Lenny Ignelzi/AP Photo
A customer leaves the Payday Advance store in Oceanside, California, August 2006.
In the United States, debt is ubiquitous. There’s mortgage debt, student loan debt, credit card debt, car loan debt, personal loan debt, and more. And it’s piling up faster than ever.
According to Northwestern Mutual’s 2018 Planning & Progress Study, the average American now has $38,000 in just personal debt (excluding mortgage debt). Only 23 percent of Americans carry no personal debt at all, while nationwide consumer debt sums to over $13 trillion in total.
When these debts go unpaid beyond a certain time period, they are often sold to collection agencies. According to a study by the Urban Institute, some 71 million American adults currently have debts in collections. As indebtedness has soared, a fast-growing debt buyer industry has cropped up around it. When banks are unable to collect on a debt, be it a car loan or a credit card, they can sell those debts to debt collectors for pennies on the dollar, in order to recoup some of their losses. With that debt in hand, those buyers become collectors, tracking down debtors, reporting debts to credit bureaus, and insisting on repayment via relentless phone calls.
Debt buyers can also simply resell those debts over and over to subsequent buyers. This can result in collectors seeking payments on debts that are many years old, with shoddy information at best. Among the many abuses that can spring from this situation, collectors have been known to wrongly pursue payment on debts that have already been paid off, discharged in bankruptcy, or the result of identity theft. If they take those debts to court, and the debtor in question doesn’t appear to dispute it, it can result in wage garnishment for debts that, legally speaking, no longer exist. That phenomenon, known as “zombie debt collection,” has become increasingly common in recent years.
Now, a new proposal on third-party debt collection under consideration at the Consumer Financial Protection Bureau, is poised to expand zombie debt considerably. The new rule erodes the protections of the Fair Debt Collection Practices Act (FDCPA), undermining its preexisting aims of stopping harassment, protecting consumer privacy, and preventing collection against the wrong person, or in the wrong amount.
Currently, large debt-buying corporations file huge numbers of cases in civil courts, often despite holding limited information on the claim, against defendants who often can’t afford the legal help to defend themselves. This can effectively legitimize what are fundamentally illegitimate claims. Less than 10 percent of people sued on a debt are represented by an attorney, which means that most debt buyers win default judgments, even if they don’t provide sufficient evidence that the defendant actually owes the debt or that the deadline to sue has not passed. For unsuspecting debtors, that can result in punishment ranging from wage garnishments to even jail time.
The new proposal at the CFPB would exacerbate those conditions, extending protections to third-party debt collectors and their attorneys while exposing consumers to punitive and unjust collection practices. First, the rule relaxes restraints on time-restricted lawsuits. A collections lawsuit filed after an eligibility deadline has passed will only count as a violation if the collector “knows or should know” that the deadline has passed. That standard could encourage some collectors to file lawsuits against consumers after the legal time limit has expired, allowing them to claim ignorance about the statute of limitations. “The courts have regularly held that it violates the Fair Debt Collection Practices Act to file a lawsuit after the deadline,” Lauren Saunders, associate director of the National Consumer Law Center, told me. “This proposal is a green light to abusive collection of time-barred debt.”
Furthermore, the proposal would protect collection attorneys who engage in false, deceptive, or misleading practices. With some collection attorneys filing thousands of lawsuits each year, many can’t or don’t review original documentation, or even have evidence admissible in court before suing, resulting in lawsuits against the wrong people or for the wrong amount. The CFPB’s rule would excuse collectors from having to conduct an adequate review as a precondition of filing a suit, granting them a “safe harbor” from liability for false information as long as they say they have reviewed vague and unspecified “information” to determine that the lawsuit was warranted. As long as collectors claim to have made an effort to file legally, they would be relatively immune from prosecution. “People shouldn't have to be debating the debt collectors’ state of mind,” said Saunders.
The new rule would also allow seven debt collector calls per debt per week. If there are multiple debts in question, that could mean dozens of calls in any seven-day period. It also allows, texts, emails, and DMs, without consent and without limit. And the rules do not prohibit collectors from tricking consumers into resetting the lawsuit deadline; in many states, a small payment on an expired debt can renew its eligibility for a legal enforcement.
Debt collection is something that inordinately affects people of color: Some 45 percent of residents with credit reports that live in predominantly non-white zip codes are impacted by debt collection. And the empowerment of zombie debt in this proposal could uniquely target seniors, given that many of the debts that are pursued could be close to a decade old. “Seniors are particularly impacted, they often don’t remember,” said Saunders. “It’s hard for anybody to remember about an old debt, and they may think they owe debts they’ve already paid off.” It’s part of the reason that Florida already has the highest numbers of complaints against debt collectors per capita.
Instead of defanging one of the few remaining bulwarks of consumer protection, courts could require collectors to present proof of debts. And if protections are going to be unilaterally extended to collections attorneys in matters of civil debt litigation, there needs to be a massive, corresponding investment in providing legal services for low-income consumers to adequately address these challenges in court. Currently, there is less than one attorney for every 10,000 low-income Americans. Funding increases for the Legal Services Corporation, which provides civil legal help to those who need it most, should be the first step in providing legal protections from predatory debt collectors.
The deadline to submit public comment on the CFPB’s proposed rule changes extends until midnight on September 18. But if these rules are implemented without alteration, millions of Americans are likely to be stalked by zombie debts for years to come.
