Washington, DC: Public Event on Debt Collection 1/12/2017


Good morning, everyone, and welcome to the
Office of Attorney General for the District of Columbia. Many thanks to our partners at the Consumer
Financial Protection Bureau and the Department of Treasury for being here today. Many thanks to them also for working for us
regularly to protect consumers. My name is Karl Racine, and I am the District’s
first elected attorney general. One of the most important jobs of a state
attorney general is to protect and educate consumers, particularly vulnerable consumers
who are too often targeted by unscrupulous individuals and businesses, and that’s why
we’re so proud to work with CFPB, the Treasury Department, and other states and federal partners
on events like today’s discussion on debt collection. Without question, one of the most significant
categories of complaints we hear from consumers in the District concerns aggressive and abusive
debt collectors. You will soon see videos of consumers telling
their own stories about debt collection during today’s presentation. On behalf of these consumers and others, I
want to thank Director Cordray and the CFPB for their study of this crucial issue. In particular, CFPB has changed the landscape
when it comes to protecting consumers from bad debt collectors and other abusive practices
in the financial industry. Indeed, we’re seeking to do the same thing
here in the District of Columbia. Just yesterday, we announced a major settlement
with one debt collection company that will provide nearly $3 million of relief to District
residents. We sued a company called CashCall. This is a consumer loan company that tried
to get around District laws and take advantage of consumers by charging illegally high interest
rates. How high? Some of the rates that they were charging
D.C. consumers varied between 80 percent and 170 percent, notwithstanding the fact that
the District’s usury laws puts a cap on the interest rate that is allowable at 24 percent. Obviously, this harmed consumers, and we’re
thankful that our office of Consumer Protection and our lawyers and our investigators worked
hard to bring relief to District residents. There’s a lot of money to be made in the debt
collection industry, and we want to ensure it’s made in a fair way that does not illegally
harm consumers. That’s why I’m looking forward to hearing
the information in the reports that Director Cordray will outline for us. As a matter of personal privilege, I want
to say how thankful I am of Director Cordray’s extraordinary tenure and personal kindness. Director, I know I remember—you might recall—that
the first phone call that I received from a federal partner was from you. You had seen some article in the newspaper
that recounted, I guess, our passion for basketball, and you sought a meeting. And in that meeting, you promised me that
anything, that any way you could help the District of Columbia, you’d be right there,
and indeed, you’ve been there from the beginning. So I want to thank you. And when we talk about Richard Cordray, I
think it’s really important for us to understand the kind of extraordinary public servant he’s
been, not only at his time at CFPB, but his entire life. Obviously, a son of Ohio, an extremely bright
young man, coming from hardworking family, goes to a great college, attends law school
at the University of Chicago, an editor-in-chief of the Law Review, goes on to clerk for the
late Judge Robert Bork on the D.C. Circuit, then beats me out again for another clerkship,
this time at the Supreme Court for Anthony Kennedy. I mean, these are the best and brightest among
us to choose not to just spend their life in the private sector but devote time, energy,
and sacrifice, personal resource, trying to do what’s right for everyday residents. Indeed, this country is fortunate and the
CFPB is fortunate to have benefited from Richard’s—his extraordinary leadership. One other point I’ll make about Mr. Cordray,
I mention basketball. Let me tell you, those of you who have seen
Mr. Cordray in the last 5 years know that occasionally you’ll see a bruise on his elbow
or maybe even a shiner under the eye. That’s because it can get rough on the basketball
court, and to be sure, it hasn’t been easy in the District of Columbia. And that’s because there are powerful forces
of industry that don’t like it when a shakeup is necessary and when consumers need to be
protected. Like those basketball players on the other
side of the team, I can guarantee you that Director Cordray has given it at least as
good as he’s gotten it, and we urge him to continue to fight every day for consumers. It’s my pleasure to introduce you to Director
Richard Cordray. Thank you, General Racine. I am personally moved by those remarks, and
I appreciate those deeply in what is an interesting time. And I wanted to say to all of you, I want
to thank my friend, Karl Racine, for hosting us here in City Hall. As he mentioned, he serves as the first elected
attorney general in the history of Washington, D.C., and we’ve had a chance to speak about
what that means to be an elected attorney general, as I was in the state of Ohio, and
the bond he feels with the citizens of the District in his daily work to protect, support,
and defend them. He’s also been an extraordinary partner for
us at the Consumer Financial Protection Bureau from that very first meeting, and he cares
deeply about protecting and supporting not all the citizens alone but also the consumers
from that particular piece of their lives here in the District. Thank you all for joining us as well. Today, we’re going to shed more light on how
consumers experience debt collectors and about some troublesome aspects of the market for
buying and selling debts. Today’s announcement has three pieces. First, we’re releasing a new survey that sheds
light on the debt collection experiences of a nationally representative sample of consumers. There’s a lot of the same things we’ve heard
over the years, but this is a nationally representative sample that documents just what this is like
for all Americans. Second and relatedly, we’re launching a Web
page to highlight personal stories that consumers have shared with us about their experiences,
which echo many of our survey findings, and as the General mentioned, we will actually
see several of those videos of people telling their stories in their own words with their
own emotion, so that you can really feel what this means in people’s lives. People have told us, for example, about being
pursued for debts they do not owe or feeling threatened by debt collectors. Many of the stories are quite vivid and detailed. Third, we’re releasing a study of a particular
segment of the online marketplace where debt is quite old and offered for sale at rock-bottom
prices, often for fractions of a penny on the dollar. Some of these portfolios are advertised as
having supporting documentation, but many are not. The low cost, age, and lack of supporting
information almost inevitably invites the potential for abuse, and we’ll speak more
about that in a moment. What we are talking about today is important
because debt collection is a multibillion-dollar industry that touches the lives of 70 million
consumers who have at least one debt outstanding. Banks and other creditors may collect their
own debts, or they may turn to third-party debt collectors to do it for them. Others sell their debt to debt buyers, again,
either to collect on it themselves or to utilize a third-party collector. 6,000 debt collection firms are estimated
to be operating in the United States. We recognize—I want to emphasize this—that
debt collection is part of the proper functioning of consumer credit markets. If people owe money that they borrowed on
their credit card or because they took out a student loan or received service from their
telephone company, they are obligated to pay the money back, and they should do so. Responsible debt collectors that do their
work with care and treat consumers with respect are a natural and even an essential part of
the financial marketplace. Yet nobody should be surprised that debt collection
drives more consumer complaints than any other financial product or service. That’s true here in the District. It’s true across the country. It’s true in every state. Most debt collectors are compensated based
on how much they collect, which can create the kind of serious incentive problems that
we have noted elsewhere in the financial marketplace, and because people have little or no say over
who does business with them, who is their debt collector, once the original creditor
has sold the debt, the risks to consumers are magnified even more. So we’ve seen that many consumers report being
harassed or threatened with illegal actions, such as threats of arrest or jail time. Some collectors fail to send required notices. Others make improper contact, such as by sharing
information about debts with employers or family members. Another common complaint comes from people
contacted for debts they say they do not even owe. Still, others describe being given false or
misleading information by collectors. Taken together, these kinds of problems can
just pummel consumers. Because people do not exert any meaningful
control here by being able to walk away through consumer choice, they may know little or nothing
about the collector or the debt until a letter arrives or the phone rings, and the collectors
may know little or nothing about the debt they are collecting or who they are collecting
it from. Collectors that act on inaccurate information
can inflict substantial harm. Some debt collectors care only about squeezing
as much as they can from the names on their list. The typical collector is paid on commission
and may have only a passing relationship with the debtor. Some make the calculation that the chances
of being called to account later are remote, but the urgent impetus to secure immediate
payment is ever present. The Consumer Bureau has made it a priority
to improve the debt collection marketplace. So far, we have brought more than 25 debt
collection cases over tactics that deceive or abuse consumers. These enforcement actions have led to $100
million in civil penalties, more than $300 million in restitution to consumers, and $4
billion in debt relief for consumers. We also have taken numerous steps to study
the industry and improve the quality of its conduct. In October 2012, we issued a larger participant
rule—that’s our jargon—that establishes supervisory authority over nonbank debt collectors
who have more than $10 million in annual receipts from consumer debt collections. This covers some 175 debt collectors that
account for more than 60 percent of the industry’s annual receipts. The Bureau has also ordered creditors and
debt collectors to stop collecting on debt based on bad information and to modify or
eliminate many unlawful collection practices. We have issued an outline of proposals under
consideration for a rulemaking, and we continue to consider other effective ways to reform
and improve this industry. The Consumer Bureau’s survey on consumer experiences
with debt collectors is the first of its kind. The sample for the survey was drawn from our
Consumer Credit Panel, which we had put together and itself is a random and de-identified sample
of records maintained by one of the large national credit repositories. We mailed surveys to over 10,000 consumers
and obtained responses from more than 2,000 of them, a very strong response rate. By using the panel, we were able to obtain
a large number of responses from consumers with debts in collection, while still reporting
results that are nationally representative. We also can use the data to analyze the results
by different segments of consumers, while carefully preserving the confidentiality of
each respondent. All of this data is invaluable to understand
the experience of consumers who are contacted about debt. So we asked consumers about their dealings
with debt collectors for consumer loans and other unpaid bills. We asked whether they had been contacted by
debt collectors and how frequently. We asked about the types of debt they had,
whether they had paid the debt after being contacted and whether they thought any of
those collections were made in error. Our survey indicated that one out of three
consumers—one out of three—report having been contacted over the past year. We found that one in four consumers said they
felt threatened, even though collectors are generally prohibited by law from harassing,
oppressing, or abusing consumers. Even more people reported being contacted
at highly inconvenient times. About one-third said the creditor or collector
had called them most recently between 9 p.m. and 8 a.m. That’s not between 8 a.m. and 9 p.m. It’s between 9 p.m. and 8 a.m. For most people, these contacts violate the
law, which says that debt collectors generally cannot call people at times they know or should
know are inconvenient, unless the consumer specifically agrees to it. Nearly 40 percent of consumers reported that
a single debt collector tried to contact them four or more times per week, and 17 percent
said they usually were contacted eight or more times per week. Well over half were being contacted about
two or more debts, and even more told us they asked the collector to stop contacting them,
though most said their requests were not honored. We found that litigation is a common mechanism
for collecting debts. In the past year, about one out of every seven
consumers who said they were contacted about a debt reported being sued as well, which
amounts to many millions of people. But of those who were sued, only one out of
four even attended the court hearing. This means that collectors can usually count
on consumers ignoring or overlooking a lawsuit, which makes it even easier to hold them responsible
for the debt, regardless of whether it can even be documented or verified. For consumers who are struggling under the
weight of financial burdens, harassing threats, and legal actions, these experiences only
magnify their crippling levels of stress. We also learned that more than half of Americans
contacted in the past year by debt collectors reported substantial inaccuracies in what
they were told about the debt. To be specific, many consumers said they did
not believe they ever owed the debt at all, that the creditor or collector sought an incorrect
amount, or that the debt was owed not by them but by another family member. It’s important to note that these same statistics
also indicate that many debt collectors and creditors respect the laws governing their
industry and have good practices in place. Many of the consumers who responded to our
survey did not report any negative issues with those collecting debts from them. They were clearly informed about the nature
of the debt. They were treated politely, and they reported
no harassment or threats. This all goes to show that with the right
amount of attention and effort, many debt collectors are able to fulfill their role
appropriately and responsibly. But our survey also reflects a grim reality
for many consumers who find themselves on a bad-debt collector’s radar. They may be threatened or harassed with incessant
contacts. They may be contacted about debts they do
not owe. They may be given incorrect information about
debts they do owe. We believe these findings will help policymakers
and the public understand more about this important marketplace. Going forward, the results of our survey will
inform the Consumer Bureau’s approach to overseeing and reforming the debt collection industry. A hallmark of our perspective on the consumer
financial marketplace is the broad range of stories we hear from consumers themselves
that help illuminate the bare statistics. They are not just names on a debt collector’s
call list but real people who deserve to be treated at all times with fairness and respect. All over the country, people have come forward
to tell us about their experiences with debt collection. Over the next few weeks, we will be sharing
some of these stories, and we want more consumers to tell us their own stories. Their voices will help guide our efforts to
protect consumers and create a fairer marketplace. So today, along with our survey, we are unveiling
our first set of videos presenting consumer experiences with debt collection. Reinforcing what we found in our survey, for
example, we heard from William of Manassas, Virginia, who said he was pursued by a credit
card company for an $8,000 debt he did not owe. William explained he was a victim of identity
theft, and it led to a struggle that lasted for over 4 years and damaged his financial
life. Eventually, the struggle over this phantom
debt left William’s credit ruined, and he was denied the opportunity to refinance his
house. His personal story puts much-needed flesh
on the bones of the statistical figures. We also heard from Bernadette in Pittsburgh. She said she felt harassed and greatly stressed
by repeated contacts from debt collectors. They left messages on her cell phone, at work,
and with friends and family members, talking about what they described as a serious legal
matter. When she tried to resolve the issue, she learned
that her debt had been sold to someone else just a few days after she was initially contacted. These stories are personalized examples of
experiences that are shared by many, many people who are being pursued by debt collectors. They help motivate us at the Consumer Bureau
as we work to make sure all consumers are treated with dignity. You can hear for yourselves the stories that
William and Bernadette have told us at the CFPB’s website, and again, we want to hear
from other consumers as well. We will preview these videos for you here
shortly. In studying the results of our survey and
listening to consumer stories, we find some disturbing patterns of debt collection practices
among certain companies. A number of these practices extend to the
cavalier way in which debts may be sold to collectors and what happens next. When a creditor fails in its efforts to collect
a debt, one alternative is to sell it off for whatever price can be had. This is often referred to as charged-off debt,
and some of it is sold for extremely low prices, particularly as the debt gets older. Whoever buys it then has the legal right to
pursue collection of the full amount of the original debt. Studies have shown that third-party debt buyers
do not always get complete information about the debt. As a result, some pursue consumers over debts
that they do not owe or for the wrong amount. This can lead to consumers being wrongly and
needlessly harassed. So the third thing we are releasing today
is a report on the online marketplace for charged-off debt. Through these Internet bazaars, buyers can
acquire debt at bargain-basement rates. The asking price can be not pennies on the
dollar but a mere fraction of a cent per dollar of original debt. Notably, these portfolios or bundles of debt
may contain sensitive information about hundreds or thousands or even hundreds of thousands
of consumers. These online marketplaces are a small but
notable segment of the debt collection industry. Handled appropriately, they can efficiently
connect responsible debt buyers with responsible debt sellers. But the ease with which debts are bought and
sold online raises the risk that debts and the sensitive information that comes with
them could fall into the hands of irresponsible parties or outright criminals. Our report on online markets is based on a
review of 298 portfolios of charged-off debt that surfaced in any of three online marketplaces
that we monitored between January and August 2015. All told, these portfolios were advertised
as containing the information of more than 1.2 million consumers, with a combined face
value of almost $2 billion. The median asking price per dollar of original
debt was less than one cent. Debt portfolios typically include the consumer’s
name, street address, Social Security number, and home and work telephone numbers. They also generally include financial information,
such as account numbers, name of the original creditor, current balance, date of the last
payment, and date of charge-off associated with the debt. This is, of course, highly sensitive information
that should be protected and kept confidential. Unfortunately, that is not always the case. In 2014, an FTC complaint alleged that two
online debt markets posted at least 21 portfolios of purported debts containing unencrypted,
sensitive personal information for more than 28,000 consumers. The companies failed to protect this information,
which could be viewed by anyone who simply visited their websites. A more recent and highly publicized story
that many of you may have seen about the sale of debt appeared on John Oliver’s television
show. He described how he created a company that
acquired a portfolio of almost $15 million in written-off medical debts by paying about
$60,000, which amounts to less than half a penny on the dollar, and he explained that
the transaction netted the names, addresses, and Social Security numbers of nearly 9,000
people who purportedly owed these debts. If we credit his story, it appears that Mr.
Oliver bought this debt for the altruistic purpose of forgiving it, which is perfectly
legal. But no individual consumers can exert effective
control over whether their personal information is included on such lists. So all of this serves as a cautionary tale
that parties with more nefarious motives could find it just as easy to harvest confidential
details on thousands of consumers and misuse the information to disrupt and ruin their
lives. The risks, thus posed, are substantial, and
they should be of grave concern to all of us. The materials we are releasing today underscore
some of the persistent problems with debt collection. They include consumer reports of misinformation
or a lack of information, improper contact with employers or third parties, phone calls
at inappropriate times, and the burdens posed by a great mass of legal actions. The lack of basic protections for sensitive
personal information can pose severe risks for consumers. Without clear rules of the road that can be
enforced in an even-handed and effective manner, companies that collect or sell debts responsibly
and lawfully may find it hard to compete against those that bend or break the rules to their
own advantage. The Consumer Bureau has the authority and
the duty to enforce the law to protect consumers, and we will not tolerate those who harm them
by violating the law. Our work to ensure that all consumers are
treated with dignity and fairness will continue, and our deep concerns about the integrity
of information in this marketplace will remain top of mind as we consider further how to
fashion helpful, common-sense boundaries for the debt collection industry. Thank you again to General Racine and his
staff here for their interest and coordination and strong support and work with the Consumer
Bureau. Thank you all for being here with us today,
and now we will preview the videos of consumers telling their personal stories about their
encounters with debt collectors. So my troubles with finances or financial
problems with this one company, an artist I was working for whose business manager provided
me with a card on his account as an authorized user. In actual fact, they had used my Social Security
and my credit to take out a card, an account, so to speak. Maybe 2 1/2 years later, I get contact from
the credit card company to let me know that my account was overdue, seriously overdue. I asked them what account was that. They explained it to me, and at that point,
this was my first knowledge that I actually held this account in my own name. This started a saga that continued for somewhere
around 4, maybe 4 1/2 years. I spoke to over 120 counselors from this credit
card company. None of them could do anything else except
tell me that I had to pay them $8,500. My credit was ruined. I had been denied a refinancing of our house
until I finally got help from the CFPB. And when I got to the website, there was a
section where there was people’s stories. You can upload information, documents to the
CFPB website, and within 24 hours, I had received an acknowledgement that the CFPB was looking
at the situation. And within 7, I think maybe 8 days, I got
an actual letter back from the credit card company that intimated that they were apologetic
about what they had been doing to me, and then the next day received another letter
from them telling me that they were removing everything that was adverse from my credit
report. That just felt good, you know. It was a solution. In a situation for me that was seemingly endless
and hopeless, the CFPB helped me to find resolution. It’s a new day. I had taken out the payday loan just to have
some extra cash when I was facing a little bit of hardship. Just bills were high, car repairs, and that
seemed as though it was an easy fix, but it turned out not to be due to the high payments,
which led to the problem. My name is Bernadette, and I am from Pittsburgh,
Pennsylvania. I had been contacted by a collection agency. They had initially called my work. Shortly after that, they contacted my dad,
my two sisters, and one of my friends. They had said they had a legal complaint in
their office, and they were looking for information as to my whereabouts, otherwise they would
be going to the District Court to file papers on this matter. That was the first time that I had received
a phone call. It was very overwhelming for them to contact
my family. I didn’t want anybody to know of this personal
matter, not to mention that when they contacted my work, I cannot receive phone call for personal
matters. The debt collector wasn’t very helpful. I found out about the CFPB by going online. Once I submitted my complaint, there was pretty
much an initial response, and the original company that the debt was with had reached
out to me with a resolution, in which I no longer had to deal with the collection agency
that was harassing me. The collection agency did invade my privacy
by reaching out to my family and my friend and leaving my personal information on their
answering machines. Dealing with financial matters can be really
stressful. You do not have to face it along. The CFPB is there to help you. You have the right to fair debt collection
practices. After I lost my job, I attempted to pay for
my car loan as much as I could with the money that I had from unemployment. Once my unemployment check ran out, I wasn’t
able to pay for it anymore, so it became delinquent, and it was sold to a debt collector. Several debt collectors began to call, but
I wasn’t able to set up any payment plans because I didn’t have any income. There were a few that were calling and making
threats. I had one that was telling me that I was going
to jail, and that she was a detective, and they were coming to my house, and I was going
to go to jail for car-napping. I was terrified to hear threats like that
because I’m a single mom, and to hear that my freedom could be in jeopardy of me not
being able to see my son for any amount of time terrified me. No debt collector should threaten me with
jail time. Nothing tells a more clear, more persuasive,
more powerful story about unlawful debt collection practices and the hardworking, good people
who it impacts than those videos. It’s agencies like the CFPB and modestly stating
our Office of Consumer Protection that are here to help consumers when they have issues. Again, I want to thank Director Cordray, the
CFPB, and the Treasury Department for being exceptional partners and for ensuring that
our most vulnerable citizens are, indeed, protected. Thank you very much.

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