National Consumer Law Center Releases Report on ?The Debt Collection Machine?

The National Consumer Law Center (NCLC) recently published a report asserting the debt collection industry unfairly treats consumers and overwhelms the court system ("National Consumer Law Center Releases Report on Debt Collection Abuses," July 16). The NCLC is a nonprofit corporation that assists consumers, advocates, and policymakers nationwide with consumer law issues and seeks consumer justice and fair treatment.

The report was released at the same time the FTC’s report on debt collection litigation and arbitration was released.

Although the report asserts abuse is widespread and prevalent in the collection industry, the report focuses on the increasing number of lawsuits filed in small claims court. The report explains lenders, debt buyers, creditors and collectors have taken over small claims courts and lower level courts seeking judgments against consumers who have fallen behind on their payments. Judgments can be used to seize a consumer’s property, garnish their wages or place a lien on their home. According to the report, in Boston, 40,000 debt collection suits accounted for 85 percent of all small claims cases over a five-year period.

The report also contends many default judgments are entered against consumers because improper service has been conducted. Often consumers are unaware of the lawsuit because service is sent to the wrong address or is vague and confusing. The NCLC report asserts the huge volume of collection lawsuits being filed has exhausted the capacity of state courts. Additionally, the report states lawsuits are being filed when copies of records or verification of the debt cannot be produced.

In order to protect consumers, NCLC suggests measures be taken to establish a Consumer Financial Protection Bureau as well as update rules and enhance enforcement by the Federal Trade Commission. The report also contends measures should be taken to restore fairness and due process to debt collection suits in state courts; permanently ban forced arbitration of disputes between creditors and consumers; ensure consumers can pursue class actions and injunctions against abusive collectors and strengthen and update the Fair Debt Collection Practices Act.

NCLC’s proposed amendments to the FDCPA include:

giving consumers the right to record collection calls;
increasing the statutory damages award to at least $5,000;
basing class action damages on a collector’s revenue;
prohibiting confidentiality requirements for settlements of consumer claims;
requiring debt collectors, before initiating collection efforts, possess information about the debt including, (1) proof of indebtedness; (2) the date the debt was incurred and the date of the last payment; (3) the identity of the original creditor; (4) the principal amount and an itemization of all interest, fees or charges added to the debt; and (5) the chain of title if the debt has been sold;
requiring debt collectors possess the basic information listed above before filing a complaint. Collectors should also be required to certify they have knowledge of the above information in the complaint, and certify to the court or arbitrator they possesses a collection license, if required by state law;
requiring the creditor and each subsequent holder of the debt retain and pass on to the next holder all communications from the consumer concerning the debt and information about all known disputes and parties;
requiring initial written communication to the consumer include the name of the original extender of credit, as well as an itemization of fees and interest included in the debt;
requiring collectors conduct a reasonable investigation to verify a consumer’s dispute when the dispute is submitted in writing;
requiring collectors disclose to a consumer that she or he cannot be sued when the collector seeks payment for a time-barred debt;
requiring debt collectors inform consumers of their right to have the collector cease communications. Oral cease communication requests should be sufficient;
limit to statutory damages the application of the FDCPA bona fide error defense, so that a consumer may recover actual damages.