Debt Collection and Modern Communication Channels Discussed in CFPB Credit Card Market Report

Yesterday, the Consumer Financial Protection Bureau (CFPB or Bureau) published its biennial report on the credit card market. The Bureau's report is intended to focus on the CARD Act's impact on the credit card market. However, the Bureau notes that, due to the passage of time, such correlations are difficult to make. Because of this, future reports will focus more on the credit card market as a whole (while still discussing the CARD Act’s impact where appropriate).

Overall, the Bureau notes that the credit card market continues to grow. Outstanding balances continued to grow, ending 2018 “nominally above” pre-recession levels. The total credit line across all consumer credit cards was $4.3 trillion in 2018. Credit card applications have slightly declined since their peak in 2016.

Late payments and default rates have modestly risen since the prior report, but remain below pre-recession levels. According to the report, “Rates of credit card delinquency and charge-off have declined sharply since their peak during the recession, and remain lower than they were before the recession. Both indicators have increased slightly in recent years.”

The report also discusses debt collection and the differences between a creditor and a third-party debt collector communicating with consumers. Below are quotes from the report on specific pertinent points.

• On the use of digital servicing channels. “Cardholders increasingly use and service their cards through digital portals, including those accessed via mobile devices.”
• On collection calls. “Since the 2017 Report, issuers have lowered the range of their daily limits on debt collection phone calls for delinquent credit card accounts. Over that same period, the volume of balances settled through for-profit debt settlement companies (DSCs) grew at a faster rate than issuers’ overall accounts receivable did.”
• On communicating with consumers internally versus through third-party debt collectors. “Issuers have lowered their daily limits on debt collection phone calls for delinquent credit card accounts since the Bureau’s last report. Average daily attempts remained well below these stated limits, which is consistent with findings from the 2017 Report. Most issuers now supplement their internal collections communication strategy with email and text messages, but these channels are used primarily for account servicing and not for delivering required collections notices. Issuers’ third-party collection networks typically do not use email and text.”

insideARM Perspective

The report's discussion on contact methods used by creditors and their third-party debt collectors is important because it relates to the Bureau’s Notice of Proposed Rulemaking for debt collection (NPRM). The report notes that creditors were able to decrease the number of collection calls by using more modern forms of communication with consumers. The report also notes that debt collectors do not typically use these same communication channels. Let’s explore that a little bit.

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Consumer preference in contact methods is the most important factor. Due to uncertainty and fear of endless class-action liability, many debt collectors have been reluctant to incorporate electronic forms of communication, such as text messages and email. In the NPRM, the Bureau aims to provide clear procedures on how debt collectors can safely begin to use these electronic communication channels. This is an incredible first step, and the Bureau should be applauded for this. With a few changes (as will be expressed in industry comments), they can help debt collectors communicate with consumers through the consumers’ preferred channels. If a creditor typically communicates with the consumer using electronic methods, it can be jarring to suddenly receive snail mail and telephone calls regarding the same account. Continuity in communication methods is essential as it increases the likelihood that the consumer will receive important information about their account.