Treasury Dept. Report Calls Out Regulators To Help Modernize ARM Industry, Improve Disclosures

A report, issued last month by the Treasury Department, calls on the Bureau of Consumer Financial Protection to push forward with a proposed rule for the debt collection industry, specifically that the rule should focus on the information that is transferred to a collection agency or a debt buyer by a creditor and expanding the standard for validation letters to help individuals better understand the debt that is owed.

The recommendations are just a couple of many made in the report, which looks at non-bank entities in the financial services market. The report was issued pursuant to an executive order from President Trump that sought to codify a set of core principles that “promote or inhibit federal regulation of the U.S. financial system.”

The report is more than 220 pages long and only spends a couple of paragraphs on debt collection, and, reading between the lines, it looks like the ARM industry was included because it generates so many complaints with the Federal Trade Commission and the BCFP. But, nonetheless, the report spotlights the work being done by trade groups like RMA and ACA International in regulating themselves along with making recommendations about how the industry can be modernized and improved.

Concerns have been expressed by consumer advocates, lenders, debt collectors, and debt buyers about the quantity and quality of information that is transferred when a debt is sold or placed with a collection agency. But in making that determination, the Treasury Department is using information from an FTC report about the debt buying market that was published five years ago. A lot has changed since then.

In looking at the advanced notice of proposed rulemaking that the BCFP has already published, the Treasury Department’s report highlights two areas that should be focused on as a means of reducing the number of consumer complaints.

Treasury recommends the Bureau establish minimum effective federal standards governing the collection of debt by third-party debt collectors. Specifically, these standards should address the information that is transferred with a debt for purposes of debt collection or in a sale of the debt. Further, the Bureau should determine whether the existing FDCPA standards for validation letters to consumers should be expanded to help the consumer assess whether the debt is owed and determine an appropriate response to collection attempts.

Treasury does not support broad expansion of the FDCPA to first-party debt collectors absent further Congressional consideration of such action.

The report also looks at email, text messages and other more modern forms of communication that many collection agencies are wary of trying, because of fears of being sued.

While using e-mail or voicemail to communicate with a consumer about his or her debt is permissible under FDCPA, potential litigation risk can arise if the debt collector inadvertently discloses information regarding the debt to an unauthorized third party while using contact information provided by the borrower. As a result, even if consumers increasingly prefer to communicate digitally, such as via text messages and e-mail, litigation risk can discourage debt collectors from doing so.

To help companies, the report recommends that the BCFP issue some form of regulation or guidance indicating that text messages, emails, and other more modern forms of communication are allowed in the debt collection process.

Treasury also recommends that the Bureau promulgate regulations under the FDCPA to codify that reasonable digital communications, especially when they reflect a consumer’s preferred method, are appropriate for use in debt collection.

The report also calls on the Federal Communications Commission to move forward with its reassigned number database as a means of reducing “unwanted calls to consumers and reducing caller liability by permitting callers to conduct due diligence to learn whether a number has been recently reassigned and, if it has, remove that number from their autodialed calls.”


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