State Lawmakers Expected to Target Debt Collection Industry

A number of state legislative and regulatory proposals are being considered that could make it harder for debt collection agencies to reach consumers or convince them to pay their debts.

Some proposals, like the New Mexico Attorney General’s new rule mandating that debt collectors to inform borrowers that they are not required to pay debt that has passed the statute of limitations, take direct aim at the ARM industry.  Others, like proposals to raise fees on service businesses, would indirectly impact the industry, according to David Cherner, ACA International’s director of state government affairs.

“Legislators need to balance the budget and are looking for money where they can,” Cherner said.  “With all the rhetoric about no increased taxes, the only way to raise revenue is to increase other fees.”

Laws and regulations impacting the ARM industry on the state level are expected to increase significantly due to a shift at the Federal Trade Commission. The FTC has been urging states to take action to require collection agencies to disclose more information about loan balances and time-barred debt and to adopt rules that encourage consumers to appear in court when being sued for debt. The FTC’s push is due, in part, to the agency’s power transition to the new Bureau of Consumer Financial Protection, the presumptive new regulation body for debt collectors.

The National Association of Retail Collection Attorneys (NARCA) prefers that states take the lead when it comes to debt collection litigation as long as any new rules result from collaborative discussions between local consumer and creditor stakeholders, said Adam Olshan, chair of NARCA’s state government affairs committee.

“Decisions regarding state collection lawsuits that are made in Washington are typically not knowledge-based. They are painted with a broad brush,” said Olshan, a partner in Hartford, CT-based Howard Lee Schiff PC.  “To be fair to all parties, the decisions need be inclusive and transparent.  That’s best done locally.”

Olshan said many of the proposals being considered are knee-jerk reactions to consumer complaints against legitimate claims. He cited a Massachusetts proposal last year that would have allowed one cease-and-desist letter from a consumer to terminate all future communication with the debtor about the account from any debt collector. Ken Wilson, a partner with Lustig, Glaser & Wilson, and president of the Massachusetts Creditors Bar Association, told insideARM.com that the bill has since been changed to limit an oral request to suspend communications for 10 days unless the request is made in writing.  An agency that receives a written request from a consumer must abide by the request until it’s revoked in writing.

Although the current proposal is more amiable to debt collectors, Wilson said it still needs amending because the proposal would invite more lawsuits if collectors are not allowed to communicate with debtors – something consumers don’t want.  Also, the proposal doesn’t allow consumers to orally rescind a cease-and-desist request.

“If a consumer (that has filed a written cease and desist) leaves a message requesting we call back, we can’t because giving permission to call orally wouldn’t meet the statutory requirement that it be done in writing,” Wilson said.

Cherner said other proposals that directly hinder collections include those that protect consumer assets from collections or require agencies to provide the loan’s history. He said that some states have set garnishment caps to protect exempt assets, rather than establishing rules to distinguish which assets are exempt. And he said requirements that collection agencies provide a loan’s history is over-reaching because the information may not be attainable and would ultimately lead to consumers paying more for credit if debts cannot be collected.

But some of the most potentially damaging and cost-increasing proposals that would threaten the industry’s operations may be those targeting auto dialers and caller identification technology. Cherner expects to see more proposals that seek to limit the use of auto-dialers or impose conditions on how they are used, such as requiring that an operator be available for consumers who prefer to talk with a person. Likewise, legislators are contemplating bills that address caller-identification spoofing because they mislead or deceive consumers into thinking they are receiving a call from someone they know.

“We’re concerned that these not be taken out of context. We want to make sure that any new laws allow debt collectors to display ‘unavailable’,” Cherner said.

If the industry is to lessen the impact of such proposals, it needs to have more robust discussions about them and come up with consistent and unified solutions before they are a done deal. That requires collection professionals to become more engaged with their local lawmakers and consumers groups so they are aware of legislation before it is drafted.

“A lot of (ACA) units are very active at the local level, but more units need to be involved at front end (of the legislative process),” he said.