| A Division of Banks hearing on debt collection practices in Massachusetts drew a healthy turnout last week as the state’s banking regulator and attorney general weighed whether further regulation might be needed.
On one hand, consumer protection groups argued and highlighted issues with communication to consumers, with default judgments and with how debt collection cases are often handled in the courts. On the other hand, debt collectors, debt buyers and their advocates expressed concern over the potential burden new regulations would impose on their numbers, many of them small businesses themselves, and for inadvertent negative impacts to consumers.
Debt collectors and buyers said they would also like to be able to contact consumers by email or text, if a consumer chooses that option.
The Division of Banks is not currently considering specific rules to govern the debt collecting industry, then-Commissioner David Cotney said. But debt collection is a multibillion-dollar industry that’s seen significant recent growth and changes to its business practices, and the banking division and attorney general’s office are considering whether new or different regulation might be necessary.
Max Weinstein, chief of the consumer protection division with the AG’s office, highlighted economic security as a strategic priority of Attorney General Maura Healey and said debt collection practices that violate consumer protection laws hinder that goal.
Thursday’s hearing was simply informational in manner, but nonetheless drew a substantial crowd and packed the place to standing room only.
At the federal level, the Consumer Financial Protection Bureau is currently weighing a proposal to regulate third-party debt collectors. The CFPB’s proposed rules would require more and specific documentation to support the debts those businesses collect and limit excessive or disruptive communications to consumers.
Given the CFPB’s movement, debt collectors and debt buyers urged the state’s banking division to let the federal agency act first.
“We all strive to collect the right amount from the right individuals in the right way,” said Michael S. Kraft, outside general counsel with Credit Control Services Inc.
“Rulemaking tends to affect the best players,” he said, and not those who play fast and loose with consumer protection laws.
But consumer advocates felt the state could still do more to ensure that those debt collectors are indeed practicing their business in a fair and ethical way.
“Debt collection is a major issues that impacts consumers,” said Nadine Cohen, an attorney with Greater Boston Legal Services. She said that debt collectors contact consumers about one billion times a year and that four million Americans had their wages garnished by debt collectors in 2013.
She also expressed concern about cases where the consumer was representing themselves. Without representation, Cohen said, the consumer runs into difficulty challenging or even questioning the debt in dispute, and the burden of proof is often shifted from the debt collector (to prove that the debt is legitimate and that the collector is going after the right person) to the consumer (to prove that he or she does not owe that debt to that party).
“We think the lack of documentation about the debt is a major problem,” she said.
Making matters worse, debt collection attorneys often do not identify themselves to consumers in court, leading consumers to believe they may actually be working for the court. GBLS, she said, also supports the licensing of law firms that act as debt collectors.
The division is accepting written comments on the issue until the end of day on Friday, Oct. 21.
