Fewer Lawsuits Mean Better Days Ahead: FDCPA Lawsuits Filed Against Collectors Down 10% in 2013

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If the mutual goal of both consumers and debt collection industry insiders is better communication, there is light at the end of the tunnel for 2013’s heated exchanges between the two sides.  The numbers prove it: 2013 saw 10% fewer cases filed under the Fair Debt Collection Practices Act (FDCPA) by consumers and their attorneys against a debt collector. 

This data, compiled and released by WebRecon LLC, shows a decline in lawsuits that has been happening for two years straight and is showing every sign of continuing this trajectory.  Specifically, 10,320 FDCPA lawsuits were present on federal district courts dockets in 2013, which is a 10.2% decline from 2012’s numbers.  2012’s numbers showed a 6.8% decline from 2011. 

Lawsuits filed by consumers against debt collectors, collections attorneys, and ARM companies saw a rapid rise in 2005 and peaked in 2011, following the brutal economic aftermath of the 2008 world financial crisis.  Fewer lawsuits claiming FDCPA violations means the industry is stabilizing and finding its footing on a path to higher customer satisfaction. 

There are multiple reasons for this but much credit can be given to the willingness of both sides to negotiate best practices in the industry.  Additionally, the recent outspokenness of key players in ARM during the CFPB’s Advance Notice of Proposed Rulemaking (ANPR) shows a willingness on behalf of the debt collection industry to meet consumers halfway. 

Despite the gains being made and the decline of FDCPA lawsuits on federal court dockets, lawsuits alleging ARM violations of the Telephone Consumer Protection Act (TCPA) have risen rapidly in 2013—up almost 70% from 2012’s numbers.  However, as this statute was originally written for telemarketers, there remains open debate concerning the scope and range of this Act as it relates to debt collection industry best practices.

Three New Year’s Resolutions You Should Make If You’re in the Debt Collection Industry

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The past year has been a whirlwind of speculation and heated discussion in the debt collection industry and among collection attorneys, as federal regulators zeroed in on ways to resolve the backlash of problems created by the financial crisis of 2008.  Much of those solutions involve increased regulations in an already heavily regulated industry, as topics like accurate originating documentation for litigation and communication via digital methods became “hot button” issues across the media. 

With this in mind, here are three New Year’s resolutions you need to make now if you’re in the collections industry in any capacity. 

Resolution #1:  Stay vigilant and informed

By February 16^th, 2014, the Consumer Financial Protection Bureau will stop taking advice from consumer advocates and collection industry insiders.  At that point, they’ll determine the new rules based on the knowledge they received during the Advance Notice of Proposed Rulemaking period.  This means that there will be new rules and you will have to stay updated on them, so vigilance is more important this year than it has been in a long time. 

Resolution #2: Pay close attention to your third-party vendors

Last year, the Consumer Financial Protection Bureau made it very clear that a collection agency could be held responsible for the collection actions taken by any third-party vendor it hires.   

Resolution #3: Remember that communication is working, and will continue to work

The Consumer Financial Protection Bureau stated that out of the 5,329 debt collection complaints it added to its consumer complaints database, 5071 consumers reported a timely response from the company.  What this means is that despite the current agitation between consumer advocacy groups and debt collection insiders, opening lines of communication to improve the consumer experience works and both sides want to see it happen.  Also, almost 20 percent of the total number of complaints added to the database fell under the category of “communication tactics,” with the largest portion complaining about too-frequent calls, or calls that occurred after a cease and desist request was filed.  Honest discussion about digital communication, or methods of contact other than calling, should be (and are being) brought to the forefront of the debate.  

What are the biggest changes anticipated from the Consumer Financial Protection Bureau's proposed new rules?

Summit Seeks to Find Common Ground between Collection Industry and Consumer Groups

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While there is worry that the Consumer Financial Protection Bureau’s new regulations will create problems for the collections industry, some ARM industry insiders are using the current period of Advance Notice of Proposed Rulemaking (ANPR) provided by the CFPB as an opportunity to communicate openly with consumer groups. 

Last month, an ARM publication, insideARM (affiliated with the iA Institute) hosted a Large Market Participant Summit in Washington, DC.  The summit included a panel moderated by an ARM defense attorney and in-depth discussion of what consumers want to see happen regarding the CFPB’s proposed new rules.  While many of the suggestions provided during the summit were not in sync with the ARM industry’s best interests, there were still some common goals found between consumers and collection industry insiders.    

Both sides reiterated the need for better data flow and verification of consumer debt.  Consumer advocates suggested one database that could be populated by the creditor or original lender, and accessed by downstream collectors.  However, according to Barbara Hoerner, counsel and Chief Compliance Officer at collection agency Progressive Financial Services, such a database could have negative consequences, such as data standards requirements added to ARM firm systems already struggling to handle the current ones. 

Both sides did agree, however, that a push toward better communication is important.  In such, any rule that the Consumer Financial Protection Bureau creates that serves to encourage more consistent and accurate communication would be readily accepted by both consumer advocates and ARM industry insiders.  However, the specifics of how better communication efforts would work in an increasingly digital landscape are muddy, at best.  Email communication and voice mail communication are two particularly difficult topics facing the industry, but regulators are beginning to see the value in focusing on them.  In the meantime, many in the collections industry are looking on the bright side and hoping the rulemaking period provides much-needed communication happening between both sides of the debate.  

Are complaints against collections practices being resolved?

The Big Wait for the Consumer Financial Protection Bureau’s Next Move

The Consumer Financial Protection bureau has placed the topic of debt collection at the forefront of their priorities as soon as the period of Advance Notice of Proposed Rulemaking ends.  What this means for the debt collection industry is that 2014 might become one of the most important years for the collection industry since the FDCPA was passed in 1977.

Some of the changes announced by the agency include increased regulations for debt collection practices.  These regulations could include restrictions placed on the originating creditors, as well as better accuracy on forms or documents that are shared between collection parties, debt buyers and settlement companies.  The potential also exists for updated rules on the limit and scope of communication that must transpire between a collection agency or collection attorneys and a debtor, including communication via text messaging. 

The biggest changes, according to senior CFPB officials, will likely occur for creditors that both originate -and collect on debt.  Currently, the Fair Debt Collection Practices Act only places restrictions on third-party collectors.  These changes proposed this year by the CFPB could affect first-party creditors in much the same way that the Fair Debt Collection Practices Act affects current third-party collectors.  It could also give the Consumer Financial Protection Bureau the authority to supervise larger debt collectors that are not affiliated with a bank; although banks are also under fire for their current debt collection practices, as well. 

This past July, American Banker interviewed Paul Joseph, the director of business development for McCarthy, Burgess & Wolff, a debt collection firm.  In that interview, Joseph stated: “You can't ignore this.  It's a freight train.  I have no doubt they're going to eventually come after everything [with regard to consumer debt].” If his conclusions are true, the ARM industry might be in for a rude awakening when the dust settles and the new regulations are in place.