The U.S. watchdog for consumer finances unveiled on Thursday a major proposal to toughen regulation of the multibillion-dollar debt collection industry, with a focus on keeping agencies from pushing people to pay debts they do not owe, informing borrowers of their rights and cutting down on calls to debtors.
"Today we are considering proposals that would drastically overhaul the debt collection market," said Consumer Financial Protection Bureau Director Richard Cordray in a statement. "This is about bringing better accuracy and accountability to a market that desperately needs it."
The proposal covers third-party collectors and debt-buyers. First-party collectors and creditors will be addressed in a separate rulemaking, the CFPB said.
According to a summary, the proposal would make sure collectors "substantiate the debt before contacting consumers," by confirming their identities and the amount owed, as well as checking for any payments made after a default. Consumers frequently file complaints at the agency about receiving calls for debts that do not exist.
In an attempt to "limit excessive contact," the proposal would cap agencies' calls to debtors to six attempts each week. It would also create a 30-day waiting period after a person dies for contacting survivors.
Agencies would have to communicate specific information to consumers, such as when outstanding debt is too old for a lawsuit. They would also have to make it easier to both dispute or pay a debt through tear-off coupons on the bottoms of collection notices.
A federal law, the Fair Debt Collection Practices Act, already prohibits collectors from using abusive, unfair or deceptive practices to recoup money.
The industry has been awaiting the overhaul proposal since 2013 and CFPB had penalized a number of large debt collectors in recent years. The CFPB receives thousands of complaints each month about debt collection, more than any other area.
Roughly 13 percent of consumers have a debt currently in third-party collection, with an average amount of $1,300, data from the Federal Reserve Bank of New York shows.
In a survey released alongside its proposal, the CFPB found more than three-quarters of the country's 3,994 debt collection firms are small, with less than 100 employees. Larger firms pull in about two-thirds of the industry's $12.18 billion total revenue.
The agency also found credit card, student loan and automobile debts in collection typically have balances of $2,000 or more.
The proposal now goes to a panel of small business owners for review.