The Consumer Financial Protection Bureau, or CFPB, was created after the economic crisis to provide more fairness and transparency when consumers use the financial market. Director Richard Cordray (left) used the public hearing on Wednesday - one of a series across the U.S. - to flex the bureau's muscles.
"We're trying today to put the industry on notice of different practices that are potentially illegal, and that they should be very careful about, that we now have the ability to examine debt collectors and to enforce the law against them," Cordray said.
Until a couple of years ago, federal consumer protection laws only applied to third-party debt collectors. Those who lent directly to consumers, like banks, were in a kind of regulatory void. But under the Dodd-Frank Act of 2011, Cordray says the CFPB can now protect consumers from any company that moves beyond collection to harrassment.
"Sometimes threats are made that are inappropriate, and actually deceptive and false, like that you could be subject to arrest or imprisonment," he said. "But there's a lot of pressure on debt collectors, who often get paid by what they collect, to press the envelope."
Sometimes companies will collect more money than is actually owed, or erroneously advise consumers about how their credit scores will be affected. Another problem is the prevalence of abusive debt collection lawsuits. If consumers don't appear in court, companies often win default judgments using incomplete or questionable evidence.
Frank D'Allessandro, of Pine Tree Legal Assistance, says those default judgments happen all the time in Maine, and it's essential for consumers to seek legal help, no matter what their situation.
"We also routinely observe cases in which people agree to make payments that they cannot afford from income that is exempt from collection, such as disability or retirement benefits," he said. "This is wrong. It's against the law, and we need to do better."
In addition to targeting unsavory debt collectors, the Consumer Financial Protection Bureau also announced Wednesday two new strategies to empower consumers. It posted five different action letters on its Web site for consumers to use to communicate with debt collectors. And the CFPB is now accepting consumer complaints about debt collection, which will be published in a public database.
Maine Attorney General Janet Mills says these moves are a big deal.
"To provide a uniform nationwide debt collection remedy, or complaint process, for consumers of all sorts, including consumers who have been injured by direct creditors, as opposed to simply third-party collectors - this is a huge step to be taking," Mill said.
Mills says Maine has plenty of consumer debt issues, especially with student loans and mortgage foreclosures. No one personally affected by unfair collection practices spoke at the hearing, whose crowd seemed to be primarily made up of lawyers, consumer advocates, and those in the financial industry.
Richard Cordray of the CFPB says keep in mind the circumstances that can surround personal debt.
"I think there sometimes is a misunderstanding. Somebody who owes money - that doesn't mean they're a deadbeat," Cordray said. "It may be they've fallen on hard times, or there was a misunderstanding, or they were a victim of some predatory practice. There's a lot of reasons why people owe money, and it doesn't mean that they shouldn't be entitled to the same dignity and respect we all have."
Janet Mills says Maine has some of the best consumer-oriented laws on the books. It's a matter of knowing your rights, and she says consumers should call the Attorney General's Office, Pine Tree Legal, or the CFPB when faced with debt collection.
Learn more from the CFPB about protecting your consumer rights.
Photo: Patty Wight