someone to pay – whether they really owe the money or not. Companies threaten to send the consumer to collections and ruin their credit score. And all too often people pay because of that. Is there anything that can be done about this?
A: That's why we are both continuing our efforts to enforce the law on debt collectors and now entering into the field of close examination and supervision of debt collectors.
The intersection between debt collection and credit reporting has become a new phenomenon because it gives much more leverage to debt collectors. One of the things debt collectors understand very well is leverage. The fact that you can owe a hundred or $200 debt, but in your credit report that might affect whether you can get a $100,000 or $150,000 mortgage, is tremendous leverage for collection.
We need to be thinking carefully about how these changes in the market are affecting consumers, taking certain problems that existed before and magnified them into much greater problems of more harm to consumers, and utilize that analysis as we go about fixing these markets.
Q: You now regulate credit-reporting agencies – an area that people and consumer advocates have been complaining about for years and years. What are the problems in this area and what changes would you like to see?
A: We see several problems. A major problem that consumers complain about a lot is accuracy of information. We know this is a problem, in part because of the way information comes in to the credit-reporting agencies from furnishers, some of whom are more reliable than others.
Also the handling and processing of the huge volume of information the big three credit-reporting companies take in on hundreds of millions of Americans is fraught with concerns about being able to manage that effectively and accurately.
The difficulty that consumers often seem to have in disputing inaccuracies and getting them resolved and corrected is a big concern for us. The credit-reporting function now casts an enormous influence over the lives of most Americans, many of whom don't realize it, and yet they're very dramatically affected every time they go out to seek a loan. Whether they get a loan or whether they get it at a higher interest rate is dominated by how their credit report looks.
Q: You are now taking complaints about credit-reporting agencies and you propose to do the same with debt collectors. Are you simply gathering information or will you actually try to help individual consumers who have a problem?
A: We do both. There are greater legal protections for the individual if they begin with the credit-reporting company before coming to us. But we now are taking complaints about credit-reporting companies. So if people are not satisfied with the resolution, as many people tell us they're not, we now will be handling those complaints.
I think this, in and of itself, will affect the way complaints are handled by the companies. But we will now be in a position to follow up and seek appropriate resolutions.
Q: Because of recent enforcement actions by your agency, American Express, Discover and Capital One will return $425 million to nearly 6 million of their credit card customers for a wide range of actions that alleged violated consumer protection laws. These were huge settlements. Do you think they will change the way financial companies do business going forward and how they see the enforcement power of the CFPB?
A: I know it will and it's already changing. That's a start but there's more to come in that area because the deceptive marketing practices on credit card service add-ons were widespread within the industry.
Not only is it affecting the way those products are marketed or whether they're going to be marketed, but I think it's causing people to rethink how they're marketing other products as well. I do think our early actions are being scrutinized very carefully by the industry, that they're taking signals from them... and applying them to their business model.
Q: Are you trying to make the fines and refunds so big that companies won't consider this an acceptable cost of doing business?
A: We do see part of the objective here to make it easier and more advantageous to follow the law, rather than get an advantage from breaking the law.
We're trying very hard to think strategically about these markets. It's always satisfying to take down a bad actor and to stop them from doing what they're doing. But if there are many more popping up to take their place, as is true in some of the financial markets, you don't necessarily accomplish what you'd hoped to accomplish.
When they (companies) come to understand that the right way to do business and the cost effective way to do business is to follow the law, then we'll be succeeding.
Q: Your goal has been to bring fairness and transparency to the financial marketplace, to level the playing field. Do you feel that you’ve done that? Is it still an uphill battle?
A: Before the consumer bureau, it was a very bumpy playing field for consumers. There was a lot to trip over, and much of it was put in their way deliberately, or at least with deliberate indifference.
I think that is changing, but it's going to take some time to smooth that out. And the work that we are doing, we're encouraged that it is making a difference and it has the capacity to make more of a difference.
Many firms across different industries...want to comply with the law, want to avoid problems. And as we can signal clearly what we understand those problems to be, I do think they're going to be attentive in many cases to fixing them.
Q: There are members of Congress who still believe the CFPB was a mistake and they’d like to see your enforcement powers limited. What do you say to them?
A: We're working hard every day to convince them to the contrary, and I think we're making a lot of progress.
Cordray said the CFPB wants to hear from people about the problems they see in the marketplace as part of their daily life. You can go to ConsumerFinance.gov to file a complaint or share your story.