WASHINGTON — The Consumer Financial Protection Bureau on Tuesday unveiled new rules for supervising large debt-collection firms, marking the first time that industry will be subject to federal oversight.
Starting Jan. 2, the government watchdog will regulate 175 debt-collection firms that each bring in more than $10 million in annual receipts, accounting for 63 percent of the market.
Examiners at the bureau will begin assessing whether debt collectors are complying with requirements of federal consumer financial law, including providing consumers with disclosures and accurate information. They will also investigate whether debt collectors have harassed or deceived consumers in the pursuit of payment.
The bureau estimates that about 30 million Americans have an average of $1,500 in debt subject to collection. Debt collectors typically report consumers' collection status to credit bureaus, meaning any inaccuracy could affect their ability to get a mortgage, car loan or credit card.
"Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly," CFPB director Richard Cordray said in a statement. "We want all companies to realize that the better business choice is to follow the law — not break it."
The $12.2 billion debt-collection industry has routinely come under fire for the tactics used to get consumers to settle their balances. A report last year by the Consumers Union found debt collectors filing an increasing number of lawsuits against borrowers without proper documentation. In some cases, companies were suing consumers over debts that were already paid or winning court judgments without proof they owned the debt.
One of the largest publicly traded debt buyers, Encore Capital Group, filed 245,000 lawsuits in 2009 alone, according to the report. Meanwhile, an employee of debt collector Asta Funding testified a few years ago that she churned out affidavits attesting that debtors' records had been reviewed every 13 seconds.
Sheryl Wright, senior vice president of external affairs at Encore, said, "Litigation is a last resort for our company when a consumer has the ability to repay their debts but refuses to do so. And when we do litigate, we pledge to be fair and reasonable."
Officials from Asta Funding declined to comment for this report.
"Larger companies tend to be the ones routinely filing mass cookie-cutter lawsuits, having huge databases of information that might be inaccurate, which is part of what causes all of these problems," said Suzanne Martindale, a lawyer with the Consumers Union. "The CFPB did cast a pretty wide net and should be capturing those companies."
The CFPB's authority extends to three types of collectors: companies that buy defaulted debt and collect the proceeds for themselves; firms that recover defaulted debt owned by another company in return for a fee; and lawyers who collect through litigation.